<PAGE> 1
As filed with the Securities and Exchange Commission on December 17, 1998
Registration No.___
U.S. Securities and Exchange Commission
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No. ___ / / Post-Effective Amendment No. ___
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
THE ONE GROUP (R)
Area Code and Telephone Number
(800) 480-4111
Address of Principal Executive Offices:
1111 Polaris Parkway
P.O. Box 710211
Columbus, Ohio 43271-0211
Name and Address of Agent for Service:
Mark S. Redman
3435 Stelzer Road
Columbus, OH 43219
With Copy to:
Alan G. Priest Michael V. Wible
Ropes & Gray Bank One Corporation
One Franklin Square 100 E. Broad Street, 5th Floor
Washington, DC 20005 Columbus, OH 43271-0158
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on January __, 1999
pursuant to Rule 488 under the Securities Act of 1933.
Title of Securities being registered: Units of Beneficial Interest No filing fee
is due because of reliance on Section 24(f).
<PAGE> 2
THE ONE GROUP (R)
FORM N-14
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
ITEM NO. HEADING
- -------- -------
<S> <C>
Part A
- ------
1. Beginning of Registration Statement
and Outside Front Cover Page.......................... Cover Page
2. Beginning and Outside
Back Cover Page....................................... Table of Contents
3. Fee Table, Synopsis Information
and Risk Factors...................................... Summary; Information Relating to the Proposed
Reorganization; Appendix II - Comparative Fee Tables;
Appendix III - Comparison of Investment Objectives and
Certain Significant Policies; Appendix IV - Shareholder
Transactions and Services
4. Information About the Transaction..................... Summary; Information Relating to the Proposed
Reorganization; Appendix III - Comparison of Investment
Objectives and Certain Significant Policies; Appendix IV -
Shareholder Transactions and Services
5. Information About the Registrant...................... Summary; Information Relating to the Proposed
Reorganization; Additional Information About The One
Group (R); Additional Information About Pegasus Funds;
Appendix III - Comparison of Investment Objectives and
Certain Significant Policies; Appendix IV - Shareholder
Transactions and Services
5A. Management's Discussion of
Fund Performance...................................... Appendix V - Management's Discussion of Fund Performance
- Existing One Group Funds
6. Information About the Company
Being Acquired........................................ Summary; Information Relating to the Proposed
Reorganization; Additional Information About The One
Group (R); Additional Information About Pegasus Funds;
Appendix III - Comparison of Investment Objectives and
Certain Significant Policies; Appendix IV - Shareholder
Transactions and Services
</TABLE>
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<TABLE>
<S> <C>
7. Voting Information.................................... Summary; Information Relating to Voting Matters
8. Interest of Certain Persons
and Experts........................................... Information Relating to Voting Additional Information
About The One Group (R); Additional Information
About Pegasus Funds
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters.................................... Inapplicable
Part B
- ------
10. Cover Page......................................... Statement of Additional Information Cover Page
11. Table of Contents................................... Table of Contents
12. Additional Information
About the Registrant................................ Statement of Additional Information of The One Group (R)
dated November 1, 1998*
13. Additional Information
About the Company Being
Acquired............................................ Statements of Additional Information of Pegasus Funds
dated April 30, 1998*
14. Financial Statements................................... Pro Forma Financial Statements
</TABLE>
Part C
- ------
Items 15-17. Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Registration Statement.
* Incorporated herein by reference thereto.
2
<PAGE> 4
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01581
January __, 1999
Dear Shareholder:
The Board of Trustees of the Pegasus Funds has called a Special Meeting
of Shareholders to be held at 10:00 a.m. (Eastern time) on March 17, 1999 at the
offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio (the
"Meeting"). At the Meeting, you will be asked:
(1) To consider a proposed reorganization of your Pegasus Fund
into a corresponding Fund of The One Group (R) ("One Group").
Enclosed you will find several documents furnished to you in connection
with the Special Meeting of Shareholders of the Pegasus Money Market, Treasury
Money Market, Municipal Money Market, Michigan Municipal Money Market, Cash
Management, Treasury Cash Management, Treasury Prime Cash Management, U.S.
Government Securities Cash Management, Municipal Cash Management, Managed Assets
Conservative, Managed Assets Balanced, Managed Assets Growth, Equity Income,
Growth, Mid-Cap Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and
Value, Equity Index, Market Expansion Index, International Equity, Intermediate
Bond, Bond, Short Bond, Multi Sector Bond, High Yield Bond, Municipal Bond,
Short Municipal Bond, Intermediate Municipal Bond and Michigan Municipal Bond
Funds (collectively, the "Pegasus Portfolios"). We hope this material will
receive your immediate attention and that, if you cannot attend the meeting in
person, you will vote your proxy promptly.
The Board of Trustees of Pegasus Funds recommends that shareholders of
each of the Pegasus Portfolios approve a proposed Agreement and Plan of
Reorganization (the "Reorganization Agreement"). The Reorganization Agreement
provides that each of the following Pegasus Portfolios will transfer all of its
assets and liabilities to the One Group investment portfolio (each, a "One Group
Fund") identified opposite its name:
<TABLE>
<CAPTION>
PEGASUS FUNDS ONE GROUP FUNDS
- ------------- ---------------
<S> <C>
Money Market Fund Prime Money Market Fund
Treasury Money Market Fund U.S. Treasury Securities Money Market Fund
Municipal Money Market Fund Municipal Money Market Fund
Michigan Municipal Money Market Fund Michigan Municipal Money Market Fund
Cash Management Fund Cash Management Money Market Fund
Treasury Cash Management Fund Treasury Cash Management Money Market Fund
Treasury Prime Cash Management Fund Treasury Prime Cash Management Money Market Fund
U.S. Government Securities Cash U.S. Government Securities Cash
Management Fund Management Money Market Fund
</TABLE>
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<TABLE>
<CAPTION>
PEGASUS FUND ONE GROUP FUNDS
- ------------ ---------------
<S> <C>
Municipal Cash Management Fund Municipal Cash Management Money Market Fund
Managed Assets Conservative Fund Investor Balanced Fund
Managed Assets Balanced Fund Investor Growth & Income Fund
Managed Assets Growth Fund Investor Growth Fund
Equity Income Fund Income Equity Fund
Growth Fund Large Company Growth Fund
Mid-Cap Opportunity Fund Diversified Mid Cap Fund
Small-Cap Opportunity Fund Small-Cap Value Fund
Intrinsic Value Fund Disciplined Value Fund
Growth and Value Fund Value Growth Fund
Equity Index Fund Equity Index Fund
Market Expansion Index Fund Market Expansion Index Fund
International Equity Fund Diversified International Fund
Intermediate Bond Fund Intermediate Bond Fund
Bond Fund Bond Fund
Short Bond Fund Limited Volatility Bond Fund
Multi Sector Bond Fund Income Bond Fund
High Yield Bond Fund High Yield Bond Fund
Municipal Bond Fund Tax-Free Bond Fund
Short Municipal Bond Fund Short-Term Municipal Bond Fund
Intermediate Municipal Bond Fund Intermediate Tax-Free Bond Fund
Michigan Municipal Bond Fund Michigan Municipal Bond Fund
</TABLE>
After the transfer, shares of the One Group Funds will be distributed
to the corresponding Pegasus Portfolios' shareholders and the Pegasus Funds will
be liquidated.
As a result of these transactions, shares of your Pegasus Portfolio
would, in effect, be exchanged at net asset value and on a tax-free basis for
shares of a corresponding One Group Fund. Class A, Class B and Institutional
Class shares ("Class I" shares) of the Pegasus Portfolios will be exchanged for
One Group Class A, Class B and Class I shares, respectively. Service Class
("Class S") shareholders of the Pegasus Cash Management, Treasury Cash
Management, Treasury Prime Cash Management, U.S. Government Securities Cash
Management and Municipal Cash Management Funds will receive Class A shares of
the One Group Cash Management Money Market, Treasury Cash Management Money
Market, Treasury Prime Cash Management Money Market, U.S. Government Securities
Cash Management Money Market and Municipal Cash Management Money Market Funds,
respectively.
In considering the proposed reorganization, you should note, among
other things, the following benefits:
1. The compatibility of the investment objectives and policies of
the One Group with those of the Pegasus Portfolios;
2. The performance of the One Group Funds as compared to that of
the Pegasus Portfolios;
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<PAGE> 6
3. The enhanced range of investment options which will be
available to investors in the One Group. Upon completion of
the Reorganization, the One Group will offer 48 different
funds;
4. The tax-free nature of the transaction; and
5. The investment leverage and market presence that the One Group
will achieve as a result of the Reorganization.
THE BOARD OF TRUSTEES BELIEVES THAT THE PROPOSED COMBINATION OF THE
PEGASUS PORTFOLIOS WITH THEIR CORRESPONDING ONE GROUP FUNDS IS IN THE BEST
INTERESTS OF THE PEGASUS PORTFOLIOS AND THEIR SHAREHOLDERS AND RECOMMEND THAT
YOU VOTE IN FAVOR OF SUCH PROPOSAL.
The Notice of Special Meeting of Shareholders, the accompanying
Combined Prospectus/Proxy Statement, Prospectuses for the currently operating
One Group Funds and the form of proxy are enclosed. Please read these materials
carefully. If you are unable to attend the meeting in person, we urge you to
sign, date, and return the proxy card so that your shares may be voted in
accordance with your instructions.
If you have any questions, you may call ______________ which has been
retained to assist in the solicitation of proxies at (800) ___-____. Thank you
for your cooperation.
Sincerely,
John P. Gould
Chairman of the Board of Trustees
3
<PAGE> 7
PEGASUS FUNDS
P.O. Box 5142
Westborough, Massachusetts 01581
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on March 17, 1999
To Pegasus Shareholders:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders
("Shareholders") of each investment portfolio (a "Pegasus Portfolio") of Pegasus
Funds ("Pegasus") will be held at the offices of BISYS Fund Services, 3435
Stelzer Road, Columbus, Ohio, on March 17, 1999 at 10:00 a.m. (Eastern time) for
the following purposes:
ITEM 1. With respect to each Pegasus Portfolio:
To consider and act upon a proposal to approve an Agreement
and Plan of Reorganization (the "Reorganization Agreement")
and the transactions contemplated thereby, including (a) the
transfer of all of the assets and liabilities of the Pegasus
Money Market, Treasury Money Market, Municipal Money Market,
Michigan Municipal Money Market, Cash Management, Treasury
Cash Management, Treasury Prime Cash Management, U.S.
Government Securities Cash Management, Municipal Cash
Management, Managed Assets Conservative, Managed Assets
Balanced, Managed Assets Growth, Equity Income, Growth,
Mid-Cap Opportunity, Small-Cap Opportunity, Intrinsic Value,
Growth and Value, Equity Index, Market Expansion Index,
International Equity, Intermediate Bond, Bond, Short Bond,
Multi Sector Bond, High Yield Bond, Municipal Bond, Short
Municipal Bond, Intermediate Municipal Bond, and Michigan
Municipal Bond Funds to corresponding investment portfolios
("One Group Funds") of The One Group (R) (the "One Group") in
exchange for Class A, Class B or Class I shares, as
applicable, of the One Group Funds; (b) the distribution of
such One Group Fund shares to the shareholders of the Pegasus
Portfolios according to their respective interests; and (c)
the termination of Pegasus under state law and the Investment
Company Act of 1940, as amended.
ITEM 2. With respect to each Pegasus Portfolio:
To transact such other business as may properly come before
the Special Meeting or any adjournment(s) thereof.
The proposed reorganization and related matters are described in the
attached Combined Prospectus/Proxy Statement. Appendix I to the Combined
Prospectus/Proxy Statement is a copy of the Reorganization Agreement.
Shareholders of record as of the close of business on December 18, 1998
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment(s) thereof.
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SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE EACH ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY
PEGASUS' BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE SPECIAL
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO PEGASUS A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED
PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
-----------------------------
W. Bruce McConnel, III
Secretary
January __, 1999
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<PAGE> 9
COMBINED PROSPECTUS/PROXY STATEMENT
DATED JANUARY __, 1999
THE ONE GROUP (R)
3435 Stelzer Road
Columbus, Ohio 43219
(800) 480-4111
TO ACQUIRE THE ASSETS OF THE:
PEGASUS FUNDS
P.O. Box 5142
Westborough, Massachusetts 01581
1-800-688-3350
(for calls concerning the proxy statement)
This Combined Prospectus/Proxy Statement is furnished in connection
with the solicitation of proxies by the Board of Trustees of Pegasus Funds
("Pegasus") in connection with a Special Meeting (the "Meeting") of Shareholders
("Shareholders") to be held on March 17, 1999 at 10:00 a.m. (Eastern time) at
the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio at which
Shareholders will be asked to consider and approve a proposed Agreement and Plan
of Reorganization dated ___________, 199_ (the "Reorganization Agreement"), by
and between Pegasus and The One Group (R) ("One Group") and the transactions
contemplated therein. A copy of the Reorganization Agreement is attached as
Appendix I.
Pegasus and One Group are each open-end, management investment
companies. First Chicago NBD Investment Management Company ("FCNIMCO") currently
provides investment advisory services to each of the investment portfolios of
Pegasus (the "Pegasus Portfolios"). Banc One Investment Advisors Corporation
("BOIA") presently provides investment advisory services to each of the
investment portfolios offered by One Group (the "One Group Funds"). Banc One
Corporation, the parent company of BOIA, recently completed a merger with First
Chicago NBD Corporation ("FCN"), the parent company of FCNIMCO. In the merger,
Banc One Corporation and FCN combined into a new corporation named "Bank One
Corporation" ("BOC") which has since taken steps to consolidate the mutual fund
investment advisory activities of its subsidiaries. As part of that
consolidation, FCNIMCO and BOIA recently recommended to the Boards of Trustees
of Pegasus and One Group the proposed reorganization of Pegasus and One Group
("Reorganization") described below.
In reviewing the proposed Reorganization, the Pegasus Board concluded
that participation in the proposed transaction is in the best interests of the
Pegasus Portfolios and their shareholders. The Board has further concluded that
the economic interests of the shareholders of the Pegasus Portfolios will not be
diluted as a result of the proposed transaction. In reaching this conclusion,
the Board considered, among other things:
1. The compatibility of the investment objectives and policies of the One
Group Funds with those of the Pegasus Portfolios;
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<PAGE> 10
2. The performance of the One Group Funds as compared to that of the
Pegasus Portfolios;
3. The enhanced range of investment options which will be available to
investors in the One Group. Upon completion of the Reorganization, the
One Group will offer 48 different funds;
4. The tax-free nature of the transaction; and
5. The investment leverage and market presence that the One Group will
achieve as a result of the Reorganization.
The Reorganization Agreement provides that each of the following
sixteen investment portfolios of Pegasus (collectively, the "Reorganizing
Pegasus Portfolios") will transfer all its assets and liabilities to the
currently operating One Group investment portfolio (collectively, the "Existing
One Group Funds") identified below opposite its name:
<TABLE>
<CAPTION>
REORGANIZING PEGASUS PORTFOLIOS EXISTING ONE GROUP FUNDS
- ------------------------------- ------------------------
<S> <C>
Pegasus Money Market Fund The One Group Prime Money Market Fund
Pegasus Treasury Money Market Fund The One Group U.S. Treasury Securities Money Market Fund
Pegasus Municipal Money Market Fund The One Group Municipal Money Market Fund
Pegasus Managed Assets Conservative Fund The One Group Investor Balanced Fund
Pegasus Managed Assets Balanced Fund The One Group Investor Growth & Income Fund
Pegasus Managed Assets Growth Fund The One Group Investor Growth Fund
Pegasus Equity Income Fund The One Group Income Equity Fund
(to be renamed Equity Income Fund upon Reorganization)
Pegasus Growth Fund The One Group Large Company Growth Fund
(to be renamed Large Cap Growth Fund upon Reorganization)
Pegasus Intrinsic Value Fund The One Group Disciplined Value Fund
(to be renamed Mid Cap Value Fund upon Reorganization)
Pegasus Growth and Value Fund The One Group Value Growth Fund
(to be renamed Diversified Equity Fund upon Reorganization)
Pegasus Equity Index Fund The One Group Equity Index Fund
Pegasus Intermediate Bond Fund The One Group Intermediate Bond Fund
Pegasus Short Bond Fund The One Group Limited Volatility Bond Fund
(to be renamed Short-Term Bond Fund upon Reorganization)
Pegasus Multi Sector Bond Fund The One Group Income Bond Fund
Pegasus High Yield Bond Fund The One Group High Yield Bond Fund
Pegasus Intermediate Municipal Bond Fund The One Group Intermediate Tax-Free Bond Fund
</TABLE>
The Reorganization Agreement also provides that each of the following
fourteen investment portfolios of Pegasus (collectively, the "Continuing Pegasus
Portfolios") will transfer all its assets and liabilities to the newly organized
One Group investment portfolio (collectively, the "New One Group Funds")
identified below opposite its name:
<TABLE>
<CAPTION>
CONTINUING PEGASUS PORTFOLIOS NEW ONE GROUP FUNDS
- ----------------------------- -------------------
<S> <C>
Pegasus Michigan Municipal Money Market The One Group Michigan Municipal Money Market Fund
Fund
Pegasus Cash Management Fund The One Group Cash Management Money Market Fund
Pegasus Treasury Cash Management Fund The One Group Treasury Cash Management Money Market Fund
</TABLE>
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<TABLE>
<CAPTION>
CONTINUING PEGASUS PORTFOLIOS NEW ONE GROUP FUNDS
- ----------------------------- -------------------
<S> <C>
Pegasus Treasury Prime Cash The One Group Treasury Prime Cash Management
Management Fund Money Market Fund
Pegasus U.S. Government Securities Cash The One Group U.S. Government Securities Cash
Management Fund Management Money Market Fund
Pegasus Municipal Cash Management Fund The One Group Municipal Cash Management Money Market Fund
Pegasus Mid-Cap Opportunity Fund The One Group Diversified Mid Cap Fund
Pegasus Small-Cap Opportunity Fund The One Group Small Cap Value Fund
Pegasus Market Expansion Index Fund The One Group Market Expansion Index Fund
Pegasus International Equity Fund The One Group Diversified International Fund
Pegasus Bond Fund The One Group Bond Fund
Pegasus Municipal Bond Fund The One Group Tax-Free Bond Fund
Pegasus Short Municipal Bond Fund The One Group Short-Term Municipal Bond Fund
Pegasus Michigan Municipal Bond Fund The One Group Michigan Municipal Bond Fund
</TABLE>
In exchange for the transfers of these assets and liabilities, One
Group will issue shares in the thirty One Group investment portfolios listed
above (collectively, the "One Group Funds") to the corresponding Pegasus
investment portfolios listed above (collectively, the "Pegasus Portfolios"). The
transaction between the Reorganizing Pegasus Portfolios and the Existing One
Group Funds and between the Pegasus Michigan Municipal Money Market, Mid-Cap
Opportunity, Small-Cap Opportunity, Market Expansion Index, International
Equity, Bond, Municipal Bond, Short Municipal Bond and Michigan Municipal Bond
Funds and their corresponding New One Group Funds is referred to herein as the
"Reorganizing Portfolios Transaction" and the transaction between the remaining
Continuing Pegasus Portfolios and their corresponding New One Group Funds is
referred to herein as the "Continuing Portfolios Transaction." The transactions
are expected to occur on or about March 22, 1999 and March 29, 1999,
respectively.
The Pegasus Portfolios have two or three classes of shares outstanding.
The One Group Funds offer comparable classes of shares. Holders of each share
class of a Pegasus Portfolio will receive shares of the corresponding One Group
Fund share class. Class A shares, Class B shares and Institutional Class shares
("Class I" shares) of the Pegasus Portfolios will be exchanged for One Group
Class A, Class B and Class I shares, respectively. Class S shareholders of the
Pegasus Cash Management, Treasury Cash Management, Treasury Prime Cash
Management, U.S. Government Securities Cash Management and Municipal Cash
Management Funds will receive Class A shares of the One Group Cash Management
Money Market, Treasury Cash Management Money Market, Treasury Prime Cash
Management Money Market, U.S. Government Securities Cash Management Money Market
and Municipal Cash Management Money Market Funds, respectively.
The Pegasus Portfolios will make liquidating distributions of the One
Group Funds' shares to the Shareholders of the Pegasus Portfolios, so that a
holder of a share class in a Pegasus Portfolio will receive shares of a share
class (as described herein) of the corresponding One Group Fund with the same
aggregate net asset value as the Shareholder had in the Pegasus Portfolio
immediately before the transaction. Following the Reorganization, Shareholders
of the Pegasus Portfolios will be Shareholders of their corresponding One Group
Funds, and Pegasus will be terminated under state law and the Investment Company
Act of 1940, as amended (the "1940 Act").
The Existing One Group Funds currently are conducting investment
operations as described in this Combined Prospectus/Proxy Statement. The New One
Group Funds have recently been organized for the
3
<PAGE> 12
purpose of continuing the investment operations of the Continuing Pegasus
Portfolios, and have no substantial assets or prior history of investment
operations.
This Combined Prospectus/Proxy Statement sets forth the information
that a Shareholder of Pegasus should know before voting on the Reorganization
Agreement (and related transactions), and should be retained for future
reference. The Prospectuses relating to the shares of the Existing One Group
Funds, which describe those Funds' operations, accompany this Combined
Prospectus/Proxy Statement and the information contained therein is incorporated
by reference into this Combined Prospectus/Proxy Statement. Additional
information is set forth in the Statements of Additional Information relating to
the Existing One Group Funds and this Combined Prospectus/Proxy Statement, which
are dated November 1, 1998 and December __, 1998, respectively, and in the
Prospectuses and Statements of Additional Information, each dated April 30,
1998, relating to Pegasus. Each of these documents is on file with the
Securities and Exchange Commission (the "SEC"), is available without charge upon
written or oral request by writing or calling either Pegasus or One Group at
their respective addresses or telephone numbers indicated above, and is
incorporated herein by reference.
This Combined Prospectus/Proxy Statement constitutes the Proxy
Statement of Pegasus for the Meeting of its Shareholders, and One Group's
Prospectus for the shares of its Existing and New One Group Funds that have been
registered with the SEC and are to be issued in connection with the
Reorganization.
The following summarizes the proposals to be voted on by Pegasus
Shareholders at the meeting:
<TABLE>
<CAPTION>
PROPOSAL SHAREHOLDERS SOLICITED
- -------- ----------------------
<S> <C>
1. To approve a Reorganization Shareholders of each Pegasus Portfolio
Agreement, which provides for voting separately on a class-by-class
(a) the transfer of all of the assets basis on the Reorganization Agreement.
and liabilities of the Pegasus
Portfolios to corresponding One
Group Funds in exchange for
Class A, Class B or Class I
shares, as applicable, of the
One Group Funds, (b) the distribution
of such One Group Fund shares to the
Shareholders of the Pegasus
Portfolios according to their
respective interests, and (c) the
termination of Pegasus under state
law and the 1940 Act.
</TABLE>
This Combined Prospectus/Proxy Statement is expected to first be sent
to Shareholders on or about January 19, 1999.
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<PAGE> 13
THE SECURITIES OF THE ONE GROUP FUNDS OFFERED HEREBY 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 COMBINED
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS/PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY PEGASUS, ONE GROUP OR THEIR RESPECTIVE
DISTRIBUTORS.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF PEGASUS AND ONE GROUP ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED, ENDORSED OR OTHERWISE SUPPORTED BY BANK ONE CORPORATION, ANY OF ITS
AFFILIATES, OR ANY BANK. SHARES OF PEGASUS AND ONE GROUP ARE NOT FEDERALLY
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER GOVERNMENTAL AGENCY. MUTUAL FUND SHARES INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE DISTRIBUTOR OF
PEGASUS IS BISYS FUND SERVICES LIMITED PARTNERSHIP. THE DISTRIBUTOR OF ONE GROUP
IS THE ONE GROUP SERVICES COMPANY.
5
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEE TABLES.........................................................................................................
SUMMARY............................................................................................................
Proposed Reorganization...................................................................................
Overview of Pegasus and One Group.........................................................................
Purchase/Redemption Procedures............................................................................
Federal Income Tax Consequences...........................................................................
Principal Risk Factors....................................................................................
Voting Information........................................................................................
Management Discussion.....................................................................................
INFORMATION RELATING TO THE PROPOSED REORGANIZATION................................................................
Description of the Reorganization Agreement...............................................................
Pegasus Board Consideration...............................................................................
Capitalization............................................................................................
Federal Income Tax Consequences...........................................................................
One Group Board Composition...............................................................................
COMPARISON OF PEGASUS AND ONE GROUP................................................................................
Investment Objectives and Policies .......................................................................
Expense Ratios............................................................................................
Investment Adviser - Pegasus Portfolios...................................................................
Investment Adviser - One Group Funds......................................................................
Certain Other Service Providers...........................................................................
Distribution Plan and Shareholder Servicing Arrangements - Pegasus Portfolios.............................
Distribution Plan and Shareholder Servicing Arrangements - One Group......................................
Shareholder Transactions and Services.....................................................................
INFORMATION RELATING TO VOTING MATTERS.............................................................................
General Information.......................................................................................
Shareholder and Board Approvals...........................................................................
Appraisal Rights..........................................................................................
Quorum....................................................................................................
Annual Meetings...........................................................................................
ADDITIONAL INFORMATION ABOUT THE ONE GROUP.........................................................................
ADDITIONAL INFORMATION ABOUT PEGASUS...............................................................................
LITIGATION.........................................................................................................
FINANCIAL STATEMENTS...............................................................................................
OTHER BUSINESS.....................................................................................................
SHAREHOLDER INQUIRIES..............................................................................................
Appendix I - Agreement and Plan of Reorganization................................................................ I-1
Appendix II - Comparative Fee Tables.............................................................................. II-1
Appendix III - Comparison of Investment Objectives and Certain Significant Policies................................ III-1
Appendix IV - Shareholder Transactions and Services............................................................... IV-1
Appendix V - Management's Discussion of Fund Performance -
Existing One Group Funds.................................................................................. V-1
</TABLE>
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<PAGE> 15
FEE TABLES
All shareholders of the Pegasus Municipal Money Market, Michigan
Municipal Money Market, Cash Management, Treasury Cash Management, Treasury
Prime Cash Management, Municipal Cash Management, Managed Assets Conservative,
Mid-Cap Opportunity, Small-Cap Opportunity, Equity Index, International Equity,
Intermediate Bond, Bond, Short Bond, Multi-Sector Bond, High Yield Bond,
Municipal Bond, Intermediate Municipal Bond and the Pegasus Michigan Municipal
Bond Funds, are projected to experience lower annualized per share total
operating expense ratios upon consummation of the Reorganization. All
shareholders of the Pegasus Money Market, Treasury Money Market, Managed Assets
Balanced, Managed Assets Growth, Equity Income, Growth, Intrinsic Value, and
Growth and Value Funds, are projected to experience higher annualized per share
total expense ratios upon consummation of the Reorganization. The Pegasus U.S.
Government Securities Cash Management, Pegasus Market Expansion Index and
Pegasus Short Municipal Bond Funds are projected to experience no increase in
annualized per share total expense ratios upon consummation of the
Reorganization. Such projections take into account potential savings in fixed
and variable expenses resulting from synergies and renegotiated contract terms
with vendors, as well as voluntary fee waivers and/or expense reimbursements.
The voluntary fee waivers and/or expense reimbursements may be terminated at any
time except as noted below. For detailed information regarding pro forma and
other expense information, see the Tables under "Expense Ratios," "Investment
Adviser - Pegasus Portfolios," "Investment Adviser - One Group Funds" under the
heading "Comparison of Pegasus and One Group" and Appendix II - Comparative Fee
Tables. BOIA as investment adviser to the Existing One Group Funds has agreed to
limit the total operating expense ratios of the Existing One Group Funds
following the Reorganization as set forth in the Table under "Comparison of
Pegasus and One Group - Expense Ratios" and Appendix II until August 1999. With
respect to the New One Group Funds, BOIA has agreed to waive a portion of its
investment advisory fee until at least March 2000 so that the rate of total
operating expenses actually paid will not exceed the rate currently paid for
total operating expenses by the corresponding Continuing Pegasus Portfolios.
SUMMARY
The following is a summary of certain information relating to the
Reorganization and is qualified by reference to the more complete information
contained elsewhere in this Combined Prospectus/Proxy Statement, the
Prospectuses and Statements of Additional Information of Pegasus and One Group,
and the Appendices attached hereto. Pegasus' Annual Reports and Semi-Annual
Reports to Shareholders may be obtained free of charge by calling 1-800-688-3350
or writing Pegasus Funds, P.O. Box 5142, Westborough, Massachusetts 01581. One
Group's Annual Reports to Shareholders may be obtained free of charge by calling
1-800-480-4111 or writing to The One Group (R), 3435 Stelzer Road, Columbus,
Ohio 43219.
PROPOSED REORGANIZATION. The Reorganization Agreement provides for: (1) the
transfer of all of the Fund Assets and Liabilities of each of the Reorganizing
Pegasus Portfolios and Continuing Pegasus Portfolios (each a "Pegasus
Portfolio," together the "Pegasus Portfolios") to a corresponding Existing One
Group Fund or a New One Group Fund (each a "One Group Fund," together the "One
Group Funds") in exchange for Shares of designated classes of the corresponding
One Group Fund; and (2) the distribution of One Group Fund Shares to the
shareholders of the Pegasus Portfolios in liquidation of the Pegasus Portfolios.
The Reorganization is subject to a number of conditions with respect to each
Pegasus Portfolio, including shareholder approval. Shareholders of each Pegasus
Portfolio will vote separately on
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<PAGE> 16
the Reorganization on a class-by-class basis. Following the Reorganization,
Pegasus will wind up its affairs and deregister as an investment company under
the 1940 Act. If a majority of the shares of one or more classes of a Pegasus
Portfolio fails to approve the Reorganization, that Pegasus Portfolio will not
participate in the Reorganization and Pegasus will not be terminated under state
law. In such a case, the Pegasus Board of Trustees will contemplate what further
action is appropriate.
As a result of the proposed Reorganization, a Pegasus Portfolio
shareholder will become a shareholder of the corresponding One Group Fund and
will hold, immediately after the Exchange Date (as defined in the Reorganization
Agreement), shares of the designated classes of the corresponding One Group Fund
having a total dollar value equal to the total dollar value of the shares of the
Pegasus Portfolio that the shareholder held immediately before the Exchange
Date. The exchange of the Fund Assets and Liabilities of each Pegasus Portfolio,
other than the Pegasus Cash Management, Treasury Cash Management, Treasury Prime
Cash Management, U.S. Government Securities Cash Management and Municipal Cash
Management Funds, is expected to occur on or about March 22, 1999 or such later
date as may be determined pursuant to the Reorganization Agreement. The exchange
of the Fund Assets and Liabilities of the remaining Pegasus Portfolios is
expected to occur on or after March 29, 1999 or such later date as may be
determined pursuant to the Reorganization Agreement.
OVERVIEW OF PEGASUS AND ONE GROUP. The investment objectives and policies of the
Pegasus Portfolios are similar to those of their corresponding One Group Funds.
There are, however, certain significant differences. For example, the Pegasus
Small-Cap Opportunity Fund primarily invests in companies with a market
capitalization of $100 million to $1 billion while The One Group Small Cap Value
Fund invests in companies with a market capitalization of $100 million to $2
billion. Likewise, the Pegasus Mid-Cap Opportunity Fund invests primarily in
companies with a market capitalization of $500 million to $3 billion while The
One Group Diversified Mid-Cap Fund invests in companies with a market
capitalization of $500 million to $5 billion. Investments in companies with
smaller market capitalizations may be riskier than investments in companies with
larger market capitalizations.
The Intermediate Municipal Bond Fund and the International Equity Fund
of Pegasus are "non-diversified" funds, but the corresponding One Group Funds
are diversified. Non-diversified funds may invest a more significant portion of
their assets in the securities of a single issuer which increases the risk of
loss if an issuer fails to make interest or principal payments or if the market
value of a security declines. The Pegasus High Yield Bond Fund has no stated
policy on weighted average maturity, but as of September 30, 1998, the Fund's
average weighted maturity was 6.2 years. The weighted average maturity of the
investments of The One Group High Yield Bond Fund must range between five and
ten years. This is significant because the longer the maturity of an investment,
the greater its volatility. The Pegasus Multi Sector Bond Fund may invest in
investment grade debt securities only, but the corresponding One Group Income
Bond Fund may invest up to 30% of its total assets in securities rated below
investment grade (sometimes known as "junk bonds"). As of December 1, 1998, The
One Group Income Bond Fund had invested less than 10% of its total assets in
below investment grade securities. Investments in securities rated below
investment grade are high risk investments subject to greater risk of loss,
valuation difficulties, interest rate sensitivity, low liquidity and changes in
credit quality. The percentage of assets allocated to the various underlying
mutual funds varies for the Pegasus Managed Assets Funds and The One Group
Investor Funds. For additional investment related information, see "Comparison
of Pegasus and One Group - Investment Objectives and Policies," Appendix III -
Comparison of Investment Objectives and Certain Significant Policies attached to
this Combined
8
<PAGE> 17
Prospectus/Proxy Statement, and Pegasus' and Existing One Group Funds'
Prospectuses and Statements of Additional Information, which are incorporated by
reference herein.
FCNIMCO presently serves as the investment adviser to each Pegasus
Portfolio. Federated Investment Counseling ("Federated") currently serves as
sub-adviser to the Pegasus High Yield Bond Fund. BOIA currently serves as
investment adviser to The One Group Funds. FCNIMCO and BOIA are affiliates of
BOC. Banc One High Yield Partners, LLC, an affiliate of BOIA, serves as
sub-adviser to The One Group High Yield Bond Fund and Independence International
Associates, Inc. serves as sub-adviser to The One Group International Equity
Index Fund. The Pegasus Portfolios and One Group Funds have different trustees
and service providers, but similar custodial, administrative and distribution
arrangements. State Street Bank and Trust Company ("State Street") serves as
Custodian to The One Group and sub-custodian to Pegasus. BISYS Fund Services
serves as co-administrator and distributor for Pegasus and an affiliate, The One
Group Services Company ("OGSC"), serves as administrator and distributor for The
One Group. BOIA serves as sub-administrator of The One Group. See "Investment
Advisers," "Certain Other Service Providers" and "Distribution Plan and
Shareholder Servicing Arrangements" under "Comparison of Pegasus and One Group."
The Table under "Comparison of Pegasus and One Group - Expense Ratios,"
shows the current annualized per share total operating expense ratio for each
share class of each Pegasus Portfolio along with the pro forma total operating
expense ratio that could be expected for each designated class of shares of the
corresponding One Group Fund after the Reorganization. The section entitled "Fee
Tables" above and Appendix II - Comparative Fee Tables to this Combined
Prospectus/Proxy Statement provide additional information about the fees and
expenses for each of the Pegasus Portfolios and corresponding One Group Funds.
PURCHASE/REDEMPTION PROCEDURES. The purchase, redemption, dividend and other
policies and procedures of the Pegasus Portfolios and the One Group Funds are
generally similar. See "Comparison of Pegasus and One Group - Shareholder
Transactions and Services" and Appendix IV - Shareholder Transactions and
Services to this Combined Prospectus/Proxy Statement. NO SALES CHARGE OR
CONTINGENT DEFERRED SALES CHARGE ("CDSC") WILL BE IMPOSED ON ANY OF THE
SHAREHOLDERS OF PEGASUS PORTFOLIOS IN CONNECTION WITH THE REORGANIZATION.
FEDERAL INCOME TAX CONSEQUENCES. Ropes & Gray, independent outside counsel to
One Group and to its Board of Trustees, is expected to issue an opinion (based
on certain assumptions) as of the effective time of each of the Reorganizing
Pegasus Portfolios Transaction and the Continuing Pegasus Portfolios Transaction
that each transaction, will not give rise to the recognition of income, gain or
loss for federal income tax purposes to the Pegasus Portfolios or the One Group
Funds or their respective shareholders. Such an opinion is required by the
Reorganization Agreement with respect to each Pegasus Portfolio that is not a
money market fund, but is not required with respect to a Pegasus Portfolio that
is a money market fund.
Shareholders should note that each One Group Fund may, to the extent
permitted by law and consistent with the opinion to be issued by Ropes & Gray
discussed above, dispose of some of the securities acquired by it in connection
with the transaction. Disposition of securities may have tax consequences to
shareholders. In addition, immediately prior to the transaction, each Pegasus
Portfolio
9
<PAGE> 18
will declare and distribute a dividend which will have the effect of
distributing to shareholders all of the Pegasus Portfolio's investment company
taxable income and net realized capital gains. To the extent that a Pegasus
Portfolio's investments, consistent applicable law and with the opinion to be
issued by Ropes & Gray, are restructured prior to the Reorganization, the
Pegasus Portfolio may realize a greater amount of net capital gains which would
then need to be distributed to Pegasus shareholders. These distributions may
have tax consequences to Pegasus shareholders. For additional information, see
the sections below entitled "Federal Income Tax Consequences" and "Pegasus Board
Consideration" under "Information Relating to the Proposed Reorganization."
BOARD CONSIDERATION. Based upon their evaluation of the relevant information
presented to them, and in light of their fiduciary duties under federal and
state law, Pegasus' and One Group's Boards, including their members who are not
"interested persons" within the meaning of the 1940 Act, have unanimously
determined that the proposed Reorganization is in the best interests of their
Funds' respective shareholders and that the interests of such shareholders will
not be diluted as a result of the Reorganization. In making this determination,
the Pegasus Board considered the potential overall effect of the Reorganization
on shareholders of the Pegasus Portfolios including the following factors in
particular: (1) the relative performance of the Pegasus Portfolios and One Group
Funds; (2) comparative management fees and expense ratios; (3) tax-free nature
of the transaction; (4) compatibility of fund investment objectives, policies
and limitations; (5) terms and conditions of the Reorganization Agreement; (6)
capabilities, practices, and resources of BOIA and the other service providers;
(7) investment leverage and market presence; (8) enhanced shareholder services;
(9) products offered; (10) back office support; (11) availability of Class C
shares; and (12) benefits to other persons, especially BOIA and its affiliates.
For a more complete discussion of the factors affecting the Board's
decision, see "Information Relating to the Proposed Reorganization - Pegasus
Board Consideration."
PEGASUS' BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE REORGANIZATION AGREEMENT.
PRINCIPAL RISK FACTORS. Because of the similarities in investment objectives and
policies, the Pegasus Portfolios and The One Group Funds (for purposes of this
discussion only, collectively, the "Funds") are subject to similar investment
risks. The following discussion identifies certain broad risks inherent in
investing in the Funds. The One Group Investor Funds and the Pegasus Managed
Assets Funds invest primarily in the securities of other One Group Funds and
Pegasus Portfolios ("Underlying Funds"), respectively. These Funds do not invest
in individual securities (other than certain short-term instruments). However,
to the extent the Underlying Funds invest in various securities the following
risks apply. For more specific risks relating to specific securities purchased
by a particular Fund described below, see the sections entitled "Investment
Practices" and "Investment Risks" in The One Group Prospectuses, and "Risk
Factors" and "Supplemental Information" in the Pegasus Prospectuses.
Volatility. The One Group Income Equity, Disciplined Value, Value
Growth, Equity Index, Intermediate Bond, Limited Volatility Bond and
Intermediate Tax-Free Bond Funds have a "beta" statistic higher than that of
their corresponding Pegasus Portfolios. The "beta" statistic measures the
relative volatility (that is, the variability in returns) to a common market
index. Specifically, "beta" equals the expected change in fund return per 1%
change in the index return.
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<PAGE> 19
The chart below illustrates "beta" statistic differentials for One
Group Funds with betas higher than their corresponding Pegasus Portfolios during
the three-year period ended June 30, 1998:
<TABLE>
<CAPTION>
FUND NAME INDEX 3 YR BETA VS INDEX
- --------- ----- ------------------
<S> <C> <C>
One Group Income Equity S&P 5001 0.87
Pegasus Equity Income 0.62
One Group Disciplined Value S&P 500 0.76
Pegasus Intrinsic Value 0.70
One Group Value Growth S&P 500 1.04
Pegasus Growth and Value 0.79
One Group Equity Index S&P 500 1.00
Pegasus Equity Index 0.98
One Group Intermediate Bond Lehman Aggregate(2) 0.77
Pegasus Intermediate Bond 0.74
One Group Limited Volatility Bond Lehman Aggregate 0.42
Pegasus Short Bond 0.30
One Group Intermediate Tax-Free Bond Lehman Aggregate 0.68
Pegasus Intermediate Municipal Bond 0.58
</TABLE>
None of these funds has a "beta" statistic indicative of a high risk posture
relative to its index. As a general policy, BOIA attempts to limit the
volatility of all One Group Funds by managing them within a band around a market
index. BOIA attempts to use stock selection to outperform the index without
assuming significant risk. As a result, the One Group Funds generally seek to
achieve higher returns while maintaining volatility consistent with the chosen
index. BOIA believes that this strategy achieves an acceptable risk/return
tradeoff.
Equity Securities. The Pegasus Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Equity Income, Growth, Mid-Cap
Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and Value, Equity
Index, Market Expansion Index, International Equity Funds and The One Group
Investor Balanced, Investor Growth & Income, Investor Growth, Income Equity,
Large Company Growth, Diversified Mid Cap, Small Cap Value, Disciplined Value,
Value Growth,
- -------------------
(1) The S&P 500 Index is comprised of 500 widely held common stocks. It
consists of 400 industrial, 40 utility, 20 transportation and 40
financial companies listed on U.S. market exchanges. It is a
capitalization-based index, calculated on a total return basis with
dividends reinvested.
(2) The Lehman Brothers Aggregate Bond Index is comprised of
publicly-issued fixed-rate non-convertible domestic bond issues rated
investment grade or higher, with at least one year to maturity and
having an outstanding par value of at least $100 million. It is a
capitalization-based index, calculated on a total return basis
inclusive of accrued income.
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<PAGE> 20
Equity Index, Market Expansion Index, and Diversified International Funds invest
in equity securities, which may increase or decrease in value. As a result, the
value of your investment in a Fund may increase or decrease in value. The
Pegasus High Yield Bond Fund and The One Group Intermediate Bond, Income Bond,
Limited Volatility Bond, High Yield Bond and Bond Funds also invest to a limited
extent in preferred stocks.
Small Capitalization Companies. The Pegasus Small-Cap Opportunity and
The One Group Small Cap Value Funds invest in small capitalization companies.
Investments in smaller, younger companies may be riskier than investments in
larger, more established companies. These companies may be more vulnerable to
changes in economic conditions, specific industry conditions, market
fluctuations, and other factors affecting the profitability of other companies.
Because economic events may have a greater impact on smaller companies, there
may be a greater and more frequent fluctuation in their stock price. This may
cause frequent and unexpected increases or decreases in the value of your
investment.
Fixed Income Securities. Each Fund may invest in fixed income
securities. Investments in fixed income securities (for example, bonds) will
increase or decrease in value based on changes in interest rates. If rates
increase, the value of a Fund's investments generally declines. 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 also are 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.
Non-Diversified Funds. The Pegasus Michigan Municipal Money Market,
International Equity, Municipal Bond, Short Municipal Bond, Intermediate
Municipal Bond and Michigan Municipal Bond Funds and The One Group Michigan
Municipal Money Market and Michigan Municipal Bond Funds are "non-diversified"
funds. This means that the Funds may invest a more significant portion of their
assets in the securities of a single issuer than can a "diversified" fund. In
addition, these Funds' investments may be concentrated geographically. These
concentrations increase the risk of loss to the Funds if an issuer fails to make
interest or principal payments or if the market value of a security declines. A
diversified Fund invests in a larger number of issuers, with a smaller
percentage in each issuer. Although diversification reduces the risk that a
fund's investments will be affected by a single issuer, other factors, such as
risks inherent in the underlying securities, are also relevant.
State Specific Municipal Securities. Because the Pegasus Michigan
Municipal Money Market and Michigan Municipal Bond Funds and The One Group
Michigan Municipal Money Market and Michigan Municipal Bond Funds concentrate
their investments in Michigan, the following factors may have a
disproportionately negative effect on the Funds' investments. First, the economy
of Michigan is dependent on the automobile manufacturing industry which is
highly cyclical. This cyclical economy affects the revenue streams of the state
and its political subdivisions because it impacts their tax sources. Second,
state based sources, including increased sales tax, are being used to pay a
larger portion of the cost of public education than in the past. These recent
changes in the payment of education costs will affect state and local revenue of
Michigan governmental units in future years in varying ways.
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<PAGE> 21
Index Funds. The Pegasus Market Expansion Index and Equity Index Funds
and The One Group Market Expansion Index and Equity Index Funds are index funds.
An index fund's investment objective is to track the performance of a specified
index. Therefore, securities may be purchased, retained and sold by an index
fund at times when an actively managed fund would not do so. As a result, you
can expect greater risk of loss (and a correspondingly greater prospect of gain)
from changes in the value of securities that are heavily weighted in the index
than would be the case if the Funds were not fully invested in such securities.
Because of this, an index fund's share price can be volatile and you should be
prepared to handle sudden, and sometimes substantial, fluctuations in the value
of your investment.
International Funds. Investments in foreign securities involve risks
different from investments in U.S. securities. These include the risk of losses
attributable to unfavorable governmental or political actions, seizure of
foreign assets, changes in tax or trade statutes, and governmental collapse and
war. Investments in foreign securities also involve the risk associated with
higher transaction costs, delayed settlements, currency controls and adverse
economic developments. This also 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. Because of
these risk factors, the share price of both the Pegasus International Equity
Fund and The One Group Diversified International Fund can be volatile, and you
should be prepared to sustain sudden, and sometimes, substantial, fluctuations
in the value of your investment.
Lower Rated Investment Grade Securities. All Pegasus Portfolios, other
than the money market funds, and The One Group Income Bond, Limited Volatility
Bond, Bond, Investor Balanced, Investor Growth & Income, Investor Growth, and
Intermediate Bond Funds may invest in debt securities rated in the lowest
investment grade category. Securities in this rating category are considered to
have speculative characteristics. Changes in economic conditions or other
circumstances may have a greater effect on the ability of issuers of these
securities to make principal and interest payments than they do on issuers of
higher grade securities.
High Yield/Junk Bonds. The Pegasus Managed Assets Growth, Managed
Assets Balanced, Managed Assets Conservative, Equity Income, Equity Index,
Growth and Value, Intrinsic Value, Growth, Mid-Cap Opportunity, Small-Cap
Opportunity, International Equity, Market Expansion Index and High Yield Bond
Funds and The One Group Investor Growth, Investor Growth & Income, Investor
Balanced, Income Bond and High Yield Bond Funds may invest in debt securities
rated below investment grade. These securities are regarded as predominantly
speculative. Securities rated below investment grade generally provide a higher
yield than higher rated securities of similar maturity, but are subject to a
greater degree of risk that the issuer may not be able to make principal and
interest payments. Issuers of these securities may not be as strong financially
as those issuing higher rated securities. Such high yield issuers may include
smaller, less creditworthy companies or highly indebted firms.
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. Thus, periods of economic uncertainty and change can
result in
13
<PAGE> 22
the increased volatility of market prices of high yield bonds and of the fund's
net asset value. 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. Issuers of high yield securities also are more vulnerable to
real or perceived economic changes, political changes or adverse developments
specific to the issuer. A projection of an economic downturn, for example, could
cause the price of these securities to decline because a recession could lessen
the ability of a highly leveraged company to make principal and interest
payments on its debt securities. In the event of a default, these Funds would
experience a decline in the market value of their investments. In addition, a
long-term track record on bond default rates, such as that for investment grade
corporate bonds, does not exist for the high yield market. It may be that future
default rates on high-yield bonds will be more widespread and higher than in the
past, especially during periods of deteriorating economic conditions.
The market prices of debt securities generally fluctuate with changes
in interest rates so that these Funds' net asset values can be expected to
decrease as long-term interest rates rise and to increase as long-term rates
fall. The market prices of high yield securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically.
Credit quality in the high yield market 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.
Because investments in high yield securities involve greater investment
risk, achievement of a fund's investment objective may be more dependent on its
adviser's credit analysis than would be the case if the fund were investing in
higher rated securities. The One Group Funds may seek to hedge investments
through transactions in options, futures contracts and related options. The One
Group Funds also may use swap agreements to further manage exposure to high
yield securities.
Derivatives. Some of the Funds invest in securities that are considered
to be derivatives. These securities may be more volatile and may be riskier than
other investments. These include:
o Each Pegasus Portfolio, other than the money market funds, and each
One Group Fund, other than the money market funds and the Limited Volatility
Bond Fund, may purchase options, futures contracts or options on futures
contracts.
o The Pegasus Managed Assets Growth, Managed Assets Balanced, Managed
Assets Conservative, Equity Income, Equity Index, Growth and Value, Intrinsic
Value, Growth, Mid-Cap Opportunity, Small-Cap Opportunity, International Equity,
Market Expansion Index, Multi Sector Bond and High Yield Bond Funds and The One
Group Investor Balanced, Investor Growth & Income, Investor Growth, Large
Company Growth, Diversified Mid Cap, Small Cap Value, Value Growth, Market
Expansion Index, Equity Index, Diversified International, Income Bond and High
Yield Bond Funds may hold warrants.
14
<PAGE> 23
o The Pegasus Managed Assets Growth, Managed Assets Balanced, Managed
Assets Conservative, Equity Income, Equity Index, Growth and Value, Intrinsic
Value, Growth, Mid-Cap Opportunity, Small-Cap Opportunity, International Equity,
Market Expansion Index, Short Bond, Intermediate Bond, Multi Sector Bond, Bond,
High Yield Bond, Intermediate Municipal Bond, Municipal Bond, Michigan Municipal
Bond and Short Municipal Bond Funds, and The One Group Prime Money Market,
Municipal Money Market, Michigan Municipal Money Market, Municipal Cash
Management Money Market, Investor Growth, Investor Growth & Income, Investor
Balanced, Diversified Mid Cap, Small Cap Value, Market Expansion Index,
Diversified International, Intermediate Bond, Bond, Limited Volatility, Income
Bond, High Yield Bond, Intermediate Tax-Free Bond, Tax-Free Bond, Michigan
Municipal Bond and Short-Term Municipal Bond Funds may invest in mortgage-backed
securities, which may include collateralized mortgage obligations and Real
Estate Mortgage Investment Conduits (CMOs and REMICs) and stripped
mortgage-backed securities (IOs and POs).
o The Pegasus Managed Assets Growth, Managed Assets Balanced, Managed
Assets Conservative, Equity Income, Equity Index, Growth and Value, Intrinsic
Value, Growth, Mid-Cap Opportunity, Small-Cap Opportunity, International Equity,
Market Expansion Index, Short Bond, Intermediate Bond, Multi Sector Bond, Bond
and High Yield Bond Funds, and The One Group Prime Money Market, Municipal Money
Market, Investor Growth, Investor Growth & Income, Investor Balanced,
Diversified Mid Cap, Small Cap Value, Market Expansion Index, Diversified
International, Intermediate Bond, Bond, Limited Volatility, Income Bond, High
Yield Bond, Municipal Bond, Michigan Municipal Bond, Short-Term Municipal Bond
and Intermediate Tax-Free Bond Funds may purchase asset-backed securities.
o The Pegasus Managed Assets Growth, Managed Assets Balanced, Managed
Assets Conservative, Equity Income, Equity Index, Growth and Value, Intrinsic
Value, Growth, Mid-Cap Opportunity, Small-Cap Opportunity, International Equity,
Market Expansion Index, Short Bond, Intermediate Bond, Multi Sector Bond, Bond,
High Yield Bond, Municipal Bond, Short Municipal Bond, Intermediate Municipal
Bond and Michigan Municipal Bond Funds and The One Group Investor Growth,
Investor Growth & Income, Investor Balanced, Income Equity, Equity Index, Value
Growth, Disciplined Value, Large Company Growth, Diversified Mid Cap, Small Cap
Value, Diversified International, Market Expansion Index, Intermediate Bond,
Limited Volatility Bond, Income Bond, Bond, High Yield Bond, Intermediate
Tax-Free Bond, Tax-Free Bond, Michigan Municipal Bond and Short-Term Municipal
Bond Funds may invest in swap, cap and floor transactions.
o Each Pegasus Fund, other than the money market funds, and The One
Group Investor Growth, Investor Growth & Income, Investor Balanced, Intermediate
Bond, Income Bond, Bond, High Yield Bond, Intermediate Tax-Free Bond, Tax-Free
Bond, Short-Term Municipal Bond and Michigan Municipal Bond Funds may invest in
inverse floating rate instruments. Inverse floating rate instruments are
floating rate debt instruments with interest rates that reset in the opposite
direction from the market rate of interest to which the inverse floater is
indexed.
o The Pegasus Managed Assets Growth, Managed Assets Balanced, Managed
Assets Conservative, Equity Income, Equity Index, Growth and Value, Intrinsic
Value, Growth, Mid-Cap
15
<PAGE> 24
Opportunity, Small-Cap Opportunity, International Equity, Market Expansion
Index, Short Bond, Intermediate Bond, Multi Sector Bond, Bond, High Yield Bond,
Intermediate Municipal Bond, Municipal Bond, Michigan Municipal Bond and Short
Municipal Bond Funds, and The One Group Investor Growth, Investor Growth &
Income, Investor Balanced, Diversified Mid Cap, Small Cap Value, Diversified
International, Market Expansion Index, Limited Volatility Bond, Intermediate
Bond, Income Bond, Bond, High Yield Bond, Intermediate Tax-Free Bond, Tax-Free
Bond, Michigan Municipal Bond and Short-Term Municipal Bond Funds may invest in
structured instruments.
o Each Fund, other than the Pegasus money market funds, and The One
Group money market funds and Limited Volatility Bond Fund, may invest in new
financial products.
The above discussion is qualified in its entirety by the disclosure in
The One Group Funds Prospectuses accompanying this Combined Prospectus/Proxy
Statement and the information in the Pegasus Funds Prospectuses incorporated
herein by reference.
VOTING INFORMATION. This Combined Prospectus/Proxy Statement is being furnished
in connection with the solicitation of proxies by Pegasus' Board of Trustees at
the Meeting. Only shareholders of record at the close of business on December
18, 1998 will be entitled to vote at the Meeting. Each whole or fractional share
is entitled to a whole or fractional vote, respectively. Shares represented by a
properly executed proxy will be voted in accordance with the instructions
thereon or, if no specification is made, the persons named as proxies will vote
in favor of each proposal set forth in the Notice of Meeting. Proxies may be
revoked at any time before they are exercised by submitting to Pegasus a written
notice of revocation or a subsequently executed proxy or by attending the
Meeting and voting in person. For additional information, see "Information
Relating to Voting Matters."
MANAGEMENT DISCUSSION. A discussion of the management and performance of The One
Group Funds (except The One Group High Yield Bond Fund and the New One Group
Funds) and an analysis of their performance can be found at Appendix V to this
Combined Prospectus/Proxy Statement.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions of the Reorganization are set forth in the
Reorganization Agreement. Certain provisions of the Reorganization Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Reorganization Agreement, a copy of which is attached as
Appendix I to this Combined Prospectus/Proxy Statement.
DESCRIPTION OF THE REORGANIZATION AGREEMENT. The Reorganization Agreement
provides that on the Exchange Date (as that term is defined in the
Reorganization Agreement), the Assets and Liabilities existing at the Valuation
Time (as that term is defined in the Reorganization Agreement) of each Pegasus
Portfolio will be transferred to its corresponding One Group Fund, as previously
described (see pages 2-3 of this Combined Prospectus/Proxy Statement), in
exchange for full and fractional Shares of the designated classes of the
corresponding One Group Fund.
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<PAGE> 25
The Shares issued by each One Group Fund in the Reorganization will
have an aggregate dollar value equal to the aggregate dollar value of the net
assets per share of the respective Pegasus Portfolio at the Valuation Time.
Immediately after the Exchange Date, each Pegasus Portfolio will distribute the
Shares of the One Group Fund received in the Reorganization to its shareholders
in liquidation of each Pegasus Portfolio. Each shareholder owning shares of a
particular Pegasus Portfolio at the Exchange Date will receive Shares of the
designated class of the corresponding One Group Fund, and will receive any
unpaid dividends or distributions that were declared before the Exchange Date on
Pegasus Portfolio shares. One Group will establish an account for each former
shareholder of the Pegasus Portfolios reflecting the appropriate number of One
Group Fund Shares distributed to that shareholder. These accounts will be
substantially identical to the accounts currently maintained by Pegasus for each
shareholder. Shares of the One Group Funds are in uncertificated form.
With respect to each Pegasus Portfolio, the Reorganization is subject
to a number of conditions, including approval of the Reorganization Agreement
and the related matters described in this Combined Prospectus/Proxy Statement by
Pegasus shareholders at the Meeting; the receipt of certain legal opinions
described in the Reorganization Agreement (which include an opinion of One
Group's counsel addressed to Pegasus that the One Group Fund Shares issued in
the Reorganization will be validly issued, fully paid and non-assessable); the
receipt of certain certificates from the parties concerning the continuing
accuracy of the representations and warranties in the Reorganization Agreement;
[the receipt of certain information from the independent accountants of Pegasus
regarding tax matters;] and the parties' performance in all material respects of
their respective covenants and undertakings in the Reorganization Agreement.
The Reorganization Agreement provides that Pegasus and One Group will
each be responsible for their own expenses in connection with the
Reorganization. However, BOIA has agreed to assume the costs of proxy materials
proxy solicitations and certain other fees payable by Pegasus in connection with
the Reorganization as described on page 32. The Reorganization Agreement also
provides, among other things, that the Reorganization may be abandoned at any
time upon the mutual consent of both Pegasus and One Group, or by either One
Group or Pegasus under certain conditions; and that officers of One Group and of
Pegasus may amend, modify or supplement the Reorganization Agreement, provided
however, that following the Meeting, no such amendment may have the effect of
changing the provisions for determining the number of Shares of the
corresponding One Group Fund to be issued to the shareholders of any Pegasus
Portfolio without obtaining the Pegasus Portfolio shareholders' further
approval. In the event the transactions contemplated by the Reorganization
Agreement are not consummated by reason of Pegasus or One Group being either
unwilling or unable to go forward (other than by reason of the nonfulfillment or
failure of any condition to that party's obligations referred to in Sections
8(a) and 10 of the Reorganization Agreement), the party failing to consummate
shall pay directly all reasonable fees and expenses incurred by Pegasus or by
One Group in connection with such transactions, including without limitation,
legal, accounting and filing fees.
PEGASUS BOARD CONSIDERATION. At a meeting on ___________, 199_, the Board of
Trustees of Pegasus approved the Reorganization Agreement and determined that
the Reorganization of the Pegasus Portfolios and the One Group Funds would be in
the best interests of each Pegasus Portfolio. The Trustees further determined
that the interests of existing shareholders of the Pegasus Portfolios would not
be diluted upon effectuation of the Reorganization. The Trustees recommend
approval of the Reorganization Agreement
17
<PAGE> 26
after considering the potential overall effect of the Reorganization on the
shareholders of the Pegasus Portfolios including the following factors:
1. Performance. The total returns of the One Group Funds are competitive with,
and in many cases superior to, those of the Pegasus Portfolios as shown below.
Total returns for Class A and Class B shares reflect any applicable sales load.
The Trustees noted, however, that the performance shown is based on historical
earnings and is not predictive of future performance.
<TABLE>
<CAPTION>
Pegasus One Group Prime
Money Market Fund Money Market Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 10/31/98 4.20% 3.55% 4.42% 4.22% 3.56% 4.43%
1 Year Annualized - 10/31/98 5.08% 4.29% 5.34% 5.11% 4.32% 5.37%
3 Year Annualized - 10/31/98 5.05% 4.52% 5.25% 5.05% -- 5.31%
5 Year Annualized - 10/31/98 4.84% 4.52% 4.96% 4.82% -- 5.08%
10 Year Annualized - 10/31/98 5.47% 5.31% 5.53% 5.55%
Pegasus Treasury One Group U.S. Treasury Securities
Money Market Fund Money Market Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 4.08% -- 4.29% 4.04% 3.39% 4.25%
1 Year Annualized - 10/31/98 4.94% -- 5.20% 4.89% 4.10% 5.15%
3 Year Annualized - 10/31/98 4.93% -- 5.12% 4.88% -- 5.14%
5 Year Annualized - 10/31/98 4.72% -- 4.84% 4.62% -- 4.88%
10 Year Annualized - 10/31/98 -- -- -- -- -- 5.32%
Pegasus Municipal One Group Municipal
Money Market Fund Money Market Fund
------------------------------------------ -------------------------------------------
Class A Class I Class A Class I
------- ------- ------- -------
YTD Ending 10/31/98 2.40% 2.61% 2.39% 2.60%
1 Year Annualized - 10/31/98 2.93% 3.19% 2.93% 3.19%
3 Year Annualized - 10/31/98 3.00% 3.19% 2.98% 3.22%
5 Year Annualized - 10/31/98 2.92% 3.03% 2.87% 3.11%
10 Year Annualized - 10/31/98 3.59% 3.65% -- 3.69%
Pegasus Managed Assets One Group Investor
Conservative Fund Balanced Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 -1.27% -1.54% 4.16% 3.87% 3.05% 9.09%
1 Year Annualized - 10/31/98 0.62% 1.38% 6.19% 6.77% 5.96% 12.20%
3 Year Annualized - 10/31/98 8.96% 9.17% 11.12% -- -- --
5 Year Annualized - 10/31/98 8.72% -- 10.06% -- -- --
10 Year Annualized - 10/31/98 10.75% -- 11.56%
</TABLE>
18
<PAGE> 27
<TABLE>
<CAPTION>
Pegasus Managed Assets One Group Investor
Balanced Fund Growth & Income Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 10/31/98 -2.51% -2.82% 2.75% 4.16% 3.14% 9.14%
1 Year Annualized - 10/31/98 0.08% 0.99% 5.53% 7.77% 6.92% 13.05%
3 Year Annualized - 10/31/98 10.08% 9.06% 12.21% -- -- --
5 Year Annualized - 10/31/98 -- -- -- -- -- --
Pegasus Managed Assets One Group Investor
Growth Fund Growth Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 -4.02 -4.47 1.19 3.73 2.99 8.88
1 Year Annualized - 10/31/98 -0.96 -0.51 4.43 8.14 7.37 13.50
3 Year Annualized - 10/31/98 -- -- -- -- -- --
5 Year Annualized - 10/31/98 -- -- -- -- -- --
Pegasus One Group Income Equity
Equity Income Fund Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 -7.72% -7.85% -2.65% 4.53% 3.86% 9.76%
1 Year Annualized - 10/31/98 -4.07% -2.92% 1.24% 11.39% 10.78% 16.99%
3 Year Annualized - 10/31/98 13.19% 13.53% 15.47% 20.30% 20.61% 22.51%
5 Year Annualized - 10/31/98 11.33% 11.74% 12.90% 16.75% -- 18.15%
10 Year Annualized - 10/31/98 12.05 12.32 13.13 -- -- 15.45%
Pegasus
Growth Fund One Group Large Company Growth Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 9.45% 9.42% 15.36% 19.70% 19.54% 25.59%
1 Year Annualized - 10/31/98 14.19% 15.23% 20.41% 27.09% 27.02% 33.41%
3 Year Annualized - 10/31/98 21.29% 21.76% 23.68% 25.11% 25.68% 27.52%
5 Year Annualized - 10/31/98 17.07% 17.49% 18.66% -- -- 21.82%
10 Year Annualized - 10/31/98 15.82% 16.08% 16.91% -- -- --
Pegasus
Intrinsic Value Fund One Group Disciplined Value Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 -11.50% -12.04% -6.67% -6.52% -7.03% -1.93%
1 Year Annualized - 10/31/98 -8.05% -7.45% -2.99% 2.11% 1.81% 7.10%
3 Year Annualized - 10/31/98 13.01% 13.53% 15.16% 15.83% 16.00% 17.91%
5 Year Annualized - 10/31/98 11.65% 12.28% 12.92% 12.99% -- 14.29%
10 Year Annualized - 10/31/98 12.12% 12.50% 12.76% -- -- --
</TABLE>
19
<PAGE> 28
<TABLE>
<CAPTION>
Pegasus One Group Value Growth Fund
Growth and Value Fund (formerly Value Growth Fund)
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 10/31/98 -1.18% -1.43% 4.20% 8.28% 7.59% 13.64%
1 Year Annualized - 10/31/98 5.49% 6.53% 11.29% 14.95% 14.47% 20.72%
3 Year Annualized - 10/31/98 17.44% 17.74% 19.67% 22.01% 22.27% 24.21%
5 Year Annualized - 10/31/98 14.88% 15.37% 16.19% 16.50% -- 17.76%
10 Year Annualized - 10/31/98 13.24% 13.54% 13.88% -- -- --
Pegasus One Group Equity
Equity Index Fund Index Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 10.75% 10.47% 14.42% 8.96% 8.40% 14.33%
1 Year Annualized - 10/31/98 17.69% 17.42% 21.62% 15.88% 15.46% 21.65%
3 Year Annualized - 10/31/98 24.19% 23.70% 25.66% 23.29% 23.63% 25.57%
5 Year Annualized - 10/31/98 20.13% 20.10% 20.99% 19.46% -- 20.83%
10 Year Annualized - 10/31/98 17.11% 17.09% 17.52% -- -- --
Pegasus
Short Bond Fund One Group Limited Volatility Bond Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 4.66 4.07 5.94 3.04 2.80 6.42
1 Year Annualized - 10/31/98 5.45 4.72 6.78 2.96 2.78 6.45
3 Year Annualized - 10/31/98 5.55 5.29 6.10 4.97 4.94 6.32
5 Year Annualized - 10/31/98 5.17 5.02 5.50 4.75 -- 5.68
10 Year Annualized - 10/31/98 6.75 6.67 6.92 -- -- --
Pegasus One Group Income
Multi Sector Bond Fund Bond Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 3.43 3.03 6.90 1.16 0.39 6.08
1 Year Annualized - 10/31/98 4.87 4.38 8.44 1.43 0.54 6.36
3 Year Annualized - 10/31/98 5.90 5.64 7.32 4.73 4.77 6.56
5 Year Annualized - 10/31/98 6.03 6.16 6.93 4.53 -- 5.76
10 Year Annualized - 10/31/98 -- -- -- -- -- 7.62
Pegasus Intermediate One Group Intermediate
Municipal Bond Fund Tax-Free Bond Fund
------------------------------------------ -------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
YTD Ending 10/31/98 1.72% 1.21% 5.08% 0.54% -0.34% 5.43%
1 Year Annualized - 10/31/98 3.39% 2.80% 6.86% 2.39% 1.50% 7.44%
3 Year Annualized - 10/31/98 4.69% 4.32% 6.05% 4.81% 4.88% 6.71%
5 Year Annualized - 10/31/98 4.65% 4.67% 5.63% 4.32% -- 5.54%
10 Year Annualized - 10/31/98 6.86% 6.88% 7.50% -- -- --
</TABLE>
No performance comparison is provided for the Pegasus Michigan
Municipal Money Market, Cash Management, Treasury Cash Management, Treasury
Prime Cash Management, U.S. Government Securities Cash Management, Municipal
Cash Management, Mid-Cap Opportunity, Small-Cap Opportunity, Market Expansion
Index, International Equity, Bond, High Yield Bond, Municipal Bond, Short
Municipal Bond and Michigan Municipal Bond Funds because the corresponding One
Group Funds have not yet commenced operations as of October 31, 1998 and the
investment policies and historical performance of these Pegasus Portfolios
(other than the High Yield Bond Fund) will carry forward.
20
<PAGE> 29
For additional information concerning performance of the Pegasus
Portfolios and One Group Funds, see the Statement of Additional Information
prepared in connection with this Combined Prospectus/Proxy Statement, Pegasus'
Prospectuses, Statements of Additional Information, Annual Reports and
Semi-Annual Reports to Shareholders, One Group's Prospectuses, Statements of
Additional Information and Annual Reports to Shareholders, and Appendix V
Management's Discussion of Fund Performance - Existing One Group Funds attached
to this Combined Prospectus/Proxy Statement.
2. Management Fees and Expense Ratios. The Trustees noted that in many instances
the investment advisory fees, and in some instances the total operating expense
ratios, of the One Group Funds are or will be higher than those of the
corresponding Pegasus Portfolios. For comparative information, see the sections
entitled "Investment Adviser - Pegasus Portfolios," "Investment Adviser - One
Group" and "Expense Ratios" under "Comparison of Pegasus and One Group" below,
"Fee Tables" above and Appendix II - Comparative Fee Tables attached to this
Combined Prospectus/Proxy Statement.
BOIA has agreed to limit the total operating expense ratios of the
Existing One Group Funds following the Reorganization until August 1999 as set
forth under the "Pro Forma Total Operating Expenses" column in the Table under
"Comparison of Pegasus and One Group - Expense Ratios" and Appendix II -
Comparative Fee Tables to this Combined Prospectus/Proxy Statement. See also
"Fee Tables" above. With respect to the New One Group Funds, BOIA has agreed to
waive a portion of its advisory fee until at least March 2000 so that the rate
of total operating expenses actually paid will not exceed the rate currently
paid for total operating expenses by the Continuing Pegasus Portfolios.
Furthermore, if the Reorganization Agreement is approved, One Group's increased
asset size to approximately $50 billion and resulting leverage with its service
providers may result in lower overall expense ratios. BOIA's current estimates
anticipate expense savings.
3. Tax-Free Conversion of Pegasus Portfolio Shares. If a Pegasus shareholder
were to redeem his or her investment in a Pegasus Portfolio, other than a money
market fund, in order to invest in a One Group Fund or another investment
product, the shareholder would recognize gain or loss for Federal income tax
purposes upon the redemption of those shares. By contrast, the proposed
Reorganization of each Pegasus Portfolio will cause shareholders to exchange
their investments in the Pegasus Portfolios for investments in the One Group
Funds without recognition of gain or loss for Federal income tax purposes. After
the Reorganization, as a shareholder of One Group, investors may redeem any or
all of their One Group shares (other than Class B shares) at any time, without
incurring a redemption fee or sales charge. At that time, a taxable gain or loss
would be recognized. For further information concerning the tax consequences of
the Reorganization, see "Information Relating to the Proposed Reorganization -
Federal Income Tax Consequences" below.
4. Compatibility of Fund Investment Objectives, Policies and Limitations and
Related Tax Consequences. The Trustees considered the compatibility of One Group
Funds' investment objectives, policies and limitations with those of the
corresponding Pegasus Portfolios. For information relating to certain
significant differences in the investment objectives, policies and related risk
factors, see the sections entitled "Overview of Pegasus and One Group" and
"Principal Risk Factors" under "Summary" above, "Comparison of Pegasus and One
Group - Investment Objectives and Policies" below and
21
<PAGE> 30
Appendix III - Comparison of Investment Objectives and Certain Significant
Policies attached to this Combined Prospectus/Proxy Statement.
The Trustees noted that the One Group Funds may dispose of some of the
securities acquired by them in the Reorganization and that such dispositions may
have tax consequences to shareholders. In addition, to the extent that a Pegasus
Portfolio's investments are restructured prior to the Reorganization, the
Portfolio may realize capital gains and losses which may have tax consequences
to shareholders. The ability of either entity to dispose of assets in connection
with the Reorganization is limited by the Internal Revenue Code. For additional
information, see "Comparison of Pegasus and One Group - Federal Income Tax
Consequences" below.
5. Terms and Conditions of the Reorganization Agreement. The Trustees considered
the terms and conditions of the Reorganization Agreement. See "Summary -
Proposed Reorganization," "Information Relating to the Proposed Reorganization -
Description of the Reorganization Agreement" and Appendix I - Agreement and Plan
of Reorganization attached hereto.
6. Capabilities, Practices and Resources of BOIA and the Other Service
Providers. The Trustees considered the capabilities, practices and resources of
BOIA and the other service providers. For further information, see "Summary -
Overview of Pegasus and One Group" above, and the sections entitled "Investment
Advisers," "Certain Other Service Providers," "Distribution Plan and Shareholder
Servicing Arrangements" under "Comparison of Pegasus and One Group" below.
7. Investment Leverage and Market Presence. The Reorganization is expected to
result in greater investment leverage and market presence for the One Group. If
the Reorganization Agreement is consummated, the One Group would have
approximately $50 billion in assets under management. BOIA believes fund
investment opportunities increase as assets increase.
8. Enhanced Shareholder Services. OGSC and BOIA provide a higher level of
shareholder servicing for One Group shareholders, including a dedicated
shareholder support function, broker-dealer desk and a transaction oriented
state-of-the-art website. The website allows investors to purchase and exchange
shares of their One Group Funds. The website is directly linked to the BOC
website for convenient use. It contains up-to-date investor tools such as
pricing and account history queries, retirement planning, and investment
profiling tools, and allows on-line prospectus access. Moreover, shareholders of
One Group have access to weekly-recorded economic updates, as well as updates on
the equity and fixed income markets through a state of the art voice response
unit ("VRU").
9. Expanded Product Offering. Through exchange privileges, current Pegasus
shareholders (other than those shareholders owning shares of an institutional
money market fund) will be able to exchange the One Group shares they receive in
the Reorganization for any of the 48 funds (excluding the 7 institutional money
market funds) which will be offered by One Group to the general public after the
Reorganization. Institutional money market fund shareholders may exchange their
new One Group shares for any of the 7 institutional money market funds offered
by One Group. Investors in One Group will enjoy a wide variety of investment
options and strategies, ranging from various equity styles and state specific
municipal bond funds, to taxable and tax-advantaged bond funds and
funds-of-funds.
22
<PAGE> 31
10. Strong Back Office. OGSC provides a strong back office infrastructure for
One Group, including fund administration and fund accounting services. A
wholly-owned subsidiary of BISYS Fund Services, OGSC leverages the extensive
knowledge and experience of BISYS, yet is dedicated to The One Group.
11. Availability of Class C Shares. Unlike Pegasus, the One Group offers Class C
Shares.
12. Benefits to Other Persons, Especially BOIA and Its Affiliates. The Trustees
considered the potential benefits of the Reorganization to other persons,
especially BOIA and its affiliates.
CAPITALIZATION. As proposed, the sixteen Reorganizing Pegasus Portfolios would
be reorganized into the sixteen corresponding Existing One Group Funds. The
following table sets forth as of June 30, 1998, (1) the capitalization of each
of the Reorganizing Pegasus Portfolios, (2) the capitalization of each of the
corresponding Existing One Group Funds, and (3) the pro forma capitalization of
each of the Existing One Group Funds as adjusted to give effect to the
Reorganization of the Reorganizing Pegasus Portfolios. The capitalization of
each Reorganizing Pegasus Portfolio and Existing One Group Fund is likely to be
different at the effective time of the Reorganizing Pegasus Portfolios
Transaction as a result of daily share purchase and redemption activity in the
respective Portfolios and Funds, as well as the effects of the other ongoing
operations of the respective Portfolios and Funds prior to the effective time of
the Reorganizing Pegasus Portfolios Transaction. Information on the
capitalization of the fourteen Continuing Pegasus Portfolios and their
corresponding New One Group Funds is not included because the Continuing Pegasus
Portfolios would be reorganized into the New One Group Funds which would have
only nominal assets and liabilities.
23
<PAGE> 32
<TABLE>
<CAPTION>
Pegasus Money One Group Prime Pro Forma
Market Fund Money Market Fund Combined
----------- ----------------- --------
<S> <C> <C> <C>
Total Net Assets $2,708,552,219 $3,223,901,238 $5,932,453,457
Class A Shares $1,167,246,199 $605,291,334 $1,772,537,533
Class B Shares $1,180,010 $1,912,430 $3,092,440
Class I Shares $1,540,126,010 $2,616,697,474 $4,156,823,484
Shares Outstanding 2,708,549,425 3,223,806,869 5,932,356,294
Class A Shares 1,167,243,404 605,275,293 1,772,518,697
Class B Shares 1,180,010 1,911,896 3,091,906
Class I Shares 1,540,126,011 2,616,619,680 4,156,745,691
Net Asset Value Per Share
Class A Shares $1.00 $1.00 $1.00
Class B Shares $1.00 $1.00 $1.00
Class I Shares $1.00 $1.00 $1.00
One Group U.S. Treasury
Pegasus Treasury Securities Pro Forma
Money Market Fund Money Market Fund Combined
----------------- ------------------ --------
Total Net Assets $1,062,585,850 $3,887,139,739 $4,949,725,589
Class A Shares $219,101,494 $861,349,389 $1,080,450,883
Class B Shares N/A $181,171 $181,171
Class C Shares N/A $1,162 $1,162
Class I Shares $843,484,356 $3,025,608,017 $3,869,092,373
Shares Outstanding 1,062,602,578 3,886,904,029 4,949,506,607
Class A Shares 219,118,222 861,312,823 1,080,431,045
Class B Shares N/A 181,172 181,172
Class C Shares N/A 1,162 1,162
Class I Shares 843,484,356 3,025,408,872 3,868,893,228
Net Asset Value Per Share
Class A Shares $1.00 $1.00 $1.00
Class B Shares N/A $1.00 $1.00
Class C Shares N/A $1.00 $1.00
Class I Shares $1.00 $1.00 $1.00
</TABLE>
24
<PAGE> 33
<TABLE>
<CAPTION>
Pegasus Municipal
Money One Group Municipal Pro Forma
Market Fund Money Market Fund Combined
----------- ----------------- --------
<S> <C> <C> <C>
Total Net Assets $764,664,703 $602,935,643 $1,367,600,346
Class A Shares $209,296,247 $104,808,547 $314,104,794
Class I Shares $555,368,456 $498,127,096 $1,053,495,552
Shares Outstanding 764,720,453 603,066,850 1,367,787,303
Class A Shares 209,350,372 104,821,450 314,171,822
Class I Shares 555,370,081 498,245,400 1,053,615,481
Net Asset Value Per Share
Class A Shares $1.00 $1.00 $1.00
Class I Shares $1.00 $1.00 $1.00
Pegasus Managed
Assets Conservative One Group Investor Pro Forma
Fund Balanced Fund Combined
---- ------------- --------
Total Net Assets $134,985,917 $203,277,567 $338,231,988
Class A Shares $100,507,996 $32,604,462 $133,112,458
Class B Shares $22,223,117 70,462,733 $92,685,850
Class C Shares N/A $6,652,937 $6,652,937
Class I Shares $12,254,804 $93,557,435 $105,780,743
Shares Outstanding 9,147,504 17,207,740 28,618,891
Class A Shares 6,814,414 2,755,243 11,251,270
Class B Shares 1,505,363 5,962,388 7,842,516
Class C Shares N/A 565,081 565,081
Class I Shares 827,727 7,925,028 8,960,024
Net Asset Value Per Share
Class A Shares $14.75 $11.83 $11.83
Class B Shares $14.76 $11.82 $11.82
Class C Shares N/A $11.77 $11.77
Class I Shares $14.81 $11.81 $11.81
</TABLE>
25
<PAGE> 34
<TABLE>
<CAPTION>
Pegasus Managed Assets
Assets Balanced One Group Investor Pro Forma
Fund Growth & Income Fund Combined
---- -------------------- --------
<S> <C> <C> <C>
Total Net Assets $277,228,675 $229,830,622 $507,054,440
Class A Shares $169,028,463 $39,873,760 $208,902,223
Class B Shares $15,874,569 $85,467,873 $101,342,442
Class C Shares N/A $6,428,710 $6,428,710
Class I Shares $92,325,643 $98,060,279 $190,381,065
Shares Outstanding 23,320,248 18,219,060 40,139,308
Class A Shares 14,298,714 3,142,422 16,462,238
Class B Shares 1,198,186 6,761,003 8,016,902
Class C Shares N/A 512,841 512,841
Class I Shares 7,823,748 7,802,794 15,147,327
Net Asset Value Per Share
Class A Shares $11.82 $12.69 $12.69
Class B Shares $13.25 $12.64 $12.64
Class C Shares N/A $12.54 $12.54
Class I Shares $11.80 $12.57 $12.57
Pegasus Managed Assets One Group Investor Pro Forma
Growth Fund Growth Fund Combined
----------- ----------- --------
Total Net Assets $21,899,958 $220,699,449 $242,599,407
Class A Shares $9,404,036 $55,056,896 $64,460,932
Class B Shares $10,912,932 $70,514,733 $81,427,665
Class C Shares N/A $8,772,688 $8,772,688
Class I Shares $1,582,990 $86,355,132 $87,938,122
Shares Outstanding 1,847,635 16,475,898 18,109,765
Class A Shares 787,670 4,131,090 4,836,569
Class B Shares 928,030 5,236,548 6,046,714
Class C Shares N/A 657,648 657,648
Class I Shares 131,935 6,450,612 6,568,834
Net Asset Value Per Share
Class A Shares $11.94 $13.33 $13.33
Class B Shares $11.76 $13.47 $13.47
Class C Shares N/A $13.34 $13.34
Class I Shares $12.00 $13.39 $13.39
</TABLE>
26
<PAGE> 35
<TABLE>
<CAPTION>
Pegasus Equity One Group Income Pro Forma
Income Fund Equity Fund Combined
----------- ----------- --------
<S> <C> <C> <C>
Total Net Assets $328,320,624 $976,168,311 $1,304,466,364
Class A Shares $13,397,091 $117,682,024 $131,079,115
Class B Shares $3,637,767 $165,813,214 $169,450,981
Class C Shares N/A $795,480 $795,480
Class I Shares $311,285,766 $691,877,593 $1,003,140,788
Shares Outstanding 26,402,536 40,556,276 54,196,212
Class A Shares 1,074,534 4,894,497 5,451,780
Class B Shares 291,641 6,886,250 7,037,320
Class C Shares N/A 33,035 33,035
Class I Shares 25,036,361 28,742,494 41,674,077
Net Asset Value Per Share
Class A Shares $12.47 $24.04 $24.04
Class B Shares $12.47 $24.08 $24.08
Class C Shares N/A $24.08 $24.08
Class I Shares $12.43 $24.07 $24.07
Pegasus Growth One Group Large Pro Forma
Fund Company Growth Fund Combined
---- ------------------- --------
Total Net Assets $847,715,182 $1,990,628,224 $2,838,316,707
Class A Shares $109,752,170 $199,051,299 $308,803,469
Class B Shares $4,353,084 $280,563,764 $284,916,848
Class C Shares N/A $491,859 $491,859
Class I Shares $733,609,928 1,510,521,302 $2,244,104,531
Shares Outstanding 49,937,827 87,419,506 124,619,585
Class A Shares 6,471,853 8,533,858 13,240,212
Class B Shares 261,575 12,341,219 12,532,732
Class C Shares N/A 21,792 21,792
Class I Shares 43,204,399 66,522,637 98,824,849
Net Asset Value Per Share
Class A Shares $16.96 $23.32 $23.32
Class B Shares $16.64 $22.73 $22.73
Class C Shares N/A $22.57 $22.57
Class I Shares $16.98 $22.71 $22.71
</TABLE>
27
<PAGE> 36
<TABLE>
<CAPTION>
Pegasus Intrinsic One Group Disciplined Pro Forma
Value Fund Value Fund Combined
---------- ---------- --------
<S> <C> <C> <C>
Total Net Assets $683,010,616 $694,209,090 $1,377,219,706
Class A Shares $132,278,364 $29,442,860 $161,721,224
Class B Shares $5,341,678 $30,094,907 $35,436,585
Class I Shares $545,390,574 $634,671,323 $1,180,061,897
Shares Outstanding 42,744,414 41,084,545 81,486,443
Class A Shares 8,254,937 1,738,826 9,552,078
Class B Shares 469,782 1,785,585 2,102,599
Class I Shares 34,019,695 37,560,134 69,831,766
Net Asset Value Per Share
Class A Shares $16.02 $16.93 $16.93
Class B Shares $11.37 $16.85 $16.85
Class I Shares $16.03 $16.90 $16.90
Pegasus Growth and One Group Pro Forma
Value Fund Value Growth Fund Combined
---------- ----------------- --------
Total Net Assets $1,227,370,787 $737,575,048 $1,964,945,835
Class A Shares $264,449,804 $80,500,100 $344,949,904
Class B Shares $9,612,670 $25,501,072 $35,113,742
Class C Shares N/A $1,234,273 $1,234,273
Class I Shares $953,308,313 $630,339,603 $1,583,647,916
Shares Outstanding 72,759,641 54,603,610 145,473,009
Class A Shares 15,604,881 5,963,678 25,552,552
Class B Shares 938,778 1,902,425 2,619,788
Class C Shares N/A 91,611 91,611
Class I Shares 56,215,982 46,645,896 117,209,058
Net Asset Value Per Share
Class A Shares $16.95 $13.50 $13.50
Class B Shares $10.24 $13.40 $13.40
Class C Shares N/A $13.47 $13.47
Class I Shares $16.96 $13.51 $13.51
</TABLE>
28
<PAGE> 37
<TABLE>
<CAPTION>
Pegasus Equity One Group Pro Forma
Index Fund Equity Index Fund Combined
---------- ----------------- --------
<S> <C> <C> <C>
Total Net Assets $981,290,293 $1,244,778,050 $2,226,068,343
Class A Shares $281,046,761 $218,517,419 $499,564,180
Class B Shares $2,821,942 $351,624,116 $354,446,058
Class C Shares N/A $3,214,236 $3,214,236
Class I Shares $697,421,590 $671,422,279 $1,368,843,869
Shares Outstanding 39,629,988 45,844,648 81,978,556
Class A Shares 11,332,956 8,048,525 18,400,155
Class B Shares 188,271 12,959,252 13,063,268
Class C Shares N/A 118,427 118,427
Class I Shares 28,108,761 24,718,444 50,396,706
Net Asset Value Per Share
Class A Shares $24.80 $27.15 $27.15
Class B Shares $14.99 $27.13 $27.13
Class C Shares N/A $27.14 $27.14
Class I Shares $24.81 $27.16 $27.16
Pegasus Intermediate One Group Intermediate Pro Forma
Bond Fund Bond Fund Combined
--------- --------- --------
Total Net Assets $593,679,600 $746,159,292 $1,339,838,892
Class A Shares $86,340,805 $44,566,620 $130,907,425
Class B Shares $728,387 $19,924,343 $20,652,730
Class C Shares N/A $868,686 $868,686
Class I Shares $506,610,408 $680,799,643 $1,187,410,051
Shares Outstanding 56,515,680 73,742,862 127,533,898
Class A Shares 8,222,132 4,392,082 12,466,572
Class B Shares 69,980 1,969,711 1,983,942
Class C Shares N/A 85,636 83,447
Class I Shares 48,223,568 67,295,433 112,999,937
Net Asset Value Per Share
Class A Shares $10.50 $10.15 $10.50
Class B Shares $10.41 $10.12 $10.41
Class C Shares N/A $10.14 $10.41
Class I Shares $10.51 $10.12 $10.51
</TABLE>
29
<PAGE> 38
<TABLE>
<CAPTION>
Pegasus Short One Group Pro Forma
Bond Fund Limited Volatility Fund Combined
--------- ----------------------- --------
<S> <C> <C> <C>
Total Net Assets $259,058,041 $613,102,190 $872,151,629
Class A Shares $14,082,561 $15,582,402 $29,664,963
Class B Shares $273,648 $4,851,117 $5,124,765
Class I Shares $244,701,832 $592,668,671 $837,361,901
Shares Outstanding 25,534,348 58,347,823 82,996,852
Class A Shares 1,387,147 1,484,029 2,825,225
Class B Shares 27,205 458,824 484,713
Class I Shares 24,119,996 56,404,970 79,686,914
Net Asset Value Per Share
Class A Shares $10.15 $10.50 $10.50
Class B Shares $10.06 $10.57 $10.57
Class I Shares $10.15 $10.51 $10.51
Pegasus Multi-Sector One Group Pro Forma
Bond Fund Income Bond Fund Combined
--------- ---------------- --------
Total Net Assets $131,260,895 $928,511,932 $1,059,757,735
Class A Shares $12,159,376 $14,737,824 $26,897,200
Class B Shares $603,757 $15,511,055 $16,114,812
Class I Shares $118,497,762 $898,263,053 $1,016,745,723
Shares Outstanding 16,221,028 97,587,753 130,984,875
Class A Shares 1,503,596 1,549,876 3,325,329
Class B Shares 74,393 1,617,401 1,984,621
Class I Shares 14,643,039 94,420,476 125,674,925
Net Asset Value Per Share
Class A Shares $8.09 $9.51 $8.09
Class B Shares $8.12 $9.59 $8.12
Class I Shares $8.09 $9.51 $8.09
</TABLE>
30
<PAGE> 39
<TABLE>
<CAPTION>
Pegasus High Yield One Group High Yield Pro Forma
Bond Fund Bond Fund* Combined
--------- ---------- --------
<S> <C> <C> <C>
Total Net Assets $68,442,132 N/A $68,442,132
Class A Shares $1,574,353 N/A $1,574,353
Class B Shares $234,824 N/A $234,824
Class I Shares $66,632,955 N/A $66,632,955
Shares Outstanding 6,642,830 N/A 6,642,830
Class A Shares 153,979 N/A 153,979
Class B Shares 22,931 N/A 22,931
Class I Shares 6,465,920 N/A 6,465,920
Net Asset Value Per Share
Class A Shares $10.22 N/A $10.22
Class B Shares $10.24 N/A $10.24
Class I Shares $10.31 N/A $10.31
Pegasus Intermediate One Group Intermediate Pro Forma
Municipal Bond Fund Tax-Free Bond Fund Combined
------------------- ------------------ --------
Total Net Assets $454,779,406 $513,859,726 $968,622,640
Class A Shares $20,176,884 $14,515,087 $34,691,971
Class B Shares $800,830 $5,658,736 $6,459,566
Class I Shares $433,801,692 $493,685,903 $927,471,103
Shares Outstanding 36,966,397 46,100,591 86,888,062
Class A Shares 1,640,534 1,303,116 3,114,326
Class B Shares 65,162 507,110 578,869
Class I Shares $35,260,701 44,290,365 83,194,867
Net Asset Value Per Share
Class A Shares $12.30 $11.14 $11.14
Class B Shares $12.29 $11.16 $11.16
Class I Shares $12.30 $11.15 $11.15
</TABLE>
- -----------------------
* The One Group High Yield Bond Fund commenced investment operations on
November 12, 1998.
FEDERAL INCOME TAX CONSEQUENCES. With respect to each Pegasus Portfolio that is
not a money market fund, consummation of the Reorganization is subject to the
condition that Pegasus and One Group receive an opinion from Ropes & Gray, in
form reasonably satisfactory to both Pegasus and One Group and dated as of the
Exchange Date, to the effect that for federal income tax purposes: (i) no gain
or loss will be recognized by the Pegasus Portfolio upon transfer of the assets
to the corresponding One Group Fund in exchange for Shares and the assumption by
such One Group Fund of the liabilities of the Pegasus Portfolio; (ii) no gain or
loss will be recognized by the shareholders of the Pegasus Portfolio upon the
exchange of their shares for Shares; (iii) the basis of the Shares a Pegasus
shareholder receives in connection with the transaction will be the same as the
basis of his or her Pegasus Portfolio shares exchanged therefor; (iv) a Pegasus
shareholder's holding period for his or her Shares will be determined
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<PAGE> 40
by including the period for which he or she held the Pegasus Portfolio shares
exchanged therefor, provided that he or she held such Pegasus Portfolio shares
as capital assets; (v) no gain or loss will be recognized by the corresponding
One Group Fund upon the receipt of the assets of the corresponding Pegasus
Portfolio in exchange for Shares and the assumption by the One Group Fund of the
liabilities of the corresponding Pegasus Portfolio; (vi) the basis in the hands
of the corresponding One Group Fund of the assets of the corresponding Pegasus
Portfolio transferred to the One Group Fund in the transaction will be the same
as the basis of the assets in the hands of the corresponding Pegasus Portfolio
immediately prior to the transfer; and (vii) the holding periods of the assets
of the Pegasus Portfolio in the hands of the corresponding One Group Fund will
include the periods for which such assets were held by the Pegasus Portfolio.
Receipt of such an opinion with respect to any Pegasus Portfolio that is a money
market fund is not a condition to the Reorganization. In any event, however, no
material amount of taxable gain or loss will be recognized by any money market
fund or money market fund shareholders by reason of the Reorganization.
Pegasus and One Group have not sought a tax ruling from the Internal
Revenue Service ("IRS"), but are acting in reliance upon the opinion of counsel
discussed in the previous paragraph. That opinion is not binding on the IRS and
does not preclude the IRS from adopting a contrary position. Shareholders should
consult their own advisers concerning the potential tax consequences to them,
including state and local income taxes.
Shareholders should note that each One Group Fund may, to the extent
permitted by law and consistent with the opinion to be issued by Ropes & Gray
discussed above, dispose of some of the securities acquired by it in connection
with the transaction. Disposition of securities may have tax consequences to
shareholders. In addition, immediately prior to the transaction, each Pegasus
Portfolio will declare and distribute a dividend which will have the effect of
distributing to Pegasus shareholders all of the Pegasus Portfolio's investment
company taxable income and net realized capital gains. To the extent that a
Pegasus Portfolio's investments are restructured prior to the Reorganization,
the Pegasus Portfolio may realize a greater amount of net capital gains which
would then need to be distributed to Pegasus shareholders. These distributions
may have tax consequences to Pegasus shareholders. The ability of either entity
to dispose of assets in connection with the Reorganization is limited by federal
tax requirements. For additional information, see "Information Relating to the
Proposed Reorganization -- Federal Income Tax Consequences."
BOARD COMPOSITION
Listed below are the current members of the Board of Trustees of One
Group. Following the Reorganization, three members of the current Board of
Trustees of Pegasus will be invited to join the One Group Board of Trustees. One
Group will hold a shareholders meeting to elect these new Trustees. Pegasus will
pay a retirement benefit of $60,000 to each of its Trustees who does not become
a One Group Trustee, in recognition of the Trustee's services to Pegasus. These
amounts, together with certain other expenses of the Reorganization, will be
reimbursed by BOIA or an affiliate.
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<PAGE> 41
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE WITH THE TRUST DURING THE PAST 5 YEARS
- ---------------- --- -------------- ---------------------------
<S> <C> <C> <C>
Peter C. Marshall 56 Trustee From November, 1993 to present,
DCI Marketing, Inc. President, DCI Marketing, Inc.;
2727 W. Good Hope Road from August, 1992 to November,
Milwaukee, WI 53209 1993, Vice President-Finance and
Treasurer DCI Marketing, Inc.
Charles I. Post 70 Trustee From July, 1986 to present,
7615 4th Avenue West consultant
Bradenton, FL 34209
Frederick W. Ruebeck 58 Trustee From June, 1988 to present,
Eli Lilly & Company Director of Investments, Eli Lilly
Lilly Corporate Center and Company
307 East McCarty
Indianapolis, IN 46285
Robert A. Oden, Jr. 51 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
John F. Finn 51 Trustee From 1975 to present, President of Gardner,
President Inc.
Gardner, Inc.
1150 Chesapeake Avenue
Columbus, Ohio 43212
</TABLE>
COMPARISON OF PEGASUS AND ONE GROUP
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives, policies and
restrictions of the Pegasus Portfolios are, in general, similar to those of
their corresponding One Group Funds. There are, however, certain differences.
For example, the percentage of assets allocated to the various Underlying Funds
varies for the three Pegasus Managed Assets Funds and the three One Group
Investor Funds; and the Intermediate Municipal Bond Fund and the International
Equity Fund of Pegasus are "non-diversified" funds, but the corresponding One
Group Funds are diversified. Diversification reduces the risk that a fund's
investments will be affected by a single issuer.
The Bond Funds have certain differences. The Pegasus Multi Sector Bond
Fund may invest in investment grade debt securities only, but the corresponding
One Group Income Bond Fund may invest up to 30% of its assets in securities
rated below investment grade (also known as junk bonds). Investments in
securities rated below investment grade are high risk investments subject to
greater risk of loss, valuation difficulties, interest rate sensitivity, low
liquidity and changes in credit quality. The One Group Limited Volatility Bond
Fund must invest 80% of its total assets in debt securities with short to
intermediate maturities, while the Pegasus Short Bond Fund has no such
limitation. The average
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<PAGE> 42
weighted maturities of the investments of the Pegasus Short Bond, Intermediate
Bond, Multi Sector Bond, Bond and High Yield Bond Funds differ from those of
their corresponding One Group Limited Volatility, Intermediate Bond, Income Bond
and High Yield Bond Funds. Generally, these Pegasus Funds have shorter average
weighted maturities. This is significant because a longer average weighted
maturity will cause greater fluctuations in the value of a fund.
The Equity Funds have differences as well. The Pegasus Small-Cap
Opportunity Fund primarily invests in companies with market capitalization of
$100 million to $1 billion while The One Group Small Cap Value Fund invests in
companies with a market capitalization of $100 million to $2 billion. The
Pegasus Mid-Cap Opportunity Fund invests primarily in equity securities of
companies with a market capitalization of $500 million to $3 billion. The One
Group Diversified Mid-Cap Fund invests primarily in equity securities of
companies with a market capitalization of $500 million to $5 billion.
For additional information, see "Overview of Pegasus and One Group" and
"Principal Risk Factors" under "Summary" above and Appendix III - Comparison of
Investment Objectives and Certain Significant Policies attached to this Combined
Prospectus and Proxy Statement. Further information on the investment
objectives, policies and restrictions of the One Group Funds and the Pegasus
Portfolios is also included in their respective Prospectuses and Statements of
Additional Information, which have been incorporated herein by reference.
EXPENSE RATIOS. The following table shows (1) the current total expense ratios
of the Pegasus Portfolios, before and after fee waivers and/or expense
reimbursements, based on information contained in the Pegasus Prospectuses dated
April 30, 1998, (2) the current total expense ratios of the corresponding
Existing One Group Funds, before and after fee waivers and/or expense
reimbursements, based on information contained in the One Group Prospectuses
dated November 1, 1998, and (3) the pro forma annualized total expense ratios of
the combined funds, based upon the fee arrangements, before and after fee
waivers and/or expense reimbursements, that will be in place upon consummation
of the Reorganization. BOIA has agreed to limit the total operating expense
ratios of the Existing One Group Funds following the Reorganization as set forth
under the column "Pro Forma Total Operating Expenses" in the following Table
until at least August 1999. With respect to the New One Group Funds, BOIA has
agreed to waive a portion of its investment advisory fee until at least March
2000 so that the rate of total operating expenses actually paid will at least
equal the rate currently paid for total operating expense by the corresponding
Continuing Pegasus Portfolios. Detailed pro forma expense information for each
proposed reorganization is included in Appendix II - Comparative Fee Tables to
this Combined Prospectus/Proxy Statement.
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<PAGE> 43
<TABLE>
<CAPTION>
Pro Forma
Total Operating Total Operating Total Operating
Expenses Corresponding Expenses Combined Expenses
Pegasus Fund Before/After One Group Fund Share Before/After Fund Share Class Before/After
Share Class Waivers Class Waivers Post-Reorganization Waivers
----------- ------- ----- ------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Pegasus Money Market Fund One Group Prime Money One Group Prime Money
Market Fund Market Fund
Class A Shares 0.77%/0.75% Class A Shares 0.77%/0.77% Class A Shares 0.82%/0.77%
Class B Shares 1.52%/1.50% Class B Shares 1.52%/1.52% Class B Shares 1.57%/1.52%
Class I Shares 0.52%/0.50% Class I Shares 0.52%/0.52% Class I Shares 0.57%/0.52%
Pegasus Treasury Money One Group U.S. Treasury One Group U.S. Treasury
Market Fund Securities Money Market Securities Money Market
Fund Fund
Class A Shares 0.73%/0.73% Class A Shares 0.77%/0.77% Class A Shares 0.78%/0.75%
Class B Shares N/A Class B Shares 1.52%/1.52% Class B Shares 1.53%/1.50%
Class I Shares 0.48%/0.48% Class I Shares 0.52%/0.52% Class I Shares 0.53%/0.50%
Pegasus Municipal Money One Group Municipal One Group Municipal
Market Fund Money Market Fund Money Market Fund
Class A Shares 0.73%/0.73% Class A Shares 0.80%/0.72% Class A Shares 0.82%/0.70%
Class B Shares N/A Class B Shares N/A Class B Shares N/A
Class I Shares 0.48%/0.48% Class I Shares 0.55%/0.47% Class I Shares 0.57%/0.45%
Pegasus Michigan Municipal One Group Michigan One Group Michigan
Money Market Fund Municipal Money Market Municipal Money Market
Fund Fund
Class A Shares 0.76%/0.75% Class A Shares 0.84%/0.74% Class A Shares 0.84%/0.74%
Class B Shares N/A Class B Shares N/A Class B Shares N/A
Class I Shares 0.51%/0.50% Class I Shares 0.59%/0.49% Class I Shares 0.59%/0.49%
Pegasus Cash One Group Cash One Group Cash
Management Fund Management Money Market Management Money Market
Fund Fund
Class I Shares 0.39%/0.35% Class I Shares 0.39%/0.34% Class I Shares 0.39%/0.34%
Class S Shares 0.64%/0.60% Class A Shares 0.64%/0.59% Class A Shares 0.64%/0.59%
Pegasus Treasury Cash One Group Treasury Cash One Group Treasury Cash
Management Fund Management Money Market Management Money Market
Class I Shares 0.38%/0.35% Fund Fund
Class S Shares 0.63%/0.60% Class I Shares 0.38%/0.34% Class I Shares 0.38%/0.34%
Class A Shares 0.63%/0.59% Class A Shares 0.63%/0.59%
Pegasus Treasury Prime One Group Treasury One Group Treasury
Cash Management Prime Cash Management Prime Cash Management
Fund Money Market Fund Money Market Fund
Class I Shares 0.40%/0.35% Class I Shares 0.40%/0.34% Class I Shares 0.40%/0.34%
Class S Shares 0.65%/0.60% Class A Shares 0.65%/0.59% Class A Shares 0.65%/0.59%
Pegasus U.S. Government One Group U.S. One Group U.S.
Securities Cash Management Government Securities Government Securities
Fund Cash Management Money Cash Management Money
Market Fund Market Fund
Class I Shares 0.37%/0.35% Class I Shares 0.38%/0.35% Class I Shares 0.38%/0.35%
Class S Shares 0.62%/0.60% Class A Shares 0.63%/0.60% Class A Shares 0.63%/0.60%
</TABLE>
35
<PAGE> 44
<TABLE>
<CAPTION>
Pro Forma
Total Operating Total Operating Total Operating
Expenses Corresponding Expenses Combined Expenses
Pegasus Fund Before/After One Group Fund Share Before/After Fund Share Class Before/After
Share Class Waivers Class Waivers Post-Reorganization Waivers
----------- ------- ----- ------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Pegasus Municipal Cash One Group Municipal One Group Municipal
Management Fund Cash Management Money Cash Management Money
Market Fund Market Fund
Class I Shares 0.38%/0.35% Class I Shares 0.38%/0.34% Class I Shares 0.38%/0.34%
Class S Shares 0.63%/0.60% Class A Shares 0.63%/0.59% Class A Shares 0.63%/0.59%
Pegasus Managed Assets One Group Investor One Group Investor
Conservative Fund Balanced Fund Balanced Fund
Class A Shares 1.38%/1.25% Class A Shares 1.43%/1.23% Class A Shares 1.43%/1.23%
Class B Shares 2.13%/2.00% Class B Shares 2.08%/1.98% Class B Shares 2.08%/1.98%
Class I Shares 1.13%/1.00% Class I Shares 1.08%/0.98% Class I Shares 1.08%/0.98%
Pegasus Managed Assets One Group Investor One Group Investor
Balanced Fund Growth & Income Fund Growth & Income Fund
Class A Shares 1.38%/1.25% Class A Shares 1.46%/1.28% Class A Shares 1.46%/1.28%
Class B Shares 2.13%/2.00% Class B Shares 2.11%/2.03% Class B Shares 2.11%/2.03%
Class I Shares 1.13%/1.00% Class I Shares 1.11%/1.03% Class I Shares 1.11%/1.03%
Pegasus Managed Assets One Group Investor One Group Investor
Growth Fund Growth Fund Growth Fund
Class A Shares 1.67%/1.25% Class A Shares 1.47%/1.30% Class A Shares 1.47%/1.30%
Class B Shares 2.42%/2.00% Class B Shares 2.12%/2.05% Class B Shares 2.12%/2.05%
Class I Shares 1.42%/1.00% Class I Shares 1.12%/1.05% Class I Shares 1.12%/1.05%
One Group Income Equity One Group Equity Income
Pegasus Equity Income Fund Fund Fund
Class A Shares 0.95%/0.95% Class A Shares 1.35%/1.25% Class A Shares 1.31%/1.21%
Class B Shares 1.70%/1.70% Class B Shares 2.00%/2.00% Class B Shares 1.96%/1.96%
Class I Shares 0.70%/0.70% Class I Shares 1.00%/1.00% Class I Shares 0.96%/0.96%
One Group Large Company One Group Large Cap
Pegasus Growth Fund Growth Fund Growth Fund
Class A Shares 1.07%/1.07% Class A Shares 1.35%/1.25% Class A Shares 1.29%/1.19%
Class B Shares 1.82%/1.82% Class B Shares 2.00%/2.00% Class B Shares 1.94%/1.94%
Class I Shares 0.82%/0.82% Class I Shares 1.00%/1.00% Class I Shares 0.94%/0.94%
Pegasus Mid-Cap One Group Diversified One Group Diversified
Opportunity Fund MidCap Fund MidCap Fund
Class A Shares 1.14%/1.14% Class A Shares 1.36%/1.11% Class A Shares 1.36%/1.11%
Class B Shares 1.89%/1.89% Class B Shares 2.01%/1.86% Class B Shares 2.01%/1.86%
Class I Shares 0.89%/0.89% Class I Shares 1.01%/0.86% Class I Shares 1.01%/0.86%
Pegasus Small-Cap One Group Small Cap One Group Small Cap
Opportunity Fund Value Fund Value Fund
Class A Shares 1.19%/1.19% Class A Shares 1.31%/1.16% Class A Shares 1.31%/1.16%
Class B Shares 1.94%/1.94% Class B Shares 1.96%/1.91% Class B Shares 1.96%/1.91%
Class I Shares 0.94%/0.94% Class I Shares 0.96%/0.91% Class I Shares 0.96%/0.91%
</TABLE>
36
<PAGE> 45
<TABLE>
<CAPTION>
Pro Forma
Total Operating Total Operating Total Operating
Expenses Corresponding Expenses Combined Expenses
Pegasus Fund Before/After One Group Fund Share Before/After Fund Share Class Before/After
Share Class Waivers Class Waivers Post-Reorganization Waivers
----------- ------- ----- ------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Pegasus Intrinsic Value One Group Disciplined One Group Mid Cap Value
Fund Value Fund Fund
Class A Shares 1.09%/1.09% Class A Shares 1.35%/1.25% Class A Shares 1.31%/1.21%
Class B Shares 1.84%/1.84% Class B Shares 2.00%/2.00% Class B Shares 1.96%/1.96%
Class I Shares 0.84%/0.84% Class I Shares 1.00%/1.00% Class I Shares 0.96%/0.96%
Pegasus Growth and Value One Group Value Growth One Group Value Growth
Fund Fund Fund
Class A Shares 1.11%/1.11% Class A Shares 1.35%/1.25% Class A Shares 1.32%/1.22%
Class B Shares 1.86%/1.86% Class B Shares 2.00%/2.00% Class B Shares 1.97%/1.97%
Class I Shares 0.86%/0.86% Class I Shares 1.00%/1.00% Class I Shares 0.97%/0.97%
One Group Equity Index One Group Equity Index
Pegasus Equity Index Fund Fund Fund
Class A Shares 0.65%/0.65% Class A Shares 0.90%/0.75% Class A Shares 0.93%/0.61%
Class B Shares 1.40%/1.40% Class B Shares 1.55%/1.50% Class B Shares 1.58%/1.36%
Class I Shares 0.40%/0.40% Class I Shares 0.55%/0.50% Class I Shares 0.58%/0.36%
Pegasus Market Expansion One Group Market One Group Market
Index Fund* Expansion Index Fund Expansion Index Fund
Class A Shares 1.17%/0.82% Class A Shares 1.22%/0.82% Class A Shares 1.22%/0.82%
Class B Shares 1.92%/1.57% Class B Shares 1.87%/1.57% Class B Shares 1.87%/1.57%
Class I Shares 0.92%/0.57% Class I Shares 0.87%/0.57% Class I Shares 0.87%/0.57%
Pegasus International One Group International One Group Diversified
Equity Fund Opportunities Fund International Fund
Class A Shares 1.44%/1.32% Class A Shares 1.38%/1.27% Class A Shares 1.38%/1.27%
Class B Shares 2.19%/2.07% Class B Shares 2.03%/2.02% Class B Shares 2.03%/2.02%
Class I Shares 1.19%/1.07% Class I Shares 1.03%/1.02% Class I Shares 1.03%/1.02%
Pegasus Intermediate Bond One Group Intermediate One Group Intermediate
Fund Bond Fund Bond Fund
Class A Shares 0.90%/0.90% Class A Shares 1.17%/0.87% Class A Shares 1.17%/0.83%
Class B Shares 1.65%/1.65% Class B Shares 1.82%/1.52% Class B Shares 1.82%/1.48%
Class I Shares 0.65%/0.65% Class I Shares 0.82%/0.62% Class I Shares 0.82%/0.58%
Pegasus Bond Fund One Group Bond Fund One Group Bond Fund
Class A Shares 0.88%/0.88% Class A Shares 1.16%/0.85% Class A Shares 1.16%/0.85%
Class B Shares 1.63%/1.63% Class B Shares 1.81%/1.50% Class B Shares 1.81%/1.50%
Class I Shares 0.63%/0.63% Class I Shares 0.81%/0.60% Class I Shares 0.81%/0.60%
Pegasus Short Bond One Group Limited One Group Short-Term
Fund Volatility Fund Bond Fund
Class A Shares 0.84%/0.84% Class A Shares 1.17%/0.87% Class A Shares 1.16%/0.78%
Class B Shares 1.59%/1.59% Class B Shares 1.82%/1.37% Class B Shares 1.81%/1.28%
Class I Shares 0.59%/0.59% Class I Shares 0.82%/0.62% Class I Shares 0.81%/0.53%
</TABLE>
37
<PAGE> 46
<TABLE>
<CAPTION>
Pro Forma
Total Operating Total Operating Total Operating
Expenses Corresponding Expenses Combined Expenses
Pegasus Fund Before/After One Group Fund Share Before/After Fund Share Class Before/After
Share Class Waivers Class Waivers Post-Reorganization Waivers
----------- ------- ----- ------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Pegasus Multi Sector Bond One Group Income Bond One Group Income Bond
Fund Fund Fund
Class A Shares 0.90%/0.90% Class A Shares 1.17%/0.87% Class A Shares 1.16%/0.87%
Class B Shares 1.65%/1.65% Class B Shares 1.82%/1.52% Class B Shares 1.81%/1.52%
Class I Shares 0.65%/0.65% Class I Shares 0.82%/0.62% Class I Shares 0.81%/0.62%
Pegasus High Yield Bond One Group High Yield One Group High Yield
Fund Bond Fund Bond Fund
Class A Shares 1.24%/1.14% Class A Shares 1.45%/1.20% Class A Shares 1.37%/1.12%
Class B Shares 1.99%/1.89% Class B Shares 2.10%/1.85% Class B Shares 2.02%/1.77%
Class I Shares 0.99%/0.89% Class I Shares 1.10%/0.95% Class I Shares 1.02%/0.87%
One Group Tax-Free Bond One Group Tax-Free Bond
Pegasus Municipal Bond Fund Fund Fund
Class A Shares 0.88%/0.88% Class A Shares 1.03%/0.87% Class A Shares 1.03%/0.87%
Class B Shares 1.63%/1.63% Class B Shares 1.68%/1.52% Class B Shares 1.68%/1.52%
Class I Shares 0.63%/0.63% Class I Shares 0.68%/0.62% Class I Shares 0.68%/0.62%
Pegasus Short Municipal One Group Short-Term One Group Short-Term
Bond Fund Municipal Bond Fund Municipal Bond Fund
Class A Shares 0.94%/0.87% Class A Shares 1.24%/0.87% Class A Shares 1.24%/0.87%
Class B Shares 1.69%/1.62% Class B Shares 1.89%/1.52% Class B Shares 1.89%/1.52%
Class I Shares 0.69%/0.62% Class I Shares 0.89%/0.62% Class I Shares 0.89%/0.62%
Pegasus Intermediate One Group Intermediate One Group Intermediate
Municipal Bond Fund Tax-Free Bond Fund Tax-Free Bond Fund
Class A Shares 0.85%/0.85% Class A Shares 1.19%/0.91% Class A Shares 1.14%/0.83%
Class B Shares 1.60%/1.60% Class B Shares 1.84%/1.56% Class B Shares 1.79%/1.48%
Class I Shares 0.60%/0.60% Class I Shares 0.84%/0.66% Class I Shares 0.79%/0.58%
Pegasus Michigan Municipal One Group Michigan One Group Michigan
Bond Fund Municipal Bond Fund Municipal Bond Fund
Class A Shares 0.91%/0.91% Class A Shares 1.06%/0.90% Class A Shares 1.06%/0.90%
Class B Shares 1.66%/1.66% Class B Shares 1.71%/1.55% Class B Shares 1.71%/1.55%
Class I Shares 0.66%/0.66% Class I Shares 0.71%/0.65% Class I Shares 0.71%/0.65%
</TABLE>
- -----------------------
* The Pegasus Market Expansion Index commenced investment operations on
August 1, 1998.
38
<PAGE> 47
SHARE CLASSES. The non-money market funds of Pegasus currently offer
three share classes: Class A, Class B, and Class I. The Pegasus Money Market
Fund offers Class A, Class B and Class I shares, but B shares are only offered
through an exchange from a non-money market fund. The Treasury Money Market,
Municipal Money Market and Michigan Municipal Money Market Funds offer Class A
and Class I shares. The Pegasus Cash Management Funds offer Class I and Class S
Shares. Class A shares and Class B shares may be purchased through a number of
institutions including FCNIMCO, First National Bank of Chicago ("FNBC"),
American National Bank and Trust Company ("ANB") and their affiliates, including
First NBD Investment Services, Inc., a registered broker-dealer, BISYS which
serves the Trust as its Distributor and certain banks, securities dealers and
other industry professionals such as investment advisers, accountants and estate
planning firms. Class I and Class S shares of the Cash Management Funds are sold
to institutional investors, including banks (such as FNBC, NBD Bank ("NBD"), and
ANB or their affiliates), acting for themselves or in a fiduciary, advisory,
agency, custodial or similar capacity, public agencies and municipalities,
employee benefit plans or other programs, registered investment advisers and
other financial institutions. For more information, see the section entitled
"Description of Classes" in the Pegasus Prospectuses incorporated by reference
into this Combined Prospectus/Proxy Statement.
The One Group Funds currently offer five classes of shares: Class A,
Class B, Class C, Class I and Service Class Shares. Class A, Class B and Class C
shares are offered to the general public. The Institutional Money Market Funds
offer Class I shares only. The One Group Prime and U.S. Treasury Securities
Money Market Funds offer Class A, Class B, Class C, Class I and Service Class
shares. The One Group Ohio Municipal and Michigan Municipal Money Market Funds
offer Class A, Class C, Class I and Service Class shares. Class I shares are
offered to institutional investors, including affiliates of BOC and any bank,
depository institution, insurance company, pension plan or other organization
authorized to act in fiduciary, advisory, agency, custodial or similar
capacities. Service Class shares are offered to entities purchasing such shares
on behalf of investors requiring additional administrative or accounting
services such as sweep processing. For more information, see the section
entitled "How To Do Business With The One Group" in the One Group Prospectuses
incorporated by reference into the Combined Prospectus/Proxy Statement.
INVESTMENT ADVISER - PEGASUS PORTFOLIOS. FCNIMCO, an indirect subsidiary of BOC,
serves as investment adviser for the Pegasus Portfolios. Federated serves as
sub-adviser to the High Yield Bond Fund subject to the oversight and supervision
of FCNIMCO. Pursuant to the Pegasus investment advisory agreement and FCNIMCO's
sub-advisory agreement with Federated, FCNIMCO and, Federated in the case of the
High Yield Bond Fund, provide the day-to-day management of each Pegasus
Portfolio's investments, subject to the overall authority of the Board and in
conformity with applicable state law and the stated policies of the Portfolio.
FCNIMCO, and Federated in the case of the High Yield Bond Fund, are responsible
for making investment decisions for each Pegasus Portfolio, placing purchase and
sale orders and providing research, statistical analysis and continuous
supervision of each Portfolio's investments.
FCNIMCO located at Three First National Plaza, Chicago Illinois 60670,
is a registered investment adviser.
39
<PAGE> 48
Federated, located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222, is a registered investment adviser and a subsidiary of
Federated Investors.
FCNIMCO is entitled to and has received advisory fees from the Pegasus
Portfolios, computed daily and paid monthly, at the following annual rates,
expressed as a percentage of the Portfolios' average daily net assets:
<TABLE>
<CAPTION>
EFFECTIVE ADVISORY FEE
RATE FOR FISCAL
YEAR OR PERIOD
ENDED DECEMBER 31,
PEGASUS PORTFOLIOS CURRENT CONTRACTUAL ADVISORY FEE RATE 1997 (AFTER WAIVERS)
- ------------------ ------------------------------------- --------------------
<S> <C> <C>
Money Market Fund .30% of the first $1 billion, .275% of .28%
the next $1 billion and .25% of average
daily net assets in excess of $2 billion
Treasury Money Market Fund .30% of the first $1 billion, .275% of .29%
the next $1 billion and .25% of average
daily net assets in excess of $2 billion
Municipal Money Market Fund .30% of the first $1 billion, .275% of .30%
the next $1 billion and .25% of average
daily net assets in excess of $2 billion
Michigan Municipal Money Market Fund .30% of the first $1 billion, .275% of .27%
the next $1 billion and .25% of average
daily net assets in excess of $2 billion
Cash Management Fund .20% .17%
Treasury Cash Management Fund .20% .17%
Treasury Prime Cash Management Fund .20% .16%
U. S. Government Securities Cash
Management Fund .20% .17%
Municipal Cash Management Fund .20% .17%
Managed Assets Conservative Fund .65% .52%
Managed Assets Balanced Fund .65% .52%
Managed Assets Growth Fund .65% .35%
Equity Income Fund .50% .50%
Growth Fund .60% .60%
Mid-Cap Opportunity Fund .60% .60%
</TABLE>
40
<PAGE> 49
<TABLE>
<CAPTION>
EFFECTIVE ADVISORY FEE
RATE FOR FISCAL
YEAR OR PERIOD
ENDED DECEMBER 31,
PEGASUS PORTFOLIOS CURRENT CONTRACTUAL ADVISORY FEE RATE 1997 (AFTER WAIVERS)
- ------------------ ------------------------------------- --------------------
<S> <C> <C>
Small-Cap Opportunity Fund .70% .70%
Intrinsic Value Fund .60% .60%
Growth and Value Fund .60% .59%
Equity Index Fund .10% .08%
Market Expansion Index Fund .25% N/A
International Equity Fund .80% .80%
Intermediate Bond Fund .40% .40%
Bond Fund .40% .40%
Short Bond Fund .35% .33%
Multi Sector Bond Fund .40% .40%
High Yield Bond Fund .70% .61%
Municipal Bond Fund .40% .40%
Short Municipal Bond Fund .40% N/A
Intermediate Municipal Bond Fund .40% .40%
Michigan Municipal Bond Fund .40% .34%
</TABLE>
- --------------------------
For the services provided by Federated to the High Yield Bond Fund,
FCNIMCO pays, out of the fees it receives from Pegasus, a monthly fee at the
following annual rate (as a percentage of the Fund's average daily net assets):
.50% on the first $30 million of average daily net assets; .40% on the next $20
million; .30% on the next $25 million; .25% on the next $25 million; and .20% of
the Fund's average daily net assets in excess of $100 million. For the fiscal
year ended December 31, 1997, Federated was paid an effective advisory fee rate
of .61%.
INVESTMENT ADVISER - ONE GROUP FUNDS. BOIA, an indirect subsidiary of BOC,
serves as investment adviser to the One Group Funds. Under its investment
advisory agreement with One Group, BOIA makes the day- to-day investment
decisions for the One Group Funds and continuously reviews, supervises and
administers their investment programs subject to the supervision of, and
policies established by, the Board of Trustees of One Group. Independence
International Associates, Inc. ("Independence International")
41
<PAGE> 50
serves as sub-adviser to the International Equity Index Fund and Banc One High
Yield Partners LLC ("Banc One Partners") serves as sub-adviser to the High Yield
Bond Fund subject to the oversight and supervision of BOIA. Pursuant to BOIA's
sub-advisory agreements with Independence International and Banc One Partners,
BOIA and Independence International, in the case of the International Equity
Index Fund, and Banc One Partners, in the case of the High Yield Bond Fund,
provide the day-to-day management of each One Group Fund's investments, subject
to the overall authority of BOIA and the Board and in conformity with applicable
state law and the stated policies of the Fund.
Independence International, located at 75 State Street, Boston,
Massachusetts, 02109, is a registered investment adviser and an indirect
subsidiary of John Hancock Mutual Life Insurance Company. Banc One Partners,
located at 1111 Polaris Parkway, P.O. Box 710211, Columbus, Ohio 43271-0211, is
a registered investment adviser. BancOne Partners is controlled by BOIA and
Pacholder Associates, Inc., an investment advisory firm which specializes in
high yield, high risk, fixed income securities.
BOIA, located at 1111 Polaris Parkway, Columbus, Ohio 43271, is a
registered investment adviser and an indirect subsidiary of BOC. BOIA is
entitled to and has received advisory fees from the One Group Funds, computed
daily and paid monthly, at the following annual rates, expressed as a percentage
of the Funds' average daily net assets:
<TABLE>
<CAPTION>
EFFECTIVE ADVISORY
FEE RATE FOR FISCAL
YEAR OR PERIOD ENDED
CURRENT CONTRACTUAL ADVISORY JUNE 30, 1998
ONE GROUP FUNDS FEE RATE (AFTER WAIVERS)
- --------------- -------- ---------------
<S> <C> <C>
Prime Money Market Fund .35% .30%
U.S. Treasury Securities Money
Market Fund .35% .28%
Municipal Money Market Fund .35% .25%
Michigan Municipal Money Market Fund(1) .35% N/A
Cash Management Money Market Fund(1) .20% N/A
Treasury Cash Management Money Market
Fund(1) .20% N/A
Treasury Prime Cash Management
Money Market Fund(1) .20% N/A
U.S. Government Cash Management Money
Market Fund(1) .20% N/A
Municipal Cash Management Money
Market Fund(1) .20% N/A
Investor Balanced Fund .05% .04%
Investor Growth & Income Fund .05% .04%
Investor Growth Fund .05% .03%
</TABLE>
42
<PAGE> 51
<TABLE>
<CAPTION>
EFFECTIVE ADVISORY
FEE RATE FOR FISCAL
YEAR OR PERIOD ENDED
CURRENT CONTRACTUAL ADVISORY JUNE 30, 1998
ONE GROUP FUNDS FEE RATE (AFTER WAIVERS)
- --------------- -------- ---------------
<S> <C> <C>
Income Equity Fund .74% of the first $1.5 billion, .74%(2)
(to be renamed Equity Income Fund upon .70% of the next $500 million, and
Reorganization) .65% of average daily net assets
in excess of $2 billion
Large Company Growth Fund .74% of the first $1.5 billion, .74%(2)
(to be renamed Large Cap Growth Fund .70% of the next $500 million, and
upon Reorganization) .65% of average daily net assets
in excess of $2 billion
Diversified Mid-Cap Fund(1) .74% of the first $1.5 billion, N/A
.70% of the next $500 million, and
.65% of average daily net assets
in excess of $2 billion
Small-Cap Value Fund(1) .74% of the first $1.5 billion, N/A
.70% of the next $500 million, and
.65% of average daily net assets
in excess of $2 billion
Disciplined Value Fund .74% of the first $1.5 billion, .74%(2)
(to be renamed Mid-Cap Value Fund upon .70% of the next $500 million, and
Reorganization) .65% of average daily net assets
in excess of $2 billion
Value Growth Fund .74% of the first $1.5 billion, .74%(2)
.70% of the next $500 million, and
.65% of average daily net assets
in excess of $2 billion
Equity Index Fund .30% .10%
Market Expansion Index Fund(1) .35% N/A
Diversified International Fund(1) .80% N/A
Intermediate Bond Fund .60% .34%
Bond Fund(1) .60% N/A
Limited Volatility Bond Fund .60% .31%
</TABLE>
- --------------------------
(1) The New One Group Funds have recently been organized for the purpose of
continuing the investment operations of the Continuing Pegasus Portfolios.
With respect to the New One Group Funds, BOIA has agreed to waive a portion
of its investment advisory fee until at least March, 2000 so that the rate
of total operating expenses actually paid will equal the rate currently
paid for total operating expenses by the corresponding Continuing Pegasus
Portfolios.
(2) The effective advisory fee rate was based on a contractual rate of .74%
then in effect.
(3) The One Group High Yield Bond Fund commenced operations on November 13,
1998
43
<PAGE> 52
<TABLE>
<CAPTION>
EFFECTIVE ADVISORY
FEE RATE FOR FISCAL
YEAR OR PERIOD ENDED
CURRENT CONTRACTUAL ADVISORY JUNE 30, 1998
ONE GROUP FUNDS FEE RATE (AFTER WAIVERS)
- --------------- -------- ---------------
<S> <C> <C>
(to be renamed Short-Term Bond Fund upon
Reorganization)
Income Bond Fund .60% .40%
High Yield Bond Fund(3) .75% N/A
Tax-Free Bond Fund(1) .45% N/A
Short-Term Municipal Bond Fund(1) .60% N/A
Intermediate Tax-Free Bond Fund .60% .39%
Michigan Municipal Bond Fund(1) .45% N/A
</TABLE>
Independence International is entitled to a fee from BOIA at the
following annual rates as a percentage of average daily net assets: up to $10
million -- .275%, over $10,000,000 up to $25,000,000 -- .225%, over $25,000,000
up to $50,000,000 -- .195%, over $50,000,000 up to $100,000,000 -- .125%, over
$100,000,000 -- .060%. Independence International was paid at an effective
sub-advisory fee rate of .55% for the fiscal year or period ended June 30, 1998.
For its services, Banc One Partners is entitled to a fee, from BOIA
equal to .70% of the High Yield Bond Fund's average daily net assets. Banc One
Partners received no payment for the period ended June 30, 1998, since the High
Yield Bond Fund had not commenced operations during that period.
44
<PAGE> 53
<TABLE>
<CAPTION>
CERTAIN OTHER SERVICE PROVIDERS
FOR THE PEGASUS PORTFOLIOS AND ONE GROUP FUNDS
- ---------------------------------------- -------------------------------------- --------------------------------------
PEGASUS PORTFOLIOS ONE GROUP FUNDS
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Administrators FCNIMCO and BISYS Fund Services One Group Services Company ("OGSC")
Limited Partnership d/b/a BISYS Fund (Administrator)
Services ("BISYS") Banc One Investment Advisors
("Co-Administrators") ("BOIA") ("Sub-Administrator")
- ---------------------------------------- -------------------------------------- --------------------------------------
Transfer Agents First Data Investor Services Group, State Street Bank and Trust Company
Inc. ("FDISG") ("State Street")
- ---------------------------------------- -------------------------------------- --------------------------------------
Custodian NBD Bank ("NBD") ("Custodian") State Street ("Custodian")
State Street ("Sub-Custodian") Bank One Trust Company, N.A.
("BOTC") ("Sub-Custodian")
- ---------------------------------------- -------------------------------------- --------------------------------------
Distributor BISYS OGSC
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
FCNIMCO and BISYS (located at 3435 Stelzer Road, Columbus, Ohio
43219-3035) jointly serve as the Co-Administrators for the Pegasus Portfolios
pursuant to an Administration Agreement with the Trust. Under the Administration
Agreement, FCNIMCO and BISYS generally assist in all aspects of the Trust's
operations, other than providing investment advice, subject to the overall
authority of the Pegasus Board in accordance with Massachusetts law. Under the
terms of the Administration Agreement Pegasus pays FCNIMCO, as agent for the
Co-Administrators, a monthly administration fee at the annual rate of .15% of
each Pegasus Portfolio's average daily net assets. For the fiscal year ended
December 31, 1997, Pegasus paid administration fees at the effective annual rate
of .15% of each Pegasus Portfolio's average daily net assets.
The Managed Assets Conservative, Managed Assets Balanced and Managed
Assets Growth Funds (collectively, the "Asset Allocation Funds") invest in
shares of certain of the other Pegasus Portfolios (the "Underlying Funds").
FCNIMCO and the Co-Administrators reimburse the Asset Allocation Funds the full
amount of advisory fees and administration fees incurred by each of the
Underlying Funds with respect to shares held by the Asset Allocation Funds.
FCNIMCO and BISYS can discontinue or modify any such reimbursements at their
discretion. Investors in the Asset Allocation Funds do indirectly bear that
portion of the expenses of the Underlying Funds related to other expenses such
as custody, transfer agency and professional fees.
OGSC, a wholly-owned subsidiary of The BISYS Group, Inc., serves as the
Administrator for the One Group Funds and BOIA acts as Sub-Administrator. OGSC
is responsible for responding to shareholder inquiries and requests for
information, as well as providing regulatory reporting and compliance. For these
services, OGSC receives a fee based on the total assets of One Group. With
respect to each of the One Group Funds (other than the institutional money
market funds and the Investor Funds), for the first $1.5 billion in One Group
assets, OGSC receives an annual fee of .20% of each Fund's average daily net
assets; the annual rate declines to .18% on assets between $1.5 and $2 billion,
45
<PAGE> 54
and to .16% on assets in excess of $2 billion. With respect to the institutional
money market funds, OGSC receives an annual fee of .05% of each institutional
money market fund's average daily net assets. OGSC receives from One Group
Investor Funds an annual fee of .10% of each Investor Fund's average daily net
assets on $500,000,000 in Fund assets. The fee declines to .075% on net assets
between $500,000,000 and $1 billion, and to .05% on assets over $1 billion. The
fees are calculated daily and paid monthly. Some Funds are not included in these
calculations. As Sub-Administrator, BOIA provides office space, equipment and
facilities, as well as legal and regulatory support.
OGSC is located at 3435 Stelzer Road, Columbus, Ohio 43219.
FDISG, located at P.O. Box 5142, Westborough , Massachusetts
01581-5120, serves as transfer agent to the Pegasus Portfolios.
State Street, located at P.O. Box 8500, Boston Massachusetts
02266-8500, serves as transfer agent and custodian to the One Group Funds. BOTC
serves as sub-custodian in connection with the Funds' securities lending
activities under an agreement with State Street. BOTC is located at 774 Park
Meadow Road, Westerville, OH 43271.
NBD Bank ("NBD") serves as Pegasus' custodian. As of September 8, 1998,
NBD has entered into a Sub-Custodian Agreement with State Street Bank and Trust
Company ("State Street"). As sub-custodian State Street agreed to hold, deliver
and register securities, maintain bank accounts, collect income, pay fund
monies, appoint agents and deposit fund assets in U.S. Securities Systems, among
other things. NBD, located at 900 Tower Drive, Troy, Michigan 48098, is an
indirect wholly-owned subsidiary of BOC.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICING ARRANGEMENTS - PEGASUS PORTFOLIOS.
BISYS is the principal underwriter and distributor for Pegasus. Pegasus has
adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act (the
"Pegasus 12b-1 Plan") with respect to Class B Shares of the Pegasus Portfolios
that offer such shares and a Shareholders Services Plan with respect to Class A
and Class B shares. Under the Pegasus 12b-1 Plan, the Class B Shares have agreed
to pay BISYS for advertising, marketing and distributing shares of each
Portfolio at an aggregate annual rate of 0.75% of the average daily net asset
value of such Portfolio's outstanding Class B Shares. BISYS may pay
institutions, including FCNIMCO, and its subsidiaries and affiliates
(collectively, "Service Agents"), for distribution services to Class B
shareholders. BISYS determines the amounts, if any, to be paid to Service Agents
under the Pegasus 12b-1 Plan and the basis on which such payments are made. The
fees payable under the Pegasus 12b-1 Plan are payable without regard to actual
expenses incurred. The Cash Management Funds have a Distribution and Services
Plan with respect to Class S shares adopted by the Board of Trustees under which
BISYS is paid a fee of up to .25% of the average daily net asset value of
Class S.
In addition to the 12b-1 Plan, Pegasus has adopted a Shareholder
Services Plan for the Class A and Class B Shares (each a "Shareholder Services
Plan") for each Pegasus Portfolio other than the Cash Management Funds. Under
each Shareholder Services Plan, each Pegasus Portfolio pays BISYS for the
provision of certain administrative support services to the shareholders of
these shares a fee at the annual rate of .25% of the value of the average daily
net assets of such Class A or Class B Shares. The services provided may include
personal services related to shareholder accounts, such as answering shareholder
46
<PAGE> 55
inquiries regarding the applicable Portfolio and providing reports and other
information, and services related to the maintenance of shareholder accounts.
Under each Shareholder Services Plan, BISYS may make payments to Service Agents
in respect of those services.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICING ARRANGEMENTS - ONE GROUP. OGSC, a
wholly-owned subsidiary of The BISYS Group, Inc., is the principal underwriter
and distributor for The One Group.
One Group has adopted a 12b-1 Plan under the 1940 Act (the "Plan") with
respect to its funds under which fees are paid by One Group to OGSC as
compensation for its services and expenses. OGSC in turn pays all or part of
such fees to shareholder servicing agents that sell shares of One Group. Plan
fees vary by share class. Class A shares for all funds except the Prime,
Municipal and U.S. Treasury Securities Money Market Funds are subject to a Plan
fee of .35% of the average daily net assets of the Fund, which is currently
being waived to .25%. Class A shares of the Prime, Municipal and U.S. Treasury
Securities Money Market Funds pay a Plan fee of .25% of average daily net assets
of the Fund. Class B and Class C shares pay a Plan fee (including shareholder
service fee) of 1.00% of average daily net assets of the Fund, which is
currently being waived to .90% for the Intermediate Bond and Income Bond and to
.75% for the Limited Volatility Bond Fund. Service Class shares of the Prime,
Municipal, Michigan Municipal and U.S. Treasury Securities Money Market Funds
are subject to a Plan fee of .75% of the average daily net assets of the Fund,
which is currently being waived to .55%. There are no Plan fees for Class I
shares. As with the Pegasus 12b-1 and Shareholder Servicing Plans, OGSC may use
up to .25% of the Plan fees for shareholder servicing and up to .75% for
distribution.
See the Existing One Group Fund Prospectuses accompanying this Combined
Prospectus/Proxy Statement, which are incorporated herein by reference, and the
Pegasus Prospectuses for additional information on the service providers.
SHAREHOLDER TRANSACTIONS AND SERVICES. The Pegasus Portfolios and their
corresponding One Group Funds offer generally similar shareholder services and
transactions. There are, however, some differences. For example, the minimum
initial investment amount for Class I shares of the Pegasus Portfolios is
generally $1,000,000, while the minimum initial investment amount for Class I
shares of the One Group is generally $1,000. For a more detailed comparison of
shareholder transactions and services see Appendix IV - Shareholder Transactions
and Services.
After the Reorganization, One Group will continue to honor any standing
instructions regarding the corresponding Pegasus Portfolio share classes under
arrangements such as automatic withdrawal plans, systematic investment plans or
dividend reinvestment plans. In such cases, standing instructions will be
subject to the same or similar terms (e.g., minimum investments, account
balances and minimum transaction amounts) currently in effect, except that there
may be exceptions with respect to the timing of transactions which may need to
be altered to comport with One Group's procedures. Shareholders will be notified
of any such exceptions. After the Reorganization, any instructions given with
respect to any new account will be subject to the terms of the applicable One
Group Fund share class. For a complete description and comparison of the terms
applicable to standing instructions and other account features regarding the
Pegasus Portfolios and One Group Funds, see Appendix IV to this Combined
Prospectus/Proxy Statement.
47
<PAGE> 56
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Prospectus/Proxy Statement is being furnished
in connection with the solicitation of proxies by Pegasus' Board of Trustees in
connection with the Meeting. It is expected that the solicitation of proxies
will be primarily by mail. Officers and service contractors of Pegasus may also
solicit proxies by telephone, telegraph, facsimile or personal interview.
Shareholder Communications Corporation has been retained to assist in the
solicitation of proxies primarily by contacting shareholders by telephone and
telegram. Authorizations to execute proxies may be obtained by telephonic or
electronically transmitted instructions in accordance with procedures designed
to authenticate the shareholder's identity. In all cases where a telephonic
proxy is solicited, the shareholder will be asked to provide his or her address,
social security number (in the case of an individual) or taxpayer identification
number (in the case of an entity) and the number of shares owned and to confirm
that the shareholder has received the Combined Prospectus/Proxy Statement and
proxy card in the mail. Within 72 hours of receiving a shareholder's telephonic
or electronically transmitted voting instructions, a confirmation will be sent
to the shareholder to ensure that the vote has been taken in accordance with the
shareholder's instructions and to provide a telephone number to call immediately
if the shareholder's instructions are not correctly reflected in the
confirmation. Shareholders requiring further information with respect to
telephonic or electronically transmitted voting instructions or the proxy
generally should contact ADP toll-free at 1-800-___-____. Any shareholder giving
a proxy may revoke it at any time before it is exercised by submitting to
Pegasus a written notice of revocation or a subsequently executed proxy or by
attending the Meeting and voting in person.
Only shareholders of record at the close of business on December __,
1998 will be entitled to vote at the Meeting. On that date, the following
Pegasus Shares were outstanding and entitled to be voted:
<TABLE>
<CAPTION>
NAME OF PEGASUS FUND AND CLASS SHARES ENTITLED TO VOTE
------------------------------ -----------------------
<S> <C>
Pegasus Money Market Fund.............................................. ________________
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Treasury Money Market Fund .................................... ________________
Class A ...................................................... ________________
Class I ...................................................... ________________
Pegasus Municipal Money Market Fund ................................... ________________
Class A ...................................................... ________________
Class I....................................................... ________________
Pegasus Michigan Municipal Money Market Fund .......................... ________________
Class A ...................................................... ________________
</TABLE>
48
<PAGE> 57
<TABLE>
<CAPTION>
NAME OF PEGASUS FUND AND CLASS SHARES ENTITLED TO VOTE
------------------------------ -----------------------
<S> <C>
Class I ...................................................... ________________
Pegasus Cash Management Fund .......................................... ________________
Class I Shares ............................................... ________________
Class S Shares ............................................... ________________
Pegasus Treasury Cash Management Fund ................................. ________________
Class I Shares ............................................... ________________
Class S Shares ............................................... ________________
Pegasus Treasury Prime Cash Management Fund ........................... ________________
Class I Shares ............................................... ________________
Class S Shares ............................................... ________________
Pegasus U.S. Government Securities Cash Management Fund
Class I Shares ............................................... ________________
Class S Shares ............................................... ________________
Pegasus Municipal Cash Management Fund ................................ ________________
Class I Shares ............................................... ________________
Class S Shares ............................................... ________________
Pegasus Managed Assets Conservative Growth Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Managed Assets Balanced Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Managed Assets Growth Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Equity Income Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
</TABLE>
49
<PAGE> 58
<TABLE>
<CAPTION>
NAME OF PEGASUS FUND AND CLASS SHARES ENTITLED TO VOTE
------------------------------ -----------------------
<S> <C>
Pegasus Growth Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Mid-Cap Opportunity Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Small-Cap Opportunity Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Intrinsic Value Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Growth and Value Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Equity Index Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Market Expansion Index Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus International Equity Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Intermediate Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
</TABLE>
50
<PAGE> 59
<TABLE>
<CAPTION>
NAME OF PEGASUS FUND AND CLASS SHARES ENTITLED TO VOTE
------------------------------ -----------------------
<S> <C>
Class I ...................................................... ________________
Pegasus Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Short Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Multi Sector Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus High Yield Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Municipal Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Short Municipal Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Intermediate Municipal Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
Pegasus Michigan Municipal Bond Fund
Class A ...................................................... ________________
Class B ...................................................... ________________
Class I ...................................................... ________________
</TABLE>
51
<PAGE> 60
Each share or fraction thereof is entitled to one vote or fraction
thereof, and all shares will vote separately by class.
Pegasus and One Group have been advised by FCNIMCO that the shares of
each Pegasus Portfolio over which BOC or its affiliates have voting power will,
wherever possible, be voted in accordance with instructions received from
beneficial owners or fiduciaries of such accounts who are not related to BOC or
its affiliates. As to employee benefit plans, BOC may vote such shares in
accordance with the recommendation of an independent fiduciary. Where BOC is
required to vote Pegasus shares, it will vote them in the same proportions as
the shares of all other voting shareholders of each respective class of each
Pegasus Portfolio were actually voted.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Meeting or any adjournment
thereof. For information on adjournment of the meeting, see "Quorum" below.
SHAREHOLDER AND BOARD APPROVALS. The Reorganization Agreement (and the
transactions contemplated thereby) is being submitted for approval at the
Meeting by the holders of a majority of the outstanding shares of each share
class of each of the Pegasus Money Market, Treasury Money Market, Municipal
Money Market, Michigan Municipal Money Market, Cash Management, Treasury Cash
Management, Treasury Prime Cash Management, U.S. Government Securities Cash
Management, Municipal Cash Management, Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Equity Income, Growth, Mid-Cap
Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and Value, Equity
Index, Market Expansion Index, International Equity, Intermediate Bond, Bond,
Short Bond, Multi Sector Bond, High Yield Bond, Municipal Bond, Short Municipal
Bond, Intermediate Municipal Bond and Michigan Municipal Bond Funds in
accordance with the provisions of Pegasus' Declaration of Trust and the
requirements of the 1940 Act. The term "majority of the outstanding shares" of a
share class of each Pegasus Portfolio as used herein means the lesser of (a) 67%
of the shares of a particular share class of the Pegasus Portfolio present at
the meeting if the holders of more than 50% of the outstanding shares of such a
share class are present in person or by proxy, or (b) more than 50% of the
outstanding shares of such share class.
The approval of the Reorganization by the shareholders of One Group is
not being solicited because their approval or consent is not legally required.
As of December __, 1998, FCNIMCO and its affiliates beneficially owned
___% of the outstanding shares of the Pegasus Money Market, Treasury Money
Market, Municipal Money Market, Michigan Municipal Money Market, Cash
Management, Treasury Cash Management, Treasury Prime Cash Management, U.S.
Government Securities Cash Management, Municipal Cash Management, Managed Assets
Conservative, Managed Assets Balanced, Managed Assets Growth, Equity Income,
Growth, Mid-Cap Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and
Value, Equity Index, Market Expansion Index, International Equity, Intermediate
Bond, Short Bond, Bond, Multi Sector Bond, High Yield Bond, Municipal Bond,
Short Municipal Bond, Intermediate Municipal Bond and Michigan Municipal Bond
Funds on behalf of their customer accounts.
52
<PAGE> 61
As of December __, 1998, the name, address and percentage of ownership
of the persons who owned of record 5% or more of any class of the Reorganizing
Pegasus Portfolios, and the percentage of the respective share classes of the
corresponding One Group Funds that would be owned by those persons upon the
consummation of the Reorganization based upon their holdings on December __,
1998, are as follows:
53
<PAGE> 62
<TABLE>
<CAPTION>
PRO FORMA
PERCENTAGE OF PERCENTAGE OF
PERCENTAGE OF REORGANIZING CLASS OF ONE
REORGANIZING CLASS OF SHARES CLASS OWNED ON PEGASUS FUND OWNED GROUP FUND OWNED
PEGASUS FUND NAME AND ADDRESS OWNED RECORD DATE ON RECORD DATE ON CONSUMMATION
------------ ---------------- ----- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Money Market Fund
Treasury Money Market
Fund
Municipal Money Market
Fund
Managed Assets
Conservative Fund
Managed Assets Balanced
Fund
Managed Assets Growth
Fund
Equity Income Fund
Growth Fund
Intrinsic Value Fund
Growth and Value Fund
Equity Index Fund
Intermediate Bond Fund
</TABLE>
54
<PAGE> 63
<TABLE>
<CAPTION>
PRO FORMA
PERCENTAGE OF PERCENTAGE OF
PERCENTAGE OF REORGANIZING CLASS OF ONE
REORGANIZING CLASS OF SHARES CLASS OWNED ON PEGASUS FUND OWNED GROUP FUND OWNED
PEGASUS FUND NAME AND ADDRESS OWNED RECORD DATE ON RECORD DATE ON CONSUMMATION
------------ ---------------- ----- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Multi Sector Bond Fund
Short Bond Fund
High Yield Bond Fund
Intermediate Municipal
Bond Fund
</TABLE>
As of December ___, 1998, the name, address and percentage of ownership
of each person who owns of record 5% or more of any class of shares of the
Continuing Pegasus Funds is listed below. Prior to the Continuing Pegasus Funds
Transaction the New One Group Funds will have only nominal assets. Accordingly,
the persons who own of record 5% or more of any class of shares of the
Continuing Pegasus Funds will not materially change upon consummation of the
Continuing Pegasus Funds Transaction.
<TABLE>
<CAPTION>
PRO FORMA
PERCENTAGE OF PERCENTAGE OF
PERCENTAGE OF CONTINUING CLASS OF ONE
CONTINUING CLASS OF SHARES CLASS OWNED ON PEGASUS FUND OWNED GROUP FUND OWNED
PEGASUS FUND NAME AND ADDRESS OWNED RECORD DATE ON RECORD DATE ON CONSUMMATION
------------ ---------------- ----- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Michigan Municipal Money
Market Fund
Cash Management Fund
Treasury Cash Management
Fund
Treasury Prime Cash
Management Fund
</TABLE>
55
<PAGE> 64
<TABLE>
<CAPTION>
PRO FORMA
PERCENTAGE OF PERCENTAGE OF
PERCENTAGE OF CONTINUING CLASS OF ONE
CONTINUING CLASS OF SHARES CLASS OWNED ON PEGASUS FUND OWNED GROUP FUND OWNED
PEGASUS FUND NAME AND ADDRESS OWNED RECORD DATE ON RECORD DATE ON CONSUMMATION
------------ ---------------- ----- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
U.S. Government
Securities Cash
Management Fund
Municipal Cash
Management Fund
Mid-Cap Opportunities
Fund
Small-Cap Opportunities
Fund
Market Expansion Index
Fund
International Equity
Fund
Bond Fund
Municipal Bond Fund
Short Municipal Bond
Fund
Michigan Municipal Bond
Fund
</TABLE>
As of December __, 1998, the trustees/directors and officers of
Pegasus, as a group, owned less than 1% of the outstanding shares of each of the
Pegasus Funds.
56
<PAGE> 65
On December __, 1998, Trussal & Co., 9000 Haggerty Road, Belleville,
Michigan 48111, held of record the outstanding Class I Shares, as listed below,
of each investment portfolio of the Pegasus Funds as nominee of NBD Bank's Trust
Division and affiliated banks which acted as agent or custodian on behalf of
their customers. NBD Bank possessed or shared voting or investment power and may
be deemed for certain purposes to be the beneficial owner with respect to those
Class I Shares listed below at December __, 1998.
<TABLE>
<CAPTION>
=============================== =========================================== ========================================
PEGASUS FUND TRUSSAL & CO. NBD BANK
- ------------------------------- ------------------------------------------- ----------------------------------------
<S> <C> <C>
Money Market Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Treasury Money Market Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Municipal Money Market Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Michigan Municipal Money
Market Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Cash Management Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Treasury Cash Management Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Treasury Prime Cash
Management Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
U.S. Government Securities
Cash Management Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Municipal Cash Management Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Managed Assets Conservative
Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Managed Assets Balanced Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Managed Assets Growth Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Equity Income Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Growth Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Mid-Cap Opportunity Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Small-Cap Opportunity Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Intrinsic Value Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
</TABLE>
57
<PAGE> 66
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------- ------------------------------------------- ----------------------------------------
Growth and Value Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Equity Index Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Market Expansion Index Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
International Equity Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Intermediate Bond Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Bond Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Short Bond Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Multi Sector Bond Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
High Yield Bond Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Municipal Bond Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Short Municipal Bond Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Intermediate Municipal Bond
Fund
- ------------------------------- ------------------------------------------- ----------------------------------------
Michigan Municipal Bond Fund
=============================== =========================================== ========================================
</TABLE>
As of December __, 1998, the Automated Cash Management System ("ACMS"),
9000 Haggerty Road, Belleville, Michigan 48111, held of record the following
Class I Shares on behalf of its participants (no participant owned beneficially
5% or more of such Shares):
<TABLE>
<CAPTION>
======================================== ========================== ======================= ============================
Pegasus Fund Number of Shares Held Percent of Class Percent of Fund Shares
Owned on Record Date Owned on Record Date
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
<S> <C> <C> <C>
Money Market Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Treasury Money Market Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Municipal Money Market Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Michigan Municipal Money Market Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Cash Management Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Treasury Cash Management Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Treasury Prime Cash Management Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
U.S. Government Securities Cash
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
</TABLE>
58
<PAGE> 67
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Management Fund
- ---------------------------------------- -------------------------- ----------------------- ----------------------------
Municipal Cash Management Fund
======================================== ========================== ======================= ============================
</TABLE>
As of December __, 1998, the name, address and percentage of ownership
of the persons who owned of record 5% or more of the outstanding shares of the
respective share classes of the Existing One Group Funds are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF THE
PERCENTAGE OF EXISTING ONE GROUP PERCENTAGE OF
THE EXISTING ONE CLASS OF SHARES CLASS OWNED ON FUND OWNED ON CLASS OWNED ON
GROUP FUND NAME AND ADDRESS OWNED RECORD DATE RECORD DATE CONSUMMATION
---------- ---------------- ----- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Prime Money Market
Fund
U.S. Treasury
Securities Money
Market Fund
Municipal Money
Market Fund
Investor Balanced Fund
Investor Growth &
Income Fund
Investor Growth Fund
Income Equity Fund
Large Company Growth
Fund
Disciplined Value Fund
Value Growth Fund
</TABLE>
59
<PAGE> 68
<TABLE>
<CAPTION>
PERCENTAGE OF THE
PERCENTAGE OF EXISTING ONE GROUP PERCENTAGE OF
THE EXISTING ONE CLASS OF SHARES CLASS OWNED ON FUND OWNED ON CLASS OWNED ON
GROUP FUND NAME AND ADDRESS OWNED RECORD DATE RECORD DATE CONSUMMATION
---------- ---------------- ----- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Equity Index Fund
Intermediate Bond Fund
Limited Volatility
Bond Fund
Income Bond Fund
High Yield Bond Fund
Intermediate Tax-Free
Bond Fund
</TABLE>
As of _____, 1998, the trustees and officers of One Group Funds, as a
group, owned less then 1% of the outstanding shares of the respective share
classes of each of the One Group's investment portfolios.
60
<PAGE> 69
APPRAISAL RIGHTS. Shareholders are not entitled to any rights of share appraisal
under Pegasus' Declaration of Trust or By-laws, or under the laws of the
Commonwealth of Massachusetts, in connection with the Reorganization.
Shareholders have, however, the right to redeem from Pegasus their Pegasus
Portfolio shares at net asset value until the effective time of the
Reorganization, and thereafter shareholders may redeem from One Group the shares
of the One Group Fund acquired by them in the Reorganization at net asset value.
QUORUM. In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present at the Meeting but sufficient votes to approve
the Reorganization Agreement and the transactions contemplated thereby are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of the proxies. Any such adjournment
will require the affirmative vote of a majority of those shares affected by the
adjournment that are represented at the Meeting in person or by proxy. If a
quorum is present, the persons named as proxies will vote those proxies which
they are entitled to vote FOR the Reorganization Agreement, in favor of such
adjournments, and will vote those proxies required to be voted AGAINST such
Proposal against any adjournment. A shareholder vote may be taken with respect
to one or more of the share classes on the Proposal prior to any such
adjournment as to which sufficient votes have been received for approval. A
quorum is constituted with respect to each of the share classes of each of the
Pegasus Portfolios by the presence in person or by proxy of the holders of more
than 50% of the outstanding shares thereof entitled to vote at the Meeting. For
purposes of determining the presence of a quorum for transacting business at the
Meeting, abstentions, but not broker "non-votes" (that is, proxies from brokers
or nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a particular matter
with respect to which the brokers or nominees do not have discretionary power),
will be treated as shares that are present at the Meeting but which have not
been voted. Abstentions and broker "non-votes" will have the effect of a "no"
vote for purposes of obtaining the requisite approval of the Proposal.
ANNUAL MEETINGS. Neither One Group nor Pegasus presently intends to hold annual
meetings of shareholders for the election of trustees and other business unless
otherwise required by the 1940 Act. Under certain circumstances, however,
holders of at least 10% of the outstanding shares of Pegasus or 20% of the
outstanding shares of One Group have the right to call a meeting of
shareholders.
ADDITIONAL INFORMATION ABOUT THE ONE GROUP AND PEGASUS.
Information about the Existing One Group Funds is included in the
Prospectuses accompanying this Combined Prospectus/Proxy Statement, which are
incorporated by reference herein. Additional information about these Funds is
included in their Statement of Additional Information dated November 1, 1998,
which have been filed with the SEC under the Securities Act of 1933 and
Investment Company Act of 1940. The file numbers of The One Group Prospectuses
and Statements of Additional Information are Registration Numbers
002-95973/811-04236. A copy of the Statement of Additional Information may be
obtained without charge by writing The One Group Services Company at 3435
Stelzer Road, Columbus, Ohio 43219 or by calling 1-800-480-4111. Information
about Pegasus is incorporated herein by reference from its Prospectuses dated
April 30, 1998 and Statements of Additional Information, dated April 30, 1998,
copies of which may be obtained without charge by writing or calling Pegasus at
the
61
<PAGE> 70
address and telephone number shown on the cover page of this Combined
Prospectus/Proxy Statement. The SEC file numbers for the Pegasus Fund's
Prospectuses and related Statements of Additional Information are Registration
Numbers 33-13990/811-5148.
The One Group and Pegasus are subject to the informational requirements
of the Securities Exchange Act of 1934 and the 1940 Act, as applicable, and, in
accordance with such requirements, files proxy materials, reports and other
information with the SEC. Reports and other information filed by One Group and
Pegasus can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 90
Devonshire Street, Suite 700, Boston, MA 02109; and 601 Walnut Street, Suite
1005E, Philadelphia, PA 19106. Copies of such material may also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549, at
prescribed rates. The SEC maintains a website (www.SEC.gov) which also contains
Prospectuses and Statements of Additional Information and other information
regarding The One Group and Pegasus.
LITIGATION
Neither Pegasus nor One Group is involved in any litigation that would
have any material adverse effect upon either the Pegasus or One Group Funds.
FINANCIAL STATEMENTS
The financial highlights and financial statements for Pegasus for the
fiscal year or period ended December 31, 1997 are contained in Pegasus' Annual
Reports to Shareholders and in Pegasus' Prospectuses and Statements of
Additional Information dated April 30, 1998, each of which is incorporated by
reference into this Combined Prospectus/Proxy Statement. Unaudited financial
highlights and financial statements for the Pegasus Portfolios for the six-month
fiscal period ended June 30, 1998 are contained in Pegasus' Semi-Annual Reports
to Shareholders, which are incorporated by reference into this Combined
Prospectus/Proxy Statement. The financial highlights and the financial
statements for the Existing One Group Funds for the fiscal year ended June 30,
1998 are contained in One Group's Annual Reports to Shareholders and in One
Group's Prospectuses and Statement of Additional Information dated November 1,
1998, each of which is incorporated by reference into this Combined
Prospectus/Proxy Statement.
The audited financial highlights and financial statements of Pegasus
for the fiscal year or period ended December 31, 1997, contained in Pegasus'
Annual Reports and incorporated by reference in this Combined Proxy/Prospectus,
have been incorporated herein in reliance on the report of Arthur Andersen LLP,
independent auditors, given upon the authority of such firm as experts in
accounting and auditing.
The audited financial highlights and financial statements of the
Existing One Group Funds for the fiscal year ended June 30, 1998, contained in
One Group's Annual Reports and incorporated by reference in this Combined
Proxy/Prospectus, have been audited by PricewaterhouseCoopers LLP, independent
62
<PAGE> 71
public accountants, as indicated in their reports with respect thereto and are
incorporated herein in reliance upon the authority of said firm as experts in
accounting and auditing.
Unaudited pro forma combined financial statements of the Pegasus and
One Group Funds for the twelve-month period ending June 30, 1998 are included in
the Statement of Additional Information. Because the Reorganization Agreement
provides that the One Group Funds, other than the Income Bond and Intermediate
Bond Funds, will be the surviving funds following the Reorganization and because
the One Group Funds' investment objectives and policies will remain unchanged,
the pro forma combined financial statements reflect the transfer of assets and
liabilities of each Pegasus Portfolio to the corresponding One Group Fund as
contemplated by the Reorganization Agreement. In the case of the combinations of
the Pegasus Multi Sector Fund and One Group Income Bond Fund and the Pegasus
Intermediate Bond Fund and One Group Intermediate Bond Fund, the Pegasus Funds
will be the survivor for accounting purposes.
OTHER BUSINESS
Pegasus' Board of Trustees knows of no other business to be brought
before the Meeting. However, should any other matter requiring a vote of
shareholders arise, the persons named in the enclosed proxy card will vote on
matters according to their best judgment in the interest of the Trust.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Pegasus in writing at the
address on the cover page of this Combined Prospectus/Proxy Statement or by
telephoning 1-800-___-____.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE
REQUESTED TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
PEGASUS WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS DECEMBER 31, 1997
ANNUAL REPORTS AND ITS JUNE 30, 1998 SEMI-ANNUAL REPORTS TO ANY SHAREHOLDER UPON
REQUEST ADDRESSED TO: PEGASUS FUNDS P. O. BOX 5142, WESTBOROUGH, MASSACHUSETTS
01581 OR BY TELEPHONE AT 1-800-688-3350.
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Appendix I
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This Agreement and Plan of Reorganization (the "Agreement") is made as
of ___________, 199_ by and between The One Group(R), a Massachusetts business
trust, ("One Group") and Pegasus Funds, a Massachusetts business trust
("Pegasus"). The capitalized terms used herein shall have the meaning ascribed
to them in this Agreement.
I. PLAN OF REORGANIZATION
----------------------
(a) Pegasus will sell, assign, convey, transfer and deliver to One Group,
and One Group will acquire, on the Exchange Date all of the properties and
assets existing at the Valuation Time in Pegasus Money Market Fund ("Pegasus
Money Market"), Pegasus Treasury Money Market Fund ("Pegasus Treasury"), Pegasus
Municipal Money Market Fund ("Pegasus Municipal"), Pegasus Michigan Municipal
Money Market Fund ("Pegasus Michigan Money Market"), Pegasus Cash Management
Money Market Fund ("Pegasus Cash Management"), Pegasus Treasury Prime Cash
Management Money Market Fund ("Pegasus Treasury Prime Cash"), Pegasus U.S.
Government Securities Cash Management Money Market Fund ("Pegasus Government
Cash"), Pegasus Municipal Cash Management Money Market Fund ("Pegasus Municipal
Cash"), Pegasus Treasury Cash Management Fund ("Pegasus Treasury Cash"), Pegasus
Short Bond Fund ("Pegasus Short Bond"), Pegasus Intermediate Bond Fund ("Pegasus
Intermediate Bond"), Pegasus Multi Sector Bond Fund ("Pegasus Multi Sector"),
Pegasus Bond Fund ("Pegasus Bond"), Pegasus High Yield Bond Fund ("Pegasus High
Yield"), Pegasus Intermediate Municipal Bond Fund ("Pegasus Intermediate
Municipal"), Pegasus Municipal Bond Fund ("Pegasus Municipal Bond"), Pegasus
Michigan Municipal Bond Fund ("Pegasus Michigan Municipal"), Pegasus Short
Municipal Bond Fund ("Pegasus Short Municipal"), Pegasus Equity Income Fund
("Pegasus Equity Income"), Pegasus Equity Index Fund ("Pegasus
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Equity Index"), Pegasus Growth and Value Fund ("Pegasus Value"), Pegasus
Intrinsic Value Fund ("Pegasus Intrinsic Value"), Pegasus Growth Fund ("Pegasus
Growth"), Pegasus Mid-Cap Opportunity Fund ("Pegasus Mid-Cap"), Pegasus
Small-Cap Opportunity Fund ("Pegasus Small-Cap"), Pegasus International Equity
Fund ("Pegasus International"), Pegasus Market Expansion Index Fund ("Pegasus
Expansion"), Pegasus Managed Assets Growth Fund ("Pegasus Managed Assets"),
Pegasus Managed Assets Balanced Fund ("Pegasus Managed Balanced"), and Pegasus
Managed Assets Conservative Fund ("Pegasus Managed Conservative") (Pegasus Money
Market, Pegasus Treasury, Pegasus Municipal, Pegasus Michigan Municipal, Pegasus
Cash Management, Pegasus Treasury Prime Cash, Pegasus Government Cash, Pegasus
Municipal Cash, Pegasus Treasury Cash, Pegasus Short Bond, Pegasus Intermediate
Bond, Pegasus Multi Sector, Pegasus Bond, Pegasus High Yield, Pegasus
Intermediate Municipal, Pegasus Municipal Bond, Pegasus Michigan Municipal,
Pegasus Short Municipal, Pegasus Equity Income, Pegasus Equity Index, Pegasus
Value, Pegasus Intrinsic Value, Pegasus Growth, Pegasus Mid-Cap, Pegasus
Small-Cap, Pegasus International, Pegasus Expansion, Pegasus Managed Assets,
Pegasus Managed Balanced, and Pegasus Managed Conservative, each is a "Pegasus
Fund" and are collectively the "Pegasus Funds"), such acquisition to be made by
The One Group Prime Money Market Fund ("One Group Prime"), The One Group U.S.
Treasury Securities Money Market Fund ("One Group Treasury Securities"), The One
Group Municipal Money Market Fund ("One Group Municipal"), The One Group
Michigan Municipal Money Market Fund, ("One Group Michigan Money Market"), The
One Group Cash Management Money Market Fund ("One Group Cash Management"), The
One Group Treasury Prime Cash Management Money Market Fund ("One Group Treasury
Prime Cash"), The One Group U.S. Government Securities Cash Management Money
Market Fund ("One Group Government
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Cash"), The One Group Municipal Cash Management Money Market ("One Group
Municipal Cash"), The One Group Treasury Cash Management ("One Group Treasury
Cash"), The One Group Limited Volatility Bond Fund ("One Group Limited
Volatility"), The One Group Intermediate Bond Fund ("One Group Intermediate
Bond"), The One Group Income Bond Fund ("One Group Income"), The One Group Bond
Fund ("One Group Bond"), The One Group High Yield Bond Fund ("One Group High
Yield"), The One Group Intermediate Tax-Free Bond Fund ("One Group Intermediate
Tax-Free"), The One Group Municipal Bond Fund ("One Group Municipal Bond"), The
One Group Michigan Municipal Bond Fund ("One Group Michigan Municipal"), The One
Group Short Municipal Bond Fund ("One Group Short Municipal"), The One Group
Equity Income Fund ("One Group Equity Income"), The One Group Equity Index Fund
("One Group Equity Index"), The One Group Value Growth Fund ("One Group Value"),
The One Group Disciplined Value Fund ("One Group Disciplined"), The One Group
Large Company Growth Fund ("One Group Growth"), The One Group Mid-Cap
Opportunities Fund ("One Group Mid-Cap"), The One Group Small Cap Opportunity
Fund ("One Group Small Cap"), The One Group International Equity Fund ("One
Group International"), The One Group Small Cap Index Fund ("One Group Small Cap
Index"), The One Group Investor Growth Fund ("One Group Investor Growth"), The
One Group Investor Growth & Income Fund ("One Group Investor Income") and The
One Group Investor Balanced Fund ("One Group Investor Balanced") (One Group
Prime, One Group Treasury Securities, One Group Municipal, One Group Michigan
Money Market, One Group Cash Management, One Group Treasury Prime Cash, One
Group Government Cash, One Group Municipal Cash, One Group Treasury Cash, One
Group Limited Volatility, One Group Intermediate Bond, One Group Income, One
Group Bond, One Group High Yield, One Group Intermediate Tax-Free, One Group
Municipal Bond,
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One Group Michigan Municipal, One Group Short Municipal, One Group Income
Equity, One Group Equity Index, One Group Value, One Group Disciplined, One
Group Growth, One Group Mid-Cap, One Group Small Cap, One Group International,
One Group Small Cap Index, One Group Investor Growth, One Group Investor Income
and One Group Investor Balanced, each is a "One Group Fund" and are collectively
the "One Group Funds"), respectively, of One Group. For purposes of this
Agreement the respective Pegasus Funds correspond to the One Group Funds as
follows: Pegasus Money Market corresponds to One Group Prime; Pegasus Treasury
corresponds to One Group Treasury Securities; Pegasus Municipal corresponds to
One Group Municipal; Pegasus Michigan Money Market corresponds to One Group
Michigan Money Market; Pegasus Cash Management corresponds to One Group Cash
Management; Pegasus Treasury Prime Cash corresponds to One Group Treasury Prime
Cash; Pegasus Government Cash corresponds to One Group Government Cash; Pegasus
Municipal Cash corresponds to One Group Municipal Cash; Pegasus Treasury Cash
corresponds to One Group Treasury Cash; Pegasus Short Bond corresponds to One
Group Limited Volatility; Pegasus Intermediate Bond corresponds to One Group
Intermediate Bond; Pegasus Multiple Sector Bond corresponds to One Group Income;
Pegasus Bond corresponds to One Group Bond; Pegasus High Yield corresponds to
One Group High Yield; Pegasus Intermediate Municipal corresponds to One Group
Intermediate Tax-Free; Pegasus Municipal Bond corresponds to One Group Municipal
Bond; Pegasus Michigan Municipal corresponds to One Group Michigan Municipal;
Pegasus Short Municipal corresponds to One Group Short Municipal; Pegasus Equity
Income corresponds to One Group Income Equity; Pegasus Equity Index corresponds
to One Group Equity Index; Pegasus Value corresponds to One Group Value; Pegasus
Intrinsic Value corresponds to One Group Disciplined; Pegasus Growth corresponds
to One Group Growth;
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Pegasus Mid-Cap corresponds to One Group Mid-Cap; Pegasus Small-Cap corresponds
to One Group Small Cap; Pegasus International corresponds to One Group
International; Pegasus Expansion corresponds to One Group Small Cap Index;
Pegasus Managed Assets corresponds to One Group Investor Growth; Pegasus Managed
Balanced corresponds to One Group Investor Income; and Pegasus Managed
Conservative corresponds to One Group Investor Balanced. In consideration
therefor, each One Group Fund shall, on the Exchange Date, assume all of the
liabilities of the corresponding Pegasus Fund, which liabilities shall include
any obligation of the corresponding Pegasus Fund to indemnify the Trustees and
officers of Pegasus Funds to the fullest extent permitted by applicable law and
by Pegasus's Declaration of Trust, as in affect as of the date of this
Agreement, and issue a number of full and fractional One Group Class A, Class B
or Class I shares of the corresponding One Group Fund (collectively, "Shares")
having an aggregate net asset value equal to the value of all of the assets of
each Pegasus Fund transferred to the corresponding One Group Fund on such date
less the value of all of the liabilities of each Pegasus Fund assumed by the
corresponding One Group Fund on that date. It is intended that each
reorganization described in this Agreement shall be a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transactions described in paragraph (a) of
this Agreement, each Pegasus Fund shall distribute in complete liquidation to
its respective shareholders of record as of the Exchange Date the Shares
received by it, each shareholder being entitled to receive that number of Shares
equal to the proportion which the number of shares of beneficial interest of the
applicable class of the Pegasus Fund held by such shareholder bears to the
number of such shares of such class of the Pegasus Fund outstanding on such
date. Pegasus Class I, Class A and Class B shareholders will receive One Group
Class I, Class A and Class B shares,
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respectively. Class I and Class S shareholders of Pegasus Cash Management,
Pegasus Treasury Prime Cash, Pegasus Government Cash, Pegasus Municipal Cash,
and Pegasus Treasury Cash, will receive Class I and Class A shares,
respectively, of One Group Cash Management, One Group Treasury Prime Cash, One
Group Government Cash, One Group Municipal Cash, and One Group Treasury Cash,
respectively.
II. AGREEMENT
---------
One Group and Pegasus represent, warrant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF PEGASUS. Pegasus and each Pegasus
Fund jointly and severally represent and warrant to and agree with One Group and
each One Group Fund that:
(a) Pegasus is a business trust duly established and validly existing
under the laws of the Commonwealth of Massachusetts and has power to own all of
its properties and assets and to carry out its obligations under this Agreement.
Pegasus and each Pegasus Fund is not required to qualify as a foreign
association in any jurisdiction. Pegasus and each Pegasus Fund has all necessary
federal, state and local authorizations to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set forth in
Section 1(l).
(b) Pegasus is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company, and such
registration has not been revoked or rescinded and is in full force and effect.
Each Pegasus Fund has elected to qualify and has qualified as a regulated
investment company under Part I of Subchapter M of the Code, as of and since its
first taxable year, and qualifies and intends to continue to qualify as a
regulated investment company for its taxable year ending upon its liquidation.
Each Pegasus
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Fund has been a regulated investment company under such sections of the Code at
all times since its inception.
(c) The statements of assets and liabilities, statements of operations,
statements of changes in net assets and schedules of portfolio investments
(indicating their market values) for each Pegasus Fund at and for the year ended
December 31, 1997, such statements and schedules having been audited by Arthur
Anderson, LLP, independent accountants to Pegasus, have been furnished to One
Group. Unaudited statements of net assets, statement of operations, statement of
changes in net assets, and schedules of portfolio investments for the period
ended June 30, 1998 also have been provided to One Group.
(d) The prospectuses of each Pegasus Fund dated April 30, 1998
(collectively, the "Pegasus Prospectuses") and the Statement of Additional
Information for the Pegasus Funds dated April 30, 1998 and on file with the
Securities and Exchange Commission (the "Commission"), which have been
previously furnished to One Group, did not as of their dates and do not as of
the date hereof contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Pegasus or any Pegasus Fund, threatened against
Pegasus or any Pegasus Fund which assert liability on the part of Pegasus or any
Pegasus Fund.
(f) There are no material contracts outstanding to which Pegasus or any
Pegasus Fund is a party, other than as disclosed in the Pegasus Prospectuses and
the corresponding Statement of Additional Information, or in the Registration
Statement and the Proxy Statement as defined herein.
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(g) Neither Pegasus nor any Pegasus Fund has any known liabilities of a
material nature, contingent or otherwise, other than those shown as belonging to
it on its above referenced statement of assets and liabilities as of June 30,
1998, and those incurred in the ordinary course of Pegasus's business as an
investment company since that date. Prior to the Exchange Date, Pegasus will
advise One Group of all known material liabilities, contingent or otherwise,
incurred by it and each Pegasus Fund subsequent to June 30, 1998, whether or not
incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean each
Pegasus Fund's investments shown on the schedule of its portfolio investments as
of June 30, 1998 referred to in Section 1(c) hereof, as supplemented with such
changes as Pegasus or each Pegasus Fund shall make after June 30, 1998, which
changes have been disclosed to One Group, and changes made on and after the date
of this Agreement after advising One Group of such proposed changes, and changes
resulting from stock dividends, stock split-ups, mergers and similar corporate
actions.
(i) Each Pegasus Fund has filed or will file all federal and state tax
returns which, to the knowledge of Pegasus's officers, are required to be filed
by each Pegasus Fund and has paid or will pay all federal and state taxes shown
to be due on said returns or on any assessments received by each Pegasus Fund.
All tax liabilities of each Pegasus Fund have been adequately provided for on
its books, and no tax deficiency or liability of any Pegasus Fund has been
asserted, and no question with respect thereto has been raised, by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval as described in Section 8(a) and otherwise as described in
Section 1(1), Pegasus on behalf of each Pegasus Fund will have full right, power
and authority to sell, assign, transfer and
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deliver the Investments and any other assets and liabilities of each Pegasus
Fund to be transferred to the corresponding One Group Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the Investments
and any such other assets and liabilities as contemplated by this Agreement, One
Group will, on behalf of each One Group Fund, acquire the Investments and any
such other assets subject to no encumbrances, liens or security interests in
favor of any third party creditor of Pegasus or a Pegasus Fund and, except as
described in Section 1(k), without any restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as amended (the
"1933 Act"), of any of the Investments would be required if they were, as of the
time of such transfer, the subject of a public distribution by either of Pegasus
or One Group, except as previously disclosed to One Group by Pegasus in writing.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Pegasus or any
Pegasus Fund of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, state securities or blue sky laws (which
term as used herein shall include the laws of the District of Columbia and of
Puerto Rico) or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act"), assuming that, for purposes of this representation, the Pegasus
Funds and The One Group may be considered affiliated persons or affiliated
persons of affiliated persons solely by reason of having a common investment
advisor.
(m) The registration statement (the "Registration Statement") filed with
the Commission by One Group on Form N-14 relating to the Shares issuable
hereunder, and the proxy statement of Pegasus included therein (the "Proxy
Statement"), on the effective date of the Registration
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Statement and insofar as they relate to Pegasus and the Pegasus Funds, (i) will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and (ii) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred to in Section
8(a) below and on the Exchange Date, the prospectus contained in the
Registration Statement of which the Proxy Statement is a part (the
"Prospectus"), as amended or supplemented by any amendments or supplements filed
with the Commission by One Group, insofar as it relates to Pegasus and the
Pegasus Funds, will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the representations
and warranties in this subsection shall apply only to statements of fact
relating to Pegasus and any Pegasus Fund contained in the Registration
Statement, the Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to Pegasus or any Pegasus Fund, as such
Registration Statement, Prospectus and Proxy Statement shall be furnished to
Pegasus in definitive form as soon as practicable following effectiveness of the
Registration Statement and before any public distribution of the Prospectus or
Proxy Statement.
(n) All of the issued and outstanding shares of beneficial interest of
each Pegasus Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws.
(o) Each of the Pegasus Funds is qualified, and will at all times through
the Exchange Date qualify for taxation as a "regulated investment company" under
Sections 851 and 852 of the Code.
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(p) At the Exchange Date, each of the Pegasus Funds, as One Group may
reasonably direct via written instructions, will have sold such of its assets,
if any, as necessary to assure that, after giving effect to the acquisition of
the assets pursuant to this Agreement, each of the One Group Funds (other than
One Group Michigan Money Market and One Group Michigan Municipal) will remain a
"diversified company" within the meaning of Section 5(b) (l) of the 1940 Act and
in compliance with such other mandatory investment restrictions as are set forth
in the One Group Prospectuses previously furnished to Pegasus.
2. REPRESENTATIONS AND WARRANTIES OF ONE GROUP. One Group and each One
Group Fund jointly and severally represent and warrant to and agree with Pegasus
and each Pegasus Fund that:
(a) One Group is a business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts and has power to carry on
its business as it is now being conducted and to carry out this Agreement. One
Group and each One Group Fund is not required to qualify as a foreign
association in any jurisdiction. One Group and each One Group Fund has all
necessary federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted and to fulfill
the terms of this Agreement, except as set forth in Section 2(i).
(b) One Group is registered under the 1940 Act as an open-end management
investment company, and such registration has not been revoked or rescinded and
is in full force and effect. Each One Group Fund that has had active operations
prior to the Exchange Date, has elected to qualify and has qualified as a
regulated investment company under Part I of Subchapter M of the Code, as of and
since its first taxable year, and qualifies and intends to continue to qualify
as a regulated investment company for its taxable year ending June 30, 1999.
Each One Group Fund
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that has had active operations prior to the Exchange Date, has been a regulated
investment company under such sections of the Code at all times since its
inception. Each One Group Fund that has not had active operations prior to the
Exchange Date intends to qualify as a regulated investment company under Part I
of Subchapter M under the Code.
(c) The statements of assets and liabilities, statements of operations,
statements of changes in net assets and schedules of portfolio investments
(indicating their market values) for each One Group Fund for the year ended June
30, 1998, such statements and schedules having been audited by
PricewaterhouseCoopers LLP, independent accountants to One Group, have been
furnished to Pegasus. Such statements of assets and liabilities and schedules
fairly present the financial position of the One Group Funds as of their
respective dates, and said statements of operations and changes in net assets
fairly reflect the results of its operations and changes in financial position
for the periods covered thereby in conformity with generally accepted accounting
principles.
(d) The prospectuses of each One Group Fund dated November 1, 1998,
(collectively, the "One Group Prospectuses"), and the Statement of Additional
Information for the One Group Funds, dated November 1, 1998, and on file with
the Commission, which have been previously furnished to Pegasus, did not as of
their dates and do not as of the date hereof contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of One Group or any One Group Fund, threatened
against One Group or any One Group Fund which assert liability on the part of
One Group or any One Group Fund.
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(f) There are no material contracts outstanding to which One Group or any
One Group Fund is a party, other than as disclosed in the One Group Prospectuses
and the corresponding Statement of Additional Information or in the Registration
Statement and the Proxy Statement.
(g) Neither One Group nor any One Group Fund has any known liabilities of
a material nature, contingent or otherwise, other than those shown as belonging
to it on its above referenced statement of assets and liabilities as of June 30,
1998 referred to above and those incurred in the ordinary course of the business
of One Group as an investment company or any One Group Fund since such date.
Prior to the Exchange Date, One Group will advise Pegasus of all known material
liabilities, contingent or otherwise, incurred by it and each One Group Fund
subsequent to June 30, 1998, whether or not incurred in the ordinary course of
business.
(h) Each One Group Fund has filed or will file all federal and state tax
returns which, to the knowledge of One Group's officers, are required to be
filed by each One Group Fund and has paid or will pay all federal and state
taxes shown to be due on said returns or on any assessments received by each One
Group Fund. All tax liabilities of each One Group Fund have been adequately
provided for on its books, and no tax deficiency or liability of any One Group
Fund has been asserted, and no question with respect thereto has been raised, by
the Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid.
(i) No consent, approval, authorization or order of any governmental
authority is required for the consummation by One Group or any One Group Fund of
the transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, state securities or Blue Sky
laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and otherwise as
described in Section 2 (i), One Group on behalf of each One Group Fund will have
full right, power and
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authority to purchase the Investments and any other assets and assume the
liabilities of each Pegasus Fund to be transferred to the corresponding One
Group Fund pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy Statement,
on the effective date of the Registration Statement and insofar as they relate
to One Group and the One Group Funds: (i) will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules
and regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 8(a) and at the Exchange Date, the
Prospectus, as amended or supplemented by any amendments or supplements filed
with the Commission by One Group or any One Group Fund, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement, the Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by Pegasus or any Pegasus Fund for use in
the Registration Statement, the Prospectus or the Proxy Statement.
(l) Shares to be issued to each Pegasus Fund have been duly authorized
and, when issued and delivered pursuant to this Agreement and the Prospectus,
will be legally and validly issued and will be fully paid and nonassessable by
One Group and no shareholder of One Group will have any preemptive right of
subscription or purchase in respect thereof.
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(m) The issuance of Shares pursuant to this Agreement will be in
compliance with all applicable federal and state securities laws.
(n) Each One Group Fund that has had active operations prior to the
Exchange Date is qualified and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections 851 and
852 of the Code. Each One Group Fund that has not had active operations prior to
the Exchange Date, upon the filing of its first income tax return at the
completion of its first taxable year will elect to be a regulated investment
company and until such time will take all steps necessary to ensure
qualification as a regulated investment company.
3. REORGANIZATION. (a) Subject to the requisite shareholder approval as
described in Section 8(a) and to the other terms and conditions contained herein
(including each Pegasus Fund's obligation to distribute to its respective
shareholders all of its investment company taxable income and net capital gain
as described in Section 9(k) hereof ), Pegasus and each Pegasus Fund agree to
sell, assign, convey, transfer and deliver to the corresponding One Group Fund,
and One Group and each One Group Fund agree to acquire from the corresponding
Pegasus Fund, on the Exchange Date all of the Investments and all of the cash
and other assets of each Pegasus Fund in exchange for that number of Shares of
the corresponding One Group Fund provided for in Section 4 and the assumption by
the corresponding One Group Fund of all the liabilities of the Pegasus Fund.
Pursuant to this Agreement, each Pegasus Fund will, as soon as practicable after
the Exchange Date, distribute in liquidation all of the Shares received by it to
its shareholders in exchange for their shares of beneficial interest of such
Pegasus Fund.
(b) Pegasus, on behalf of each Pegasus Fund, will pay or cause to be paid
to the corresponding One Group Fund any interest and cash dividends received by
it on or after the
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Exchange Date with respect to the Investments transferred to the One Group Funds
hereunder. Pegasus, on behalf of each Pegasus Fund, will transfer to the
corresponding One Group Fund any rights, stock dividends or other securities
received by Pegasus or any Pegasus Fund after the Exchange Date as stock
dividends or other distributions on or with respect to the Investments
transferred, which rights, stock dividends and other securities shall be deemed
included in the assets transferred to each One Group Fund at the Exchange Date
and shall not be separately valued, in which case any such distribution that
remains unpaid as of the Exchange Date shall be included in the determination of
the value of the assets of the Pegasus Fund acquired by the corresponding One
Group Fund.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, One Group will
deliver to Pegasus a number of Shares having an aggregate net asset value equal
to the value of the assets of the corresponding Pegasus Fund acquired by each
One Group Fund, less the value of the liabilities of such Pegasus Fund assumed,
determined as hereafter provided in this Section 4.
(a) Subject to Section 4(d) hereof, the value of each Pegasus Fund's net
assets will be computed as of the Valuation Time using the valuation procedures
for the corresponding One Group Fund as set forth in the One Group Prospectus
for the particular One Group Fund.
(b) Subject to Section 4(d) hereof, the net asset value of a share of
each One Group Fund will be determined to the nearest full cent as of the
Valuation Time, using the valuation procedures set forth in the One Group
Prospectus for the particular One Group Fund.
(c) Subject to Section 4(d), the Valuation Time shall be 4:00 p.m.
Eastern Standard time on FRIDAY, MARCH 19, 1999, for all Pegasus and One Group
Funds other than, Pegasus Cash Management, Pegasus Treasury Prime Cash, Pegasus
Government Cash, Pegasus Municipal Cash, Pegasus Treasury Cash, One Group Cash
Management, One Group Treasury Prime Cash,
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One Group Government Cash, One Group Municipal Cash, One Group Treasury Cash,
and Friday MARCH 26, 1999, for Pegasus Cash Management, Pegasus Treasury Prime
Cash, Pegasus Government Cash, Pegasus Municipal Cash, Pegasus Treasury Cash,
One Group Cash Management, One Group Treasury Prime Cash, One Group Government
Cash, One Group Municipal Cash, and One Group Treasury Cash or such earlier or
later day as may be mutually agreed upon in writing by the parties hereto (the
"Valuation Time").
(d) No formula will be used to adjust the net asset value of any Pegasus
Fund or One Group Fund to take into account differences in realized and
unrealized gains and losses.
(e) Each One Group Fund shall issue its Shares to the corresponding
Pegasus Fund on one share deposit receipt per class registered in the name of
the corresponding Pegasus Fund. Each Pegasus Fund shall distribute in
liquidation the Shares received by it hereunder pro rata to its shareholders of
each class of shares by redelivering such share deposit receipt to One Group's
transfer agent which will as soon as practicable set up open accounts for each
Pegasus Fund shareholder in accordance with written instructions furnished by
Pegasus.
(f) Each One Group Fund shall assume all liabilities of the corresponding
Pegasus Fund, whether accrued or contingent, in connection with the acquisition
of assets and subsequent dissolution of the corresponding Pegasus Fund or
otherwise, except that recourse for assumed liabilities relating to a particular
Pegasus Fund will be limited to the corresponding One Group Fund.
5. EXPENSES, FEES, ETC. (a) Subject to subsections 5(b) through 5 (e),
all fees and expenses, including accounting expenses, portfolio transfer taxes
(if any) or other similar expenses incurred in connection with the consummation
by One Group and Pegasus of the transactions contemplated by this Agreement will
be paid by the party directly incurring such
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fees and expenses, except that the costs of proxy materials and proxy
solicitation will be borne by Banc One Investment Advisors Corporation;
provided, however, that such expenses will in any event be paid by the party
directly incurring such expenses if and to the extent that the payment by the
other party of such expenses would result in the disqualification of any One
Group Fund or any Pegasus Fund, as the case may be, as a "regulated investment
company" within the meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of Pegasus being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Pegasus's obligations referred to in Section 8(a) or Section 10) Pegasus shall
pay directly all reasonable fees and expenses incurred by One Group in
connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of One Group being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any condition
to One Group's obligations referred to in Section 8(a) or Section 9), One Group
shall pay directly all reasonable fees and expenses incurred by Pegasus in
connection with such transactions, including without limitation legal,
accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) One Group or Pegasus being either
unwilling or unable to go forward or (ii) the nonfulfillment or failure of any
condition to Pegasus or One Group's obligations referred to in Section 8(a),
Section 9 or Section 10 of this Agreement, then each of
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Pegasus and One Group shall bear the expenses it has actually incurred in
connection with such transactions as specified in Section 5 of this Agreement.
(e) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated, no
party shall be liable to the other party for any damages resulting therefrom,
including without limitation consequential damages, except as specifically set
forth above.
6. PERMITTED ASSETS. One Group agrees to advise Pegasus promptly if at
any time prior to the Exchange Date the assets of any Pegasus Fund include any
assets that the corresponding One Group Fund is not permitted, or reasonably
believes to be unsuitable for it, to acquire, including without limitation any
security that, prior to its acquisition by any Pegasus Fund, One Group has
informed Pegasus is unsuitable for the corresponding One Group Fund to acquire.
7. EXCHANGE DATE. Delivery of the assets of the Pegasus Funds to be
transferred, assumption of the liabilities of the Pegasus Funds to be assumed,
and the delivery of Shares to be issued shall be made at the offices of Banc One
Investment Advisors Corporation at 9:00 a.m. on MONDAY, MARCH 22, 1999, for all
Pegasus and One Group Funds other than, Pegasus Cash Management, Pegasus
Treasury Prime Cash, Pegasus Government Cash, Pegasus Municipal Cash, Pegasus
Treasury Cash, One Group Cash Management, One Group Treasury Prime Cash, One
Group Government Cash, One Group Municipal Cash, One Group Treasury Cash, and
Monday, MARCH 29 1999, for Pegasus Cash Management, Pegasus Treasury Prime Cash,
Pegasus Government Cash, Pegasus Municipal Cash, Pegasus Treasury Cash, One
Group Cash Management, One Group Treasury Prime Cash, One Group Government Cash,
One Group Municipal Cash, and One Group Treasury Cash or at such other time and
date agreed to by
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Pegasus and One Group, the date and time upon which such delivery is to take
place being referred to herein as the "Exchange Date."
8. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION. (a) Pegasus agrees to
call a special meeting of the shareholders of each Pegasus Fund as soon as is
practicable after the effective date of the Registration Statement for the
purpose of considering the sale of all of the assets of each Pegasus Fund to and
the assumption of all of the liabilities of each Pegasus Fund by the
corresponding One Group Fund as herein provided, adopting this Agreement, and
authorizing the liquidation and dissolution of any Pegasus Fund, and, except as
set forth in Section 13, it shall be a condition to the obligations of each of
the parties hereto that the holders of the shares of beneficial interest of each
Pegasus Fund, and each class of shares of each Pegasus Fund if such is required
under the 1940 Act, shall have approved this Agreement and the transactions
contemplated herein in the manner required by law and Pegasus's Declaration of
Trust at such a meeting on or before the Valuation Time.
(b) Pegasus and each Pegasus Fund agree that the liquidation and
dissolution of each Pegasus Fund will be effected in the manner provided in
Pegasus's Declaration of Trust in accordance with applicable law, and that it
will not make any distributions of any Shares to the shareholders of a Pegasus
Fund without first paying or adequately providing for the payment of all of such
Pegasus Fund's known debts, obligations and liabilities.
(c) Each of One Group and Pegasus will cooperate with the other, and each
will furnish to the other the information relating to itself required by the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
to be set forth in the Registration Statement, including the Prospectus and the
Proxy Statement.
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9. CONDITIONS TO ONE GROUP'S OBLIGATIONS. The obligations of One Group
and each One Group Fund hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby, including the liquidation and dissolution of the Pegasus
Funds, shall have been approved as set forth in Section 8(a).
(b) Pegasus shall have furnished to One Group a statement of each Pegasus
Fund's assets and liabilities, with values determined as provided in Section 4
of this Agreement, together with a list of Investments with their respective tax
costs, all as of the Valuation Time, certified on Pegasus's behalf by its
President (or any Vice President) and Treasurer, and a certificate of both such
officers, dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change in the
financial position of any Pegasus Fund since June 30, 1998, other than changes
in the Investments since that date or changes in the market value of the
Investments, or changes due to net redemptions of shares of the Pegasus Funds,
dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of Pegasus and each Pegasus Fund made in this
Agreement are true and correct in all material respects as if made at and as of
such dates, Pegasus and each Pegasus Fund has complied with this Agreement and
satisfied all the conditions on its part to be performed or satisfied at or
prior to each of such dates, and Pegasus shall have furnished to One Group a
statement, dated the Exchange Date, signed by Pegasus's President (or any Vice
President) and Treasurer certifying those facts as of such dates.
(d) Pegasus shall have delivered to One Group a letter from Arthur
Andersen, LLP dated the Exchange Date stating that such firm prepared the
federal and state income tax returns of
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each Pegasus Fund for the year ended December 31, 1997, and will prepare the
Federal and state income tax returns of each Pegasus Fund for the year ended
December 31, 1998.
(e) There shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) One Group shall have received an opinion of Drinker Biddle & Reath
LLP, in form reasonably satisfactory to One Group and dated the Exchange Date,
to the effect that (i) Pegasus is a business trust duly established and validly
existing under the laws of the Commonwealth of Massachusetts, and neither
Pegasus nor any Pegasus Fund is, to the knowledge of such counsel, required to
qualify to do business as a foreign association in any jurisdiction, (ii) this
Agreement has been duly authorized, executed, and delivered by Pegasus and,
assuming that the Registration Statement, the Prospectus and the Proxy Statement
comply with the 1933 Act, the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by One Group, is a valid
and binding obligation of Pegasus subject to applicable bankruptcy, insolvency,
fraudulent conveyance and similar laws or court decisions regarding enforcement
of creditors' rights generally, (iii) Pegasus and each Pegasus Fund has power to
sell, assign, convey, transfer and deliver the Investments and other assets
contemplated hereby and, upon consummation of the transactions contemplated
hereby in accordance with the terms of this Agreement, Pegasus and each Pegasus
Fund will have duly sold, assigned, conveyed, transferred and delivered such
Investments and other assets to One Group, (iv) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate Pegasus's Declaration of Trust, or Bylaws, as amended,
the current Pegasus Prospectus and Statement of Additional Information, or any
provision of any agreement known to such counsel to which Pegasus or any Pegasus
Fund is a party or by which it is bound, it being understood that with
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<PAGE> 94
respect to investment restrictions as contained in Pegasus's Declaration of
Trust, or Bylaws, or then-current prospectus or statement of additional
information of each Pegasus Fund, such counsel may rely upon a certificate of an
officer of Pegasus whose responsibility it is to advise Pegasus with respect to
such matters and (v) no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by Pegasus or any
Pegasus Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act, and it being
understood that such opinion shall not be deemed to apply to One Group's
compliance obligations under the 1933 Act, 1934 Act, 1940 Act, state securities
or blue sky laws and H-S-R Act. For purposes of analysis regarding the 1940 Act,
Drinker Biddle & Reath LLP may assume as fact that the Pegasus Funds and the One
Group Funds may be considered affiliated persons or affiliated persons of an
affiliated person solely by reason of having a common investment adviser.
(g) One Group shall have received an opinion of Ropes & Gray, counsel to
One Group addressed to The One Group and each One Group Fund, in form reasonably
satisfactory to One Group and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) no gain or loss will be recognized by any
Pegasus Fund upon the transfer of the assets to the corresponding One Group Fund
in exchange for Shares and the assumption by such One Group Fund of the
liabilities of the Pegasus Fund; (ii) no gain or loss will be recognized by the
shareholders of any Pegasus Fund upon the exchange of their shares for Shares;
(iii) the basis of the Shares a Pegasus shareholder receives in connection with
the transaction will be the same as the basis of his or her Pegasus Fund shares
exchanged therefor; (iv) a Pegasus shareholder's holding period for his or her
Shares will be determined by including the period for which he or
23
<PAGE> 95
she held the Pegasus Fund shares exchanged therefor, provided that he or she
held such Pegasus Fund shares as capital assets; (v) no gain or loss will be
recognized by any One Group Fund upon the receipt of the assets of the
corresponding Pegasus Fund in exchange for Shares and the assumption by the One
Group Fund of the liabilities of the corresponding Pegasus Fund; (vi) the basis
in the hands of the One Group Fund of the assets of the corresponding Pegasus
Fund transferred to the One Group Fund in the transaction will be the same as
the basis of the assets in the hands of the corresponding Pegasus Fund
immediately prior to the transfer; and (vii) the holding periods of the assets
of the corresponding Pegasus Fund in the hands of the One Group Fund will
include the periods for which such assets were held by the corresponding Pegasus
Fund provided, that with respect to Pegasus Money Market, Pegasus Treasury,
Pegasus Municipal, Pegasus Michigan Municipal, Pegasus Cash Management, Pegasus
Treasury Prime Cash, Pegasus Government Cash, Pegasus Municipal Cash, Pegasus
Treasury Cash, One Group Prime, One Group Treasury Securities, One Group
Municipal, One Group Michigan Money Market, One Group Cash Management, One Group
Treasury Prime Cash, One Group Government Cash, One Group Municipal Cash, and
One Group Treasury Cash (the "Money Market Funds"), One Group shall seek an
opinion from Ropes & Gray with respect to Federal income tax matters enumerated
in this Section 9(g), but receipt of such opinion with respect to the Money
Market Funds shall not be a condition to the transaction.
(h) The assets of each Pegasus Fund to be acquired by the corresponding
One Group Fund will include no assets which the corresponding One Group Fund, by
reason of limitations contained in its Declaration of Trust or of investment
restrictions disclosed in the One Group Prospectuses in effect on the Exchange
Date, may not properly acquire.
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(i) The Registration Statement shall have become effective under the 1933
Act and applicable blue sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of One Group
contemplated by the Commission and or any state regulatory authority.
(j) All proceedings taken by Pegasus in connection with the transactions
contemplated by this Agreement and all documents incidental thereto reasonably
shall be satisfactory in form and substance to One Group.
(k) Prior to the Exchange Date, each Pegasus Fund shall have declared a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to its shareholders all of its investment
company taxable income for its taxable year ended December 31, 1998 and the
short taxable year beginning on January 1, 1999 and ending on the Exchange Date
(computed without regard to any deduction for dividends paid), and all of its
net capital gain realized in its taxable year ended December 31, 1998 and the
short taxable year beginning on January 1, 1999 and ending on the Exchange Date
(after reduction for any capital loss carryover).
(l) Pegasus shall have furnished to One Group a certificate, signed by
the President (or any Vice President) and the Treasurer of Pegasus, as to the
tax cost to One Group of the securities delivered to One Group pursuant to this
Agreement, together with any such other evidence as to such tax cost as One
Group may reasonably request.
(m) Pegasus's custodian shall have delivered to One Group a certificate
identifying all of the assets of each Pegasus Fund held by such custodian as of
the Valuation Time.
(n) Pegasus's transfer agent shall have provided to One Group (i) the
originals or true copies of all of the records of each Pegasus Fund in the
possession of such transfer agent as of
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the Exchange Date, (ii) a certificate setting forth the number of shares of each
class of Pegasus Fund outstanding as of the Valuation Time and (iii) the name
and address of each holder of record of any such shares of each Pegasus Fund and
the number of shares of each class held of record by each such shareholder.
(o) All of the issued and outstanding shares of beneficial interest of
each Pegasus Fund shall have been offered for sale and sold in conformity with
all applicable federal or state securities or blue sky laws and, to the extent
that any audit of the records of Pegasus or any Pegasus Fund or its transfer
agent by One Group or its agents shall have revealed otherwise, either (i)
Pegasus and each Pegasus Fund shall have taken all actions that in the
reasonable opinion of One Group, are necessary to remedy any prior failure on
the part of Pegasus to have offered for sale and sold such shares in conformity
with such laws or (ii) Pegasus shall have furnished (or caused to be furnished)
surety, or deposited (or caused to be deposited) assets in escrow, for the
benefit of One Group in amounts sufficient and upon terms satisfactory, in the
opinion of One Group, to indemnify One Group against any expense, loss, claim,
damage or liability whatsoever that may be asserted or threatened by reason of
such failure on the part of Pegasus to have offered and sold such shares in
conformity with such laws.
(p) Pegasus shall have duly executed and delivered to One Group bills of
sale, assignments, certificates and other instruments of transfer ("Transfer
Documents") as One Group may deem necessary or desirable to transfer all of
Pegasus's and each Pegasus Fund's entire right, title and interest in and to the
Investments and all other assets of each Pegasus Fund.
10. CONDITIONS TO PEGASUS'S OBLIGATIONS. The obligations of Pegasus and
each Pegasus Fund hereunder shall be subject to the following conditions:
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(a) This Agreement shall have been adopted and the transactions
contemplated hereby, including the liquidation and dissolution of the Pegasus
Funds, shall have been approved as described in Section 8(a).
(b) One Group shall have furnished to Pegasus a Statement of each One
Group Fund's net assets, together with a list of portfolio holdings with values
determined as provided in Section 4, all as of the Valuation Time, certified on
One Group's behalf by its President (or any Vice President) and Treasurer (or
any Assistant Treasurer), and a certificate of both such officers, dated the
Exchange Date, to the effect that as of the Valuation Time and as of the
Exchange Date there has been no material adverse change in the financial
position of any One Group Fund since June 30, 1998, other than changes in its
portfolio securities since that date, changes in the market value of its
portfolio securities, changes due to net redemptions, dividends paid or losses
from operations.
(c) One Group shall have executed and delivered to Pegasus an Assumption
of Liabilities Certificate and other instruments as Pegasus may deem necessary
and desirable dated as of the Exchange Date pursuant to which each One Group
Fund will assume all of the liabilities of the corresponding Pegasus Fund
existing at the Valuation Time in connection with the transactions contemplated
by this Agreement.
(d) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of One Group and each One Group Fund made in this
Agreement are true and correct in all material respects as if made at and as of
such dates, One Group and each One Group Fund has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to each of such dates, and One Group shall have furnished
to
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<PAGE> 99
Pegasus a statement, dated the Exchange Date, signed by One Group's President
(or any Vice President) and Treasurer certifying those facts as of such dates.
(e) There shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) Pegasus shall have received an opinion of Ropes & Gray, in form
reasonably satisfactory to Pegasus and dated the Exchange Date, to the effect
that (i) One Group is a business trust and validly existing in conformity with
the laws of the Commonwealth of Massachusetts, and, (to the knowledge of such
counsel), neither One Group nor any One Group Fund is required to qualify to do
business as a foreign association in any jurisdiction, (ii) the Shares to be
delivered to Pegasus as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be fully paid and
nonassessable by One Group and no shareholder of One Group has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement has
been duly authorized, executed and delivered by One Group and, assuming that the
Prospectus, the Registration Statement and the Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by Pegasus, is a valid and binding
obligation of One Group, (iv) One Group and each One Group Fund has the power to
acquire and assume all of the liabilities of Pegasus and the Pegasus Funds and,
upon consummation of the transactions contemplated hereby in accordance with the
terms of this Agreement, One Group and each respective One Group Fund shall have
duly acquired and assumed such liabilities, (v) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate One Group's Declaration of Trust, as amended, or Code
of Regulations, One Group's current Prospectus and Statement of Additional
Information, or any provision of any agreement
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known to such counsel to which One Group or any One Group Fund is a party or by
which it is bound, it being understood that with respect to investment
restrictions as contained in One Group's Declaration of Trust, as amended, Code
of Regulations or then-current prospectus or statement of additional information
of each One Group Fund, such counsel may rely upon a certificate of an officer
of One Group whose responsibility it is to advise One Group with respect to such
matters, (vi) no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by One Group or any One
Group Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act and it being
understood that such opinion shall not be deemed to apply to Pegasus's
compliance obligations under the 1933 Act, 1934 Act, 1940 Act, state securities
or blue sky laws and the H-S-R Act; and (vii) the Registration Statement has
become effective under the 1933 Act, and to the best of the knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 1933 Act.
(g) Pegasus shall have received an opinion of Ropes & Gray addressed to
Pegasus and each Pegasus Fund, and in a form reasonably satisfactory to Pegasus
and dated the Exchange Date, with respect to the matters specified in Section
9(g) of this Agreement, subject to the provision in such Section 9(g).
(h) All proceedings taken by One Group in connection with the
transactions contemplated by this Agreement and all documents incidental thereto
reasonably shall be satisfactory in form and substance to Pegasus.
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(i) The Registration Statement shall have become effective under the 1933
Act and applicable blue sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of Pegasus,
contemplated by the Commission or any state regulatory authority.
11. INDEMNIFICATION. (a) The Pegasus Funds will indemnify and hold
harmless One Group, its trustees and its officers (for purposes of this
subsection, the "Indemnified Parties") against any and all expenses, losses,
claims, damages and liabilities at any time imposed upon or reasonably incurred
by any one or more of the Indemnified Parties in connection with, arising out
of, or resulting from any claim, action, suit or proceeding in which any one or
more of the Indemnified Parties may be involved or with which any one or more of
the Indemnified Parties may be threatened by reason of any untrue statement or
alleged untrue statement of a material fact relating to Pegasus or any Pegasus
Fund contained in the Registration Statement, the Prospectus or the Proxy
Statement or any amendment or supplement to any of the foregoing, or arising out
of or based upon the omission or alleged omission to state in any of the
foregoing a material fact relating to Pegasus or any Pegasus Fund required to be
stated therein or necessary to make the statements relating to Pegasus or any
Pegasus Fund therein not misleading, including, without limitation, any amounts
paid by any one or more of the Indemnified Parties in a reasonable compromise or
settlement of any such claim, action, suit or proceeding or threatened claim,
action, suit or proceeding made with the prior consent of Pegasus. The
Indemnified Parties will notify Pegasus in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against any Indemnified Party
as to any matters covered by this Section 11(a). Pegasus shall be entitled to
participate at its own expense in the defense of any claim, action, suit
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or proceeding covered by this Section 11(a), or, if it so elects, to assume at
its expense by counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and if Pegasus elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the defense
of any such claim, action, suit or proceeding at their expense. The Pegasus
Funds' obligation under this Section 11(a) to indemnify and hold harmless the
Indemnified Parties shall constitute a guarantee of payment so that the Pegasus
Funds will pay in the first instance any expenses, losses, claims, damages and
liabilities required to be paid by it under this Section 11(a) without the
necessity of the Indemnified Parties first paying the same.
(b) The One Group Funds will indemnify and hold harmless Pegasus, its
trustees and its officers (for purposes of this subsection, the "Indemnified
Parties") against any and all expenses, losses, claims, damages and liabilities
at any time imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or resulting from any
claim, action, suit or proceeding in which any one or more of the Indemnified
Parties may be involved or with which any one or more of the Indemnified Parties
may be threatened by reason of any untrue statement or alleged untrue statement
of a material fact relating to One Group or any One Group Fund contained in the
Registration Statement, the Prospectus or the Proxy Statement, or any amendment
or supplement to any of the foregoing, or arising out of or based upon the
omission or alleged omission to state in any of the foregoing a material fact
relating to One Group or any One Group Fund required to be stated therein or
necessary to make the statements relating to One Group or any One Group Fund
therein not misleading, including, without limitation, any amounts paid by any
one or more of the Indemnified Parties in a reasonable compromise or settlement
of any such claim, action, suit or proceeding, or threatened
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claim, action, suit or proceeding made with the prior consent of One Group. The
Indemnified Parties will notify One Group in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against any Indemnified Party
as to any matters covered by this Section 11(b). One Group shall be entitled to
participate at its own expense in the defense of any claim, action, suit or
proceeding covered by this Section 11(b), or, if it so elects, to assume at its
expense by counsel satisfactory to the Indemnified Parties the defense of any
such claim, action, suit or proceeding, and, if One Group elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the defense
of any such claim, action, suit or proceeding at their own expense. The One
Group Funds' obligation under this Section 11(b) to indemnify and hold harmless
the Indemnified Parties shall constitute a guarantee of payment so that the One
Group Funds will pay in the first instance any expenses, losses, claims, damages
and liabilities required to be paid by it under this Section 11(b) without the
necessity of the Indemnified Parties first paying the same.
12. NO BROKER, ETC. Each of One Group and Pegasus represents that there
is no person who has dealt with it who by reason of such dealings is entitled to
any broker's or finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
13. TERMINATION. One Group and Pegasus may, by mutual consent of their
respective trustees, terminate this Agreement, and One Group or Pegasus, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees, may waive any condition to their respective
obligations hereunder. If the transactions contemplated by this Agreement have
not been substantially completed by August 30, 1999, this Agreement shall
automatically terminate on that date unless a later date is agreed to by One
Group and Pegasus.
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Notwithstanding any other provision in this Agreement, in the event
shareholder approval of this Agreement and the transactions contemplated by this
Agreement is obtained with respect to only one or more Pegasus Funds but not all
of the Pegasus Funds, One Group and Pegasus agree to consummate those
transactions with respect to those Pegasus Funds whose shareholders have
approved this Agreement and those transactions.
In the event that shareholder approval of this Agreement and the
transactions contemplated by this Agreement is required, but is obtained with
respect to only one class of shares of a Pegasus Fund, the transaction with
respect to that Pegasus Fund will not be consummated unless and until
shareholder approval is obtained with respect to both classes.
14. RULE 145. Pursuant to Rule 145 under the 1933 Act, One Group will, in
connection with the issuance of any Shares to any person who at the time of the
transaction contemplated hereby is deemed to be an affiliate of a party to the
transaction pursuant to Rule 145 (c), cause to be affixed upon the certificates
issued to such person (if any) a legend as follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO THE ONE
GROUP OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (ii) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ONE GROUP SUCH REGISTRATION IS NOT REQUIRED."
and, further, One Group will issue stop transfer instructions to One Group's
transfer agent with respect to such shares. Pegasus will provide One Group on
the Exchange Date with the name of
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<PAGE> 105
any shareholder of the Pegasus Funds who is to the knowledge of Pegasus an
affiliate of Pegasus on such date.
15. COVENANTS, ETC. DEEMED MATERIAL. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
16. SOLE AGREEMENT; AMENDMENTS This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
the Commonwealth of Massachusetts provided, however, that no such amendment may
have the effect of changing the provisions for determining the number or value
of shares to be paid to the Pegasus Fund's shareholders under Sections I(b) and
II(4)(b) this Agreement to the material detriment of such shareholder's without
their further approval.
17. AGREEMENT AND DECLARATION OF TRUST The names "Pegasus Funds" and
"Trustees of Pegasus Funds" refer respectively to Pegasus and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust, to which reference is hereby made and a copy of which is
on file at the office of the Secretary of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "Pegasus Funds" entered into in the name or
on behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or
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shareholders of Pegasus personally, but bind only the assets of Pegasus, and all
persons dealing with any of the series or funds of Pegasus, such as Pegasus
Funds, must look solely to the assets of Pegasus belonging to such series or
funds for the enforcement of any claims against Pegasus.
The names "The One Group" and "Trustees of The One Group" refer
respectively to One Group and the Trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated May 23,
1985 to which reference is hereby made and a copy of which is on file at the
office of the Secretary of The Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The One Group" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders or representatives of One Group personally, but bind only
the assets of One Group, and all persons dealing with any series or fund of One
Group, such as the One Group Funds, must look solely to the assets of One Group
belonging to such series for the enforcement of any claims against One Group.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
PEGASUS FUNDS
By:
-------------------------------
THE ONE GROUP
By:
-------------------------------
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<PAGE> 107
APPENDIX II
COMPARATIVE FEE TABLE FOR EACH PORTFOLIO
<TABLE>
<CAPTION>
Pegasus One Group
Money Market Prime Money Combined
Fund Market Fund(1) Fund Pro Forma
------------ -------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None None None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None+ None None 5.00% None None 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(2) .27% .27% .27% .35% .35% .35% .32% .32% .32%
12b-1 Fees(3) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses (after fee
waivers)(4) .48% .48% .23% .17% .17% .17% .20% .20% .20%
Total Fund Operating Expenses
(after fee waivers)(5,6) .75% 1.50% .50% .77% 1.52% .52% .77% 1.52% .52%
</TABLE>
- --------------------------
* If shares of the One Group Prime Money Market Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ Shares of the Pegasus Money Market Fund acquired through an exchange of
shares offered with a CDSC will be subject to a CDSC of up to a maximum
of 5% upon redemption in accordance with the Prospectus for the
particular B shares. See "How to Redeem Shares."
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waiver, Advisory Fees for the Combined Fund would be
.35% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class A and Class B shareholders of the
One Group Prime Money Market Fund, Class B shareholders of the Pegasus
Money Market Fund and Combined Fund may pay more than the equivalent of
the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers. The amount of 12b-1 Fees
shown for the One Group Prime Money Market Fund and Combined Fund
includes fees for shareholder servicing and distribution. Shareholder
servicing fees payable by the Class A and Class B shareholders of the
Pegasus Money Market Fund are reflected under "Other Expenses."
(4) Without the fee waivers, Other Expenses for the Combined Fund would be
.22% for all classes of shares.
(5) The Investment Adviser of the Pegasus Money Market Fund has voluntarily
agreed to limit the Total Fund Operating Expenses to .75%, 1.50% and
.50%, respectively, for the Class A, Class B and Class I shares.
(6) Without the voluntary reduction of Advisory Fees and expense
reimbursement arrangements, Total Fund Operating Expenses would be .77%
for Class A shares, 1.52% for Class B shares, and .52% for Class I
shares of the Pegasus Money Market Fund and .82% for Class A shares,
1.57% for Class B shares, and .57% for Class I shares of the Combined
Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Money Market Fund
Class A Shares $ 8 $24 $42 $93
Class A Shares (without fee waivers) $ 8 $25 $43 $95
Class B Shares $65/$15* $77/$47* $102/$82* $149
Class B Shares (without fee waivers) $65/$15* $78/$48* $103/$83* $151**
Class I Shares $ 5 $16 $28 $63
Class I Shares (without fee waivers) $ 5 $17 $29 $65
One Group Prime Money Market Fund
Class A Shares $ 8 $25 $43 $95
Class B Shares $65/$15* $78/$48* $103/$83* $161**
Class I Shares $ 5 $17 $29 $65
Combined Fund Pro Forma
Class A Shares $ 8 $25 $43 $95
Class A Shares (without fee waivers) $ 8 $26 $46 $101
Class B Shares $65/$15* $78/$48* $103/$83* $161**
Class B Shares (without fee waivers) $66/$16* $80/$50* $106/$86* $167**
Class I Shares $ 5 $17 $29 $65
Class I Shares (without fee waivers) $ 6 $18 $32 $71
</TABLE>
* Assuming no redemption of Class B shares.
** Class B shares of the One Group Prime Money Market Fund and the Combined Fund
automatically convert to Class A Shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
<PAGE> 108
<TABLE>
<CAPTION>
Pegasus One Group
Treasury Money U.S. Treasury Securities Combined
Market Fund Money Market Fund(1) Fund Pro Forma
-------------- ----------------------- --------------
Class A Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None None None
Sales Charge on Reinvested
Dividends None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
as applicable) None None None 5.00% None None 5.00% None
Redemption Fees None None None None None None None None
Exchange Fees None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(2) .30% .30% .35% .35% .35% .32% .32% .32%
12b-1 Fees(3) None None .25% 1.00% None .25% 1.00% None
Other Expenses .43% .18% .17% .17% .17% .18% .18% .18%
Total Fund Operating Expenses
(after fee waivers)(4,5) .73% .48% .77% 1.52% .52% .75% 1.50% .50%
</TABLE>
- --------------------------
* If shares of the One Group U.S. Treasury Securities Money Market Fund
or Combined Fund are purchased or sold through an account with a
Shareholder Servicing Agent, separate transaction fees may be charged
by the Shareholder Servicing Agent. In addition, a $10.00 sub-minimum
account fee may be applicable and a $7.00 charge will be deducted from
redemption amounts paid by wire.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waiver, Advisory Fees for the Combined Fund would be
.35% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class A and Class B shareholders of the
One Group U.S. Treasury Securities Money Market Fund and Combined Fund
may pay more than the equivalent of the maximum front-end sales charges
permitted by the rules of the National Association of Securities
Dealers. The amount of 12b-1 Fees shown for the One Group U.S. Treasury
Securities Money Market Fund and Combined Fund includes fees for
shareholder servicing and distribution. Shareholder servicing fees
payable by the Class A shareholders of the Pegasus Treasury Money
Market Fund are reflected under "Other Expenses."
(4) The Investment Adviser of the Pegasus Treasury Money Market Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to .75%
and .50%, respectively, for the Class A and Class I shares.
(5) Without the voluntary reduction of Advisory Fees, Total Fund Operating
Expenses would be .78% for Class A shares, 1.53% for Class B shares,
and .53% for Class I shares for the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Treasury Money Market Fund
Class A Shares $ 7 $23 $41 $91
Class I Shares $ 5 $15 $27 $60
One Group U.S. Treasury Securities Money
Market Fund
Class A Shares $ 8 $25 $43 $99
Class B Shares $65/$15* $78/$48* $103/$83* $161**
Class I Shares $ 5 $17 $29 $65
Combined Fund Pro Forma
Class A Shares $ 8 $24 $42 $93
Class A Shares (without fee waivers) $ 8 $25 $43 $97
Class B Shares $65/$15* $78/$48* $103/$83* $161**
Class B Shares (without fee waivers) $66/$16* $78/$48* $103/$83* $162**
Class I Shares $ 5 $16 $28 $63
Class I Shares (without fee waivers) $ 5 $17 $30 $66
</TABLE>
* Assuming no redemption of Class B shares.
** Class B shares of the One Group U.S. Treasury Securities Money Market Fund
and the Combined Fund automatically convert to Class A Shares after eight (8)
years. Therefore, the "10 Years" example above reflects this conversion.
-2-
<PAGE> 109
<TABLE>
<CAPTION>
Pegasus One Group
Municipal Money Municipal Money Combined
Market Fund(1) Market Fund(1) Fund Pro Forma
-------------- -------------- --------------
Class A Class I Class A Class I Class A Class I
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None
Sales Charge on Reinvested
Dividends None None None None None None
Maximum Contingent Deferred
Sales Charge (as a percentage
of original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(2) .30% .30% .27% .27% .25% .25%
12b-1 Fees(3) None None .25% None .25% None
Other Expenses (after fee waivers)(4) .43% .18% .20% .20% .20% .20%
Total Fund Operating Expenses
(after fee waivers)(5,6) .73% .48% .72% .47% .70% .45%
</TABLE>
- --------------------------
* If shares of the One Group Municipal Money Market Fund or Combined Fund
are purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from the redemption
amounts paid by wire.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the One Group Municipal
Money Market Fund and Combined Fund would be .35% for all classes of
shares.
(3) Due to 12b-1 Fees, long-term Class A shareholders of the One Group
Municipal Money Market Fund and Combined Fund may pay more than the
equivalent of the maximum front-end sales charges permitted by the
rules of the National Association of Securities Dealers. The amount of
12b-1 Fees shown for the One Group Municipal Money Market Fund and
Combined Fund includes fees for shareholder servicing and distribution.
Shareholder servicing fees payable by the Class A shareholders of the
Pegasus Municipal Money Market Fund are reflected under "Other
Expenses."
(4) Without the fee waiver, Other Expenses for the Combined Fund would be
22% for all classes of shares.
(5) The Investment Adviser of the Pegasus Municipal Money Market Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to .75%
and .50%, respectively, for the Class A and Class I shares.
(6) Without the voluntary reduction of Investment Advisory Fees and expense
reimbursement arrangements, Total Fund Operating Expenses would be .80%
for Class A shares and .55% for Class I shares of the One Group
Municipal Money Market and .82% for Class A and .57% for Class I shares
of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Municipal Money Market Fund
Class A Shares $ 7 $23 $41 $91
Class I Shares $ 5 $15 $27 $60
One Group Municipal Money Market Fund
Class A Shares $ 7 $23 $40 $89
Class A Shares (without fee waivers) $ 8 $26 $44 $99
Class I Shares $ 5 $15 $26 $59
Class I Shares (without fee waivers) $ 6 $18 $31 $69
Combined Fund Pro Forma
Class A Shares $ 7 $22 $39 $87
Class A Shares (without fee waivers) $ 8 $26 $46 $101
Class I Shares $ 5 $14 $25 $57
Class I Shares (without fee waivers) $ 6 $18 $32 $71
</TABLE>
-3-
<PAGE> 110
<TABLE>
<CAPTION>
Pegasus One Group
Michigan Municipal Michigan Municipal Combined
Money Market Fund Money Market Fund* Fund Pro Forma
----------------- ------------------ --------------
Class A Class I Class A Class I Class A Class I
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None
Sales Charge on Reinvested
Dividends None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(1) .27% .27% .27% .27% .27% .27%
12b-1 Fees (after fee waivers)(2) None None .25% None .25% None
Other Expenses (after fee waivers)(3) .48% .23% .22% .22% .22% .22%
Total Fund Operating Expenses
(after fee waivers)(4) .75% .50% .74% .49% .74% .49%
</TABLE>
- --------------------------
* The One Group Michigan Municipal Money Market Fund has not yet
commenced operations. The One Group Michigan Municipal Money Market
Fund will continue the operations of the Pegasus Michigan Municipal
Money Market Fund upon consummation of the Reorganization relating to
that Fund.
** If shares of the One Group Michigan Municipal Money Market Fund or
Combined Fund are purchased or sold through an account with a
Shareholder Servicing Agent, separate transaction fees may be charged
by the Shareholder Servicing Agent. In addition, a $10.00 sub-minimum
account fee may be applicable and charge will be deducted from the
redemption amounts paid by wire.
(1) Without the fee waivers, Advisory Fees for the One Group Michigan
Municipal Money Market Fund and Combined Fund would be .35% for all
classes of shares.
(2) Due to 12b-1 Fees, long-term Class A shareholders of the One Group
Michigan Municipal Money Market Fund and Combined Fund may pay more
than the equivalent of the maximum front-end sales charges permitted
under the rules of The National Association of Securities Dealer. The
amount of 12b-1 fees shown for the One Group Michigan Municipal Money
Market Fund and Combined Fund includes fees for shareholder servicing
and distribution. Shareholder servicing fees payable by the Class A
shareholders of the Pegasus Michigan Municipal Money Market Fund are
reflected under "Other Expenses."
(3) Other Expenses for the One Group Michigan Municipal Money Market Fund
and Combined Fund are based on estimated amounts for the current fiscal
year. Without the fee waiver, Other Expenses for the One Group Michigan
Municipal Money Market Fund and Combined Fund would be .24% for all
classes of shares.
(4) The Investment Adviser of the Pegasus Michigan Municipal Money Market
Fund has voluntarily agreed to limit the Total Fund Operating Expenses
to .75% and .50%, respectively, for the Class A and Class I shares.
Without the voluntary reduction of investment advisory fees and expense
reimbursement arrangements, Total Fund Operating Expenses would be .76%
for Class A shares and .51% for Class I shares of the Pegasus Michigan
Municipal Money Market Fund. Without a voluntary reduction of Advisory
Fees and other expense reimbursement arrangements, Total Fund Operating
Expenses for the One Group Michigan Municipal Money Market Fund and
Combined Fund would be .84% for Class A shares and .59% for Class I
shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Michigan Municipal Money Market Fund
Class A Shares $ 8 $24 $42 $93
Class A Shares (without fee waivers) $ 8 $24 $42 $94
Class I Shares $ 5 $16 $28 $63
Class I Shares (without fee waivers) $ 5 $16 $29 $64
One Group Michigan Municipal Money Market Fund
Class A Shares $ 8 $24 $41 $92
Class A Shares (without fee waivers) $ 9 $27 $47 $104
Class I Shares $ 5 $16 $27 $62
Class I Shares (without fee waivers) $ 6 $19 $33 $74
Combined Fund Pro Forma
Class A Shares $ 8 $24 $41 $92
Class A Shares (without fee waivers) $ 9 $27 $47 $104
Class I Shares $ 5 $16 $27 $62
Class I Shares (without fee waivers) $ 6 $19 $33 $74
</TABLE>
-4-
<PAGE> 111
<TABLE>
<CAPTION>
One Group
Pegasus Cash Management
Cash Management Money Market Combined
Fund Fund* Fund Pro Forma
--------------- ---------------- --------------
Institutional Service Class I Class A Class I Class A
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(1) .16% .16% .16% .16% .16% .16%
12b-1 Fees(2) None .25% None .25% None .25%
Other Expenses (after fee
waivers)(3) .19% .19% .18% .18% .18% .18%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4) .35% .60% .34% .59% .34% .59%
</TABLE>
- --------------------------
* The One Group Cash Management Money Market Fund has not yet commenced
investment operations. The One Group Cash Management Money Market Fund
will continue the operations of the Pegasus Cash Management Fund upon
consummation of the Reorganization relating to that Fund.
+ If shares of the One Group Cash Management Money Market Fund or
Combined Fund are purchased or sold through an account with a
Shareholder Servicing Agent, separate transaction fees may be charged
by the Shareholder Servicing Agent. In addition, a $7.00 charge will be
deducted from the redemption amounts paid by wire.
(1) Without Advisory Fee waivers, Advisory Fees for the Pegasus Cash
Management Fund, the One Group Cash Management Money Market Fund and
Combined Fund would be .20% for all classes of shares.
(2) The amount of 12b-1 Fees shown for the One Group Cash Management Money
Market Fund and Combined Fund includes fees for shareholder servicing
and distribution.
(3) Other Expenses for the One Group Cash Management Money Market Fund and
Combined Fund are based on estimated amounts for this current fiscal
year. Without the fee waiver, Other Expenses for the One Group Cash
Management Money Market Fund and Combined Fund would be .19% for all
classes of shares.
(4) Without Advisory Fee waivers and expense reimbursement arrangements,
Total Fund Operating Expenses for the Pegasus Cash Management Fund
would be .39% for the Institutional Shares and .64% for the Service
Shares. Without Advisory Fee Waivers, Total Fund Operating Expenses for
the One Group Cash Management Money Market Fund and Combined Fund would
be .39% for Class I and .64% for Class A shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
(1) 5% annual return, and (2) redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Cash Management Fund
Institutional Shares $4 $11 $20 $44
Institutional Shares (without fee waivers) $4 $13 $22 $49
Service Shares $6 $19 $33 $75
Service Shares (without fee waivers) $7 $20 $36 $80
One Group Cash Management Money Market Fund
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $13 $22 $49
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $7 $20 $36 $80
Combined Fund Pro Forma
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $13 $22 $49
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $7 $20 $36 $80
</TABLE>
-5-
<PAGE> 112
<TABLE>
<CAPTION>
One Group
Pegasus Treasury Cash
Treasury Cash Management Combined
Management Fund Money Market Fund* Fund Pro Forma
--------------- ------------------ --------------
Institutional Service Class I Class A Class I Class A
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
PEGASUS TRANSACTION EXPENSES-
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(1) .17% .17% .17% .17% .17% .17%
12b-1 Fees(2) None .25% None .25% None .25%
Other Expenses (after fee
waivers)(3) .18% .18% .17% .17% .17% .17%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4) .35% .60% .34% .59% .34% .59%
</TABLE>
- --------------------------
* The One Group Treasury Cash Management Money Market Fund has not yet
commenced operations. The One Group Treasury Cash Management Money
Market Fund will continue the operations of the Pegasus Treasury Cash
Management Fund upon consummation of the Reorganization relating to
that Fund.
+ If shares of the One Group Treasury Cash Management Money Market Fund
or Combined Fund are purchased or sold through an account with a
Shareholder Servicing Agent, separate transaction fees may be charged
by the Shareholder Servicing Agent. In addition, a $7.00 charge is
deducted from the redemption amounts paid by wire.
(1) Without Advisory Fee waivers, Advisory Fees for the Pegasus Treasury
Cash Management Fund, the One Group Treasury Cash Management Fund and
Combined Fund would be .20% for all classes of shares.
(2) The amount of 12b-1 Fees shown for the One Group Treasury Cash
Management Money Market Fund and Combined Fund includes fees for
shareholder servicing and distribution.
(3) Other Expenses for the One Group Treasury Cash Management Money Market
Fund and Combined Fund are based on estimated amounts for the current
fiscal year. Without the fee waiver, Other Expenses for the One Group
Treasury Cash Management Money Market Fund and Combined Fund would be
.18% for all classes of shares.
(4) Without Advisory Fee Waivers and expense reimbursement arrangements,
Total Fund Operating Expenses would be .38% for the Institutional
Shares and .63% for the Service Shares of the Pegasus Treasury Cash
Management Fund and .38% for the Class I Shares and .63% for the Class
A Shares of the One Group Treasury Cash Management Money Market Fund
and Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
(1) 5% annual return, and (2) redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Treasury Cash Management Fund
Institutional Shares $4 $11 $20 $44
Institutional Shares (without fee waivers) $4 $12 $21 $48
Service Shares $6 $19 $33 $75
Service Shares (without fee waivers) $6 $20 $35 $79
One Group Treasury Cash Management Money Market
Fund
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $12 $21 $48
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $6 $20 $35 $79
Combined Fund Pro Forma
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $12 $21 $48
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $6 $20 $35 $79
</TABLE>
-6-
<PAGE> 113
<TABLE>
<CAPTION>
One Group
Pegasus Treasury Prime Cash
Treasury Prime Cash Management Combined
Management Fund Money Market Fund* Fund Pro Forma
------------------- ------------------- --------------
Institutional Service Class I Class A Class I Class A
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(1) .15% .15% .15% .15% .15% .15%
12b-1 Fees(2) None .25% None .25% None .25%
Other Expenses
(after fee waiver and/or
expense reimbursements)(3) .20% .20% .19% .19% .19% .19%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4) .35% .60% .34% .59% .34% .59%
</TABLE>
- --------------------------
* The One Group Treasury Prime Cash Management Money Market Fund has not
yet commenced operations. The One Group Treasury Prime Cash Management
Money Market Fund will continue the operations of the Pegasus Treasury
Prime Cash Management Fund upon consummation of the Reorganization
relating to that Fund.
+ If shares of the One Group Treasury Prime Cash Management Money Market
Fund or Combined Fund are purchased or sold through an account with a
Shareholder Servicing Agent, separate transaction fees may be charged
by the Shareholder Servicing Agent. In addition, a $7.00 charge will be
deducted from the redemption amounts paid by wire.
(1) Without Advisory Fee waivers, Advisory Fees would be .20% for the
Pegasus Treasury Prime Cash Management Fund and .20% for the One Group
Treasury Prime Cash Management Money Market Fund and the Combined Fund
for all classes of shares.
(2) The amount of 12b-1 Fees shown for the One Group Treasury Prime Cash
Management Money Market Fund and Combined Fund includes fees for
shareholder servicing and distribution.
(3) Other Expenses for the One Group Treasury Prime Cash Management Money
Market Fund and Combined Fund are based on estimated amounts for the
current fiscal year. Without the fee waiver, Other Expenses for the One
Group Treasury Prime Cash Management Money Market Fund and Combined
Fund would be .20% for all classes of shares.
(4) Without Advisory Fee waivers and expense reimbursement arrangements,
Total Fund Operating Expenses would be .40% for the Institutional
Shares and .65% for the Service Shares of the Pegasus Treasury Prime
Cash Management Fund. Without waivers, Total Fund Operating Expenses
for the One Group Treasury Prime Cash Management Money Market Fund and
Combined Fund would be .40% for the Class I shares and .65% for Class A
shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
(1) 5% annual return, and (2) redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Treasury Cash Management Fund
Institutional Shares $4 $11 $20 $44
Institutional Shares (without fee waivers) $4 $13 $22 $51
Service Shares $6 $19 $33 $75
Service Shares (without fee waivers) $7 $21 $36 $81
One Group Treasury Cash Management Money
Market Fund
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $13 $22 $51
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $7 $21 $36 $81
Combined Fund Pro Forma
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $13 $22 $51
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $7 $21 $36 $81
</TABLE>
-7-
<PAGE> 114
<TABLE>
<CAPTION>
Pegasus One Group
U.S. Government U.S. Government Securities
Securities Cash Cash Management Combined
Management Fund Money Market Fund* Fund Pro Forma
--------------- ------------------ --------------
Institutional Service Class I Class A Class I Class A
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(1) .18% .18% .18% .18% .18% .18%
12b-1 Fees (2) None .25% None .25% None .25%
Other Expenses
(after fee waivers and/or
expense reimbursements)(3) .17% .17% .17% .17% .17% .17%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4) .35% .60% .35% .60% .35% .60%
</TABLE>
- --------------------------
* The One Group U.S. Government Securities Cash Management Money Market
Fund has not yet commenced investment operations. The One Group U.S.
Government Securities Cash Management Money Market Fund will continue
the operations of the Pegasus U.S. Government Securities Cash
Management Fund upon consummation of the Reorganization relating to
that Fund.
+ If shares of the One Group U.S. Government Securities Money Market Cash
Management Fund or Combined Fund are purchased or sold through an
account with a Shareholder Servicing Agent, separate transaction fees
may be charged by the Shareholder Servicing Agent. In addition, a $7.00
charge will be deducted from the redemption amounts paid by wire.
(1) Without fee waivers, Advisory Fees would be .20% for the Pegasus U.S.
Government Securities Cash Management Fund, the One Group U.S.
Government Securities Cash Management Money Market Fund and Combined
Fund for all classes of shares.
(2) The amount of 12b-1 Fees shown for the Combined Fund includes fees for
shareholder servicing and distribution.
(3) Other Expenses for the One Group U.S. Government Securities Cash
Management Money Market Fund and Combined Fund are based on estimated
amounts for the current fiscal year. Without the fee waiver, Other
Expenses for the One Group U.S. Government Securities Cash Management
Money Market Fund and Combined Fund would be .18% for all classes of
shares.
(4) Without Advisory Fee waivers and expense reimbursement arrangements,
Total Fund Operating Expenses would be .37% for the Institutional
Shares and .62% for the Service Shares of the Pegasus U.S. Government
Securities Prime Cash Management Fund. Without Advisory Fee waivers,
Total Fund Operating Expenses would be .38% for the Class I shares and
.63% for Class A shares of the One Group U.S. Government Securities
Cash Management Money Market Fund and Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
(1) 5% annual return, and (2) redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus U.S. Government
Securities Cash Management Fund
Institutional Shares $4 $11 $20 $44
Institutional Shares (without fee waivers) $4 $12 $21 $47
Services Shares $6 $19 $33 $75
Services Shares (without fee waivers) $6 $20 $35 $77
One Group U.S. Government Securities
Cash Management Money Market Fund
Class I Shares $4 $11 $20 $44
Class I Shares (without fee waivers) $4 $12 $21 $48
Class A Shares $6 $19 $33 $75
Class A Shares (without fee waivers) $6 $20 $35 $79
Combined Fund Pro Forma
Class I Shares $4 $11 $20 $44
Class I Shares (without fee waivers) $4 $12 $21 $48
Class A Shares $6 $19 $33 $75
Class A Shares (without fee waivers) $6 $20 $35 $79
</TABLE>
-8-
<PAGE> 115
<TABLE>
<CAPTION>
Pegasus One Group
Municipal Cash Municipal Cash Management Combined
Management Fund Money Market Fund* Fund Pro Forma
--------------- ------------------------- --------------
Institutional Service Class I Class A Class I Class A
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(1) .17% .17% .17% .17% .17% .17%
12b-1 Fees (after fee waivers)(2) None .25% None .25% None .25%
Other Expenses
(after fee waivers and/or
expense reimbursements)(3) .18% .18% .17% .17% .17% .17%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4) .35% .60% .34% .59% .34% .59%
</TABLE>
- --------------------------
* The One Group Municipal Cash Management Money Market Fund has not yet
commenced investment operations. The One Group Municipal Cash
Management Money Market Fund will continue the operations of the
Pegasus Municipal Cash Management Fund upon consummation of the
Reorganization relating to that Fund.
+ If shares of the One Group Municipal Cash Management Money Market Fund
or Combined Fund are purchased or sold through an account with a
Shareholder Servicing Agent, separate transaction fees may be charged
by the Shareholder Servicing Agent. In addition, a $7.00 charge will be
deducted from the redemption amounts paid by wire.
(1) Without Advisory Fee waivers, Advisory Fees would be .20% for the
Pegasus Municipal Cash Management Fund and the One Group Municipal Cash
Management Money Market Fund and Combined Fund for all classes of
shares.
(2) The amount of 12b-1 Fees shown for the One Group Municipal Cash
Management Money Market Fund and Combined Fund includes fees for
shareholder servicing and distribution.
(3) Other Expenses for the One Group Municipal Cash Management Money Market
Fund and Combined Fund are based on estimated amounts for the current
fiscal year. Without the fee waiver, Other Expenses for the One Group
Municipal Cash Management Money Market Fund and Combined Fund would be
.18% for all classes of shares.
(4) Without Advisory Fee waivers and expense reimbursement arrangements,
Total Fund Operating Expenses would be .38% for the Institutional
Shares and .63% for the Service Shares of the Pegasus Municipal Cash
Management Fund. Without Advisory Fee waivers and expense reimbursement
arrangements, Total Fund Operating Expenses would be .38% for Class I
shares and .63% for Class A shares of the One Group Municipal Cash
Management Money Market Fund and Combined Fund. The following examples
are calculated using Combined total operating expenses.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
(1) 5% annual return, and (2) redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Municipal Cash Management Fund
Institutional Shares $4 $11 $20 $44
Institutional Shares (without fee waivers) $4 $12 $21 $48
Service Shares $6 $19 $33 $75
Service Shares (without fee waivers) $6 $20 $35 $79
One Group Municipal Cash Management Money
Market Fund
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $12 $21 $48
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $6 $20 $35 $79
Combined Fund Pro Forma
Class I Shares $3 $11 $19 $43
Class I Shares (without fee waivers) $4 $12 $21 $48
Class A Shares $6 $19 $33 $74
Class A Shares (without fee waivers) $6 $20 $35 $79
</TABLE>
-9-
<PAGE> 116
<TABLE>
<CAPTION>
Pegasus One Group
Managed Assets Investor Balanced Combined
Conservative Fund++ Fund (1) Fund Pro Forma
------------------- ------------------ --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred
Sales Charge (as a percentage
of original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees(2) .52% .52% .52% .05% .05% .05% .05% .05% .05%
12b-1 Fees (after fee waivers)(3) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .73% .73% .48% .15% .15% .15% .15% .15% .15%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4,5,6) 1.25% 2.00% 1.00% .45% 1.20% .20% .45% 1.20% .20%
</TABLE>
- --------------------------
* If shares of the One Group Investor Balanced Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from the redemption
amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
++ Expenses for the Pegasus Managed Assets Conservative Fund include
expenses borne indirectly by the Fund in connection with its
investments in the Underlying Funds. There is no layering of fees.
(1) Expense information has been restated to reflect current fees.
(2) Without Advisory Fee waivers, Advisory Fees for the Pegasus Managed
Assets Conservative Fund would be .65% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Managed Assets Conservative Funds and Class A and Class B shareholders
of the One Group Investor Balanced and Combined Fund 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 of the
One Group Investor Balanced Fund and Combined Fund. The amount of 12b-1
Fees shown for the One Group Investor Balanced Fund and Combined Fund
includes fees for shareholder servicing and distribution. Shareholder
servicing fees payable by the Class A and Class B shareholders of the
Pegasus Managed Assets Conservative Fund are reflected under "Other
Expenses."
(4) The Investment Adviser of the Pegasus Managed Assets Conservative Fund
has voluntarily agreed to limit the total operating expenses to 1.25%,
2.00% and 1.00%, respectively, for the Class A, Class B and Class I
shares.
(5) Without the voluntary reduction of Investment Advisory, 12b-1 Fees and
other expenses, Total Fund Operating Expenses would be 1.38% for Class
A Shares, 2.13% for Class B Shares, and 1.13% for Class I Shares of the
Pegasus Managed Assets Conservative Fund. Without the voluntary
reduction of 12b-1 fees, Total Fund Operating Expenses for Class A
shares of the One Group Investor Balanced and Combined Fund would be
.55%.
(6) After combining the Total Fund Operating Expenses of the One Group
Investor Balanced Fund and Combined Fund with those of the Underlying
Funds, the estimated average weighted expense ratio is 1.23% for Class
A shares, 1.98% for Class B shares and .98% for Class I shares. The
following examples are calculated using Combined total operating
expenses.
-10-
<PAGE> 117
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (2)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Managed Assets Conservative Fund
Class A Shares $62 $88 $115 $194
Class A Shares (without fee waivers) $63 $92 $122 $207
Class B Shares $70/$20* $93/$63* $128/$109* $204+
Class B Shares (without fee waivers) $72/$22* $97/$67* $134/$114* $218+
Class I Shares $10 $32 $55 $122
Class I Shares (without fee waivers) $12 $36 $62 $137
One Group Investor Balanced Fund
Class A Shares $57 $83 $111 $189
Class A Shares (without fee waivers) $59 $88 $119 $208
Class B Shares $70/$20* $93/$63* $128/$108* $213**
Class B Shares (without fee waivers) $71/$21* $95/$65* $131/$111* $223**
Class I Shares $10 $32 $55 $122
Class I Shares (without fee waivers) $11 $34 $59 $131
Combined Fund Pro Forma
Class A Shares $64 $59 $117 $194
Class A Shares (without fee waivers) $66 $95 $127 $215
Class B Shares $70/$20* $92/$62* $127/$107* $211**
Class B Shares (without fee waivers) $71/$21* $95/$65* $132/$112* $224**
Class I Shares $10 $31 $54 $120
Class I Shares (without fee waivers) $11 $34 $60 $132
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Investor Balanced Fund and the Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-11-
<PAGE> 118
<TABLE>
<CAPTION>
Pegasus One Group Investor
Managed Assets Growth & Income Combined
Balanced Fund++ Fund(1) Fund Pro Forma
--------------- ------------------ --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(2) .52% .52% .52% .05% .05% .05% .05% .05% .05%
12b-1 Fees (after fee
waivers)(3) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses (after fee waivers
and expense reimbursements) .73% .73% .48% .15% .15% .15% .15% .15% .15%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4,5,6) 1.25% 2.00% 1.00% .45% 1.20% .20% .45% 1.20% .20%
</TABLE>
- --------------------------
* If shares of the One Group Investor Growth & Income Fund or Combined
Fund are purchased or sold through an account with a Shareholder
Servicing Agent, separate transaction fees may be charged by the
Shareholder Servicing Agent. In addition, a $10.00 sub-minimum account
fee may be applicable and a $7.00 charge will be deducted from the
redemption amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
++ Expenses for the Pegasus Managed Assets Balanced Fund include expenses
borne indirectly by the Fund in connection with its investments in the
Underlying Funds. There is no layering of fees.
(1) Expense information has been restated to reflect current fees.
(2) Without Advisory Fee waivers, Advisory Fees for the Pegasus Managed
Assets Balanced Fund would be .65% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Managed Assets Balanced Fund and Class A and Class B shareholders of
the One Group Investor Growth & Income and Combined Fund 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 of
the One Group Investor Growth & Income Fund and Combined Fund. The
amount of 12b-1 Fees shown for the One Group Investor Growth & Income
Fund and Combined Fund includes fees for shareholder servicing and
distribution. Shareholder servicing fees payable by the Class A and
Class B shareholders of the Pegasus Managed Assets Balanced Fund are
reflected under "Other Expenses."
(4) The Investment Adviser of the Pegasus Managed Assets Balanced Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.25%,
2.00% and 1.00%, respectively, for the Class A, Class B and Class I
shares.
(5) Without the voluntary reduction of Investment Advisory, 12b-1 Fees and
Other Expenses, Total Fund Operating Expenses would be 1.38% for Class
A shares, 2.13% for Class B shares, and 1.13% for Class I shares of the
Pegasus Managed Assets Balanced Fund. Without the voluntary reduction
of 12b-1 Fees, Total Fund Operating Expenses would be .55% for Class A
shares of the One Group Investor Growth & Income Fund and Combined
Fund.
(6) After combining the Total Fund Operating Expenses of the One Group
Investor Growth and Income Fund and Combined with those of the
Underlying Funds, estimated average weighted expense ratio is 1.28% for
Class A shares, 2.03% for Class B shares and 1.03% for Class I shares.
The following examples are calculated using Combined total operating
expenses.
-12-
<PAGE> 119
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Managed Assets Balanced Fund
Class A Shares $62 $88 $115 $194
Class A Shares (without fee waivers) $63 $92 $122 $207
Class B Shares $70/$20* $93/$63* $128/$108* $204+
Class B Shares (without fee waivers) $72/$22* $97/$67* $134/$114* $218+
Class I Shares $10 $32 $55 $122
Class I Shares (without fee waivers) $12 $36 $62 $137
One Group Investor Growth & Income Fund
Class A Shares $58 $84 $113 $195
Class A Shares (without fee waivers) $59 $89 $121 $212
Class B Shares $71/$21* $94/$64* $130/$110* $219**
Class B Shares (without fee waivers) $71/$21* $96/$66* $133/$113* $228**
Class I Shares $11 $33 $58 $128
Class I Shares (without fee waivers) $11 $35 $61 $135
Combined Fund Pro Forma
Class A Shares $65 $91 $119 $199
Class A Shares (without fee waivers) $67 $96 $128 $218
Class B Shares $71/$21* $94/$64* $129/$109* $217**
Class B Shares (without fee waivers) $71/$21* $96/$66* $133/$113* $228**
Class I Shares $11 $33 $57 $126
Class I Shares (without fee waivers) $11 $35 $61 $135
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Investor Growth & Income Fund and the
Combined Fund automatically convert to Class A shares after eight (8) years.
Therefore, the "10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-13-
<PAGE> 120
<TABLE>
<CAPTION>
Pegasus One Group
Managed Assets Investor Growth Combined
Growth Fund++ Fund(1) Fund Pro Forma
------------- --------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(2) .23% .23% .23% .05% .05% .05% .05% .05% .05%
12b-1 Fees (after fee
waivers)(3) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses 1.02% 1.02% .77% .15% .15% .15% .15% .15% .15%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4,5,6) 1.25% 2.00% 1.00% .45% 1.20% .20% .45% 1.20% .20%
</TABLE>
- --------------------------
* If shares of the One Group Investor Growth Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from the redemption
amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
++ Expenses for the Pegasus Managed Assets Growth Fund include expenses
borne indirectly by the Fund in connection with its investments in the
Underlying Funds. There is no layering of fees.
(1) Expense information has been restated to reflect current fees.
(2) Without Advisory Fee waivers, Advisory Fees for the Pegasus Managed
Assets Growth Fund would be .65% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Managed Assets Growth Fund and Class A and Class B shareholders of the
One Group Investor Growth Fund and Combined Fund 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 of the
One Group Investor Growth Fund and Combined Fund. The amount of 12b-1
Fees shown for the One Group Investor Growth Fund and Combined Fund
includes fees for shareholder servicing and distribution. Shareholder
servicing fees payable by the Class A and Class B shareholders of the
Pegasus Managed Assets Growth Fund are reflected under "Other
Expenses."
(4) The Investment Adviser of the Pegasus Managed Assets Growth Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.25%,
2.00% and 1.00%, respectively, for the Class A, Class B and Class I
shares.
(5) Without the voluntary reduction of Investment Advisory and 12b-1 Fees,
Total Fund Operating Expenses would be 1.67% for Class A shares, 2.42%
for Class B shares, and 1.42% for Class I shares of the Pegasus Managed
Assets Growth Fund. Without the voluntary reduction of 12b-1 Fees,
Total Fund Operating Expenses would be .55% for Class A shares of the
One Group Investor Growth Fund and Combined Fund.
(6) After combining the Total Fund Operating Expenses of the One Group
Investor Growth Fund and Combined Fund with those of the Underlying
Funds, the estimated average weighted expense ratio is 1.30% for Class
A shares, 2.05% for Class B shares and 1.05% for Class I shares. The
following examples are calculated using Combined total operating
expenses.
-14-
<PAGE> 121
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Managed Assets Growth Fund
Class A Shares $62 $88 $115 $194
Class A Shares (without fee waivers) $66 $100 $136 $238
Class B Shares $70/$20* $93/$63* $128/$108* $204+
Class B Shares (without fee waivers) $75/$25* $105/$75* $149/$129* $248+
Class I Shares $10 $32 $55 $122
Class I Shares (without fee waivers) $14 $45 $78 $170
One Group Investor Growth Fund
Class A Shares $58 $85 $114 $197
Class A Shares (without fee waivers) $59 $89 $121 $212
Class B Shares $71/$21* $95/$65* $131/$111* $221**
Class B Shares (without fee waivers) $71/$21* $96/$66* $133/$113* $228**
Class I Shares $11 $34 $59 $131
Class I Shares (without fee waivers) $11 $35 $61 $135
Combined Fund Pro Forma
Class A Shares $65 $92 $120 $201
Class A Shares (without fee waivers) $67 $97 $129 $219
Class B Shares $71/$21* $94/$64* $130/$110* $219**
Class B Shares (without fee waivers) $72/$22* $96/$66* $134/$114* $229**
Class I Shares $11 $33 $58 $128
Class I Shares (without fee waivers) $11 $36 $62 $136
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Investor Growth Fund and the Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore,
the "10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-15-
<PAGE> 122
<TABLE>
<CAPTION>
Pegasus One Group
Equity Income Equity Income Combined
Fund Fund(1) Fund Pro Forma
------------- ------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees .50% .50% .50% .74% .74% .74% .74% .74% .74%
12b-1 Fees (after fee waivers)(2) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses .45% .45% .20% .26% .26% .26% .22% .22% .22%
Total Fund Operating Expenses
(after fee waivers)(3,4) .95% 1.70% .70% 1.25% 2.00% 1.00% 1.21% 1.96% .96%
</TABLE>
- --------------------------
* If shares of the One Group Equity Income Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee maybe
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Equity
Income Fund and Class A and Class B Shareholders of the One Group
Equity Income Fund and Combined Fund 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 of the One Group
Equity Income Fund and Combined Fund. The amount of 12b-1 Fees shown
for the One Group Equity Income Fund and Combined Fund includes fees
for shareholder servicing and distribution. Shareholder servicing fees
payable by the Class A and Class B shareholders of the Pegasus Equity
Income Fund are reflected under "Other Expenses."
(3) The Investment Adviser of the Pegasus Equity Income Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.21%,
1.96% and .96%, respectively, for the Class A, Class B and Class I
shares.
(4) Without the voluntary reduction of 12b-1 Fees, Total Fund Operating
Expenses would be 1.35% for Class A shares of the One Group Equity
Income Fund and 1.31% for Class A Shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Equity Income Fund
Class A Shares $59 $79 $100 $161
Class B Shares $67/$17* $84/$54* $113/$93* $173+
Class I Shares $ 7 $22 $39 $ 87
One Group Equity Income Fund
Class A Shares $57 $83 $111 $189
Class A Shares (without fee waivers) $58 $86 $116 $200
Class B Shares $70/$20* $93/$63* $128/$108* $213**
Class I Shares $10 $32 $55 $122
Combined Fund Pro Forma
Class A Shares $64 $89 $116 $191
Class A Shares (without fee waivers) $65 $92 $121 $202
Class B Shares $70/$20* $92/$62* $126/$106* $209**
Class I Shares $10 $31 $53 $118
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Equity Income and the Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-16-
<PAGE> 123
<TABLE>
<CAPTION>
Pegasus One Group
Growth Large Cap Combined
Fund Growth Fund(1) Fund Pro Forma
------- -------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees .60% .60% .60% .74% .74% .74% .71% .71% .71%
12b-1 Fees (after fee waivers)(2) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses .47% .47% .22% .26% .26% .26% .23% .23% .23%
Total Fund Operating Expenses
(after fee waivers)(3,4) 1.07% 1.82% .82% 1.25% 2.00% 1.00% 1.19% 1.94% .94%
</TABLE>
- --------------------------
* If shares of the One Group Large Cap Growth Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Growth
Fund and Class A and Class B shareholders of the One Group Large Cap
Growth Fund and the Combined Fund 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 of the One Group
Large Cap Growth Fund and Combined Fund. The amount of 12b-1 Fees shown
for the One Group Large Cap Growth Fund and Combined Fund includes fees
for shareholder servicing and distribution. Shareholder servicing fees
payable by the Class A and Class B shareholders of the Pegasus Growth
Fund are reflected under "Other Expenses."
(3) The Investment Adviser of the Pegasus Growth Fund has voluntarily
agreed to limit the Total Fund Operating Expenses to 1.25%, 2.00% and
1.00%, respectively, for the Class A, Class B and Class I shares.
(4) Without the voluntary reduction of 12b-1 Fees, Total Fund Operating
Expenses would be 1.35% for Class A shares of the One Group Large Cap
Growth Fund and 1.29% for Class A Shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Growth Fund
Class A Shares $60 $82 $106 $175
Class B Shares $69/$19* $88/$58* $119/$99* $186+
Class I Shares $ 8 $27 $46 $103
One Group Large Company Growth Fund
Class A Shares $57 $83 $111 $189
Class A Shares (without fee waivers) $58 $86 $116 $200
Class B Shares $70/$20* $93/$63* $128/$108* $213**
Class I Shares $10 $32 $55 $122
Combined Fund Pro Forma
Class A Shares $64 $88 $114 $189
Class A Shares (without fee waivers) $65 $91 $120 $200
Class B Shares $70/$20* $91/$61* $125/$105* $207**
Class I Shares $10 $31 $53 $118
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Large Cap Growth Fund and the Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-17-
<PAGE> 124
<TABLE>
<CAPTION>
Pegasus Mid-Cap One Group Diversified
Opportunity Mid Cap Combined
Fund Fund* Fund Pro Forma
---------------- ---------------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 5.25% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(1) .60% .60% .60% .60% .60% .60% .60% .60% .60%
12b-1 Fees (after fee waivers)(2) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses (after wee
waivers)(3) .54% .54% .29% .26% .26% .26% .26% .26% .26%
Total Fund Operating Expenses
(after fee waivers)(4) 1.14% 1.89% .89% 1.11% 1.86% .86% 1.11% 1.86% .86%
</TABLE>
- --------------------------
* The One Group Diversified Mid-Cap Fund has not yet commenced
operations. The One Group Diversified Mid Cap Fund will continue the
operations of the Pegasus Mid-Cap Opportunity Fund upon consummation of
the Reorganization relating to the Fund.
** If shares of the One Group Diversified Mid-Cap Fund or Combined Fund
are purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Without the fee waivers, Advisory Fees for the One Group Diversified
Mid Cap Fund and Combined Fund would be .74% for all classes of shares.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Mid-Cap Opportunity Fund and long-term Class A and Class B shareholders
of the One Group Diversified Mid-Cap Fund and Combined Fund 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. The amount of 12b-1 fees shown for the One Group
Diversified Mid-Cap Fund and Combined Fund includes fees for
shareholders servicing and distribution. Shareholders servicing fees
payable by the Class A and Class B shareholders of the Pegasus Mid-Cap
Opportunity Fund are reflected under "Other Expenses."
(3) Without the fee waiver, Other Expenses for the One Group Diversified
Mid Cap Fund and Combined Fund would be .27% for all classes of shares.
(4) The Investment Adviser of the Pegasus Mid-Cap Opportunity Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.27%,
2.02% and 1.02%, respectively, for the Class A, Class B and Class I
shares. Without the voluntary reduction of Investment Advisory, 12b-1
and other Fees, Total Fund Operating Expenses for the One Group
Diversified Mid Cap Fund and Combined Fund would be 1.36% for Class A
shares, 2.01% for Class B shares and 1.01% for Class I shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Mid-Cap Opportunity Fund
Class A Shares $61 $85 $110 $182
Class B Shares $69/$19* $90/$60* $123/$103* $194+
Class I Shares $ 9 $29 $50 $110
One Group Diversified Mid-Cap Fund
Class A Shares $63 $86 $110 $181
Class A Shares (without fee waivers) $66 $93 $123 $207
Class B Shares $69/$19* $88/$58* $121/$101* $198**
Class B Shares (without fee waivers) $70/$20* $93/$63* $128/$108* $217**
Class I Shares $ 9 $27 $48 $106
Class I Shares (without fee waivers) $10 $32 $56 $124
Combined Fund Pro Forma
Class A Shares $63 $86 $110 $181
Class A Shares (without fee waivers) $66 $93 $123 $207
Class B Shares $69/$19* $88/$58* $121/$101* $198**
Class B Shares (without fee waivers) $70/$20* $93/$63* $128/$108* $217**
Class I Shares $ 9 $27 $48 $106
Class I Shares (without fee waivers) $10 $32 $56 $124
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Diversified Mid Cap Fund and Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-18-
<PAGE> 125
<TABLE>
<CAPTION>
Pegasus One Group
Small-Cap Small Cap Combined
Opportunity Fund Value Fund* Fund Pro Forma
---------------- ----------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 5.25% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(1) .70% .70% .70% .70% .70% .70% .70% .70% .70%
12b-1 Fees (after fee waivers)(2) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses(3) .49% .49% .24% .21% .21% .21% .21% .21% .21%
Total Fund Operating Expenses
(after fee waivers)(4) 1.19% 1.94% .94% 1.16% 1.91% .91% 1.16% 1.91% .91%
</TABLE>
- --------------------------
* The One Group Small Cap Value Fund has not yet commenced investment
operations. The One Group Small Cap Value Fund will continue the
operations of the Pegasus Small-Cap Opportunity Fund upon consummation
of the Reorganization relating to that Fund.
** If shares of the One Group Small Cap Value Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from the redemption
amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Without the fees waivers, Advisory Fees for the One Group Small Cap
Value Fund and Combined Fund would be .74% for all classes of shares.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Small-Cap Opportunity Fund and long-term Class A and Class B
shareholders of the One Group Small Cap Value Fund and Combined Fund
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 for A shares of the
One Group Small Cap Value Fund and Combined Fund would be .35%. The
amount of 12b-1 Fees shown for the One Group Small Cap Value Fund and
Combined Fund includes fees for shareholder servicing and distribution.
Shareholder servicing fees payable by the Class A and Class B
shareholders of the Pegasus Small-Cap Opportunity Fund are reflected
under "Other Expenses."
(3) Other Expenses for the One Group Small Cap Value Fund and Combined Fund
are based on estimated amounts for the current fiscal year. Without the
fee waiver, Other Expenses for the One Group Small Cap Value Fund and
Combined Fund would be .22% for all classes of shares.
(4) The Investment Adviser of the Pegasus Small Cap Opportunity Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.42%,
2.17% and 1.17%, respectively, for the Class A, Class B and Class I
shares. Without the voluntary reduction of Investment Advisory, 12b-1
and other Fees, Total Fund Operating Expenses for the One Group Small
Cap Value Fund and Combined Fund would be 1.31% for Class A Shares,
1.96% for Class B shares and .96% for Class I shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Small-Cap Opportunity Fund
Class A Shares $62 $86 $112 $188
Class B Shares $70/$20* $91/$61* $126/$106* $199+
Class I Shares $10 $30 $52 $116
One Group Small Cap Value Fund
Class A Shares $64 $87 $113 $186
Class A Shares (without fee waivers) $65 $92 $121 $202
Class B Shares $69/$19* $90/$60* $123/$103* $204**
Class B Shares (without fee waivers) $70/$20* $92/$62* $126/$106* $212**
Class I Shares $ 9 $29 $50 $112
Class I Shares (without fee waivers) $10 $31 $53 $118
Combined Fund Pro Forma
Class A Shares $64 $87 $113 $186
Class A Shares (without fee waivers) $65 $92 $121 $202
Class B Shares $69/$19* $90/$60* $123/$103* $204**
Class B Shares (without fee waivers) $70/$20* $92/$62* $126/$106* $212**
Class I Shares $ 9 $29 $50 $112
Class I Shares (without fee waivers) $10 $31 $53 $118
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Small Cap Value Fund and Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-19-
<PAGE> 126
<TABLE>
<CAPTION>
Pegasus One Group
Intrinsic Mid Cap Combined
Value Fund Value Fund(1) Fund Pro Forma
---------- ------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees .60% .60% .60% .74% .74% .74% .74% .74% .74%
12b-1 Fees (after fee waiver)(2) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses .49% .49% .24% .26% .26% .26% .22% .22% .22%
Total Fund Operating Expenses
(after fee waivers)(3,4) 1.09% 1.84% .84% 1.25% 2.00% 1.00% 1.21% 1.96% .96%
</TABLE>
- --------------------------
* If shares of the One Group Mid Cap Value Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Intrinsic Value Fund and Class A and Class B shares of the One Group
Mid Cap Value Fund and the Combined Fund 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 of the
One Group Mid Cap Value Fund and Combined Fund. The amount of 12b-1
Fees shown for the One Group Mid Cap Value Fund and Combined Fund
includes fees for shareholder servicing and distribution. Shareholder
servicing fees payable by the Class A and Class B shareholders of the
Pegasus Intrinsic Value Fund are reflected under "Other Expenses."
(3) The Investment Adviser of the Pegasus Intrinsic Value Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.19%,
1.94% and 0.94%, respectively, for the Class A, Class B and Class I
shares.
(4) Without the voluntary reduction of 12b-1 Fees, Total Fund Operating
Expenses would be 1.35% for Class A shares of the One Group Mid Cap
Value Fund and 1.31% for Class A Shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Intrinsic Value Fund
Class A Shares $61 $83 $107 $177
Class B Shares $69/$19* $88/$58* $120/$100* $188+
Class I Shares $ 9 $27 $47 $104
One Group Mid Cap Value Fund
Class A Shares $57 $83 $111 $189
Class A Shares (without fee waivers) $58 $86 $116 $200
Class B Shares $70/$20* $93/$63* $128/$108* $213**
Class I Shares $10 $32 $55 $122
Combined Fund Pro Forma
Class A Shares $64 $89 $116 $191
Class A Shares (without fee waivers) $65 $92 $121 $202
Class B Shares $70/$20* $92/$62* $126/$106* $209**
Class I Shares $10 $31 $53 $118
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Mid Cap Value Fund and the Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-20-
<PAGE> 127
<TABLE>
<CAPTION>
Pegasus One Group
Growth and Value Diversified Equity Combined
Fund Fund(1) Fund Pro Forma
---- ------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees .60% .60% .60% .74% .74% .74% .73% .73% .73%
12b-1 Fees (after fee waivers)(2) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses .51% .51% .26% .26% .26% .26% .24% .24% .24%
Total Fund Operating Expenses
(after fee waivers)(3,4) 1.11% 1.86% .86% 1.25% 2.00% 1.00% 1.22% 1.97% .97%
</TABLE>
- --------------------------
* If shares of the One Group Diversified Equity Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Growth
and Value Fund and Class A and Class B shares of the One Group
Diversified Equity Fund and Combined Fund 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 of the
One Group Diversified Equity Fund and Combined Fund. The amount of
12b-1 Fees shown for the One Group Diversified Equity Fund and Combined
Fund includes fees for shareholder servicing and distribution.
Shareholder servicing fees payable by the Class A and Class B
shareholders of the Pegasus Growth and Value Fund are reflected under
"Other Expenses."
(3) The Investment Adviser of the Pegasus Growth and Value Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.12%,
1.87% and 0.87%, respectively, for the Class A, Class B and Class I
shares.
(4) Without the voluntary reduction of 12b-1 Fees, Total Fund Operating
Expenses would be 1.35% for Class A shares of the One Group Diversified
Equity Fund and 1.32% for Class A shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Growth and Value Fund
Class A Shares $61 $84 $108 $179
Class B Shares $69/$19* $89/$59* $121/$101* $190+
Class I Shares $ 9 $28 $ 48 $106
One Group Diversified Equity Fund
Class A Shares $57 $83 $111 $189
Class A Shares (without fee waivers) $58 $86 $116 $200
Class B Shares $70/$20* $93/$63* $128/$108* $213**
Class I Shares $10 $32 $ 55 $122
Combined Fund Pro Forma
Class A Shares $64 $89 $116 $192
Class A Shares (without fee waivers) $65 $92 $121 $203
Class B Shares $70/$20* $92/$62* $126/$106* $210**
Class I Shares $10 $31 $ 54 $119
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Diversified Equity Fund and the Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-21-
<PAGE> 128
<TABLE>
<CAPTION>
Pegasus One Group
Equity Index Equity Index Combined
Fund Fund(1) Fund Pro Forma
---- ------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% None None 4.50% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred
Sales Charge (as a percentage
of original purchase price or
redemption proceeds, as
applicable) None+ 3.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(2) .10% .10% .10% .25% .25% .25% .15% .15% .15%
12b-1 Fees (after fee waivers)(3) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses(4) .55% .55% .30% .25% .25% .25% .21% .21% .21%
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursements)(5,6) .65% 1.40% .40% .75% 1.50% .50% .61% 1.36% .36%
</TABLE>
- --------------------------
* If shares of the One Group Equity Index Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the One Group Equity Index
Fund and Combined Fund would be .30% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Equity
Index Fund and long-term Class A and Class B shares of the One Group
Equity Index Fund and Combined Fund 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 of the One Group
Equity Index Fund and Combined Fund. The amount of 12b-1 Fees shown for
the One Group Equity Index Fund and Combined Fund includes fees for
shareholder servicing and distribution. Shareholder servicing fees
payable by the Class A and Class B shareholders of the Pegasus Equity
Index Fund are reflected under "Other Expenses."
(4) Without the fee waiver, Other Expenses for the Combined Fund would be
.28% for all classes of shares.
(5) The Investment Adviser of the Pegasus Equity Index Fund has voluntarily
agreed to limit the Total Fund Operating Expenses to .86%, 1.41% and
.51%, respectively, for the Class A, Class B and Class I shares.
(6) Without the voluntary reduction of Investment Advisory, 12b-1 and other
Fees, Total Fund Operating Expenses would be .90% for Class A shares,
1.55% for Class B shares, and .55% for Class I shares of the One Group
Equity Index Fund and .93% for Class A shares, 1.58% for Class B shares
and .58% for Class I shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (2)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Equity Index Fund
Class A Shares $36 $50 $65 $109
Class B Shares $44/$14* $65/$45* $87/$77* $129+
Class I Shares $4 $13 $22 $51
One Group Equity Index Fund
Class A Shares $52 $68 $85 $134
Class A Shares (without fee waivers) $54 $72 $93 $151
Class B Shares $65/$15* $77/$47* $102/$82* $159**
Class B Shares (without fee waivers) $66/$16* $79/$49* $104/$84* $167**
Class I Shares $5 $16 $28 $63
Class I Shares (without fee waivers) $6 $18 $31 $69
Combined Fund Pro Forma
Class A Shares $58 $71 $85 $125
Class A Shares (without fee waivers) $61 $81 $101 $161
Class B Shares $64/$14* $73/$43* $84/$74* $143**
Class B Shares (without fee waivers) $66/$16* $80/$50* $106/$86* $170**
Class I Shares $4 $12 $20 $46
Class I Shares (without fee waivers) $6 $19 $32 $73
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Equity Index Fund and Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-22-
<PAGE> 129
<TABLE>
<CAPTION>
Pegasus One Group
Market Expansion Market Expansion Combined
Index Fund(1) Index Fund* Fund Pro Forma
---------------- ----------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% None None 5.25% None None 5.25% None None
Transaction Fee Imposed on
Purchases*** .50% .50% .50% .50% .50% .50% .50% .50% .50%
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred
Sales Charge (as a percentage
of original purchase price or
redemption proceeds, as
applicable) None+ 3.00% None None+ 3.00% None None+ 3.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee
waivers)(2) .00% .00% .00% .15% .15% .15% .15% .15% .15%
12b-1 Fees(3) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses(4)
(after fee waivers and/or
expense reimbursements) .82% .82% .57% .42% .42% .42% .42% .42% .42%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(5,6) .82% 1.57% .57% .82% 1.57% .57% .82% 1.57% .57%
</TABLE>
- --------------------------
* The One Group Market Expansion Index Fund has not yet commenced
operations. The One Group Market Expansion Index Fund will continue the
operations of the Pegasus Market Expansion Index Fund upon consummation
of the Reorganization relating to that Fund.
** If shares of the One Group Market Expansion Index Fund or Combined Fund
are purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Agent. In addition, a $7.00 charged is deducted from the redemptions
amounts paid by wire.
*** To prevent the Pegasus Market Expansion Index Fund and the One Group
Market Expansion Index Fund from being adversely affected by the
transaction costs associated with share purchases, the Fund will sell
shares at a price equal to the net asset value of the shares plus a
transaction fee equal to 0.50% of such value. Such fees are not sales
charges, but are retained by the Fund for the benefit of all
shareholders. This fee will not apply to in-kind contributions,
reinvested dividends or capital gain contributions; however, it will
apply to exchanges. Furthermore, a sales charge will also be imposed on
purchases of Class A shares. Currently, a transaction fee is not being
charged; however, the Fund reserves the right to impose this fee at a
future date.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the voluntary reduction of Investment Advisory fee waivers,
Advisory Fees for the Pegasus Market Expansion Index Fund would be .25%
for all classes of shares. Without the fee waivers, Advisory Fees for
the One Group Market Expansion Index Fund and Combined Fund would be
.35% for all classes.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Market
Expansion Index Fund and long-term Class A and Class B shareholders of
the One Group Market Expansion Index Fund and Combined Fund 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 waivers, 12b-1 fees would be .35% for
Class A shares of the One Group Market Expansion Index Fund and
Combined Fund. The amount of 12b-1 Fees shown for the One Group Market
Expansion Index Fund and Combined Fund includes fees for shareholder
servicing and distribution. Shareholder servicing fees payable by the
Class A and Class B shareholders of the Pegasus Market Expansion Index
Fund are reflected under "Other Expenses."
(4) Without the fee waiver, Other Expenses for the One Group Market
Expansion Index Fund and Combined Fund would be .52% for all classes of
shares.
(5) The Investment Adviser of the Pegasus Market Expansion Index Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to .82%,
1.57% and .57%, respectively, for the Class A, Class B and Class I
shares.
(6) Without the voluntary reduction of Investment Advisory fees and Other
Expenses, Total Fund Operating Expenses would be 1.17% for Class A
shares, 1.92% for Class B shares, and .92% for Class I shares of the
Pegasus Market Expansion Index Fund and 1.22% for Class A shares, 1.87%
for Class B shares and .87% for Class I shares of the One Group Market
Expansion Index Fund and Combined Fund.
-23-
<PAGE> 130
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Market Expansion Index Fund
Class A Shares $38 $55 N/A N/A
Class B Shares $46/$16* $70/$50* N/A N/A
Class I Shares $ 6 $18 N/A N/A
One Group Market Expansion Index Fund
Class A Shares $60 $77 $96 $149
Class A Shares (without fee waivers) $64 $89 $116 $192
Class B Shares $46/$16* $70/$50* $86* $148*
Class B Shares (without fee waivers) $49/$19* $79/$59* $101* $187*
Class I Shares $ 6 $18 $32 $71
Class I Shares (without fee waivers) $ 9 $28 $48 $107
Combined Fund Pro Forma
Class A Shares $60 $77 $96 $149
Class A Shares (without fee waivers) $64 $89 $116 $192
Class B Shares $46/$16* $70/$50* $86* $148*
Class B Shares (without fee waivers) $49/$19* $79/$59* $101* $187*
Class I Shares $ 6 $18 $32 $71
Class I Shares (without fee waivers) $ 9 $28 $48 $107
* Assuming no redemption of Class B shares
</TABLE>
-24-
<PAGE> 131
<TABLE>
<CAPTION>
Pegasus One Group
International Diversified Combined
Equity Fund International Fund* Fund Pro Forma
----------- ------------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 5.00% None None 5.25% None None 5.25% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees .80% .80% .80% .80% .80% .80% .80% .80% .80%
12b-1 Fees (after fee waivers)(1) None .75% None .25% 1.00% None .25% 1.00% None
Other Expenses(2) .52% .52% .27% .22% .22% .22% .22% .22% .22%
Total Fund Operating Expenses
(after fee waivers)(3) 1.32% 2.07% 1.07% 1.27% 2.02% 1.02% 1.27% 2.02% 1.02%
</TABLE>
- --------------------------
* The One Group Diversified International Fund has not yet commenced
investment operations. The One Group Diversified International Fund
will continue the operations of the Pegasus International Equity Fund
upon consummation of the Reorganization relating to that Fund.
** If shares of the One Group Diversified International Fund or Combined
Fund are purchased or sold through an account with a Shareholder
Servicing Agent, separate transaction fees may be charged by the
Shareholder Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charged is deducted from the redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
International Equity Fund and long-term Class A and Class B
shareholders of the One Group Diversified International Fund and
Combined Fund 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 for the One Group Diversified International
Fund and Combined Fund. The amount of 12b-1 Fees shown for the One
Group Diversified International Fund and Combined Fund includes fees
for shareholder servicing and distribution. Shareholder servicing fees
payable by the Class A and Class B Shareholders of the Pegasus
International Equity Fund are reflected under "Other Expenses."
(2) Other Expenses for the One Group Diversified International Fund and
Combined Fund are based on estimated amounts for the current fiscal
year. Without the fee waiver, Other Expenses for the One Group
Diversified International Fund and Combined Fund would be .23% for all
classes of shares.
(3) The Investment Adviser of the Pegasus International Equity Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.44%,
2.19% and 1.19%, respectively, for the Class A, Class B and Class I
shares. Without the voluntary reduction of 12b-1 Fees, Total Fund
Operating Expenses for One Group Diversified International Fund and
Combined Fund would be 1.38% for Class A shares, 2.03% for Class B
shares and 1.03% for Class I shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus International Equity Fund
Class A Shares $63 $90 $119 $202
Class B Shares $71/$21* $96/$66* $132/$112* $213+
Class I Shares $11 $34 $59 $131
One Group Diversified International Fund
Class A Shares $65 $91 $119 $198
Class A Shares (without fee waivers) $66 $94 $124 $210
Class B Shares $71/$21* $93/$63* $129/$109* $216**
Class B Shares (without fee waivers) $71/$21* $94/$64* $129/$109* $219**
Class I Shares $10 $32 $56 $125
Class I Shares (without fee waivers) $11 $33 $57 $126
Combined Fund Pro Forma
Class A Shares $65 $91 $119 $198
Class A Shares (without fee waivers) $66 $94 $124 $210
Class B Shares $71/$21* $93/$63* $129/$109* $216**
Class B Shares (without fee waivers) $71/$21* $94/$64* $129/$109* $219**
Class I Shares $10 $32 $56 $125
Class I Shares (without fee waivers) $11 $33 $57 $126
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Diversified International Fund and Combined
Fund automatically convert to Class A shares after eight (8) years.
Therefore, the "10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-25-
<PAGE> 132
<TABLE>
<CAPTION>
Pegasus One Group
Intermediate Intermediate Combined
Bond Fund Bond Fund(1) Fund Pro Forma
--------- ------------ --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% None None 4.50% None None 4.50% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 3.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(2) .40% .40% .40% .40% .40% .40% .36% .36% .36%
12b-1 Fees (after fee waivers)(3) None .75% None .25% .90% None .25% .90% None
Other Expenses .50% .50% .25% .22% .22% .22% .22% .22% .22%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(4,5) .90% 1.65% .65% .87% 1.52% .62% .83% 1.48% .58%
</TABLE>
- --------------------------
* If shares of the One Group Intermediate Bond Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the One Group Intermediate
Bond Fund and Combined Fund would be .60% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Intermediate Bond Fund and Class A and Class B shareholders of the One
Group Intermediate Bond Fund and Combined Fund 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 shares of the One Group Intermediate Bond Fund and Combined
Fund. The amount of 12b-1 Fees shown for the One Group Intermediate
Bond Fund and Combined Fund includes fees for shareholder servicing and
distribution. Shareholder servicing fees payable by the Class A and
Class B shareholders of the Pegasus Intermediate Bond Fund are
reflected under "Other Expenses."
(4) The Investment Adviser of the Pegasus Intermediate Bond Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.04%,
1.79% and .79%, respectively, for the Class A, Class B and Class I
shares.
(5) Without the voluntary reduction of Investment Advisory and 12b-1 Fees,
Total Fund Operating Expenses would be 1.17% for Class A shares, 1.82%
for Class B shares, and .82% for Class I shares of the One Group
Intermediate Bond Fund and Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Intermediate Bond Fund
Class A Shares $39 $58 $79 $138
Class B Shares $47/$17* $72/$52* $100/$90* $158+
Class I Shares $ 7 $21 $36 $81
One Group Intermediate Bond Fund
Class A Shares $53 $72 $91 $147
Class A Shares (without fee waivers) $56 $80 $106 $181
Class B Shares $65/$15* $78/$48* $103/$83* $164**
Class B Shares (without fee waivers) $68/$18* $87/$57* $119/$99* $197**
Class I Shares $ 6 $20 $35 $77
Class I Shares (without fee waivers) $ 8 $26 $46 $101
Combined Fund Pro Forma
Class A Shares $53 $70 $89 $143
Class A Shares (without fee waivers) $56 $80 $106 $181
Class B Shares $65/$15* $77/$47* $101/$81* $159**
Class B Shares (without fee waivers) $68/$18* $87/$57* $119/$99* $197**
Class I Shares $ 6 $19 $32 $73
Class I Shares (without fee waivers) $ 8 $26 $46 $101
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Intermediate Bond Fund and Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore,
the "10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-26-
<PAGE> 133
<TABLE>
<CAPTION>
Pegasus One Group Combined
Bond Fund Bond Fund* Fund Pro Forma
--------- ---------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% None None 4.50% None None 4.50% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
as applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES(1)
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(2) .40% .40% .40% .40% .40% .40% .40% .40% .40%
12b-1 Fees (after fee waivers)(3) None .75% None .25% .90% None .25% .90% None
Other Expenses(4) .48% .48% .23% .20% .20% .20% .20% .20% .20%
Total Fund Operating Expenses
(after fee waivers)(5,6) .88% 1.63% .63% .85% 1.50% .60% .85% 1.50% .60%
</TABLE>
- --------------------------
* The One Group Bond Fund has not yet commenced operations. The One Group
Bond Fund will continue the operations of the Pegasus Bond Fund upon
consummation of the Reorganization relating to that Fund.
** If shares of the One Group Bond Fund or Combined Fund are purchased or
sold through an account with a Shareholder Servicing Agent, separate
transaction fees may be charged by the Shareholder Servicing Agent. In
addition, a $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the Combined Fund would be
.60% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Bond
Fund and Class A and Class B shareholders of the One Group Bond Fund
and the Combined Fund 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 shares of
the One Group Bond Fund and Combined Fund. The amount of 12b-1 Fees
shown for the One Group Bond Fund and Combined Fund includes fees for
shareholder servicing and distribution. Shareholder servicing fees
payable by the Class A and Class B shareholders of the Pegasus Bond
Fund are reflected under "Other Expenses."
(4) Other Expenses for the One Group Bond Fund and Combined Fund are based
on estimated amounts for the current fiscal year. Without the fee
waiver, Other Expenses for the One Group Bond Fund and Combined Fund
would be .21% for all classes of shares.
(5) The Investment Adviser of the Pegasus Bond Fund has voluntarily agreed
to limit the Total Fund Operating Expenses to .99%, 1.74% and 0.74%,
respectively, for the Class A, Class B and Class I shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Fund Operating Expenses would be 1.16% for Class A Shares, 1.81%
for Class B shares and .81% for Class I shares of the One Group Bond
Fund and the Combined Fund.
-27-
<PAGE> 134
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Bond Fund
Class A Shares $54 $72 $92 $149
Class B Shares $67/$17* $82/$52* $109/$89* $165+
Class I Shares $ 6 $20 $35 $79
One Group Bond Fund
Class A Shares $53 $71 $90 $145
Class A Shares (without fee waivers) $56 $80 $106 $180
Class B Shares $65/$15* $77/$47* $102/$82* $161**
Class B Shares (without fee waivers) $68/$18* $87/$57* $118/$98* $196**
Class I Shares $ 6 $19 $33 $75
Class I Shares (without fee waivers) $ 8 $26 $45 $100
Combined Fund Pro Forma
Class A Shares $53 $71 $90 $145
Class A Shares (without fee waivers) $56 $80 $106 $180
Class B Shares $65/$15* $77/$47* $102/$82* $161**
Class B Shares (without fee waivers) $68/$18* $87/$57* $118/$98* $196**
Class I Shares $ 6 $19 $33 $75
Class I Shares (without fee waivers) $ 8 $26 $45 $100
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Bond Fund and Combined Fund automatically
convert to Class A shares after eight (8) years. Therefore, the "10 Years"
example above reflects this conversion.
+ Assumes conversion to Class A shares
-28-
<PAGE> 135
<TABLE>
<CAPTION>
Pegasus One Group
Short Bond Short-Term Bond Combined
Fund Fund(1) Fund Pro Forma
---- ------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 1.00% None None 3.00% None None 3.00% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 1.00% None None+ 3.00% None None+ 3.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(2) .35% .35% .35% .40% .40% .40% .32% .32% .32%
12b-1 Fees (after fee waivers)(3) None .75% None .25% .75% None .25% .75% None
Other Expenses .49% .49% .24% .22% .22% .22% .21% .21% .21%
Total Fund Operating Expenses
(after fee waivers)(4,5) .84% 1.59% .59% .87% 1.37% .62% .78% 1.28% .53%
</TABLE>
- --------------------------
* If shares of the One Group Short-Term Bond Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the One Group Short-Term
Bond Fund and Combined Fund would be .60% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Short
Bond Fund and Class A and Class B Shareholders of the One Group
Short-Term Bond Fund and Combined Fund 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 shares of the One Group Short-Term Bond Fund and Combined Fund. The
amount of 12b-1 Fees shown for the One Group Short-Term Bond Fund and
Combined Fund includes fees for shareholder servicing and distribution.
Shareholder servicing fees payable by the Class A and Class B
shareholders of the Pegasus Short Bond Fund are reflected under "Other
Expenses."
(4) The Investment Adviser of the Pegasus Short Bond Fund has voluntarily
agreed to limit the Total Fund Operating Expenses to .86%, 1.61% and
.61%, respectively, for the Class A, Class B and Class I shares.
(5) Without the voluntary reduction of Investment advisory and 12b-1 Fees,
Total Fund Operating Expenses would be 1.17% for Class A shares, 1.82%
for Class B shares, and .82% for Class I shares of the One Group
Short-Term Bond Fund and 1.16% for Class A shares, 1.81% for Class B
shares and .81% for Class I shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Short Bond Fund
Class A Shares $19 $37 $56 $113
Class B Shares $26/$16* $42+ $62+ $118+
Class I Shares $ 6 $19 $33 $ 74
One Group Short-Term Bond Fund
Class A Shares $39 $57 $77 $134
Class A Shares (without fee waivers) $42 $66 $92 $168
Class B Shares $44/$14* $63/$43* $75 $138**
Class B Shares (without fee waivers) $48/$18* $77/$57* $99 $181**
Class I Shares $ 6 $20 $35 $ 77
Class I Shares (without fee waivers) $ 8 $26 $46 $101
Combined Fund Pro Forma
Class A Shares $38 $54 $72 $124
Class A Shares (without fee waivers) $41 $66 $92 $167
Class B Shares $43/$13* $61/$41* $70* $128**
Class B Shares (without fee waivers) $48/$18* $77/$57* $98* $180**
Class I Shares $ 5 $17 $30 $66
Class I Shares (without fee waivers) $ 8 $26 $45 $100
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Short-Term Bond Fund and the Combined Fund
automatically convert to Class A shares after six (6) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-29-
<PAGE> 136
<TABLE>
<CAPTION>
Pegasus One Group
Multi Sector Bond Income Bond Combined
Fund Fund(1) Fund Pro Forma
---- ------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% None None 4.50% None None 4.50% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
as applicable) None+ 3.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(2) .40% .40% .40% .40% .40% .40% .41% .41% .41%
12b-1 Fees (after fee waivers)(3) None .75% None .25% .90% None .25% .90% None
Other Expenses .50% .50% .25% .22% .22% .22% .21% .21% .21%
Total Fund Operating Expenses
(after fee waivers)(4,5) .90% 1.65% .65% .87% 1.52% .62% .87% 1.52% .62%
</TABLE>
- --------------------------
* If shares of the One Group Income Bond Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the One Group Income Bond
Fund and Combined Fund would be .60% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Multi
Sector Bond Fund and Class A and Class B shareholders of the One Group
Income Bond Fund and Combined Fund 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 shares of the One Group Income Bond Fund and Combined Fund. The
amount of 12b-1 Fees shown for the One Group Income Bond Fund and
Combined Fund includes fees for shareholder servicing and distribution.
Shareholder servicing fees payable by the Class A and Class B
shareholders of the Pegasus Multi Sector Bond Fund are reflected under
"Other Expenses."
(4) The Investment Adviser of the Pegasus Multi Sector Bond Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to .92%,
1.67% and .67%, respectively, for the Class A, Class B and Class I
shares.
(5) Without the voluntary reduction of Investment Advisory and 12b-1 Fees,
Total Fund Operating Expenses would be 1.17% for Class A shares, 1.82%
for Class B shares and .82% for Class I shares of the One Group Income
Bond Fund and 1.16% for Class A shares, 1.81% for Class B shares and
.81% for Class I shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Multi Sector Bond Fund
Class A Shares $39 $58 $79 $138
Class B Shares $47/$17* $72/$52* $100/$90* $158+
Class I Shares $ 7 $21 $36 $ 81
One Group Income Bond Fund
Class A Shares $53 $72 $91 $147
Class A Shares (without fee waivers) $56 $80 $106 $181
Class B Shares $65/$15* $78/$48* $103/$83* $164**
Class B Shares (without fee waivers) $68/$18* $87/$57* $119/$99* $197**
Class I Shares $ 6 $20 $35 $ 77
Class I Shares (without fee waivers) $ 8 $26 $46 $101
Combined Fund Pro Forma
Class A Shares $53 $72 $91 $147
Class A Shares (without fee waivers) $56 $80 $106 $180
Class B Shares $65/$15* $78/$48* $103/$83* $164**
Class B Shares (without fee waivers) $68/$18* $87/$57* $118/$98* $196**
Class I Shares $ 6 $20 $35 $ 77
Class I Shares (without fee waivers) $ 8 $26 $45 $100
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Income Bond Fund automatically convert to
Class A shares after eight (8) years. Therefore, the "10 Years" example
above reflects this conversion.
+ Assumes conversion to Class A shares
-30-
<PAGE> 137
<TABLE>
<CAPTION>
Pegasus One Group
High Yield Bond High Yield Bond Combined
Fund(1) Fund(1) Fund Pro Forma
------- ------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% None None 4.50% None None 4.50% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
as applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees (after fee waivers)(2) .60% .60% .60% .60% .60% .60% .60% .60% .60%
12b-1 Fees (after fee waivers)(3) None .75% None .25% .90% None .25% .90% None
Other Expenses(4) .54% .54% .29% .35% .35% .35% .27% .27% .27%
Total Fund Operating Expenses
(after fee waivers and/or
expense reimbursements)(5,6) 1.14% 1.89% .89% 1.20% 1.85% .95% 1.12% 1.77% .87%
</TABLE>
- --------------------------
* If shares of the One Group High Yield Bond Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the Pegasus High Yield Bond
Fund would be .70% for all classes of shares. Without the fee waivers,
Advisory Fees for the One Group High Yield Bond Fund and Combined Fund
would be .75% for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus High
Yield Bond Fund and Class A and Class B shareholders of the One Group
High Yield Bond Fund and Combined Fund 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 shares of the One Group High Yield Bond Fund and Combined Fund. The
amount of 12b-1 Fees shown for the Class A and Class B Shareholders of
the One Group High Yield Bond Fund and Combined Fund includes fees for
shareholder servicing and distribution. Shareholder servicing fees
payable by the Pegasus High Yield Bond Fund are reflected under "Other
Expenses."
(4) Other Expenses are based on estimated amounts for the current fiscal
year.
(5) The Investment Adviser of the Pegasus High Yield Bond Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 1.14%,
1.89% and .89%, respectively, for the Class A, Class B and Class I
shares.
(6) Without the voluntary reduction of Investment Advisory and/or expense
reimbursements, Total Fund Operating Expenses would be 1.24% for Class
A shares, 1.99% for Class B shares, and .99% for Class I shares of the
Pegasus High Yield Bond Fund. Without the voluntary reduction of
Investment Advisory and 12b-1 Fees, Total Fund Operating Expenses would
be 1.45% for Class A shares, 2.10% for Class B shares, and 1.10% for
Class I shares of the One Group High Yield Bond Fund and 1.37% for
Class A shares, 2.02% for Class B shares and 1.02% for Class I shares
of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus High Yield Bond Fund
Class A Shares $61 $85 $110 $182
Class B Shares $69/$19* $90/$60* $123/$103* $194+
Class I Shares $ 9 $29 $ 50 $110
One Group High Yield Bond Fund
Class A Shares $57 $81 N/A N/A
Class A Shares (without fee waivers) $59 $89 N/A N/A
Class B Shares $69/$19* $88/$58* N/A N/A
Class B Shares (without fee waivers) $71/$21* $96/$66* N/A N/A
Class I Shares $10 $30 N/A N/A
Class I Shares (without fee waivers) $11 $35 N/A N/A
Combined Fund Pro Forma
Class A Shares $56 $79 $104 $175
Class A Shares (without fee waivers) $58 $86 $117 $202
Class B Shares $68/$18* $86/$56* $116/$96* $191*
Class B Shares (without fee waivers) $71/$21* $93/$63* $129/$109* $218*
Class I Shares $ 9 $28 $48 $107
Class I Shares (without fee waivers) $10 $32 $56 $125
</TABLE>
* Assuming no redemption of Class B shares
+ Assumes conversion to Class A shares
-31-
<PAGE> 138
<TABLE>
<CAPTION>
Pegasus One Group
Municipal Bond Tax-Free Bond Combined
Fund Fund* Fund Pro Forma
-------------- ------------- --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% None None 4.50% None None 4.50% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average
daily net assets)
Advisory Fees (after fee waivers)(1) .40% .40% .40% .40% .40% .40% .40% .40% .40%
12b-1 Fees (after fee waivers)(2) None .75% None .25% .90% None .25% .90% None
Other Expenses(3) .48% .48% .23% .22% .22% .22% .22% .22% .22%
Total Fund Operating Expenses
(after fee waivers)(4,5) .88% 1.63% .63% .87% 1.52% .62% .87% 1.52% .62%
</TABLE>
- --------------------------
* The One Group Tax-Free Bond Fund has not yet commenced operations. The
One Group Tax-Free Bond Fund will continue the operations of the
Pegasus Municipal Bond Fund upon consummation of the Reorganization
relating to that Fund.
** If shares of the One Group Tax-Free Bond Fund or Combined Fund are
purchased or sold through an account with a Shareholder Servicing
Agent, separate transaction fees may be charged by the Shareholder
Servicing Agent. In addition, a $10.00 sub-minimum account fee may be
applicable and a $7.00 charge will be deducted from redemption amounts
paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Without the fee waivers, Advisory Fees for the One Group Tax-Free Bond
Fund and Combined Fund would be .45% for all classes of shares.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Municipal Bond Fund and Class A and Class B shareholders of the One
Group Tax-Free Bond Fund and Combined Fund 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 shares of the One Group Tax-Free Bond Fund and the Combined
Fund. The amount of 12b-1 Fees shown for the One Group Tax-Free Bond
Fund and the Combined Fund includes fees for shareholder servicing and
distribution. Shareholder servicing fees payable by the Class A and
Class B shareholders of the Pegasus Municipal Bond Fund are reflected
under "Other Expenses."
(3) Other Expenses for the One Group Tax-Free Bond Fund and Combined Fund
are based on estimated amounts for the current fiscal year. Without the
fee waiver, Other Expenses for the One Group Tax-Free Bond Fund and
Combined Fund would be .23% for all classes of shares.
(4) The Investment Adviser of the Pegasus Municipal Bond Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to .98%,
1.73% and .73%, respectively, for the Class A, Class B and Class I
shares.
(5) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Fund Operating Expenses would be 1.03% for Class A shares, 1.68%
for Class B shares, and .68% for Class I shares of the One Group
Tax-Free Bond Fund and Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Municipal Bond Fund
Class A Shares $54 $72 $92 $149
Class B Shares $67/$17* $82/$52* $109/$89* $165+
Class I Shares $ 6 $20 $35 $79
One Group Tax-Free Bond Fund
Class A Shares $53 $72 $91 $147
Class A Shares (without fee waivers) $55 $76 $99 $165
Class B Shares $65/$15* $78/$48* $103/$83* $164**
Class B Shares (without fee waivers) $67/$17* $83/$53* $111/$91* $181**
Class I Shares $ 6 $20 $35 $77
Class I Shares (without fee waivers) $11 $33 $57 $126
Combined Fund Pro Forma
Class A Shares $53 $72 $91 $147
Class A Shares (without fee waivers) $55 $76 $99 $165
Class B Shares $65/$15* $78/$48* $103/$83* $164**
Class B Shares (without fee waivers) $67/$17* $83/$53* $111/$91* $181**
Class I Shares $ 6 $20 $35 $77
Class I Shares (without fee waivers) $11 $33 $57 $126
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Tax-Free Bond Fund and Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore, the
"10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-32-
<PAGE> 139
<TABLE>
<CAPTION> One Group
Pegasus Short-Term
Short Municipal Municipal Combined
Bond Fund Bond Fund Fund Pro Forma
--------------- ------------ --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 1.00% None None 3.00% None None 3.00% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 1.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES(1)
(as a percentage of average
daily net assets)
Advisory Fees (after fee waivers)(2) .33% .33% .33% .35% .35% .35% .35% .35% .35%
12b-1 Fees (after fee waivers)(3) None .75% None .25% .90% None .25% .90% None
Other Expenses(4) .54% .54% .29% .27% .27% .27% .27% .27% .27%
Total Fund Operating Expenses
(after fee waivers)(5,6) .87% 1.62% .62% .87% 1.52% .62% .87% 1.52% .62%
</TABLE>
- --------------------------
* The One Group Short-Term Municipal Bond Fund has not yet commenced
operations. The One Group Short-Term Municipal Bond Fund will continue
the operations of the Pegasus Short Municipal Bond Fund upon
consummation of the Reorganization relating to that Fund.
** If shares of the One Group Short-Term Municipal Bond Fund or Combined
Fund are purchased or sold through an account with a Shareholder
Servicing Agent, separate transaction fees may be charged by the
Shareholder Servicing Agent. In addition, a $10.00 sub-minimum account
fee may be applicable and a $7.00 charge will be deducted from
redemption amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees would be .40% for the Pegasus
Short Municipal Bond Fund and .60% for the One Group Short-Term
Municipal Bond Fund and Combined Fund for all classes of shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus Short
Municipal Bond Fund and Class A and Class B shares of the One Group
Short-Term Municipal Bond Fund and Combined Fund 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 waivers, 12b-1 Fees would be .35% for Class A shares and
1.00% for Class B shares of the One Group Short-Term Municipal Bond
Fund and Combined Fund. The amount of 12b-1 Fees shown for the One
Group Short-Term Municipal Bond Fund and the Combined Fund includes
fees for shareholder servicing and distribution. Shareholder servicing
fees payable by the Class A and Class B shareholders of the Pegasus
Short Municipal Bond Fund are reflected under "Other Expenses."
(4) Other Expenses for the One Group Short-Term Municipal Bond Fund and
Combined Fund are based on estimated amounts for the current fiscal
year. Without the fee waiver, Other Expenses for the One Group
Short-Term Municipal Bond Fund and Combined Fund would be .29% for all
classes of shares.
(5) The Investment Adviser of the Pegasus Short Municipal Bond Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to .87%,
1.62% and .62%, respectively, for the Class A, Class B and Class I
shares.
(6) Without the voluntary reduction of Investment Advisory fees and other
expenses, Total Fund Operating Expenses would be .94% for Class A
shares, 1.69% for Class B shares, and .69% for Class I shares of the
Pegasus Short Municipal Bond Fund. Without the voluntary reduction of
Investment Advisory and 12b-1 Fees, Total Fund Operating Expenses would
be 1.24% for Class A shares, 1.89% for Class B shares, and .89% for
Class I shares of the One Group Short-Term Municipal Bond Fund and
Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (2)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Short Municipal Bond Fund
Class A Shares $19 $38 N/A N/A
Class B Shares $26/$17* $43+ N/A N/A
Class I Shares $ 6 $20 N/A N/A
One Group Short-Term Municipal Bond Fund
Class A Shares $54 $72 $92 $149
Class A Shares (without fee waivers) $57 $83 $110 $188
Class B Shares $46/$16* $68/$48* $83* $149**
Class B Shares (without fee waivers) $49/$19* $79/$59* $102* $189**
Class I Shares $ 6 $20 $35 $79
Class I Shares (without fee waivers) $ 9 $28 $49 $116
Combined Fund Pro Forma
Class A Shares $54 $72 $92 $149
Class A Shares (without fee waivers) $57 $83 $110 $188
Class B Shares $46/$16* $68/$48* $83* $149**
Class B Shares (without fee waivers) $49/$19* $79/$59* $102* $189**
Class I Shares $ 6 $20 $35 $79
Class I Shares (without fee waivers) $ 9 $28 $49 $116
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Short-Term Bond Fund and Combined Fund
automatically convert to Class A shares after eight (8) years. Therefore,
the "10 years" examples above reflect this conversion.
+ Assumes conversion to Class A shares
-33-
<PAGE> 140
<TABLE>
<CAPTION>
Pegasus One Group
Intermediate Intermediate
Municipal Tax-Free Combined
Bond Fund Bond Fund(1) Fund Pro Forma
--------------- ------------ --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% None None 4.50% None None 4.50% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 3.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average
daily net assets)
Advisory Fees (after fee
waivers)(2) .40% .40% .40% .42% .42% .42% .39% .39% .39%
12b-1 Fees (after fee waivers)(3) None .75% None .25% .90% None .25% .90% None
Other Expenses .45% .45% .20% .24% .24% .24% .19% .19% .19%
Total Fund Operating Expenses
(after fee waivers)(4,5) .85% 1.60% .60% .91% 1.56% .66% .83% 1.48% .58%
</TABLE>
- --------------------------
* If shares of the One Group Intermediate Tax-Free Bond Fund or Combined
Fund are purchased or sold through an account with a Shareholder
Servicing Agent, separate transaction fees may be charged by the
Shareholder Servicing Agent. In addition, a $10.00 sub-minimum account
fee may be applicable and a $7.00 charge will be deducted from
redemption amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Expense information has been restated to reflect current fees.
(2) Without the fee waivers, Advisory Fees for the One Group Intermediate
Tax-Free Bond Fund and Combined Fund would be .60% for all classes of
shares.
(3) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Intermediate Municipal Bond Fund and Class A and Class B shareholders
of the One Group Intermediate Tax-Free Bond Fund and Combined Fund 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 shares of the One Group
Intermediate Tax-Free Bond Fund and Combined Fund. The amount of 12b-1
Fees shown for the One Group Intermediate Tax-Free Bond Fund and
Combined Fund includes fees for shareholder servicing and distribution.
Shareholder servicing fees payable by the Class A and Class B
shareholders of the Pegasus Intermediate Municipal Bond Fund are
reflected under "Other Expenses."
(4) The Investment Adviser of the Pegasus Intermediate Municipal Bond Fund
has voluntarily agreed to limit the Total Fund Operating Expenses to
.93%, 1.68% and .68%, respectively, for the Class A, Class B and Class
I shares.
(5) Without the voluntary reduction of Investment Advisory and 12b-1 Fees,
Total Fund Operating Expenses would be 1.19% for Class A shares, 1.84%
for Class B shares, and .84% for Class I shares of the One Group
Intermediate Tax-Free Bond Fund and 1.14% for Class A shares, 1.79% for
Class B shares and .79% for Class I shares of the Combined Fund.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (3)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Intermediate Municipal Bond Fund
Class A Shares $38 $56 $76 $132
Class B Shares $46/$16* $71/$51* $98/$88* $152+
Class I Shares $ 6 $19 $34 $75
One Group Intermediate Tax-Free Bond Fund
Class A Shares $ 54 $73 $93 $152
Class A Shares (without fee waivers) $ 57 $81 $107 $185
Class B Shares $66/$16* $79/$49* $105/$85* $168**
Class B Shares (without fee waivers) $69/$19* $88/$58* $120/$101* $199**
Class I Shares $ 7 $21 $37 $82
Class I Shares (without fee waivers) $ 9 $27 $47 $104
Combined Fund Pro Forma
Class A Shares $53 $70 $89 $143
Class A Shares (without fee waivers) $56 $80 $105 $177
Class B Shares $65/$15* $77/$47* $101/$81* $159**
Class B Shares (without fee waivers) $68/$18* $86/$56* $117/$97* $193**
Class I Shares $ 6 $19 $32 $73
Class I Shares (without fee waivers) $ 8 $25 $44 $98
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Intermediate Tax-Free Bond Fund and the
Combined Fund automatically convert to Class A shares after eight (8) years.
Therefore, the "10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-34-
<PAGE> 141
<TABLE>
<CAPTION>
Pegasus One Group
Michigan Municipal Michigan Municipal Combined
Bond Fund Bond Fund Fund Pro Forma
------------------ ------------------ --------------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES**
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% None None 4.50% None None 4.50% None None
Sales Charge on Reinvested
Dividends None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) None+ 5.00% None None+ 5.00% None None+ 5.00% None
Redemption Fees None None None None None None None None None
Exchange Fees None None None None None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average
daily net assets)
Advisory Fees (after fee waivers)(1) .40% .40% .40% .40% .40% .40% .40% .40% .40%
12b-1 Fees (after fee waivers)(2) None .75% None .25% .90% None .25% .90% None
Other Expenses(3) .51% .51% .26% .25% .25% .25% .25% .25% .25%
Total Fund Operating Expenses
(after fee waivers)(4) .91% 1.66% .66% .90% 1.55% .65% .90% 1.55% .65%
</TABLE>
- --------------------------
* The One Group Michigan Municipal Bond Fund has not yet commenced
operations. The One Group Michigan Municipal Bond Fund will continue
the operations of the Pegasus Michigan Municipal Bond Fund upon
consummation of the Reorganization relating to that Fund.
** If shares of the One Group Michigan Municipal Bond Fund or Combined
Fund are purchased or sold through an account with a Shareholder
Servicing Agent, separate transaction fees may be charged by the
Shareholder Servicing Agent. In addition, a $10.00 sub-minimum account
fee may be applicable and a $7.00 charge will be deducted from the
redemption amounts paid by wire.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more.
(1) Without the fee waiver, Investment Advisory Fees for the One Group
Michigan Municipal Bond Fund and Combined Fund would be .45% for all
classes of shares.
(2) Due to 12b-1 Fees, long-term Class B shareholders of the Pegasus
Michigan Municipal Bond Fund and Class A and Class B shareholders of
the One Group Michigan Municipal Bond Fund and Combined Fund 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 waivers, 12b-1 Fees would be .35% for
Class A shares and 1.00% for Class B shares of the One Group Michigan
Municipal Bond Fund and the Combined Fund. The amount of 12b-1 Fees
shown for the One Group Michigan Municipal Bond and Combined Fund
includes fees for shareholder servicing and distribution. Shareholder
servicing fees payable by the Class A and Class B shareholders of the
Pegasus Michigan Municipal Bond Fund are reflected under "Other
Expenses."
(3) Other Expenses for the One Group Michigan Municipal Bond Fund and
Combined Fund are based on estimated amounts for the current fiscal
year. Without the fee waiver, Other Expenses for the One Group Michigan
Municipal Bond Fund and Combined Fund would be .26% for all classes of
shares.
(4) The Investment Adviser of the Pegasus Michigan Municipal Bond Fund has
voluntarily agreed to limit the Total Fund Operating Expenses to 0.98%,
1.73% and 0.73%, respectively, for the Class A, Class B and Class I
shares. Without the voluntary reduction of Investment Advisory and
12b-1 Fees, Total Fund Operating Expenses would be 1.06% for Class A
shares, 1.71% for Class B shares, and .71% for Class I shares of the
One Group Michigan Municipal Bond Fund and Combined Fund.
-35-
<PAGE> 142
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) payment of the maximum sales charge, (2) 5% annual return, and (2)
redemption at the end of the following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Pegasus Michigan Municipal Bond Fund
Class A Shares $54 $73 $93 $152
Class B Shares $67/$17* $83/$53* $111/$91* $168+
Class I Shares $ 7 $21 $37 $82
One Group Michigan Municipal Bond Fund
Class A Shares $54 $72 $93 $151
Class A Shares (without fee waivers) $55 $77 $101 $169
Class B Shares $66/$16* $79/$49* $104/$84* $167**
Class B Shares (without fee waivers) $67/$17* $84/$54* $113/$93* $185**
Class I Shares $ 7 $21 $36 $81
Class I Shares (without fee waivers) $ 7 $23 $40 $88
Combined Fund Pro Forma
Class A Shares $54 $72 $93 $151
Class A Shares (without fee waivers) $55 $77 $101 $169
Class B Shares $66/$16* $79/$49* $104/$84* $167**
Class B Shares (without fee waivers) $67/$17* $84/$54* $113/$93* $185**
Class I Shares $ 7 $21 $36 $81
Class I Shares (without fee waivers) $ 7 $23 $40 $88
</TABLE>
* Assuming no redemption of Class B shares
** Class B shares of the One Group Michigan Municipal Bond Fund and Combined
Fund automatically convert to Class A shares after eight (8) years.
Therefore, the "10 Years" example above reflects this conversion.
+ Assumes conversion to Class A shares
-36-
<PAGE> 143
APPENDIX III
COMPARISON OF INVESTMENT
OBJECTIVES AND CERTAIN SIGNIFICANT POLICIES
This Appendix sets forth the investment objectives and certain
significant investment policies of the Pegasus Portfolios and The One Group
Funds. The investment objective and certain investment policies of each of the
Pegasus Portfolios and One Group Funds are fundamental. This means that they may
not be changed without a vote of the holders of a majority of a fund's
outstanding shares, as defined by the 1940 Act. Investment policies of the
Pegasus Portfolios and One Group Funds that are not fundamental may be changed
by the respective Board of Trustees. The following is qualified in its entirety
by the more detailed information included in the prospectuses and statements of
additional information for the Reorganizing Pegasus Portfolios and the
corresponding Existing One Group Funds which are incorporated by reference in
this Combined Prospectus/Proxy Statement.
PEGASUS MONEY MARKET FUND AND THE ONE GROUP PRIME MONEY MARKET FUND.
The Pegasus Money Market Fund's investment objective is to seek to
provide a high level of current income consistent with the preservation of
capital and liquidity. The One Group Prime Money Market Fund seeks current
income with liquidity and stability of principal. Each Fund pursues its
investment objective by investing in a diversified portfolio of high quality
money market instruments.
PEGASUS TREASURY MONEY MARKET FUND AND THE ONE GROUP U.S. TREASURY
SECURITIES MONEY MARKET FUND.
The Pegasus Treasury Money Market Fund's investment objective is to
seek to provide a high level of current income consistent with the preservation
of capital and liquidity. The One Group U.S. Treasury Securities Money Market
Fund seeks current income with liquidity and stability of principal. Each Fund
invests exclusively in short-term U.S. Treasury obligations, including
repurchase agreements collateralized by such Treasury obligations and
when-issued securities.
The One Group U.S. Treasury Securities Money Market Fund has a
fundamental policy that says the Fund will invest only in U.S. Treasury
obligations and repurchase agreements collateralized by such obligations. The
Pegasus Treasury Money Market Fund has a similar investment policy, but it is
not fundamental.
III-1
<PAGE> 144
PEGASUS MUNICIPAL MONEY MARKET FUND AND ONE GROUP MUNICIPAL MONEY
MARKET FUND.
The Pegasus Municipal Money Market Fund's investment objective is to
seek to provide a high level of current interest income that is exempt from
Federal income taxes consistent with the preservation of capital and liquidity.
The One Group Municipal Money Market Fund seeks as high a level of current
interest income exempt from Federal income tax as is consistent with capital
preservation and stability of principal. Under normal market conditions, both
Funds invest at least 80% of their assets in high quality obligations issued by
or on behalf of the states, territories and possessions of the United States,
including the District of Columbia, and their respective political subdivisions,
agencies, instrumentalities and authorities, the interest on which is exempt
from regular Federal income tax ("Municipal Securities"). The Funds have no
limitation on investments in Municipal Securities that produce income that is
subject to the Federal alternative minimum tax.
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND AND THE ONE GROUP MICHIGAN
MUNICIPAL MONEY MARKET FUND.
The investment objective of both Funds is to seek as high a level of
current interest income exempt from Federal income tax and Michigan personal
income tax as is consistent with capital preservation and stability of
principal. The Pegasus Michigan Municipal Money Market Fund, under normal market
conditions will invest at least 65% of its assets in high quality debt
obligations issued by the State of Michigan, its political subdivisions,
municipalities, corporation and authorities, the interest on which, in the
opinion of bond counsel, is exempt from regular Federal income tax and Michigan
personal income tax ("Michigan Municipal Securities"). The One Group Michigan
Municipal Money Market Fund, as a matter of fundamental policy, must invest at
least 80% of its assets in Michigan Municipal Securities. The One Group Michigan
Municipal Money Market Fund was created to continue the business of the Pegasus
Michigan Municipal Money Market Fund.
PEGASUS CASH MANAGEMENT FUND AND THE ONE GROUP CASH MANAGEMENT MONEY
MARKET FUND.
The Pegasus Cash Management Fund's investment objective is to provide
investors with as high a level of current income as is consistent with the
preservation of capital and maintenance of liquidity. The One Group Cash
Management Money Market Fund seeks high current income with liquidity and
stability of principal. The One Group Cash Management Money Market Fund was
created to continue the business of the Pegasus Cash Management Fund.
III-2
<PAGE> 145
The Pegasus Cash Management Fund invests in short-term money market
obligations, including securities that are issued or guaranteed by the U.S.
government or its agencies, certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by domestic banks, foreign
subsidiaries of domestic banks and foreign banks and thrift institutions,
guaranteed investment contracts, repurchase agreements, and high quality
domestic and foreign commercial paper and other eligible short-term obligations.
During normal market conditions, at least 25% of the Fund's total assets will be
invested in bank obligations or instruments secured by such obligations.
The One Group Cash Management Money Market Fund invests in short-term
money market obligations, including securities that are issued or guaranteed by
the U.S. government or by select U.S. government agencies and instrumentalities,
some of which are subject to repurchase agreements, certificates of deposit,
variable and floating rate instruments, mortgage-backed securities, puts and
other short-term obligations. The Fund may also invest in other money market
funds if those funds have similar investment policies and objectives. At least
25% of the Fund's total assets will be invested in bank obligations. The Fund
also engages in securities lending. Both Funds will only acquire securities with
a maturity of 397 days or less.
It is a fundamental policy of The One Group Cash Management Money
Market Fund to maintain a constant net asset value of $1 per share, although
there is no guarantee that the Fund will be able to do so. The Pegasus Cash
Management Fund has a similar investment policy, but it is not fundamental.
PEGASUS TREASURY CASH MANAGEMENT FUND AND THE ONE GROUP TREASURY CASH
MANAGEMENT MONEY MARKET FUND.
The investment objectives and policies of the Pegasus Treasury Cash
Management Fund are substantially the same as those of the corresponding One
Group Treasury Cash Management Money Market Fund. The Pegasus Treasury Cash
Management Fund seeks to provide investors with as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. The One Group Treasury Cash Management Money Market Fund seeks high
current income with liquidity and stability of principal.
The Pegasus Treasury Cash Management Fund invests in U.S. Treasury
bills, notes, and direct U.S. Treasury obligations having remaining maturities
at 397 days or less. The Fund also invests in repurchase agreements relating to
U.S. Treasury obligations. The One Group Treasury Cash Management Money Market
Fund invests exclusively in U.S. Treasury bills, notes, bonds and other U.S.
obligations issued or guaranteed by the U.S. Treasury, some of which are subject
to repurchase agreements. The Fund also engages in securities lending. Both
Funds will only acquire securities with a maturity at 397 days or less.
It is a fundamental policy of The One Group Treasury Cash Management
Money Market Fund to maintain a constant net asset value of $1 per share,
although there is no guarantee that the Fund will be able to do so. The Pegasus
Treasury Cash Management Fund has a similar investment policy, but it is not
fundamental.
III-3
<PAGE> 146
The One Group Treasury Cash Management Money Market Fund was created to
continue the business of the Pegasus Treasury Cash Management Fund.
PEGASUS TREASURY PRIME CASH MANAGEMENT FUND AND THE ONE GROUP TREASURY
PRIME CASH MANAGEMENT MONEY MARKET FUND.
The investment objectives and policies of the Pegasus Treasury Prime
Cash Management Fund are substantially the same as those of the corresponding
One Group Treasury Prime Cash Management Money Market Fund. The Pegasus Treasury
Prime Cash Management Fund seeks to provide investors with as high a level of
current income as is consistent with the preservation of capital and the
maintenance of liquidity. The One Group Treasury Prime Cash Management Money
Market Fund seeks high current income with liquidity and stability of principal.
The Pegasus Treasury Prime Cash Management Fund invests in U.S.
Treasury bills, notes, and direct U.S. Treasury obligations having remaining
maturities at 397 days or less. The One Group Treasury Prime Cash Management
Money Market Fund invests in U.S. Treasury bills, notes, bonds and other U.S.
obligations issued or guaranteed by the U.S. Treasury having remaining
maturities of 397 days or less. The Fund also engages in securities lending.
Neither Fund invests in repurchase agreements.
It is a fundamental policy of The One Group Treasury Prime Cash
Management Money Market Fund to maintain a constant net asset value of $1 per
share, although there is no guarantee that the Fund will be able to do so. The
Pegasus Treasury Prime Cash Management Fund has a similar investment policy, but
it is not fundamental.
The One Group Treasury Prime Cash Management Money Market Fund was
created to continue the business of the Pegasus Treasury Prime Cash Management
Fund.
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND AND THE ONE
GROUP U.S. GOVERNMENT SECURITIES CASH MANAGEMENT MONEY MARKET FUND.
The investment objectives and policies of the Pegasus U.S. Government
Securities Cash Management Fund are substantially the same as those of the
corresponding One Group U.S. Government Securities Cash Management Money Market
Fund. The Pegasus U.S. Government Securities Cash Management Fund seeks to
provide investors with as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. The One Group U.S.
Government Securities Cash Management Money Market Fund seeks high income with
liquidity and stability of principal. Each pursues its investment objective by
investing only in short-term securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and repurchase agreements
relating to such securities. The One Group U.S. Government Securities Cash
Management Money Market Fund also engages in securities lending. Both Funds will
only acquire securities with a maturity of 397 days or less.
III-4
<PAGE> 147
It is a fundamental policy of The One Group U.S. Government Securities
Cash Management Money Market Fund to maintain a constant net asset value of $1
per share, although there is no guarantee that the Fund will be able to do so.
The Pegasus U.S. Government Securities Cash Management Fund has a similar
investment policy, but it is not fundamental.
The One Group U.S. Government Securities Cash Management Money Market
Fund was created to continue the business of the Pegasus U.S. Government
Securities Cash Management Fund.
PEGASUS MUNICIPAL CASH MANAGEMENT FUND AND THE ONE GROUP MUNICIPAL CASH
MANAGEMENT MONEY MARKET FUND.
The investment objectives and policies of the Pegasus Municipal Cash
Management Fund are substantially the same as those of the corresponding One
Group Municipal Cash Management Money Market Fund. The Pegasus Municipal Cash
Management Fund seeks to provide investors with as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. The One Group Municipal Cash Management Money Market Fund seeks high
current income exempt from Federal Income tax with liquidity and stability or
principal.
Each Fund invests at least 80% of its assets in the same types of
municipal securities, that, in the opinion of bond counsel for the issuer, are
exempt from Federal income tax. The investments are in high quality debt
obligations issued by or on behalf of states, territories and possessions of the
United States, including the District of Columbia, and their respective
political subdivisions and authorities. However, under extraordinary
circumstances, both Funds may adopt a temporary defensive position by holding
uninvested cash or investing in taxable short-term securities. Both Funds will
only acquire securities with a maturity of 397 days or less.
The Funds may engage in repurchase agreements and lend their
securities. Each Fund may also invest as much as 100% of its assets in municipal
securities that produce income that is subject to the Federal alternative
minimum tax.
It is a fundamental policy of The One Group Municipal Cash Management
Money Market Fund to maintain a constant net asset value of $1 per share,
although there is no guarantee that the Fund will be able to do so. The Pegasus
Municipal Cash Management Fund has a similar investment policy, but it is not
fundamental.
The One Group Municipal Cash Management Money Market Fund was created
to continue the business of the Pegasus Municipal Cash Management Fund.
III-5
<PAGE> 148
PEGASUS MANAGED ASSETS CONSERVATIVE FUND AND THE ONE GROUP INVESTOR
BALANCED FUND.
The Pegasus Managed Assets Conservative Fund's investment objective is
to seek to provide long-term total return; capital appreciation is a secondary
consideration. The Fund invests primarily in various equity, fixed income and
money market funds of Pegasus. The One Group Investor Balanced Fund's investment
objective is to seek high total return consistent with the preservation of
capital by investing primarily in a diversified group of The One Group mutual
funds which invest primarily in equity and fixed income securities.
While the range of underlying funds in which each of the Pegasus
Managed Assets Conservative Fund and The One Group Investor Balanced Fund
invests have similar investment objectives and policies, the Funds differ in
their target asset allocations. The Pegasus Managed Assets Conservative Fund
seeks to achieve a target asset allocation consisting of 30%-50% in equity
exposure, 50%-70% in debt exposure, and 0%-20% in cash equivalents. The Fund
achieves the target allocation by investing in up to eight Pegasus equity funds
to provide the desired equity exposure, up to six Pegasus fixed income funds to
provide the desired debt exposure, and the Pegasus Money Market Fund to provide
the desired cash equivalency. In order to meet liquidity needs and for temporary
defensive purposes, the Pegasus Managed Assets Conservative Fund also may invest
directly in short-term U.S. Government obligations and high quality money market
instruments. The One Group Investor Balanced Fund invests 40%-60% of its total
assets in twelve mutual funds of The One Group which invest primarily in equity
securities, 40%-60% of its total assets in six mutual funds of The One Group
that invest primarily in fixed income securities, and up to 10% of its assets in
one money market fund of The One Group. The One Group Investor Balanced Fund may
also hold cash and cash equivalents.
PEGASUS MANAGED ASSETS BALANCED FUND AND THE ONE GROUP INVESTOR GROWTH
& INCOME FUND.
The Pegasus Managed Assets Balanced Fund's investment objective is to
achieve long-term total return through a combination of capital appreciation and
current income. The Fund invests primarily in various equity, fixed income and
money market funds of Pegasus. The One Group Investor Growth & Income Fund's
investment objective is to seek long-term capital appreciation and growth of
income by investing primarily in a diversified group of The One Group mutual
funds which invest primarily in equity securities.
III-6
<PAGE> 149
While the range of underlying funds in which each of the Pegasus
Managed Assets Balanced Fund and The One Group Investor Growth & Income Fund
invests have similar investment objectives and policies, the Funds differ in
their target asset allocations. The Pegasus Managed Assets Balanced Fund seeks
to achieve a target asset allocation consisting of 50%-70% in equity exposure,
30%-50% in debt exposure, and 0%-20% in cash equivalents. The Fund achieves the
target allocation by investing in up to eight Pegasus equity funds to provide
the desired equity exposure, up to six Pegasus fixed income funds to provide the
desired debt exposure, and the Pegasus Money Market Fund to provide the desired
cash equivalency. In order to meet liquidity needs and for temporary defensive
purposes, the Pegasus Managed Assets Balanced Fund also may invest directly in
short-term U.S. Government obligations and high quality money market
instruments. The One Group Investor Growth & Income Fund invests 60%-80% of its
total assets in twelve mutual funds of The One Group which invest primarily in
equity securities, 20%-40% of its total assets in eight mutual funds of The One
Group that invest primarily in fixed income securities, and up to 10% of its
assets in one money market fund of The One Group. The One Group Investor Growth
& Income Fund also may hold cash and cash equivalents.
PEGASUS MANAGED ASSETS GROWTH FUND AND THE ONE GROUP INVESTOR GROWTH
FUND.
The Pegasus Managed Assets Growth Fund's investment objective is to
achieve long-term total return; current income is a secondary consideration. The
Fund invests primarily in various equity, fixed income and money market funds of
Pegasus. The One Group Investor Growth Fund's investment objective is to seek
long-term capital appreciation by investing primarily in a diversified group of
The One Group mutual funds which invest primarily in equity securities.
While the range of underlying funds in which each of the Pegasus
Managed Assets Growth Fund and The One Group Investor Growth Fund invests have
similar investment objectives and policies, the Funds differ in their target
asset allocations. The Pegasus Managed Assets Growth Fund seeks to achieve a
target asset allocation consisting of 70%-90% in equity exposure, 10%-30% in
debt exposure, and 0%-20% in cash equivalents. The Fund achieves the target
allocation by investing in up to eight Pegasus equity funds to provide the
desired equity exposure, up to six Pegasus fixed income funds to provide the
desired debt exposure, and the Pegasus Money Market Fund to provide the desired
cash equivalency. In order to meet liquidity needs and for temporary defensive
purposes, the Pegasus Managed Assets Growth Fund may invest directly in
short-term U.S. Government obligations and high quality money market
instruments. The One Group Investor Growth Fund invests 80%-100% of its total
assets in twelve mutual funds of The One Group which invest primarily in equity
securities, up to 20% of its total assets in seven mutual funds of The One Group
that invest primarily in fixed income securities, and up to 10% of its assets in
one money market fund of The One Group. The One Group Investor Growth Fund also
may hold cash and cash equivalents.
III-7
<PAGE> 150
PEGASUS SHORT BOND FUND AND THE ONE GROUP LIMITED VOLATILITY BOND FUND.
The Pegasus Short Bond Fund's investment objective is to maximize total
rate of return while providing relative stability of principal. The One Group
Limited Volatility Bond Fund's investment objective is to seek current income
consistent with preservation of capital through investment in high and
medium-grade fixed-income securities.
The Pegasus Short Bond Fund normally invests at least 65% of the value
of its total assets in various types of debt securities. It invests in a
portfolio of U.S. dollar denominated investment grade debt securities of
domestic and foreign issuers which have maturities or average lives of up to ten
years. Under normal market conditions, the Fund's average weighted maturity is
limited to a maximum of three years. The One Group Limited Volatility Bond Fund
invests at least 80% of its total assets in debt securities with short to
intermediate maturities. At least 65% of the Fund's total assets consist of
bonds and at least 65% of its total assets consists of obligations issued by the
U.S. Government, its agencies, or instrumentalities some of which may be subject
to repurchase agreements. The Fund's average weighted maturity ordinarily ranges
between one and five years, but the Fund may shorten the weighted average
maturity to as little as ninety days for temporary defensive purposes.
In connection with the Reorganization, The One Group Limited Volatility
Bond Fund is expected to change its name to The One Group Short-Term Bond Fund.
PEGASUS INTERMEDIATE BOND FUND AND THE ONE GROUP INTERMEDIATE BOND
FUND.
The Pegasus Intermediate Bond Fund's investment objective is to seek to
maximize total rate of return while providing relative stability of principal by
investing predominantly in intermediate-term debt securities. The One Group
Intermediate Bond Fund's investment objective is to seek current income
consistent with the preservation of capital by investing in high and
medium-grade fixed income securities with intermediate maturities.
Under normal market conditions, the Pegasus Intermediate Bond Fund
invests at least 65% of the value of its total assets in debt securities. The
Fund invests primarily in a portfolio of investment grade U.S. dollar
denominated debt securities of domestic and foreign issuers. The One Group
Intermediate Bond Fund normally invests at least 80% of its total assets in debt
securities of all types, including bonds, notes, U.S. Government obligations,
and taxable and tax-exempt municipal securities, rated as investment grade at
the time of investment or, if unrated, determined to be of comparable quality by
the Fund's investment adviser. As a matter of fundamental policy, at least 65%
of the Fund's total assets must consist of bonds and at least 50% of total
assets must consist of obligations issued by the U.S. Government, or its
agencies and instrumentalities, some of which may be subject to repurchase
agreements. The Pegasus Intermediate Bond Fund invests in securities which have
maturities or average lives of up to 15 years. During normal market conditions,
the Fund's average portfolio maturity is expected to be between three and six
years. The One Group Intermediate Bond Fund's average weighted maturity will
ordinarily range between three and ten years, although the Fund may shorten the
weighted average maturity to as little as one year for temporary defensive
purposes.
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PEGASUS MULTI SECTOR BOND FUND AND THE ONE GROUP INCOME BOND FUND.
The Pegasus Multi Sector Bond Fund's investment objective is to seek to
provide as high a level of current income as is consistent with relative
stability of principal. The One Group Income Bond Fund's investment objective is
to seek a high level of current income by investing primarily in a diversified
portfolio of high, medium and low grade debt securities.
Under normal market conditions, the Pegasus Multi Sector Bond Fund
invests at least 65% of the value of its total assets in debt securities. The
Fund invests primarily in a portfolio of U.S. dollar denominated investment
grade debt securities of domestic and foreign issuers. The One Group Income Bond
Fund invests at least 70% of its total assets in debt securities of all types
rated as investment grade at the time of investment or, if unrated, determined
to be of comparable quality by the Fund's investment adviser. Up to 30% of the
Fund's total assets may be invested in convertible securities, preferred stock,
loan participations and debt securities rated below investment grade or, if
unrated, determined to be of comparable quality by the Fund's investment
adviser. However, the Fund will not invest more than 20% of its total assets
below the fifth highest rating category. Securities rated below investment grade
are called "high yield bonds," and "junk bonds" and are considered to be
speculative. As a matter of fundamental policy, at least 65% of the Fund's total
assets must consist of bonds. The Fund may also purchase taxable or tax exempt
municipal securities.
Under normal market conditions, the Pegasus Multi Sector Bond Fund's
average weighted maturity is expected to range between three years and ten
years. The average weighted maturity of The One Group Income Bond Fund normally
ranges between five years and twenty years. The Pegasus Multi Sector Bond Fund
may invest in cash equivalent securities for temporary defensive purposes. The
One Group Income Bond Fund may shorten its weighted maturity to as little as two
years for temporary defensive purposes.
PEGASUS BOND FUND AND ONE GROUP BOND FUND.
The investment objectives of the Pegasus Bond Fund and The One Group Bond Fund
are substantively identical. Each Fund seeks to maximize total rate of return by
investing primarily in a diversified portfolio of intermediate and long-term
debt securities.
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Under normal market conditions, the Pegasus Bond Fund invests at least
65% of its total assets in debt securities. The Fund invests in a portfolio of
U.S. dollar denominated investment grade debt securities of domestic and foreign
issuers. The Fund may invest in cash equivalent securities for temporary
defensive purposes. The One Group Bond Fund invests in all types of debt
securities rated as investment grade, as well as convertible securities,
preferred stock, and loan participations. The Fund invests at least 65% of its
total assets in debt securities with intermediate to long maturities. The Fund
may also purchase taxable and tax-exempt securities. As a matter of fundamental
policy, at least 65% of the Fund's total assets must consist of bonds. The
Pegasus Bond Fund's average weighted maturity normally ranges between six years
and twelve years. The One Group Bond Fund's average maturity is between four and
twelve years. The One Group Bond Fund may shorten its weighted average maturity
for temporary defensive purposes.
The One Group Bond Fund was created to continue the business of the
Pegasus Bond Fund.
PEGASUS HIGH YIELD BOND FUND AND THE ONE GROUP HIGH YIELD BOND FUND.
The Pegasus High Yield Bond Fund's investment objective is to seek high
current income. It invests primarily in a diversified portfolio of U.S. dollar
denominated debt securities of domestic and foreign issuers which, under normal
market conditions, are expected to be lower-rated corporate debt obligations or
unrated obligations of comparable quality. The One Group High Yield Bond Fund's
investment objective is to seek 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.
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Both Funds invest primarily in junk bonds. Under normal market
conditions, the Pegasus High Yield Bond Fund invests at least 65% of its total
assets in debt securities. The Fund invests primarily in debt securities rated
in the fourth or lower rating categories, i.e., Baa or lower by Moody's Investor
Services, Inc. ("Moody's") or BBB or lower by Standard & Poor's Ratings Group
("S&P"), Fitch IBCA, Inc. ("Fitch"), or Duff & Phelps Credit Rating Co.
("Duff"), or in unrated securities of comparable quality. The Fund may invest up
to 10% of its total assets in equity securities, however, preferred and
convertible securities are not subject to this limitation. The Fund may also
invest up to 10% of its total assets in foreign securities which are not
publicly traded in the United States. The One Group High Yield Bond Fund
normally invests at least 80% of its total assets in debt securities, loan
participations, convertible securities and preferred stock which are rated below
investment grade or unrated securities of comparable quality. These securities
are generally rated in the fifth or lower rating categories (e.g., BB or lower
by S&P and Ba or lower by Moody's). The Fund may invest up to 100% of its assets
in such securities. The Fund may invest up to 20% of its 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. The Fund's weighted average maturity will normally range between five and
ten years, although it may shorten its weighted average maturity to as little as
two years for temporary defensive purposes. The Pegasus High Yield Bond Fund has
no stated weighted average maturity target range. Securities rated below
investment grade are called "high yield bonds," and "junk bonds" and are
considered to be speculative.
PEGASUS INTERMEDIATE MUNICIPAL BOND FUND AND THE ONE GROUP INTERMEDIATE
TAX-FREE BOND FUND.
The Pegasus Intermediate Municipal Bond Fund's investment objective is
to seek to provide as high a level of current income exempt from Federal income
tax as is consistent with relative stability of principal. The One Group
Intermediate Tax-Free Bond Fund's investment objective is to seek current income
exempt from Federal income taxes consistent with prudent investment management
and the preservation of capital.
As a fundamental investment policy, the Pegasus Intermediate Municipal
Bond Fund must invest at least 80% of the value of its net assets in Municipal
Securities. The One Group Intermediate Tax-Free Bond Fund has a similar policy,
although it is not fundamental. As a fundamental policy, this Fund must invest
at least 65% of its total assets in bonds. Under normal market conditions, the
average weighted maturity is expected to range between three and ten years for
both funds.
As a fundamental investment policy, The One Group Intermediate Tax-Free
Bond Fund invests in a diversified portfolio. The Pegasus Intermediate Municipal
Bond Fund is not diversified.
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PEGASUS MUNICIPAL BOND FUND AND THE ONE GROUP TAX-FREE BOND FUND.
The investment objectives of the Pegasus Municipal Bond Fund and The
One Group Tax-Free Bond Fund are identical. The Pegasus Municipal Bond Fund
seeks to provide as high a level of current income exempt from Federal income
tax as is consistent with relative stability of principal. The One Group
Tax-Free Bond Fund seeks current income exempt from Federal income taxes
consistent with prudent investment management and the preservation of capital.
The One Group Tax-Free Bond Fund was created to continue the business of the
Pegasus Municipal Bond Fund.
As a fundamental investment policy, the Pegasus Municipal Bond Fund
must invest at least 80% of the value of its net assets in Municipal Securities.
The One Group Tax-Free Bond Fund has a similar policy, although it is not
fundamental. As a fundamental policy, this Fund invests at least 65% of its
total assets in bonds. Each Fund invests in Municipal Securities without regard
to maturity.
Up to 20% of The One Group Tax-Free Bond Fund's total assets may be
held in cash or cash equivalents. The Fund will, from time to time, invest more
than 25% of its net assets in municipal housing authority obligations and single
family mortgage revenue bonds. The Fund also may invest in mortgage backed
securities, restricted securities, and mortgage dollar rolls. The securities in
which the Fund invests may have fixed rates of return or floating or variable
rates.
PEGASUS MICHIGAN MUNICIPAL BOND FUND AND THE ONE GROUP MICHIGAN
MUNICIPAL BOND FUND.
The Pegasus Michigan Municipal Bond Fund's investment objective is to
seek to provide as high a level of current income exempt from Federal, and to
the extent possible, from State of Michigan income taxes as is consistent with
relative stability of principal. The One Group Michigan Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and Michigan personal income tax, consistent with the preservation of principal.
The One Group Michigan Municipal Bond Fund was created to continue the business
of the Pegasus Michigan Municipal Bond Fund.
As a fundamental investment policy, the Pegasus Michigan Municipal Bond
Fund must invest at least 80% of the value of its net assets in Municipal
Securities. Under normal market conditions, the Fund invests at least 65% of its
total assets in investment grade Municipal Securities the interest on which is
exempt from both Federal and Michigan income taxes. The One Group Michigan
Municipal Bond Fund has a fundamental policy that requires 80% of its total
assets to be invested in Michigan Municipal Securities. The Fund also may invest
up to 20% of its total assets in Municipal Securities other than Michigan
Municipal Securities.
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PEGASUS SHORT MUNICIPAL BOND FUND AND ONE GROUP SHORT-TERM MUNICIPAL
BOND FUND.
The investment objectives of the Pegasus Short Municipal Bond Fund and
The One Group Short-Term Municipal Bond Fund are identical. Each Fund seeks to
provide as high a level of current income exempt from Federal income tax as is
consistent with relative stability of principal.
The Pegasus Short Municipal Bond Fund invests in a portfolio of
investment grade municipal obligations, the interest on which is exempt from
Federal income tax. As a fundamental investment policy, the Fund must invest at
least 80% of the value of its net assets in municipal obligations. The Fund may
invest up 20% (and, for temporary defensive purposes, up to 100%) of its assets
in taxable cash equivalent securities. Under normal market conditions, the
Fund's average weighted maturity ranges between one year and three years. The
One Group Short-Term Municipal Bond Fund invests at least 80% of its net assets
in municipal securities, the interest on which is exempt from Federal income
tax. As a fundamental policy, the Fund invests at least 65% of its total assets
in bonds. Up to 20% of the Fund's total assets may be held in cash and cash
equivalents. From time to time, the Fund invests more than 25% of its net assets
in municipal housing authority obligations and single-family mortgage revenue
bonds. The Fund may also invest in mortgage-backed securities, restricted
securities, and mortgage dollar rolls. The securities in which the Fund invests
may have fixed rates of return or floating or variable rates. The Fund's average
weighted maturity ranges between one year and three years.
The One Group Short-Term Municipal Bond Fund was created to continue
the business of the Pegasus Short Municipal Bond Fund.
PEGASUS EQUITY INCOME FUND AND THE ONE GROUP INCOME EQUITY FUND.
The Pegasus Equity Income Fund's investment objective is to seek to
provide income; capital appreciation and growth of earnings are secondary, but
nonetheless important, goals. The One Group Income Equity Fund's investment
objective is to seek current income through regular payment of dividends with
the secondary goal of achieving capital appreciation by investing primarily in
equity securities. Under normal market conditions, the Pegasus Equity Income
Fund invests at least 65% of its total assets in publicly traded
income-producing common stocks of companies incorporated in the United States.
The One Group Income Equity Fund normally invests at least 65% of its assets in
the common stocks, debt securities, and preferred stocks that are convertible
into common stocks of corporations which regularly pay dividends, as well as
stocks with favorable long-term fundamental characteristics.
In connection with the Reorganization, The One Group Income Equity Fund
is expected to change its name to The One Group Equity Income Fund.
PEGASUS EQUITY INDEX FUND AND THE ONE GROUP EQUITY INDEX FUND.
The investment objectives of the Pegasus Equity Index Fund and The One
Group Equity Index Fund are substantively identical. Each Fund seeks investment
results that correspond to the aggregate price and dividend performance of
securities in the S&P 500 Index.
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While each of the Funds seeks to achieve a 95% correlation coefficient
between its performance and that of the S&P 500 Index, their stated investment
programs are somewhat different. The Pegasus Equity Index Fund uses a sampling
methodology to determine which stocks to purchase or sell in order to closely
replicate the performance of the S&P 500 Index. Stocks are selected based on
both capitalization weighting in the S&P 500 Index and industry representation.
The Pegasus Equity Index Fund may also invest up to 5% of its total assets in
futures contracts and related options in an effort to maintain exposure to price
movements in the S&P 500 Index pending investment of funds or while maintaining
liquidity to meet potential shareholder redemptions. The One Group Equity Index
Fund invests primarily in a representative sampling of stocks included in the
S&P 500 Index and, secondarily, in stock index futures. The stocks are selected
in the order of their weightings in the Standard & Poor's 500 Index beginning
with the heaviest weighted stocks. The Fund is not authorized to invest in
foreign securities. Pending investment of funds and to meet redemption requests,
the Pegasus Equity Index Fund and The One Group Equity Index Fund may hold up to
5% and 10% of their respective assets in cash equivalents.
PEGASUS GROWTH AND VALUE FUND AND THE ONE GROUP VALUE GROWTH FUND.
The Pegasus Growth and Value Fund's investment objective is to seek to
achieve long-term capital growth, with income a secondary consideration. The One
Group Value Growth Fund's investment objective is to seek long term capital
growth and growth of income with a secondary objective of providing a moderate
level of current income.
Under normal market conditions, the Pegasus Growth and Value Fund
invests at least 65% of the value of its total assets in publicly traded
income-producing common stocks of companies incorporated in the United States.
The Fund invests in equity securities of companies believed by the Fund's
investment adviser to represent a value or potential worth which is not fully
recognized by prevailing market prices and which have earnings growth
expectations that exceed those implied by the market's current valuation. The
Fund seeks to invest in companies whose earnings will increase at a faster rate
than those within the general equity market. The One Group Value Growth Fund
normally invests at least 65% of its total assets in common stocks, debt
securities, preferred stocks, convertible securities, warrants and other equity
securities of overlooked or undervalued companies that have the potential for
earnings growth over time. The Fund invests across capitalization levels
targeting both value and growth oriented companies.
The One Group Value Growth Fund will changed its name to The One Group
Diversified Equity Fund.
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PEGASUS INTRINSIC VALUE FUND AND THE ONE GROUP DISCIPLINED VALUE FUND.
The Pegasus Intrinsic Value Fund's investment objective is to seek to
provide long-term capital appreciation. The One Group Disciplined Value Fund's
investment objective is to seek capital appreciation with the secondary goal of
achieving current income by investing primarily in equity securities.
Under normal market conditions, the Pegasus Intrinsic Value Fund
invests at least 65% of the value of its total assets in publicly traded
income-producing common stocks of companies incorporated in the United States.
The One Group Disciplined Value Fund invests at least 80% of its total assets in
equity securities, including common stocks, debt securities, and preferred
stocks that are convertible into common stocks. A portion of the Fund's assets
will be held in cash equivalents. Both Funds primarily invest in equity
securities of companies with below-market average price-to-earnings and
price-to-book value ratios.
In connection with the Reorganization, The One Group Disciplined Value
Fund is expected to change its name to The One Group Mid Cap Value Fund.
PEGASUS GROWTH FUND AND THE ONE GROUP LARGE COMPANY GROWTH FUND.
The investment objective of the Pegasus Growth Fund is to seek
long-term capital appreciation. The One Group Large Company Growth Fund's
investment objective is to seek long-term capital appreciation and growth of
income by investing primarily in equity securities.
Under normal market conditions, the Pegasus Growth Fund invests at
least 65% of the value of its total assets in publicly traded income-producing
common stocks of companies incorporated in the United States. The Fund invests
primarily in equity securities of domestic issuers believed by the Fund's
investment adviser to have above-average growth characteristics. The One Group
Large Company Growth Fund normally invests at least 65% of its total assets in
equity securities of large, well-established companies, whose weighted average
capitalization will normally exceed the market median capitalization of the S&P
500 Index.
In connection with the Reorganization, The One Group Large Company
Growth Fund is expected to change its name to The One Group Large Cap Growth
Fund.
PEGASUS MID-CAP OPPORTUNITY FUND AND THE ONE GROUP DIVERSIFIED MID CAP
FUND.
The investment objective of the Pegasus Mid-Cap Opportunity Fund is to
achieve long-term capital appreciation. The investment objective of The One
Group Diversified Mid Cap Fund is to seek long-term capital growth by investing
primarily in equity securities of companies with intermediate market
capitalizations. The One Group Diversified Mid Cap Fund was created to continue
the business of the Pegasus Mid-Cap Opportunity Fund.
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Under normal market conditions, the Pegasus Mid-Cap Opportunity Fund
invests at least 65% of the value of its total assets in publicly traded
income-producing common stocks of companies incorporated in the United States
with market capitalizations of $500 million to $3 billion. The One Group
Diversified Mid Cap Fund normally invests at least 65% of its total assets in
common and preferred stock, rights, warrants, convertible securities and other
equity securities. The Fund invests primarily in equity securities of companies
with market capitalizations of $500 million to $5 billion. While each Fund
invests primarily in securities of U.S. companies, up to 25% of each Fund's
total assets may be invested in equity securities of foreign issuers.
Additionally, up to 20% and 35% of The One Group Diversified Mid Cap Fund and
the Pegasus Mid-Cap Opportunity Fund, respectively, may be invested in U.S.
government securities, other investment grade fixed income securities, cash and
cash equivalents.
PEGASUS SMALL-CAP OPPORTUNITY FUND AND THE ONE GROUP SMALL CAP VALUE
FUND.
The investment objective of the Pegasus Small-Cap Opportunity Fund is
to seek long-term capital appreciation. The One Group Small Cap Value Fund's
investment objective is seek long-term capital growth by investing primarily in
equity securities of companies with small capitalizations. The One Group Small
Cap Value Fund was created to continue the business of the Pegasus Small-Cap
Opportunity Fund.
Under normal market conditions, the Pegasus Small-Cap Opportunity Fund
invests at least 65% of the value of its total assets in publicly traded
income-producing common stocks of companies incorporated in the United States.
The Fund will normally invest at least 65% of the value of its total assets in
equity securities of small domestic issuers with market capitalizations of $100
million to $1 billion. The One Group Small Cap Value Fund normally invests at
least 80% of its total assets in common and preferred stocks, debt securities,
warrants, convertible securities, and other equity securities of small
capitalization domestic issuers with market capitalizations of $100 million to
$2 billion. While each Fund invests primarily in securities of U.S. companies,
up to 25% of each Fund's total assets may be invested in equity securities of
foreign issuers. Up to 20% of The One Group Small Cap Value Fund's total assets
may be invested in U.S. government securities, other investment grade debt
securities, cash and cash equivalents.
PEGASUS INTERNATIONAL EQUITY FUND AND THE ONE GROUP DIVERSIFIED
INTERNATIONAL FUND.
The investment objective of the Pegasus International Equity Fund is to
seek to achieve long-term capital appreciation. In seeking to achieve its
objective, the Fund invests primarily in equity securities of foreign issuers.
The One Group Diversified International Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities of foreign
issuers. The One Group Diversified International Fund was created to continue
the business of the Pegasus International Equity Fund.
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Under normal market conditions, the Pegasus International Equity Fund
invests at least 65% of the value of its total assets in equity securities. The
One Group Diversified International Fund invests at least 65% of its total
assets in foreign equity securities, consisting of common stocks, preferred
stocks, rights, warrants, convertible securities, foreign currencies and options
on foreign currency, and other equity securities. Each Fund invests primarily in
equity securities of foreign issuers located in but not limited to the United
Kingdom and European continent, Japan, other Far East areas and Latin America.
Each Fund may also invest in other regions seeking to capitalize on investment
opportunities in other parts of the world including developing countries.
Investments in a particular country may exceed 25% of each Fund's total assets.
Up to 20% of The One Group Diversified International Fund's total assets may be
invested in U.S. government securities, other investment grade fixed income
securities, cash and cash equivalents.
As a matter of fundamental policy, The One Group Diversified
International Fund invests in a diversified portfolio. The Pegasus International
Equity Fund is a "non-diversified" fund.
PEGASUS MARKET EXPANSION INDEX FUND AND THE ONE GROUP MARKET EXPANSION
INDEX FUND.
Each Fund's investment objective is to seek to provide a return which
substantially duplicates the price and yield performance of domestically traded
common stocks in the small and mid capitalization equity markets, as represented
by a market capitalization weighted combination of the Standard & Poor's
SmallCap 600 Index and the Standard & Poor's MidCap 400 Index. The Funds use a
sampling methodology to determine which stocks to purchase or sell in order to
closely replicate the performance of the combined indices. Stocks are selected
based on both capitalization weighting in the combined indices and industry
representation. The One Group Market Expansion Index Fund was created to
continue the business of Pegasus Market Expansion Index Fund.
Under normal market conditions, each Fund invests at least 65% of the
value of its total assets in publicly traded common stocks of companies
incorporated in the United States. Pending investment of funds and to meet
redemption requests, each Fund may hold up to 5% of its total assets in cash
equivalents. The Funds may also invest up to 5% of their total assets in futures
contracts and related options in an effort to maintain exposure to price
movements in the combined indices pending investment of funds or while
maintaining liquidity to meet potential shareholder redemptions. Each Fund seeks
to achieve a 95% correlation coefficient to its benchmark combined indices.
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APPENDIX IV
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares certain shareholder transactions and services of
the Pegasus Portfolios and The One Group Funds which will be affected by the
Reorganization. Throughout this Appendix, the Pegasus Money Market, Treasury
Money Market, Municipal Money Market and Michigan Municipal Money Market Funds
are collectively referred to as the "Pegasus Money Market Funds; "the Pegasus
Cash Management, Treasury Cash Management, Treasury Prime Cash Management, U.S.
Government Securities Cash Management and Municipal Cash Management Funds are
collectively referred to as the "Pegasus Cash Management Funds;" and the
remaining Pegasus Portfolios are collectively referred to as the "Pegasus
Non-Money Market Funds." Occasionally, the Pegasus Managed Assets Conservative,
Managed Assets Balanced and Managed Assets Growth Funds are referred to as the
"Pegasus Asset Allocation Funds;" otherwise, they are among the Pegasus
Non-Money Market Funds.
The One Group Cash Management Money Market, Treasury Cash Management
Money Market, Treasury Prime Cash Management Money Market, U.S. Government Cash
Management Money Market and Municipal Cash Management Money Market Funds are
collectively referred to as the "One Group Cash Management Funds" throughout
this Appendix. These Funds have not yet commenced operations and will continue
the operations of the Pegasus Cash Management Funds after the Reorganization.
The One Group Prime Money Market, U.S. Treasury Securities Money Market,
Municipal Money Market and Michigan Municipal Money Market Funds are
collectively referred to as the "One Group Money Market Funds." All remaining
One Group Funds are collectively referred to as the "One Group Non-Money Market
Funds."
The Pegasus Non-Money Market Funds currently offer three share classes:
Class A, Class B, and Institutional Class ("Class I"). The Pegasus Money Market
Fund offers Class A, Class B and Class I shares, but B shares are only offered
through an exchange from a Non-Money Market Fund. The Treasury Money Market,
Municipal Money Market and Michigan Municipal Money Market Funds offer Class A
and Class I shares. The Pegasus Cash Management Funds offer Class I and Service
Class ("Class S") Shares. Class A and Class B shares may be purchased through a
number of institutions including First Chicago NBD Investment Management Company
("FCNIMCO") or (the "Investment Adviser"), First National Bank of Chicago
("FNBC") American National Bank and Trust Company ("ANB") and their affiliates,
including First NBD Investment Services, Inc., a registered broker-dealer, BISYS
which serves the Trust as its Distributor and certain banks, securities dealers
and other industry professionals such as investment advisers, accountants and
estate planning firms. Class I and Class S shares of the Cash Management Funds
are sold to institutional investors, including banks (such as FNBC, NBD Bank
("NBD"), and ANB or their affiliates), acting for themselves or in a fiduciary,
advisory, agency, custodial or similar capacity, public agencies and
municipalities, employee benefit plans or other programs, registered investment
advisers and other financial institutions. For more information, see the section
entitled "Description of Classes" in the Pegasus Prospectuses incorporated by
reference into this Combined Prospectus/Proxy Statement.
<PAGE> 161
The One Group Funds currently offer five classes of shares: Class A,
Class B, Class C, Class I and Service Class Shares. Class A, Class B and Class C
shares are offered to the general public. The Institutional Money Market Funds
offer Class I shares only. The One Group Prime and U.S. Treasury Securities
Money Market Funds offer Class A, Class B, Class C, Class I and Class S shares.
The One Group Ohio Municipal, Municipal and Michigan Municipal Money Market
Funds offer Class A, Class C, Class I and Service Class shares. Class I shares
are offered to institutional investors, including affiliates of Bank 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. Class S Shares are offered to entities
purchasing such shares on behalf of investors requiring additional
administrative or accounting services such as sweep processing. For more
information, see the section entitled "How To Do Business With The One Group" in
the One Group Prospectuses incorporated by reference into the Combined
Prospectus/Proxy Statement.
The One Group also maintains a Web site (www.onegroup.com) where
shareholders may purchase or exchange shares, check account balances, or find
information about The One Group.
A. PURCHASE POLICIES
The following chart compares the existing purchase policies of the
Pegasus Portfolios and the One Group Funds.
<TABLE>
<CAPTION>
PEGASUS PORTFOLIOS:
CLASS A, B AND I SHARES OF THE PEGASUS PORTFOLIOS:
MONEY MARKET AND NON- CLASS I AND S SHARES OF THE
MONEY MARKET FUNDS CASH MANAGEMENT FUNDS ONE GROUP FUNDS
------------------ --------------------- ---------------
<S> <C> <C> <C>
Minimum Initial $1,000 for Class A and B shares $1,000,000.(2) $1,000 ($100 for employees of
Investment of Non-Money Market Funds; $2,500 Bank One Corporation and its
for Class A and B shares of Money affiliates); $250 for an IRA.
Market Funds(1); $1,000,000 for Investors may purchase up to a
Class I shares; $250 for an maximum of $250,000 of Class B
IRA.(2) shares per individual purchase
order.(3,4)
Minimum Subsequent $100. Subsequent Investments may No minimum. $100 ($25 for employees of Bank
Investment be made through the Automatic One Corporation and its
Investment Plan.(2) affiliates); $25 under the
Systematic Investment Plan.(3)
Purchase Methods Shares may be purchased by wire, Shares may be purchased by wire, Shares may be purchased directly
telephone or with compatible telephone or with compatible from OGSC by mail, telephone,
computer facilities. Class A and computer facilities. Class I wire, or through The One Group's
B shares may be purchased through shares may be purchased through Web site. Shares may also be
a number of institutions, fiduciary accounts at the purchased through investment
including the Investment Adviser, Investment Adviser, NBD, FNBC advisors, brokers, financial
NBD, FNBC, ANB and their and ANB or their affiliates. planners, banks, insurance
affiliates, including First Share certificates will not be companies, retirement or 401(k)
Chicago NBD issued. plan sponsors, or other
</TABLE>
-2-
<PAGE> 162
<TABLE>
<CAPTION>
PEGASUS PORTFOLIOS:
CLASS A, B AND I SHARES OF THE PEGASUS PORTFOLIOS:
MONEY MARKET AND NON- CLASS I AND S SHARES OF THE
MONEY MARKET FUNDS CASH MANAGEMENT FUNDS ONE GROUP FUNDS
------------------ --------------------- ---------------
<S> <C> <C> <C>
Investment Services, Inc., the intermediaries. Class I shares
Distributor, and certain banks, may be purchased through
securities dealers and other fiduciary accounts at Bank One
industry professionals such as Trust Company, N.A. or its
investment advisors, accountants affiliates. Shares may also be
and estate planning firms. purchased through a "mutual fund
Class I shares may be purchased supermarket." Shares are
through fiduciary accounts at the electronically recorded.
Investment Adviser, NBD, FNBC and Therefore, certificates will not
ANB or their affiliates. Shares be issued.
may also be purchased through a
"mutual fund supermarket." If an
investor does not specify a class
of shares at the time of
purchase, Class A shares will be
purchased. Share certificates
will not be issued.
Checkwriting Option Class A. Shareholders of Money None. Class A shareholders of Money
Market Funds may write checks for Market Funds may write checks
$500 or more. for $250 or more.
</TABLE>
(1) Pegasus may charge a fee of $2 per month for accounts with balances of
less than $2,500. Pegasus will notify shareholders prior to the
assessment of such fees.
(2) Pegasus reserves the right to offer Fund shares without regard to the
minimum purchase requirements to qualified or non-qualified employee
benefit plans. The investment adviser and service agents may impose
initial or subsequent investment minimums which are higher or lower
than those specified above and may impose different minimums for
different types of accounts or purchase arrangements. Pegasus reserves
the right to reject any purchase order.
(3) OGSC may waive these minimums.
(4) OGSC can reject a purchase order if it does not think that it is in the
best interests of a Fund and/or its shareholders to accept the order.
B. PRICING OF SHARES
As to each Pegasus Portfolio and One Group Fund, the net asset value
("NAV") per share of each class is computed by dividing the value of a Fund's
net assets represented by that class by the number of outstanding shares of that
class. A Fund's NAV is subject to change every day. The Pegasus Money Market
Funds and the One Group Money Market Funds calculate NAV at different times
during the business day, as shown in the following table. All other funds
calculate NAV at the same time
-3-
<PAGE> 163
<TABLE>
<CAPTION>
TIME OF CALCULATION PEGASUS PORTFOLIOS ONE GROUP FUNDS
------------------- ------------------ ---------------
<S> <C> <C> <C>
12:00 noon EST/ Municipal Money Market, Municipal Municipal Money Market Fund
11:00 a.m. CST Cash Management and Michigan
AND Municipal Money Market Funds
4:00 p.m. EST*/
3:00 p.m. CST
2:00 p.m. EST/ Prime Money Market and U.S.
1:00 p.m. CST Treasury Securities Money
AND Market Funds
4:00 p.m. EST*/
3:00 p.m. CST
1:00 p.m. EST/ Treasury Prime Cash Management Fund
12:00 noon CST
3:00 p.m. EST/ Money Market, Treasury Money
2:00 p.m. CST Market, Cash Management, U.S.
Government Securities Cash
Management and Treasury Cash
Management Funds
4:00 p.m. EST*/ All other funds All other funds
3:00 p.m. CST
</TABLE>
* Normal close of the New York Stock Exchange ("NYSE"). On
occasion, the NYSE may close before 4:00 p.m. ET. When that
happens, NAV will be calculated as of the time the NYSE
closes.
Shares of the Pegasus and One Group Money Market Funds will not be
priced on those days the Funds are closed, the NYSE is closed, and the following
holidays: New Year's Day, Dr. Martin Luther King Jr., Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day, and Christmas Day. The Non-Money Market Funds will be closed
on the same holidays with the exception of Columbus Day and Veterans' Day.
<TABLE>
<CAPTION>
DEADLINE FOR RECEIPT OF
DEADLINE FOR RECEIPT OF RELATED PAYMENT BY THE
PURCHASE ORDER CUSTODIAN PEGASUS PORTFOLIOS ONE GROUP FUNDS
-------------- --------- ------------------ ---------------
<S> <C> <C> <C>
12:00 noon, EST/ 4:00 p.m., EST/ Municipal Money Market Fund
11:00 a.m., CST 3:00 p.m., CST
4:00 p.m., EST*/ 4:00 p.m., EST/ Prime Money Market and U.S.
3:00 p.m., CST 3:00 p.m., CST Treasury Securities Money
Market Funds
4:00 p.m., EST*/ 4:00 p.m., EST on (i) the Non-Money Market Funds
3:00 p.m., CST business day after the
order is placed for Class I
shares and (ii) the third
business day after the
</TABLE>
-4-
<PAGE> 164
<TABLE>
<CAPTION>
DEADLINE FOR RECEIPT OF
DEADLINE FOR RECEIPT OF RELATED PAYMENT BY THE
PURCHASE ORDER CUSTODIAN PEGASUS PORTFOLIOS ONE GROUP FUNDS
-------------- --------- ------------------ ---------------
<S> <C> <C> <C>
order is placed for a
purchase of Class A, Class
B, and Class C shares
Purchase requests will be Purchase requests will be Money Market Funds
effective after an order in effective after an order
proper form and federal funds in proper form and
are received by the Transfer federal funds are
Agent. received by the Transfer
Agent.
4:00 p.m., EST/ Non-Money Market Funds
3:00 p.m. CST
</TABLE>
* Normal close of the New York Stock Exchange ("NYSE"). On
occasion, the NYSE may close before 4:00 p.m. ET. When that
happens, NAV will be calculated as of the time the NYSE
closes.
The assets of each Pegasus and One Group Money Market Fund are valued
based on the amortized cost method. Although each fund seeks to maintain a $1.00
net asset value per share, there can be no assurance that net asset value will
not vary.
C. SALES CHARGES AND EXEMPTIONS.
CLASS A AND CLASS B SHARES
Initial Sales Charge and Contingent Deferred Sales Charge ("CDSC")
a. Class A Shares of the Pegasus Money Market Funds and the
corresponding One Group Money Market Funds are offered to the
general public at net asset value without an initial sales
charge.
b. Class A Shares of the Pegasus Portfolios and the corresponding
One Group Non-Money Market Funds are offered to the general
public at their public offering price (which is a Fund's net
asset value per share, plus an applicable sales charge).
c. Class B Shares of the Pegasus Portfolios and One Group Funds
are sold to the general public at net asset value, without an
initial sales charge. However, Class B Shares of the One Group
Prime Money Market and U.S. Treasury Securities Money Market
Funds and the Pegasus and One Group Non-Money Market Funds
will be assessed a CDSC.
d. The following chart summarizes the maximum sales charges
applicable to Class A and Class B shares with respect to each
Pegasus Portfolio and the corresponding One Group Fund.
-5-
<PAGE> 165
<TABLE>
<CAPTION>
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
MAXIMUM INITIAL SALES MAXIMUM
REORGANIZING PEGASUS PORTFOLIOS EXISTING ONE GROUP FUNDS CHARGE - CLASS A CDSC - CLASS B
------------------------------- ------------------------ ---------------- --------------
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
Pegasus Managed Assets Conservative Fund The One Group Investor Balanced Fund 5.00%/5.25% 5.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Managed Assets Balanced Fund The One Group Investor Growth & Income 5.00%/5.25% 5.00%/5.00%
Fund
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Managed Assets Balanced Fund The One Group Investor Growth Fund 5.00%/5.25% 5.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Equity Income Fund The One Group Income Equity Fund (to be 5.00%/5.25% 5.00%/5.00%
renamed Equity Income Fund upon
Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Growth Fund The One Group Large Company Growth Fund 5.00%/5.25% 5.00%/5.00%
(to be renamed Large-Cap Growth Fund
upon Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Intrinsic Value Fund The One Group Disciplined Value Fund 5.00%/5.25% 5.00%/5.00%
(to be renamed Mid-Cap Value Fund upon
Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Growth and Value Fund The One Group Value Growth Fund (to be 5.00%/5.25% 5.00%/5.00%
renamed Diversified Equity Fund upon
Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Equity Index Fund The One Group Equity Index Fund 3.00%/5.25% 3.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Intermediate Bond Fund The One Group Intermediate Bond Fund 3.00%/4.50% 3.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Short Bond Fund The One Group Limited Volatility Bond 1.00%/3.00% 1.00%/3.00%
Fund (to be renamed Short-Term Bond
Fund upon Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Multi Sector Bond Fund The One Group Income Bond Fund 3.00%/4.50% 3.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus High Yield Bond Fund The One Group High Yield Bond Fund 4.50%/4.50% 5.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Intermediate Municipal Bond Fund The One Group Intermediate Tax-Free 3.00%/4.50% 3.00%/5.00%
Bond Fund
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Mid-Cap Opportunity Fund The One Group Mid-Cap Opportunities 5.00%/5.25% 5.00%/5.00%
Fund (to be renamed Diversified Mid-Cap
Fund upon Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Small-Cap Opportunity Fund The One Group Small-Cap Value Fund 5.00%/5.25% 5.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Market Expansion Index Fund The One Group Market Expansion Index 3.00%/5.25% 3.00%/5.00%
Fund (to be renamed Small-Cap Index
Fund upon Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus International Equity Fund The One Group International 5.00%/5.25% 5.00%/5.00%
Opportunities Fund (to be renamed
Diversified International Fund upon
Reorganization)
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Bond Fund The One Group Bond Fund 4.50%/4.50% 5.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Municipal Bond Fund The One Group Tax-Free Bond Fund 4.50%/4.50% 5.00%/5.00%
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Short Municipal Bond Fund The One Group Short-Term Municipal Bond 1.00%/4.50% 1.00%/3.00%
Fund
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
Pegasus Michigan Municipal Bond Fund The One Group Michigan Municipal Bond 4.50%/4.50% 5.00%/5.00%
Fund
- ------------------------------------------ ----------------------------------------- ------------------------- ---------------------
</TABLE>
Each One Group Fund currently imposes a CDSC equal to 1% of the
purchase price on any or all Class A Shares redeemed within one year of purchase
which were purchases as part of an investment of $1,000,000 or more and not
assessed a sales charge at the time of purchase.
With respect to Class A shares of the Pegasus Portfolios purchased
without an initial sales charge as part of an investment of at least $1,000,000
and where such shares are redeemed within two years after purchase, a CDSC of 1%
or .50% will be imposed at the time of redemption if shares are redeemed within
the first or second year, respectively, after purchase unless the investor
qualifies for a waiver of the CDSC as described below under "Class B Shares -
Waiver of CDSC."
The Pegasus Market Expansion Index Fund requires the payment of a
transaction fee on purchases of shares of the Fund equal to 0.50% of the dollar
amount invested.
-6-
<PAGE> 166
The CDSC charged with respect to the (i) Pegasus Bond and Short
Municipal Bond Funds; (ii) the Pegasus Equity Index, Market Expansion Index,
Multi Sector Bond, Intermediate Bond and Intermediate Municipal Bond Funds and
(iii) all other Pegasus Funds decline over time so that no CDSC is charged on
redemptions made more than one, five and six years from the date of purchase,
respectively. Class B shares of the Pegasus Short Bond and Short Municipal Bond
Funds convert to Class A shares after two years. Class B shares of the Pegasus
Equity Index, Market Expansion Index, Multi Sector Bond, Intermediate Bond and
Intermediate Municipal Bond Funds convert to Class A shares after six years. All
other Class B shares of Pegasus Funds convert to Class A Shares after seven
years. Class B shares of the Pegasus Money Market Fund are available only to the
holders of Class B shares in Pegasus' non-money market funds who wish to
exchange their shares in such funds for shares in the Money Market Fund. Class B
shares of the Money Market Fund will automatically convert to Class A shares at
the time the exchanged shares would have converted.
The CDSC charged with respect to the Class B shares of each One Group
Fund (except the Limited Volatility Bond Fund) declines over time so that no
CDSC is charged on redemptions made more than six years from the date of
purchase (four years with respect to the Limited Volatility Bond Fund). Class B
shares of the One Group Funds automatically convert to Class A shares after
eight years, except with respect to Class B shares of the Limited Volatility
Bond Fund which automatically convert to Class A shares after six years.
Class A shares - Sales Load Waivers - Pegasus Portfolios
Class A Shares of the Pegasus Non-Money Market Funds may be purchased
at net asset value and without an initial sales charge by: (a) full-time
employees of NASD member firms which have entered into an agreement with the
Distributor pertaining to the sale of Fund shares (or which otherwise have a
brokerage-related or clearing arrangement with an NASD member firm with respect
to sales of Fund shares), their spouses and minor children; (b) accounts opened
by a bank, trust company or thrift institution, acting as a fiduciary or
custodian (other than 401(k) and other defined contribution or other retirement
plan accounts), provided that they have furnished the Distributor appropriate
notification of such status at the time of the investment and such other
information as it may request from time to time in order to verify eligibility
for this privilege; (c) purchases for accounts registered under the Uniform
Gifts to Minor Act or Uniform Transfers to Minors Act which are opened through
First Chicago NBD Investment Services, Inc. ("FCNIS") and 401(k) and other
defined contribution of other retirement plan accounts for which The First
National Bank of Chicago ("FNBC") or its subsidiaries or affiliates have served
as custodian or trustee since at least June 1, 1995 or NBD Bank ("NBD") or its
subsidiaries or affiliates, other than FNBC or American National Bank and Trust
Company ("ANB"), have served as administrator or Trustee since January 1, 1996;
(d) directors and full-time or part-time employees of FCN, or any of its
affiliates or subsidiaries, retired employees of FCN, or any of its affiliates
and subsidiaries, Board members of a fund advised by the investment advisers,
including members of the Funds' Board of Trustees, or the spouses, children,
grandchildren, siblings, parents, grandparents and in-laws of any of the
foregoing individuals; (e) purchases through certain broker-dealers, registered
investment advisers and other financial institutions which have entered into an
agreement with a "mutual fund supermarket" or with the Distributor,
-7-
<PAGE> 167
which includes a requirement that such shares be purchased for the benefit of
clients participating in a "wrap account" or a similar program under which such
clients pay a fee to such broker-dealer, registered investment adviser or other
financial institution; (f) employees participating in accounts such as
retirement, 401(k), profit sharing and other employee benefit plan or program
accounts where (i) the employers or affiliated employers maintaining such plans
or programs have a minimum of 200 employees eligible for participation in such
plans or programs or (ii) such plan's or program's assets exceed one million
dollars; (g) individuals participating in a qualified retirement, profit
sharing, 401(k) or other employee benefit plan which is eligible to purchase
Class A shares or Class I shares without a sales charge and rolls Fund shares
into a qualified IRA, then that IRA may purchase Class A shares without a sales
charge; (h) current shareholders of the Equity Index Fund who owned shares of
the Fund prior to August 26, 1996 and have held all or a portion of such shares
thereafter.
Class A shares also may be purchased at net asset value, without an
initial sales charge, with the proceeds from the redemption of shares of an
investment company sold with a sales charge or commission or annuity contract or
guaranteed investment contract subject to a surrender charge. This also includes
shares of an investment company that were or would be subject to a contingent
deferred sales charge upon redemption. The purchase must be made within 60 days
of the redemption, and the Transfer Agent must be notified in writing by the
investor at the time the purchase is made.
The One Group Funds and Pegasus Portfolios also offer rights of
accumulation and letter of intent programs that can reduce the sales charge
payable on shares purchases.
Class A shares - Sales Load Waivers - One Group Funds
Class A shares of the One Group Non-Money Market Funds may be purchased
at net asset value and without an initial sales charge if the shares were: (a)
bought with the reinvestment of dividends and capital gains distributions; (b)
acquired in exchange for other One Group Fund shares if a comparable sales
charge has been paid for the exchanged shares; (c) bought by officers,
directors, or trustees, retirees and employees (and their spouses and immediate
family members) of: (i) The One Group, (ii) Bank One Corporation and its
subsidiaries and affiliates, (iii) The One Group Services Company ("OGSC") and
its subsidiaries and affiliates, (iv) State Street Bank and Trust Company and
its subsidiaries and affiliates; (v) broker/dealers who have entered into dealer
agreements with The One Group and their subsidiaries and affiliates, (vi) an
investment sub-adviser of a fund of The One Group and such sub-adviser's
subsidiaries and affiliates; (d) bought by (i) affiliates of Bank One
Corporation and certain accounts (other than IRA accounts) for which an
intermediary acts in a fiduciary, advisory, agency, custodial or similar
capacity; (ii) 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
(OGSC); (iii) accounts which participate in select affinity programs with Bank
One Corporation and its affiliates and subsidiaries; (iv) 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"; (v) Shareholder Servicing Agents who have a
dealer arrangement with the (OGSC), 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
-8-
<PAGE> 168
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; (e) bought with proceeds from the sale of Class I shares of a
fund of The One Group or acquired in an exchange of Class I 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; (f) bought with proceeds from the sale of shares of
a mutual fund (including a fund of The One Group) for which a sales charge was
paid, but only if the purchase is made within 60 days of the sale or
distribution; (g) bought in an IRA 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; (h) bought with assets
of The One Group; (i) bought in connection with plans of reorganization of a
fund, such as mergers, asset acquisitions and exchange offers to which a fund is
a party.
The waivers described in (e), (f) and (g) above will not continue
indefinitely and may be discontinued at any time without notice.
Class B shares - Waiver of CDSC - Pegasus Portfolios
No CDSC is charged on redemptions of Class B shares of the Pegasus
Portfolios in connection with: (a) redemptions made within one year after the
death of the shareholder; (b) redemptions by shareholders after age 70-1/2 for
purposes of the minimum required distribution from an IRA, Keogh plan or
custodial account pursuant to Section 403(b) of the Code; (c) distributions from
a qualified plan upon retirement or termination of employment; (d) redemption of
shares acquired through a contribution in excess of permitted amounts; (e)
in-service withdrawals from tax qualified plans by participants; (f) redemptions
initiated by a Fund of accounts with net assets of less than $1,000; (g)
redemptions by Eligible Financial Intermediaries who have purchased Class A
shares at net asset value as part of a "wrap account" or similar program; (h)
redemptions of up to 10% of the value of shares during a 12 month period as part
of a Systematic Withdrawal Plan.
Class B Shares - Waiver of CDSC - One Group Funds
No CDSC is imposed on redemptions of Class B shares of the One Group
Funds: (a) provided that a shareholder withdraws no more than 10% of the account
value annually; (b) if a shareholder buys the shares in connection with certain
retirement plans, such as 401(k) and similar qualified plans; (c) if a
shareholder is a participant or beneficiary of certain retirement plans and dies
or becomes disabled (as defined in the Tax Code), but only if the redemption is
made within one year of such death or disability; (d) that represent minimum
required distributions from an IRA Account or other qualifying retirement plan,
but only if a shareholder is at least age 70-1/2; (e) exchanged in connection
with plans of reorganizations of a Fund, such as mergers, asset acquisitions and
exchange offers to which a Fund is a party; (f) acquired in exchange for Class B
shares of other Funds of The One Group.
-9-
<PAGE> 169
CLASS I SHARES OF THE PEGASUS PORTFOLIOS AND ONE GROUP FUNDS
a. Class I shares of the Pegasus Money Market Funds are offered
with no initial sales charge or CDSC to institutional
investors, including banks (such as FNBC and NBD), acting for
themselves or in a fiduciary, advisory, agency, custodial or
similar capacity and to public agencies and municipalities.
Class I shares may not be purchased directly by individuals,
although institutions may purchase shares for accounts
maintained by individuals.
b. Class I shares of the Pegasus Non-Money Market Funds are
offered at net asset value with no initial sales charge or
CDSC (although the Market Expansion Index Fund imposes a
transaction fee) exclusively to Fiduciary Accounts, Eligible
Retirement Plans, Eligible Financial Intermediaries (as each
item is defined in the prospectus), and the Pegasus Asset
Allocation Funds.
c. Class S shares of the Pegasus Cash Management Funds are
offered at net asset value with no initial sales charge or
CDSC to the same investors who are eligible to purchase Class
I shares of the Pegasus Money Market Funds.
d. Class I and Class A shares of the One Group Cash Management
Funds are offered at net asset value with no initial sales
charge or CDSC to certain institutional investors and high net
worth individuals. Class I shares of the remaining One Group
Funds are offered at net asset value with no initial sales
charge or CDSC to certain institutional investors.
Conversion Feature for Class I shares of the Pegasus Portfolios
Class I shares of each Pegasus Portfolio (other than the Cash
Management Funds) held by investors who, after purchasing Class I shares for
their Fiduciary Accounts, withdraw from such Accounts will convert to Class A
shares upon such withdrawal, based upon the relative net asset values for shares
of each such Class.
D. SHARE EXCHANGES
Class I shares of a One Group Fund may be exchanged for Class A shares
of that Fund or for Class A or Class I shares of another One Group Fund. Class A
shares of a One Group Fund may be exchanged for Class I shares of that Fund or
for Class A or Class I shares of another One Group Fund, but only if you are
eligible to purchase those shares. Class B shares of a One Group Fund may be
exchanged for Class B shares of another One Group Fund. The One Group does not
charge a fee for this privilege. The One Group reserves the right to reject any
exchange request if the Fund reasonably believes that the exchange will result
in excessive transaction costs or otherwise adversely affect other shareholders.
The Pegasus Portfolios permit investors to purchase, in exchange for
shares of a Fund which have been owned for at least 30 days, shares of the same
Class of the other Pegasus Funds. The Class I and S shares of the Cash
Management Funds do not offer an exchange privilege.
-10-
<PAGE> 170
The exchange privilege may be modified or terminated at any time upon notice to
shareholders. The exchange privilege with respect to the post-Reorganization
Funds is substantially similar to the exchange privilege applicable to the One
Group Funds.
The following chart compares the existing exchange policies of the
Pegasus Portfolios and the One Group Funds.
<TABLE>
<CAPTION>
PEGASUS PORTFOLIOS ONE GROUP FUNDS
------------------ ---------------
<S> <C> <C>
Mail Yes. Yes.
Telephone Yes. Yes.
Web site No. Yes.
Sales Charges Shares of the same Class of Funds purchased by Generally, a sales charge will not be
exchange will be purchased on the basis of incurred on an exchange. However, a sales
relative net asset value per share as follows: charge will be incurred on Class I Shares
(i) shares of Funds purchased with or without exchanged for Class A shares, unless
a sales load may be exchanged without a sales shareholder qualifies for a sales charge
load for shares of other Funds sold without a waiver; on Class A shares of a Fund with no
sales load; (ii) shares of Funds purchased sales charge exchanged for shares of a Fund
without a sales load may be exchanged for with a sales charge, and on shares of a Fund
shares of other Funds sold with a sales load, with a sales charge exchanged for shares of a
and the applicable sales load will be fund with a higher sales charge, in which
deducted; (iii) "Purchased Shares"(1) may be case the shareholder would pay the difference
exchanged for "Offered Shares"(1) of other between that Fund's sales charge and all
Funds, provided that, if the sales load other sales charges already paid by the
applicable to the Offered Shares exceeds the shareholder.(4)
maximum sales load that could have been
imposed in connection with the Purchased
Shares (at the time the Purchased Shares were
acquired), without giving effect to any
reduced loads, the difference will be
deducted; (iv) shares of Funds subject to a
CDSC that are exchanged for shares of another
Fund or the Pegasus Money Market Fund will be
subject to the higher applicable CDSC of the
two Funds(2); (v) shares of the Money Market
Fund acquired through an exchange of Class B
shares of the Pegasus Non-Money Market Funds
are subject to a CDSC upon redemption of the
shares in accordance with the prospectus of
the exchanged shares(2); and (vi) a qualified
or non-qualified employee benefit plan with
assets of at least $1 million or 200 eligible
lives may be exchanged from Class B shares to
Class A shares on or after January 1 of the
year following the year of the plan's
eligibility, provided that the sponsor of the
plan has so notified the service agent of its
eligibility and in turn, the service agent has
notified Pegasus of such eligibility.(3)
</TABLE>
-11-
<PAGE> 171
(1) "Purchased Shares" are shares of Funds purchased with a sales load,
shares of Funds acquired by a previous exchange from shares purchased
with a sales load and additional shares acquired through reinvestment
of dividends or distributions of any such Funds. "Offered Shares" are
shares of Funds sold with a sales load.
(2) For purposes of calculating CDSC rates and conversion periods, if any,
shares will be deemed to have been held since the date the shares being
exchanged were initially purchased.
(3) No fees currently will be charged shareholders directly in connection
with exchanges although Pegasus reserves the right, upon not less than
60 days' written notice, to charge shareholders a nominal fee in
accordance with rules promulgated by the SEC. Exchanges made into the
Market Expansion Index Fund will be charged a transaction fee.
(4) If a shareholder exchanged Class B shares of a Fund, the shareholder
will not pay a sales charge at the time of the exchange, however: (1)
the new Class B shares will be subject to the higher CDSC of either the
Fund from which the shareholder exchanged, the Fund into which the
shareholder exchanged, or any Fund from which the shareholder
previously exchanged, (2) the current holding period for the
shareholder's exchanged Class B shares is carried over to the new
shares.
E. REDEMPTION POLICIES
The following chart compares the existing redemption policies of the
Pegasus Portfolios and the One Group Funds.
<TABLE>
<CAPTION>
PEGASUS PORTFOLIOS:
CLASS A, B AND I SHARES OF THE PEGASUS PORTFOLIOS:
MONEY MARKET AND NON- CLASS I AND S SHARES OF THE
MONEY MARKET FUNDS CASH MANAGEMENT FUNDS ONE GROUP FUNDS
------------------ --------------------- ---------------
<S> <C> <C> <C>
Redemption Methods By telephone or mail. By telephone and compatible By telephone or mail (except for
computer facilities. IRA accounts whose redemption
requests must be made in
writing).
Payment Methods By check, by wire (within one By mail or by wire (on the same By mail or by wire (paid within
business day) or Automated day).(1) seven days after receipt but
Clearing House (within five next day and two business day
business days). payments on redemptions are
available(2); State Street Bank &
Trust Company currently charges a
$7.00 wire redemption fee).
Systematic Yes ($15,000 minimum account No. Yes ($10,000 minimum account
Withdrawal Plan balance with respect to Class A balance/$100 minimum per
or B shares; $10,000 with respect transaction); Class A
to Money Market Funds). shareholders should consider the
initial sales charge and Class B
shareholders' payments are limited
to no more than 10% of the account
value annually measured from the
date the
</TABLE>
-12-
<PAGE> 172
<TABLE>
<CAPTION>
PEGASUS PORTFOLIOS:
CLASS A, B AND I SHARES OF THE PEGASUS PORTFOLIOS:
MONEY MARKET AND NON- CLASS I AND S SHARES OF THE
MONEY MARKET FUNDS CASH MANAGEMENT FUNDS ONE GROUP FUNDS
------------------ --------------------- ---------------
<S> <C> <C> <C>
redemption request is received; IRA
account payments must not exceed the
minimum required distribution amount.
Reinstatement Yes (Class A or B redemptions may No. No.
Privilege purchase, within 120 days, Class
A shares without a sales load in
an amount not to exceed
the redemption proceeds).
</TABLE>
Additional Information Regarding Redemptions:
<TABLE>
<CAPTION>
PEGASUS PORTFOLIOS:
CLASS A, B AND I SHARES OF THE PEGASUS PORTFOLIOS:
MONEY MARKET AND NON- CLASS I AND S SHARES OF THE
MONEY MARKET FUNDS CASH MANAGEMENT FUNDS ONE GROUP FUNDS
------------------ --------------------- ---------------
<S> <C> <C> <C>
Automatic Upon 60 days written notice, if Upon 60 days written notice if No. Accounts less than $1,000
Redemption of net asset value in account is (i) net asset value in account that are not participating in a
Investor's Account $2,500 or less for Class A or B decreases to $1,000,000 or less. Systematic Investment Plan will
shares of the Money Market Funds; be charged an annual fee
of (ii) $1,000,000 or less for $10.00. This sub-minimum
Class I shares of the Money Market account fee does not apply to
Funds, and (iii) less than $1,000 IRA accounts and the accounts of
for Class A, B and I shares of employees of Bank One each
other Pegasus portfolios. Corporation and its affiliates. The
sub-minimum account fee also does
not apply to Institutional Money
Market Funds.
Proceeds of Cash Paid in federal funds on the Cash
Redemption business day the redemption is
effected.
Acting on Telephone Requires form of identification Requires form of identification Recording telephone
Instructions instructions; requesting
personal identification
</TABLE>
(1) If the request is received before 12:00 noon, Eastern time, for the
Municipal Cash Management Fund; 1:00 p.m. Eastern time, for the
Treasury Prime Cash Management Fund, and 3:00 p.m. Eastern time, for
the Cash Management Fund, Treasury Cash Management Fund and U.S.
Government Securities Cash Management Fund.
(2) Requests for same day payment will be honored if the request is
received before 12:00 noon, Eastern time, for the Municipal Money
Market Fund, and 4:00 p.m., Eastern time, for the Prime Money Market
Fund and
-13-
<PAGE> 173
the U.S. Treasury Securities Money Market Fund. The Funds also will
attempt to honor requests for payments by the next business day, if the
redemption request is received after the times mentioned above.
F. DIVIDENDS AND DISTRIBUTIONS
Each existing One Group Fund and Pegasus Portfolio distributes its net
capital gains to shareholders at least annually. The table below shows the
policies concerning the declaration and payment of dividends from net investment
income. Pegasus makes available to investors of Class A and Class B shares a
Cross Reinvestment of Dividend Plan. Investors who own shares of any Fund with a
minimum value of $10,000 at the time he or she elects may have dividends paid by
such Fund automatically reinvested into shares of another Pegasus Fund in which
he or she has invested a minimum of $1,000. A transaction fee will be charged to
all investors who elect to have dividends from other Funds reinvested in the
Market Expansion Index Fund.
<TABLE>
<CAPTION>
========================= =============== ==================== ================ ==================== ================
Current Current Dividend to
Pegasus Dividend One Group Dividend Post-Reorganization be
Portfolio Declared/Paid Fund Declared/Paid Fund Declared/Paid
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Money Market Fund D/M Prime Money Market D/M The One Group D/M
Fund Prime Money Market
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Treasury Money Market D/M U. S. Treasury D/M The One Group U.S. D/M
Fund Securities Money Treasury
Market Fund Securities Money
Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Municipal Money Market D/M Municipal Money D/M The One Group D/M
Fund Market Fund Municipal Money
Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Michigan Municipal D/M Michigan Municipal D/M The One Group D/M
Money Market Fund Money Market Fund Michigan Municipal
Money Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Cash Management Fund D/M Cash Management D/M The One Group Cash D/M
Money Market Fund Management Money
Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Treasury Prime Cash D/M Treasury Prime D/M The One Group D/M
Management Fund Cash Management Treasury Prime
Money Market Fund Cash Management
Money Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
U.S. Government D/M U. S. Government D/M The One Group D/M
Securities Cash Securities Cash U.S. Government
Management Fund Management Money Securities Cash
Market Fund Management Money
Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Municipal Cash D/M Municipal Cash D/M The One Group D/M
Management Fund Management Money Municipal Cash
Market Fund Management Money
Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Treasury Cash D/M Treasury Cash D/M The One Group D/M
Management Fund Management Money Treasury Cash
Market Fund Management Money
Market Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Short Bond Fund M/M Limited Volatility D/M The One Group D/M
Bond Fund Short-Term Bond
</TABLE>
-14-
<PAGE> 174
<TABLE>
<CAPTION>
========================= =============== ==================== ================ ==================== ================
Current Current Dividend to
Pegasus Dividend One Group Dividend Post-Reorganization be
Portfolio Declared/Paid Fund Declared/Paid Fund Declared/Paid
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Intermediate Bond Fund M/M Intermediate Bond D/M The One Group D/M
Fund Intermediate Bond
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Multi Sector Bond Fund M/M Income Bond Fund D/M The One Group D/M
Income Bond Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Bond Fund M/M Bond Fund D/M The One Group Bond D/M
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
High Yield Bond Fund M/M High Yield Bond D/M The One Group High D/M
Fund Yield Bond Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Intermediate Municipal M/M Intermediate D/M The One Group D/M
Bond Fund Tax-Free Bond Fund Intermediate
Tax-Free Bond Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Municipal Bond Fund M/M Municipal Bond Fund D/M The One Group D/M
Tax-Free Bond Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Michigan Municipal Bond M/M Michigan Municipal D/M The One Group D/M
Fund Bond Fund Michigan Municipal
Bond Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Short Municipal Bond M/M Short Municipal D/M The One Group D/M
Fund Bond Fund Short-Term
Municipal Bond Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Equity Income Fund M/M Income Equity Fund M/M The One Group M/M
Equity Income Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Equity Index Fund Q/Q Equity Index Fund M/M The One Group M/M
Equity Index Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Growth and Value Fund Q/Q Value Growth Fund M/M The One Group M/M
Diversified Equity
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Intrinsic Value Fund Q/Q Disciplined Value M/M The One Group M/M
Fund Mid Cap Value Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Growth Fund Q/Q Large Company M/M The One Group M/M
Growth Fund Large Cap Growth
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Mid-Cap Opportunity Fund Q/Q Diversified Mid M/M The One Group M/M
Cap Fund Diversified
Mid Cap Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Small-Cap Opportunity Q/Q Small Cap Value M/M The One Group M/M
Fund Fund Small Cap Value
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
International Equity Q/Q Diversified M/M The One Group M/M
Fund International Fund Diversified
International Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Market Expansion Index Q/Q Market Expansion M/M The One Group M/M
Fund Index Fund Market Expansion
Index Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Managed Assets Growth Q/Q Investor Growth M/M The One Group M/M
Fund Fund Investor Growth
</TABLE>
-15-
<PAGE> 175
<TABLE>
<CAPTION>
========================= =============== ==================== ================ ==================== ================
Current Current Dividend to
Pegasus Dividend One Group Dividend Post-Reorganization be
Portfolio Declared/Paid Fund Declared/Paid Fund Declared/Paid
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Managed Assets Balanced Q/Q Investor Growth & M/M The One Group M/M
Fund Income Fund Investor Growth &
Income Fund
- ------------------------- --------------- -------------------- ---------------- -------------------- ----------------
Managed Assets M/M Investor Balanced M/M The One Group M/M
Conservative Fund Fund Investor Balanced
Fund
========================= =============== ==================== ================ ==================== ================
</TABLE>
D/M = Daily/Monthly
M/M = Monthly/Monthly
Q/Q = Quarterly/Quarterly
-16-
<PAGE> 176
APPENDIX V
The One Group U.S. Treasury Securities Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group U.S. Treasury Securities Money Market Fund
Fiduciary share class was 5.12% on June 30, 1998, up slightly from 5.03% on June
30, 1997.
WHAT CONTRIBUTED TO THE FUND'S FAIRLY STABLE YIELDS?
The Fund's yield reflects the relative stability in interest rates brought on by
the Federal Reserve's unchanged monetary policy. Rate movements throughout the
year were fairly moderate. They reflected changing views on economic strength
and whether that strength would lead to inflationary pressures requiring Federal
Reserve action.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary strategy during the period was to maintain a "barbell" maturity
structure, meaning that we focused on securities at the extremes of the
short-term maturity range. As such, the Fund emphasized securities with
maturities between six months and one year along with overnight repurchase
agreements.
The money market yield curve during the fiscal year remained fairly steep,
meaning that securities with longer maturities paid relatively higher yields.
The Fund's "longer" securities-those maturing in six months to one year-enabled
the Fund to increase its yield. At the same time, the repurchase agreements,
which matured overnight, allowed the Fund to retain a high level of liquidity.
This strategy led to an average maturity of 37 days on June 30, 1998, enabling
the Fund to maintain its "AAA" average quality rating-the best possible-from
Standard & Poor's and Moody's Investors Service. This rating indicates that the
Fund's securities are of the highest quality and offer the lowest risk. In order
to receive this rating, a fund must have an average maturity no greater than 60
days.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Economic activity and its influences on Federal Reserve policies will have a
direct effect on the Fund over the next year. Over the near term, strong
domestic demand is likely to be offset by the Asian crisis. This will require
the Federal Reserve to be diligent in directing monetary policy. This outlook
warrants continued caution so the Fund can be positioned to benefit from any
action the Federal Reserve may take.
/s/ Andrew T. Linton
Andrew T. Linton
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
CLASS OF SHARES 7 DAY YIELD 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
Fiduciary 5.12% 5.19% 4.73% 5.39% 5.48%
Class A 4.87% 4.92% 4.47% NA 4.10%
Class B 4.12% 4.14% NA NA 4.11%
Class C 4.08% NA NA NA 1.47%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
2
<PAGE> 177
The One Group Prime Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group Prime Money Market Fund Fiduciary share
class was 5.22% on June 30, 1998, down slightly from 5.25% on June 30, 1997.
WHAT CONTRIBUTED TO THE FUND'S FAIRLY STABLE YIELD?
The relative stability of the Fund's yield reflects the fact that the Federal
Reserve left monetary policy unchanged throughout the fiscal year. Interim rate
movements were fairly moderate and reflected market participants' changing views
on how the problems in Asia would affect the domestic economy. Some believed
that the seriousness of the situation would lead to a significant slowdown of
the U.S. economy, causing the Federal Reserve to cut interest rates. Others
believed that the underlying strength of the domestic economy would overwhelm
any Asian impact, and that the Federal Reserve would be forced to hike interest
rates in anticipation of higher inflation.
WHICH VIEWPOINT DID YOU FAVOR?
Our stance was that the Federal Reserve would leave interest rates unchanged. We
believed that cheaper imports resulting from the Asian crisis would help keep
the U.S. inflation rate low, as U.S. producers would be compelled to keep prices
down in order to compete. Also encouraging the Federal Reserve to leave rates
alone was the federal budget surplus. With Congress apparently gridlocked on how
to spend it, fiscal stimulus was not a problem facing monetary policy makers.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
With Federal Reserve monetary policy on hold, the Fund's weighted average
maturity stayed in a range of 60 days to 85 days-slightly higher than usual.
When interest rates climbed, we extended the weighted average maturity to the
higher end of the range to capture better yields. And, when rates drifted
downward, we shortened the weighted average maturity until we perceived better
value in the market.
On June 30, 1998, the Fund's weighted average maturity was 71 days, compared to
68 days on June 30, 1997.
WHAT IS YOUR OUTLOOK FOR THE FUND?
As long as the Federal Reserve maintains a gradual, modest approach to
regulating monetary supply, we will continue to pursue yield advantages from a
weighted average maturity range that is slightly longer than average.
/s/ Roger C. Hale
Roger C. Hale, CFA, CFP
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
CLASS OF SHARES 7 DAY YIELD 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
Fiduciary 5.22% 5.39% 4.92% 5.63% 5.76%
Class A 4.97% 5.13% 4.66% NA 4.29%
Class B 4.22% 4.35% NA NA 4.36%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
3
<PAGE> 178
The One Group Municipal Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group Municipal Money Market Fund Fiduciary share
class was 3.15% on June 30, 1998, compared to 3.63% on June 30, 1997. (For
investors in the 39.6% federal income tax bracket, the June 30, 1998, tax-exempt
yield translates into a tax-equivalent yield of 5.16%.)
The Fund also experienced a significant increase in assets during the year to
$613.9 million from $524.5 million.
DID YIELDS FLUCTUATE MUCH DURING THE YEAR?
Yields in the variable-rate sector experienced the most volatility of any
sector, moving within a trading range of 2.75% to 4.50%. Rates reached their
peak in April and their low point in February. This volatility was due primarily
to changing technical supply and demand factors combined with inconsistent
market cash flows. In comparison, the one-year fixed-rate sector traded within a
narrower range of 3.55% to 3.85%.
HOW DID ECONOMIC EVENTS INFLUENCE MARKET PERFORMANCE?
Short-term tax-exempt rates moved moderately lower during the year. With the
Federal Reserve's monetary policy remaining unchanged, the market reacted
positively to moderate economic output and a low-inflation environment.
Many short-term municipal issuers have continued to benefit significantly from
the ongoing economic expansion. This favorable environment has allowed many
borrowers to either reduce their outstanding deficits or increase their cash
surplus, which resulted in reduced issuance compared to previous years. Lower
financing needs coupled with steady demand supported the downward trend in
rates.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary strategy continues to involve adjusting the mix of variable-rate and
fixed-rate obligations based on changing market conditions. We also incorporate
a quality-oriented investment selection process to help ensure that all issues
selected for the Fund represent minimal credit risk. Because of this process,
the Fund did not experience any adverse impact or credit downgrades from the
Asian bank and credit crisis that began to unfold in October.
As the yield curve shifted during the year, we maintained the Fund's average
maturity in a range of 34 days to 61 days. This enabled us to take advantage of
changing market conditions and to accommodate the Fund's liquidity needs. At
year-end, the average maturity was 46 days, compared to 37 days a year ago.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The outlook for the municipal money market continues to look positive. While
demand for short-term products should continue to exceed available market
supply, we plan to focus on longer-term issues and rely on our investment
process in an attempt to provide competitive returns.
/s/ Thomas W. Cary
Thomas W. Cary
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
CLASS OF SHARES 7 DAY YIELD 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
Fiduciary 3.15% 3.27% 3.05% 3.77% 3.84%
Class A 2.90% 3.01% 2.81% NA 2.64%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
4
<PAGE> 179
The One Group Investor Funds
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUNDS PERFORM?
For the year ended June 30, 1998, The One Group Investor Funds posted the
following total returns for their respective Fiduciary share class:
- - The One Group Investor Growth Fund, 23.81%
- - The One Group Investor Growth and Income Fund, 20.34%
- - The One Group Investor Balanced Fund, 17.02%
- - The One Group Investor Conservative Growth Fund, 12.73%
For information on other share classes and performance comparisons to indexes,
please see pages 4-7.
HOW DID THE BOND AND STOCK MARKETS PERFORM?
The bond market continued to benefit from low inflation, which helped push
interest rates down and bond prices up. Furthermore, events in Asia contributed
to a weakening global economy, which in turn helped support favorable bond
market conditions in the United States.
The stock market continued to provide better-than-average investment returns,
thanks to low inflation, moderate economic growth and strong corporate earnings
growth. In addition, a favorable bond market contributed to the stock market's
strength by allowing price/earnings (P/E) multiple expansion. That is, the
declining interest rate environment allowed companies to realize greater
profits, and stock prices increased on these favorable earnings results.
For more than four years, large-capitalization growth stocks have led the
domestic market surge, outperforming smaller-company stocks and value-oriented
stocks. Investors continued to favor larger companies due to their earnings
reliability and stock liquidity.
DID THE SITUATION IN ASIA INFLUENCE STOCK RETURNS?
Beginning in late 1997, many larger, multinational companies, particularly in
the semiconductor, energy and commodities sectors, felt the effects of the Asian
markets' meltdown. With too much capital and investment generating excess
capacity, lower prices led to insufficient profits. As a result, currencies
declined and market returns plummeted for most Asian markets.
WERE THERE ANY OTHER NOTABLE PERFORMANCES OVERSEAS?
Many European markets experienced a comeback, with strong one-year performance
from Italy, up 63%; Spain up 50%; Germany, up 46%; and France, up 43%.
WHAT WAS YOUR OVERALL ASSET ALLOCATION STRATEGY?
Each of the Investor Funds maintained relatively strong exposure to equity funds
(depending, of course, on each fund's overall investment objective and asset
allocation parameters), which enabled the funds to participate in the ongoing
stock market rally and post attractive overall returns. In addition, each Fund's
allocation toward the bond market was slightly greater than what we consider to
be average exposure.
WHY WAS THAT?
We implemented this strategy based on our ongoing research efforts, which showed
that stocks, on a valuation basis, continued to be more expensive than bonds. We
felt that this presented some additional risks for stocks. At the same time,
earnings momentum remained strong. We therefore made only a slight shift toward
fixed income funds in order to gain some downside protection from the stock
market's high valuations. The average fund allocations during the period were as
follows:
- - The One Group Investor Growth Fund: 86% equity funds; 13% fixed income funds;
1% money market funds
- - The One Group Investor Growth and Income Fund: 66% equity funds; 33% fixed
income funds; 1% money market funds
- - The One Group Investor Balanced Fund: 46% equity funds; 53% fixed income
funds; 1% money market funds
- - The One Group Conservative Growth Fund: 26% equity funds; 72% fixed income
funds; 2% money market funds
WHAT WERE YOUR KEY STRATEGIES IN THE EQUITY ARENA?
The Investor Funds enjoyed varying exposure, depending on the overall investment
objective, to the following equity styles: large capitalization,
mid-capitalization, small capitalization and international. Within each style,
individual stock selection remains the core of our management process. We
modestly adjusted our asset allocations to include in-
2
<PAGE> 180
The One Group Investor Funds
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
ternational stocks, giving the funds an opportunity to take advantage of lower
valuations in Asia and continued economic recovery in Europe. Our international
exposure is now between 5% and 11%, with the greatest exposure in The One Group
Investor Growth Fund. This ongoing approach toward diversification helped limit
risk while offering return opportunities from different market segments.
WHAT WERE YOUR KEY STRATEGIES WITHIN THE FIXED INCOME MARKET?
Within the fixed income funds, our efforts centered on maintaining a low-risk
profile by keeping durations at or near their average levels. (Duration is a
measure of a fund's price sensitivity to interest rate changes. A longer
duration indicates greater sensitivity; a shorter duration indicates less.)
Instead of making "bets" on interest rate movements by significantly altering
duration, we prefer to concentrate on the yield component of total return.
Over the past year, our fund managers focused on select investments in the
corporate, asset-backed and mortgage-backed sectors. This allowed the funds to
capture the yield advantages that these securities generally offered compared to
Treasury securities. At the same time, they focused on maintaining portfolios
with good average credit quality.
WHAT IS YOUR OUTLOOK FOR THE FUNDS?
Economic activity is critical to the funds' performance because the economy
drives earnings. The current economic expansion, now in its eighth year, is one
of the longest in history. Looking ahead to fiscal 1999, we expect U.S. economic
growth to remain positive, but to slow down from recent levels. Corporate
earnings should continue to grow, but perhaps not at the pace we've seen
recently.
We also believe that inflation will remain low, leading to a stable or lower
interest rate environment. As such, we believe there will be little opportunity
for price volatility to significantly influence bond market returns.
Asia remains the one wild card. An unforeseen depression in any of these
countries could spill over and put a squeeze on U.S. growth. We believe that a
depression is unlikely, however, because Japan's economic package should provide
guidance for the country and establish an outline for deregulation. These moves
should bring Japan closer to financial reform and improve the banking system.
Given the extraordinary equity gains of the last several years, it is not
realistic to expect this pace to continue. Going forward, we think the equity
market will be a bit more selective, which would make individual security
selection even more important.
We currently don't anticipate making any significant changes to our asset
allocation strategies. But we will continue to monitor the economic climate for
inflationary pressures and valuation levels in the financial markets. We also
will keep close tabs on the situation in Asia and how events there may affect
the funds' investments.
/s/ Richard R. Jandrain III
Richard R. Jandrain III
Senior Managing Director of Equity Securities
Director, Asset Allocation Committee
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
3
<PAGE> 181
The One Group Investor Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Fiduciary 23.81% 24.49%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 1500 Lipper Mix Fiduciary
<S> <C> <C> <C>
12/96 10000 10000 10000
6/97 11945 10680 11350
6/98 15462 12724 14053
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class A 23.44% 23.78%
Class A* 17.87% 20.17%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class A* Class A
6/98 15462 12724 13303 13929
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class B 22.52% 23.91%
Class B** 18.52% 21.61%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class B** Class B
6/98 15462 12724 13552 13952
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (7/1/97)
<S> <C> <C> <C>
Class C 22.42% 22.42%
Class C** 21.42% 21.42%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class C** Class C
6/98 12944 11914 12141 12241
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Investor Growth Fund is measured against the S&P 1500
Index, an unmanaged index generally representative of the performance of large
and small companies in the US stock market. Investors are unable to purchase the
index directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management. By contrast, the performance
of the fund reflects the deduction of these value-added services as well as the
deduction of sales charges on Class A Shares and applicable contingent deferred
sales charges on Class B and Class C Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper General Equity Funds Universe (75%), the Lipper International Funds
Universe (10%), and the Lipper Intermediate US Government Bond Funds Universe
(15%). The Lipper Universes consist of the equally weighted average monthly
return of all the funds within the category.
<TABLE>
<S> <C> <C> <C> <C>
6/97 11945 10680 10776 11284
12/96 10000 10000 9550 10000
6/97 11945 10680 11388 11388
12/96 10000 10000 10000 10000
7/97 10000 10000 10000 10000
</TABLE>
4
<PAGE> 182
The One Group Investor Growth & Income Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Fiduciary 20.34% 20.40%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 1500 Lipper Mix Fiduciary
<S> <C> <C> <C>
12/96 10000 10000 10000
6/97 11945 10535 11087
6/98 15462 12342 13342
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class A 20.18% 20.73%
Class A* 14.76% 17.21%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class A* Class A
6/98 15462 12342 12797 13399
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class B 19.13% 19.72%
Class B** 15.13% 17.38%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class B** Class B
6/98 15462 12342 12825 13225
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (7/1/97)
<S> <C> <C> <C>
Class C 19.08% 19.08%
Class C** 18.08% 18.08%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class C** Class C
6/98 12944 11715 11808 11908
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Investor Growth & Income Fund is measured against the S&P
1500 Index, an unmanaged index generally representative of the performance of
large and small companies in the US stock market. Investors are unable to
purchase the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management. By
contrast, the performance of the fund reflects the deduction of these
value-added services as well as the deduction of sales charges on Class A Shares
and applicable contingent deferred sales charges on Class B and Class C Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper General Equity Funds Universe (60%), the Lipper International Funds
Universe (5%), and the Lipper Intermediate US Government Bond Funds Universe
(35%). The Lipper Universes consist of the equally weighted average monthly
return of all the funds within the category.
<TABLE>
<S> <C> <C> <C> <C>
6/97 11945 10535 10648 11150
12/96 10000 10000 9550 10000
6/97 11945 10535 11102 11102
12/96 10000 10000 10000 10000
7/97 10000 10000 10000 10000
</TABLE>
5
<PAGE> 183
The One Group Investor Balanced Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Fiduciary 17.02% 16.60%
</TABLE>
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C>
(Fiscal Year Covered) Aggregate Bond Lipper Mix Fiduciary
6/98 11219 11890 12694
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class A 16.62% 16.29%
Class A* 11.39% 12.90%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class A* Class A
6/98 11219 11890 12074 12641
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class B 15.85% 15.67%
Class B** 11.85% 13.28%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class B** Class B
6/98 11219 11890 12136 12536
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (7/1/97)
<S> <C> <C> <C>
Class C 15.66% 15.66%
Class C** 14.66% 14.66%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class C** Class C
6/98 10868 11444 11466 11566
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Investor Balanced Fund is measured against the Lehman
Brothers Intermediate Aggregate Bond Index, an unmanaged index comprised of US
Government, mortgage, corporate and asset-backed securities with maturities of
one to ten years. Investors are unable to purchase the index directly, although
they can invest in the underlying securities. The performance of the index does
not reflect the deduction of expenses associated with a mutual fund, such as
investment management. By contrast, the performance of the fund reflects the
deduction of these value-added services as well as the deduction of sales
charges on Class A Shares and applicable contingent deferred sales charges on
Class B and Class C Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper General Equity Funds Universe (40%), the Lipper International Funds
Universe (5%), and the Lipper Intermediate US Government Bond Funds Universe
(55%). The Lipper Universes consist of the equally weighted average monthly
return of all the funds within the category.
<TABLE>
<S> <C> <C> <C> <C>
6/97 10323 10390 10848
12/96 10000 10000 10000
6/97 10323 10390 10353 10841
12/96 10000 10000 9550 10000
6/97 10323 10390 10822 10822
12/96 10000 10000 10000 10000
7/97 10000 10000 10000 10000
</TABLE>
6
<PAGE> 184
The One Group Intermediate Tax-Free Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Intermediate Tax-Free Bond Fund Fiduciary share class offered a
total return of 7.74% for the year ended June 30, 1998. (For information on
other share classes and performance comparisons to indexes, please see page 4.)
Overall, interest rates declined during the year, and the Fund's 30-day SEC
yield (Fiduciary share class) fell to 4.15% at year-end, compared to 4.57% on
June 30, 1997. (For investors in the 39.6% federal income tax bracket, the June
30, 1998, yield translates into a taxable-equivalent yield of 6.87%.)
HOW DID YOU MANAGE INTEREST RATE VOLATILITY?
We generated the Fund's total return by continually realigning the portfolio
through one of the most volatile market environments in recent history. With
worries of inflation-induced Federal Reserve intervention and fallout from the
Asian situation, we witnessed significant market moves on a regular basis. With
limited cash flow in the Fund, we sought to add value for shareholders by taking
advantage of this volatility. By investing in discount coupon bonds, we could
buy when the market fell off and let the bonds run up in price when the markets
recovered from the many sell-offs during the year.
With an eye on after-tax total return, we remain conscious of capital gains. As
such, we will take losses on bonds when the market declines, which helps offset
the gains the Fund realizes when the market rallies. Our intent is to generate
tax-free income, but we also want to enhance total return by realigning the
portfolio to react to market conditions.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our belief during the year was that the market would be volatile, but that
interest rates would head lower. As such, we maintained an average duration near
the six-year mark, added yield to the portfolio, and traded securities to take
advantage of market volatility. (Duration is a measure of a fund's price
sensitivity to interest rate changes. A longer duration indicates greater
sensitivity; a shorter duration indicates less.)
In keeping with our strategy, when rates moved up, and prices fell, we sold
certain issues and captured losses (see above). Then, we replaced those issues
with bonds of similar structure--positive convexity, discount coupons and high
liquidity--which increased the portfolio's yield. (Convexity is a secondary
measure of a fund's price sensitivity to interest rate changes. Generally, bonds
with positive convexity perform better than those with negative convexity in
periods of high interest rate volatility.) Our strategy was to restructure a
portion of the portfolio with blocks of desirable bonds, so as to sell them at a
profit if our outlook changed during the year. Given the volatility in the
market from repeated economic data suggesting the death of inflation, to the
Asian turmoil that sent the markets reeling in the fourth quarter of 1997, our
tactics were sound.
DID THE FUND'S OVERALL QUALITY CHANGE?
The Fund's overall credit quality remained high, largely because an increasing
number of bonds coming to market are insured. At year-end, 73.9% of the Fund's
assets were invested in securities rated AAA and AA. We continue to look in the
lower-investment-grade areas for bonds with higher yields. But, this has been
somewhat challenging because the spread, or difference in yield, between
medium-grade bonds (those rated A and BBB) and AAA-rated bonds has been
compressed over the last 18 months, meaning that there is little yield advantage
to moving into the medium-quality area.
2
<PAGE> 185
The One Group Intermediate Tax-Free Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
We have no real evidence that market volatility will subside in the near future,
so we anticipate trading in the range we have seen over the past year. We remain
vigilant in our inflation watch, because any sign of an overheating economy
should lead the Federal Reserve to raise rates and, therefore, erode the value
of bonds. Nevertheless, we expect inflation to remain under control for the near
term, as a slower-growth economy should keep interest rates low and may even
force the Fed to ease monetary policy.
/s/ Patrick M. Morrissey
Patrick M. Morrissey
Fund Manager
/s/ Gary J. Madich, CFA
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
3
<PAGE> 186
The One Group Intermediate Tax-Free Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (9/4/90)
<S> <C> <C> <C>
Fiduciary 7.74% 5.46% 6.95%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Fiduciary
<S> <C> <C> <C>
9/90 $10,000 $10,000 $10,000
6/91 10,814 10,749 10,777
6/92 11,996 11,854 11,805
6/93 13,285 13,026 12,961
6/94 13,453 13,156 12,946
6/95 14,560 14,046 13,820
6/96 15,366 14,764 14,564
6/97 16,446 15,715 15,694
6/98 $17,653 $16,807 $16,908
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 7.50% 5.22% 6.08%
Class A* 2.70% 4.26% 5.32%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class A* Class A
<S> <C> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,550 $10,000
6/92 10,319 10,311 9,850 10,314
6/93 11,428 11,331 10,783 11,291
6/94 11,572 11,443 10,747 11,253
6/95 12,525 12,218 11,444 11,983
6/96 13,218 12,842 12,046 12,616
6/97 14,147 13,669 12,933 13,547
6/98 $15,185 $14,619 $13,904 $14,561
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 6.81% 4.28%
Class B** 2.81% 3.89%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,622 9,601 9,552 9,552
6/95 10,413 10,251 10,115 10,115
6/96 10,990 10,775 10,568 10,568
6/97 11,762 11,469 11,289 11,289
6/98 $12,625 $12,266 $11,856 $12,056
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The performance of the Intermediate Tax-Free Bond Fund is measured against the
Lehman Brothers 7 Year Municipal Bond Index, an unmanaged index comprised of
investment grade municipal bonds with maturities close to seven years. Investors
are unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
4
<PAGE> 187
The One Group Income Equity Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Income Equity Fund Fiduciary share class posted a total return of
23.18% for the year ended June 30, 1998. (For information on other share classes
and performance comparisons to the Fund's benchmark index, please see page 7.)
With inflation, unemployment and federal fiscal balances at their best levels in
a generation, the equity market offered strong double-digit returns for the
fourth consecutive year.
TO WHAT DO YOU ATTRIBUTE SUCH STRONG PERFORMANCE?
The Fund continued to benefit from its concentration in the types of companies
investors have preferred-large-capitalization, high-quality, consistent-growth
companies. At the same time, the Fund was rewarded for not owning companies with
severe earnings problems, such as those with significant exposure to Asia.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our portfolio strategies during the year focused on maintaining strong
performance measures while positioning the portfolio for a more challenging
market environment we think may be in store. As such, we sold and took profits
on certain issues that have been the best performers over the last several
years. We also eliminated some disappointing holdings and established new
positions in securities that we think are likely to be future market leaders.
We also have been improving the Fund's current income by reducing
lower-dividend-yielding issues and building positions in higher-yielding
securities. We also cut in half the Fund's position in convertible securities
and used the proceeds to invest in real estate investment trusts (REITs). In
addition to enhancing the Fund's diversification, we believe the REITs offer
good value and add important defensive characteristics to the Fund due to their
attractive yields.
On average, the Fund held 89% of its assets in common stocks, 5% in convertible
securities, 5% in REITs and 1% in cash during the year.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
The Fund enjoyed strong fiscal-year performance from several sectors in which
certain companies consistently achieved superior earnings growth or benefited
from major restructuring:
- - Health care (Schering-Plough, Pfizer and Warner-Lambert were up 65% or more)
- - Finance (American Express, Chase Manhattan, U.S. Bancorp, Lincoln National,
FNMA and National City were up 35% or more)
- - Telephone utilities (AT&T, BellSouth and Sprint were up 30% or more)
- - Selected industrials (Ford was up 55%).
WERE THERE ANY DISAPPOINTING HOLDINGS?*
Disappointing performers were concentrated in more volatile sectors, including
transportation (Union Pacific declined 37% for the fiscal year), energy and
mining (Amoco was off 4%, Cyprus-Amax down 46%) and manufacturing (Corning,
Boeing and Deere declined in price). Our policy in handling such "problem"
issues is to reduce the position size when earnings expectations are not being
met and sell out completely if a turnaround is unlikely, as we did with Union
Pacific and Cyprus-Amax. To help avoid problem situations, we concentrate on
favorable growth areas and look to fundamental research conducted by our
in-house analysts.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
Two new issues moved into the top 10 holdings-American Home Products, 2.1%
(health care) and Schering-Plough, 1.9% replaced Mobil (energy) and Philip
Morris (consumer non-durables). The remaining top 10 holdings were unchanged
from last year and included General Electric, 3.4% (capital goods), American
Express, 2.5%, Bristol-Myers Squibb, 2.4% (health care), Exxon, 2.2% (energy),
BankAmerica, 2.1% (financial services), Warner-Lambert, 2.1%, Coca-Cola, 2.1%
(consumer non-durable), and Royal Dutch Petroleum, 2.0% (energy).
5
<PAGE> 188
The One Group Income Equity Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
We are pleased with the current composition of the portfolio and the fundamental
progress of the companies the Fund owns. Nevertheless, the financial markets
have been highly volatile. Many of the uncertainties confronting investors
today-Asian problems, nuclear proliferation, historically high stock
valuations-have no quick-fix solutions. Furthermore, corporate earnings gains
aren't as good as they have been in recent years. This would suggest that we
should lower our return expectations and become more focused and selective.
Perhaps the best plan is to remain flexible and vigilant in order to take
advantage of opportunities when they arise. If a more challenging market
develops, we believe the Fund is well positioned, given its defensive
characteristics, higher-than-average income, holdings in predictable growth
companies and exposure to real estate.
/s/ R. Lynn Yturri
- ---------------------------
R. Lynn Yturri
Fund Manager
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Fixed Income Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
6
<PAGE> 189
The One Group Income Equity Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (7/2/87)
<S> <C> <C> <C> <C>
Fiduciary 23.18% 20.21% 16.29% 13.99%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Fiduciary
<S> <C> <C>
6/88 $10,000 $10,000
6/89 12,055 11,858
6/90 14,044 13,375
6/91 15,082 14,376
6/92 17,104 16,153
6/93 19,436 18,020
6/94 19,709 18,609
6/95 24,847 22,526
6/96 31,307 28,053
6/97 42,170 36,720
6/98 $54,889 $45,230
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 22.91% 19.89% 17.43%
Class A* 17.39% 18.79% 16.59%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Class A* Class A
<S> <C> <C> <C>
2/92 $10,000 $ 9,550 $10,000
6/92 9,992 9,625 10,079
6/93 11,354 10,721 11,226
6/94 11,514 11,037 11,557
6/95 14,515 13,301 13,961
6/96 18,289 16,569 17,353
6/97 24,635 21,602 22,625
6/98 $32,065 $26,558 $27,806
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 21.97% 20.06%
Class B** 17.97% 19.82%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Class B** Class B
<S> <C> <C> <C>
1/94 $10,000 $10,000 $10,000
6/94 9,344 9,663 9,663
6/95 11,779 11,587 11,587
6/96 14,842 14,300 14,300
6/97 19,992 18,515 18,515
6/98 $26,022 $22,387 $22,587
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 16.57%
Class C** 15.57%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $11,973 $11,556 $11,656
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Income Equity Fund is measured against the S&P 500 Index,
an unmanaged index generally representative of the performance of large
companies in the US stock market. Investors are unable to purchase the index
directly, although they can invest in the underlying securities. The performance
of the index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management. By contrast, the performance of the fund
reflects the deduction of these value-added services as well as the deduction of
sales charges on Class A Shares and applicable contingent deferred sales charges
on Class B and Class C Shares.
7
<PAGE> 190
The One Group Equity Index Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Equity Index Fund Fiduciary
share class posted a total return of 29.73%. (For information on other share
classes and a performance comparison to the index, please see page 9.)
As it is designed to do, the Fund offered a return that nearly matched that of
the S&P 500 Index, the unmanaged group of stocks the Fund seeks to track with
little or no excess risk. The S&P 500 Index returned 30.16% for the year. The
slight difference in returns between the Fund and the Index is due to fees and
transaction costs charged to the Fund but not to the Index.
WHAT CONTRIBUTED TO SUCH A STRONG RETURN?
A strong economy, low inflation, declining interest rates and favorable
corporate earnings growth led to attractive stock market returns for yet another
year. Once again, large-capitalization growth companies, the type represented in
the S&P 500 Index, outperformed other types of U.S. stocks.
WHICH MARKET SECTORS OFFERED NOTABLE PERFORMANCE?
The Fund offered exposure to 15 market sectors. Among those sectors, retail and
telephone utilities offered the strongest performance. The retail sector
benefited from lower costs on Asian imports, while telephone utilities advanced
due to acquisition activity.
The weakest-performing sectors included technology, energy and industrial
commodities. The technology sector suffered somewhat from the economic and
market crisis that swept through Asia, while energy stocks declined due to lower
oil prices. In the industrial commodities sector (chemical, paper and metal
companies), stocks suffered from the sector's lack of pricing power.
WHAT WERE SOME OF THE STRONGEST AND WEAKEST STOCKS?*
The Fund enjoyed outstanding performance from a handful of stocks, including
technology provider Unisys, up 270% for the fiscal year due to strong earnings;
computer manufacturer Dell Computer, up 216% on strong earnings; cable
television company Tele-Communications, up 159% and acquired by AT&T; financial
service provider Providian Financial, up 145% on strong earnings; and auto
manufacturer Ford Motor, up 55% due to strong earnings.
Weak earnings contributed to poor performance from certain holdings, including
diversified mining company Freeport-McMoran Copper and Gold, down 51% for the
fiscal year; technology company Advanced Micro Devices, down 52%; and technology
provider Cabletron Systems, down 53%.
WHAT WERE THE FUND'S TOP 10 HOLDINGS?*
Most of the Fund's top 10 holdings retained their spots during the past year.
The only changes to the group were the addition of Pfizer, 1.5% (health care
sector) and Wal-Mart, 1.5% (retail), which replaced Philip Morris (consumer
non-durables) and IBM (technology). The remaining top 10 included General
Electric, 3.2% (capital goods), Microsoft, 2.9% (technology), Coca-Cola, 2.3%
(consumer non-durables), Exxon, 1.9% (energy), Merck, 1.7% (health care), Intel,
1.4% (technology), Proctor & Gamble, 1.3% (consumer non-durables) and Royal
Dutch Petroleum, 1.3% (energy).
WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET?
The environment for stocks should remain favorable over the coming year. We
expect economic growth to continue, but at a slower pace. We also expect
interest rates and inflation to remain low. Corporate earnings and stock prices
should continue to grow, but earnings are likely to come under increasing
pressure. Nevertheless, it's important to remember that returns of the last few
years have been unusually strong, and they probably are not sustainable. We
expect to see stock returns revert to more "normal" levels.
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
The S&P 500 Index is an unmanaged group of stocks generally representative of
the performance of large U.S.-based companies. Investors cannot purchase the
index directly, but they can invest in the underlying securities.
8
<PAGE> 191
The One Group Equity Index Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (7/2/91)
<S> <C> <C> <C>
Fiduciary 29.73% 22.58% 19.64%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Fiduciary
<S> <C> <C>
7/91 $10,000 $10,000
6/92 10,836 11,211
6/93 12,313 12,673
6/94 12,486 12,753
6/95 15,741 16,043
6/96 19,834 20,129
6/97 26,717 27,033
6/98 $34,775 $35,070
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 29.33% 22.29% 19.44%
Class A* 23.49% 21.17% 18.58%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Class A* Class A
<S> <C> <C> <C>
2/92 $10,000 $ 9,550 $10,000
6/92 9,992 9,595 9,992
6/93 11,354 10,818 11,354
6/94 11,514 10,879 11,514
6/95 14,515 13,644 14,515
6/96 18,289 17,075 18,289
6/97 24,635 22,869 24,635
6/98 $32,066 $29,574 $30,976
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 28.47% 22.74%
Class B** 24.47% 22.51%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Class B** Class B
<S> <C> <C> <C>
1/94 $10,000 $10,000 $10,000
6/94 9,344 9,443 9,443
6/95 11,779 11,765 11,765
6/96 14,842 14,595 14,595
6/97 19,992 19,400 19,400
6/98 $26,022 $24,721 $24,921
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 21.07%
Class C** 20.07%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $11,973 $12,006 412,106
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Equity Index Fund is measured against the S&P 500 Index,
an unmanaged index generally representative of the performance of large
companies in the US stock market. Investors are unable to purchase the index
directly, although they can invest in the underlying securities. The performance
of the index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management. By contrast, the performance of the fund
reflects the deduction of these value-added services as well as the deduction of
sales charges on Class A Shares and applicable contingent deferred sales charges
on Class B and Class C Shares.
9
<PAGE> 192
The One Group Value Growth Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Value Growth Fund Fiduciary share class posted a total return of
32.26% for the year ended June 30, 1998. (For information on other share classes
and performance comparisons to indexes, please see page 12.)
TO WHAT DO YOU ATTRIBUTE THE FUND'S SOLID RETURN?
Domestic stocks of all styles enjoyed another strong year, as low inflation,
declining interest rates and better-than-expected corporate earnings contributed
to the gains.
Rather than emphasizing particular market sectors or trying to time the market's
next moves, we research, evaluate and select stocks on an individual basis to
build a diversified portfolio. We don't consciously overweight a single sector
or a single style of stock. Instead, we invest in stocks from the four major
equity styles -- large capitalization growth, large capitalization value, medium
capitalization growth and medium capitalization value -- and look for stocks
that we believe offer the best return potential relative to their level of risk.
Over the past year, for example, we saw some vicious swings among sectors,
creating a momentum market that saw investors attempting to pick the "right"
sector at the right time. But, our emphasis on individual stock selection paid
off, as that process gave the Fund exposure to many different industries and
contributed to the Fund's strong return.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund owned more stocks than usual and was more diverse than usual in an
active attempt to be less exposed to any single momentum play. Momentum markets
tend to last longer than investors expect, and stocks that are not participating
tend to lose their value quickly.
Events in Asia played an interesting role in the Fund's performance. After the
domino effect, which started in Thailand, hit U.S. shores in October 1997, we
avoided the stocks of companies that we thought would be most negatively
affected by the malaise -- namely, commodity cyclical companies. By steering
away from that group, the Fund became more growth-oriented than usual.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
Industry positions such as the pharmaceutical area of health care
(Schering-Plough, up 91% for the fiscal year, and Bristol-Myers Squibb, up 42%);
the software and PC areas of technology (Microsoft, up 71%; BMC Software, up
88%; Dell Computer, up 216%); and the long distance segment of
telecommunications (Century Telephone, up 104%; Sprint, up 35%) added to the
Fund's strong performance.
The Fund also benefited from strong performance from Cisco Systems (technology),
up 106% for the year; Equitable Co. (financial services), up 125%; Morgan
Stanley Dean Witter (financial services), up 112%; Lucent Technologies
(technology), up 131%; and Energy East (utility), up 99%.
At the same time, a few Fund holdings realized poor performance, namely Callaway
Golf (consumer services), down 45% for the year; Toys R Us (retail), down 33%;
BetzDearborn (raw materials), down 37%; Columbia/HCA Healthcare (health care),
down 26%; and Phycor (health care), down 52%.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
More than half of the Fund's top 10 holdings were among the leading holdings one
year ago: Microsoft, 3.3% (technology), General Electric, 2.9% (capital goods),
Exxon, 2.1% (energy), Wal-Mart, 1.8% (retail), Bristol Myers, 1.8% (health care)
and Intel, 1.7% (technology). The remaining members of the top 10 on June 30,
1998, included NationsBank, 1.8% (financial services), Cisco Systems, 1.8%, Dell
Computer, 1.7% and Coca-Cola, 1.5% (consumer non-durables).
10
<PAGE> 193
The One Group Value Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
We anticipate corporate earnings to revert to more normal levels, and we believe
volatility will continue. We plan to maintain the Fund's style diversity in
similar proportion as last year to address this market.
/s/ Michael D. Weiner
- ---------------------
Michael D. Weiner
Fund Manager
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
11
<PAGE> 194
The One Group Value Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (12/29/89)
<S> <C> <C> <C>
Fiduciary 32.26% 19.63% 17.91%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Fiduciary
<S> <C> <C>
12/89 $10,000 $10,000
6/90 10,309 10,657
6/91 11,072 11,631
6/92 12,557 13,847
6/93 14,268 16,554
6/94 14,469 16,496
6/95 18,241 19,198
6/96 22,959 23,242
6/97 30,524 30,673
6/98 $39,510 $40,584
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (12/29/89)
<S> <C> <C> <C>
Class A 31.96% 19.48% 17.82%
Class A* 26.04% 18.38% 17.19%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Class A* Class A
<S> <C> <C> <C>
12/89 $10,000 $ 9,550 $10,000
6/90 10,309 10,178 10,657
6/91 11,072 11,107 11,631
6/92 12,557 13,224 13,847
6/93 14,268 15,809 16,554
6/94 14,469 15,754 16,496
6/95 18,241 18,334 19,198
6/96 22,959 22,178 23,225
6/97 30,524 29,171 30,548
6/98 $39,510 $38,504 $40,326
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (9/9/94)
<S> <C> <C> <C>
Class B 30.89% 23.28%
Class B** 26.89% 22.84%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Class B** Class B
<S> <C> <C> <C>
9/94 $10,000 $10,000 $10,000
6/95 12,019 10,806 10,806
6/96 15,129 12,981 12,981
6/97 20,113 16,942 16,942
6/98 $26,034 $21,873 $22,173
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C> <C>
Class C 20.87%
Class C** 19.87%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $11,858 $11,987 $12,087
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The above-quoted performance data includes the performance of the Paragon Value
Equity Income Fund for the period prior to the commencement of operations of The
One Group Value Growth Fund on March 26, 1996. Performance for the Fiduciary
Shares is based on Class A Share performance adjusted to reflect the absence of
sales charges.
The performance of the Value Growth Fund is measured against the S&P 1500 Index,
an unmanaged index generally representative of the performance of large and
small companies in the US stock market. Investors are unable to purchase the
index directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management. By contrast, the performance
of the fund reflects the deduction of these value-added services as well as the
deduction of sales charges on Class A Shares and applicable contingent deferred
sales charges on Class B and Class C Shares.
The S&P 1500 Index for all classes consists of the average monthly returns of
the S&P 500 Index from December 1989 through December 1994. Thereafter, the data
are from the S&P 1500 Index which corresponds with the initiation of the S&P
1500 Index on January 1, 1995.
12
<PAGE> 195
The One Group Disciplined Value Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Disciplined Value Fund Fiduciary share class posted a total return
of 28.27% for the year ended June 30, 1998. (For information on other share
classes and performance comparisons to the index, please see page 18.)
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Interest rates ended the year lower, but experienced volatility throughout the
12-month period. To avoid some of the stock price volatility associated with
interest rate swings, we maintained a diversified portfolio with exposure to a
variety of economic sectors. Within this framework, we emphasized in-depth
analysis and individual stock selection, and we continued to rebalance the
portfolio in order to improve structure and upgrade holdings as market
conditions changed.
Because of the Fund's value orientation, we emphasized the sectors that offered
the greatest perceived value. As a result, almost half of the Fund's assets were
in the electric utility, financial, industrial, commodity and banking sectors.
These were the areas that contained the largest number of equity securities with
below-market-average price-to-earnings and price-to-book ratios.
Given the continued strength of the market, certain stocks reached their target
prices quicker than we had anticipated, prompting the sale of those securities
and the purchase of new ones. In addition, as certain stocks increased in
valuation, they became more growth-like and were no longer appropriate for this
value-oriented fund. For example, in the second half of 1997 prices on bank
stocks soared, and the resulting valuations converted many of these stocks to
growth stocks. As a result, remaining sectors that were relatively undervalued
became more influential, and their weightings within the Fund increased.
Specifically, we increased the Fund's holdings within the capital equipment,
financial, industrial commodity and consumer durable sectors to make up for the
gap caused by the decline in bank holdings.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
Outstanding performance from several individual stocks during the fiscal year
was driven largely by takeovers. For example, in the technology sector Qwest
Communications acquired LCI International, in which the Fund had a large
exposure; National City Bank acquired First of America, a Fund holding; and
Williams Companies acquired the energy company Mapco, another Fund holding. In
addition, the Fund's holding of Century Telephone nearly doubled in value over
the year, as analysts projected superior earnings growth for the combined
Century Telephone/Pacific Telesis company. Indeed, the merged company
experienced revenue growth and margin expansion after joining forces, as it cut
costs and expanded its territory.
Another merger, between cement manufacturers Southdown and Medusa, also
contributed to the Fund's solid return. But, price gains on these stocks
primarily were driven by excellent fundamentals within the industry. The
supply/demand equation favored the manufacturers, given the steadily increasing
demand for cement from the housing and infrastructure sectors, while the supply
of cement has been virtually unchanged in the last decade. In addition, U.S.
government restrictions on the amount of cement that can be imported helped the
U.S. manufacturers.
DID EVENTS IN ASIA INFLUENCE ANY OF THE FUND'S HOLDINGS?*
On the downside, events in Asia caused certain Fund holdings to decline. As
Asian currency values plummeted, it appears Asian customers chose to curtail
their gaming excursions to the United States. As a result, the Fund's holdings
in Circus Circus and MGM declined for the fiscal year. In addition, CompUSA lost
half of its value due to the unanticipated sharp declines in computer prices.
Lower demand from Asia contributed to the price declines, as did the lack of new
memory-consuming software applications, which prompted revenue declines and
margin contraction.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE DURING THE FISCAL YEAR?*
Only two of the Fund's top 10 holdings remained from last year -- CMS Energy,
1.6% (utilities) and Southtrust Corp., 1.6% (financial services). Rounding out
the top 10 were utilities companies New Century Enterprises, 1.5%, Allegheny
Energy, 1.3%, Century Telephone, 1.5%, El Paso Natural Gas, 1.6% and Teco
Energy, 1.2%; financial companies Bear Stearns,
16
<PAGE> 196
The One Group Disciplined Value Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
1.6% and Paine Webber, 1.2%; and Tyson Foods, 1.1%, a member of the consumer
non-durable sector.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Looking ahead, we plan to maintain our current strategy of broad sector
diversification, stringent in-house research and individual stock selection.
Within each sector, we will continue to look for the best values among medium
capitalization stocks, or those issues with low price/earnings and price/book
ratios.
/s/ Edmund M. Cowart
- --------------------
Edmund M. Cowart
Managing Director, Value Growth Team
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings subject to change.
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
17
<PAGE> 197
The One Group Disciplined Value Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
Dollars
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/2/89)
<S> <C> <C> <C>
Fiduciary 28.27% 17.52 14.11%
<CAPTION>
<S> <C>
Fiduciary
</TABLE>
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT Dollars
S&P
Measurement Period BARRA/Midcap
(Fiscal Year Covered) 400/Value Fiduciary
<S> <C> <C>
3/89 10,000 10,000
6/89 10,883 10,989
6/90 12,677 11,372
6/91 13,615 11,572
6/92 15,441 13,451
6/93 17,545 15,278
6/94 17,792 15,895
6/95 22,430 18,443
6/96 27,627 22,150
6/97 34,233 26,704
6/98 43,366 34,253
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
Dollars
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 27.90% 17.27% 15.79%
Class A* 22.13% 16.19% 14.96%
<CAPTION>
<S> <C>
Class A
Class A*
</TABLE>
* Reflects 4.50% Sales Charge
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
S&P
Measurement Period BARRA/Midcap
(Fiscal Year Covered) 400/Value Class A* Class A
<S> <C> <C> <C>
2/92 10,000 9,550 10,000
6/92 9,992 9,666 10,121
6/93 11,354 10,948 11,464
6/94 11,514 11,418 11,956
6/95 14,515 13,179 13,801
6/96 17,879 15,788 16,534
6/97 22,153 18,977 19,875
6/98 28,063 24,279 25,419
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
Dollars
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 26.97% 16.38%
Class B** 22.97% 16.12%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
Measurement Period S&P
(Fiscal Year Covered) BARRA/Midcap Class B** Class B
<S> <C> <C> <C>
1/94 10,000 10,000 10,000
6/94 9,344 9,500 9,500
6/95 11,779 10,918 10,918
6/96 14,509 12,985 12,985
6/97 17,978 15,476 15,476
6/98 22,775 19,465 19,665
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Disciplined Value Fund is measured against the S&P/BARRA
Midcap 400 Value Index, an unmanaged index representing the performance of the
lowest price to book securities in the S&P Midcap 400 Index. Investors are
unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The S&P/BARRA Midcap 400 Value Index consists of the average monthly returns of
the S&P 500 Index for periods prior to June 1991. Thereafter, the data are from
the S&P/BARRA Midcap 400 Value Index which corresponds with the initiation of
the S&P/BARRA Midcap 400 Value Index on June 30, 1991.
18
<PAGE> 198
The One Group Large Company Growth Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Large Company Growth Fund Fiduciary share class posted a total
return of 35.75% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 20.)
TO WHAT DO YOU ATTRIBUTE THE FUND'S SOLID RETURN?
A strong domestic economy, low inflation and declining interest rates all worked
together to maintain a favorable equity environment. Once again, the market
favored the largest growth-oriented companies because of their earnings
reliability and stock liquidity.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary investment strategy during this market climate has been to find good
companies within industries that are growing at a faster rate than the economy.
These are companies that we believe have the ability to exhibit sustained growth
at some multiple of their underlying industry growth rate. In addition, we
search for strong management teams and superior product positioning.
After evaluating the impact of the Asian crisis on the Fund's stocks, we cut the
portfolio's technology holdings because much of these companies' exports went to
Asia. We also increased our retail holdings, as many of these companies purchase
their materials from Asia and thus benefit from lower costs.
This strategy worked well, because the technology sector, as a whole, has
underperformed the market, while the retail sector has outperformed.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
The Fund enjoyed outstanding performance from computer manufacturer Dell
Computer, up 216% for the fiscal year; software giant Microsoft, up 71% and
online service provider America Online, up 278%.
On the other hand, there were a few disappointing performances from the
technology sector. For example, Applied Materials was off 17% and Oracle Corp.
declined 27%.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
Most of the Fund's top 10 holdings remained unchanged during the year. The only
newcomers were Dell Computer, 2.6% (technology) and Lucent Technologies, 2.3%
(technology). The remaining members included General Electric, 6.8% (capital
goods), Microsoft, 6.4% (technology), Coca-Cola, 4.3% (consumer non-durable),
Wal-Mart, 3.2% (retail), Merck, 3.0% (health care), Bristol-Myers Squibb, 3.0%
(health care), Pfizer, 2.9% (health care) and Proctor & Gamble, 2.6% (consumer
non-durable).
WHAT IS YOUR OUTLOOK FOR THE FUND?
Looking ahead, we remain optimistic about continued U.S. economic growth and low
inflation. We believe that interest rates may continue to decline, which would
support ongoing stock market growth, but perhaps not at the unusually strong
pace we've seen over the last several years. As such, it seems prudent to lower
our expectations somewhat for the next year.
Our overall strategy remains intact -- to search for companies with strong
fundamentals, effective management teams and favorable long-term outlooks.
Because the Asian situation remains unresolved, we will continue to monitor its
effects on the Fund's holdings.
/s/ Ashi Parikh
Ashi Parikh
Managing Director, Growth Equity Team
/s/ Richard R. Jandrain III
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your fund.
19
<PAGE> 199
The One Group Large Company Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT DOLLARS
Since
Inception
1 Year 5 Year (2/28/92)
<S> <C> <C> <C>
Fiduciary 35.75% 22.79% 19.88%
<CAPTION>
<S> <C>
Fiduciary
</TABLE>
<TABLE>
<CAPTION>
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Fiduciary
<S> <C> <C>
2/92 10,000 10,000
6/92 9,743 9,920
6/93 10,550 11,301
6/94 10,522 12,210
6/95 13,755 14,878
6/96 17,505 17,461
6/97 24,215 23,243
6/98 32,661 31,553
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
VALUE OF $10,000 INVESTMENT DOLLARS
<TABLE>
<CAPTION>
Since
Inception
1 Year (2/22/94)
<S> <C> <C> <C>
Class A 35.43% 23.70%
Class A* 29.33% 22.39%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Class A* Class A
<S> <C> <C> <C>
2/94 10,000 9,550 10,000
6/94 9,530 9,453 9,898
6/95 12,458 11,486 12,028
6/96 15,854 13,420 14,054
6/97 21,931 17,790 18,631
6/98 29,581 24,085 25,230
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
VALUE OF $10,000 INVESTMENT DOLLARS
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 34.39% 22.49%
Class B** 30.39% 22.26%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Class B** Class B
<S> <C> <C> <C>
1/94 10,000 10,000 10,000
6/94 9,539 9,934 9,934
6/95 12,235 11,831 11,831
6/96 15,570 13,952 13,952
6/97 21,539 18,381 18,381
6/98 29,052 24,496 24,696
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
DOLLARS
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C> <C>
Class C 27.63%
Class C** 26.63%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Class C** Class C
<S> <C> <C> <C>
11/97 10,000 10,000 10,000
6/98 12,458 12,663 12,763
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Large Company Growth Fund is measured against the
S&P/BARRA 500 Growth Index, an unmanaged index representing the performance of
the highest price to book securities in the S&P 500. Investors are unable to
purchase the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management. By
contrast, the performance of the fund reflects the deduction of these
value-added services as well as the deduction of sales charges on Class A Shares
and applicable contingent deferred sales charges on Class B and Class C Shares.
20
<PAGE> 200
The One Group Limited Volatility Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Limited Volatility Bond Fund
Fiduciary share class posted a total return of 6.59%. (For information on other
share classes and performance comparisons to indexes, please see page 5.)
HOW DID INTEREST RATES INFLUENCE PERFORMANCE?
Interest rates among five-year securities (the area of the yield curve where the
Fund is most heavily invested) declined 0.91 percentage points during the fiscal
year. The Fund's Fiduciary share class 30-day SEC yield also declined, dropping
from 6.18% on June 30, 1997, to 5.75% on June 30, 1998.
Because interest rates declined during the year, prices on most of the Fund's
bonds appreciated and, therefore, added to the Fund's total return. (Bond prices
and interest rates move inversely of each other. When rates fall, bond prices
rise, and vice versa.) The only exceptions were the few Asian bonds in the
Fund's portfolio, which declined in value when the Asian market crisis hit in
1997.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund's strategy included investing in securities that offered attractive
yields within our maturity and high credit-quality guidelines. As such, we
continued to emphasize government agency mortgage pass-through securities
because they offered yield advantages over other government securities. And, we
focused on 15-year, current coupon issues because they are less likely to be
refinanced even if interest rates fall further. We also invested in asset-backed
securities and high-grade corporate bonds, which provided an excellent
combination of yield, total return and relative safety.
With interest rates declining, we maintained the Fund's duration in a range of
2.3 years to 2.5 years. (Duration is a measure of a fund's price sensitivity to
interest rate changes. A longer duration indicates greater sensitivity; a
shorter duration indicates less.) This, coupled with the Fund's emphasis on
yield, contributed to the Fund's solid return.
DID THE FUND'S OVERALL QUALITY CHANGE DURING THE YEAR?
Because the majority of the Fund's assets always are invested in U.S.
government-related securities (69% of the portfolio at year-end), the Fund's
average quality remains high. On June 30, 1998, 80% of the Fund's securities
were rated AAA (the highest rating), 18% were rated A, and 2% were rated Baa,
giving the Fund an overall quality rating of AA.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect positive economic growth to continue, but at a slower pace. This
should help keep inflation low for the near-term, which should perpetuate the
current interest-rate trading range and market status quo. In the corporate
sector, though, a potential negative influence is the steady slowdown in
corporate earnings growth, which could cause corporate yield spreads to widen.
(Corporate spreads refer to the difference in yield between corporate bonds and
comparable-maturity Treasury bonds. When spreads widen, prices on corporate
bonds decline, and vice versa.) We believe a strong offset to this, though, is
the healthy economy, which gives us reason not to abandon the corporate sector.
As a precaution, we will focus on corporate bonds with maturities of five years
or less.
/s/ Roger Craig
Roger Craig
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
4
<PAGE> 201
The One Group Limited Volatility Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (9/4/90)
<S> <C> <C> <C>
Fiduciary 6.59% 5.41% 7.03%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3 Lipper Short US
Year Government
Measurement Period Government Bond Funds
(Fiscal Year Covered) Index Index Fiduciary
<S> <C> <C> <C>
9/90 $10,000 $10,000 $10,000
6/91 10,768 10,710 10,799
6/92 11,881 11,730 12,068
6/93 12,659 12,515 13,066
6/94 12,852 12,668 13,170
6/95 13,837 13,604 14,218
6/96 14,595 14,309 14,947
6/97 15,554 15,153 15,957
6/98 $16,609 $16,136 $17,008
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 6.32% 5.13% 5.86%
Class A* 3.16% 4.49% 5.35%
</TABLE>
* Reflects 3.00% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3 Lipper Short US
Year Government
Measurement Period Government Bond Funds
(Fiscal Year Covered) Index Index Class A* Class A
<S> <C> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,700 $10,000
6/92 10,284 10,274 10,045 10,356
6/93 10,957 10,962 10,853 11,188
6/94 11,123 11,096 10,906 11,243
6/95 11,976 11,916 11,742 12,105
6/96 12,632 12,534 12,314 12,694
6/97 13,462 13,273 13,110 13,515
6/98 $14,375 $14,134 $13,935 $14,368
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 5.98% 4.75%
Class B** 2.98% 4.75%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3 Lipper Short US
Year Government
Measurement Period Government Bond Funds
(Fiscal Year Covered) Index Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,889 9,874 9,819 9,819
6/95 10,648 10,603 10,524 10,524
6/96 11,231 11,153 10,974 10,974
6/97 11,969 11,811 11,604 11,604
6/98 $12,780 $12,578 $12,297 $12,297
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Limited Volatility Bond Fund is measured against the
Lehman Brothers 1 to 3 Year Government Index, an unmanaged index comprised of US
Government and agency securities with maturities of one to three years.
Investors are unable to purchase the index directly, although they can invest in
the underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper Short US Government Bond Funds Index consists of the equally weighted
average monthly return of the largest funds within the universe of all funds in
the category.
5
<PAGE> 202
The One Group Intermediate Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Intermediate Bond Fund Fiduciary share class offered a total
return of 8.71% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 7.)
HOW DID MARKET DEVELOPMENTS INFLUENCE PERFORMANCE?
Throughout the year, three key trends developed in the bond market:
1. Interest rates, in general, declined, resulting in gains for most bonds and
an overall increase in the Fund's net asset value (NAV).
2. Lower interest rates led to a rise in homeowner refinancing activity, which
caused the performance on many higher-rate mortgage-backed bonds to suffer.
3. Many foreign economies, especially those in Asia, fell into recession, and
prices declined on many Yankee bonds (U.S. dollar-denominated foreign bonds)
associated with these markets.
Overall, the positive influence from the drop in interest rates had a greater
impact on the Fund's performance than the negative influence from holding select
mortgage and Yankee bonds.
While the Fund enjoyed a solid total return and an approximately 2.0% gain in
NAV for the one year period, the declining interest rate environment pushed the
Fund's yield slightly lower-from 6.35% on June 30, 1997, to 5.90% on June 30,
1998.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Once again, duration management remained a key strategy in generating return and
controlling risk. (Duration is a measure of a fund's price sensitivity to
interest rate changes. A longer duration indicates greater sensitivity; a
shorter duration indicates less.) We managed the Fund's duration within a tight,
shorter-than-market-average range during the year, which limited some of the
price gains that occurred mid-year when interest rates fell. While we do manage
the Fund's exposure to changes in interest rates, we also purposely limit the
degree to which we alter duration. We believe these risk-control guidelines
protect us from making ill-timed "bets" on the magnitude and direction of
possible interest rate movements.
Nevertheless, the Fund's strong yield helped make up for the effects of our
shorter duration. Furthermore, the Fund's holdings in long-duration U.S.
Treasury and corporate bonds and select commercial mortgage-backed securities
helped overall performance during the year.
Another key move during the Fund's fiscal year occurred in early 1998, when we
reduced the Fund's small exposure to Asian Yankee bonds, which deteriorated
along with many Asian economies. By fiscal year-end, the Fund held about 1.5% of
its assets in Asian-based Yankee bonds, all of which maintained investment-grade
quality ratings (rated BBB or better).
WHAT IS YOUR OUTLOOK FOR THE FUND?
Our forecast calls for the U.S. economy to maintain its steady, albeit slower,
growth pattern over the next year. As a result, inflation should remain tame and
interest rates stable to lower.
At the same time, the prospect for unfavorable developments has risen. For
example, the economy is operating at employment levels that typically lead to
increasing rates of inflation. This, however, is being offset by economic
recession in many Asian countries. While we remain optimistic, unexpected
changes in these or other important economic dynamics could lead to
greater-than-expected volatility in the U.S. financial markets.
/s/ James A. Sexton
James A. Sexton, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
6
<PAGE> 203
The One Group Intermediate Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/29/92)
<S> <C> <C> <C>
Fiduciary 8.71% 6.08% 6.96%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Inertmediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Index Fiduciary
<S> <C> <C> <C>
2/92 $10,000 $10,000 $10,000
6/92 10,355 10,307 10,300
6/93 11,442 11,357 11,400
6/94 11,413 11,162 11,315
6/95 12,597 12,260 12,463
6/96 13,228 12,786 13,080
6/97 14,182 13,670 14,084
6/98 $15,394 $14,959 $15,310
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (11/30/94)
<S> <C> <C> <C>
Class A 8.47% 8.66%
Class A* 3.58% 7.26%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Intermediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Index Class A* Class A
<S> <C> <C> <C> <C>
11/94 $10,000 $10,000 $ 9,550 $10,000
6/95 10,999 10,984 10,533 11,029
6/96 11,550 11,480 11,036 11,556
6/97 12,383 12,274 11,853 12,411
6/98 $13,441 $13,431 $12,850 $13,462
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (11/30/94)
<S> <C> <C> <C>
Class B 7.78% 7.59%
Class B** 3.78% 6.90%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Intermediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Class B** Class B
<S> <C> <C> <C> <C>
11/94 $10,000 $10,000 $10,000 $10,000
6/95 10,999 10,984 10,845 10,845
6/96 11,550 11,480 11,290 11,290
6/97 12,383 12,274 12,061 12,061
6/98 $13,441 $13,431 $12,699 $12,999
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 8.20%
Class C** 7.20%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Intermediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Class C** Class C
<S> <C> <C> <C> <C>
11/97 $10,000 $10,000 $10,000 $10,000
6/98 $10,430 $10,455 $10,719 $10,819
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Intermediate Bond Fund is measured against the Lehman
Brothers Intermediate Government/Corporate Bond Index, an unmanaged index
comprised of US Government agency and Treasury securities and investment grade
corporate bonds. Investors are unable to purchase the index directly, although
they can invest in the underlying securities. The performance of the index does
not reflect the deduction of expenses associated with a mutual fund, such as
investment management. By contrast, the performance of the fund reflects the
deduction of these value-added services as well as the deduction of sales
charges on Class A Shares and applicable contingent deferred sales charges on
Class B and Class C Shares.
The Lipper Intermediate US Government Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
7
<PAGE> 204
The One Group Income Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Income Bond Fund Fiduciary share
class posted a total return of 7.97%. (For information on other share classes
and performance comparisons to indexes, please see page 11.)
In general, interest rates declined by approximately one percentage point during
the fiscal year. The Fund's Fiduciary share class 30-day SEC yield also
declined, dropping from 6.70% on June 30, 1997, to 6.13% on June 30, 1998.
WAS THERE A PARTICULAR TYPE OF SECURITY THAT AFFECTED PERFORMANCE?
Even though the Fund's yield fell, it remained attractive due to the Fund's
emphasis on higher-yielding investment-grade securities. Included among those
securities are Yankee bonds (U.S. dollar-denominated foreign bonds), which
performed well and contributed greatly to the Fund's total return until the
fourth quarter of 1997. As the financial crisis overtook Asia, the value of the
Fund's Asian Yankee bonds declined rapidly and, at 10% of Fund assets, caused
significant underperformance. Once prices stabilized and began to improve, we
implemented a control strategy for these bonds, reducing them to only 1.5% of
Fund assets. This measured reduction caused the Fund's performance to return to
above-average.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund's strategy is to try to maintain a relatively stable duration of
approximately 4.6 years and to enhance yield through a widely diversified
portfolio of corporate bonds and mortgage securities. (Duration is a measure of
a fund's price sensitivity to interest rate changes. A longer duration indicates
greater sensitivity; a shorter duration indicates less.) We purposely avoid
making significant changes to the Fund's duration, because we manage the Fund
primarily to maximize income, rather than to seek capital gains by making "bets"
on interest rate movements. We try to maintain a neutral duration and position
the Fund to earn a relatively good rate of interest income.
This strategy has worked well, as the Fund has been able to generate incremental
returns without incurring additional interest rate risk. At the same time, the
strategy involves some exposure to credit risk, which, for short periods of
time, may adversely affect returns, as witnessed in late-1997. But, over full
interest rate and credit cycles, the strategy has proven successful to date.
DID THE FUND'S OVERALL QUALITY CHANGE DURING THE YEAR?
In April 1997, shareholders approved a measure that allows the Fund to invest up
to 30% of its assets in high-yield securities, or those rated BB or B. As
outlined at that time, the Fund's entry into this sector will be slow and
measured. Since then, we have added a 4% exposure to BB-rated bonds.
The Fund maintained a good quality profile during the fiscal year, with 52% of
its assets invested in securities rated AAA; 5% in those rated AA; 16% in
A-rated; 23% in BBB-rated; and 4% in BB-rated. The Fund's overall quality rating
was A+ at the end of the year.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Moving forward, we expect economic growth to continue, but at a slower pace. We
also expect inflation to remain low for the near term. The bond market
environment is likely to be characterized as a "trading range," which is a
market that doesn't change much. In such a climate, higher-yielding securities
typically produce better results.
In the corporate sector, a potential negative influence is the steady decline in
corporate earnings growth, which could cause corporate yield spreads to widen.
(Corporate spreads refer to the difference in yield between corporate bonds and
comparable-maturity Treasury bonds. When spreads widen, prices on corporate
bonds decline, and vice versa.) A strong offset to this, though, is the healthy
economy, which gives us reason not to abandon this sector. As a precaution, we
will focus on corporate bonds with maturities of five years or less. In the
mortgage market, most of the Fund's recent purchases have been 15-year, current
coupon issues, which we believe are less likely to be refinanced even if
interest rates fall further.
/s/ Roger Craig
Roger Craig
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
10
<PAGE> 205
The One Group Income Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (7/2/87)
<S> <C> <C> <C> <C>
Fiduciary 7.97% 5.85% 7.63% 7.30%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Inertmediate
Brothers Investment
Measurement Period Aggregate Bond Grade Bond
(Fiscal Year Covered) Index Funds Index Fiduciary
<S> <C> <C> <C>
6/88 $10,000 $10,000 $10,000
6/89 11,222 11,005 10,732
6/90 12,103 11,632 11,417
6/91 13,397 12,632 12,467
6/92 15,278 14,394 14,193
6/93 17,079 16,087 15,701
6/94 16,857 15,872 15,352
6/95 18,972 17,634 17,086
6/96 19,923 18,492 17,876
6/97 21,547 19,901 19,324
6/98 $23,818 $21,817 $20,864
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 7.82% 5.60% 6.64%
Class A* 3.00% 4.63% 5.87%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Brothers Investment
Measurement Period Aggregate Bond Grade Bond
(Fiscal Year Covered) Index Funds Index Class A* Class A
<S> <C> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,550 $10,000
6/92 10,345 10,356 9,901 10,368
6/93 11,564 11,574 10,948 11,464
6/94 11,413 11,420 10,693 11,197
6/95 12,845 12,688 11,859 12,418
6/96 13,490 13,305 12,365 12,947
6/97 14,589 14,319 13,335 13,964
6/98 $16,127 $15,702 $14,381 $15,052
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 7.13% 5.07%
Class B** 3.13% 4.70%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Brothers Investment
Measurement Period Aggregate Bond Grade Bond
(Fiscal Year Covered) Index Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,485 9,488 9,471 9,471
6/95 10,675 10,542 10,478 10,478
6/96 11,211 11,055 10,860 10,860
6/97 12,124 11,897 11,637 11,637
6/98 $13,402 $13,046 $12,274 $12,466
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Income Bond Fund is measured against the Lehman Brothers
Aggregate Bond Index, an unmanaged index comprised of US Government, mortgage,
corporate and asset-backed securities. Investors are unable to purchase the
index directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management. By contrast, the performance
of the fund reflects the deduction of these value-added services as well as the
deduction of sales charges on Class A Shares and applicable contingent deferred
sales charges on Class B Shares.
The Lipper Intermediate Investment Grade Bond Funds Index consists of the
equally weighted average monthly return of the largest funds within the universe
of all funds in the category.
11
<PAGE> 206
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 015181
THE ONE GROUP (R)
1111 POLARIS PARKWAY
P.O. BOX 710211
COLUMBUS, OHIO 43271-0211
STATEMENT OF ADDITIONAL INFORMATION
(1999 SPECIAL MEETING OF SHAREHOLDERS OF THE PEGASUS FUNDS)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Prospectus/Proxy Statement dated
December ___, 1998 for the Special Meeting of Shareholders of Pegasus Funds
("Pegasus"), to be held on March 17, 1999. Copies of the Combined
Prospectus/Proxy Statement may be obtained at no charge by calling Pegasus at
1-800-688-3350.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Prospectus/Proxy Statement.
Further information about the Class A, Class B and Class I Shares of
the Existing One Group Funds is contained in and incorporated by reference to
One Group's Statement of Additional Information dated November 1, 1998. The
audited financial statements and related independent accountant's report for the
Existing One Group Funds contained in the Annual Report dated June 30, 1998, are
hereby incorporated herein by reference. No other parts of the Annual Reports
are incorporated by reference herein.
Further information about the Institutional Class and Service Class of
the Pegasus Cash Management Funds and Class A, Class B and Class I of the other
Pegasus Portfolios is contained in and incorporated by reference to Pegasus'
Statement of Additional Information dated April 30, 1998, a copy of which is
included herewith. The audited financial statements and related independent
accountant's report for Pegasus contained in the Annual Reports dated February
24, 1998 are incorporated herein by reference. No other parts of the Annual
Report are incorporated by reference herein. The unaudited financial statements
for Pegasus contained in the Semi-Annual Reports dated June 30, 1998 are also
incorporated herein by reference.
The date of this Statement of Additional Information is December ___,
1998.
<PAGE> 207
TABLE OF CONTENTS
Page
----
General Information .................................................. B-3
Pro Forma Financial Statements ....................................... B-
-B-2-
<PAGE> 208
GENERAL INFORMATION
The Shareholders of Pegasus are being asked to approve or disapprove an
Agreement and Plan of Reorganization (the "Reorganization Agreement") dated as
of _____, 1998 between Pegasus and the One Group, and the transactions
contemplated thereby. The Reorganization Agreement contemplates the transfer of
all of the assets and liabilities of the Pegasus Money Market, Treasury Money
Market, Municipal Money Market, Michigan Municipal Money Market, Cash
Management, Treasury Cash Management, Treasury Prime Cash Management, U.S.
Government Securities Cash Management, Municipal Cash Management, Managed Assets
Conservative, Managed Assets Balanced, Managed Assets Growth, Equity Income,
Growth, Mid-Cap Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and
Value, Equity Index, Market Expansion Index, International Equity, Intermediate
Bond, Bond, Short Bond, Multi Sector Bond, High Yield Bond, Municipal Bond,
Short Municipal Bond, Intermediate Municipal Bond and Michigan Municipal Bond
Funds to corresponding One Group Funds in exchange for full and fractional
shares representing interests in such corresponding One Group Funds. The shares
issued by One Group will have an aggregate net asset value equal to the
aggregate net asset value of the shares of the respective Pegasus Portfolios
that are outstanding immediately before the effective time of the
Reorganization.
Following the exchange, the Pegasus Portfolios will make a liquidating
distribution of corresponding One Group shares to their shareholders. Each
shareholder owning shares of a particular Pegasus Portfolio at the effective
time of the Reorganization will receive shares of the corresponding One Group
Fund of equal value, plus the right to receive any unpaid dividends and
distributions that were declared before the effective time of the Reorganization
on Pegasus Portfolio shares. Upon completion of the Reorganization, Pegasus will
be terminated under state law and deregistered under the Investment Company Act
of 1940.
The Special Meeting of Shareholders of Pegasus to consider the
Reorganization Agreement and the related transactions will be held at 10:00 a.m.
(Eastern time) on March 17, 1999 at the offices of BISYS Fund Services, 3435
Stelzer Road, Columbus, Ohio. For further information about the transaction, see
the Combined Prospectus/Proxy Statement.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliated thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the One Group Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
administrator or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of customers. Banc One
Investment Advisors, One Group Services Company and financial intermediaries
which agree to provide shareholder support services that are banks or bank
affiliates are subject to such banking laws and regulations. Should legislative,
judicial, or administrative action prohibit or restrict the activities of such
companies in connection with their services to the One Group Funds, One Group
might be required to alter materially or discontinue its arrangement with such
companies and change its method of operation. It is anticipated,
-B-3-
<PAGE> 209
however, that any resulting change in One Group's method of operation would not
affect a One Group Fund's net asset value per share or result in financial loss
to any shareholder.
The following tables convey Pegasus Funds Compounded and Actual Rates
of Return for the periods ended June 30, 1998:
<TABLE>
<CAPTION>
Pegasus One Group Prime
Money Market Fund Money Market Fund
-------------------------------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 2.50% 2.11% 2.63% 2.50% 2.12% 2.63%
1 Year Annualized - 6/30/98 5.09% 4.31% 5.36% 5.13% 4.35% 5.39%
3 Year Annualized - 6/30/98 5.12% 4.68% 5.29% 5.10% -- 5.36%
5 Year Annualized - 6/30/98 4.69% 4.42% 4.79% 4.66% -- 4.92%
10 Year Annualized -6/30/98 5.56% 5.43% 5.61% -- -- 5.63%
<CAPTION>
Pegasus Treasury One Group U.S. Treasury
Money Market Fund Money Market Fund
-------------------------------------------------------------------
Class A Class B Class I Class A Class B Class I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 2.44% -- 2.57% 2.41% 2.03% 2.54%
1 Year Annualized - 6/30/98 5.00% -- 5.26% 4.92% 4.14% 5.19%
3 Year Annualized - 6/30/98 5.01% -- 5.17% 4.94% -- 5.20%
5 Year Annualized - 6/30/98 4.59% -- 4.68% 4.47% -- 4.73%
10 Year Annualized -6/30/98 -- -- -- -- -- 5.39%
<CAPTION>
Pegasus Municipal One Group Municipal
Money Market Fund Money Market Fund
-------------------------------------------------------------------
Class A Class I Class A Class I
------- ------- ------- -------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 1.44% 1.56% 1.45% 1.57%
1 Year Annualized - 6/30/98 3.00% 3.25% 3.01% 3.27%
3 Year Annualized - 6/30/98 3.05% 3.21% 3.02% 3.27%
5 Year Annualized - 6/30/98 2.86% 2.96% 2.81% 3.05%
10 Year Annualized - 6/30/98 3.67% 3.72% -- 3.77%
<CAPTION>
Pegasus Michigan Municipal
Money Market Fund
-----------------------------------
Class A Class I
------- -------
<S> <C> <C>
YTD Ending 6/30/98 1.40% 1.53%
1 Year Annualized - 6/30/98 2.94% 3.19%
3 Year Annualized - 6/30/98 2.99% 3.14%
5 Year Annualized - 6/30/98 2.78% 2.87%
10 Year Annualized - 6/30/98 -- --
<CAPTION>
Pegasus Municipal Cash
Management Fund
-----------------------------------
Service Institutional
------- -------------
<S> <C> <C>
YTD Ending 6/30/98 1.50% 1.63%
1 Year Annualized - 6/30/98 -- --
3 Year Annualized - 6/30/98 -- --
5 Year Annualized - 6/30/98 -- --
10 Year Annualized - 6/30/98 -- --
</TABLE>
-B-4-
<PAGE> 210
<TABLE>
<CAPTION>
Pegasus Cash
Management Fund
-----------------------------------
Service Institutional
------- -------------
<S> <C> <C>
YTD Ending 6/30/98 2.55% 2.68%
1 Year Annualized - 6/30/98 5.22% 5.48%
3 Year Annualized - 6/30/98 5.14% 5.40%
5 Year Annualized - 6/30/98 -- 4.95%
10 Year Annualized - 6/30/98 -- --
<CAPTION>
Pegasus Treasury Cash
Management Fund
-----------------------------------
Service Institutional
------- -------------
<S> <C> <C>
YTD Ending 6/30/98 2.50% 2.62%
1 Year Annualized - 6/30/98 -- --
3 Year Annualized - 6/30/98 -- --
5 Year Annualized - 6/30/98 -- --
10 Year Annualized - 6/30/98 -- --
<CAPTION>
Pegasus Treasury Prime
Cash Management Fund
-----------------------------------
Service Institutional
------- -------------
<S> <C> <C>
YTD Ending 6/30/98 2.33% 2.46%
1 Year Annualized - 6/30/98 4.73% 4.99%
3 Year Annualized - 6/30/98 4.69% 4.95%
5 Year Annualized - 6/30/98 -- --
10 Year Annualized - 6/30/98 -- --
<CAPTION>
Pegasus U.S. Government
Cash Management Fund
-----------------------------------
Service Institutional
------- -------------
<S> <C> <C>
YTD Ending 6/30/98 2.52% 2.65%
1 Year Annualized - 6/30/98 5.16% 5.42%
3 Year Annualized - 6/30/98 5.06% 5.32%
5 Year Annualized - 6/30/98 -- 4.85%
10 Year Annualized - 6/30/98 -- --
</TABLE>
-B-5-
<PAGE> 211
<TABLE>
<CAPTION>
Pegasus Managed Assets One Group Investor
Conservative Fund Balanced Fund
-------------------------------------------------------------------
Class A with 5% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 5.26% 0.00% 8.86% 3.95%
1 Year Annualized - 6/30/98 11.44% 5.87% 16.62% 11.39%
3 Year Annualized - 6/30/98 13.54% 11.62% -- --
5 Year Annualized - 6/30/98 10.99% 9.85% -- --
10 Year Annualized - 6/30/98 12.02% 11.45% -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 4.86% -0.07% 5.39% 8.40% 3.40% 9.00%
1 Year Annualized - 6/30/98 10.60% 6.93% 11.68% 15.85% 11.85% 17.02%
3 Year Annualized - 6/30/98 12.71% 11.92% 13.82% -- -- --
5 Year Annualized - 6/30/98 -- -- 11.20% -- -- --
10 Year Annualized - 6/30/98 -- -- 12.27% -- -- --
<CAPTION>
Pegasus Managed Assets One Group Investor
Balanced Fund Growth & Income Fund
---------------------- --------------------
Class A with 5% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 6.28% 0.97% 10.81%% 5.87%
1 Year Annualized - 6/30/98 12.72% 7.08% 20.18% 14.76%
3 Year Annualized - 6/30/98 14.66% 12.72% -- --
5 Year Annualized - 6/30/98 -- -- -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 5.87% 0.88% 6.35% 10.19% 5.19% 10.86%
1 Year Annualized - 6/30/98 11.93% 8.09% 12.93% 19.13% 15.13% 20.34%
3 Year Annualized - 6/30/98 12.62% 11.83% 14.87% -- -- --
5 Year Annualized - 6/30/98 -- -- -- -- -- --
<CAPTION>
Pegasus Managed Assets One Group Investor
Growth Fund Growth Fund
--------------------------------- ---------------
Class A with 5% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 7.09% 1.74% 12.75% 7.66%
1 Year Annualized - 6/30/98 13.57% 7.89% 23.44 17.87%
3 Year Annualized - 6/30/98 -- -- -- --
5 Year Annualized - 6/30/98 -- -- -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 6.69% 1.69 7.22% 12.37% 7.37% 12.90%
1 Year Annualized - 6/30/98 12.73% 8.73% 13.86% 22.52% 18.52% 23.81%
3 Year Annualized - 6/30/98 -- -- -- -- -- --
5 Year Annualized - 6/30/98 -- -- -- -- -- --
</TABLE>
-B-6-
<PAGE> 212
<TABLE>
<CAPTION>
Pegasus Equity One Group Income
Income Fund Equity Fund
-----------------------------------------------------------------------------
Class A with 5% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 3.49% -1.68% 12.52% 7.46%
1 Year Annualized - 6/30/98 14.13% 8.43% 22.91% 17.39%
3 Year Annualized - 6/30/98 20.05% 18.02% 25.82% 23.91%
5 Year Annualized - 6/30/98 14.77% 13.60% 19.89% 18.79%
10 Year Annualized - 6/30/98 13.47% 12.89% -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 3.21% -1.57% 3.67% 12.18% 7.18% 12.69%
1 Year Annualized - 6/30/98 13.42% 9.96% 14.50% 21.97% 17.97% 23.18%
3 Year Annualized - 6/30/98 19.20% 18.49% 20.47% 24.92% 24.28% 26.16%
5 Year Annualized - 6/30/98 14.21% 14.10% 15.22% -- -- 20.21%
10 Year Annualized - 6/30/98 13.19% 13.19% 13.99% -- -- 16.29
<CAPTION>
Pegasus One Group Large
Growth Fund Company Growth Fund
-----------------------------------------------------------------------------
Class A with 5% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 20.40% 14.39% 24.37% 18.80%
1 Year Annualized - 6/30/98 31.35% 24.79% 35.43% 29.33%
3 Year Annualized - 6/30/98 28.17% 26.00% 28.01% 26.07%
5 Year Annualized - 6/30/98 20.20% 18.97% -- --
10 Year Annualized - 6/30/98 17.07% 16.47% -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 19.92% 14.92% 20.47% 23.87% 18.87% 24.51%
1 Year Annualized - 6/30/98 30.33% 26.33% 31.59% 34.39% 30.39% 35.75%
3 Year Annualized - 6/30/98 27.24% 26.62% 28.53% 27.25% 26.63% 28.48%
5 Year Annualized - 6/30/98 19.57% 19.48% 20.61% -- -- 22.79%
10 Year Annualized - 6/30/98 16.76% 16.76% 17.57% -- -- --
<CAPTION>
Pegasus Mid-Cap
Opportunity Fund
--------------------------------
Class A with 5% Load
------- ------------
<S> <C> <C>
YTD Ending 6/30/98 7.27% 1.91%
1 Year Annualized - 6/30/98 20.03% 14.03%
3 Year Annualized - 6/30/98 21.86% 19.80%
5 Year Annualized - 6/30/98 17.40% 16.20%
10 Year Annualized - 6/30/98 16.36% 15.77%
<CAPTION>
Class B with CDSC Class I
------- --------- -------
<S> <C> <C> <C>
YTD Ending 6/30/98 7.09% 3.22% 7.41%
1 Year Annualized - 6/30/98 19.76% 15.95% 20.29%
3 Year Annualized - 6/30/98 21.64% 20.96% 22.07%
5 Year Annualized - 6/30/98 17.26% 17.16% 17.51%
10 Year Annualized - 6/30/98 16.30% 16.30% 16.42%
</TABLE>
-B-7-
<PAGE> 213
<TABLE>
<CAPTION>
Pegasus Small-Cap
Opportunity Fund
--------------------------------
Class A with 5% Load
------- ------------
<S> <C> <C>
YTD Ending 6/30/98 5.45% 0.18%
1 Year Annualized - 6/30/98 19.25% 13.29%
3 Year Annualized - 6/30/98 26.09% 23.95%
5 Year Annualized - 6/30/98 15.86% 14.68%
10 Year Annualized - 6/30/98 16.64% 16.05%
<CAPTION>
Class B with CDSC Class I
------- --------- -------
<S> <C> <C> <C>
YTD Ending 6/30/98 5.07% 0.07% 5.58%
1 Year Annualized - 6/30/98 18.41% 14.41% 19.65%
3 Year Annualized - 6/30/98 25.39% 24.75% 26.75%
5 Year Annualized - 6/30/98 15.38% 15.27% 16.42%
10 Year Annualized - 6/30/98 16.40% 16.40% 17.23%
<CAPTION>
Pegasus Intrinsic One Group Disciplined
Value Fund Value Fund
----------------------------------------
Class A with 5% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 4.56% -0.66% 5.30% 0.56%
1 Year Annualized - 6/30/98 15.23% 9.47% 27.90% 22.13%
3 Year Annualized - 6/30/98 20.79% 18.74% 22.58% 20.72%
5 Year Annualized - 6/30/98 16.52% 15.33% 17.27% 16.19%
10 Year Annualized - 6/30/98 14.60% 14.01% -- --
<CAPTION>
Pegasus Intrinsic One Group Disciplined
Value Fund Value Fund
----------------------------------------
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 4.17% -0.83% 4.68% 4.92% -.08% 5.50%
1 Year Annualized - 6/30/98 14.35% 10.36% 15.49% 26.97% 22.97% 28.27%
3 Year Annualized - 6/30/98 20.20% 19.51% 20.97% 21.67% 20.99% 22.92%
5 Year Annualized - 6/30/98 16.18% 16.07% 16.63% -- -- 17.52%
10 Year Annualized - 6/30/98 14.43% 14.43% 14.65% -- -- --
<CAPTION>
Pegasus One Group
Growth and Value Fund Value Growth Fund
----------------------------------------
Class A with 5% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 8.22% 2.82% 17.16% 11.92%
1 Year Annualized - 6/30/98 18.52% 12.60% 31.96% 26.04%
3 Year Annualized - 6/30/98 23.04% 20.96% 28.05% 26.11%
5 Year Annualized - 6/30/98 17.80% 16.60% 19.48% 18.38%
10 Year Annualized - 6/30/98 14.66% 14.07% -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 7.91% 2.91% 8.33% 16.63% 11.63% 17.28%
1 Year Annualized - 6/30/98 17.76% 13.90% 18.79% 30.89% 26.89% 32.26%
3 Year Annualized - 6/30/98 22.12% 21.44% 23.23% 27.05% 26.43% 28.33%
5 Year Annualized - 6/30/98 17.27% 17.16% 17.91% -- -- 19.63%
10 Year Annualized - 6/30/98 14.40% 14.40% 14.71% -- -- --
</TABLE>
-B-8-
<PAGE> 214
<TABLE>
<CAPTION>
Pegasus Equity One Group Equity
Index Fund Index Fund
----------------------------------------------------------------------------
Class A with 3% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 17.30% 13.78% 17.28% 11.98%
1 Year Annualized - 6/30/98 29.46% 25.58% 29.33% 23.49%
3 Year Annualized - 6/30/98 29.68% 28.37% 29.42% 27.45%
5 Year Annualized - 6/30/98 22.62% 21.87% 22.29% 21.17%
10 Year Annualized - 6/30/98 18.14% 17.78% -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 16.89% 13.89% 17.46% 16.85% 11.85% 17.46%
1 Year Annualized - 6/30/98 28.54% 25.54% 29.81% 28.47% 24.47% 29.73%
3 Year Annualized - 6/30/98 28.43% 28.02% 29.86% 28.43% 27.82% 29.79%
5 Year Annualized - 6/30/98 21.91% 21.91% 22.72% -- -- 22.58%
10 Year Annualized - 6/30/98 17.80% 17.80% 18.19% -- -- --
<CAPTION>
Pegasus International
Equity Fund
--------------------------------
Class A with 5% Load
------- ------------
<S> <C> <C>
YTD Ending 6/30/98 13.50% 7.83%
1 Year Annualized - 6/30/98 7.03% 1.68%
3 Year Annualized - 6/30/98 10.24% 8.38%
5 Year Annualized - 6/30/98 10.17% 9.04%
10 Year Annualized - 6/30/98 7.14% 6.60%
<CAPTION>
Class B with CDSC Class I
------- --------- -------
<S> <C> <C> <C>
YTD Ending 6/30/98 12.52% 7.52% 13.60%
1 Year Annualized - 6/30/98 5.89% 1.89% 7.27%
3 Year Annualized - 6/30/98 9.31% 8.47% 10.48%
5 Year Annualized - 6/30/98 9.61% 9.47% 10.31%
10 Year Annualized - 6/30/98 6.87% 6.87% 7.21%
<CAPTION>
Pegasus One Group Intermediate
Intermediate Bond Fund Bond Fund
---------------------- -----------------------------
Class A with 3% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 3.24% 0.15% 3.65% -1.06%
1 Year Annualized - 6/30/98 8.23% 4.99% 8.47% 3.58%
3 Year Annualized - 6/30/98 7.82% 6.74% 6.87% 5.25%
5 Year Annualized - 6/30/98 6.14% 5.50% -- --
10 Year Annualized - 6/30/98 8.06% 7.73% -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 2.90% -0.10% 3.37% 3.32% -1.68% 3.76%
1 Year Annualized - 6/30/98 7.50% 4.50% 8.50% 7.78% 3.78% 8.71%
3 Year Annualized - 6/30/98 7.44% 6.86% 8.02% 6.23% 5.33% 7.10%
5 Year Annualized - 6/30/98 5.92% 5.92% 6.26% -- -- 6.08%
10 Year Annualized - 6/30/98 7.94% 7.94% 8.12% -- -- --
</TABLE>
-B-9-
<PAGE> 215
<TABLE>
<CAPTION>
Pegasus
Bond Fund
--------------------------------
Class A with 5% Load
------- ------------
<S> <C> <C>
YTD Ending 6/30/98 3.72% -0.95%
1 Year Annualized - 6/30/98 10.35% 5.38%
3 Year Annualized - 6/30/98 8.79% 7.13%
5 Year Annualized - 6/30/98 7.13% 6.15%
10 Year Annualized - 6/30/98 9.13% 8.63%
<CAPTION>
<CAPTION>
Class B with CDSC Class I
------- --------- -------
<S> <C> <C> <C>
YTD Ending 6/30/98 3.33% -1.67% 3.84%
1 Year Annualized - 6/30/98 9.54% 5.54% 10.63%
3 Year Annualized - 6/30/98 8.42% 7.56% 8.97%
5 Year Annualized - 6/30/98 6.91% 6.76% 7.24%
10 Year Annualized - 6/30/98 9.02% 9.02% 9.19%
<CAPTION>
Pegasus Short One Group Limited
Bond Fund Volatility Bond Fund
---------------------- -----------------------------
Class A with 1% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 2.70% 1.68% 3.16% 0.10%
1 Year Annualized - 6/30/98 6.02% 4.96% 6.32% 3.16%
3 Year Annualized - 6/30/98 5.66% 5.31% 5.88% 4.80%
5 Year Annualized - 6/30/98 5.07% 4.86% 5.13% 4.49%
10 Year Annualized - 6/30/98 6.79% 6.69% -- --
<CAPTION>
--------------------------------------------------------------------------------
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 2.33% 1.33% 2.83% 2.91% -0.09% 3.29%
1 Year Annualized - 6/30/98 5.25% 4.25% 6.28% 5.98% 2.98% 6.59%
3 Year Annualized - 6/30/98 5.14% 5.14% 5.83% 5.33% 5.03% 6.16%
5 Year Annualized - 6/30/98 4.76% 4.76% 5.17% -- -- 5.41%
10 Year Annualized - 6/30/98 6.64% 6.64% 6.85% -- -- --
<CAPTION>
Pegasus Multi Sector One Group Income
Bond Fund Bond Fund
---------------------- -----------------------------
Class A with 3% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 3.86% 0.74% 3.65% -1.05%
1 Year Annualized - 6/30/98 10.19% 6.89% 7.82% 3.00%
3 Year Annualized - 6/30/98 7.16% 6.08% 6.63% 5.00%
5 Year Annualized - 6/30/98 6.58% 5.93% 5.60% 4.63%
10 Year Annualized - 6/30/98 -- -- -- --
<CAPTION>
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 3.53% 0.53% 4.02% 3.32% -1.68% 3.67%
1 Year Annualized - 6/30/98 9.43% 6.43% 10.50% 7.13% 3.13% 7.97%
3 Year Annualized - 6/30/98 6.41% 5.82% 7.48% 5.96% 5.07% 6.89%
5 Year Annualized - 6/30/98 6.11% 6.11% 6.80% -- -- 5.85%
10 Year Annualized - 6/30/98 -- -- -- -- -- 7.63%
</TABLE>
-B-10-
<PAGE> 216
<TABLE>
<CAPTION>
Pegasus High Yield
Bond Fund
--------------------------------
Class A with 4.5% Load
------- --------------
<S> <C> <C>
YTD Ending 6/30/98 3.88% -0.80%
1 Year Annualized - 6/30/98 8.23% 3.36%
3 Year Annualized - 6/30/98 -- --
5 Year Annualized - 6/30/98 -- --
10 Year Annualized - 6/30/98 -- --
<CAPTION>
Class B with CDSC Class I
------- --------- -------
<S> <C> <C> <C>
YTD Ending 6/30/98 3.86% -1.14% 4.08%
1 Year Annualized - 6/30/98 7.95% 3.95% 10.70%
3 Year Annualized - 6/30/98 -- -- --
5 Year Annualized - 6/30/98 -- -- --
10 Year Annualized - 6/30/98 -- -- --
<CAPTION>
Pegasus Municipal Bond
Fund
--------------------------------
Class A with 4.5% Load
------- --------------
<S> <C> <C>
YTD Ending 6/30/98 2.19% -2.41%
1 Year Annualized - 6/30/98 8.26% 3.39%
3 Year Annualized - 6/30/98 6.99% 5.36%
5 Year Annualized - 6/30/98 6.59% 5.62%
10 Year Annualized - 6/30/98 8.54% 8.04%
<CAPTION>
Pegasus Municipal Bond Fund
--------------------------------
Class B with CDSC Class I
------- --------- -------
<S> <C> <C> <C>
YTD Ending 6/30/98 1.82% -3.17% 2.33%
1 Year Annualized - 6/30/98 7.47% 3.47% 8.54%
3 Year Annualized - 6/30/98 6.16% 5.27% 7.32%
5 Year Annualized - 6/30/98 -- -- 6.88%
10 Year Annualized - 6/30/98 -- -- 8.82%
</TABLE>
-B-11-
<PAGE> 217
<TABLE>
<CAPTION>
Pegasus Intermediate One Group Intermediate
Municipal Bond Fund Tax-Free Bond Fund
------------------------------- ------------------------------------
Class A with 3% Load Class A with Sales Charge
------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
YTD Ending 6/30/98 1.95% -1.10% 2.32% -2.24%
1 Year Annualized - 6/30/98 6.64% 3.44% 7.50% 2.70%
3 Year Annualized - 6/30/98 5.78% 4.71% 6.71% 5.09%
5 Year Annualized - 6/30/98 5.35% 4.71% 5.22% 4.26%
10 Year Annualized - 6/30/98 7.25% 6.92% -- --
<CAPTION>
--------------------------------------------------------------------------------
Class B with CDSC Class I Class B with Sales Charge Class I
------- --------- ------- ------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 1.58% -1.42% 2.08% 1.99% -3.01% 2.43%
1 Year Annualized - 6/30/98 5.84% 2.84% 6.90% 6.81% 2.81% 7.74%
3 Year Annualized - 6/30/98 4.92% 4.31% 6.06% 6.03% 5.13% 6.96%
5 Year Annualized - 6/30/98 4.79% 4.79% 5.69% -- -- 5.46%
10 Year Annualized - 6/30/98 6.96% 6.96% 7.55% -- -- --
<CAPTION>
Pegasus Michigan Municipal One Group Intermediate
Bond Fund Bond Fund
------------------------------------ --------------------------------------
Class A with 4.5% Load Class B with CDSC Class I
------- -------------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
YTD Ending 6/30/98 2.47% -2.14% 2.15% -2.85% 2.59%
1 Year Annualized - 6/30/98 8.44% 3.57% 7.70% 3.70% 8.71%
3 Year Annualized - 6/30/98 7.28% 5.64% 6.74% 5.85% 7.45%
5 Year Annualized - 6/30/98 5.97% 5.00% 5.65% 5.49% 6.07%
10 Year Annualized - 6/30/98 -- -- -- -- --
<CAPTION>
Class B With CDSC Class I
------- --------- -------
<S> <C> <C> <C>
YTD Ending 6/30/98 2.15% -2.85% 2.59%
1 Year Annualized - 6/30/98 7.70% 3.70% 8.71%
3 Year Annualized - 6/30/98 6.74% 5.85% 7.45%
5 Year Annualized - 6/30/98 5.65% 5.49% 6.07%
10 Year Annualized - 6/30/98 -- -- --
</TABLE>
The Pegasus Market Expansion Index Fund and the Pegasus Short Municipal
Bond Fund have been excluded from the tables because they have recently
commenced investment operations. Although performance numbers are provided for
the Pegasus Intermediate Bond Fund and Pegasus Multi-Sector Bond Fund, and the
corresponding One Group Funds, Pegasus's performance history for these funds
survives the Reorganization.
-B-12-
<PAGE> 218
<TABLE>
<CAPTION>
The One Group U.S. Treasury Securities Money Market Fund / Pegasus Treasury Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
---------- --------- --------- ------------------------------------------------------------ ---------- ----------- ------------
U.S. Treasury Obligations (21.4%):
U.S. Treasury Bills (2.0%):
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ $100,000 11/12/98 $ $ 98,042 $ 98,042
---------- ----------- -----------
0 98,042 98,042
---------- ----------- -----------
U.S. Treasury Notes (19.4%):
120,000 120,000 5.25%, 7/31/98 (b) 119,966 119,966
20,000 20,000 6.25%, 7/31/98 20,009 20,009
95,000 95,000 6.13%, 8/31/98 (b) 95,058 95,058
10,000 10,000 4.75%, 9/30/98 9,976 9,976
50,000 50,000 5.88%, 10/31/98 50,046 50,046
40,000 40,000 5.13%, 11/30/98 39,907 39,907
40,000 40,000 8.88%, 2/15/99 40,799 40,799
50,000 50,000 8.88%, 2/15/99 (b) 51,003 51,003
50,000 50,000 5.88%, 2/28/99 50,102 50,102
50,000 50,000 6.25%, 3/31/99 (b) 50,264 50,264
140,000 140,000 7.00%, 4/15/99 141,518 141,518
40,000 40,000 6.50%, 4/30/99 40,303 40,303
100,000 100,000 6.38%, 5/15/99 100,588 100,588
50,000 50,000 6.00%, 6/30/99 50,246 50,246
---------- ----------- -----------
201,240 658,545 859,785
---------- ----------- -----------
Total U.S. Treasury Obligations 201,240 756,587 957,827
---------- ----------- -----------
Repurchase Agreements (80.1%):
30,000 30,000 Aubrey Langston, 5.50%, 7/1/98 (Collateralized by various
U.S. Treasury Notes, 5.38% - 7.75%, 1/31/00 - 10/31/00) 30,000 30,000
150,000 150,000 Barclays De Zoette Wedd, 5.80% 7/1/98 (Collateralized by
$182,288 various U.S. Treasury Securities, 0.00% - 12.50%,
10/29/98 - 4/15/28, market value $153,000) 150,000 150,000
30,000 30,000 Barclays Inc., 5.50%, 7/1/98 (Collateralized by various U.S.
Treasury Notes, 6.13% - 6.75%, 6/30/99 - 7/31/00) 30,000 30,000
168,000 168,000 Bear Stearns & Co., Inc., 5.90%, 7/1/98 (Collateralized by
various U.S. Treasury Obligations, 0.00% - 8.88%, 8/15/98 -
5/15/08) 168,000 168,000
150,000 150,000 Deutche Morgan Grenfell, 6.00%, 7/1/98 (Collateralized by
$145,118 various U.S. Treasury Securities, 5.00% - 14.00%,
2/15/99 - 11/15/11, market value $153,001) 150,000 150,000
30,000 30,000 Deutche Morgan Grenfell, 5.50%, 7/1/98 (Collateralized by
$29,024 various U.S. Treasury Securities, 5.00% - 14.00%,
2/15/99 - 11/15/11, market value $30,600) 30,000 30,000
36,000 36,000 Dresdner Inc., 5.40%, 7/1/98 (Collateralized by U.S. Treasury
Note, 4.75%, 9/30/98) 36,000 36,000
47,000 47,000 First Union Capital Markets, 6.00%, 7/1/98 (Collateralized by
various U.S. Treasury Notes, 5.75% - 6.25%, 12/31/98 - 2/15/07) 47,000 47,000
47,000 47,000 Goldman Sachs Agency, 5.50%, 7/1/98 (Collateralized by
U.S. Treasury Notes, 5.63%, 5/15/03) 47,000 47,000
901,953 901,953 Goldman Sachs, 5.80%, 7/1/98 (Collateralized by $1,051,085
various U.S. Treasury Securities, 0.00% - 7.13%, 12/3/98 -
11/15/27, market value $919,992) 901,953 901,953
50,000 50,000 Goldman Sachs, 5.50%, 7/1/98 (Collateralized by $58,267
various U.S. Treasury Securities, 0.00% - 7.13%, 12/3/98 -
11/15/27, market value $51,000) 50,000 50,000
150,000 150,000 Greenwich Capital Inc., 5.75%, 7/1/98 (Collateralized by
$148,673 various U.S. Treasury Securities, 3.38% - 6.50%,
7/15/02 - 4/15/28, market value $153,002) 150,000 150,000
48,000 48,000 Greenwich Capital Markets, Inc., 5.80%, 7/1/98 (Collateralized by
various U.S. Treasury Obligations, 0.00%, 8/15/98 - 2/15/98) 48,000 48,000
241,000 241,000 H.S.B.C. Treasury, 5.70%, 7/1/98 (Collateralized by U.S.
Treasury Notes, 5.88% - 6.88%, 8/31/98 - 3/31/00) 241,000 241,000
150,000 150,000 HSBC Securities, 5.80%, 7/1/98 (Collateralized by $108,107
various U.S. Treasury Securities, 9.00% - 9.25%, 2/15/16 -
11/15/18, market value $153,001) 150,000 150,000
150,000 150,000 J.P. Morgan Securities, 5.80%, 7/1/98 (Collateralized by
$140,384 various U.S. Treasury Securities, 5.50% - 8.13%,
</TABLE>
<PAGE> 219
<TABLE>
<CAPTION>
The One Group U.S. Treasury Securities Money Market Fund / Pegasus Treasury Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
---------- --------- --------- ------------------------------------------------------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
7/31/99 - 8/15/19, market value $153,001) 150,000 150,000
25,000 25,000 J.P. Morgan Securities, 5.40%, 7/1/98 (Collateralized by
$24,750 U.S. Treasury Notes, 6.25%, 10/31/01, market value
$25,501) 25,000 25,000
24,000 24,000 Morgan Stanley Government Collateralized, 5.70%, 7/1/98
(Collateralized by U.S. Treasury Bill, 0.00%, 12/10/98) 24,000 24,000
900,000 900,000 Morgan Stanley, 5.73%, 7/1/98 (Collateralized by $856,187
various U.S. Treasury Securities, 0.00% - 10.38%, 8/15/98 -
8/15/23, market value $918,036) 900,000 900,000
47,000 47,000 NationsBank Capital Markets, Inc., 5.90%, 7/1/98
(Collateralized by various U.S. Treasury Obligations, 0.00% -
12.00%, 8/15/03 - 5/15/08) 47,000 47,000
47,000 47,000 Nomura, 6.00%, 7/1/98 (Collateralized by U.S. Treasury
Obligations, 0.00% - 6.25%, 2/15/00 - 2/15/08) 47,000 47,000
2,085 2,085 Prudential, 5.45%, 7/1/98 (Collateralized by U.S. Treasury
Note, 7.88%, 8/15/01) 2,085 2,085
150,000 150,000 Prudential Securities, 5.65%, 7/1/98 (Collateralized by
$141,514 various U.S. Treasury Securities, 0.00% - 13.38%,
7/31/98 - 2/15/25, market value $153,001) 150,000 150,000
47,000 47,000 Salomon Brothers, Inc., 5.95%, 7/1/98 (Collateralized by
various U.S. Treasury Obligations, 0.00% - 12.00%, 8/15/98 -
5/15/08) 47,000 47,000
45,000 45,000 Societe Generale Treasury, 6.00%, 7/1/98 (Collateralized by
various U.S. Treasury Obligations, 0.00% - 9.05%, 7/1/98 -
5/12/04) 45,000 45,000
150,000 150,000 Societe Generale, 6.00%, 7/1/98 (Collateralized by $149,146
various U.S. Treasury Securities, 5.88% - 11.75%, 4/30/99 -
2/15/15, market value $153,021) 150,000 150,000
150,000 150,000 Westdeutsche Landesbank, 5.70%, 7/1/98 (Collateralized by
$108,800 various U.S. Treasury Securities, 5.38% - 14.00%,
2/15/01 - 11/15/11, market value $153,001) 150,000 150,000
30,000 30,000 Westdeutsche Landesbank, 5.50%, 7/1/98 (Collateralized by
$21,760 various U.S. Treasury Securities, 5.38% - 14.00%,
2/15/01 - 11/15/11, market value $30,616) 30,000 30,000
---------- ----------- -----------
Total Repurchase Agreements 859,085 3,136,953 3,996,038
---------- ----------- -----------
Short-Term Securities Held as Collateral (5.2%):
Repurchase Agreements
203,538 203,538 Goldman Sachs, 5.80%, 7/1/98 (Collateralized by $205,585
U.S. Treasury Notes, 5.63%, 5/15/01, market value
$207,609) 203,538 203,538
52,125 52,125 Goldman Sachs, 5.20%, 7/1/98 (Collateralized by $48,403
U.S. Treasury Notes, 5.63%, 5/15/01, market value $53,168) 52,125 52,125
---------- ----------- -----------
Total Short-Term Securities Held as Collateral - 255,663 255,663
---------- ----------- -----------
Total (Amortized Cost $5,209,528) (a) $1,060,325 $ 4,149,203 $ 5,209,528
========== =========== ===========
</TABLE>
____________
Percentages indicated are based on net assets of $4,949,726.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
(b) A portion of this security was loaned as of June 30, 1998.
<PAGE> 220
<TABLE>
<CAPTION>
The One Group Prime Money Market Fund / Pegasus Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
- --------- --------- --------- ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bankers Acceptance Notes (0.3%)
$ 8,000 $ $ 8,000 Abbey National Treasury, 5.72%, 6/11/99 $ 7,994 $ $ 7,994
12,200 12,200 National Australia, 6.00%, 3/26/99 12,222 12,222
--------- -------- --------
Total Bankers Acceptance Notes 20,216 - 20,216
--------- -------- --------
Certificates of Deposit (10.0%):
Banking (10.0%):
25,000 25,000 Bankers Trust New York Corp., 6.00%, 7/7/98 25,000 25,000
25,000 25,000 Bankers Trust New York Corp., 5.88%, 7/14/98 25,000 25,000
20,000 20,000 Bankers Trust New York Corp., 5.92%, 7/17/98 20,000 20,000
25,000 25,000 Bankers Trust New York Corp., 5.91%, 8/7/98 24,999 24,999
25,000 25,000 Bankers Trust New York Corp., 5.77%, 5/21/99 24,989 24,989
15,500 15,500 Banque Nationale De Paris, 5.82%, 10/5/98 15,495 15,495
27,000 27,000 Banque Nationale De Paris, 5.65%, 2/26/99 26,991 26,991
20,000 20,000 Bayerische Wechsel Bank, 5.94%, 10/22/98 19,996 19,996
18,000 18,000 Canadian Imperial Bank of Commerce, 5.94%, 10/21/98 17,997 17,997
27,000 27,000 Commerzbank AG, 5.89, 7/9/98 27,000 27,000
14,000 14,000 Commerzbank AG, 5.94, 10/23/98 13,997 13,997
7,000 7,000 Commerzbank AG, 5.65, 2/26/99 6,998 6,998
15,000 15,000 Commerzbank AG, 5.67, 3/5/99 14,994 14,994
30,000 30,000 Credit Agricole Indosuez, 5.75%, 4/26/99 29,988 29,988
10,000 10,000 Crestar Bank, 5.55%, 7/8/98 10,000 10,000
22,000 22,000 Deutsche Bank, 5.80%, 8/5/98 21,999 21,999
15,000 15,000 Deutsche Bank, 5.66%, 4/14/99 14,988 14,988
38,500 38,500 Generale Bank, 6.02%, 12/16/98 38,503 38,503
26,000 26,000 Norddeutsche Landesbank Girozentrale, 5.92%, 10/21/98 25,996 25,996
23,000 23,000 Norddeutsche Landesbank Girozentrale, 5.72%, 4/16/99 22,985 22,985
14,000 14,000 Royal Bank of Canada, 5.96%, 8/13/98 13,999 13,999
19,000 19,000 Societe Generale, 5.95%, 8/28/98 18,998 18,998
20,000 20,000 Societe Generale, 5.92%, 10/21/98 19,997 19,997
10,000 10,000 Societe Generale, 5.58%, 1/22/99 9,992 9,992
25,000 25,000 Standard Charter Bank, 5.58%, 7/10/98 25,000 25,000
32,000 32,000 Swiss Bank Corp., 5.88%, 11/19/98 31,998 31,998
19,000 19,000 Swiss Bank Corp., 5.74%, 6/11/99 18,990 18,990
23,000 23,000 Westpac Banking Corp., 5.73%, 4/16/99 22,994 22,994
--------- -------- --------
Total Certificates of Deposit 469,895 119,988 589,883
--------- -------- --------
Commercial Paper (49.7%):
Automotive (3.4%):
30,000 30,000 American Honda Finance Corp., 5.49%, 7/22/98 29,903 29,903
23,400 23,400 Harley-Davidson Funding, 5.53%, 7/9/98 23,371 23,371
10,000 10,000 Harley-Davidson Funding, 5.55%, 7/10/98 9,986 9,986
12,320 12,320 Harley-Davidson Funding, 5.54%, 7/13/98 12,297 12,297
10,445 10,445 Harley-Davidson Funding, 5.54%, 7/16/98 10,421 10,421
15,450 15,450 Harley-Davidson Funding, 5.56%, 7/23/98 15,398 15,398
17,600 17,600 Harley-Davidson Funding, 5.55%, 7/24/98 17,538 17,538
8,300 8,300 Harley-Davidson Funding, 5.56%, 8/13/98 8,245 8,245
14,300 14,300 Harley-Davidson Funding, 5.58%, 8/18/98 14,194 14,194
22,500 22,500 Harley-Davidson Funding, 5.55%, 9/16/98 22,233 22,233
20,000 20,000 Volkswagen of America, 5.53%, 7/14/98 19,960 19,960
20,000 20,000 Volkswagen of America, 5.55%, 7/16/98 19,954 19,954
--------- -------- --------
39,914 163,586 203,500
--------- -------- --------
Banking (7.4%):
50,000 50,000 AB Spintab, 5.55%, 8/20/98 49,615 49,615
25,000 25,000 AB Spintab, 5.53%, 12/2/98 24,409 24,409
50,000 50,000 AB Spintab, 5.52%, 12/10/98 48,758 48,758
25,000 25,000 AB Spintab, 5.55%, 12/28/98 24,306 24,306
30,000 30,000 Banca Serfin S.A., 5.65%, 8/31/98 29,713 29,713
13,150 13,150 Banco Buenos Aires S.A., 5.47%, 9/17/98 12,994 12,994
12,500 12,500 Banco Real S.A., 5.54%, 8/14/98 12,415 12,415
50,000 50,000 Banco Rio de la Plata S.A., 5.47%, 12/7/98 48,794 48,794
48,500 48,500 Banco Rio de la Plata S.A., 5.46%, 12/8/98 47,323 47,323
25,573 25,573 Barton Capital Corp., 5.55%, 7/17/98 25,510 25,510
</TABLE>
See notes to financial statements.
<PAGE> 221
<TABLE>
<CAPTION>
The One Group Prime Money Market Fund / Pegasus Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
- --------- --------- --------- ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
22,107 22,107 KZH Holding Corp., 5.65%, 7/17/98 22,051 22,051
24,054 24,054 KZH Holding Corp., 5.58%, 8/18/98 23,875 23,875
15,986 15,986 KZH Holding Corp., 5.56%, 9/1/98 15,833 15,833
50,000 50,000 Norwest Corp., 6.25%, 7/1/98 49,999 49,999
--------- -------- --------
142,391 293,204 435,595
--------- -------- --------
Brokerage Services (2.5%):
50,000 50,000 Lehman Brothers Holdings, Inc., 5.52%, 7/15/98 49,892 49,892
50,000 50,000 Lehman Brothers Holdings, Inc., 5.45%, 8/19/98 49,629 49,629
50,000 50,000 Salomon Smith Barney Holdings, 5.52%, 8/11/98 49,686 49,686
--------- -------- --------
- 149,207 149,207
--------- -------- --------
Construction (0.6%):
34,000 34,000 Cemex, S.A. de CV, 5.42%, 7/30/98 33,852 33,852
--------- -------- --------
- 33,852 33,852
--------- -------- --------
Energy (0.6%)
15,000 15,000 Atlantic Richfield Corp., 5.55%, 9/14/98 14,827 14,827
20,000 20,000 Explorer Pipeline Co., 5.55%, 7/22/98 19,935 19,935
--------- -------- --------
34,762 - 34,762
--------- -------- --------
Financial Services (19.8%):
17,550 17,550 Ace Overseas Corp., 5.60%, 7/10/98 17,525 17,525
32,000 32,000 Ace Overseas Corp., 5.62%, 7/17/98 31,920 31,920
10,000 10,000 Aesop Funding Corp., 5.60%, 8/20/98 9,922 9,922
110,000 110,000 Aspen Funding Corp., 6.50%, 7/1/98 110,000 110,000
5,000 5,000 Avnet Inc., 5.50%, 7/24/98 4,982 4,982
16,762 16,762 Block Financial Corp., 5.53%, 7/22/98 16,708 16,708
14,000 14,000 Block Financial Corp., 5.53%, 8/27/98 13,877 13,877
50,000 50,000 Cargill Inc., 6.10%, 7/1/98 50,000 50,000
36,000 36,000 Cassie Des Depots Et Cosignations, 6.25%, 7/1/98 36,000 36,000
25,000 25,000 Cendant Residential Inc., 5.60%, 7/27/98 24,899 24,899
19,595 19,595 Centre Square Funding Corp., 5.65%, 7/27/98 19,515 19,515
32,242 32,242 Centric Capital Corp., 5.55%, 7/20/98 32,148 32,148
13,000 13,000 Centric Capital Corp., 5.71%, 9/2/98 12,870 12,870
15,000 15,000 Commercial Credit Co., 5.56%, 7/21/98 14,954 14,954
15,000 15,000 Commercial Credit Co., 5.56%, 7/24/98 14,947 14,947
47,550 47,550 Corporate Receivables Corp., 5.55%, 7/17/98 47,433 47,433
10,000 10,000 Dairy Investments LTD., 5.55%, 7/29/98 9,957 9,957
10,000 10,000 Dairy Investments LTD., 5.55%, 8/11/98 9,937 9,937
10,000 10,000 Equipment Funding Inc., 5.56%, 7/2/98 9,998 9,998
12,000 12,000 Equipment Funding Inc., 5.56%, 7/7/98 11,989 11,989
18,000 18,000 Glencore Asset Funding, 5.65%, 7/23/98 17,938 17,938
9,000 9,000 Glencore Asset Funding, 5.70%, 7/24/98 8,967 8,967
10,000 10,000 Greenwich Funding Corp., 5.50%, 7/15/98 9,979 9,979
40,000 40,000 Greyhawk Funding LLC., 5.75%, 7/23/98 39,859 39,859
23,000 23,000 Mont Blanc Capital Corp., 5.60%, 7/30/98 22,896 22,896
10,000 10,000 Monte Rose Capital Corp., 5.59%, 8/14/98 9,932 9,932
11,500 11,500 Old Line Funding Corp., 5.60%, 7/14/98 11,477 11,477
39,450 39,450 Old Line Funding Corp., 5.60%, 7/15/98 39,364 39,364
10,053 10,053 Old Line Funding Corp., 5.60%, 7/16/98 10,030 10,030
95,000 95,000 Prudential Funding Corp., 6.00%, 7/1/98 95,000 95,000
17,000 17,000 Sheffield Receivables Corp., 5.56%, 8/25/98 16,856 16,856
25,000 25,000 Siebe PLC, 5.55%, 7/23/98 24,915 24,915
22,000 22,000 Siebe PLC, 5.54%, 7/28/98 21,909 21,909
23,000 23,000 Sigma Finance Inc., 5.56%, 8/13/98 22,847 22,847
29,000 29,000 Special Purpose Account Receivable Coop Corp., 5.50%,
7/8/98 28,969 28,969
21,000 21,000 Special Purpose Account Receivable Coop Corp., 5.55%,
7/16/98 20,951 20,951
10,400 10,400 Sun Belt Dix, Inc., 5.55%, 7/21/98 10,368 10,368
27,000 27,000 Sun Belt Dix, Inc., 5.55%, 8/25/98 26,771 26,771
20,000 20,000 Sun Belt Dix, Inc., 5.55%, 9/1/98 19,809 19,809
13,000 13,000 TI Group, Inc., 5.45%, 7/7/98 12,988 12,988
18,186 18,186 Twin Towers, Inc., 5.55%, 7/20/98 18,133 18,133
9,000 9,000 UNUM Corp., 5.60%, 7/21/98 8,972 8,972
38,766 38,766 Variable Funding Capital Corp., 5.57%, 8/18/98 38,478 38,478
</TABLE>
See notes to financial statements.
<PAGE> 222
<TABLE>
<CAPTION>
The One Group Prime Money Market Fund / Pegasus Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
- --------- --------- --------- ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
15,000 15,000 WCP Funding, Inc., 5.53%, 7/7/98 14,986 14,986
25,000 25,000 WCP Funding, Inc., 5.50%, 7/14/98 24,950 24,950
25,000 25,000 WCP Funding, Inc., 5.53%, 7/23/98 24,916 24,916
25,000 25,000 WCP Funding, Inc., 5.53%, 7/29/98 24,892 24,892
20,000 20,000 Windmill Funding Corp., 5.50%, 7/13/98 19,963 19,963
14,000 14,000 Wood Street Funding Inc., 5.57%, 7/6/98 13,989 13,989
16,000 16,000 Wood Street Funding Inc., 5.56%, 7/13/98 15,970 15,970
--------- -------- --------
890,684 285,971 1,176,655
--------- -------- --------
Gas & Electric Utility (1.5%):
53,897 53,897 Cogentrix of Richmond, 5.65%, 7/23/98 53,711 53,711
13,000 13,000 Duke Capital Corp., 5.54%, 7/2/98 12,998 12,998
21,000 21,000 Duke Capital Corp., 5.54%, 7/16/98 20,952 20,952
--------- -------- --------
- 87,661 87,661
--------- -------- --------
Industrial Goods & Services (0.3%):
15,000 15,000 Akzo Nobel, Inc., 5.49%, 7/6/98 14,989 14,989
--------- -------- --------
- 14,989 14,989
--------- -------- --------
Insurance (2.5%):
68,100 68,100 Safeco Credit Co., 5.56%, 7/8/98 68,026 68,026
20,000 20,000 Safeco Credit Co., 5.54%, 7/13/98 19,963 19,963
20,000 20,000 Safeco Credit Co., 5.55%, 7/23/98 19,932 19,932
25,000 25,000 Safeco Credit Co., 5.55%, 8/3/98 24,873 24,873
15,350 15,350 Safeco Credit Co., 5.58%, 9/21/98 15,155 15,155
--------- -------- --------
- 147,949 147,949
--------- -------- --------
Office Equipment & Services (2.1%):
37,000 37,000 Xerox Mexico SA de CV, 5.55%, 7/6/98 36,971 36,971
49,500 49,500 Xerox Mexico SA de CV, 5.63%, 7/29/98 49,283 49,283
36,500 36,500 Xerox Mexico SA de CV, 5.56%, 8/5/98 36,303 36,303
--------- -------- --------
- 122,557 122,557
--------- -------- --------
Oil & Gas Exploration (2.1%):
50,000 50,000 Pemex Capital, Inc., 5.54%, 8/20/98 49,615 49,615
16,000 16,000 Petroleo Brasileiro SA, 5.52%, 8/26/98 15,863 15,863
30,000 30,000 Petroleo Brasileiro SA, 5.43%, 9/29/98 29,593 29,593
30,000 30,000 Petroleo Brasileiro SA, 5.40%, 11/30/98 29,316 29,316
--------- -------- --------
- 124,387 124,387
--------- -------- --------
Raw Materials (0.4%)
10,000 10,000 Akzo Nobel, Inc., 5.50%, 7/9/98 9,988 9,988
15,000 15,000 Great Lakes Chemical Corp., 5.53%, 8/14/98 14,899 14,899
--------- -------- --------
24,887 - 24,887
--------- -------- --------
Real Estate (4.6%):
46,385 46,385 75 State Street Capital Corp., 5.56%, 7/9/98 46,328 46,328
55,801 55,801 75 State Street Capital Corp., 5.57%, 7/10/98 55,724 55,724
24,654 24,654 75 State Street Capital Corp., 5.56%, 7/14/98 24,605 24,605
31,302 31,302 75 State Street Capital Corp., 5.58%, 7/16/98 31,229 31,229
18,500 18,500 Countrywide Home Loans, 5.55%, 7/16/98 18,457 18,457
25,000 25,000 Countrywide Home Loans, 5.54%, 8/12/98 24,838 24,838
40,000 40,000 Countrywide Home Loans, 5.54%, 8/26/98 39,655 39,655
35,000 35,000 Countrywide Home Loans, 5.53%, 9/2/98 34,661 34,661
--------- -------- --------
- 275,497 275,497
--------- -------- --------
Retail (1.9%):
25,000 25,000 Sotheby's, Inc., 5.55%, 7/1/98 25,000 25,000
25,000 25,000 Sotheby's, Inc., 5.56%, 7/13/98 24,954 24,954
25,000 25,000 Sotheby's, Inc., 5.56%, 7/20/98 24,927 24,927
10,000 10,000 Sotheby's, Inc., 5.56%, 8/3/98 9,949 9,949
</TABLE>
See notes to financial statements.
<PAGE> 223
<TABLE>
<CAPTION>
The One Group Prime Money Market Fund / Pegasus Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
- --------- --------- --------- ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
15,000 15,000 Sotheby's, Inc., 5.55%, 8/14/98 14,898 14,898
15,000 15,000 Sotheby's, Inc., 5.58%, 8/21/98 14,881 14,881
--------- --------- ---------
- 114,609 114,609
--------- --------- ---------
Total Commercial Paper 1,132,638 1,813,469 2,946,107
--------- --------- ---------
Corporate Notes & Bonds (9.3%):
Banking (2.2%):
25,000 25,000 Abbey National, 5.88%, 12/22/98 24,994 24,994
26,000 26,000 Abbey National, 5.72%, 6/11/99 25,981 25,981
30,000 30,000 CIT Group Holdings, Medium Term Note, 5.88%, 12/15/98 30,028 30,028
17,208 17,208 GE Engine Receivables Trust, (A/R), 5.73%, 2/14/00 17,208 17,208
20,000 20,000 Morgan Guaranty Trust Co., 5.93%, 8/31/98 20,002 20,002
7,000 7,000 Key Bank, Senior Note, 5.63%, 2/24/99 6,997 6,997
--------- --------- ---------
74,235 50,975 125,210
--------- --------- ---------
Brokerage Services (0.8%):
50,000 50,000 Bear Stearns Co., Inc., 5.63%, 5/14/99* 50,000 50,000
--------- --------- ---------
- 50,000 50,000
--------- --------- ---------
Computer Hardware (0.8%):
50,000 50,000 IBM Credit Corp., 5.45%, 2/18/99 49,962 49,962
--------- --------- ---------
- 49,962 49,962
--------- --------- ---------
Financial Services (5.5%)
4,613 4,613 Key Auto Finance, 5.84%, 1/5/99 4,613 4,613
125,000 125,000 Merrill Lynch Inc., (A/R), 6.85%, 7/1/98 125,000 125,000
20,000 20,000 Sigma Finance, Medium Term Note, 5.84%, 8/4/98 20,000 20,000
15,000 15,000 Sigma Finance, Medium Term Note, 5.95%, 10/20/98 15,000 15,000
35,000 35,000 Stats Trust 1998-C, (A/R), 5.77%, 4/13/99 35,000 35,000
10,000 10,000 Wachovia Bank, Medium Term Note, (A/R), 5.99%, 10/2/98 9,998 9,998
75,000 75,000 Wheels, Inc., Master Note, (A/R), 5.78%, 8/15/98 75,000 75,000
8,592 8,592 Wilmington Trust Co., Amtrak 93-A, (A/R), 1/1/11 8,592 8,592
10,102 10,102 Wilmington Trust Co., Amtrak 93-I, (A/R), 1/1/11 10,102 10,102
22,978 22,978 Wilmington Trust Co., Amtrak 93-B, (A/R), 1/1/13 22,978 22,978
--------- --------- ---------
326,283 - 326,283
--------- --------- ---------
Total Corporate Notes & Bonds 400,518 150,937 551,455
--------- --------- ---------
Funding Agreements (8.8%):
50,000 50,000 Allstate Life Insurance Co., 5.82%, 8/31/98* 50,000 50,000
160,000 160,000 General American Life Insurance Co., 5.85%, 12/21/98* 160,000 160,000
60,000 60,000 Peoples Security Life Insurance Co., 5.82%, 10/1/98* 60,000 60,000
60,000 60,000 Providian Life & Health Insurance Co., 5.82%, 11/1/98* 60,000 60,000
50,000 50,000 Providian Life & Health Insurance Co., 5.76%, 2/12/99* 50,000 50,000
40,000 40,000 Providian Life & Health Insurance Co., 5.89%, 7/1/98 40,000 40,000
50,000 50,000 Transamerica Life Insurance Co., 5.85, 12/9/02 50,000 50,000
25,000 25,000 Travelers Life Ins & Annuity Co., 5.85%, 11/6/98 25,000 25,000
25,000 25,000 Western & Southern Insurance Co., (A/R), 1/29/03 25,000 25,000
--------- --------- ---------
Total Funding Agreements 140,000 380,000 520,000
--------- --------- ---------
Master Notes (1.9%)
10,000 10,000 Allstate Life Insurance Co., 5.87%, 7/1/98 10,000 10,000
5,000 5,000 Commonwealth Life Insurance Co., 5.86%, 7/1/98 5,000 5,000
35,500 35,500 General American Life Funding Agr., 5.85%, 7/1/98 35,500 35,500
15,000 15,000 Paccar Leasing, 5.93%, 7/1/98 15,000 15,000
10,000 10,000 Peoples Security Life Insurance Co., 5.86%, 7/1/98 10,000 10,000
14,000 14,000 Sunamerica Life Insuarance co., 5.83%, 7/1/98 14,000 14,000
25,000 25,000 Sun Life Insurance Co. of America, 5.79%, 7/1/98 25,000 25,000
--------- --------- ---------
Total Master Notes 114,500 - 114,500
--------- --------- ---------
Time Deposits (4.9%)
40,000 40,000 ABN-Amro Bank N.V., 6.38%, 7/1/98 40,000 40,000
40,000 40,000 Bank of Tokyo - Mitsubishi, 6.75%, 7/1/98 40,000 40,000
100,000 100,000 BHF Bank AG, 6.25%, 7/1/98 100,000 100,000
25,000 25,000 National Australia Bank, 5.81%, 7/2/98 25,000 25,000
20,000 20,000 Norddeutsche Girozentrale Bank, 6.25%, 7/1/98 20,000 20,000
</TABLE>
See notes to financial statements.
<PAGE> 224
<TABLE>
<CAPTION>
The One Group Prime Money Market Fund / Pegasus Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
- --------- --------- --------- ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
65,000 65,000 Republic National Bank NY, 6.50%, 7/1/98 65,000 65,000
----------- --------- ---------
Total Time Deposits 290,000 - 290,000
----------- --------- ---------
U.S. Government Agency Securities (0.8%):
Student Loan Marketing Assoc. (0.8%):
50,000 50,000 5.32%, 9/28/98* 50,000 50,000
----------- --------- ---------
Total U.S. Government Agency Securities - 50,000 50,000
----------- --------- ---------
Yankee & Eurodollar (10.0%):
Banking (10.0%):
15,000 15,000 Bank of Montreal, 5.81%, 11/9/98 15,007 15,007
50,000 50,000 Bank of Nova Scotia, 5.89%, 12/15/98 50,002 50,002
25,000 25,000 Bayerische Landesbank, 5.81%, 12/17/98 24,992 24,992
30,000 30,000 Bayerische Verinsbank AG, 5.70%, 10/6/98 29,995 29,995
25,000 25,000 Canadian Imperial Bank of Commerce, 5.94%, 10/21/98 24,996 24,996
25,000 25,000 Canadian Imperial Bank of Commerce, 5.64%, 3/2/99 24,990 24,990
25,000 25,000 Canadian Imperial Bank of Commerce, 5.69%, 3/10/99 24,995 24,995
15,000 15,000 Den Danske Bank, 5.72%, 11/30/98 15,001 15,001
30,000 30,000 Deutsche Bank A.G., 5.66%, 3/26/99 29,988 29,988
25,000 25,000 Deutsche Bank A.G., 5.70%, 6/7/99 24,987 24,987
25,000 25,000 National Australia Bank, 5.74%, 10/13/98 24,997 24,997
27,000 27,000 National Westminster Bank, 5.71%, 4/16/99 26,991 26,991
26,000 26,000 Societe Generale, 5.86%, 7/21/98 25,998 25,998
25,000 25,000 Societe Generale, 5.97%, 9/15/98 24,998 24,998
25,000 25,000 Societe Generale, 5.86%, 11/18/98 25,008 25,008
25,000 25,000 Societe Generale, 5.88%, 12/16/98 24,997 24,997
25,000 25,000 Societe Generale, 5.73%, 3/29/99 24,991 24,991
25,000 25,000 Swiss Bank Corp., 5.90%, 8/28/98 24,998 24,998
75,000 75,000 Swiss Bank Corp., 5.83%, 12/16/98 75,018 75,018
25,000 25,000 Swiss Bank Corp., 5.64%, 2/26/99 24,992 24,992
25,000 25,000 Swiss Bank Corp., 5.81%, 4/29/99 24,988 24,988
----------- ---------- ---------
Total Yankee & Eurodollar - 592,929 592,929
----------- ---------- ---------
Repurchase Agreements (3.7%):
102,434 102,434 Prudential Securities, 6.10%, 7/1/98 (Collateralized by
$101,841 various U.S. Government Securities, 0.00% -
7.25%, 7/1/98 - 8/15/04, market value $104,484) 102,434 102,434
36,075 36,075 Lehman Brothers, 6.10%, 7/1/98 (Collateralized by various
U.S. Obligations, 0.00% - 9.00%, 7/1/98 - 5/12/04) 36,075 36,075
82,382 82,382 Smith Barney, Inc., 6.10%, 7/1/98 (Collateralized by U.S.
Treasury & Agency Obligations, 0.00% - 9.00%, 7/7/98 -
4/25/08) 82,382 82,382
----------- ---------- ---------
Total Repurchase Agreements 118,457 102,434 220,891
----------- ---------- ----------
Total (Amortized Cost $5,895,981) (a) $ 2,686,224 $3,209,757 $5,895,891
=========== ========== ==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $5,932,453.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate securities. The interest rate, which will change
periodically, is based upon an index of market rates the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
A/R Adjustable Rate
See notes to financial statements.
<PAGE> 225
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ ------ ------ ---------------------------------------------------- ----------- ----------- ----------
Daily Demand Notes (9.8%):
Alabama (0.4%):
<S> <C> <C> <C> <C> <C> <C>
$ $ 1,300 $ 1,300 Phenix City, IDR for Mead, AMT, 4.05%, 3/1/31, LOC:
Bayerische Landesbank* $ $ 1,300 $ 1,300
3,600 3,600 Phenix City, IDR for Mead, Series 93-A, AMT, 4.05%,
6/1/28, LOC: Toronto Dominion Bank* 3,600 3,600
---------- ---------- ---------
- 4,900 4,900
---------- ---------- ---------
Georgia (0.5%)
6,295 6,295 Burke County Development Authority, PCR, 3.75%, 7/1/24 6,295 - 6,295
---------- ---------- ---------
Idaho (1.1%):
7,915 7,915 Health Facility Authority Revenue, St. Lukes Regional
Medical Center Project, 3.75%, 5/1/22, LOC: Bayerische
Landesbank* 7,915 7,915
6,900 6,900 Health Facility Authority Revenue, St. Lukes Regional
Medical Center Project, 3.75%, 5/1/22, LOC: Bayerische
Landesbank* 6,900 6,900
---------- ---------- ---------
6,900 7,915 14,815
---------- ---------- ---------
Illinois (0.1%)
1,500 1,500 Southwestern Development Authority, AMT, 3.90%, 4/1/22 1,500 - 1,500
---------- ----------- ----------
Kansas (0.1%)
1,700 1,700 Butler County Solid Waste Disposal, 4.00%, 8/1/24, AMT 1,700 - 1,700
---------- ---------- ---------
Kentucky (0.7%):
5,200 5,200 Lexington Fayette Urban County Airport Revenue, AMT,
4.10%, 4/1/24, LOC: Credit Local De France* 5,200 5,200
4,900 4,900 Lexington Fayette Urban County Airport Revenue, 4.10%,
7/1/28, MBIA* 4,900 4,900
---------- ---------- ---------
- 10,100 10,100
Louisiana (0.4%)
2,900 2,900 Plaquemines Parish, Environmental Rev, AMT, 3.95%, 5/1/25 2,900 2,900
2,800 2,800 St. Charles Pollution Control Revenue, AMT, 3.90%, 11/1/21 2,800 2,800
---------- ---------- ---------
5,700 - 5,700
---------- ---------- ---------
Michigan (0.2%):
2,500 2,500 State Strategic Fund, Detroit Edison Project, 3.80%,
9/1/30, LOC: Barclay's Bank Plc* 0 2,500 2,500
---------- ---------- ---------
Nevada (0.9%)
8,700 8,700 Clark County Industrial Revenue, AMT, 3.95%, 12/1/22 8,700 8,700
3,000 3,000 Washoe County Water Facilities Revenue, AMT,
3.90%, 12/1/20 3,000 3,000
---------- ---------- ---------
11,700 - 11,700
---------- ---------- ---------
New York (0.0%):
500 500 New York, GO, Series B, 4.10%, 10/1/21, FGIC* - 500 500
---------- ---------- ---------
North Carolina (1.5%):
21,100 21,100 Person County Industrial and Pollution Control
Revenue, AMT, 3.95%, 11/1/16, LOC: Suntrust Bank* - 21,100 21,100
---------- ---------- ---------
Ohio (0.0%):
200 200 State Air Quality Development Authority, Cincinnati Gas &
Electric, 3.80%, 12/1/15, LOC: J.P. Morgan* - 200 200
---------- ---------- ---------
Oregon (0.3%)
4,100 4,100 Port Morrow Environmental Revenue, AMT, 4.00%, 12/1/31 4,100 - 4,100
---------- ---------- ---------
South Carolina (0.4%)
3,000 3,000 Berkley County Industrial Development Revenue,
AMT, 3.90%, 4/1/28 3,000 3,000
3,100 3,100 Florence County Solid Waste Disposal Revenue, 3.90%, 4/1/28 3,100 3,100
---------- ---------- ---------
6,100 - 6,100
---------- ---------- ---------
Texas (2.1%):
3,300 3,300 Brazos River Authority, PCR, Texas Utilities Electric Co.
Project, AMT, 3.90%, 6/1/30, AMBAC 3,300 3,300
9,000 9,000 Brazos River Revenue, AMT, 4.30%, 4/1/32 9,000 9,000
1,400 1,400 Gulf Coast Waste Disposal Authority, AMT, 3.90%, 5/1/23 1,400 1,400
</TABLE>
See notes to financial statements.
<PAGE> 226
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ ------ ------ --------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
10,700 10,700 Gulf Coast, IDA, AMT, 4.00%, 5/1/25 10,700 10,700
4,475 4,475 Sabine River Authority, PCR, Texas Utilities Electric Co.
Project, Series C, 3.90%, 6/1/30, LOC: UBS* 4,475 4,475
---------- ---------- ---------
21,100 7,775 28,875
---------- ---------- ---------
Virginia (0.8%)
6,700 6,700 King George County Individual Development Authority, AMT,
3.95%, 11/1/25 6,700 6,700
4,750 4,750 Roanoke Memorial Hospital, IDA, Series C, 3.50%, 7/1/19 4,750 4,750
---------- ---------- ---------
11,450 - 11,450
---------- ---------- ---------
Washington (0.1%):
800 800 Health Care Facilities, Fred Hutchinson, Series A, 3.75%,
1/1/18, LOC: Morgan Guaranty* 0 800 800
---------- ---------- ---------
Wyoming (0.2%):
1,500 1,500 Converse County Environment Revenue, 4.15%, 11/1/25 1,500 1,500
800 800 Sublette County, PCR, Series B, 3.80%, 7/1/17, GTY: Exxon* 800 800
---------- ---------- ---------
1,500 800 2,300
---------- ---------- ---------
Total Daily Demand Notes 78,045 56,590 134,635
---------- ---------- ---------
Monthly Demand Notes (3.3%):
Arizona (0.3%)
4,500 4,500 Chandler IDR - Parsons Municipal Services, 3.70%, 12/15/09 4,500 - 4,500
---------- ---------- ---------
California (0.6%)
7,625 7,625 California State Veterans Revenue, Series A, AMT, 8.30%, 8/1/98 7,689 - 7,689
---------- ---------- ---------
Indiana (1.1%):
14,800 14,800 Gary Environmental Improvement Revenue, U.S. Steel Corp.
Project, 3.70%, 7/15/02, LOC: Bank of Nova Scotia* - 14,800 14,800
Kentucky (0.3%) ---------- ---------- ---------
3,800 3,800 Carroll County Solid Waste Disposal Rev, AMT, 3.95%, 11/2/24 3,800 - 3,800
---------- ---------- ---------
Michigan (0.3%)
3,000 3,000 Meridian Limited Obligation, EDC, 3.70%, 11/15/14 3,000 3,000
700 700 Michigan State Strategic Fund Limited Obligation,
Saginaw Products Corp., AMT, 3.70%, 9/1/17 700 700
---------- ---------- ---------
3,700 - 3,700
---------- ---------- ---------
Vermont (0.7%)
6,000 6,000 Vermont Educational Health Building Agency Revenue, 3.85%,
11/1/98 6,000 6,000
3,900 3,900 Vermont Student Assistance Revenue, 3.70%, 1/1/04 3,900 3,900
---------- ---------- ---------
9,900 - 9,900
---------- ---------- ---------
Total Monthly Demand Notes 29,589 14,800 44,389
---------- ---------- ---------
Municipal Notes (21.6%):
Alabama (0.3%)
4,500 4,500 Decatur Industrial Development Revenue, AMT, 3.65%, 1/1/27 4,500 - 4,500
---------- ---------- ---------
Arizona (0.1%)
1,500 1,500 Farmington PCR, Arizona Public Services, AMT, 4.30%, 9/1/24 1,500 - 1,500
---------- ---------- ---------
California (0.7%):
10,000 10,000 Los Angeles County Tax & Revenue Anticipation Notes
Series A, 4.50%, 6/30/99 - * 10,080 10,080
---------- ---------- ---------
Colorado (0.4%):
5,000 5,000 State of Colorado Transportation, 4.00%, 6/25/99 - 5,020 5,020
---------- ---------- ---------
District of Columbia (1.6%)
12,000 12,000 District of Columbia TRANS, Series B, 4.50%, 9/30/98 12,018 12,018
9,500 9,500 District of Columbia TRANS, Series C, 5.00%, 9/30/98 9,526 9,526
---------- ---------- ---------
21,544 - 21,544
---------- ---------- ---------
Illinois (1.5%)
20,000 20,000 Chicago General Obligation, 3.55%, 2/4/99 20,000 20,000
---------- ---------- ---------
20,000 - 20,000
---------- ---------- ---------
Indiana (0.8%)
11,100 11,100 Indiana Development Finance Authority, PCR, AMT, 3.70%, 3/1/99 11,100 - 11,100
---------- ---------- ---------
Kentucky (3.1%):
7,000 7,000 Asset Liability Commission General Fund, Trans 98-A,
4.50%, 6/25/99 7,061 7,061
</TABLE>
See notes to financial statements.
<PAGE> 227
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ ------ ------ ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
35,088 35,088 Kentucky Interlocal School Transportation, TRANS, 3.90%,
6/30/99 35,088 35,088
---------- ---------- ---------
35,088 7,061 42,149
---------- ---------- ---------
Michigan (1.4%)
15,000 15,000 Michigan State General Obligation Notes, 4.50%, 9/30/98 15,036 15,036
4,200 4,200 Michigan State Housing Development Authority,
Series A, AMT, 3.80%, 2/25/99 4,200 4,200
---------- ---------- ---------
19,236 - 19,236
---------- ---------- ---------
Missouri (0.9%)
4,900 4,900 Missouri State Health & Educational Facilities, 3.85%, 8/17/98 4,900 4,900
8,000 8,000 Missouri State Development Finance Board, 3.80%, 12/1/98 8,000 8,000
---------- ---------- ---------
12,900 - 12,900
---------- ---------- ---------
Nebraska (1.1%)
15,500 15,500 Nebraska Investment Finance Authority Revenue,
Series C, AMT, 3.95%, 7/1/98 15,500 - 15,500
---------- ---------- ---------
Nevada (0.6%)
8,500 8,500 Clark County Airport Revenue, Series B, AMT, 3.88%, 7/8/98 8,500 - 8,500
---------- ---------- ---------
New York (0.8%)
11,000 11,000 New York State Electric & Gas Revenue, 3.80%, 12/1/98 11,000 - 11,000
---------- ---------- ---------
Ohio (0.4%):
5,900 5,900 Dublin Transportation System, GO, 3.62%, 12/17/98 - 5,902 5,902
---------- ---------- ---------
Oregon (1.5%):
6,000 6,000 State Housing & Community Services, 3.75%, 5/13/99 6,000 6,000
15,000 15,000 State Housing & Community Services, 3.75%, 5/13/99 15,000 15,000
---------- ---------- ---------
15,000 6,000 21,000
---------- ---------- ---------
Pennsylvania (0.4%):
5,000 5,000 Pennsylvania State University, Series A, 4.50%, 3/30/99 - 5,034 5,034
---------- ---------- ---------
Puerto Rico (1.8%)
25,000 25,000 Puerto Rico Commonwealth, TRANS, Series A, 4.50%, 7/30/98 25,015 - 25,015
---------- ---------- ---------
Tennessee (0.4%):
5,000 5,000 State Local Development Authority, 4.00%, 5/19/99 - 5,013 5,013
---------- ---------- ---------
Texas (1.2%):
3,500 3,500 State Tax & Revenue Anticipation Notes, Series 97A,
4.75%, 8/31/98 3,505 3,505
6,000 6,000 State Tax & Revenue Anticipation Notes, Series 97A,
4.75%, 8/31/98 6,010 6,010
6,200 6,200 Texas Higher Education Authority, MBIA, AMT, 3.55%, 12/1/27 6,200 6,200
---------- ---------- ---------
12,210 3,505 15,715
---------- ---------- ---------
Utah (0.9%)
12,000 12,000 Intermountain Power Agency Revenue, Series E, 3.45%, 9/15/98 12,000 - 12,000
---------- ---------- ---------
Vermont (0.4%)
5,500 5,500 Educational Health Building Agency Revenue, 3.75%, 5/1/99 5,500 - 5,500
---------- ---------- ---------
Virginia (0.2%)
2,200 2,200 King George County Individual Development Authority, 3.95%, 2,200 - 2,200
3/1/27, AMT ---------- ---------- ---------
Wisconsin (1.1%):
15,000 15,000 State Operating Notes, 4.50%, 6/15/99 15,132 15,132
---------- ---------- ---------
Total Municipal Notes 232,793 62,747 295,540
Put Bonds (1.3%):
Arizona (0.7%):
9,000 9,000 Cochise County, PCR, Arizona Electric Power Corp., Series
A, AMT, 3.55%, 9/1/24 - 9,000 9,000
---------- ---------- ---------
Florida (0.4%):
6,000 6,000 Putnam County Development Authority, Seminole Electric
Co., 3.65%, 12/15/09 - 6,000 6,000
---------- ---------- ---------
North Dakota (0.2%):
</TABLE>
See notes to financial statements.
<PAGE> 228
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ -------- ------ ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
2,600 2,600 Mercer County, Solid Waste Disposal Revenue, National
Rural Utility Power Project, Series U, 3.80%, 12/1/18 2,600 2,600
---------- ---------- ---------
Total Put Bonds - 17,600 17,600
---------- ---------- ---------
Tax Free Commercial Paper (23.0%):
Alabama (1.8%):
9,600 9,600 Chatam Air Pollution Control, IDB, AMT, 3.65%, 10/9/98 9,600 9,600
1,500 1,500 Phenix IDR, Mead Paper, AMT, 3.77%, 7/7/98, LOC: ABN
AMRO* 1,500 1,500
2,000 2,000 Phenix IDR, Mead Paper, AMT, 3.70%, 7/15/98, LOC: ABN
AMRO* 2,000 2,000
5,600 5,600 Phenix IDR, Mead Paper, AMT, 3.45%, 7/31/98, LOC: ABN
AMRO* 5,600 5,600
3,000 3,000 Phenix IDR, Mead Paper, AMT, 3.65%, 8/18/98, LOC: ABN
AMRO* 3,000 3,000
2,400 2,400 Phenix IDR, Mead Paper, AMT, 3.80%, 8/24/98, LOC: ABN
AMRO* 2,400 2,400
---------- ---------- ---------
9,600 14,500 24,100
---------- ---------- ---------
Alaska (1.9%)
14,000 14,000 Valdez Marine Revenue, Series C, 3.70%, 7/9/98 14,000 14,000
11,900 11,900 Valdez Marine Revenue, 3.65%, 9/11/98 11,900 11,900
---------- ---------- ---------
25,900 - 25,900
---------- ---------- ---------
Arizona (0.6%):
4,000 4,000 Mesa Municipal Development Corp., 3.45%, 7/8/98, LOC:
Westdeutsche Landesbank* 4,000 4,000
4,770 4,770 Mesa Municipal Development Corp., 3.55%, 7/14/98, LOC:
Westdeutshce Landesbank* 4,770 4,770
---------- ---------- ---------
- 8,770 8,770
---------- ---------- ---------
Colorado (0.6%):
1,400 1,400 Platte River Electric Revenue, 3.45%, 7/6/98, LOC: J.P.
Morgan* 1,400 1,400
2,000 2,000 Platte River Electric Revenue, 3.40%, 7/6/98, LOC: J.P.
Morgan* 2,000 2,000
4,400 4,400 Platte River Electric Revenue, 3.60%, 8/13/98, LOC: J.P.
Morgan* 4,400 4,400
---------- ---------- ---------
0 7,800 7,800
---------- ---------- ---------
Florida (1.1%)
10,000 10,000 St. Lucie County Power and Light, 3.60%, 8/13/98 10,000 10,000
45,000 45,000 Sarasota Public Hospital, Series A, 3.65%, 10/8/98 4,500 4,500
---------- ---------- ---------
14,500 - 14,500
---------- ---------- ---------
Indiana (1.1%)
15,000 15,000 Indiana DFA Solid Waste, AMT, 3.60%, 7/10/98 15,000 - 15,000
---------- ---------- ---------
Kansas (0.3%)
4,000 4,000 Burlington PCR, AMT, 3.60%, 8/12/98 4,000 - 4,000
---------- ---------- ---------
Louisiana (0.5%)
7,500 7,500 Louisiana State General Obligation, 3.45%, 8/10/98 7,500 - 7,500
---------- ---------- ---------
Michigan (0.2%)
3,400 3,400 Regents of University of Michigan, 3.60%, 9/9/98 3,400 - 3,400
---------- ---------- ---------
Minnesota (0.2%):
1,000 1,000 Rochester Healthcare Facility Revenue, 3.65%, 7/13/98 1,000 1,000
1,700 1,700 Rochester Healthcare Facility Revenue, 3.45%, 7/13/98 1,700 1,700
---------- ---------- ---------
- 2,700 2,700
---------- ---------- ---------
Mississippi (1.0%)
13,000 13,000 Claiborne County Pollution Control Revenue, 3.55%, 8/7/98 13,000 - 13,000
---------- ---------- ---------
Missouri (0.2%):
2,500 2,500 State Environmental Authority, Union Electric Co., 3.63%,
7/10/98, LOC: UBS - 2,500 2,500
---------- ---------- ---------
New York (2.0%)
20,000 20,000 New York City Municipal Water Authority, 3.90%, 7/10/98 20,000 20,000
7,000 7,000 New York City Water, 3.60%, 7/15/98 7,000 7,000
</TABLE>
See notes to financial statements.
<PAGE> 229
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ -------- ------ ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
---------- ---------- ---------
27,000 - 27,000
---------- ---------- ---------
North Carolina (0.7%):
8,300 8,300 Eastern Municipal Power, 3.40%, 7/21/98, LOC: CIBC - 8,300 8,300
---------- ---------- ---------
Ohio (0.5%)
6,850 6,850 Ohio Water Development Authority, AMT, 8/11/98 6,850 - 6,850
---------- ---------- ---------
Pennsylvania (2.3%):
5,000 5,000 Carbon County, AMT, 3.60%, 8/6/98 5,000 5,000
8,285 8,285 Carbon County, Panther Creek, IDA, 3.55%, 10/9/98 8,285 8,285
1,500 1,500 Delaware County, Philadelphia Electric Co., 3.45%, 9/3/98,
FGIC 1,500 1,500
3,300 3,300 Delaware County, Philadelphia Electric Co., 3.40%, 9/3/98,
FGIC 3,300 3,300
14,050 14,050 Venango Individual Development Authority, AMT, 3.60%, 8/7/98 14,050 14,050
---------- ---------- ---------
27,335 4,800 32,135
---------- ---------- ---------
Texas (5.2%):
10,000 10,000 Austin Combined Utilities, Series A, 3.50%, 7/14/98 10,000 10,000
8,700 8,700 Austin Utilities, 3.55%, 7/14/98 8,700 8,700
4,075 4,075 Austin Utility Systems, 3.65%, 9/3/98 4,075 4,075
20,000 20,000 Brazos River Authority, Texas Utilities Co., 3.50%, 8/7/98,
LOC: CIBC 20,000 20,000
5,000 5,000 Brazos River Utilities, Texas Utilities Co., 3.55%, 9/8/98,
LOC: CIBC 5,000 5,000
5,150 5,150 North Central Health Facility Revenue, 3.90%, 6/1/21 5,150 5,150
10,000 10,000 Public Finance Authority, 3.40%, 9/9/98, LOC: UBS 10,000 10,000
5,000 5,000 Public Finance Authority, GO, Series 93A, 3.65%, 9/9/98,
LOC: UBS 5,000 5,000
3,400 3,400 Texas A&M, 3.40%, 7/9/98, LOC: UBS 3,400 3,400
---------- ---------- ---------
27,925 43,400 71,325
---------- ---------- ---------
Utah (0.6%)
8,300 8,300 Intermountain Power Agency, 3.45%, 9/11/98 8,300 - 8,300
---------- ---------- ---------
Washington (0.6%)
7,900 7,900 Seattle Municipal Light & Power Revenue, 3.45%, 8/21/98 7,900 - 7,900
---------- ---------- ---------
West Virginia (0.8%):
4,500 4,500 State Public Authority Energy Revenue, Morgantown Assoc.
Project, AMT, 3.65%, 7/17/98, LOC: Swiss Bank* 4,500 4,500
6,000 6,000 West Virginia Public Energy, 3.65%, 7/8/98 6,000 6,000
---------- ---------- ---------
6,000 4,500 10,500
---------- ---------- ---------
Wisconsin (0.3%):
5,015 5,015 GO Series 97, 3.60%, 8/18/98 - 5,015 5,015
---------- ---------- ---------
Wyoming (0.5%):
2,000 2,000 Gillette Pollution Control Revenue, AMT, 3.65%, 8/6/98,
LOC: ABN AMBRO* 2,000 2,000
5,400 5,400 Sweetwater County, PCR, Series 88-A, 3.65%, 7/1/98, LOC:
UBS* 5,400 5,400
---------- ---------- ---------
- 7,400 7,400
---------- ---------- ---------
Total Tax Free Commercial Paper 204,210 109,685 313,895
---------- ---------- ---------
Weekly Demand Notes (44.2%):
Arkansas (0.8%):
8,100 8,100 Clark County, Solid Waste Disposal Revenue, Reynolds
Metals Co. Project, AMT, 3.65%, 8/1/22, LOC: Trust Co.
Bank* 8,100 8,100
2,900 2,900 Clark County, Solid Waste Disposal Revenue, AMT, 3.65%,
8/1/22, LOC: SunTrust Bank* 2,900 2,900
---------- ---------- ---------
- 11,000 11,000
---------- ---------- ---------
Alaska (0.6%)
8,000 8,000 Valdez Marine Revenue, Series B, 3.60%, 5/1/31 8,000 - 8,000
---------- ---------- ---------
Colorado (2.1%):
7,000 7,000 Fayette County Development Authority, IDR, 4.15%, 8/15/07 7,000 7,000
2,900 2,900 Housing Finance Authority, Pool I, Series B, Coventry
Village, 3.55%, 10/15/16, FNMA* 2,900 2,900
5,600 5,600 Student Obligation Bond Authority, AMT, 3.50%, 7/1/20,
SLMA* 5,600 5,600
</TABLE>
See notes to financial statements.
<PAGE> 230
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ -------- ------ ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
13,900 13,900 Student Obligation Bond Authority, Series 90-A, AMT,
3.50%, 9/1/24, SLMA* 13,900 13,900
---------- ---------- ---------
7,000 22,400 29,400
---------- ---------- ---------
Delaware (1.7%)
23,200 23,200 Delaware State Economic Development, AMT, 3.65%, 8/1/29 23,200 - 23,200
---------- ---------- ---------
District of Columbia (1.0%):
3,500 3,500 District of Columbia, American University, 3.60%, 10/1/15 3,500 3,500
9,705 9,705 Metro Washington D.C. Airports Authority Trust Receipts,
3.75%, 10/1/16, LIQ: Societe General* 9,705 9,705
---------- ---------- ---------
3,500 9,705 13,205
---------- ---------- ---------
Florida (0.2%)
2,750 2,750 Orange County Health Facilities Revenue, 3.50%, 11/15/26 2,750 - 2,750
---------- ---------- ---------
Georgia (2.1%):
13,000 13,000 De Kalb Private Hospital Authority Revenue, Egleston
Children's Hospital, Series A, 3.45%, 3/1/24, LOC: SunTrust 13,000 13,000
Bank*
2,300 2,300 Georgia Municipal Gas, Series A, AMT, 3.40%, 11/1/06 2,300 2,300
5,000 5,000 Gwinnett County Hospital Authority, 3.55%, 9/1/27 5,000 5,000
3,735 3,735 Gwinnett County Housing Authority, Herrington Woods Apts.,
Series 96A, AMT, 3.65%, 9/15/26, LOC: KeyBank* 3,735 3,735
4,550 4,550 Macon-Bibb County Hospital Revenue, 3.60%, 8/1/18 4,550 4,550
---------- ---------- ---------
11,850 16,735 28,585
---------- ---------- ---------
Illinois (6.6%):
5,000 5,000 Carol Stream Multi-Family Revenue, AMT, 3.65%, 3/15/27 5,000 5,000
11,100 11,100 Chicago O'Hare International Airport Revenue, Second Lien,
Series B, AMT, 3.65%, 1/1/18, LOC: Societe Generale* 11,100 11,100
10,000 10,000 Chicago School Board Of Education, Series 3, 3.70%,
12/1/27, AMBAC* 10,000 10,000
5,200 5,200 Development Finance Authority Revenue, Aurora Central
Catholic High School, 3.55%, 4/1/24, LOC: Northern Trust 5,200 5,200
3,700 3,700 Development Finance Authority Revenue, Presbyterian Home
Lake Forrest Place Project, 3.55%, 9/1/31, LOC: LaSalle
National Bank* 3,700 3,700
4,500 4,500 Development Finance Authority Revenue, Roosevelt
University Project, 3.55%, 4/1/25, LOC: American National
Bank* 4,500 4,500
5,800 5,800 Development Finance Authority Revenue, Special Facility,
Little City Foundation, 3.55%, 2/1/19, LOC: LaSalle National
Bank* 5,800 5,800
1,620 1,620 Development Finance Authority Revenue, St. Paul's House
Project, 3.55%, 2/1/25, LOC: LaSalle National Bank* 1,620 1,620
3,000 3,000 Health Facility Authority Revenue, Washington & Jane Smith
Home, 3.55%, 7/1/26, LOC: Comerica Bank* 3,000 3,000
15,000 15,000 Illinois Development Authority Revenue, MBIA, 3.55%, 11/15/27 15,000 15,000
14,325 14,325 Illinois Development Authority Environment, AMT, 3.65%, 5/1/32 14,325 14,325
7,640 7,640 Jacksonville Industrial Project Revenue, AGI, Inc. Project,
AMT, 3.80%, 2/1/26, LOC: Bank of America* 7,640 7,640
1,100 1,100 Lombard IDR, Chicago Roll Co. Project, 3.90%, 2/1/10, LOC:
American National Bank* 1,100 1,100
2,000 2,000 Orland Hills, Mulit-Family Mortgage Revenue, 88th Avenue
Project, 3.55%, 12/1/04, LOC: LaSalle National Bank* 2,000 2,000
---------- ---------- ---------
34,325 55,660 89,985
---------- ---------- ---------
Indiana (4.5%):
9,000 9,000 Burns Harbor IDR, AMT, 3.70%, 3/1/16 9,000 9,000
14,600 14,600 Health Facility Financing Authority, Rehabilitation Hospital,
Inc., 3.50%, 11/1/20, LOC: National Bank of Detroit* 14,600 14,600
5,600 5,600 Indianapolis Economic Development Revenue, Children's
Museum Project, 3.55%, 10/1/25, LOC: National Bank of
Detroit* 5,600 5,600
3,300 3,300 Jasper Economic Development Revenue, Best Chairs, Inc.
Project, AMT, 3.75%, 3/1/19, LOC: PNC Bank* 3,300 3,300
16,200 16,200 Rockport, PCR, Indiana & Michigan Electric Co., Series A,
3.65%, 8/1/14, LOC: Swiss Bank* 16,200 16,200
13,000 13,000 State Educational Authority Revenue, Wesleyan University,
3.50%, 6/1/28, LOC: NBD Bank* 13,000 13,000
---------- ---------- ---------
9,000 52,700 61,700
Iowa (0.6%) ---------- ---------- ---------
7,960 7,960 Iowa Finance Authority Revenue, 3.65%, 6/1/19 7,960 - 7,960
---------- ---------- ---------
</TABLE>
See notes to financial statements.
<PAGE> 231
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ -------- ------ ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kentucky (0.9%):
9,000 9,000 Henderson Co. Solid Waste Disposal Rev, AMT, 3.60%, 3/1/15 9,000 9,000
3,500 3,500 Mayfield, League of Cities Lease Finance Program 96,
3.70%, 7/1/26, LOC: PNC Bank* 3,500 3,500
---------- ---------- ---------
9,000 3,500 12,500
---------- ---------- ---------
Louisiana (0.8%)
3,770 3,770 Calcasieu Parish Sales Tax Revenue, 3.50%, 9/1/98 3,770 3,770
6,900 6,900 South Louisiana Port Revenue, 3.65%, 1/1/27 6,900 6,900
---------- ---------- ---------
10,670 - 10,670
---------- ---------- ---------
Michigan (4.7%):
1,350 1,350 Grand Rapids Water Supply Revenue, 3.30%, 1/1/20 1,350 1,350
20,500 20,500 Higher Education Student Loan, Series B, AMT, 3.55%,
10/1/13, AMBAC* 20,500 20,500
100 100 Higher Education Student Loan Revenue, AMT, 3.55%, 10/1/15 100 100
100 100 Jackson Co. Economic Development Corp.,
Limited Obligation Revenue, 3.70%, 6/1/17 100 100
10,000 10,000 Kent Hospital Authority Revenue, Spectrum Health, Series
B, 3.45%, 1/15/26, MBIA* 10,000 10,000
400 400 Kent Hospital Finance Authority Revenue, Series A, 3.50%, 1/15/20 400 400
700 700 State Hospital Finance Authority, 3.45%, 6/1/01 700 700
3,300 3,300 State Hospital Finance Authority, 3.40%, 11/1/11 3,300 3,300
800 800 State Hospital Finance Authority, 3.60%, 12/1/23 800 800
1,000 1,000 State Job Authority Revenue, 3.50%, 8/1/15, LOC: Rabo
Bank* 1,000 1,000
2,200 2,200 State Strategic Fund Limited Obligation, AMT, 3.70%, 12/1/22 2,200 2,200
3,000 3,000 State Strategic Fund Limited Obligation, Autocam Corp.,
AMT, 3.70%, 12/1/17 3,000 3,000
2,100 2,100 State Strategic Fund Limited Obligation, Petoskey Plastics, Inc.,
AMT, 3.70%, 8/1/16 2,100 2,100
1,560 1,560 State Strategic Fund, Limited Obligation, Wayne Disposal
Oakland Project, AMT, 3.70%, 3/1/05, LOC: Credit
Suisse-First Boston* 1,560 1,560
3,150 3,150 Wayne Charter County Airport Revenue, AMT, 3.60%, 12/1/16 3,150 3,150
500 500 Wayne County Airport Revenue (Detroit Airport), Series B, 500 500
AMT, 3.50%, 12/1/16, LOC: Bayerische Landesbank*
13,940 13,940 Wayne County Airport Revenue (Detroit Airport), Series B,
AMT, 3.50%, 12/1/16, LOC: Bayerische Landesbank* 13,940 13,940
---------- ---------- ---------
17,700 47,000 64,700
---------- ---------- ---------
Minnesota (0.3%)
4,750 4,750 Minneapolis General Obligation, 3.40%, 12/1/27 4,750 - 4,750
---------- ---------- ---------
New York (0.7%):
10,000 10,000 Long Island Power Authority, Electric System Revenue,
Series 1, 3.50%, 5/1/33, LOC: Westduetsche and
Bayerische Landesbank* - 10,000 10,000
---------- ---------- ---------
North Carolina (1.6%):
7,000 7,000 Charlotte Airport Revenue, MBIA, 3.50%, 7/1/17 7,000 7,000
3,085 3,085 Charlotte Mecklenburg Hospital Authority, 3.50%, 1/15/26 3,085 3,085
6,500 6,500 Community Hospital Revenue, 3.50%, 8/15/18 6,500 6,500
5,000 5,000 Mecklenburg County, Series C, 3.50%, 2/1/17, LOC: First
Union Bank* 5,000 5,000
---------- ---------- ---------
16,585 5,000 21,585
---------- ---------- ---------
Ohio (3.5%):
8,600 8,600 Butler County Multi-Family Revenue, 3.50%, 11/15/30, FNMA* 8,600 8,600
8,800 8,800 State Air Quality Development Authority Revenue, JMG
Funding Ltd. Partnership, Series A, AMT, 3.60%, 4/1/28,
LOC: Societe Generale* 8,800 8,800
3,700 3,700 State Air Quality Development Authority, JMG Funding Ltd.
Partnership, AMT, 3.60%, 4/1/29, LOC: Societe Generale* 3,700 3,700
6,200 6,200 State Air Quality Development Authority Revenue, JMG 6,200 6,200
Funding Ltd. Partnership, Series A, AMT, 3.60%, 4/1/28,
LOC: Societe Generale*
20,000 20,000 Student Loan Funding Corp., Cincinnati, Series 98-A2, AMT,
3.60%, 8/1/10, LOC: Bank of America* 20,000 20,000
---------- ---------- ---------
6,200 41,100 47,300
---------- ---------- ---------
Pennsylvania (3.3%):
1,600 1,600 Allegheny Co. IDR, VRDB, United Jewish Federation,
3.60%, 10/1/25 1,600 1,600
</TABLE>
See notes to financial statements.
<PAGE> 232
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ -------- ------ ------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
25,000 25,000 Indiana County Individual Development Authority,
PCR, AMT, 3.65%, 6/1/27 25,000 25,000
2,500 2,500 Philadelphia Redevelopment Authority Revenue, 3.65%,
12/1/03, LOC: PNC Bank* 2,500 2,500
6,300 6,300 State Economic Development Finance Authority Revenue,
Series 98D, 3.75%, 6/1/10, LOC: PNC Bank* 6,300 6,300
4,800 4,800 State Higher Education Authority Revenue, 3.50%, 3/1/26
LOC: First Union National* 4,800 4,800
200 200 State Higher Educational Facilities, 3.60%, 4/1/17 200 200
4,500 4,500 Temple University Obligation, Series A, 3.78%, 5/14/99 4,500 4,500
---------- ---------- ---------
31,300 13,600 44,900
South Carolina (1.2%):
1,700 1,700 Cherokee County, Industrial Revenue, Oshkosh Truck Corp.
Project, AMT, 3.80%, 8/1/19, LOC: Bank of Nova Scotia* 1,700 1,700
3,000 3,000 Piedmont Municipal Power Agency Revenue, 3.50%, 1/1/19 3,000 3,000
12,000 12,000 Spartanburg County Health Services Revenue, 3.65%, 4/15/23 12,000 12,000
---------- ---------- ---------
15,000 1,700 16,700
---------- ---------- ---------
South Dakota (0.7%)
9,500 9,500 South Dakota Housing Development Authority,
Revenue, Series E, AMT, 3.80%, 12/14/00 9,500 - 9,500
---------- ---------- ---------
Tennessee (2.3%):
7,000 7,000 Marion County Environmental Authority, AMT, 3.65%, 8/1/98 7,000 7,000
10,500 10,500 Montgomery County Public Building, 3.60%, 7/1/19, LOC:
NationsBank* 10,500 10,500
10,000 10,000 Oak Ridge Industrial Development Revenue, AMT, 3.70%, 1/1/06 10,000 10,000
3,800 3,800 Oak Ridge Industrial Development Board, Economic
Development Revenue, Limited Obligation, 3.60%, 5/1/09,
LOC: ABN AMRO* 3,800 3,800
---------- ---------- ---------
17,000 14,300 31,300
---------- ---------- ---------
Texas (3.5%):
14,100 14,100 Capital Health Facilities Development Corp., Island on Lake
Travis Ltd. Project, AMT, 3.55%, 12/1/16, LOC: Credit
Suisse* 14,100 14,100
6,000 6,000 Panhandle Plains Higher Education Inc., Student Loan
Revenue, Series A, AMT, 3.50% 6/1/21, SLMA* 6,000 6,000
17,800 17,800 Panhandle Plains Higher Education Inc., Student Loan
Revenue, Series A, AMT, 3.50% 6/1/21, SLMA* 17,800 17,800
9,400 9,400 Panhandle Plains Higher Education Inc., Student Loan
Revenue, Series A, AMT, 3.50%, 6/1/23, SLMA* 9,400 9,400
---------- ---------- ---------
6,000 41,300 47,300
---------- ---------- ---------
Washington (0.0%)
1,100 1,100 Port Seattle Revenue, AMT, 3.65%, 9/1/22 1,100 - 1,100
---------- ---------- ---------
West Virginia (0.5%):
2,300 2,300 Marion County Community Solid Waste Disposal Facility
Revenue, Grant Town, AMT, 3.65%, 10/1/17, LOC: National
Westminister* 2,300 2,300
4,500 4,500 Marion County Community Solid Waste Disposal Facility
Revenue, Grant Town, AMT, 3.50%, 10/1/17, LOC: National
Westminister* 4,500 4,500
---------- ---------- ---------
- 6,800 6,800
---------- ---------- ---------
Total Weekly Demand Notes 252,390 352,500 604,890
---------- ---------- ---------
Total (Amortized Cost $1,410,949) (a) $ 797,027 $ 613,922 $1,410,949
========== ========== ===========
<FN>
Percentages indicated are based on net assets of $1,367,601.
(a) Cost and value for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity agreements. The interest rate, which will change periodically, is based
upon an index of market rates. The rate reflected on the Schedule of Portfolio Investments is the rate
in effect at June 30, 1998.
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
BIGI Bond Investors Guaranty Insurance Co.
CP Commercial Paper
EDC Economic Development Corp.
FGIC Insured by Financial Guaranty Insurance Corp.
FNMA Federal National Mortgage Association
FSA Insured by Financial Security Assurance
</TABLE>
See notes to financial statements.
<PAGE> 233
<TABLE>
<CAPTION>
The One Group Municipal Money Market Fund / Pegasus Municipal Money Market Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma Proforma
Pegasus One Group Combined Pegasus One Group Combined
Principal Principal Principal Amortized Amortized Amortized
Amount Amount Amount Security Description Cost Cost Cost
------ -------- ------ ------------------------------------------------------- ----------- ----------- ----------
<S> <C>
GO General Obligation
GTY Guaranty
HCF Health Care Facilities
HR Housing Revenue
HDA Housing Development Authority
HFA Housing Finance Authority
IDA Industrial Development & Export Authority
IDR Industrial Development Revenue
LIQ Liquidity Agreement
LOC Letter of Credit
MBIA Insured by Municipal Bond Insurance Association
PCR Pollution Control Revenue
PFA Public Facilities Authority
SLMA Student Loan Marketing Association
TAN Tax Anticipation Note
TRAN Tax Revenue Anticipation Note
UPDATE Unit Priced Daily Adjustable Tax Exempt Securities
VRDB Variable Rate Demand Bond
VRDN Variable Rate Demand Note
</TABLE>
See notes to financial statements.
<PAGE> 234
<TABLE>
<CAPTION>
The One Group Limited Volatility Fund / Pegasus Short Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ----------- ---------- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Asset Backed Securities (15.0%):
$ 600 $ $ 600 Arcadia Automobile Receivable Trust,
6.50%, 6/17/02 $ 608 $ $ 608
1,488 1,488 Bay View Auto Trust, Series 97-RA1, Class A1, 6.29%,
12/15/01 1,488 1,488
1,600 1,600 BM Mortgage Securities Inc. Mortgage Backed Pass Thru Ctf.,
Series 1998-2, Class 1A10, 6.60%, 6/25/28 1,611 1,611
238 238 Case Equipment Loan Trust Asset Backed Pass Thru Ctf.,
Series 1994-C, Class A2, 8.10%, 6/15/01 239 239
132 132 Case Equipment Loan Trust Asset Backed Pass Thru Ctf.,
Series 1995-A, Class A, 7.30%, 3/15/02 133 133
425 425 Case Equipment Loan Trust Asset Backed Pass Thru Ctf.,
Series 1996-B, Class A3, 6.65%, 9/15/03 428 428
2,985 2,985 Case Equipment Loan Trust, Series 96-A, Class A2, 5.50%,
02/15/03 2,981 2,981
1,880 1,880 Chase Credit Card Trust, 6.30%, 4/15/03 1,902 1,902
375 375 Chase Manhattan Auto Owner Trust, 6.50%, 12/17/01 381 381
1,000 1,000 Chevy Chase Auto Receivable Trust, 5.91%, 4/15/00 998 998
752 752 Chevy Chase Auto Receivable Trust, 6.20%, 3/20/04 755 755
5,000 5,000 CIT RV Trust, Series 1998-A, Class B, 6.29%, 1/15/17 5,003 5,003
5,000 5,000 Citibank Credit Card Master Trust, Series 1998-1, Class B, 0
5.88%, 1/15/03 4,987 4,987
7,750 7,750 Citibank, Master Trust, Series 97-9, Class A, 0.00%, 8/15/06 5,370 5,370
174 174 Citicorp Mortgage Securities, Inc. Remic Pass Thru Ctf., 0
Series 89-16, Class A-1, AR, 4/1/19 173 173
2,040 2,040 Citicorp Mortgage Securities, Inc. Remic Pass Thru Ctf.,
Series 94-9, Class A-3, 5.75%, 6/25/09 2,024 2,024
116 116 Collaterized Mortgage Obligations Trust CMO,
Trust 12, Class D, 9.50%, 2/1/17 117 117
3,700 3,700 Consumer Portfolio Services, Series 1997-2 A, 6.65%,
10/15/02 3,730 3,730
2,073 2,073 Countrywide Asset-Backed Certificate, 6.53%, 2/25/14 2,077 2,077
5,045 5,045 DVI Equipment Receivables Trust, Series 1997-A, Class A,
6.45%, 1/15/04 5,069 5,069
550 550 Discover Card Master Trust, Series 95-2 Class A, 6.55%, 2/15/03 558 558
700 700 Discover Card Trust,
Series 93-B Class A, 6.75%, 2/16/02 708 708
3,909 3,909 Fifth Third Auto Grantor Trust, 1996-A, Class A, 6.20%,
09/15/01 3,923 3,923
3,320 3,320 Fifth Third Auto Grantor Trust, 1996-B, Class A, 6.45%
03/15/02 3,338 3,338
917 917 First Security
Series 98-A Class A, 5.97%, 4/15/04 919 919
5,000 5,000 Ford Motor Credit Auto Loan Master, Series 1995-1, Class A,
6.50%, 8/15/02 5,061 5,061
161 161 Ford Motor Credit Auto Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-A, Class A3, 6.50%, 11/15/99 161 161
607 607 Ford Motor Credit Auto Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-A, Class A4, 6.75%, 9/15/00 612 612
5,000 5,000 Ford Motor Credit Auto Owner Trust, Series 1998-B, Class B,
6.15%, 9/15/02 5,024 5,024
2,223 2,223 Greentree Collateralized Mortgage Obligation,
Series 1997-3, Class A2, 6.49%, 7/15/28 2,230 2,230
256 256 Key Auto Finance Trust,
5.85%, 3/15/03 256 256
593 593 MBNA Master Credit Card Trust Asset Backed Ctf.,
Trust 93-3, Series 1993-3A, 5.40%, 9/15/00 591 591
341 341 Merrill Lynch Home Equity Loan Asset Backed Pass Thru Ctf.,
Series 1992-1, Class A, IF, 7/15/22 341 341
6,500 6,500 Metris Mastertrust, 7.11%, 10/1/05 6,764 6,764
61 61 Morgan Stanley Mortgage Trust, CMO, Series 38-4, 0
PO, 11/20/21 51 51
477 477 Navistar Financial Corp. Owner Trust Asset Backed Pass Thru Ctf.,
Series 1995-A, Class A2, 6.55%, 11/20/01 478 478
500 500 Navistar Financial Corp. Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-A, Class A3, 6.75%, 3/15/02 507 507
1,400 1,400 Newcourt Receivables Asset Trust,
Series 1997-1, Class A, 6.04%, 6/20/00 1,403 1,403
7,569 7,569 Newcourt Receivables Trust, Series 1996-3, Class A,
6.24%, 12/20/04 7,572 7,572
511 511 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
</TABLE>
See notes to financial statements.
<PAGE> 235
<TABLE>
<CAPTION>
The One Group Limited Volatility Fund / Pegasus Short Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ----------- ---------- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series 1996-B Class A3, 6.5%, 12/15/00 513 513
1,200 1,200 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
Series 1996-D Class A3, 5.95%, 6/15/01 1,202 1,202
731 731 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
Series 1995-C Class A2, 6.20%, 1/15/02 734 734
2,000 2,000 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
Series 1996-B Class A4, 6.70%, 3/15/02 2,020 2,020
2,750 2,750 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
Series 1996-C Class A4, 6.80%, 3/15/02 2,787 2,787
500 500 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
Series 1996-D Class A4, 6.05%, 8/15/02 502 502
1,435 1,435 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
Series 1997-A Class A4, 6.63%, 12/15/02 1,458 1,458
1,150 1,150 Olympic Automobile Rec. Trust Asset Backed Pass Thru Ctf.,
Series 1996-C Class A5, 7.00%, 3/15/04 1,181 1,181
1,067 1,067 Olympic Automobile Receivables Trust, Series 1996-D,
Class A2, 5.75%, 4/15/00 1,066 1,066
4,425 4,425 Olympic Automobile Receivables Trust, Series 1996-D,
Class A3, 5.95%, 6/15/01 4,428 4,428
1,498 1,498 Onyx Acceptance Trust Auto Loan Backed Pass Thru Ctf.,
Series 1997-3 Class A, 6.35%, 1/15/04 1,507 1,507
375 375 Onyx Acceptance Trust Auto Loan Backed Pass Thru Ctf.,
Series 1997-3 Class A, 6.30%, 5/15/04 377 377
445 445 Premier Auto Trust Asset Backed Pass Thru Ctf.,
Series 1997-2 Class A3, 6.13%, 9/6/00 446 446
775 775 Premier Auto Trust Asset Backed Pass Thru Ctf.,
Series 1996-4 Class A3, 6.20%, 11/6/00 777 777
7,000 7,000 Proffitt's Credit Card Master Trust, Series 1997-2, Class B,
6.69%, 12/15/05 7,172 7,172
5,000 5,000 Ryder Vehicle Lease, Series 1998-A, Class A, 6.10%, 5,009 5,009
122 122 Ryland Acceptance Corp. Four, CMO, Series 78, 0
Class 78-B, 9.55%, 3/1/16 123 123
1,467 1,467 Sears Credit Account Master Trust,
Series 1995-4 Class A, 6.25%, 1/15/03 1,470 1,470
1,000 1,000 Sears Credit Account Master Trust,
Series 1996-1 Class A, 6.20%, 2/16/06 1,012 1,012
790 790 Sears Credit Account Master Trust,
Series 1996-4 Class A, 6.45%, 10/16/06 803 803
2,110 2,110 Standard Credit Card Master Trust Asset Backed Ctf.,
Series 1993-3, Class A, 5.50%, 2/7/00 2,108 2,108
450 450 Standard Credit Card Master Trust Asset Backed Ctf.,
Series 1995-10, Class A, 5.90%, 2/7/01 451 451
796 796 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1995-2 Class A1, 7.1%, 7/1/00 802 802
2,840 2,840 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-B, Class A4, 6.95%, 11/20/03 2,882 2,882
255 255 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-B, Class A3, 6.65%, 8/20/00 255 255
842 842 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-D, Class A3, 6.05%, 7/20/01 844 844
1,000 1,000 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-D, Class A3, 6.25%, 3/20/02 1,007 1,007
500 500 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-D, Class A2, 6.20%, 9/20/00 501 501
1,450 1,450 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-B, Class A4, 6.40%, 7/20/02 1,469 1,469
4,000 4,000 Western Financial Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03 4,055 4,055
52 52 Western Financial Grantor Trust Auto Receivable P/T Ctf:
1993-4, Class A1, 4.60%, 4/1/99 52 52
88 88 Western Financial Grantor Trust Auto Receivable P/T Ctf:
1994-3, Class A, 6.65%, 12/1/99 88 88
500 500 Western Financial Grantor Trust Auto Receivable P/T Ctf:
1998-B, Class A4, 6.05%, 4/20/03 500 500
398 398 World Omni Automobile LSE SEC Trust Asset Backed Pass Thru Cft.,
Series 1995-A, Class A, 6.05%, 11/25/01 398 398
---------- ---------- ----------
Total Asset Backed Securities 50,508 80,062 130,570
---------- ---------- ----------
Commercial Mortgage Backed Securities (0.6%):
5,281 5,281 CMC Securities Corp. III, Series 1994-D, Class M, 6.00%,
03/25/24 5,217 5,217
</TABLE>
See notes to financial statements.
<PAGE> 236
<TABLE>
<CAPTION>
The One Group Limited Volatility Fund / Pegasus Short Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ----------- ---------- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
---------- ---------- ----------
Total Commercial Mortgage Backed Securities - 5,217 5,217
---------- ---------- ----------
Corporate Bonds (15.7%):
Banking, Finance & Insurance (13.7%):
295 295 American Express Credit Corp, 7.38%, 2/1/99 298 298
1,904 1,904 Associates Corp. of North America, 9.13%, 4/1/00 2,002 2,002
1,015 1,015 Associates Corp. of North America, 6.63%, 5/15/01 1,032 1,032
3,240 3,240 Association Corp. of North America, 8.25%, 12/1/99 3,339 3,339
2,654 2,654 Association Corp. of North America, 5.25%, 3/30/00 2,625 2,625
270 270 Association Corp of North America MTN, Series G, 5.49%, 1/28/99 270 270
1,025 1,025 Association Corp of North America MTN, 8.50%, 1/10/00 1,063 1,063
250 250 Association Corp of North America MTN, 7.55%, 8/23/01 261 261
300 300 Association Corp of North America MTN,G485 Tranche #00455,
7.48%, 7/27/02 315 315
1,090 1,090 Association Corp of North America Senior Term Note, 6.25%,
9/15/00 1,098 1,098
3,000 3,000 Avco Financial Services, 7.25%, 7/15/99 3,045 3,045
5,000 5,000 Bear Stearns, 6.13%, 2/1/03 4,950 4,950
200 200 Beneficial Finance Corp. Medium Term Note, 7.34%, 11/26/99 203 203
1,000 1,000 Caterpillar Financial Services, 6.35%, 4/1/99 1,004 1,004
3,000 3,000 Citicorp, 8.00%, 2/1/03 3,221 3,221
1,000 1,000 Dean Witter Discover & Co., 6.25%, 3/15/00 1,006 1,006
825 825 Du Pont E I De Nemours & Co., 9.15%, 4/15/00 870 870
4,115 4,115 Ford Holdings Inc., 9.25%, 3/1/00 4,329 4,329
1,460 1,460 Ford Motor Credit Co., 8.88%, 6/15/99 1,498 1,498
7,000 7,000 Ford Motor Credit Co., 8.38%, 1/15/00 7,254 7,254
1,850 1,850 Ford Motor Credit Co., 7.45%, 4/13/00 1,899 1,899
1,415 1,415 Ford Motor Credit Co., 9.50%, 4/15/00 1,497 1,497
1,192 1,192 Ford Motor Credit Co., 9.00%, 9/15/01 1,291 1,291
219 219 Ford Motor Credit Co., 8.00%, 6/15/02 234 234
1,200 1,200 Ford Motor Credit Co. Medium Term Note, Tranche #00281, 7.47% 1,218 1,218
300 300 Ford Motor Credit Co. Medium Term Note, Tranche #00442, 7.59% 308 308
500 500 General Motors Acceptance Corp., 9.38%, 4/1/00 528 528
2,650 2,650 General Motors Acceptance Corp., 7.13%, 5/10/00 2,703 2,703
856 856 General Motors Acceptance Corp., 9.63%, 5/15/00 910 910
250 250 General Motors Acceptance Corp., 9.63%, 12/1/00 271 271
5,000 5,000 General Motors Acceptance Corp., 6.75%, 2/7/02 5,106 5,106
1,275 1,275 Goldman Sachs Group, 6.88%, 9/15/99 1,287 1,287
7,000 7,000 Goldman Sachs Group, 7.80%, 7/15/02, 144A 7,420 7,420
5,000 5,000 Goldman Sachs Group, 6.65%, 8/1/03, 144A 5,088 5,088
1,500 1,500 Goldman Sachs Group, Private Placement Note 144A, 6.20%, 2/15/01 1,503 1,503
10,000 10,000 Greenwich Capital, 7.04%, 12/13/99, 144A 9,997 9,997
3,250 3,250 HSBC Financial, 7.40%, 4/15/03 3,372 3,372
4,871 4,871 J.P. Morgan Commercial Mortgage Financial Corp., 6.37%, 1/15/30 4,916 4,916
5,000 5,000 Lehman Brothers Holdings, Inc., 7.63%, 8/1/98 5,005 5,005
532 4,500 5,032 Lehman Brothers Holdings, Inc., 8.88%, 11/1/98 537 4,540 5,077
1,790 3,000 4,790 Lehman Brothers Holdings, Inc., 10.00%, 5/15/99 1,848 3,100 4,948
365 365 Lehman Brothers Holdings, Inc., 7.63%, 7/15/99 370 370
1,063 1,063 Lehman Brothers Holdings, Inc., 7.11%, 9/27/99 1,075 1,075
360 360 Lehman Brothers Holdings, Inc., 6.33%, 8/1/00 362 362
4,000 4,000 Lehman Brothers Holdings, Inc., 9.88%, 10/15/00 4,320 4,320
280 280 Northwest Corporation, 6.00%, 3/15/00 281 281
500 500 Sears Roebuck Acceptance, 6.73%, 8/29/00 507 507
1,750 1,750 Union Acceptance Corp., Series 1997-D, Class A3, 6.26%, 2/8/02 1,760 1,760
1,422 1,422 Union Acceptance Corp., Series 1997-D, Class A2, 6.38%, 10/8/03 1,431 1,431
5,000 5,000 Visa International, 6.72%, 2/4/02, 144A 5,059 5,059
---------- ---------- ----------
36,421 83,005 119,426
---------- ---------- ----------
Foreign (0.2%):
1,290 1,290 Republic NY Corp., 9.75%, 12/1/00 1,401 - 1,401
---------- ---------- ----------
Industrial Goods & Services (1.9%):
5,000 5,000 Avon Products, 6.25%, 5/1/03, 144A 5,038 5,038
5,000 5,000 Carpenter Technology, 6.28%, 4/7/03 5,019 5,019
649 649 Sears Roebuck & Co., 9.50%, 6/1/99 668 668
5,000 5,000 Sears Roebuck & Co., 6.69%, 8/13/01 5,087 5,087
600 600 Texaco Capital, Inc., 9.00%, 12/15/99 626 626
---------- ---------- ----------
1,294 15,144 16,438
---------- ---------- ----------
Total Corporate Bonds 39,116 98,149 137,265
---------- ---------- ----------
Other Mortgage Backed Securities (1.1%):
5,150 5,150 Evans Withycombe Finance Trust, Series 1, Class A1,
7.98%, 8/1/01 5,423 5,423
</TABLE>
See notes to financial statements.
<PAGE> 237
<TABLE>
<CAPTION>
The One Group Limited Volatility Fund / Pegasus Short Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ----------- ---------- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
3,987 3,987 Nomura Mortgage Capital Corp., Series 90-1, Class H,
7.00%, 6/17/20 4,052 4,052
---------- ---------- ----------
Total Other Mortgage Backed Securities - 9,475 9,475
---------- ---------- ----------
U.S. Government Agency Mortgages (27.8%):
Federal Home Loan Mortgage Corp. (10.9%):
1,628 1,628 6.50%, 1/1/01, Pool #M8038 1,644 1,644
8,348 8,348 7.00%, 1/1/02, Pool #G50415 8,481 8,481
9,026 9,026 6.50%, 5/1/02, Pool #G50444 9,116 9,116
289 289 9.00%, 12/1/05, Pool #G00005 302 302
281 281 9.00%, 1/1/06, Pool #G00012 294 294
559 559 8.00%, 10/1/06, Pool #G00052 577 577
1,807 1,807 7.00%, 3/1/07, Pool #G34594 1,847 1,847
1,665 1,665 7.00%, 4/1/07, Pool #G00087 1,701 1,701
2,162 2,162 7.50%, 4/1/07, Pool #G00084 2,229 2,229
2,667 2,667 7.50%, 11/1/07, Pool #E00165 2,749 2,749
3,519 3,519 8.50%, 2/1/08, Gold Pool #10133 3,667 3,667
1,852 1,852 7.00%, 12/1/08, Pool #E20065 1,895 1,895
1,900 1,900 8.00%, 1/1/10, Pool #G00355 1,960 1,960
5,766 5,766 8.00%, 2/1/10, Pool #G10328 5,950 5,950
8,236 8,236 7.00%, 10/1/10, Gold Pool #E61709 8,416 8,416
11,633 11,633 7.00%, 5/1/11, Pool #E20241 11,898 11,898
9,967 9,967 6.50%, 5/1/13, Pool #E70383 10,036 10,036
5,404 5,404 5.25%, 9/15/15, REMIC/CMO, Series 1638, Class BC 5,392 5,392
13,209 13,209 8.25%, 12/15/16, REMIC/CMO, Series 1770, Class PD 13,455 13,455
3,780 3,780 6.68%, 10/1/26, Pool #785652 3,860 3,860
---------- ---------- ----------
- 95,469 95,469
---------- ---------- ----------
Federal National Mortgage Assoc. (12.6%):
167 167 1/25/99, 1992 Class 13-S, HB, IF, REMIC 5 5
8,390 8,390 6.50%, 8/1/01, Pool #190976 8,463 8,463
489 489 6.00%, 1/25/02, 1994 Class 23-PJ, REMIC 488 488
320 320 1/17/03, 1997 Class A, IF, REMIC 324 324
40 40 5.50%, 7/25/03, 1993 Class 85-PD, REMIC 39 39
492 492 5.50%, 7/25/04, 1994 Class 12-PD, REMIC 490 490
14,156 14,156 7.00%, 7/17/05, Series 97-26 Gd 14,521 14,521
166 166 9.00%, 9/1/05, Pool #50340 174 174
20,079 20,079 6.60%, 10/18/05, Series 97-26 B 20,340 20,340
171 171 9.00%, 11/1/05, Pool #50361 179 179
172 172 8.50%, 4/1/06, Pool #116875 179 179
256 256 9.00%, 8/25/06, 1991 Class 41-O, REMIC 260 260
13,804 13,804 7.42%, 9/1/06, Pool #73618 14,978 14,978
1,900 1,900 6.50%, 12/25/06, 1993 Class 107-D, REMIC 1,922 1,922
1,334 1,334 6.00%, 1/25/07, 1993 Class 86-E, REMIC 1,332 1,332
425 425 6.00%, 2/25/07, 1994 Class 17-E, REMIC 425 425
175 175 6.25%, 4/25/07, 1993 Class 93-E, REMIC 176 176
125 125 5.50%, 11/25/07, 1994 Class 33-E, REMIC 124 124
6,150 6,150 7.00%, 6/1/10, Pool #315928 6,282 6,282
5,542 5,542 6.50%, 9/1/10, Pool #325479 5,598 5,598
4,422 4,422 6.50%, 10/1/10, Pool #250377 4,466 4,466
2,692 2,692 7.00%, 11/1/10, Pool #250387 2,750 2,750
2,947 2,947 7.50%, 2/1/11, Pool #303755 3,037 3,037
1,204 1,204 6.35%, 3/15/11, 1995 Class PK, REMIC 1,209 1,209
5,000 5,000 6.50%, 6/25/13, Series 94-1 K 5,064 5,064
9,732 9,732 6.50%, 4/1/13, Pool #425396 9,790 9,790
482 482 5.90%, 7/25/15, 1993 Class 26-PE, REMIC 481 481
475 475 6.00%, 10/25/16, 1993 Class 127-E, REMIC 474 474
41 41 3.50%, 1/25/17, 1992 Class 137-BA, REMIC 41 41
10 10 9.40%, 10/25/17, 1988 Class 17-B, REMIC 10 10
475 475 9.25%, 4/25/18, 1988 Class 7-Z, REMIC 500 500
98 98 9.00%, 6/25/18, 1988 Class 15-A, REMIC 103 103
595 595 9.50%, 6/25/18, 1988 Class 16-B, REMIC 640 640
10 10 9.15%, 8/25/18, 1989 Class 31-D, REMIC 10 10
264 264 1/1/19, Pool #070226, AR 262 262
568 568 3/1/19, Pool #116612, AR 587 587
278 278 8/1/19,Pool #111366, AR 290 290
116 116 10/25/19, 1989 Class 73-C, PO, REMIC 108 108
786 786 5.50%, 2/25/19, 1994 Class 15- E, REMIC 780 780
130 130 9.00%, 7/25/19, 1990 Class 77-C, REMIC 133 133
1,157 1,157 9.00%, 11/25/19, 1989 Class 89-H, REMIC 1,213 1,213
83 83 8.60%, 2/25/20, 1991 Class 56-K, REMIC 83 83
</TABLE>
See notes to financial statements.
<PAGE> 238
<TABLE>
<CAPTION>
The One Group Limited Volatility Fund / Pegasus Short Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ----------- ---------- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
500 500 6.50%, 2/25/20, 1994 Class 36-GA, REMIC 507 507
700 700 10/25/21, 1997 32C, Class GP, P/O, REMIC 626 626
151 151 9.00%, 12/25/21, Stripped Trust 268, Class 2, IO 34 34
---------- ---------- ----------
13,676 95,821 109,497
---------- ---------- ----------
Government National Mortgage Assoc. (1.9%):
2 2 8.00%, 2/15/02, Pool #192917 2 2
17 17 8.00%, 3/15/02, Pool #209172 18 18
3 3 9.00%, 6/15/02, Pool #229311 3 3
43 43 9.00%, 10/15/02, Pool #229569 45 45
12 12 8.00%, 6/15/05, Pool #28827 12 12
9 9 9.00%, 9/15/05, Pool #292569 9 9
53 53 9.00%, 10/15/05, Pool #292589 56 56
14 14 8.00%, 5/15/06, Pool #303851 14 14
5 5 8.00%, 7/15/06, Pool #307231 5 5
38 38 8.00%, 8/15/06, Pool #311166 39 39
36 36 8.00%, 9/15/06, Pool #311301 37 37
272 272 8.00%, 10/15/06, Pool #316915 282 282
77 77 8.00%, 11/15/06, Pool #315078 80 80
224 224 8.00%, 11/15/06, Pool #313528 233 233
97 97 8.00%, 11/15/06, Pool #316671 101 101
41 41 8.00%, 11/15/06, Pool #311131 42 42
353 353 8.00%, 11/15/06, Pool# 312210 366 366
143 143 8.00%, 12/15/06, Pool #311384 149 149
97 97 8.00%, 1/15/07, Pool #317663 100 100
258 258 8.00%, 2/15/07, Pool #316086 268 268
68 68 8.00%, 3/15/07, Pool #178684 71 71
164 164 8.00%, 3/15/07, Pool #318825 170 170
128 128 8.00%, 4/15/07, Pool #316441 133 133
3,714 3,714 6.00%, 1/16/20, 1997 Class 13-PA, REMIC 3,716 3,716
7,567 7,567 6.88%, 11/20/25, Pool #8746 ARM 7,723 7,723
3,013 3,013 7.00%, 1/20/26, Pool #8790 3,073 3,073
---------- ---------- ----------
3,716 13,031 16,747
---------- ---------- ----------
U.S. Government Agencies (2.4%):
20,000 20,000 Tennessee Valley Authority, 8.38%, 10/1/99 20,600 20,600
---------- ---------- ----------
Total U.S. Government Agency Mortgages 17,392 224,921 242,313
---------- ---------- ----------
U.S. Government Agency Securities (12.3%):
Federal Home Loan Bank (6.0%):
750 750 5.99%, 8/27/98 750 750
1,000 1,000 5.97%, 8/27/98 1,001 1,001
500 500 4.83%, 9/21/98, Series GI98 499 499
2,000 2,000 5.64%, 11/9/98 2,000 2,000
4,000 4,000 6.60%, 4/13/99 (b) 4,030 4,030
17,000 17,000 5.58%, 2/23/01 (b) 16,900 16,900
10,000 10,000 7.78%, 10/19/01 (b) 10,619 10,619
250 250 6.00%, 11/15/05, Series 1698 Class PE 250 250
543 543 9.00%, 1/1/06, Series 1807 Class G 576 576
214 214 5.75%, 7/15/06, Series 1490 Class PE 214 214
345 345 5.25%, 9/15/06, Series 1679 Class A 342 342
500 500 6/15/07, Series 1561 Class EA, IF 505 505
2,000 2,000 7.00%, 7/15/07, Seriec 1555 Class PK 2,029 2,029
260 260 5.75%, 1/15/08, Series 1606 Class G 259 259
241 241 6.25%, 6/15/08, Series 1544 Class E 242 242
422 422 5.50%, 7/15/14, Series 1497 Class CC 421 421
1,002 1,002 6.00%, 11/15/16, Series 1560 Class X, Accrual Bond 1,002 1,002
157 157 5.75%, 11/15/16, Series 1671 Class D 157 157
500 500 6.00%, 12/15/16, Series 1541 Class EA 500 500
1,000 1,000 4.00%, 12/15/16, Series 1541 Class EA 981 981
1,000 1,000 6.50%, 4/15/18, Series 1727 Class E 1,010 1,010
300 300 6.65%, 5/15/18, Series 1477 Class F 305 305
1,100 1,100 5.80%, 2/15/19, Series 1614 Class G 1,098 1,098
762 762 9.30%, 3/15/19, Series 2 Class Z 802 802
199 199 9.50%, 4/15/19 , Series 11 Class C 202 202
553 553 6.00%, 6/15/19, Series 1552 Class F 553 553
997 997 9.50%, 2/15/20, Series 26 Class F 1,070 1,070
500 500 6.25%, 2/15/20, Series 1559 Class VF 504 504
154 154 7/15/20, Series 1570 Class D, P/O 147 147
251 251 8.13%, 11/15/20 , Series 81 Class A 259 259
596 596 8.60%, 1/15/21, Series 85 Class C 625 625
</TABLE>
See notes to financial statements.
<PAGE> 239
<TABLE>
<CAPTION>
The One Group Limited Volatility Fund / Pegasus Short Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ----------- ---------- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1,147 1,147 9.50%, 1/15/21, Series 99 Class Z 1,233 1,233
140 140 1066.21%, 2/15/21 , Series 1045 Class G, HB 39 39
57 57 9.00%, 7/15/21, Series 192 Class H 57 57
1,088 1,088 9.00%, 11/15/22, Series 1424 Class IF 1,067 1,067
---------- ---------- ----------
16,948 35,300 52,248
---------- ---------- ----------
Federal National Mortgage Assoc. (6.4%):
1,000 1,000 4.70%, 9/10/98 998 998
2,000 2,000 5.55%, 3/12/99 1,999 1,999
4,000 4,000 6.35%, 4/8/99 4,022 4,022
22,000 22,000 5.72%, 3/8/01 (b) 22,014 22,014
10,000 10,000 6.16%, 3/29/01 (b) 10,117 10,117
15,000 15,000 6.50%, 7/16/07 15,687 15,687
610 610 5.75%, 11/25/16 608 608
---------- ---------- ----------
1,606 53,839 55,445
---------- ---------- ----------
Total U.S. Government Agency Securities 18,554 89,139 107,693
---------- ---------- ----------
U.S. Treasury Obligations (24.8%):
U.S. Treasury Notes (20.0%):
1,500 1,500 6.38%, 1/15/99 (b) 1,506 1,506
1,000 1,000 8.88%, 2/15/99 1,020 1,020
1,000 1,000 7.00%, 4/15/99 1,011 1,011
3,000 3,000 6.50%, 4/30/99 (b) 3,025 3,025
14,645 14,645 6.38%, 4/30/99 14,748 14,748
6,000 6,000 6.38%, 5/15/99 6,043 6,043
3,000 3,000 6.25%, 5/31/99 3,019 3,019
2,200 2,200 6.75%, 5/31/99 2,224 2,224
1,000 1,000 6.88%, 7/31/99 1,014 1,014
6,300 6,300 5.88%, 8/31/99 6,325 6,325
2,000 2,000 6.88%, 8/31/99 2,030 2,030
4,000 4,000 7.13%, 9/30/99 4,076 4,076
2,935 2,935 7.50%, 10/31/99 3,008 3,008
1,000 1,000 7.88%, 11/15/99 1,031 1,031
16,300 16,300 5.88%, 11/15/99 (b) 16,377 16,377
9,750 9,750 7.75%, 11/30/99 10,041 10,041
2,000 2,000 5.63%, 11/30/99 2,003 2,003
1,000 1,000 7.75%, 12/31/99 1,032 1,032
700 700 7.75%, 1/31/00 698 698
9,100 9,100 7.75%, 1/31/00 9,401 9,401
960 3,500 4,460 8.50%, 2/15/00 (b) 1,004 3,660 4,664
7,000 7,000 7.13%, 2/29/00 7,175 7,175
500 500 6.88%, 3/31/00 511 511
1,700 1,700 6.75%, 4/30/00 1,736 1,736
4,000 4,000 8.88%, 5/15/00 (b) 4,239 4,239
1,250 1,250 6.13%, 9/30/00 (b) 1,266 1,266
21,200 21,200 6.25%, 4/30/01 21,594 21,594
3,000 3,000 6.50%, 5/31/01 3,077 3,077
2,000 2,000 6.63%, 6/30/01 2,058 2,058
3,900 3,900 7.88%, 8/15/01 4,156 4,156
15,000 15,000 6.38%, 9/30/01 (b) 15,361 15,361
1,500 1,500 6.25%, 10/31/01 1,531 1,531
3,000 3,000 7.50%, 11/15/01 3,178 3,178
2,000 2,000 5.875, 11/30/01 2,021 2,021
5,900 5,900 6.25%, 2/28/02 6,036 6,036
1,015 1,015 3.63%, 7/15/02 1,004 1,004
5,000 5,000 6.25%, 8/31/02 (b) 5,130 5,130
---------- ---------- ----------
123,805 50,564 174,369
---------- ---------- ----------
U.S. Treasury STRIPS (4.8%):
17,500 17,500 2/15/00 (b) 16,040 16,040
18,500 18,500 11/15/01 (b) 15,422 15,422
15,500 15,500 07/15/05 10,486 10,486
---------- ---------- ----------
- 41,948 41,948
---------- ---------- ----------
Total U.S. Treasury Obligations 123,805 92,512 216,317
---------- ---------- ----------
Yankee & Eurodollar (0.6%):
5,000 5,000 Peoples Republic of China, 7.38%, 7/3/01 (b) 5,031 5,031
---------- ---------- ----------
Total Yankee & Eurodollar - 5,031 5,031
---------- ---------- ----------
Investment Companies (0.6%):
4,842 4,842 Pegasus Cash Management Fund, Class I 4,842 4,842
</TABLE>
See notes to financial statements.
<PAGE> 240
<TABLE>
<CAPTION>
The One Group Limited Volatility Fund / Pegasus Short Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ----------- ---------- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
---------- ---------- ----------
Total Investment Companies 4,842 - 4,842
---------- ---------- ----------
Repurchase Agreements (0.5%):
4,688 4,688 Prudential Securities, 6.10%, 7/1/98, (Collateralized by
$4,825 U.S. Treasury Bills, 9/3/98, market value $4,782) 4,688 4,688
---------- ---------- ----------
Total Repurchase Agreements - 4,688 4,688
---------- ---------- ----------
Short-Term Securities Held as Collateral (6.3%):
Master Notes (1.0%):
2,527 2,527 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 2,527 2,527
1,684 1,684 Danaher Corp., 6.68%, 10/9/98* 1,684 1,684
2,527 2,527 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 2,527 2,527
2,274 2,274 NationsBanc Capital Markets, 6.70%, 7/1/98* 2,274 2,274
---------- ---------- ----------
- 9,012 9,012
---------- ---------- ----------
Put Bonds (0.7%):
2,527 2,527 Citicorp, 5.94%, 8/3/98* 2,527 2,527
1,684 1,684 GMAC, 5.85%, 11/10/99* 1,687 1,687
1,684 1,684 Greenwich Capital, 6.11%, 12/13/99* 1,684 1,684
---------- ---------- ----------
- 5,898 5,898
---------- ---------- ----------
Repurchase Agreements (4.6%):
9,264 9,264 Donaldson, Lufkin & Jenrette, 6.65%, 7/1/98 (Collateralized
by $9,472 various Corporate and Government Securities,
0.00% - 17.25%, 10/15/02 - 4/15/35, market value $9,621) 9,264 9,264
8,422 8,422 Goldman Sachs, 6.65%, 7/1/98 (Collateralized by $8,977
various Corporate Bonds, 0.00%, 7/7/98 - 9/18/98, market
value $8,944) 8,422 8,422
18,529 18,529 Lehman Brothers, 6.65%, 7/1/98 (Collateralized by $18,993
various Corporate Bonds, 0.00% - 10.13%, 9/15/99 -
10/17/96, market value $19,880) 18,530 18,530
1,735 1,735 Lehman Brothers, 6.47%, 7/1/98 (Collateralized by $1,822
Media One Group Bonds, 0.00%, 10/5/98, market value
$1,822) 1,735 1,735
2,190 2,190 Lehman Brothers, 6.00%, 7/1/98 (Collateralized by $13,709
various Government Securities, 0.00% - 7.50%, 12/1/18 -
5/1/24, market value $2,254) 2,190 2,190
---------- ---------- ----------
- 40,141 40,141
---------- ---------- ----------
Total Short-Term Securities Held as Collateral - 55,051 55,051
---------- ---------- ----------
Total (Cost $908,012) (a) $ 254,217 $ 664,245 $ 918,462
========== ========== ==========
------------
Percentages indicated are based on net assets of $872,151.
(a) Represents cost for financial reporting purposes and differs from value
by net unrealized appreciation of securities as follo thousands):
Unrealized appreciation...............................................$ 10,916
Unrealized depreciation................................................ (466)
-----------
Net unrealized appreciation...........................................$ 10,450
===========
(b) A portion of this security was loaned as of June 30, 1998.
</TABLE>
* The interest rate, for this variable rate note, which will change
periodically, is based upon prime rates or an index of market reflected on
the Schedule of Portfolio of Investments is the rate in effect at June 30,
1998.
AR Adjustable Rate
ARM Adjustable Rate Mortgage
CMO Collateralized Mortgage Obligation
HB High Coupon Bond
IF Inverse Floater
IO Interest Only
MTN Medium Term Note
PO Principal Only
See notes to financial statements.
<PAGE> 241
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Asset Backed Securities (11.9%):
$ $ 1,000 $ 1,000 Advanta Credit Card Master Trust, Series 96-A, 6.00%,
11/15/05 $ $ 1,025 $ 1,025
37 37 Advanta Mortgage Loan Trust Asset Backed Certificate:
1994 Series, Class A2, 7.60%, 7/25/10 37 37
309 309 Advanta Mortgage Loan Trust, Series 94-4, Class A1, 8.55%,
11/25/12 314 314
5,000 5,000 Aesop Funding II, Series 97-1, Class A2, 6.40%, 10/20/03
2,622 2,622 Aircraft Lease Portfolio Securitization Ltd., Series 94-1, 5,041 5,041
Class A2, 7.15%, 9/15/04 2,639 2,639
781 781 Arcadia Automobile Receivables Trust Asset Backed Pass Thru Ctfs.,
1997 Series C, Class A2, 6.05%, 11/15/00 783 783
2,000 2,000 Arcadia Automobile Receivables Trust Asset Backed Pass Thru Ctfs.,
1997 Series B, Class A3, 6.30%, 7/16/01 2,009 2,009
2,400 2,400 Arcadia Automobile Receivables Trust Asset Backed Pass Thru Ctfs.,
1998 Series B, Class A3, 5.95%, 11/15/02 2,401 2,401
2,000 2,000 Arcadia Automobile Receivables Trust Asset Backed Pass Thru Ctfs.,
1998 Series A, Class AY, 6.00%, 11/15/03 2,001 2,001
3,000 3,000 Arcadia Automobile Receivables Trust Asset Backed Pass Thru Ctfs.,
1998 Series B, Class A4, 6.00%, 11/15/03 3,002 3,002
645 645 Case Equipment Loan Trust Asset Backed Ctf.,
1994 Series C, Class A2, 8.10%, 6/15/01 647 647
960 960 Case Equipment Loan Trust Asset Backed Ctf.,
1995 Series B, Class A3, 6.15%, 9/15/02 964 964
4,031 4,031 Case Equipment Loan Trust Asset Backed Ctf.,
1996 Series A, Class A2, 5.50%, 2/15/03 4,025 4,025
294 294 Chase Manhattan Guarantor Trust Automobile Loan Pass Thru Ctfs.,
Series 1995-B, Class A, 5.90%, 11/15/01 295 295
552 552 Chase Manhattan Guarantor Trust, Series 96-A, Class A,
5.20%, 2/15/02 550 550
250 250 Chemical Master Credit Card Asset Backed Certificate:
Series 1995, Class A, 6.23%, 8/15/02 254 254
1,254 1,254 Chevy Chase Auto Receivable Trust Asset Backed Pass Thru Ctf.,
Series 1997-4, Class A, 6.25%, 6/15/04 1,258 1,258
5,440 5,440 Circuit City Credit Card Master Trust, Series 95-1, Class A,
6.38%, 8/15/05 5,505 5,505
231 231 Collaterized Mortgage Obligation Trust CMO,
Series 12, Class D, 9.50%, 2/1/17 234 234
152 152 Collaterized Mortgage Obligation Trust CMO,
Series 16, Class Q, IF, 3/20/18 162 162
308 308 Collaterized Mortgage Securities Corp. CMO,
Series 88-2 Class B, 8.80%, 4/20/19 323 323
2,291 2,291 CPS Auto Trust Asset Backed Pass Thru Ctf.,
Series 1997-4, Class A1, 6.07%, 3/15/03 2,294 2,294
6,000 6,000 EQCC Home Equity Loan Trust, Series 96-4, Class A6,
6.88%, 7/15/14 6,180 6,180
2,000 2,000 First Bank Corporate Card Master Trust, Series 97-1, Class
B, 6.55%, 2/15/03 2,054 2,054
2,000 2,000 First USA Credit Card Master Trust Asset Backed Pass Thru Ctf.,
Series 1995-1, Class A, AR, 10/15/01 2,002 2,002
1,700 1,700 Ford Credit Auto Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-B, Class A2, 5.95%, 1/15/00 1,702 1,702
79 79 Greentree Financial Corp. Loan Trust Asset Backed Ctf.,
Series 1994-B1, Class A!, 7.15%, 7/15/14 80 80
4,000 4,000 Greentree Financial Corp., Series 93-2, Class B, 8.00%,
07/15/18 4,200 4,200
1,101 1,101 Greentree Financial Corp. Loan Trust Asset Backed Ctf.,
Series 1993-4, Class A2, 5.85%, 1/15/19 1,101 1,101
61 61 Greentree Financial Corp. Loan Trust Asset Backed Ctf.,
Series 1994-B, Class A2, 7.30%, 11/15/19 61 61
3,000 3,000 Greentree Financial Home Improvement Corp., Series 97-D,
Class HIA2, 6.45%, 10/15/23 3,030 3,030
5,000 5,000 Greentree Home Improvement Loan Trust, Series 95-D,
6.95%, 9/15/25 5,075 5,075
10,000 Keycorp Auto, Series 97-2A4, 6.15%, 10/15/01 10,041 10,041
345 345 MBNA Master Credit Card Trust Asset Backed Ctf.,
Series 1994-C, Class A, Flt Rate, 3/15/04 347 347
1,700 1,700 Merrill Lynch Trust 43-E CMO,:
Series 43, Class E, 6.50%, 8/27/15 1,699 1,699
818 818 Merrill Lynch Home Equity Loan Asset Backed Pass Thru Ctf.,
Series 1992-1, Class A, AR, 7/15/22 819 819
534 534 Merrill Lynch MBS Inc. Project Pass Thru Ctf.,
Series 144-S, 7.43%, 7/25/24 545 545
204 204 Morgan Stanley Mortgage Trust, CMO,
Series 35-2, HB, IF, 4/20/21 315 315
199 199 Morgan Stanley Mortgage Trust, CMO,
Series 37-2, HB, IF, 7/20/21 428 428
382 382 Morgan Stanley Mortgage Trust, CMO,
</TABLE>
See notes to financial statements.
<PAGE> 242
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series 39-3, PO, 12/20/21 316 316
175 National Rural Collateral Trust, 7.30%, 9/15/06 188 188
578 578 Navistar Financial Corp. Owner Trust Asset Backed Pass Thru Ctf.,
Series 1995-A, Class A2, 6.55%, 11/20/01 579 579
2,000 2,000 Newcourt Receivables Trust Asset Backed Pass Thru Ctf.,
Series 1997-1, Class A2, 6.04%, 6/20/00 2,004 2,004
3,120 3,120 Olympic Automobile Receivables Trust Asset Backed Pass Thru Ctf.,
Series 1995-E, Class 4, 5.85%, 3/15/01 3,123 3,123
577 577 Olympic Automobile Receivables Trust Asset Backed Pass Thru Ctf.,
Series 1995-B, Class A2, 7.35%, 10/15/01 582 582
3,239 3,239 Olympic Automobile Receivables Trust Asset Backed Pass Thru Ctf.,
Series 1995-C, Class A2, 6.20%, 1/15/02 3,249 3,249
4,500 4,500 Olympic Automobile Receivables Trust Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 3/15/02 4,560 4,560
2,650 2,650 Olympic Automobile Receivables Trust Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A5, 7.00%, 3/15/04 2,722 2,722
1,962 1,962 Onyx Acceptance Grantor Trust Auto Loan Pass Thru Ctf.,
Series 1996-1, Class A, 5.40%, 5/15/01 1,956 1,956
1,612 1,612 Onyx Acceptance Grantor Trust Auto Loan Pass Thru Ctf.,
Series 1997-1, Class A, 6.55%, 9/15/03 1,625 1,625
750 750 Prime Credit Card Master Trust, Series 96-1, 6.70%, 7/15/04
5,000 Rental Car Finance, Series 97-1, Class A2, 6.45%, 8/25/04 767 767
342 342 Rural Housing Trust 1987-1, Senior Mortgage Pass Thru Ctf.,
Sub Class 3-B, 7.33%, 4/1/26 351 351
467 467 Sears Credit Account Master Trust, Series 95-4, Class A, 5,063 5,063
6.25%, 1/15/03 468 468
300 300 Sears Credit Account Master Trust Asset Backed Ctf.,
Series 1995-3, Class A, 7.00%, 10/15/04 307 307
1,000 1,000 Sears Credit Account Master Trust Asset Backed Ctf.,
Series 1998-1A, 5.80%, 8/15/05 998 998
1,000 1,000 Standard Credit Card Master Trust Asset Backed Ctf.,
Series 1991-6, Class A, 7.875%, 1/7/00 1,008 1,008
2,520 2,520 Standard Credit Card Master Trust Asset Backed Ctf.,
Series 1995-10, Class A, 5.90%, 2/7/01 2,524 2,524
2,200 2,200 Superior Wholesale Inventory Fing Trust Asset Backed Ctf.,
Series 1996-A, Class A, AR, 3/15/01 2,200 2,200
4,000 4,000 Team Fleet Financing Corp., Series 97-1, Class A, 7.35%,
05/15/03 4,139 4,139
175 175 Toyota Auto Receivable Grantor Trust Asset Backed Ctf.,
Series 1995-A, Class A, 5.85%, 3/15/01 175 175
350 350 UFSB, Series 94-B, Class B, 6.43%, 7/10/00
2,296 Union Acceptance Corp., Series 95-D, 6.03%, 1/7/03 350 350
279 279 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-A, Class A3, 6.05%, 6/01/00 279 279
3,017 3,017 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-C, Class A2, 5.95%, 6/20/00 3,018 3,018
2,856 2,856 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-B, Class A2, 6.05%, 7/20/00 2,860 2,860
2,000 2,000 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-D, Class A2, 6.20%, 9/20/00 2,003 2,003
3,685 3,685 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-A, Class A4, 6.15%, 6/01/01 3,697 3,697
4,000 4,000 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-B, Class A3, 6.30%, 7/20/01 4,038 4,038
2,526 2,526 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-D, Class A3, 6.05%, 7/20/01 2,533 2,533
1,068 1,068 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1995-4, Class A1, 6.20%, 2/01/02 1,071 1,071
6,000 6,000 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03 6,083 6,083
2,900 2,900 Western Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1998-B, Class A4, 6.05%, 4/20/03 2,899 2,899
6,000 6,000 World Financial Network Credit Card, Series 96-1, Class A, 2,296 2,296
6.70%, 2/15/04 6,138 6,138
1,303 1,303 World Omni Automobile LSE SEC Trust Asset Backed Ctf.,
Series 1995-A, Class A, 6.05%, 11/25/01 1,303 1,303
4,298 4,298 World Omni Automobile Asset Backed Ctf.,
Series 1997-A, Class A4, 6.90%, 6/25/03 4,369 4,369
2,500 2,500 World Omni Automobile LSE SEC Trust Asset Backed Ctf.,
Series 1997-B, Class A1, 6.07%, 11/25/03 2,505 2,505
--------- -------- --------
Total Asset Backed Securities 94,913 64,875 159,788
--------- -------- --------
Corporate Bonds (12.7%):
Banking, Finance & Insurance (5.7%):
200 200 ABN Amro Bank NV Chicago, 7.25%, 5/31/05 212 212
300 300 American Express Credit Corp., 8.50%, 6/15/99 307 307
1,675 1,675 Associates Corp. of North America, 9.13%, 4/1/00 1,761 1,761
300 300 Associates Corp. of North America, 6.63%, 6/15/05 306 306
</TABLE>
See notes to financial statements.
<PAGE> 243
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
3,625 3,625 Associates Corp. of North America, 8.15%, 8/1/09 4,161 4,161
1,750 1,750 Associates Corp. of North America, 5.96%, 5/15/37 1,772 1,772
5,000 5,000 Bankers' Trust, 7.25%, 1/15/03 5,206 5,206
4,000 4,000 Capital One Bank, 6.61%, 6/22/99 4,010 4,010
200 200 Cit Group Holdings, 8.38%, 11/1/01 214 214
250 250 Citicorp Subordinated Notes, 6.75%, 8/15/05 257 257
200 200 Commercial Credit Group Inc., 9.60%, 5/15/99 207 207
3,000 3,000 First Hawaiian, Inc., 6.25%, 8/15/00 3,008 3,008
1,000 1,000 Ford Motor Credit Corp., 6.63%, 6/30/03 1,023 1,023
2,000 2,000 Ford Motor Credit Corp., 8.20%, 2/15/02 2,136 2,136
4,000 4,000 General Motors Acceptance Corp., 5.88%, 1/22/03 3,940 3,940
10,000 10,000 Goldman Sachs Group, 6.38%, 6/15/00 10,074 10,074
5,000 5,000 Greenwich Capital, 7.04%, 12/13/99, Private Placement 4,999 4,999
5,000 5,000 International Lease, 6.38%, 8/1/02 5,063 5,063
3,000 3,000 Lehman Brothers Holdings, Inc., 7.25%, 4/15/03 3,124 3,124
5,000 5,000 Lehman Brothers Holdings, Inc., 8.88%, 3/1/02 5,431 5,431
3,000 3,000 Lehman Brothers Holdings, Inc., 9.88%, 10/15/00 3,240 3,240
6,000 6,000 Liberty Mutual Insurance, 8.20%, 5/4/07 6,697 6,697
5,000 5,000 MBNA Corp., 6.29%, 5/23/03* 5,015 5,015
200 200 Mellon Financial Corporation Note, 7.63%, 11/15/99 205 205
4,000 4,000 Metropolitan Life, 7.00%, 11/1/05 4,130 4,130
170 170 Midland Bank, 8.63%, 12/15/04 191 191
100 100 Norwest Financial Incorporated Senior Note, 7.00%, 1/15/03 104 104
--------- -------- --------
11,833 64,960 76,793
--------- -------- --------
Gas & Electric Utility (0.8%):
2,500 2,500 Duke Power Co., 7.00%, 6/1/00 2,550 2,550
1,931 1,931 Kern River Fund, 6.42%, 3/31/01 (b) 1,942 1,942
6,000 6,000 Ohio Power, 6.73%, 11/1/04 6,172 6,172
--------- -------- --------
- 10,664 10,664
--------- -------- --------
Industrial Goods & Services (3.0%):
5,000 5,000 Atlas Copco AB, 6.50%, 4/1/08 5,025 5,025
1,900 1,900 Bellsouth Telecommunications Put Notes, 6.00%, 6/15/02 1,905 1,905
5,000 5,000 Cox Radio, Inc., 6.38%, 5/15/05, Series 144A 5,038 5,038
200 200 Dillard Investment Company, 9.25%, 2/1/01 215 215
5,000 5,000 Excel Paralubes Funding, 7.13%, 11/1/11 5,255 5,255
2,000 2,000 Limited, Inc., 8.88%, 8/15/99 2,055 2,055
600 600 Lockheed Martin Corp., 9.38%, 10/15/99 625 625
4,000 4,000 Oracle Corp., 6.72%, 2/15/04 4,105 4,105
200 200 Rockwell International Corp., 8.88%, 9/15/99 207 207
5,000 5,000 Sears Roebuck Acceptance, Series MTN3, 7.07%, 9/18/01 5,143 5,143
5,000 5,000 Thomas & Betts, Series MTN, 6.29%, 2/13/03 5,000 5,000
5,000 5,000 Tyco International Group SA, 6.25%, 6/15/03 4,988 4,988
650 650 VF Corp., 6.63%, 3/15/03 663 663
150 150 Wal Mart Stores Inc., 8.63%, 4/1/01 161 161
--------- -------- --------
2,488 37,897 40,385
--------- -------- --------
Real Estate (0.7%):
5,000 5,000 Meditrust, 7.60%, 7/15/01 5,150 5,150
4,000 4,000 Prime Properties Funding, 6.80%, 8/15/02 4,080 4,080
--------- -------- --------
- 9,230 9,230
--------- -------- --------
Telecommunications (0.3%):
4,000 4,000 Cable & Wire Communications, 6.63%, 3/6/05 4,045 4,045
--------- -------- --------
- 4,045 4,045
--------- -------- --------
Yankee & Eurodollar (2.2%):
983 983 African Development Bank Note, 9.30%, 7/1/00 1,044 1,044
5,000 5,000 Avon Energy Partners, 7.05%, 12/11/07, Series 144A 5,200 5,200
3,000 3,000 D.R. Investments, 7.10%, 5/15/02 3,090 3,090
4,000 4,000 Dao Heng Bank, 7.75%, 1/24/07 3,245 3,245
2,000 2,000 Kingdom of Thailand, 7.75%, 4/15/07 (b) 1,788 1,788
1,500 1,500 Metropolis of Tokyo, 8.70%, 10/5/99 1,554 1,554
400 400 National Australia Bank Ltd., 9.70%, 10/15/98 404 404
500 500 Nippon Telephone & Telegraph, 9.50%, 7/27/98 501 501
3,500 3,500 Ontario Province of Canada Senior Unsubordinated Debenture, 7.38%,
1/27/03 3,694 3,694
6,225 6,225 Petronas, 6.88%, 7/1/03 (b) 5,517 5,517
3,000 3,000 Ras Laffan Gas, 7.63%, 9/15/06 2,906 2,906
--------- -------- --------
6,696 22,247 28,943
--------- -------- --------
Total Corporate Bonds 21,017 149,043 170,060
--------- -------- --------
Other Mortgage Backed Securities (2.0%):
1,657 1,657 BHN, Series 97-1, Class A2, 7.92%, 7/25/09 1,641 1,641
4,000 4,000 Equitable, Series 174, Class A1, 7.24%, 5/15/06, Private Placement 4,258 4,258
2,000 2,000 J.P. Morgan & Co., Inc., Series 97, Class C4, 7.47%, 12/26/28 2,134 2,134
</TABLE>
See notes to financial statements.
<PAGE> 244
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
5,000 5,000 JPMC, Series 96-C2, Class B, 6.80%, 11/25/27 5,113 5,113
5,000 5,000 MLMI, Series 97-C2 A2, 6.54%, 12/10/29 5,140 5,140
4,000 4,000 Mortgage Capital Funding Inc., Series 96-MC2, Class A3, 7.08%, 9/20/06 4,188 4,188
1,740 1,740 Prudential Home Mortgage Securities, 6.50%, 5/25/00 1,737 1,737
3,022 3,022 Wells Fargo Capital Markets, Series 96-1, Class A1, 6.56%, 12/29/05 3,056 3,056
--------- -------- --------
Total Other Mortgage Backed Securities - 27,267 27,267
--------- -------- --------
U.S. Government Agency Mortgages (39.0%):
Federal Home Loan Mortgage Corp. (15.3%):
2,318 2,318 8/15/99, Series 1329 Class S, IO, IF 66 66
145 145 8.00%, 6/1/01, #252601 148 148
9,294 9,294 6.50%, 10/1/04, Gold Pool #M80495 9,384 9,384
815 815 9.00%, 1/1/06, Series 1807 Class G 865 865
12 12 1008.50%, 5/15/06, Series 1072 Class A, HB 241 241
1 1 10.08%, 6/15/06, Series 1098 Class M, HB 37 37
2,000 2,000 7.00%, 6/15/06, Series #1457-PH, CMO 2,035 2,035
1,500 1,500 4.50%, 3/15/07, Series 1295 Class JB 1,426 1,426
49 49 8.00%, 4/1/07, Pool #160022 51 51
6 6 981.86%, 6/15/07, Series 1298 Class L, HB 172 172
403 403 10/15/07, Series 1389 Class SA, IF 374 374
1,214 1,214 5.50%, 10/15/07, Series 1640 Class A 1,199 1,199
920 920 11/15/07, Series 1414 Class LB, IF 925 925
583 583 12/15/07, Series 1450 Class F 583 583
11,501 11,501 2/15/08, Series 1465 Class SA, IO, IF 476 476
460 460 5.50%, 4/15/08, Series 1489 Class L 455 455
874 874 6.00%, 4/15/08, Series 1531 Class K 859 859
1,335 1,335 5/15/08, Series 1506 Class F, AR 1,347 1,347
7,063 7,063 5/15/08, Series 1506 Class SD, IO, IF 362 362
228 228 5/15/08, Series 1506 Class S, IF 227 227
1,447 1,447 5/15/08, Series 1513 Class TA, V/R 1,439 1,439
806 806 7.50%, 8/1/08, Gold Pool #G10117 831 831
828 828 8/15/08, Series 1565 Class K 719 719
171 171 7.50%, 9/1/08, #252600 174 174
1,048 1,048 6.00%, 9/15/08, Series 1586 Class A 1,044 1,044
850 850 10/15/08, Series 1600 Class SC, V/R 915 915
898 898 10/15/08, Series 1900 Class I, P/O 715 715
2,208 2,208 12/15/08, Series 1635 Class O, FLT 2,228 2,228
604 604 12/15/08, Series 1647 Class FB, AR 599 599
1,127 1,127 12/15/08, Series 1647 Class SB, IF 1,124 1,124
1,798 1,798 12/15/08, Series 1655 Class F, AR 1,831 1,831
217 217 12/15/08, Series 1655 Class SA, IF 200 200
1,000 1,000 12/15/08, Series 1849 Class A, P/O 681 681
3,500 3,500 10/15/08, Series 1967, P/O 2,851 2,851
890 890 12/15/08, Series 2017 Class SE, V/R 826 826
9,622 9,622 6.00%, 12/15/08, Series #1624, CMO 9,595 9,595
1,392 1,392 2/15/09, Series 1796-A, Class S, IF 1,300 1,300
3,000 3,000 3/15/09, Series 1900 Class FA, FLT 3,021 3,021
2,897 2,897 8.50%, 1/1/10, Gold Pool #G10305 3,019 3,019
1,450 1,450 8.50%, 1/1/10, Gold Pool #E00356 1,511 1,511
203 203 7.00%, 8/1/10, Gold Pool #E20187 208 208
3,165 3,165 7.00%, 9/1/10, Gold Pool #E00393 3,237 3,237
2,873 2,873 7.50%, 7/1/11, Gold Pool #E20253 2,964 2,964
5,610 5,610 3/15/12, Series 1993 Class SJ, IF, IO 461 461
8,733 8,733 7.00%, 9/1/12, Gold Pool #E00506 8,896 8,896
6,753 6,753 6.50%, 1/1/13, Pool #E68904 6,799 6,799
9,798 9,798 6.50%, 4/1/13, Gold Pool #E69986 9,865 9,865
5,029 5,029 6.50%, 4/1/13, Pool #E00542 5,064 5,064
12,157 12,157 10/15/13, Series 1595 Class S, IO, IF 505 505
827 827 12.00%, 8/1/15, #170269 934 934
362 362 12.00%, 7/1/19, #555238 409 409
1,300 1,300 9.50%, 7/15/19, Series 11 Class D 1,402 1,402
124 124 9.40%, 8/15/19, Series 23 Class E 125 125
1,250 1,250 6.50%, 11/15/19, Series 1418 Class B 1,256 1,256
250 250 6.00%, 12/15/19, Series 1666 Class E 250 250
1,618 1,618 5.50%, 12/15/19, Series 1709 Class C 1,606 1,606
4,500 4,500 7.15%, 2/15/20, Series 1446 Class G 4,604 4,604
8,000 8,000 8.00%, 2/15/20, Gold Series #1770-PE, CMO 8,185 8,185
3,000 3,000 6.00%, 4/15/20, Series #1534-F, CMO 2,970 2,970
54 54 84.00%, 5/15/20, Series 41 Class I, HB 169 169
485 485 10.00%, 6/15/20, Series 47 Class F 522 522
540 540 8.00%, 7/1/20, Gold Pool #A01047 564 564
1,186 1,186 7.80%, 9/15/20, Series 46 Class B 1,225 1,225
1,147 1,147 9.50%, 1/15/21, Series 99 Class Z 1,233 1,233
557 557 5/15/21, Series 1079 Class S, IF 657 657
399 399 5/15/21, Series 1084 Class F, AR 407 407
279 279 5/15/21, Series 1084 Class S, IF 370 370
2,250 2,250 8.50%, 9/15/21, Series 1144 Class KB 2,350 2,350
9,440 9,440 6.50%, 10/15/21, Series #1590-GA, CMO 9,596 9,596
</TABLE>
See notes to financial statements.
<PAGE> 245
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
11 11 1167.776%, 11/15/21, Series 1172 Class L, HB 296 296
1,000 1,000 7.75%, 12/15/21, Series 1347 Class BH 1,042 1,042
1,296 1,296 7.00%, 12/20/21, Series 1956 Class A 1,306 1,306
32 32 1/15/22, Series 1196 Class B, HB, IF 432 432
25 25 7.00%, 4/1/22, Pool #D17544 26 26
1,100 1,100 7.00%, 5/15/22, Series 1250 Class J 1,117 1,117
523 523 9/15/22, Series 1543 Class KC, V/R 518 518
2,238 2,238 10/15/22, Series 1646 Class MB, FLT 2,222 2,222
952 952 10/15/22, Series 1646 Class MD, V/R 976 976
3,500 3,500 11/15/22, Series 2002 Class A, P/O 2,506 2,506
2,491 2,491 12/15/22, Series 1483 Class FB, AR 2,515 2,515
3,000 3,000 1/15/23, Series 1603 Class IF, AR 3,064 3,064
677 677 2/15/23, Series 1470 Class F, AR 672 672
767 767 3/15/23, Series 1487 Class IB, V/R 743 743
729 729 6.00%, 4/15/23, Series 1484 Class O 718 718
6 6 5/15/23, Series 204 Class E, HB, IF 146 146
1,149 1,149 5/15/23, Series 1694 Class SE, IF 1,140 1,140
867 867 9/15/23, Series 1583 Class NS, IF 812 812
6,723 6,723 6.25%, 9/15/23, Series 1589 Class Z 6,413 6,413
1,500 1,500 10/15/23, Series 1689 Class SD, IF 1,543 1,543
6,341 6,341 10/15/23, Series 1859 Class SB, AR 1,091 1,091
2,492 2,492 10/15/23, Series 1927 Class F, AR 2,507 2,507
1,112 1,112 11/15/23, Series 1619 Class CS, FLT 1,137 1,137
800 800 11/25/23, Series 24-Z 6025 789 789
518 518 6.00%, 11/25/23, Series 1685 Class Z 484 484
2,500 2,500 12/15/23, Series 1628 Class S, IF 1,960 1,960
2,500 2,500 12/15/23, Series 1854 Class SE, IO, IF 527 527
2,274 2,274 2/15/24, Series 1700 Class GA, P/O 1,548 1,548
7,666 7,666 4/25/24, Series G-29 Class SD, IF, IO 259 259
2,187 2,187 8.00%, 8/1/24, Pool #G00245 2,270 2,270
1,934 1,934 8.00%, 11/1/24, Gold Pool #C00376 2,007 2,007
3,206 3,206 7.50%, 8/1/25, Gold Pool #C00414 3,297 3,297
3,362 3,362 7.00%, 4/1/26, Pool #C00452 3,423 3,423
3,107 3,107 6.98%, 7/1/26, Pool #785618 3,127 3,127
7,038 7,038 7.50%, 1/15/27, Series 1927, CMO 7,544 7,544
9,968 9,968 6.50%, 3/1/28, Pool #D87734 9,938 9,938
7,921 7,921 7.00%, 3/15/28, Series 2023 Class PN 1,963 1,963
--------- -------- --------
88,360 116,406 204,766
--------- -------- --------
Federal National Mortgage Assoc. (16.0%):
4 4 1/25/99, 1992 Class 13-S, HB, IF 12 12
2,294 2,294 6.35%, 3/1/99, #160330 2,295 2,295
591 591 6/25/99, 1992 Class 85S, IF 617 617
4,693 4,693 11/25/99, 1992 Class 199-S, IO, IF 141 141
2 2 6.50%, 12/1/02, Pool #6345 2 2
1,882 1,882 1/17/03, 1997 Class MI, A, IF 1,903 1,903
6,097 6,097 3/17/04, 1997-M4 Class A, AR 6,189 6,189
444 444 10.00%, 5/25/04, 1989 Class 26-D 463 463
1,511 1,511 8.00%, 9/25/04, Series 91-155G 1,544 1,544
1,504 1,504 6.75%, 12/25/04, Series 93-6C, CMO 1,511 1,511
10,944 10,944 6.88%, 9/1/05, Pool #73192 11,408 11,408
2 2 758.75%, 1/25/06, 1991 Class 4-N, HB 28 28
1 1 908.75%, 3/25/06, 1991 Class 20-M, HB 17 17
7,613 7,613 6.95%, 4/1/06, Pool #73429 8,013 8,013
2 2 1008.25%, 4/25/06, 1991 Class 33-J, HB 47 47
1,500 1,500 7.05%, 6/25/06, Series 93-11, Class G 1,516 1,516
5,980 5,980 8/25/06, 1993 Class 8-SB, IO, IF 234 234
515 515 7.00%, 1/1/07, Pool #145771 526 526
2,500 2,500 7.50%, 8/25/07, Series G92-48, Class H, CMO 2,553 2,553
1,394 1,394 11/25/07, 1993 Class 174-SB, IF 1,394 1,394
1,900 1,900 2/25/08, 1996 Class 24-K, PO 1,575 1,575
2,488 2,488 2/25/08, Series X-188A, Class F, AR 2,521 2,521
6,750 6,750 5/25/08, 1993 Class 55-FA, IF, 5/25/08 6,861 6,861
2,935 2,935 5.66%, 8/25/08, 1993 Class 209-KB 2,859 2,859
557 557 9/25/08, 1993 Class 170-FA, VR 550 550
1,655 1,655 9/25/08, 1996 Class 20-L, PO 1,231 1,231
1,750 1,750 9/25/08, 1996 Class 39, P/O 1,257 1,257
970 970 6.00%, 12/25/08, 1993 Class 214-L 955 955
1,742 1,742 1/25/09, 1994 Class 12SB, IF 1,703 1,703
802 802 6.50%, 2/25/09, 1994 Class 30-LA 805 805
1,090 1,090 5.00%, 2/25/09, 1996 Class 46-A 1,069 1,069
2,090 2,090 6.50%, 3/25/09, 1995 Class 13-B 2,099 2,099
745 745 9/25/09, 1993 Class 22-SA, V/R 749 749
1,415 1,415 9/25/06, 1996 Class 46-PE, P/O 1,224 1,224
189 189 7.50%, 11/1/09, Pool #158 195 195
2,152 2,152 7.00%, 6/1/10, Pool #312903 2,198 2,198
3,741 3,741 6.50%, 12/1/10, Pool #322598 3,778 3,778
1,481 1,481 6.50%, 4/1/11, Pool #337903 1,496 1,496
</TABLE>
See notes to financial statements.
<PAGE> 246
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1,243 1,243 11/25/13, 1993 Class 220-SD, IF 1,110 1,110
199 199 7.50%, 5/1/14, Pool #57930 207 207
1,634 1,634 7.20%, 1/25/15, 1992 Class 210-D 1,651 1,651
741 741 12.50%, 1/1/16, #303306 864 864
2,094 2,094 5/25/16, 1993 Class 156-FA, AR 2,098 2,098
513 513 5.70%, 8/25/16, Series G93-39, Class A, CMO 508 508
1,180 1,180 11/25/16, 1993 Class 187-FE, AR 1,169 1,169
1,235 1,235 6.00%, 12/25/16, Series G-22 Class G 1,220 1,220
246 246 3.50%, 1/25/17, 1992 Class 137-BA 244 244
1,833 1,833 3/25/17, 1996 Class 27-FA, AR 1,848 1,848
91 91 7.00%, 4/1/17, Pool #44696 93 93
19 19 9.40%, 10/25/17, 1988 Class 17-B 19 19
437 437 9.25%, 4/25/18, 1988 Class 7-Z 460 460
1,250 1,250 6/25/18, 1992 Class 206-FA, IF 1,204 1,204
1,000 1,000 6.50%, 7/25/18, 1993 Class 8-PG 1,002 1,002
1,017 1,017 3/1/19, Adjustable Rate, #116612 1,051 1,051
153 153 10.50%, 3/25/19, Stripped Trust 50, Class 2, IO 42 42
3,530 3,530 5.00%, 5/25/19, 1993 Class 19-G 3,445 3,445
1,522 1,522 6.50%, 6/25/19, 1993 Class 19-K 1,524 1,524
344 344 8/1/19, Adjustable Rate, #111366 359 359
459 459 7.95%, 8/25/19, Series 90-14, CMO 468 468
2,000 2,000 8.00%, 10/25/19, 1989 Class 70-G 2,088 2,088
151 151 10/25/19, 1989 Class 73-C, PO 140 140
1,000 1,000 10/25/19, 1993 Class 156-SD, IF 896 896
500 500 6.25%, 11/25/19, Series G93-32, Class PG 501 501
1,750 1,750 9.40%, 11/25/19, 1989 Class 78-H 1,906 1,906
1,216 1,216 8.50%, 11/25/19, 1989 Class 83 1,265 1,265
1,389 1,389 9.00%, 11/25/19, 1989 Class 89-H 1,455 1,455
614 614 8.80%, 1/25/20, 1990 Class 1-D 649 649
1,869 1,869 5.00%, 4/25/20, 1993 Class 10-G 1,854 1,854
878 878 5.50%, 6/25/20, 1990 Class 60-K 848 848
755 755 9.50%, 6/25/20, 1990 Class 63-H 806 806
1,000 1,000 4.00%, 6/25/20, 1992 Class 66-HB 941 941
1,000 1,000 6.00%, 6/25/20, 1993 Class 13-G 997 997
857 857 5.50%, 8/25/20, 1990 Class 93-G 838 838
13 13 5.05%, 8/25/20, 1990 Class 94-H, HB 187 187
6 6 1118.04%, 8/25/20, 1990 Class 95-J, HB 225 225
3,041 3,041 6.50%, 8/25/20, 1990 Class 102-J 3,049 3,049
1,000 1,000 9.00%, 10/25/20, 1990 Class 120-H 1,094 1,094
2,000 2,000 6.00%, 10/25/20, 1992 Class 204-B 1,990 1,990
376 376 11/25/20, 1990 Class 134-SC, IF 438 438
13 13 652.145%, 12/25/20, 1990 Class 140-K, HB 341 341
5,255 5,255 6.50%, 12/25/20, 1997 Class 97-85L 661 661
1 1 908.75%, 2/25/21, 1991 Class 7-K, HB 25 25
165 165 7.50%, 2/25/21, 1991 Class 161-H 166 166
87 87 8.00%, 3/1/21, Pool #70825 91 91
1,800 1,800 10/25/21, 1997 Class 32C, P/O 1,610 1,610
2,800 2,800 5.00%, 11/25/21, 1992 Class 66-JB 2,560 2,560
1,200 1,200 7.88%, 11/25/21, Series 215PM 1,279 1,279
2,000 2,000 5.00%, 5/25/22, Series G93-10, Class G, CMO 1,911 1,911
220 220 5/25/22, 1992 Class 27-G, AR 336 336
756 756 7.00%, 7/25/22, 1992 Class 42-Z 769 769
700 700 5.50%, 9/25/22, 1992 Class 142 651 651
2,000 2,000 9/25/22, 1997 Class 70, P/O 1,428 1,428
2,721 2,721 7.50%, 11/1/22, Pool #189190 2,807 2,807
2,728 2,728 5.52%, 11/25/22, 1993 Class 38-S, IO, IF 20 20
2,000 2,000 12/25/22, Series X, Class VO, IF 2,044 2,044
989 989 6.50%, 2/25/23, 1993 Class 5-Z 978 978
2,745 2,745 2/25/23, 1993 Class 12-C, P/O 2,561 2,561
2,335 2,335 6.25%, 2/25/23, 1993 Class 12-S 117 117
25 25 2/25/23, 1993 Class 12-SB, HB, IF 185 185
9,700 9,700 6.00%, 3/25/23, Series 93-41 9,736 9,736
379 379 5.50%, 4/25/23, 1993 Class 58-J 374 374
242 242 6.75%, 5/25/23, 1993 Class 94-K 243 243
500 500 6.50%, 5/25/23, 1993 Class 155-LA 501 501
12,034 12,034 5/25/23, 1994 Class 82-SA, IO, IF 386 386
4,878 4,878 7/25/23, 1993 Class 113-S, IO, IF 248 248
1,536 1,536 8/25/23, 1993 Class 27-SE, V/R 1,146 1,146
2,597 2,597 8/25/23, 1993 Class 139-S, IF 2,305 2,305
672 672 8/25/23, 1993 Class 152-D, PO 655 655
3,480 3,480 8/25/23, 1994 Class 36-SG, IO, IF 203 203
2,035 2,035 3.00%, 9/25/23, 1993 Class 3-B 1,812 1,812
4,259 4,259 9/25/23, 1993 Class 155-SB, IO, IF 222 222
558 558 10/18/23, 1996 Class 69-FA, AR 560 560
2,206 2,206 11/25/23, 1993 Class 207-SC, IF 1,955 1,955
721 721 12/25/23, 1993 Class 223-FB, AR 716 716
651 651 12/25/23, 1993 Class 223-SB, IF 645 645
1,336 1,336 5.00%, 1/25/24, 1994 Class 19-C 1,307 1,307
</TABLE>
See notes to financial statements.
<PAGE> 247
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
2,199 2,199 2/25/24, 1994 Class 26-G, PO 1,867 1,867
863 863 3/25/24, 1994 Class 39-F, AR 865 865
332 332 3/25/24, 1994 Class 39-S, IF 331 331
375 375 3/25/24, 1994 Class 41, V/R 373 373
1,756 1,756 8.00%, 5/1/24, Pool #250066 1,825 1,825
3,232 3,232 8.50%, 7/1/24, Pool #250103 3,386 3,386
2,245 2,245 7.50%, 10/1/24, Pool #303031 2,312 2,312
2,825 2,825 7.00%, 11/17/24, 1994 Class 13-ZB 2,822 2,822
901 901 8.80%, 1/25/25, Series X-G1C, Class C 1,026 1,026
4,109 4,109 6.75%, 3/25/25, 1997 Class 59-FA 4,114 4,114
754 754 8.50%, 5/1/25, Pool #308499 791 791
153 153 7.50%, 5/1/25, Pool #293928 158 158
664 664 7.50%, 5/1/25, Pool #311810 684 684
930 930 8.50%, 6/1/25, Pool #315277 976 976
2,763 2,763 7.00%, 7/1/25, Pool #290387 2,812 2,812
3,263 3,263 7.00%, 7/1/25, Pool #312931 3,321 3,321
3,931 3,931 7.13%, 6/1/26, Pool #341503 4,012 4,012
1,700 1,700 7.50%, 8/18/26, 1997 Class 29PL, IO 554 554
892 892 8.50%, 11/1/26, #411183 946 946
14,362 14,362 3/25/27, 1997 Class 20, IO, IF 763 763
701 701 8.75%, 4/18/27, 1997 Class 50FD6 702 702
4,611 4,611 7.00%, 9/1/27, Pool #313687 4,698 4,698
9,000 9,000 6.00%, 11/1/27, Series 97-79, Class PE 8,806 8,806
1,638 1,638 9/1/27, Adjustable Rate, #54844 1,649 1,649
10,030 10,030 7.00%, 12/18/27, 1997 Class 81-PI 2,622 2,622
1,827 1,827 3/1/29, Adjustable Rate, #303532 1,840 1,840
--------- -------- --------
129,257 84,843 214,100
--------- -------- --------
Government National Mortgage Assoc. (7.7%):
3 3 11.00%, 6/15/99, Pool #110948 3 3
4 4 11.00%, 3/15/00, Pool #123750 4 4
5 5 10.00%, 12/15/00, Pool #136214 5 5
44 44 10.00%, 1/15/01, Pool #145167 46 46
33 33 10.00%, 1/15/01, Pool #145328 34 34
7 7 9.00%, 6/15/01, Pool #166985 7 7
1 1 9.00%, 6/15/01, Pool #164431 1 1
4 4 9.00%, 6/15/01, Pool #161443 4 4
3 3 8.50%, 6/15/01, Pool #162447 4 4
32 32 8.50%, 6/15/01, Pool #137056 33 33
57 57 6.50%, 6/15/01, Pool #1305 57 57
7 7 9.00%, 7/15/01, Pool #155822 7 7
36 36 9.00%, 8/15/01, Pool #173460 37 37
49 49 8.50%, 8/15/01, Pool #164207 52 52
5 5 9.00%, 9/15/01, Pool #177121 5 5
48 48 9.00%, 10/15/01, Pool #179852 51 51
6 6 9.00%, 10/15/01, Pool #185596 6 6
3 3 9.00%, 10/15/01, Pool #177634 4 4
69 69 9.00%, 11/15/01, Pool #191819 72 72
8 8 9.00%, 11/15/01, Pool #174365 9 9
3 3 8.50%, 11/15/01, Pool #183462 3 3
43 43 8.50%, 12/15/01, Pool #199182 45 45
35 35 8.50%, 12/15/01, Pool #199837 37 37
9 9 8.50%, 12/15/01, Pool #182959 10 10
7 7 9.00%, 1/15/02, Pool #205001 8 8
40 40 8.00%, 3/15/02, Pool #210065 42 42
56 56 8.00%, 3/15/02, Pool #205933 59 59
39 39 8.50%, 5/15/02, Pool #213776 41 41
23 23 8.00%, 5/15/02, Pool #203042 24 24
51 51 8.00%, 5/15/02, Pool #180296 53 53
68 68 8.50%, 6/15/02, Pool #2297 71 71
30 30 9.00%, 8/15/02, Pool #232424 31 31
36 36 9.00%, 10/15/02, Pool #246307 38 38
9 9 9.00%, 11/15/02, Pool #235553 9 9
3 3 9.00%, 6/15/03, Pool #247863 3 3
31 31 8.50%, 9/15/04, Pool #274390 32 32
74 74 9.00%, 10/15/04, Pool #281655 77 77
47 47 9.00%, 10/15/04, Pool #229506 49 49
45 45 8.50%, 10/15/04, Pool #277469 47 47
90 90 8.50%, 11/15/04, Pool #253471 94 94
70 70 9.00%, 5/15/05, Pool #288771 74 74
26 26 9.00%, 6/15/05, Pool #283904 27 27
36 36 9.00%, 8/15/05, Pool #297031 38 38
29 29 9.50%, 10/15/05, Pool #291846 31 31
12 12 9.00%, 10/15/05, Pool #292589 12 12
75 75 9.00%, 11/15/05, Pool #292610 79 79
33 33 9.00%, 11/15/05, Pool #299161 35 35
30 30 9.00%, 12/15/05, Pool #299569 32 32
61 61 7.50%, 2/15/06, Pool #7855 64 64
</TABLE>
See notes to financial statements.
<PAGE> 248
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
70 70 8.50%, 4/15/06, Pool #307487 73 73
46 46 7.50%, 6/15/06, Pool #7855 48 48
29 29 8.00%, 10/15/06, Pool #11503 30 30
55 55 8.00%, 1/15/07, Pool #14709 58 58
25 25 7.50%, 4/15/07, Pool #16991 26 26
222 222 7.50%, 5/15/07, Pool #329528 230 230
62 62 7.50%, 7/15/07, Pool #17316 64 64
119 119 7.50%, 8/15/07, Pool #19015 124 124
21 21 9.00%, 1/15/09, Pool #26076 23 23
111 111 9.00%, 4/15/09, Pool #30352 120 120
72 72 8.00%, 5/15/09, Pool #385676 74 74
4,030 4,030 6.50%, 7/15/09, Pool #780316 4,097 4,097
19 19 8.00%, 8/15/09, Pool #372143 20 20
37 37 9.50%, 10/15/09, Pool #36582 40 40
543 543 8.00%, 10/15/09, Pool #380639 563 563
1,249 1,249 7.50%, 2/15/12, Pool #393363 1,291 1,291
1,875 1,875 7.50%, 3/15/12, Pool #399163 1,938 1,938
1,217 1,217 7.50%, 3/15/12, Pool #441145 1,258 1,258
39 39 10.50%, 2/15/13, Pool #6507 43 43
2 2 12.00%, 1/15/15, Pool #112920 2 2
61 61 9.00%, 8/15/16, Pool #164502 66 66
36 36 9.50%, 9/15/16, Pool #158201 40 40
15 15 9.00%, 9/15/16, Pool #168987 16 16
15 15 9.00%, 9/15/16, Pool #175362 16 16
46 46 9.00%, 9/15/16, Pool #179044 50 50
57 57 9.00%, 12/15/16, Pool #198652 62 62
44 44 9.50%, 1/15/17, Pool #185619 48 48
114 114 8.50%, 1/15/17, Pool #203625 122 122
23 23 9.00%, 3/15/17, Pool #180330 25 25
8 8 8.50%, 3/15/17, Pool #196700 8 8
190 190 8.50%, 5/15/17, Pool #217536 203 203
9 9 8.50%, 6/15/17, Pool #188545 10 10
2,179 2,179 8.50%, 11/15/17, Pool #780086 2,340 2,340
141 141 9.00%, 7/15/18, Pool #226769 153 153
7 7 9.50%, 9/15/18, Pool #258627 8 8
37 37 9.50%, 12/15/18, Pool #229531 40 40
27 27 9.50%, 10/15/19, Pool # 279630 29 29
60 60 9.00%, 11/15/19, Pool #279649 65 65
129 129 9.50%, 2/15/20, Pool #281655 140 140
36 36 9.00%, 2/15/20, Pool #286315 39 39
46 46 9.50%, 9/15/20, Pool #292918 51 51
37 37 9.00%, 7/15/21, Pool #311256 40 40
145 145 8.00%, 4/15/22, Pool #325461 151 151
226 226 8.00%, 5/15/22, Pool #317346 237 237
77 77 8.00%, 5/15/22, Pool #320675 80 80
11 11 8.00%, 5/15/22, Pool #317358 12 12
2,300 2,300 8.00%, 7/15/22, Pool #426612 2,390 2,390
366 366 8.00%, 7/15/22, Pool #183670 382 382
451 451 7.50%, 8/15/22, Pool #333881 467 467
1,491 1,491 8.00%, 9/15/22, Pool #297628 1,554 1,554
1,325 1,325 7.50%, 11/15/22, Pool #313110 1,366 1,366
1,592 1,592 7.00%, 8/15/23, Pool #352108 1,625 1,625
6,595 6,595 7.00%, 9/15/23, Pool #363030 6,735 6,735
2,240 2,240 7.00%, 11/15/23, Pool #352022 2,288 2,288
8,362 8,362 6.50%, 1/15/24, Pool #366706 8,406 8,406
10,346 10,346 7.00%, 2/15/24, Pool #371281 10,562 10,562
2,917 2,917 9.00% 11/15/24, Pool #780029 3,170 3,170
1,722 1,722 7.50%, 1/15/26, Pool #416874 1,778 1,778
1,655 1,655 7.50%, 3/15/26, Pool #422292 1,708 1,708
2,487 2,487 7.50%, 4/15/26, Pool #426059 2,565 2,565
1,587 1,587 8.00%, 7/15/26, Pool #428509 1,649 1,649
2,644 2,644 7.50%, 11/15/26, Pool #442119 2,723 2,723
9,615 9,615 7.00%, 6/15/27, Pool #780584 9,804 9,804
3,768 3,768 7.50%, 7/15/27, Pool #442119 3,876 3,876
4,793 4,793 7.50%, 7/15/27, Pool #411829 4,931 4,931
9,975 9,975 6.00%, 3/20/28, Pool #2562 9,700 9,700
10,000 10,000 7.00%, 4/15/28, Pool # 426691 10,158 10,158
--------- -------- --------
2,920 100,696 103,616
--------- -------- --------
Total U.S. Government Agency Mortgages 220,537 301,945 522,482
--------- -------- --------
U.S. Government Agency Securities (0.3%):
Federal Home Loan Bank (0.1%):
800 800 7.06%, 2/12/99 807 807
--------- -------- --------
- 807 807
--------- -------- --------
Federal Housing Administration (0.2%):
966 966 7.43%, 1/1/22, Project #07335307 984 984
1,897 1,897 7.43%, 11/1/22, Greystone 1996-2 1,945 1,945
</TABLE>
See notes to financial statements.
<PAGE> 249
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
--------- -------- --------
2,929 - 2,929
--------- -------- --------
Total U.S. Government Agency Securities 2,929 807 3,736
--------- -------- --------
U.S. Treasury Obligations (31.3%):
U.S. Treasury Bonds (9.6%):
3,000 3,000 10.75%, 5/15/03 (b) 3,656 3,656
2,700 2,700 10.38% 11/15/09 3,378 3,378
39,926 39,926 12.75%, 11/15/10 56,863 56,863
14,045 14,045 10.38%, 11/15/12 18,807 18,807
1,000 1,000 12.50%, 8/15/14 1,558 1,558
13,000 13,000 7.50%, 11/15/16 (b) 15,608 15,608
3,000 3,000 8.75%, 5/15/17 (b) 4,041 4,041
11,000 11,000 8.13%, 8/15/19 (b) 14,186 14,186
10,000 10,000 6.25%, 8/15/23 (b) 10,715 10,715
--------- -------- --------
80,606 48,206 128,812
--------- -------- --------
U.S. Treasury Inflation Protected Bonds (1.2%):
4,664 4,664 3.63%, 7/15/02 4,613 4,613
1,224 10,256 11,480 3.38%, 1/15/07 (b) 1,185 9,935 11,120
--------- -------- --------
5,798 9,935 15,733
--------- -------- --------
U.S. Treasury Notes (18.0%):
5,000 5,000 8.25%, 7/15/98 (b) 5,006 5,006
4,000 4,000 4.75%, 8/31/98 (b) 3,998 3,998
3,000 3,000 8.88%, 11/15/98 (b) 3,038 3,038
3,000 3,000 5.88%, 3/31/99 3,009 3,009
1,000 1,000 7.00%, 4/15/99 1,011 1,011
8,700 8,700 9.125%, 5/15/99 8,964 8,964
8,000 8,000 6.875%, 7/31/99 8,111 8,111
6,000 6,000 8.00%, 8/15/99 (b) 6,163 6,163
10,000 10,000 7.50%, 10/31/99 (b) 10,250 10,250
1,000 1,000 7.88%, 11/15/99 (b) 1,031 1,031
31,000 31,000 7.75%, 11/30/99 31,925 31,925
16,000 16,000 5.63%, 11/30/99 (b) 16,027 16,027
3,000 5,000 8,000 7.75%, 1/31/00 (b) 3,099 5,167 8,266
35,900 35,900 7.125%, 2/29/00 36,797 36,797
3,000 3,000 6.75%, 4/30/00 (b) 3,064 3,064
2,900 2,900 6.25%, 5/31/00 2,938 2,938
6,000 6,000 5.88%, 6/30/00 (b) 6,044 6,044
3,000 3,000 6.13%, 7/31/00 (b) 3,036 3,036
21,350 1,000 22,350 8.75%, 8/15/00 22,711 1,064 23,775
5,000 5,000 7.75%, 2/15/01 (b) 5,268 5,268
2,500 2,500 8.00%, 5/15/01 2,662 2,662
5,000 5,000 6.25%, 10/31/01 (b) 5,105 5,105
7,000 7,000 7.50%, 11/15/01 (b) 7,414 7,414
7,000 7,000 6.25%, 2/28/02 (b) 7,159 7,159
360 360 6.625%, 3/31/02 373 373
11,000 11,000 5.75%, 8/15/03 (b) 11,121 11,121
1,000 6,000 7,000 7.25%, 5/15/04 (b) 1,085 6,511 7,596
340 5,000 5,340 7.25%, 8/15/04 (b) 370 5,438 5,808
385 4,000 4,385 7.88%, 11/15/04 (b) 432 4,493 4,925
600 600 6.875%, 5/15/06 650 650
350 350 6.50%, 10/15/06 372 372
--------- -------- --------
121,500 119,406 240,906
--------- -------- --------
U.S. Treasury STRIPS (2.5%):
7,600 7,600 11/15/98 7,454 7,454
7,660 7,660 2/15/99 7,409 7,409
3,300 3,300 2/15/01 2,860 2,860
2,250 2,250 8/15/01 1,896 1,896
5,350 5,350 8/15/08 3,045 3,045
5,000 5,000 11/15/10 2,494 2,494
2,250 2,250 11/15/11 1,058 1,058
1,000 1,000 2/15/13 437 437
20,000 20,000 05/15/16 7,249 7,249
--------- -------- --------
26,653 7,249 33,902
--------- -------- --------
Total U.S. Treasury Obligations 234,557 184,796 419,353
--------- -------- --------
Investment Companies (1.1%):
14,368 14,368 Pegasus Cash Management Fund, Class I 14,368 14,368
--------- -------- --------
Total Investment Companies 14,368 - 14,368
--------- -------- --------
Repurchase Agreements (0.8%):
10,855 10,855 Prudential Securities, 6.10%, 7/1/98 (Collateralized by
$11,011 various U.S. Government Securities, 5.63%-6.10%,
11/30/99-6/26/03, market value $11,073) 10,855 10,855
--------- -------- --------
Total Repurchase Agreements - 10,855 10,855
--------- -------- --------
</TABLE>
See notes to financial statements.
<PAGE> 250
<TABLE>
<CAPTION>
The One Group Intermediate Bond Fund / Pegasus Intermediate Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ------- --------- ---------- ------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Securities Held as Collateral (9.2%):
Master Notes (1.5%):
5,638 5,638 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 5,638 5,638
3,759 3,759 Danaher Corp., 6.68%, 10/9/98* 3,759 3,759
5,638 5,638 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 5,639 5,639
5,075 5,075 NationsBanc Capital Markets, 6.70%, 7/1/98* 5,075 5,075
--------- -------- --------
- 20,111 20,111
--------- -------- --------
Put Bonds (1.0%):
5,639 5,639 Citicorp, 5.94%, 8/3/98* 5,639 5,639
3,759 3,759 GMAC, 5.85%, 11/10/99* 3,764 3,764
3,759 3,759 Greenwich Capital, 6.11%, 12/13/99* 3,759 3,759
--------- -------- --------
- 13,162 13,162
--------- -------- --------
Repurchase Agreements (6.7%):
20,674 20,674 Donaldson, Lufkin & Jenrette, 6.65%, 7/1/98
(Collateralized by $21,137 various Corporate and
Government Securities, 0.00% - 17.25%, 10/15/02 - 4/15/35,
market value $21,470) 20,674 20,674
18,795 18,795 Goldman Sachs, 6.65%, 7/1/98 (Collateralized by $20,032
various Corporate Bonds, 0.00%, 7/7/98 - 9/18/98, market
value $19,960) 18,795 18,795
41,349 41,349 Lehman Brothers, 6.65%, 7/1/98 (Collateralized by $42,384
various Corporate Bonds, 0.00% - 10.13%, 9/15/99 -
10/17/96, market value $44,363) 41,349 41,349
3,872 3,872 Lehman Brothers, 6.47%, 7/1/98 (Collateralized by $4,067
Media One Group Bonds, 0.00%, 10/5/98, market value
$4,067) 3,872 3,872
4,887 4,887 Lehman Brothers, 6.00%, 7/1/98 (Collateralized by $30,592
various Government Securities, 0.00% - 7.50%, 12/1/18 -
5/1/24, market value $5,030) 4,887 4,887
--------- -------- --------
- 89,577 89,577
--------- -------- --------
Total Short-Term Securities Held as Collateral - 122,850 122,850
--------- -------- --------
Total (Cost $1,421,675) (a) $ 588,321 $ 862,438 $1,450,759
========= ======== =========
- ------------
Percentages indicated are based on net assets of $1,339,839.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losse recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $2,516. Cost for federal tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
Unrealized appreciation........................................................... $ 60,020
Unrealized depreciation........................................................... (33,452)
----------
Net unrealized appreciation....................................................... $ 26,568
==========
(b) A portion of this security was loaned as of June 30, 1998.
</TABLE>
* The interest rate, for this variable rate note, which will change
periodically, is based upon prime rates or an index of market rates reflected
on the Schedule of Portfolio of Investments is the rate in effect at June 30,
1998.
AR Adjustable Rate
CMO Collaterallized Mortgage Obligation
HB High Coupon Bonds
IF Inverse Floaters
IO Interest Only
PO Principal Only
<PAGE> 251
<TABLE>
<CAPTION>
The One Group Income Bond Fund / Pegasus Multi-Sector Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
------ ------ ------ --------------------------------------------------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Asset Backed Securities (8.2%):
$ 204 $ $ 204 Advanta Mortgage Loan Trust Asset Backed Ctf.,
Series 1994-3, Class A2, 7.60%, 7/25/10 $ 203 $ $ 203
4,927 4,927 Advanta Mortgage Loan Trust, Series 1995-1, Class A5,
8.32%, 12/25/19 5,201 5,201
5,000 5,000 Advanta Mortgage Loan Trust, Series 1997-2, Class A4,
7.60%, 6/25/27 5,280 5,280
4,195 4,195 Aircraft Lease Portfolio Securitization Ltd.,
Series 1994-1, Class A2, 7.15%, 9/15/04 4,222 4,222
1,796 1,796 Auto Finance Group, Inc., Series 1997-B, Class C, 7.00%,
02/15/03 1,772 1,772
2,000 2,000 BA Mortgage Securities Inc Mortgage Pass Thru Ctf.,
Series 1998-2, Class 1A10, 6.60%, 6/25/28 2,014 2,014
2,500 2,500 Chemical Master Credit Card Trust 1 Asset Backed Ctf.,
Series 1995-3, Class A, 6.23%, 8/15/02 2,543 2,543
727 727 Chevy Chase Auto Receivables Trust Asset Backed
Pass Thru Ctf., Series 1995-2, Class A, 5.80%, 6/15/02 727 727
2,500 2,500 Citicorp Mortgage Securities Pass Thru Ctf.,
Series 1994-9, Class A3, 5.75%, 6/25/09 2,481 2,481
2,500 2,500 Dayton Hudson Credit Card Master Trust Asset Backed Ctf.,
Series 1995-1, Class A, 6.10%, 2/25/02 2,504 2,504
5,000 5,000 EQCC Home Loan Trust, Series 1998-2, Class A3F, 6.23%,
03/15/13 5,001 5,001
237 237 Greentree Financial Corp. Asset Backed Pass Thru Ctf.,
Series 1994-B1, Class A1, 7.15%, 7/15/14 241 241
5,000 5,000 Greentree Financial Corp., Series 1993-2, Class B, 8.00%,
07/15/18 5,249 5,249
5,000 5,000 Greentree Financial Corp., Series 1995-2, Class B1, 8.60%%,
05/15/26 4,961 4,961
4,350 4,350 Greentree Financial Corp., Series 1995-10, Class B1, 7.05%,
02/15/27 4,535 4,535
5,000 5,000 Greentree Home Improvement Loan Trust, Series 1995-D,
Class M1, 6.95%, 9/15/25 5,075 5,075
2,256 2,256 Key Auto Finance Trust Asset Backed Pass Thru Ctf.,
Series 1997-1, Class A1, 5.85%, 3/15/03 2,417 2,417
1,655 1,655 MBNA Master Credit Card Trust Asset Backed Pass Thru Ctf.,
Series 1994-C, Class A, Adjustable Rate, 3/15/04 1,665 1,665
3,000 3,000 MBNA, Series 1998-C, 6.35%, 11/15/05 3,000 3,000
500 500 Newcourt Receivables Asset Trust Pass Thru Ctf.,
Series 1997-1, Class A, 6.04%, 6/20/00 501 501
3,073 3,073 Olympic Automobile Receivables Trust, Series 1994-B,
Class A2, 6.85%, 6/15/01 3,132 3,132
2,300 2,300 Olympic Automobile Receivables Trust Asset Backed
Pass Thru Ctf. Series 1995-D, Class A5, 6.15%, 7/15/01 2,308 2,308
3,919 3,919 Olympic Automobile Receivables Trust, Series 1995-B,
Class A2, 7.35%, 10/15/01 3,958 3,958
3,000 3,000 Olympic Automobile Receivables Trust Asset Backed
Pass Thru Ctf. Series 1996-C, Class A5, 7.00%, 12/15/01 3,082 3,082
382 382 PNC Student Loan Trust Asset Backed Pass Thru Ctf.
Series 1997-2, Class A6, 6.572%, 1/25/04 395 395
2,000 2,000 Security Pacific Acceptance Corp. Asset Backed
Pass Thru Ctf., Series 1995-1, Class A3, 7.25%, 4/10/20 2,093 2,093
3,000 3,000 Team Fleet Financial Corp., Series 1998-2A, Class C,
6.53%, 7/25/02 2,998 2,998
574 574 Union Federal Savings Bank Trust Auto Receivables
Pass Thru Ctf., Series 1994-D, Class A, 7.65%, 1/10/01 577 577
4,000 4,000 Western Financial Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03 4,055 4,055
5,000 5,000 World Omni, Series 1997, Class A7, 6.48%, 12/12/08 5,017 5,017
----------- ---------- ----------
Total Asset Backed Securities 27,806 59,401 87,207
----------- ---------- ----------
Collateralized Bond Obligation (0.5%):
5,000 5,000 Merrill Lynch, 1996 PM1, 7.87%, 12/17/06 5,167 5,167
----------- ---------- ----------
Total Collateralized Bond Obligation - 5,167 5,167
----------- ---------- ----------
Corporate Bonds (41.2%):
Banking, Finance & Insurance (17.3%):
4,800 4,800 ABN AMRO Bank N.V., 7.25%, 5/31/05 5,076 5,076
2,000 2,000 American Express Credit Card Note, 6.13% 11/15/01 2,018 2,018
2,000 2,000 American Health Properties, 7.50%, 1/15/07 2,143 2,143
</TABLE>
See notes to financial statements.
<PAGE> 252
<TABLE>
<CAPTION>
The One Group Income Bond Fund / Pegasus Multi-Sector Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
------ ------ ------ --------------------------------------------------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
6,000 6,000 American RE Corp., 7.45%, 12/15/26 6,678 6,678
9,000 9,000 Associates Corp., 8.34%, 11/25/99 9,292 9,292
6,000 6,000 Associates Corp., 8.15%, 8/1/09 6,878 6,878
2,000 2,000 Baltimore Gas & Electric Co. Mortgage, 6.60%, 6/25/28 2,042 2,042
5,000 5,000 BankAmerica Corp., 9.50%, 4/1/01 5,431 5,431
5,000 5,000 Bear Stearns Co., Inc., 8.25%, 2/1/02 5,338 5,338
5,000 5,000 Bradley Operating, 7.20%, 1/15/08 5,038 5,038
6,500 6,500 Corestates Capital, 8.00%, 12/15/26 7,141 7,141
5,000 5,000 Cullen Frost Bank Capital Trust, 8.42%, 2/1/27 5,638 5,638
1,000 1,000 Donaldson Lufkin Senior Note, 6.50%,6/1/08 1,005 1,005
2,000 2,000 Eli Lilly & Company Debenture, 8.38%, 12/1/06 2,297 2,297
5,000 5,000 First Chicago Capital Trust, 7.95%, 12/1/26 5,500 5,500
2,000 2,000 Fleet Financial Group, Inc., 8.13%, 7/1/04 2,190 2,190
3,500 3,500 Ford Capital BV, 10.13%, 11/15/00 3,815 3,815
1,500 1,500 Ford Motor Credit Corp., 6.38%, 10/6/00 1,515 1,515
3,500 3,500 General Electric Capital Corp., 8.85%, 4/1/05 4,047 4,047
3,000 3,000 General Motors Acceptance Corp., 8.40%, 10/15/99 3,094 3,094
8,000 8,000 General Motors Acceptance Corp., 7.00%, 3/1/00 8,129 8,129
2,000 2,000 General Motors Acceptance Corp., 7.13%, 5/1/03 2,087 2,087
4,500 4,500 Grand Metro Investment Corp. Guaranteed Note, 7.45%, 4/15/35 5,222 5,222
2,500 2,500 Hertz Corporation Senior Note, 6.63%, 5/15/08 2,530 2,530
2,000 2,000 Household Finance Co. Note, 7.25%, 7/15/03 2,091 2,091
10,000 10,000 Lehman Brothers Holdings, Inc., 8.88%, 3/1/02 10,862 10,862
5,000 5,000 Lehman Brothers Holdings, Inc., 11.63%, 5/15/05 6,450 6,450
5,000 5,000 Lehman Brothers Holdings, Inc., 8.80%, 3/1/15 5,969 5,969
6,000 6,000 Massachusetts Mutual Life Insurance, 7.50%, 3/1/24, 144A 6,563 6,563
2,310 2,310 Mellon Financial Corp., 7.63%, 11/15/99 2,362 2,362
5,000 5,000 MIC Financial Trust, 8.38%, 2/1/27 5,525 5,525
6,000 6,000 Morgan Stanley Dean Witter & Co., 6.13%, 10/1/03 5,993 5,993
4,290 4,290 National Rural Utilities Coop Financial Corp., 6.75%, 9/1/01 4,386 4,386
1,500 1,500 Norwest Corp., Senior Medium Term Note, 7.75%, 3/1/02 1,590 1,590
5,000 5,000 Principal Mutual, 7.88%, 3/1/24 5,381 5,381
2,000 2,000 Republic New York Corp., 7.25%, 7/15/02 2,090 2,090
5,000 5,000 Royal Caribbean Cruises Note, 6.75%, 3/15/08 5,063 5,063
3,700 3,700 Salomon Inc., 6.70%, 12/1/98 3,713 3,713
3,055 3,055 Societe General Estate, LLCSeries 144A,
Perpetual Maturity, 7.64%, 3,041 3,041
5,000 5,000 Sun Life Capital Trust, 8.53%, 5/29/49 5,706 5,706
2,000 2,000 Travelers Group Note, 6.25%, 12/1/05 2,023 2,023
----------- ---------- ----------
59,361 123,591 182,952
----------- ---------- ----------
Food Products & Services (0.3%):
2,500 2,500 RJR Nabisco Corp., 8.75%, 8/15/05 2,666 2,666
----------- ---------- ----------
- 2,666 2,666
----------- ---------- ----------
Industrial Goods & Services (8.8%):
1,500 1,500 Advanced Micro Devices, Inc., 11.00%, 8/1/03 (b) 1,594 1,594
5,000 5,000 Atlas Copco AB, 6.50%, 4/1/08 5,025 5,025
5,000 5,000 Avon Products Inc., Series 144A, 6.25%, 5/1/03 5,038 5,038
3,000 3,000 Beckman Instruments, 7.05%, 6/1/26 3,026 3,026
3,000 3,000 Boise Cascade Co., 9.45%, 11/1/09 3,630 3,630
4,000 4,000 Comcast Cable, 8.38%, 5/1/07, 144A 4,490 4,490
1,500 1,500 Comcast Cellular Holdings, 9.50%, 5/1/07 1,569 1,569
1,500 1,500 D.R. Horton, Inc., 8.38%, 6/15/04 1,511 1,511
2,500 2,500 Fred Meyer, Inc., 7.38%, 3/1/05 2,519 2,519
2,000 2,000 Freeport McMoran, Copper & Gold, 7.50%, 11/15/06 1,628 1,628
5,000 5,000 General Motors Corp., 9.13%, 7/15/01 5,424 5,424
3,000 3,000 Golden State Petroleum, 8.04%, 2/1/19, 144A 3,191 3,191
5,000 5,000 Hilton Hotels Corp., 7.95%, 4/15/07 5,231 5,231
2,500 2,500 Loewen Group, Inc., 8.25%, 4/15/03, Callable 4/15/00 2,591 2,591
2,500 2,500 Mississippi Chemical Corp., 7.25%, 11/15/17 2,538 2,538
4,640 4,640 Newmont Gold Co., 8.91%, 1/5/09 5,185 5,185
1,500 1,500 Nine West Group, Inc., 8.38%, 8/15/05 1,474 1,474
2,500 2,500 Northrop-Grumman Corp., 7.00%, 3/1/06 2,594 2,594
4,604 4,604 Oslo Seismic Service, 8.28%, 6/1/11, 144A 5,027 5,027
2,500 2,500 Owens-Illinois, Inc., 7.15%, 5/15/05 2,528 2,528
9,000 9,000 Penske Truck Leasing, 8.25%, 11/1/99 9,269 9,269
1,500 1,500 Pride Petroleum Services, Inc., 9.38%, 5/1/07 1,584 1,584
5,000 5,000 Tele-Commun, Inc., 7.38%, 2/15/00 5,100 5,100
1,500 1,500 Tenet Healthcare Corp., 8.00%, 1/15/05 1,560 1,560
1,500 1,500 Terra Industries, 10.50%, 6/15/05, Callable 6/15/00 1,622 1,622
</TABLE>
See notes to financial statements.
<PAGE> 253
<TABLE>
<CAPTION>
The One Group Income Bond Fund / Pegasus Multi-Sector Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
------ ------ ------ --------------------------------------------------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1,500 1,500 Trico Marine Services, Inc., 8.50%, 8/1/05 1,470 1,470
5,000 5,000 U.S. Filter Corp., 6.38%, 5/15/01 5,006 5,006
2,000 2,000 Wyman-Gordon Co., 8.00%, 12/15/07 2,050 2,050
----------- ---------- ----------
3,026 90,448 93,474
----------- ---------- ----------
Real Estate (5.2%):
2,000 2,000 Avalon Properties, Inc., 7.38%, 9/15/02 2,070 2,070
1,500 1,500 Dynex Capital, Inc., 7.88%, 7/15/02 1,524 1,524
4,750 4,750 Meditrust, Inc., 7.77%, 8/16/02 4,952 4,952
3,000 3,000 Meditrust, Inc., 7.82%, 9/10/26 3,431 3,431
3,500 3,500 MEPC Finance, Inc., 7.50%, 5/1/03 3,745 3,745
5,000 5,000 Security Capital Pacific Trust, 6.95%, 10/15/02 5,113 5,113
2,500 2,500 Security Capital Pacific Trust, 7.15%, 10/15/03 2,566 2,566
5,000 5,000 Security Pacific Corp., 11.00%, 3/1/01 5,600 5,600
5,000 5,000 Spieker Properties, Inc., 6.65%, 12/15/00 5,044 5,044
4,000 4,000 Spieker Properties, Inc., 8.00%, 7/19/05 4,300 4,300
8,000 8,000 Taubman Realty Group, 7.00%, 10/1/03 8,109 8,109
3,000 3,000 Wellsford Residential Property, 7.25%, 8/15/00 3,064 3,064
5,000 5,000 Western Banktrust REIT, 7.88%, 2/15/04 5,300 5,300
----------- ---------- ----------
- 54,818 54,818
----------- ---------- ----------
Transportation & Shipping (1.2%):
5,000 5,000 Enterprise Rental-A-Car, 6.38%, 5/15/03 5,000 5,000
5,000 5,000 Union Pacific Co., 9.63%, 12/15/02 5,638 5,638
1,500 1,500 Viking Star Shipping, 9.63%, 7/15/03 1,571 1,571
----------- ---------- ----------
- 12,209 12,209
----------- ---------- ----------
Utilities (1.8%):
4,000 4,000 Bell Telephone Co. Pennsylvania, 8.35%, 12/15/30 5,083 5,083
2,000 2,000 New York Telephone Note, 5.63%, 11/1/03 1,964 1,964
7,000 7,000 NRG Energy Corp., 7.63%, 2/1/06 7,411 7,411
2,000 2,000 Pacific Bell Senior Note, 6.88%, 8/15/06 2,100 2,100
2,819 2,819 Salton Sea Funding Corp., 6.69%, 5/30/00 2,847 2,847
----------- ---------- ----------
9,147 10,258 19,405
----------- ---------- ----------
Yankee & Eurodollar (6.7%):
5,000 5,000 BCH Cayman Islands, 8.25%, 6/15/04 (b) 5,456 5,456
4,000 4,000 BCH Cayman Islands, 7.50%, 6/15/05 4,240 4,240
5,000 5,000 Celulosa Arauco, 6.75%, 12/15/03 4,869 4,869
12,302 12,302 Centra Gas, 10.65%, 12/1/10, 144A 12,702 12,702
5,000 5,000 China International Trust & Investing, 9.00%, 10/15/06 (b) 5,056 5,056
5,000 5,000 China Light & Power Ltd., 7.50%, 4/15/06 4,906 4,906
5,000 5,000 Coca Cola Femsa, 8.95%, 11/1/06 5,056 5,056
2,000 2,000 Kansalis-Osake Pankki, 9.75%, 12/15/98 2,030 2,030
2,000 2,000 Petroleos Mexicanos, 8.85%, 9/15/07 1,973 1,973
2,500 2,500 Petroliam Nasional Berhad, 7.13%, 10/18/06 (b) 2,122 2,122
4,250 4,250 Ras Laffan Gas, 7.63%, 9/15/06, 144A 4,117 4,117
5,000 5,000 Scotland International Finance, 8.80%, 1/27/04, 144A 5,588 5,588
4,000 4,000 Scotland International Finance, 8.85%, 11/1/06, 144A 4,630 4,630
4,000 4,000 Termoemcali Funding Corp., 10.13%, 12/15/14, 144A 3,770 3,770
2,400 2,400 Yanacocha, 8.40%, 6/15/04 2,381 2,381
2,426 2,426 Ypf Sociedad Anomima, 7.00%, 10/26/02 2,435 2,435
----------- ---------- ----------
- 71,331 71,331
----------- ---------- ----------
Total Corporate Bonds 71,534 365,321 436,855
----------- ---------- ----------
Equipment Trust Certificates (2.3%):
4,886 4,886 Federal Express, Series A-1, 7.85%,1/30/15 5,313 5,313
10,966 10,966 Northwest Air Trust, Series 2, Class A, 9.25%, 12/21/12 13,064 13,064
4,569 4,569 Northwest Air Trust, Series B, 10.23%, 12/21/12 5,523 5,523
----------- ---------- ----------
Total Equipment Trust Certificates - 23,900 23,900
----------- ---------- ----------
Other Mortgage Backed Securities (1.0%):
2,485 2,485 BHN, Series 1997-1, Class A2, 7.92%, 7/25/09 2,462 2,462
2,750 2,750 BHN, Series 1997-2, Class A2, 7.54%, 5/31/17 2,742 2,742
5,000 5,000 Residential Funding Corp., Series 1996-HS2,
Class A4, 7.55%, 9/25/12 5,210 5,210
----------- ---------- ----------
Total Other Mortgage Backed Securities - 10,414 10,414
----------- ---------- ----------
U.S. Government Agency Mortgages (21.7%):
Federal Home Loan Mortgage Corp. (12.0%):
5,000 5,000 7.13%, 7/21/99 5,074 5,074
</TABLE>
See notes to financial statements.
<PAGE> 254
<TABLE>
<CAPTION>
The One Group Income Bond Fund / Pegasus Multi-Sector Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
------ ------ ------ --------------------------------------------------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
18,000 18,000 0.00%, 8/15/02 (b) 14,277 14,277
100 100 6.75%, 12/15/05, Series 1507 Class JC 103 103
3,684 3,684 7.00%, 6/1/09, Pool #E00313 3,765 3,765
6,722 6,722 7.50%, 5/1/11, Pool #E00438 6,934 6,934
6,853 6,853 7.00%, 5/1/11, Pool #E00434 7,003 7,003
6,423 6,423 7.00%, 6/1/11, Pool #E64220 6,563 6,563
1,044 1,044 6.38%, 8/15/11, Series 1995 Class EM 1,049 1,049
19,794 19,794 6.50%, 4/1/13, Gold Pool #E69986 19,931 19,931
9,969 9,969 6.50%, 5/1/13, Gold Pool #E70312 10,037 10,037
9,967 9,967 6.50%, 5/1/13, Pool #E70383 10,036 10,036
115 115 6.50%, 8/15/13, Series 1556 Class H 117 117
345 345 5.50%, 1/15/19, Series 1590 Class FA 340 340
289 289 6.50%, 12/15/21, Series 1552 Class GB 294 294
250 250 6.25%, 3/15/22, Series 1671 Class F 252 252
562 562 6.50%, 11/15/22, Series 1552 Class HB 571 571
802 802 6.00%, 5/15/23, Series 1630 Class PJ 798 798
9,506 9,506 6.50%, 1/1/24, Gold Pool #C80091 9,518 9,518
965 965 7.50%, 6/1/24, Pool #C80161 993 993
13,594 13,594 7.00%, 9/1/24, Pool #G00271 13,849 13,849
5,472 5,472 7.50%, 10/1/24, Pool #C80245 5,627 5,627
8,284 8,284 7.00%, 11/1/24, Pool #G00278 8,439 8,439
1,443 1,443 7.00%, 8/1/27, Gold Pool #D81734 1,466 1,466
----------- ---------- ----------
4,990 122,046 127,036
----------- ---------- ----------
Federal National Mortgage Assoc. (6.9%):
6,494 6,494 7.00%, 4/1/03, Pool #303865 6,585 6,585
243 243 6.90%, 12/25/03, Series 1993-70 Class D 248 248
490 490 6.50%, 5/25/08, Series 1993-55 Class K 503 503
615 615 6.00%, 12/25/08, Series 1993-231 Class M 615 615
15,747 15,747 8.00%, 12/1/09, Pool #250168 16,294 16,294
300 300 6.50%, 3/25/13, Series 1993-140 Class H 305 305
9,903 9,903 6.50%, 5/1/13, Pool #251700 9,961 9,961
15,000 15,000 6.00%, 6/1/13, Pool #423196 14,841 14,841
2,000 2,000 8.20%, 3/10/16 (b) 2,488 2,488
200 200 5.70%, 6/25/17, Series X-225C Class PD 199 199
311 311 6.00%, 10/25/20, Series 1994-40, Class, H 311 311
155 155 7.50%, 3/25/23, Series 1993-23 Class PZ 171 171
449 449 7.00%, 5/25/23, Series 1993-56 Class PZ 477 477
1,500 1,500 7.00%, 7/18/24, Series 1997-12 Class G 1,514 1,514
8,871 8,871 7.50%, 9/1/25, Pool #324179 9,137 9,137
9,972 9,972 6.50%, 4/1/28, Pool #420165 9,931 9,931
----------- ---------- ----------
4,343 69,237 73,580
----------- ---------- ----------
Government National Mortgage Assoc. (2.8%):
2,552 2,552 9.00%, 11/15/24, Pool #780029 2,773 2,773
7,780 7,780 7.50%, 7/15/26, Pool #430999 8,018 8,018
8,543 8,543 7.50%, 7/20/27, Pool #2457 8,751 8,751
9,860 9,860 6.50%, 2/15/28, Pool #460759 9,839 9,839
----------- ---------- ----------
-- 29,381 29,381
----------- ---------- ----------
Total U.S. Government Agency Mortgages 9,333 220,664 229,997
----------- ---------- ----------
U.S. Government Agency Securities (0.5%):
Government Trust Certificate (0.2%):
1,768 1,768 Israel, 9.40%, 5/15/02 -- 1,830 1,830
----------- ---------- ----------
Tennessee Valley Authority (0.3%):
3,200 3,200 8.63%, 11/15/29 3,536 3,536
----------- ---------- ----------
Total U.S. Government Agency Securities -- 5,366 5,366
----------- ---------- ----------
U.S. Treasury Obligations (22.7%):
U.S. Treasury Bonds (8.8%):
2,250 2,250 13.38%, 8/15/01 (b) 2,751 2,751
9,600 9,600 11.88%, 11/15/03 (b) 12,376 12,376
5,740 5,740 12.75%, 11/15/10 8,175 8,175
500 500 7.50%, 11/15/16 600 600
14,000 14,000 9.00%, 11/15/18 19,460 19,460
2,820 2,820 8.13%, 5/15/21 3,672 3,672
1,000 11,250 12,250 8.13%, 8/15/21 (b) 1,303 14,660 15,963
7,125 7,125 8.00%, 11/15/21 (b) 9,182 9,182
17,600 17,600 7.13%, 2/15/23 (b) 20,817 20,817
</TABLE>
See notes to financial statements.
<PAGE> 255
<TABLE>
<CAPTION>
The One Group Income Bond Fund / Pegasus Multi-Sector Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
------ ------ ------ --------------------------------------------------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
----------- ---------- ----------
13,750 79,246 92,996
----------- ---------- ----------
U.S. Treasury Inflation Protected Bonds (0.2%):
2,651 2,651 3.38%, 1/15/07 2,568 -- 2,568
----------- ---------- ----------
U.S. Treasury Notes (11.4%):
560 560 8.50%, 2/15/00 585 585
15,000 15,000 6.25%, 8/31/00 (b) 15,222 15,222
34,800 34,800 6.63%, 6/30/01 (b) 35,819 35,819
15,000 15,000 6.25%, 6/30/02 (b) 15,377 15,377
30,000 30,000 6.25%, 2/15/03 (b) 30,880 30,880
11,500 11,500 6.25%, 2/15/07 (b) 12,045 12,045
10,000 10,000 6.63%, 5/15/07 (b) 10,737 10,737
----------- ---------- ----------
585 120,080 120,665
----------- ---------- ----------
U.S. Treasury STRIPS (2.3%):
85,000 85,000 10/15/19 24,496 24,496
----------- ---------- ----------
Total U.S. Treasury Obligations 16,903 223,822 240,725
----------- ---------- ----------
Investment Companies (0.4%):
4,338 4,338 Pegasus Cash Management Fund, Class I 4,338 4,338
----------- ---------- ----------
Total Investment Companies 4,338 -- 4,338
----------- ---------- ----------
Repurchase Agreements (0.3%):
3,102 3,102 Prudential Securities, 6.10%, 7/1/98 (Collateralized by
$3,193 U.S. Treasury Bills, 9/3/98, market value $3,165) 3,102 3,102
----------- ---------- ----------
Total Repurchase Agreements -- 3,102 3,102
----------- ---------- ----------
Short-Term Securities Held as Collateral (14.1%):
Master Notes (2.3%):
6,835 6,835 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 6,835 6,835
4,557 4,557 Danaher Corp., 6.68%, 10/9/98* 4,557 4,557
6,835 6,835 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 6,835 6,835
6,151 6,151 NationsBanc Capital Markets, 6.70%, 7/1/98* 6,151 6,151
----------- ---------- ----------
-- 24,378 24,378
Put Bonds (1.5%): ----------- ---------- ----------
6,835 6,835 Citicorp, 5.94%, 8/3/98* 6,835 6,835
4,557 4,557 GMAC, 5.85%, 11/10/99* 4,563 4,563
4,557 4,557 Greenwich Capital, 6.11%, 12/13/99* 4,557 4,557
----------- ---------- ----------
-- 15,955 15,955
----------- ---------- ----------
Repurchase Agreements (10.2%):
25,061 25,061 Donaldson, Lufkin & Jenrette, 6.65%, 7/1/98 (Collateralized
by $25,622 various Corporate and Government Securities,
0.00% - 17.25%, 10/15/02 - 4/15/35, market value $26,025) 25,061 25,061
22,783 22,783 Goldman Sachs, 6.65%, 7/1/98 (Collateralized by $24,283
various Corporate Bonds, 0.00%, 7/7/98 - 9/18/98, market
value $24,195) 22,783 22,783
50,122 50,122 Lehman Brothers, 6.65%, 7/1/98 (Collateralized by $51,377
various Corporate Bonds, 0.00% - 10.13%, 9/15/99 -
10/17/96, market value $53,776) 50,121 50,121
4,694 4,694 Lehman Brothers, 6.47%, 7/1/98 (Collateralized by $4,929
Media One Group Bonds, 0.00%, 10/5/98, market value
$4,929) 4,694 4,694
5,924 5,924 Lehman Brothers, 6.00%, 7/1/98 (Collateralized by $37,083
various Government Securities, 0.00% - 7.50%, 12/1/18 -
5/1/24, market value $6,098) 5,924 5,924
----------- ---------- ----------
-- 108,583 108,583
----------- ---------- ----------
Total Short-Term Securities Held as Collateral -- 148,916 148,916
----------- ---------- ----------
Total (Cost $1,146,495) (a) $ 129,914 $ 1,066,073 $ 1,195,987
=========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 256
<TABLE>
The One Group Income Bond Fund / Pegasus Multi-sector Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- -------- -------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- ----------
Percentages indicated are based on net assets of $1,059,758.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $79. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................. $ 51,457
Unrealized depreciation............................. (2,044)
--------
Net unrealized appreciation......................... $ 49,413
========
</TABLE>
(b) A portion of this security was loaned as of June 30, 1998.
* The interest rate for this variable rate note, which will change
periodically, is based upon an index of market rates. The rate reflected on
the Schedule of Portfolio Investments is the rate in effect at June 30,
1998.
REIT Real Estate Investment Trust
See notes to financial statements.
<PAGE> 257
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Municipal Bonds (98.9%):
Alabama (0.6%):
$ 2,000 $ $ 2,000 Public Schools , 5.25%, 11/1/05 $ 2,115 $ $ 2,115
3,500 3,500 Courtland Industrial Development Board Solid Waste Disposal
Revenue, Series A, 6.50%, 9/1/25 3,811 3,811
------- ------ --------
5,926 - 5,926
------- ------ --------
Alaska (0.7%):
1,000 1,000 Anchorage, GO, 6.00%, 10/1/10, FGIC 1,130 1,130
7,000 7,000 North Slope Boro, Capital Appreciation, Unlimited Tax,
GO, Series A, 0.00%, 6/30/08, MBIA 4,407 4,407
1,000 1,000 Student Loan Revenue State Assisted Series A, 5.50%, 7/1/04 1,042 1,042
------- ------ --------
5,449 1,130 6,579
------- ------ --------
Arizona (1.8%):
1,000 1,000 Educational Loan Marketing Corp., AMT, 7.30%, 9/1/03,
Callable 9/1/99 @ 102, MBIA 1,053 1,053
1,000 1,000 Educational Loan Marketing Corp., AMT, 7.35%, 9/1/04,
Callable 9/1/99 @ 102, MBIA 1,054 1,054
775 775 Educational Loan Marketing Corp., AMT, 7.38%, 9/1/05,
Callable 9/1/99 @ 102, MBIA 817 817
1,385 1,385 Maricopa City Industrial Development Revenue, Coral
Apartments Project Bg, AMT, 5.10%, 3/1/28, Callable
3/1/06 @ 101 1,379 1,379
1,105 1,105 Maricopa County Development Authority, Multi-Family
Housing, 5.65%, 1/1/09, Callable 1/1/07 @ 101 1,136 1,136
1,280 1,280 Maricopa County Development Authority, Multi-Family
Housing, 6.05%, 7/1/17, Callable 1/1/07 @ 101 1,325 1,325
2,000 2,000 Maricopa County, School District # 41, Series C,
6.10%, 7/1/14, FGIC 2,199 2,199
2,835 2,835 Phoenix Airport Revenue, AMT, Series D, 6.00%, 7/1/06, MBIA 3,101 3,101
700 700 Phoenix Industrial Development Authority, 6.00%, 12/1/10,
Callable 12/1/03 @ 102 738 738
2,060 2,060 Pima County, Industrial Development Authority, 5.45%,
4/1/10, Callable 4/1/07 @ 102, MBIA 2,188 2,188
2,215 2,215 University of Arizona, Revenue, 5.25%, 06/01/14 2,264 2,264
------- ------ --------
4,463 12,791 17,254
------- ------ --------
Arkansas (0.3%):
1,000 1,000 Jefferson County, Pollution Control Revenue, 5.60%,
10/1/17, Callable 12/1/02 @ 102 1,012 1,012
1,060 1,060 Sebastian County, Community Junior College, 5.35%,
4/1/10, Callable 4/1/07 @ 101, AMBAC 1,117 1,117
1,000 1,000 State Capital Appreciation, Series 97A, 0.00%, 6/1/14 447 447
300 300 State Development Authority, Single Family Mortgage
Revenue, Series G, 5.50%, 1/1/10 310 310
------- ------ --------
- 2,886 2,886
------- ------ --------
California (6.9%):
2,000 2,000 ABAG Finance Authority for Nonprofit Corp., 5.75%,
10/1/17, Callable 10/1/07 @ 102 2,067 2,067
2,000 2,000 ABAG Finance Authority for Nonprofit Corp., Multi-Family
Housing Revenue, AMT, 5.70%, 11/1/26, Callable 11/1/06
@ 100 2,114 2,114
1,945 1,945 ABAG Finance Authority, Multi-Family Housing Revenue,
AMT, 6.75%, 4/20/07, GNMA 2,135 2,135
500 500 Castaic Lake Water Agency, Certificates Partnership,
Water System Improvement Project, 7.00%, 8/1/04, Callable
8/1/00 @ 102, MBIA 541 541
3,500 3,500 Long Beach Harbor, Series A, AMT, 6.00%, 5/15/12, FGIC 3,922 3,922
1,615 1,615 MSR Public Power Agency, San Juan Project Revenue Refunding,
Series F, 5.55%, 7/1/02, AMBAC 1,705 1,705
4,000 4,000 Orange County, Recovery, Certificates of Participation,
Series A, 0.00%, 2/15/22, MBIA 4,396 4,396
4,000 4,000 Orange County, Recovery, Certificates of Participation,
Series A, 5.70%, 7/1/10, MBIA 4,336 4,336
1,750 1,750 Riverside County, 5.75%, 6/1/09
3,300 3,300 Sacramento Cogeneration Authority Revenue, 5.60%, 7/1/99 3,358 3,358
1,300 1,300 Sacramento Cogeneration Authority Revenue, 5.80%, 7/1/01 1,359 1,359
1,000 1,000 Sacramento Cogeneration Authority Revenue, 5.90%, 7/1/02 1,059 1,059
3,000 3,000 Sacramento Municipal Utility District, 5.40%, 11/15/06, 1,939 1,939
Callable 11/15/03 @ 102, FSA 3,192 3,192
1,000 1,000 San Francisco City & County Airports, Common International
Airport Revenue, 6.30%, 5/1/11, Callable 5/1/02 @ 102, AMBAC 1,084 1,084
1,000 1,000 Southern Public Power Authority, Transmission Project,
Revenue, 0.00%, 7/1/15, MBIA 424 424
7,000 7,000 State, 0.00%, 5/17/10, GO 5,037 5,037
</TABLE>
See notes to financial statements.
<PAGE> 258
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
State, 0.00%, 7/1/10, GO 7,500 7,500
1,000 1,000 State, 7.00%, 10/1/07, GO 1,194 1,194
1,400 1,400 State Wide Community Development, 2.40%, 1/1/09,
Callable 1/1/04 @ 102, AMBAC 1,389 1,389
1,270 1,270 Statewide Community Development Authority, Multi-Family
Revenue, Cudahy Gardens Project, Series I, AMT, 5.10%,
10/1/12, Callable 4/1/03 @ 102, Swiss Bank 1,275 1,275
2,100 2,100 Statewide Community Development Authority, Multi-Family
Revenue, Riverside Gardens Project, Series J, AMT, 5.10%,
10/1/12, Callable 4/1/03 @ 102, Swiss Bank 2,108 2,108
4,390 4,390 Statewide Community Development Authority, Series A-2,
Revenue, 4.90%, 5/15/25, GO 4,418 4,418
2,000 2,000 Statewide Community Development Authority, Seriese A-3,
Revenue, 5.10%, 5/15/25, Callable 7/1/08 @ 101, GO 2,015 2,015
8,100 8,100 University of California, Revenue Refunding, Multiple
Purpose, 6.20%, 9/1/01, MBIA 8,636 8,636
------- ------ --------
37,386 29,817 67,203
------- ------ --------
Colorado (9.3%):
1,230 1,230 Adams County, Single Family Mortgage Revenue, Series A,
8.88%, 8/1/03 1,490 1,490
3,290 3,290 Arapahoe County, Capital Improvements, Project E-470,
0.00%, 8/31/03 2,638 2,638
20,000 20,000 Arapahoe County, Capital improvements Revenue Refunding,
Capital Appreciation, 0.00%, 8/31/05 7,083 7,083
1,135 1,135 Arapahoe County, School District #001 Englewood, 0.00%, 11/1/09 677 677
885 885 Denver City & County, Airport Revenue, AMT, 6.75%,
11/15/13, Callable 11/15/02 @ 102, MBIA-IBC 971 971
1,000 1,000 Denver City & County, Airport Revenue, Series A, AMT,
8.00%, 11/15/25 1,100 1,100
2,000 2,000 Denver City & County, Airport Revenue, Series A, 6.90%, 11/15/98 2,024 2,024
1,000 1,000 Denver City & County, Airport Revenue, Series A, 7.00%, 11/15/99 1,041 1,041
1,830 1,830 Denver City & County, Airport Revenue, Series A, 8.50%, 11/15/07,
MBIA 2,041 2,041
2,000 2,000 Denver City & County, Airport Revenue, Series B, AMT,
5.75%, 11/15/09, Callable 11/15/06 @ 102, MBIA 2,166 2,166
2,000 2,000 Denver City & County, Airport Revenue, Series B, 7.25%, 11/15/05 2,243 2,243
1,145 1,145 Denver City & County, Airport Revenue, Series C, 6.55%, 11/15/03 1,260 1,260
2,900 2,900 Denver City & County, Airport Revenue, Series D, 7.30%, 11/15/00 3,105 3,105
8,665 8,665 Denver City & County, Refunding Water Unlimited Tax, GO,
7.00%, 10/1/99 9,014 9,014
9,750 9,750 Denver City & County, School District #1, GO, 0.00%, 12/1/06 6,693 6,693
1,000 1,000 Denver City & County, School District, #001, GO Refunding,
6.50%, 12/1/10 1,182 1,182
3,000 3,000 El Paso County, School District, 7.13%, 12/1/19, Callable
12/1/07 @ 125 3,844 3,844
1,135 1,135 Health Facilities Authority Revenue, 6.40%, 1/1/10, Callable
1/1/07 @ 101 1,193 1,193
4,255 4,255 Highlands Ranch Metro District #004, GO, 5.25%, 12/1/15,
Callable 12/1/08 @ 101, AMBAC 4,322 4,322
1,320 1,320 Housing Finance Authority Single Family Program, Series
C-2, Revenue, 5.15%, 11/1/16, Callable 5/1/08 @ 102 1,320 1,320
240 240 Housing Finance Authority, AMT, 5.63%, 5/1/04 250 250
3,220 3,220 Housing Finance Authority, GO, Series A, 6.40%, 8/1/06,
Callable 8/1/02 @ 102, MBIA 3,418 3,418
4,000 4,000 Housing Finance Authority, Multi-Family Program, 5.65%, 10/1/15 4,103 4,103
565 565 Housing Finance Authority, Refunding, Single Family, Series
D, 5.65%, 12/1/04, Callable 5/1/03 @ 100 585 585
3,250 3,250 Housing Finance Authority, Series 97 B-3, 6.80%, 11/1/28,
Callable 5/1/07 @ 105 3,647 3,647
505 505 Housing Finance Authority, Single Family Program, Series F,
AMT, 6.75%, 12/1/04 526 526
500 500 Jefferson County, Partnership, 6.45%, 12/1/04, Callable
12/1/02 @ 102, MBIA 554 554
3,500 3,500 Jefferson County, School District # R-001, GO,
5.90%, 12/15/05, AMBAC 3,790 3,790
4,000 4,000 Meridian Metropolitan District, 7.50%, 12/1/11, Callable
12/1/01 @ 101 4,365 4,365
325 325 Mountain Village Metropolitan District, San Miguel County,
8.10%, 12/1/11, Callable 12/1/02 @ 101 372 372
675 675 Mountain Village Metropolitan District, San Miguel County,
8.10%, 12/1/11, Prerefunded 12/1/02 @ 101 787 787
</TABLE>
See notes to financial statements.
<PAGE> 259
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
5,000 5,000 Poudre Valley, Hospital Revenue, 6.63%, 12/1/11, AMBAC 5,460 5,460
980 980 Pueblo County, Single Family Mortgage Revenue, 6.40%,
11/1/13, Callable 11/1/04 @ 102 1,026 1,026
1,250 1,250 Summit County, School District #1, Refunding, 6.75%,
12/1/04, FGIC 1,422 1,422
3,410 3,410 Water Power Development Authority Revenue,
Revolving Fund, Series A, 6.00%, 9/1/10, AMBAC 3,863 3,863
------- ------ --------
43,514 46,061 89,575
------- ------ --------
District of Columbia (0.4%):
2,000 2,000 GO, 5.50%, 10/01/12 2,082 2,082
2,000 2,000 GO, Series B-3 , 5.20%, 6/1/04, MBIA 2,137 2,137
------- ------ --------
4,219 - 4,219
------- ------ --------
Connecticut (0.9%):
1,000 1,000 Bridgeport, Refunding, 6.50%, 9/1/08, AMBAC 1,167 1,167
1,015 1,015 State Health & Educational Facilities, Series 97E, 5.50%,
7/1/09, Callable 7/1/07 @ 102 1,074 1,074
1,695 1,695 State Housing Finance Authority, 6.70%, 11/15/12, Callable
11/15/02 @ 102 1,833 1,833
1,575 1,575 State, GO, Series A, 5.30%, 5/15/10, Callable 5/15/06 @ 101 1,655 1,655
2,475 2,475 State, GO, Series B, 6.00%, 10/1/05 2,737 2,737
------- ------ --------
- 8,466 8,466
------- ------ --------
Florida (4.8%):
1,220 1,220 Broward County, Housing Authority, 5.55%, 7/1/09, Callable
7/1/06 @ 102 1,269 1,269
1,500 1,500 Cape Coral, Special Obligation Revenue, Water
Improvements, Special Assessment - Water Utility, 6.38%,
6/1/09, Callable 6/1/02 @ 102, FSA 1,645 1,645
1,270 1,270 Clay County, Housing Finance Authority Revenue, Single
Family Mortgage, AMT, 6.20%, 9/1/11, Callable 3/1/05 @ 102 1,342 1,342
990 990 Clay County, Housing Finance Authority Revenue, Single
Family Mortgage, AMT, 6.25%, 9/1/13, Callable 3/1/05 @ 102 1,047 1,047
1,750 1,750 Clay County, Housing Financial Authority, AMT, 5.25%,
10/1/07, Callable 4/1/07 @102 1,806 1,806
1,000 1,000 Dade County, Aviation Revenue, Series A, 6.00%, 10/1/08,
Callable 10/1/05 @ 102, AMBAC 1,112 1,112
1,155 1,155 Department of Corrections, Okeechobee Correctional
Facilities, 6.00%, 3/1/06, Callable 3/1/05 @ 102, AMBAC 1,279 1,279
2,000 2,000 Escambia County, Housing Finance Authority, Multi-Family
Housing Revenue, 5.75%, 4/1/04, Callable 12/30/03 @ 100, GNMA 2,053 2,053
3,635 3,635 Hialeah Housing Authority Revenue, 5.80%, 6/20/33,
Callable 6/20/08 @ 105, GNMA 3,819 3,819
1,185 1,185 Indian River County, Hospital Revenue, 5.95%, 10/1/09,
Callable 1/1/07 @ 102, FSA 1,317 1,317
1,285 1,285 Indian River County, Hospital Revenue, 6.00%, 10/1/10,
Callable 1/1/07 @ 102, FSA 1,415 1,415
5,170 5,170 Lakeland Electric & Water Revenue, Series B, 6.00%, 10/1/10,
FGIC 5,870 5,870
180 180 Manatee County, Housing Finance Authority, Mortgage
Revenue, 6.38%, 11/1/05 185 185
3,000 3,000 Miami-Dade County Housing Finance Authority Single Family
Revenue, 5.90%, 6/1/25, Callable 6/1/08 @ 103, FHLMC 3,150 3,150
4,850 4,850 Miami-Dade County Housing, Revenue, 5.80%, 10/1/12 5,171 5,171
1,000 1,000 Orlando Water & Electricity Revenue, 8.00%, 4/1/03 1,165 1,165
2,830 2,830 Pinellas County Housing Authority, Revenue, AMT, 6.30%,
3/1/29, Callable 9/1/07 @ 102,GNMA/FNMA 3,036 3,036
1,060 1,060 Santa Rosa Bay Bridge Authority, Revenue, 0.00%, 7/1/16 405 405
4,270 4,270 Santa Rosa Bay Bridge Authority, Revenue, 0.00%, 7/1/19 1,369 1,369
2,255 2,255 Santa Rosa Bay Bridge Authority, Revenue, 0.00%, 7/1/20 685 685
4,265 4,265 Santa Rosa Bay Bridge Authority, Revenue, 0.00%, 7/1/22 1,154 1,154
4,000 4,000 Tampa, GO, 5.50%, 11/15/12 4,301 4,301
2,920 2,920 Tampa Water & Sewer Revenue, ETM, 0.00%, 10/1/05 2,232 2,232
------- ------ --------
10,171 36,656 46,827
------- ------ --------
Georgia (0.6%):
1,500 1,500 Atlanta Airport Facilities, 6.50%, 1/1/08, AMBAC 1,736 1,736
1,000 1,000 Atlanta Airport Facilities Revenue, Series A, 6.50%, 1/1/07,
AMBAC 1,145 1,145
2,000 2,000 Burke County Development Authority, Revenue, 3.95%,
7/01/24, Georgia Power Company 2,000 2,000
1,215 1,215 Columbus Water & Sewer Revenue, 6.30%, 5/1/06, Callable
11/1/02 @ 102, FGIC 1,333 1,333
------- ------ --------
- 6,214 6,214
------- ------ --------
Hawaii (1.9%):
1,000 1,000 Honolulu City & County, GO, Series A, 5.60%, 4/1/07, FSA 1,083 1,083
</TABLE>
See notes to financial statements.
<PAGE> 260
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
3,500 3,500 Honolulu City & County, GO, Series A, 7.35%, 7/1/08 4,276 4,276
10,000 10,000 State Airports System Revenue, Series II, 7.00%, 7/1/18 10,819 10,819
2,065 2,065 State Department of Budget & Finance Revenue, 5.60%, 7/1/02 2,156 2,156
------- ------ -------
12,975 5,359 18,334
------- ------ -------
Idaho (1.4%):
2,200 2,200 Health Facilities Authority Holy Cross Health System,
Revenue, 5.00%, 12/1/18, Callable 6/1/08 @ 101, MBIA 2,154 2,154
1,600 1,600 Southern Idaho Regional Solid Waste District, 5.45%,
11/1/13, Callable 11/1/03 @ 101, Credit Local de France 1,660 1,660
1,285 1,285 Student Loan Fund Marketing Association, Inc., 6.40%,
10/1/99, GSL 1,313 1,313
1,000 1,000 Student Loan Fund Marketing Association, Inc., AMT, 5.10%,
4/1/02, GSL 1,009 1,009
4,500 4,500 Student Loan Fund Marketing Association, Inc., Series C,
AMT, 5.60%, 4/01/07, Callable, 10/01/03 @ 102, GSL 4,708 4,708
1,300 1,300 University Revenue, 5.75%, 4/1/06, FSA 1,415 1,415
1,060 1,060 University Revenue, 5.50%, 4/1/13, Callable 4/1/07 @ 101, MBIA 1,115 1,115
------- ------ -------
- 13,374 13,374
------- ------ -------
Illinois (6.9%):
4,000 4,000 Chicago, GO, 5.60%, 01/01/04, AMBAC 4,253 4,253
1,000 1,000 Chicago Metro Water Reclamation District - Greater Chicago
Capital Improvements, GO, Pre-Refunded, 7.25%, 12/1/12 1,256 1,256
4,245 4,245 Chicago Metro Water Reclamation District - Greater Chicago
Capital Improvements, GO, Pre-Refunded, 6.25%, 12/1/14,
Callable 12/1/05 @ 100 4,780 4,780
4,500 4,500 Chicago Metro Water Unlimited Tax Refunding, GO, 5.00%, 12/1/02 4,661 4,661
5,000 5,000 Chicago O'Hare International Airport Revenue, Series A,
5.625%, 1/1/13, AMBAC 5,271 5,271
3,045 3,045 Chicago Park District, GO, 6.35%, 11/15/08, Callable
11/15/05 @ 102, MBIA 3,429 3,429
2,585 2,585 Chicago Water Revenue, 6.50%, 11/1/10, FGIC 3,039 3,039
1,450 1,450 Chicago, Single Family Mortgage Revenue, 0.00%, 10/1/09,
Callable 10/1/05 @ 78.60, MBIA 729 729
1,380 1,380 Chicago, Single Family Mortgage Revenue, 0.00%, 10/1/09, MBIA 641 641
705 705 Decatur Economic Development, 7.75%, 6/1/07, Callable
6/1/02 @ 102 794 794
7,225 7,225 Development Finance Authority, Pollution Control Revenue,
7.25%, 6/1/11, Callable 6/1/01 @ 102 7,832 7,832
810 810 Evanston Residential Mortgage, 6.38%, 1/1/09, Callable
7/1/02 @ 102, AMBAC 858 858
1,645 1,645 Health Facilities Authority Revenue, 6.13%, 11/15/07,
Callable 11/15/04 @ 102, MBIA 1,840 1,840
1,500 1,500 Health Facilities Authority Revenue, 6.75%, 1/1/10, Callable
1/1/00 @ 102, FGIC 1,582 1,582
600 600 Madison County, Series A, 0.00%, 03/01/33 600 600
1,280 1,280 McHenry County, High School #157, GO, 0.00%, 12/1/11, FSA 668 668
1,370 1,370 McHenry County, High School #157, GO, 0.00%, 12/1/12, FSA 666 666
1,620 1,620 McHenry County, High School #157, GO, 0.00%, 12/1/13, FSA 743 743
2,960 2,960 Metro Pier & Exposition Authority, Dedicated State Tax Revenue,
6.50%, 6/1/05 3,321 3,321
8,330 8,330 Metro Pier & Exposition Authority, Dedicated State Tax Revenue,
Capital Appreciation, Series A, 0.00%, 12/15/16, MBIA 3,224 3,224
2,250 2,250 Metro Pier & Exposition Authority, Dedicated State Tax Revenue,
Capital Appreciation, Series A, 6.40%, 6/1/03, MBIA 2,461 2,461
2,500 2,500 Metro Pier & Exposition Authority, Dedicated State Tax Revenue,
Capital Appreciation, Series A, 6.50%, 6/1/04, MBIA 2,776 2,776
2,785 2,785 Regional Transit Authority, Series A, 8.00%, 6/1/03, AMBAC 3,242 3,242
2,500 2,500 Student Assistance, Student Loan Revenue, Series M, AMT,
6.60%, 3/1/07, Callable 3/1/02 @ 102 2,669 2,669
1,500 1,500 Winnebago County, School District #122, GO, 0.00%, 1/1/13, FSA 727 727
2,500 2,500 Winnebago County, School District #122, GO, 0.00%, 1/1/15, FSA 1,078 1,078
2,500 2,500 Winnebago County, School District #122, GO, 0.00%, 1/1/16, FSA 1,016 1,016
3,500 3,500 Winnebago County, School District #122, GO, 0.00%, 1/1/17, FSA 1,344 1,344
1,350 1,350 Winnebago County, School District #122, Harlem-Loves
Park, Refunding, 6.35%, 6/1/07, FGIC 1,539 1,539
------- ------ -------
29,809 37,230 67,039
------- ------ -------
Indiana (2.8%):
3,670 3,670 Bond Bank Revenue, 6.00%, 2/1/04 3,980 3,980
2,150 2,150 Brownsburg Industrial Building Corp., Revenue, 5.50%,
2/1/15, Callable 2/1/07 @ 102, MBIA 2,226 2,226
1,000 1,000 Fort Wayne Hospital Authority, Parkview Memorial Hospital
</TABLE>
See notes to financial statements.
<PAGE> 261
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Project, Series A, 7.50%, 11/15/11, Callable 11/15/99 @
102, FGIC 1,061 1,061
3,260 3,260 Health Facilities Financing Authority, Hospital Revenue,
6.00%, 8/15/10, Callable 8/15/06 @ 102 3,489 3,489
6,900 6,900 Indianapolis Airport Authority Revenue, 7.10%, 1/15/17 7,781 7,781
2,820 2,820 Indianapolis Economic Development Revenue,
Knob-in-the-Woods Project, 6.38%, 12/1/04, Mandatory Put
12/1/04 @ 100 3,120 3,120
500 500 Lawrence Township School District, 6.75%, 1/5/05 564 564
1,500 1,500 New Albany Floyd County, School Building, 6.20%, 7/1/03 1,634 1,634
1,500 1,500 New Albany Floyd County, School Building, 6.20%, 7/1/04 1,650 1,650
1,000 1,000 State Vocational Technical College Building Facilities Fee,
6.50%, 7/1/07, Callable 1/1/05 @ 102, AMBAC 1,136 1,136
------- ------ -------
11,761 14,880 26,641
------- ------ -------
Iowa (0.4%):
700 700 Des Moines Water Revenue, Series B, 5.50%, 12/1/04,
Callable 12/1/01 @ 100 726 726
1,550 1,550 Finance Authority, 6.35%, 7/1/09, Callable 1/1/03 @ 102, AMBAC 1,639 1,639
1,000 1,000 Finance Authority, Private College Revenue, 5.75%, 12/1/08, MBIA 1,107 1,107
795 795 Finance Authority, Single Family Mortgage Revenue, Series
F, 6.15%, 7/1/04, Callable 1/1/03 @ 102, AMBAC 822 822
------- ------ -------
- 4,294 4,294
------- ------ -------
Kansas (1.1%):
5,000 5,000 Kansas City Utility System Revenue, 6.38%, 9/1/23, FGIC 5,584 5,584
2,220 2,220 Sedgwick & Shawnee, Single Family Revenue, 5.50%,
6/1/29, Step Coupon, 6.70% after 10/1/98 2,493 2,493
850 850 Sedgwick County, Family Mortgage Revenue, Series A-1,
6.50%, 12/1/16, Callable 12/1/07 @ 105, GNMA 918 918
1,750 1,750 Wichita Hospital Revenue, St. Francis Regional Hospital,
6.25%, 10/1/10, Callable 10/1/02 @ 102, MBIA 1,904 1,904
------- ------ -------
5,584 5,315 10,899
------- ------ -------
Kentucky (0.8%):
800 800 Campbell & Kenton Counties, Sanitation District #1, 6.50%,
8/1/05, ETM 884 884
3,000 3,000 Economic Development Financial Authority, Revenue,
5.00%, 12/1/18, Callable 6/1/08 @ 101 2,946 2,946
1,000 1,000 Kenton County, Public Properties Corp., 5.63%, 12/1/12,
Callable 12/1/06 @ 101 1,057 1,057
1,000 1,000 Martin County Mortgage Section 8, Revenue, 6.25%, 7/1/23, FHA 1,039 1,039
1,310 1,310 Owensboro Electric Light & Power Revenue, 0.00%, 1/1/09, BIG 471 471
1,000 1,000 Winchester Industrial Building, 7.75%, 7/1/12, Callable
7/1/02 @ 102 1,128 1,128
------- ------ -------
- 7,525 7,525
------- ------ -------
Louisiana (0.5%):
233 233 Housing Agency Mortgage Revenue, 7.80%, 12/1/09,
Callable 6/1/04 @ 105, GNMA 261 261
915 915 Housing Agency Mortgage Revenue, Single Family, Series
D-2, AMT, 8.00%, 6/1/27, Callable 12/1/06 @ 102,
GNMA/FNMA 1,008 1,008
1,550 1,550 Public Facilities Authority Revenue, AMT, 6.75%, 9/1/06,
Callable 9/1/02 @ 102 1,638 1,638
2,000 2,000 St. Charles Parish Pollution Control, 8.25%, 6/1/14, Callable
6/1/99 @ 103 2,125 2,125
------- ------ -------
- 5,032 5,032
------- ------ -------
Maryland (2.0%):
1,150 1,150 Anne Arundel County, GO, Series B, AMT, 7.70%, 3/15/06,
Callable 3/15/99 @ 102 1,203 1,203
4,000 4,000 Montgomery County, Public Improvement, Series A, 5.20%, 10/1/01 4,153 4,153
2,000 2,000 State Community Development Administration Department,
Housing & MNTY Single Family, 4.90%, 04/01/06 2,039 2,039
2,950 2,950 State Community Development Administration Department,
Revenue, Fifth Series, 5.95%, 4/1/16 3,122 3,122
2,500 2,500 State Public Improvement, GO, Second Series,
5.25%, 6/15/02 2,610 2,610
5,510 5,510 State Unlimited Tax, GO, 5.00%, 3/1/08 5,760 5,760
------- ------ -------
17,684 1,203 18,887
------- ------ -------
Massachusetts (3.0%):
1,650 1,650 Beverly, 6.60%, 3/15/09, Callable 3/15/04 @ 102, FSA 1,863 1,863
20 20 Education Loan Authority, AMT, 7.25%, 1/1/09, Callable
1/1/01 @ 102 21 21
2,000 2,000 Federal Highway, 5.25%, 06/15/12 2,067 2,067
</TABLE>
See notes to financial statements.
<PAGE> 262
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
5,250 5,250 New England, Educational Loan Refunding, Series A, 6.50%, 9/1/02 5,685 5,685
5,000 5,000 Refunding, GO, Series A, 5.00%, 8/1/07, FGIC 5,217 5,217
2,400 2,400 State, GO, Series C, 6.00%, 8/1/09 2,715 2,715
5,000 5,000 Unlimited Tax, GO, Series A, 5.50%, 3/1/11 5,400 5,400
4,500 4,500 Unlimited Tax, GO, Series A, 6.25%, 7/1/02 4,855 4,855
1,465 1,465 Worcester, GO, Series A, 6.10%, 5/1/08, Callable 5/1/05 @
102, MBIA 1,645 1,645
------- ------ -------
23,224 6,244 29,468
------- ------ -------
Michigan (4.0%):
2,845 2,845 Lapeer Tax Increment Finance Authority, Revenue, 5.50%,
6/1/12, Callable 6/1/08 @ 100 2,889 2,889
4,000 4,000 Pittsfield Township Housing Corp Revenue, Series A,
6.00%, 1/1/22, Callable 7/1/04 @ 103 4,190 4,190
5,445 5,445 Royal Oak Hospital Financing Authority Revenue Refunding,
Wm. Beaumont Hospital, 6.25%, 1/1/11 6,178 6,178
6,850 6,850 Royal Oak Hospital Financing Authority Revenue Refunding,
Wm. Beaumont Hospital, 6.25%, 1/1/12 7,789 7,789
5,575 5,575 State Building Authority Revenue Refunding, Series I, 6.75%,
10/1/1 6,066 6,066
6,750 6,750 State Hospital Financing Authority Revenue Refunding,
Detroit Medical Center Obligation, Group A, 6.25%, 10/1/11 7,316 7,316
2,000 2,000 State Hospital Finance Authority Revenue, Mercy Mount
Clemens Corp., 6.25%, 5/15/11, Callable 5/15/01 @ 102 2,127 2,127
1,500 1,500 State Hospital Finance Authority, Series A, 8.10%, 10/1/13,
Callable 10/1/05 @ 102 1,871 1,871
------- ------ -------
27,349 11,077 38,426
------- ------ -------
Minnesota (2.2%):
2,225 2,225 Housing Finance Agency Revenue, Series D, 5.90%, 8/1/15 2,324 2,324
3,270 3,270 Housing Finance Agency Revenue, Series G, 6.25%, 7/1/26 3,444 3,444
12,910 12,910 Housing Finance Agency Revenue, Series L, 6.25%, 7/1/26 13,534 13,534
1,500 1,500 Northern Municipal Power Agency, Minnesota Electric,
Series A, 5.90%, 1/1/07, Callable 1/1/03 @ 102, AMBAC 1,633 1,633
------- ------ -------
19,302 1,633 20,935
------- ------ -------
Mississippi (0.2%):
1,475 1,475 Home Corp., Single Family, Series D, 5.25%, 7/1/12,
Callable 7/1/07 @ 105, FNMA/GNMA - 1,607 1,607
------- ------ -------
Missouri (1.5%):
1,895 1,895 Carthage Waterworks & Wastewater Treatment Systems,
6.30%, 7/1/09, Callable 7/1/04 @ 101, MBIA 2,118 2,118
1,520 1,520 Fort Zumwalt School District, 5.20%, 3/1/09, Callable 3/1/07
@ 100, AMBAC 1,585 1,585
1,735 1,735 Fort Zumwalt School District, 5.30%, 3/1/10, Callable 3/1/07
@ 100, AMBAC 1,810 1,810
1,345 1,345 Kansas City Industrial Development Authority, Multi-Family
Housing Revenue , Series A, AMT, 5.63%, 7/1/05 1,415 1,415
1,430 1,430 Kansas City Municipal Corp. Revenue, 5.40%, 1/15/08,
Callable 1/15/06 @ 101, AMBAC 1,521 1,521
2,500 2,500 St. Louis Convention & Sports Complex, 5.50%, 8/15/13,
Callable 8/15/03 @ 102, MBIA 2,582 2,582
2,955 2,955 St. Louis Land Clearance Redevelopment Authority Housing
Revenue, 5.95%, 7/1/22, Mandatory Put 4/1/07 @ 100, FNMA 3,179 3,179
------- ------ -------
- 14,210 14,210
------- ------ -------
Montana (0.6%):
1,000 1,000 Health Facilities Authority Revenue, 5.00%, 12/1/13,
Callable 6/1/08 @ 101, MBIA 998 998
1,500 1,500 University Revenue, Facilities Improvement, Series E,
5.00%, 5/15/21, Callable 5/15/08 @ 102, MBIA 1,485 1,485
1,000 1,000 University Revenue, Facilities Improvement, Series F, 4.15%,
11/15/03, AMBAC 999 999
1,075 1,075 University Revenue, Facilities Improvement, Series F,
4.20%, 11/15/04, AMBAC 1,073 1,073
1,020 1,020 University Revenue, Facilities Improvement, Series F,
4.30%, 11/15/05, AMBAC 1,019 1,019
------- ------ -------
- 5,574 5,574
------- ------ -------
Nebraska (0.3%):
2,500 2,500 University Revenue, 5.28%, 07/15/11 2,597 - 2,597
------- ------ -------
Nevada (2.6%):
600 600 Clark County, Industrial Revenue, 0.00%, 12/1/22, LOC: Swiss
Bank 600 600
6,705 6,705 Clark County, Limited Tax, GO, 7.00%, 9/1/00 7,124 7,124
5,000 5,000 Clark County, Pollution Control Revenue, 5.30%, 10/1/11,
</TABLE>
See notes to financial statements.
<PAGE> 263
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Callable 1/1/03 @ 102, ACA-CBI 5,105 5,105
1,025 1,025 Douglas County, School District, Series A, 5.90%, 6/1/08,
Callable 6/1/02 @ 101, FGIC 1,100 1,100
2,250 2,250 Las Vegas, Refunding, Limited Tax, GO, 6.40%, 10/1/03 2,456 2,456
2,000 2,000 Las Vegas, Sewer Revenue, 6.60%, 10/1/12, Callable 4/1/02
@ 102, FGIC 2,208 2,208
1,000 1,000 Limited Tax, GO, Series A, 6.00%, 5/1/02 1,059 1,059
1,000 1,000 Limited Tax, GO, Series C, 5.90%, 4/1/01 1,049 1,049
1,000 1,000 Municipal Bond Bank Project #20-23A, 7.00%, 7/1/01, ETM 1,039 1,039
3,010 3,010 Washoe County, School District, GO, 6.13%, 8/1/07,
Callable 8/1/02 @ 101, MBIA 3,247 3,247
------- ------ -------
12,288 12,699 24,987
------- ------ -------
New Hampshire (0.1%):
1,225 1,225 Higher Education & Health Facilities Authority Revenue,
6.25%, 1/1/06, Callable 7/1/04 @ 102 - 1,351 1,351
------- ------ -------
New Jersey (1.3%):
3,500 3,500 Sayreville Housing Development Corp., Revenue, 6.00%,
2/1/23, Callable 8/1/03 @ 100, FHA 3,679 3,679
1,630 1,630 South Brunswick Township, 6.40%, 8/1/07, Callable 8/1/05
@ 100, FGIC 1,841 1,841
7,090 7,090 State Transit Fund Authority, 5.00%, 6/15/04 7,361 7,361
------- ------ -------
7,361 5,520 12,881
------- ------ -------
New Mexico (0.7%):
30 30 Albuquerque, 7.65%, 8/15/07, FGIC 32 32
1,000 1,000 Albuquerque Airport Revenue, AMT, 6.50%, 7/1/11, Callable
7/1/00 @ 105, AMBAC 1,088 1,088
5,455 5,455 Educational Assistance Foundation, Student Loan Revenue,
Series A, AMT, 6.85%, 4/1/05, Callable 4/1/02 @ 102, AMBAC 5,947 5,947
------- ------ -------
- 7,067 7,067
------- ------ -------
New York (6.0%):
3,100 3,100 Long Island Power Agency Authority, Revenue, 5.13%,
12/1/22, Callable 6/1/08 @ 101, FSA 3,066 3,066
1,500 1,500 Metropolitan Transportation Authority, 6.38%, 7/1/10,
Callable 7/1/02 @ 102, FGIC 1,655 1,655
1,395 1,395 Nassau County, 5.63%, 8/1/03, FGIC 1,486 1,486
1,230 1,230 New York City, Municipal Water Authority, Series C,
7.00%, 6/15/16, FGIC 1,350 1,350
6,500 6,500 New York City, Unlimited Tax Refunding, GO,
Series I, 5.75%, 3/15/07 6,999 6,999
5,000 5,000 New York City, Unlimited Tax, GO, Series A,
6.00%, 8/1/06 5,470 5,470
1,980 1,980 Radisson Senior Citizens Housing Corp. Revenue, Series A,
5.63%, 8/1/11 2,059 2,059
4,300 4,300 State Dorm Authority, Series A, 5.20%, 5/15/05 4,463 4,463
1,500 1,500 State Dorm Authority, Series A, 5.50%, 7/1/04 1,579 1,579
2,950 2,950 State Dorm Authority, Series A, 5.50%, 7/1/05 3,111 3,111
1,500 1,500 State Dorm Authority, Series A, 5.50%, 7/1/06 1,583 1,583
6,740 6,740 State Environment Pollution Control Facilities, 6.50%, 6/15/14 7,331 7,331
3,000 3,000 State, GO, Series B, 5.25%, 8/1/12, Callable 8/1/07 @ 101 3,054 3,054
5,000 5,000 State, GO, Series F, 5.13%, 8/1/11, Callable 2/1/08 @ 101 5,066 5,066
9,000 9,000 Tri-Borough Bridge & Tunnel Authority Revenue, General Purpose,
Series Y, 5.90%, 1/1/08 9,999 9,999
------- ------ -------
35,612 22,659 58,271
------- ------ -------
North Carolina (0.9%):
2,500 2,500 Educational Facilities, Wake Forest, 5.00%, 11/1/12,
Callable 11/1/07 @ 102 2,529 2,529
2,500 2,500 Municipal Power Agency, 7.25%, 1/1/07, MBIA 2,968 2,968
2,000 2,000 Raleigh Durham Airport, Series A, 0.00%, 11/01/15 2,000 2,000
1,535 1,535 University and College Improvements, Unlimited
Tax, GO, 5.00%, 6/1/01 1,582 1,582
------- ------ -------
6,550 2,529 9,079
------- ------ -------
North Dakota (1.3%):
3,050 3,050 Grand Forks Sales Tax Revenue Bond, 5.10%, 12/15/10,
Callable 12/15/07 @ 100 3,154 3,154
160 160 Housing Finance Agency, AMT, 6.25%, 7/1/09, Callable
7/1/04 @ 102 166 166
3,500 3,500 Mercer County, Pollution Control Revenue, 6.65%, 6/1/22,
Callable 6/1/02 @ 102, FGIC 3,829 3,829
2,910 2,910 State Building Authority Lease Revenue, Series A, 5.13%,
12/1/18, Callable 12/1/08 @ 100, AMBAC 2,888 2,888
</TABLE>
See notes to financial statements.
<PAGE> 264
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1,505 1,505 State Building Authority Revenue, Series B, 5.00%, 12/1/10,
Callable 12/1/08 @ 100, AMBAC 1,535 1,535
1,270 1,270 Water Development, 5.70%, 7/1/17, Callable 7/1/07 @ 100, AMBAC 1,342 1,342
------- ------ -------
- 12,914 12,914
------- ------ -------
Ohio (2.0%):
2,000 2,000 Butler County Sewer Systems Revenue, 4.70%, 12/1/11,
Callable 12/1/08 @ 101, AMBAC 1,984 1,984
2,000 2,000 Butler County Sewer Systems Revenue, 4.80%, 12/1/12,
Callable 12/1/08 @ 101, AMBAC 1,982 1,982
2,100 2,100 Mount Vernon, Industrial Development Revenue, 5.90%, 3/1/03 2,105 2,105
2,500 2,500 Northeast Regional Sewer District, 5.60%, 11/15/13,
Callable 11/15/05 @ 101, AMBAC 2,645 2,645
2,470 2,470 State, Economic Development, 7.50%, 9/1/10, Callable
9/1/02 @ 102 2,772 2,772
2,500 2,500 State, Higher Educational Facilities, 0.00%, 7/1/07 2,531 2,531
4,000 4,000 State Highway Capital Improvements, Unlimited Tax, GO,
Series B, 5.00%, 5/1/05 4,182 4,182
1,000 1,000 Housing, 4.90%, 9/1/06 1,018 1,018
------- ------ -------
5,200 14,019 19,219
------- ------ -------
Oklahoma (1.0%):
2,500 2,500 Baptist Health Center, IDR, 6.25%, 8/15/12, Callable 8/15/05
@ 102, AMBAC 2,797 2,797
1,000 1,000 Housing Finance Agency, PG-B-1, 5.60%, 3/1/28, Callable
9/1/07 @ 102 1,021 1,021
5,500 5,500 Water Reservoir Bridge State Loan Program Revenue, Series
A-Conv, 5.00%, 9/1/17, Callable 9/1/08 @ 102 5,443 5,443
------- ------ -------
- 9,261 9,261
------- ------ -------
Oregon (1.5%):
2,350 2,350 Jackson County, School District #5 Ashland, GO, 5.70%,
6/1/07, FSA 2,576 2,576
2,580 2,580 Lane County, School District #019, 6.00%, 10/15/11, FGIC 2,924 2,924
1,000 1,000 Lane County, School District #52 Bethel, GO, 6.00%, 6/1/06, FSA 1,111 1,111
3,630 3,630 Marion County, Oregon, 5.50%, 10/1/05, AMBAC 3,892 3,892
1,435 1,435 Port of Portland Airport Revenue, Series 7-A, 6.75%, 7/1/09,
Callable 7/1/01 @ 101, MBIA 1,555 1,555
2,075 2,075 Washington County, School District #88, GO, 6.10%, 6/1/05,
Callable 12/15/04 @ 100, FSA 2,298 2,298
------- ------ -------
- 14,356 14,356
------- ------ -------
Pennsylvania (4.6%):
3,200 3,200 Dauphin County, Industrial Development Authority, Pollution
Control Revenue, 6.00%, 1/1/08, MBIA 3,205 3,205
1,085 1,085 Delaware County, Hospital Authority, 6.00%, 12/15/20,
Callable 12/1/03@ 102 1,144 1,144
4,440 4,440 Delaware County, Series A, 5.50%, 12/01/13 4,791 4,791
2,895 2,895 Geisinger Authority Health System Revenue, Series A, 5.50%,
7/1/03 3,049 3,049
1,500 1,500 Hospital Revenue Bond, 6.40%, 1/1/06, Callable 1/1/05 @
102, AMBAC 1,682 1,682
2,750 2,750 Indiana County, Industrial Development Authority, Pollution
Control Revenue, 6.00%, 6/1/06, MBIA 3,040 3,040
7,000 7,000 Intergovernmental Coop Authority, Special Tax Revenue,
6.00%, 6/15/00, FGIC 7,280 7,280
2,350 2,350 Philadelphia Airport Revenue, Series A, AMT, 5.50%,
6/15/05, AMBAC 2,484 2,484
12,090 12,090 Philadelphia Gas Works Revenue, Fourteenth Series,
7.00%, 7/1/02, CAPMAC 13,327 13,327
2,500 2,500 Philadelphia Water & Waste, 5.65%, 6/15/12, Callable
6/15/03 @ 102, FGIC 2,612 2,612
2,000 2,000 State Financial Authority Revenue, 6.60%, 11/1/09, Callable
11/1/03 @ 102, Societe Generale 2,218 2,218
------- ------ -------
28,447 16,385 44,832
------- ------ -------
Puerto Rico (0.6%):
5,000 5,000 Commonwealth Infrastructure, Series A, 5.25%, 7/1/10,
Callable 7/1/08 @ 101, AMBAC - 5,292 5,292
------- ------ -------
Rhode Island (0.1%):
1,000 1,000 Housing & Mortgage Financial Corp., Series 15-B, 6.20%,
10/1/06, Callable 4/1/04 @ 102, MBIA - 1,069 1,069
------- ------ -------
South Carolina (1.8%):
2,800 2,800 Beaufort County School District Unlimited Tax, GO,
Series B, 4.75%, 3/1/03, MBIA 2,867 2,867
</TABLE>
See notes to financial statements.
<PAGE> 265
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
2,840 2,840 Greenville Hospital, Series A, 5.00%, 05/01/04 2,932 2,932
1,760 1,760 Greenville School Public Facilities, 5.60%, 3/1/10 1,885 1,885
1,045 1,045 Hilton Head Island, GO, 5.50%, 8/1/09, MBIA 1,137 1,137
20 20 Jobs Economic Development Authority Hospital Facilities
Revenue, 5.00%, 11/1/18, Callable 5/1/08 @ 101, AMBAC 20 20
250 250 Piedmont, Municipal Power Agency, Electric Revenue,
Series A, 6.55%, 1/1/16 250 250
2,300 2,300 State, GO, 5.75%, 08/01/05 2,514 2,514
5,000 5,000 State Public Service Authority Revenue, Refunding,
Series A, 5.00%, 7/1/01 5,134 5,134
1,000 1,000 York County, School District #3, GO, 5.40%, 3/1/08, Callable
3/1/06 @ 101, FSA 1,064 1,064
------- ------ -------
13,447 4,356 17,803
------- ------ -------
South Dakota (0.4%):
3,675 3,675 Health & Educational Facilities Authority Revenue, St.
Luke's, 6.63%, 7/1/11, Callable 7/1/01 @ 102, MBIA - 3,968 3,968
------- ------ -------
Tennessee (1.2%):
1,050 1,050 Chattanooga-Hamilton County, Hospital Authority, Hospital
Revenue, 5.63%, 10/1/09, FSA 1,153 1,153
1,460 1,460 Dyer County, Industrial Development Revenue, 6.00%,
2/1/07, Callable 2/1/04 @ 102 1,560 1,560
3,370 3,370 Hamilton County, Unlimited Tax, GO,
Series A, 5.00%, 5/1/09 3,512 3,512
2,000 2,000 Housing Development, 6.20%, 7/1/18, Callable 7/1/05 @ 102 2,123 2,123
1,000 1,000 Trenton Industrial Development Revenue, Series A, 5.40%,
10/1/02 1,002 1,002
2,000 2,000 Memphis-Shelby County Airport Authority Revenue, Refunding,
6.75%, 9/1/12 2,190 2,190
------- ------ -------
5,702 5,838 11,540
------- ------ -------
Texas (6.5%):
2,800 2,800 Austin Housing Finance Corp., Single Family Mortgage
Revenue, AMT, ETM, 0.00%, 12/1/11 1,379 1,379
1,000 1,000 Austin Utility Systems Revenue, 0.00%, 5/15/08, MBIA 634 634
1,130 1,130 Carroll Independent School District, GO, 0.00%, 2/15/11,
PSFG 604 604
1,365 1,365 Carroll Independent School District, GO, 0.00%, 2/15/12,
Callable 2/15/08 @ 82.259, PSFG 683 683
1,420 1,420 Carroll Independent School District, GO, 0.00%, 2/15/13,
PSFG 667 667
1,435 1,435 Carroll Independent School District, GO, 0.00%, 2/15/14,
PSFG 633 633
5,125 5,125 Cass County, Industrial Development Revenue, Series A,
5.30%, 7/1/09 5,372 5,372
1,215 1,215 Castleberry Independent School District, Public Facilities
Corp., 5.00%, 8/15/08 1,220 1,220
5,000 5,000 Coastal Bend Health Facilities, Incarnate Word Health
Services, 5.93%, 11/15/13, Callable 11/15/02 @ 102, AMBAC 5,357 5,357
1,000 1,000 Dallas Independent School District, Unlimited Tax, GO,
8.70%, 8/1/00 1,095 1,095
2,955 2,955 Dallas Revenue Tax, Series A, 5.25%, 08/15/12 3,058 3,058
1,165 1,165 Department, Series E, 4.80%, 09/01/01 1,186 1,186
920 920 Department, Series E, 4.90%, 09/01/02 941 941
3,600 3,600 Grand Prairie Health Facilities Refunding, Dallas/Fort Worth
Medical Center Project, 6.50%, 11/1/04, AMBAC 4,017 4,017
3,300 3,300 Grand Prairie Health Facilities Refunding, Dallas/Fort Worth
Medical Center Project, 6.88%, 11/1/10, AMBAC 3,750 3,750
7,500 7,500 Harris County, Capital Appreciation, 0.00%, 8/15/18, AMBAC 2,416 2,416
5,000 5,000 Harris County, Capital Appreciation, Toll Road, Sub-Lien A,
GO, 0.00%, 8/15/03, MBIA 4,002 4,002
3,700 3,700 Harris County, Capital Appreciation, Toll Road, Sub-Lien A,
GO, 0.00%, 8/15/05, MBIA 2,695 2,695
1,455 1,455 Health Facilities Development Corp., Hospital Revenue, All
Saints Episcopal Hospital, 6.25%, 8/15/12, Callable 8/15/03
@ 102, MBIA 1,594 1,594
1,000 1,000 Housing Agency Residential Development Revenue, Series
D, AMT, 8.40%, 1/1/21, Callable 7/1/99 @ 102 1,039 1,039
990 990 Housing Department, 4.80%, 03/01/01 1,005 1,005
2,035 2,035 Humble Independent School District, Unlimited Tax
Refunding, GO, 6.00%, 2/15/04 2,180 2,180
1,000 1,000 San Antonio Electric & Gas, Series B, 7.00%, 2/1/09,
Callable 2/1/99 @ 101.5 1,034 1,034
</TABLE>
See notes to financial statements.
<PAGE> 266
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1,145 1,145 State Higher Education Coordinating Board, Student Loan,
AMT, 7.45%, 10/1/06, Callable 10/1/01 @ 102 1,233 1,233
5,000 5,000 State, Unlimited Tax Refunding, Series B, 5.63%, 10/1/11 5,329 5,329
1,020 1,020 Texas Tech University Revenues, 5.95%, 2/15/13, Callable 2/15/05
@ 100, AMBAC 1,087 1,087
1,000 1,000 Texas A&M University, 7.50%, 07/01/02 1,123 1,123
5,000 5,000 Texas A&M University, Permanent Fund Revenue, 5.60%, 7/1/05 5,397 5,397
2,200 2,200 United Independent School District, 5.25%, 8/15/14,
Callable 8/15/06 @ 100 2,240 2,240
------- ------ -------
23,730 39,240 62,970
------- ------ -------
Utah (0.6%):
2,095 2,095 Clearfield City, GO, 5.13%, 2/1/18, Callable 2/1/08 @ 100, MBIA 2,080 2,080
2,000 2,000 Intermountain Power Agency, Power Supply Revenue, Series
B, 6.50%, 7/1/09, MBIA 2,333 2,333
1,280 1,280 State Housing Finance Authority, AMT, 6.35%, 7/1/12,
Callable 1/1/05 @ 102 1,356 1,356
------- ------ --------
- 5,769 5,769
------- ------ --------
Vermont (0.2%):
1,430 1,430 University & State Agricultural College, Series 73 A, 5.80%,
7/1/13 - 1,445 1,445
------- ------ -------
Virginia (0.8%):
4,000 4,000 Loudoun County, Sanitation Authority Water and Sewer Refunding,
6.25%, 1/1/16 4,367 4,367
1,340 1,340 State Housing Development Authority, Commonwealth
Mortgage, Series J, 6.65%, 7/1/10, Callable 1/1/05 @ 102 1,435 1,435
2,000 2,000 State Housing Development Authority, Series B Sub B2,
6.70%, 1/1/15, Callable 1/1/06 @ 102 2,143 2,143
------- ------ -------
4,367 3,578 7,945
------- ------ -------
Washington (3.3%):
1,830 1,830 Chelan County, Public Utilities Revenue, 5.90%, 7/1/13,
Mandatory Put 7/1/03 @ 102 1,926 1,926
1,360 1,360 King County, School District #400, GO, 6.50%, 12/1/08 1,596 1,596
1,084 1,084 Kitsap County, Consolidated Housing, 7.00%, 8/20/08 1,216 1,216
1,000 1,000 Seattle Light & Power Revenue, 6.00%, 8/1/13, Callable
8/1/02 @ 102 1,072 1,072
10,000 10,000 Seattle Limited Tax, GO, Series A, 5.75%, 1/15/17 10,521 10,521
1,000 1,000 Seattle Solid Waste, Series B, 7.00%, 5/1/03, Callable
5/1/99 @ 102, BIG 1,046 1,046
5,140 5,140 Snohomish County, Mukilteo Refunding, GO,
5.70%, 12/1/12 5,656 5,656
3,000 3,000 Snohomish County, Public Utility District #001, Electric
Revenue, 6.00%, 1/1/13, Callable 1/1/03 @ 102, FGIC 3,224 3,224
3,500 3,500 State Nuclear Project #1, Series A, 6.00%, 7/1/08, AMBAC 3,891 3,891
2,000 2,000 State, Series C, 7.63%, 07/01/10 2,206 2,206
------- ------ -------
18,383 13,971 32,354
------- ------ -------
West Virginia (1.5%):
1,320 1,320 Board of Regents Revenue, Series A, 5.90%, 4/1/04, ETM 1,386 1,386
2,495 2,495 Harrison County, Community Split Obligation, Series A,
6.25%, 5/15/10 2,870 2,870
3,630 3,630 Randolph County Community Health, Revenue, 5.20%,
11/1/21, Callable 11/1/13 @ 100, FSA 3,617 3,617
3,500 3,500 School Building Authority, Series B, 5.40%, 7/1/17, Callable
7/1/07 @ 102, FSA 3,599 3,599
1,150 1,150 State College Revenue, 6.00%, 4/1/12, Callable 4/1/03 @
102, AMBAC 1,239 1,239
1,960 1,960 State Housing Development Fund, Housing Finance, AMT,
7.20%, 11/1/20, Callable 5/1/02 @ 102 2,114 2,114
------- ------ -------
- 14,825 14,825
------- ------ -------
Wisconsin (3.3%):
2,500 2,500 Clean Water Revenue, Series 2, 6.00%, 6/1/07 2,782 2,782
5,735 5,735 Durand Hospital Facilities Revenue, Chippewa Valley Hospital
and Nursing Project, 7.10%, 9/1/12 6,759 6,759
500 500 Mukwonago School District, 5.80%, 3/1/07, Prerefunded
3/1/02 @100, AMBAC 529 529
5,000 5,000 Southeast Professional Revenue, Capital Appreciation,
0.00%, 12/15/07, MBIA 3,276 3,276
5,000 5,000 Southeast Professional Revenue, Capital Appreciation,
0.00%, 12/15/09, MBIA 2,949 2,949
3,000 3,000 State Health & Educational Facilities Authority Revenue,
5.10%, 8/15/05, MBIA 3,108 3,108
1,000 1,000 State, Series A, 6.30%, 5/1/07, Prerefunded 5/1/02 @ 100 1,078 1,078
</TABLE>
See notes to financial statements.
<PAGE> 267
<TABLE>
The One Group Intermediate Tax Free Bond Fund / Pegasus Intermediate Municipal Bond Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ----------- --------- --------- -------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
4,155 4,155 Unlimited Tax, GO, Series B, 7.00%, 5/1/02 4,574 4,574
5,830 5,830 Unlimited Tax, GO, Series B, 7.00%, 5/1/03 6,536 6,536
------- ------ -------
29,984 1,607 31,591
------- ------ -------
Wyoming (0.7%):
875 875 Community Development Authority Single Family Mortgage,
Series A, 7.25%, 6/1/07, Callable 6/1/01 @ 102 915 915
2,000 2,000 Lincoln County, 0.00%, 08/01/15 2,000 2,000
2,000 2,000 Sweetwater County Solid Waste Disposal Revenue, Series
A, AMT, 7.00%, 6/1/24 2,231 2,231
1,395 1,395 Sweetwater County, School District #2, Green River, GO,
7.00%, 6/1/04, MBIA 1,589 1,589
------- ------ -------
2,000 4,735 6,735
------- ------ -------
Total Municipal Bonds 454,484 503,031 957,515
------- ------ -------
Daily Demand Notes (0.1%):
New York (0.1%):
1,000 1,000 Long Island Power Authority Electric Revenue, Series 6,
3.75%, 5/1/33 1,000 1,000
------- ------ -------
Total Daily Demand Notes - 1,000 1,000
------- ------ -------
Monthly Demand Notes (0.8%):
California (0.2%):
2,000 2,000 Education Loan Marketing Corp., Revenue, Series IV-C-1,
4.00%, 1/1/33 - 2,000 2,000
------- ------ -------
Florida (0.6%):
5,800 5,800 Educational Loan Marketing Corp., Revenue, Series A,
4.00%, 12/1/18 - 5,800 5,800
------- ------ -------
Total Monthly Demand Notes - 7,800 7,800
------- ------ -------
Total (Cost $923,467) (a) $ 454,484 $ 511,831 $ 966,315
======= ====== =======
</TABLE>
- ----------
Percentages indicated are based on net assets of $968,623.
(a) Represents cost for financial reporting purposes and differs from value by
net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation.................. $ 43,041
Unrealized depreciation.................. (193)
-------
Net unrealized appreciation.............. $ 42,848
=======
</TABLE>
* Variable rate securities having liquidity sources through bank letters of
credit or other cards and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of
market rates. The rate reflected on the Schedule of Portfolio Investments
is the rate in effect at June 30, 1998.
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
BIG Insured by Bond Insurance Guarantee
CAPMAC Insured by CapMAC Holdings Inc.
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FNMA Insured by Federal National Mortgage Association
FSA Insured by Federal Security Assurance
GNMA Insured by Government National Mortgage Association
GO General Obligation
GSL Guaranteed Student Loans
IDR Industrial Development Revenue
MBIA Insured by Municipal Bond Insurance Association
PSFG Permanent School Funding Guarantee
See notes to financial statements.
<PAGE> 268
<TABLE>
<CAPTION>
The One Group Income Equity Fund / Pegasus Equity Income Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- --------- ---------- -------------- ------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks (91.4%):
Business Equipment & Services (1.5%):
63 63 Automatic Data Processing, Inc. $ $ 4,591 $ 4,591
180 180 Browning-Ferris Industries, Inc. (b) 6,255 6,255
225 225 Dun & Bradstreet Corp. (b) 8,128 8,128
------------- ---------- ---------
- 18,974 18,974
------------- ---------- ---------
Capital Goods (4.6%):
215 215 Cooper Industries, Inc. 11,812 11,812
87 87 Deere & Co. 4,600 4,600
80 80 Emerson Electric Co. 4,825 4,825
365 365 General Electric Co. 33,215 33,215
100 100 Johnson Controls, Inc. 5,706 5,706
------------- ---------- ---------
- 60,158 60,158
------------- ---------- ---------
Consumer Durable (2.2%):
161 161 Bandag, Inc., Class A 5,558 5,558
75 75 Chrysler Corp. 4,228 4,228
250 250 Ford Motor Co. 14,750 14,750
95 95 National Presto Industries, Inc. 3,715 3,715
------------- ---------- ---------
9,273 18,978 28,251
------------- ---------- ---------
Consumer Non-Durable (14.7%):
120 120 American Greetings Corp., Class A 6,113 6,113
254 254 Campbell Soup Co. 13,473 13,473
100 100 Clorox Co. 9,538 9,538
242 242 Coca-Cola Co. 20,690 20,690
450 450 ConAgra, Inc. 14,259 14,259
259 259 Diageo PLC 12,485 12,485
110 110 Eastman Kodak Co. 8,037 8,037
150 150 H.J. Heinz Co. 8,419 8,419
120 120 International Flavors & Fragrances, Inc. (b) 5,213 5,213
108 108 Loews Corp. 9,383 9,383
354 354 Luby's Cafeterias, Inc. 6,213 6,213
150 150 McCormick & Co., Inc. 5,358 5,358
60 60 Newell Co., Inc. 2,989 2,989
165 165 PepsiCo, Inc. 6,796 6,796
133 325 458 Philip Morris Co., Inc. 5,229 12,797 18,026
165 165 Procter & Gamble Co. 15,024 15,024
104 104 Quaker Oats Co. 5,714 5,714
292 292 Sbarro, Inc. 7,915 7,915
304 304 Tate & Lyle PLC Sponsored 9,640 9,640
186 186 UST, Inc. 5,012 5,012
------------- ---------- ---------
55,877 134,420 190,297
------------- ---------- ---------
Consumer Services (0.8%):
120 120 McGraw-Hill Co., Inc. - 9,788 9,788
------------- ---------- ---------
Energy (9.1%):
164 265 429 Amoco Corp. 6,827 11,031 17,858
100 100 200 Atlantic Richfield Co. 7,828 7,813 15,641
100 100 Dresser Industries, Inc. (b) 4,406 4,406
300 300 Exxon Corp. 21,394 21,394
100 100 Halliburton Co. (b) 4,456 4,456
109 210 319 Mobil Corp. 8,322 16,091 24,413
350 350 Royal Dutch Petroleum Co. (b) 19,184 19,184
135 135 Texaco, Inc. 8,028 8,028
75 75 USX-Marathon Group 2,573 2,573
------------- ---------- ---------
31,005 86,948 117,953
------------- ---------- ---------
Financial Services (20.0%):
115 115 Allstate Corp. 10,530 10,530
210 210 American Express Co. 23,941 23,941
120 120 American National Insurance Co. 12,672 12,672
170 170 Amli Residential Properties Trust 3,644 3,644
160 160 Associated Estates Realty 2,988 2,988
72 72 Associates First Capital, Class A 5,541 5,541
240 240 BankAmerica Corp. 20,745 20,745
146 146 Chase Manhattan Corp. 11,027 11,027
</TABLE>
See notes to financial statements.
<PAGE> 269
<TABLE>
<CAPTION>
The One Group Income Equity Fund / Pegasus Equity Income Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- --------- ---------- -------------- ------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
65 65 Citicorp 9,701 9,701
275 216 491 Federal National Mortgage Assoc. 16,682 13,122 29,804
240 240 First Tennessee National Corp. 7,575 7,575
100 100 First Union Corp. 5,825 5,825
95 95 J.P. Morgan & Co., Inc. 11,127 11,127
155 155 Lincoln National Corp. 14,163 14,163
125 125 National City Corp. 8,875 8,875
110 110 Norwest Corp. 4,111 4,111
217 217 Ohio Casualty Corp. 9,585 9,585
519 519 Old Republic International Corp. 15,203 15,203
342 342 Pacific Century Financial Corp. 8,208 8,208
173 173 PXRE Corp. 5,178 5,178
200 200 Reliastar Financial Corp. 9,600 9,600
44 44 RLI Corp. 1,790 1,790
80 80 SAFECO Corp. 3,617 3,617
98 98 Southtrust Corp. 4,241 4,241
80 80 TransAmerica Corp. 9,210 9,210
240 240 U.S. Bancorp 10,320 10,320
------------- ---------- ---------
79,567 179,654 259,221
------------- ---------- ---------
Health Care (10.7%):
126 126 Abbott Labs 5,150 5,150
400 400 American Home Products Co. 20,700 20,700
250 250 Baxter International, Inc. 13,453 13,453
62 62 Block Drug Inc., Class A 2,367 2,367
200 200 Bristol Myers Squibb Co. 22,987 22,987
125 125 Merck & Co., Inc. 16,719 16,719
53 53 Mid Ocean LTD 4,161 4,161
125 125 Pfizer, Inc. 13,586 13,586
200 200 Schering Plough Corp. 18,325 18,325
300 300 Warner Lambert Co. 20,813 20,813
------------- ---------- ---------
6,528 131,733 138,261
------------- ---------- ---------
Multi-Industry (0.4%):
70 70 Minnesota Mining & Manufacturing Co. - 5,753 5,753
------------- ---------- ---------
Raw Materials (3.8%):
5 5 De Beers Consolidated Mines Ltd 86 86
150 150 Dow Chemical Co. (b) 14,502 14,502
140 140 Du Pont (EI) de Nemours & Co. 10,448 10,448
150 150 Nalco Chemical Co. 5,269 5,269
128 128 NCH Corp. 8,187 8,187
83 83 Olin Corp. 3,460 3,460
160 160 Pall Corp. (b) 3,280 3,280
60 60 Phelps Dodge Corp. 3,431 3,431
------------- ---------- ---------
11,704 36,959 48,663
------------- ---------- ---------
Retail (3.5%):
178 178 Albertsons, Inc. 9,223 9,223
235 235 Enesco Group, Inc. 7,220 7,220
163 163 May Department Stores Co. 10,680 10,680
121 121 Unifi, Inc. 4,137 4,137
185 185 Wal-Mart Stores, Inc. (b) 11,238 11,238
80 80 Walgreen Co. (b) 3,305 3,305
------------- ---------- ---------
11,357 34,446 45,803
------------- ---------- ---------
Shelter (5.3%):
24 24 Avalon Bay Communities, Inc. 891 891
66 66 Boston Properties, Inc. 2,280 2,280
45 45 Camden Property Trust 1,348 1,348
56 56 CBL & Associates Properties 1,353 1,353
35 35 Chelsea GCA Realty, Inc., (b) 1,416 1,416
44 44 Colonial Properties Trust 1,364 1,364
138 138 Equity Office Properties Trust 3,902 3,902
35 35 Equity Residential Properties Trust 1,651 1,651
73 73 Federal Realty Trust 1,747 1,747
32 32 Gables Residential Trust 857 857
120 120 Kimberly Clark Corp. 5,505 5,505
</TABLE>
See notes to financial statements.
<PAGE> 270
<TABLE>
<CAPTION>
The One Group Income Equity Fund / Pegasus Equity Income Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- --------- ---------- -------------- ------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
66 66 Liberty Property Trust 1,685 1,685
31 31 Macerich Co. 912 912
58 58 Mack Cali Realty Corp. 1,980 1,980
142 142 Masco Corp. 8,585 8,585
61 61 Merry Land & Investment Co. 1,283 1,283
55 55 Mills Corp. 1,327 1,327
73 73 Patriot American Hospitality 1,747 1,747
66 66 Prentiss Properties Trust 1,614 1,614
47 47 Public Storage, Inc. 1,313 1,313
49 49 Shurgard Storage Centers 1,349 1,349
29 29 Simon Debartolo Group, Inc. 943 943
270 270 Sonoco Products Co. 8,151 8,151
43 43 Spieker Properties, Inc. 1,682 1,682
95 95 Starwood Hotels & Resorts (b) 4,599 4,599
68 68 Summit Properties, Inc. 1,292 1,292
74 74 Taubman Centers, Inc. 1,059 1,059
48 48 Vornado Realty Trust 1,917 1,917
28 28 Weeks Corp. 898 898
80 80 Weyerhaeuser Co. 3,695 3,695
------------- ---------- ---------
- 68,345 68,345
------------- ---------- ---------
Technology (5.0%):
60 60 AMP, Inc. (b) 2,063 2,063
100 100 Boeing Co. 4,456 4,456
127 127 Hewlett Packard Co. 7,604 7,604
105 105 International Business Machines 12,055 12,055
107 60 167 Lockheed Martin Corp. (b) 11,276 6,353 17,629
60 60 United Technologies Corp. (b) 5,550 5,550
150 150 Xerox Corp. 15,243 15,243
------------- ---------- ---------
11,276 53,324 64,600
------------- ---------- ---------
Transportation (1.6%):
317 317 Alexander & Baldwin, Inc. 9,233 9,233
183 183 Canadian National Railway Co. 9,745 9,745
70 70 Norfolk Southern Corp. 2,087 2,087
------------- ---------- ---------
18,978 2,087 21,065
------------- ---------- ---------
Utilities (8.2%):
181 181 AT&T Corp. (b) 10,332 10,332
180 180 BellSouth Corp. 12,083 12,083
147 147 Central & South West Corp. 3,951 3,951
135 135 Connecticut Energy Corp. 3,749 3,749
49 49 El Paso Energy Corp. (c) 2,597 2,597
50 50 El Paso Natural Gas Co. 1,913 1,913
5 5 Empire District Electric 102 102
160 160 Entergy Corp. 4,600 4,600
230 230 GTE Corp. 12,793 12,793
200 200 L G & E Energy Corp. 5,423 5,423
80 80 New Century Energies, Inc. 3,635 3,635
140 140 Northern States Power Co. 4,008 4,008
400 400 SBC Communications, Inc. 15,999 15,999
104 104 Sierra Pacific Resources 3,777 3,777
12 12 SJW Corp. 686 686
179 179 Southwest Gas Corp. 4,374 4,374
90 90 Sprint Corp. 6,345 6,345
437 437 Washington Water Power Co. 9,794 9,794
------------- ---------- ---------
22,482 83,679 106,161
------------- ---------- ---------
Total Common Stocks 258,047 925,246 1,183,293
------------- ---------- ---------
Convertible Bonds (4.5%):
Financial Services (1.4%):
$ 3,095 $ $ 3,095 NAC RE Corp., 5.25%, 12/15/02 3,443 3,443
30,100 30,100 Roche Holding Inc., Zero Coupon, 5/6/12 14,542 14,542
------------- ---------- ---------
17,985 - 17,985
------------- ---------- ---------
Health Care (0.8%):
</TABLE>
See notes to financial statements.
<PAGE> 271
<TABLE>
<CAPTION>
The One Group Income Equity Fund / Pegasus Equity Income Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- --------- ---------- -------------- ------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
5,000 5,000 Alza Corp., 5.00%, 5/1/06 6,350 6,350
3,500 3,500 Athena Neurosciences, 4.75%, 11/15/04, Callable 11/15/00
@ 102.7 (b) 4,051 4,051
------------- ---------- ---------
- 10,401 10,401
------------- ---------- ---------
Retail (0.4%):
9,400 9,400 Pep Boys, Zero Coupon, 9/20/11 5,158 - 5,158
------------- ---------- ---------
Shelter (0.8%):
6,500 6,500 Hilton Hotels Corp., 5.00%, 5/15/06 6,752 6,752
4,500 4,500 Medical Care International, 6.75%, 10/1/06 4,123 4,123
------------- ---------- ---------
- 10,875 10,875
------------- ---------- ---------
Utilities (1.1%):
11,544 11,544 Potomac Electric Power, 5.00%, 9/1/02 11,255 11,255
2,500 2,500 U.S. Filter Corp., 4.50% 12/15/01 2,547 2,547
------------- ---------- ---------
11,255 2,547 13,802
------------- ---------- ---------
Total Convertible Bonds 34,398 23,823 58,221
------------- ---------- ---------
Preferred Stocks (3.2%):
Capital Goods (0.2%):
125 125 Ingersoll-Rand Co. (c) - 3,000 3,000
------------- ---------- ---------
Computer Software (0.4%):
55 55 Microsoft Corp.(c) - 5,225 5,225
------------- ---------- ---------
Financial Services (2.0%):
60 60 Newell Financial Trust (c) 3,458 3,458
391 391 Salomon, Inc., 7.63% 18,626 18,626
45 45 St. Paul Capital (c) 3,204 3,204
------------- ---------- ---------
18,626 6,662 25,288
------------- ---------- ---------
Industrial Goods & Services (0.6%):
50 50 Corning Delaware (c) 2,825 2,825
120 120 Crown Cork & Seal Co. (c) 5,370 5,370
------------- ---------- ---------
- 8,195 8,195
------------- ---------- ---------
Total Preferred Stocks 18,626 23,082 41,708
------------- ---------- ---------
Investment Companies (1.1%):
14,672 14,672 Pegasus Cash Management Fund Class I (in shares) 14,672 14,672
------------- ---------- ---------
Total Investment Companies 14,672 - 14,672
------------- ---------- ---------
Repurchase Agreements (0.3%):
$ $ 3,405 $ 3,405 Prudential Securities, 6.10%, 7/1/98 (Collateralized by
$3,505 U.S. Treasury Bills, 9/3/98, market value $3,474) 3,405 3,405
------------- ---------- ---------
Total Repurchase Agreements - 3,405 3,405
------------- ---------- ---------
Short-Term Securities Held as Collateral (4.0%):
Master Notes (0.7%):
2,021 2,021 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 2,021 2,021
1,684 1,684 Danaher Corp., 6.68%, 10/9/98* 1,684 1,684
1,011 1,011 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 1,011 1,011
2,291 2,291 Morgan Stanley Mortgage Capital, 5.76%, 7/21/98* 2,292 2,292
606 606 NationsBanc Capital Markets, 6.70%, 7/1/98* 606 606
2,021 2,021 Williamette Industries, Inc., 5.85%, 7/23/98* 2,021 2,021
------------- ---------- ---------
- 9,635 9,635
------------- ---------- ---------
Put Bonds (1.1%):
1,684 1,684 Associates Corp. N.A., 5.79%, 1/4/99* 1,683 1,683
1,347 1,347 Branch Banking & Trust, 5.92%, 12/10/99* 1,347 1,347
674 674 Citicorp, 5.94%, 8/3/98* 674 674
1,550 1,550 Evangelical Lutheran, 5.74%, 4/28/00* 1,547 1,547
2,021 2,021 GMAC, 5.85%, 11/10/99* 2,025 2,025
1,684 1,684 Goldman Sachs, 6.06%, 11/21/00* 1,684 1,684
1,684 1,684 Greenwich Capital, 6.11%, 12/13/99* 1,684 1,684
1,684 1,684 Lehman Brothers Holdings, 5.85%, 8/18/99* 1,685 1,685
674 674 Merrill Lynch, 6.07%, 11/13/98* 674 674
</TABLE>
See notes to financial statements.
<PAGE> 272
<TABLE>
<CAPTION>
The One Group Income Equity Fund / Pegasus Equity Income Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- --------- ---------- -------------- ------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1,684 1,684 PNC Bank, 5.74%, 10/2/98* 1,683 1,683
------------- ---------- ---------
- 14,686 14,686
------------- ---------- ---------
Repurchase Agreements (2.2%):
6,737 6,737 Donaldson, Lufkin & Jenrette, 6.65%, 7/1/98 (Collateralized
by $6,888 various Corporate and Government Securities,
0.00% - 17.25%, 10/15/02 - 4/15/35, market value $6,996) 6,737 6,737
3,369 3,369 Goldman Sachs, 6.65%, 7/1/98 (Collateralized by $3,590
various Corporate Bonds, 0.00%, 7/7/98 - 9/18/98, market
value $3,577) 3,369 3,369
17,315 17,315 Lehman Brothers, 6.65%, 7/1/98 (Collateralized by $17,748
various Corporate Bonds, 0.00% - 10.13%, 9/15/99 -
10/17/96, market value $18,576) 17,315 17,315
12 12 Lehman Brothers, 6.47%, 7/1/98 (Collateralized by $12 Media
One Group Bonds, 0.00%, 10/5/98, market value $12) 12 12
539 539 Lehman Brothers, 6.00%, 7/1/98 (Collateralized by $3,374
various Government Securities, 0.00% - 7.50%, 12/1/18 -
5/1/24, market value $555) 539 539
674 674 Paine Webber, 6.40%, 7/1/98 (Collateralized by $672 various
Corporate Bonds, 4.00% - 9.75%, 7/15/98 - 9/01/23, market
value $707) 674 674
------------- ---------- ---------
- 28,646 28,646
------------- ---------- ---------
Total Short-Term Securities Held as Collateral - 52,967 52,967
------------- ---------- ---------
Total (Cost $818,363) (a) $ 325,743 $ 1,028,523 $1,354,266
============= ========== =========
-------------
Percentages indicated are based on net assets of $1,304,466.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax
reporting of approximately $4. Cost for federal income tax purposes
differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
Unrealized appreciation.........................................$ 547,955
Unrealized depreciation.......................................... (12,056)
--------------
Net unrealized appreciation.....................................$ 535,899
==============
(b) A portion of this security was loaned as of June 30, 1998.
(c) Non-income producing securities.
</TABLE>
* The interest rate for this variable rate note, which will change
periodically, is based upon an index of market rates. The rate reflected
on the Schedule of Portfolio Investments is the rate in effect at June 30,
1998.
<PAGE> 273
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
Commercial Paper (0.4%):
Financial Services (0.4%):
$ $ 9,000 $ $9,000 Merrill Lynch, 5.56%, 9/9/98 $ - $ 8,904 $ 8,904
---------- ----------- --------------
Total Commercial Paper - 8,904 8,904
---------- ----------- --------------
Common Stocks (98.9%):
Business Equipment & Services (1.8%):
32 40 72 Automatic Data Processing, Inc. 2,316 2,946 5,262
22 25 47 Browning-Ferris Industries, Inc. 752 868 1,620
10 12 22 Canadian Moore Corp., Ltd. 135 160 295
7 10 17 Ceridian Corp. (b) 432 613 1,045
18 23 41 Cognizant Corp. 1,144 1,449 2,593
15 20 35 Computer Sciences Corp. (b) 983 1,311 2,294
12 12 Deluxe Corp. 415 415
18 23 41 Dun & Bradstreet Corp. 607 839 1,446
22 18 40 Ecolab, Inc. 694 554 1,248
17 21 38 Equifax, Inc. (c) 603 750 1,353
49 61 110 First Data Corp. 1,617 2,038 3,655
16 14 30 H & R Block 693 592 1,285
18 18 Ikon Office Solutions (c) 256 256
12 17 29 Interpublic Group Co., Inc. 736 1,018 1,754
34 42 76 Laidlaw, Inc. 415 511 926
7 7 National Service Industries, Inc. 345 345
18 21 39 Omnicom Group, Inc. (c) 883 1,057 1,940
37 37 74 Pitney Bowes, Inc. 1,776 1,793 3,569
14 21 35 R.R. Donnelley & Sons Co. 657 957 1,614
11 11 Ryder Systems, Inc. (c) 344 344
32 34 66 Service Corp. International 1,363 1,478 2,841
62 62 WMX Technologies, Inc. 2,176 2,176
50 50 Waste Management, Inc. 1,760 1,760
---------- ----------- --------------
17,566 22,470 40,036
---------- ----------- --------------
Capital Goods (5.7%):
3 3 Aeroquip-Vickers, Inc. 202 202
11 12 23 Black & Decker Corp. 667 730 1,397
6 10 16 Case Corp. 302 472 774
43 50 93 Caterpillar, Inc. 2,260 2,634 4,894
5 5 Cincinnati Milacron, Inc. 131 131
12 16 28 Cooper Industries, Inc. 687 901 1,588
6 6 Crane Co. 293 293
7 6 13 Cummins Engine, Inc. 354 288 642
29 35 64 Deere & Co. 1,539 1,842 3,381
24 31 55 Dover Corp. 827 1,051 1,878
51 61 112 Emerson Electric Co. 3,068 3,686 6,754
8 12 20 Fluor Corp. 432 597 1,029
5 5 Foster Wheeler Corp. 116 116
359 444 803 General Electric Co. 32,681 40,386 73,067
8 7 15 General Signal Corp. 292 252 544
9 15 24 Grainger W.W., Inc. 481 739 1,220
7 7 Harnischfeger Industries, Inc. 193 193
14 17 31 Honeywell, Inc. 1,178 1,452 2,630
29 33 62 Illinois Tool Works 1,902 2,203 4,105
16 22 38 Ingersoll Rand Co. 688 953 1,641
10 11 21 Johnson Controls, Inc. 561 650 1,211
3 1 4 Nacco Industries, Inc., Class A 336 144 480
11 11 Navistar International Corp. 303 303
7 7 Owens-Corning Fiberglass Corp. 287 287
12 10 22 Paccar, Inc. 616 537 1,153
13 15 28 Parker-Hannifin Corp. 495 589 1,084
</TABLE>
See notes to financial statements.
<PAGE> 274
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
20 25 45 PPG Industries, Inc. 1,401 1,737 3,138
15 24 39 Sherwin-Williams Co. 511 795 1,306
8 9 17 Snap-On, Inc. 283 322 605
7 12 19 Stanley Works 296 503 799
17 20 37 Thermo Electron Corp. (b) 574 701 1,275
8 8 Timken Co. 240 240
64 78 142 Tyco International, Ltd. 4,009 4,923 8,932
---------- ----------- --------------
56,440 70,852 127,292
---------- ----------- --------------
Consumer Durable (2.3%):
17 21 38 Autozone, Inc. (b) (c) 538 666 1,204
3 3 Briggs & Stratton Corp. 103 103
72 89 161 Chrysler Corp. 4,065 4,996 9,061
13 11 24 Cooper Tire & Rubber Co. 262 235 497
12 14 26 Dana Corp. (c) 637 737 1,374
8 11 19 Eaton Corp. 646 830 1,476
9 9 Echlin, Inc. 430 430
137 165 302 Ford Motor Co. 8,092 9,748 17,840
80 91 171 General Motors Corp. 5,357 6,093 11,450
18 25 43 Genuine Parts Co. (c) 628 863 1,491
17 21 38 Goodyear Tire & Rubber Co. (b) 1,069 1,354 2,423
17 16 33 ITT Industries, Inc. 642 594 1,236
12 14 26 Maytag Corp. 583 682 1,265
8 10 18 Whirlpool Corp. 574 714 1,288
---------- ----------- --------------
23,093 28,045 51,138
---------- ----------- --------------
Consumer Non-Durable (11.2%):
15 7 22 Alberto Culver Co., Class B 432 205 637
8 10 18 American Greetings Corp., Class A 429 529 958
54 68 122 Anheuser Busch Co., Inc. (c) 2,559 3,192 5,751
65 79 144 Archer-Daniels-Midland Co. 1,260 1,538 2,798
12 18 30 Avon Products, Inc. 953 1,433 2,386
3 4 7 Ball Corp. 139 143 282
4 8 12 Bemis Co. 171 307 478
31 40 71 Bestfoods 1,813 2,321 4,134
11 10 21 Brown-Forman Corp., Class B 692 620 1,312
52 64 116 Campbell Soup Co. 2,762 3,395 6,157
10 15 25 Clorox Co. 913 1,387 2,300
271 338 609 Coca-Cola Co. 23,206 28,913 52,119
33 40 73 Colgate Palmolive Co. 2,893 3,531 6,424
52 66 118 ConAgra, Inc. 1,653 2,080 3,733
5 5 Coors Adolph Co., Class B 176 176
13 17 30 Crown Cork & Seal Co. 624 815 1,439
39 44 83 Eastman Kodak Co. 2,822 3,237 6,059
21 28 49 Fort James Corp. 935 1,267 2,202
19 24 43 Fortune Brands Inc. 719 914 1,633
8 11 19 Fruit of The Loom, Inc., Class A (b) 282 351 633
17 22 39 General Mills, Inc. 1,165 1,495 2,660
128 153 281 Gillette Co. 7,259 8,648 15,907
39 50 89 H.J. Heinz Co. 2,205 2,833 5,038
17 21 38 Hershey Foods Corp. 1,163 1,447 2,610
11 15 26 International Flavors & Fragrances, Inc. 464 653 1,117
6 6 Jostens, Inc. 135 135
47 57 104 Kellogg Co. 1,771 2,135 3,906
6 10 16 Liz Claiborne, Inc. (c) 290 545 835
16 22 38 Newell Co. 805 1,097 1,902
33 40 73 Nike, Inc., Class B (c) 1,596 1,927 3,523
172 203 375 PepsiCo, Inc. 7,094 8,358 15,452
266 333 599 Philip Morris Co., Inc. 10,477 13,098 23,575
</TABLE>
See notes to financial statements.
<PAGE> 275
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
34 33 67 Pioneer Hi-Bred International, Inc. 1,415 1,378 2,793
7 7 Polaroid Corp. 233 233
147 183 330 Procter & Gamble Co. 13,413 16,706 30,119
14 18 32 Quaker Oats Co. 758 1,012 1,770
12 14 26 Ralston Purina Group 1,352 1,687 3,039
6 8 14 Reebok International Ltd. (b) 171 218 389
16 21 37 Rubbermaid, Inc. 546 705 1,251
11 5 16 Russell Corp. 329 163 492
49 64 113 Sara Lee, Corp. 2,747 3,554 6,301
39 47 86 Seagram Co., Ltd. 1,614 1,929 3,543
2 2 Springs Industries, Inc., Class A 98 98
10 10 Supervalu, Inc. 427 427
33 49 82 Sysco Corp. 858 1,257 2,115
9 9 Tupperware Corp. 249 249
70 87 157 Unilever N V 5,497 6,888 12,385
22 27 49 UST, Inc. 584 721 1,305
12 18 30 V.F. Corp. 641 925 1,566
12 16 28 Wrigley (Wm.) Junior Co. (c) 1,182 1,554 2,736
---------- ----------- --------------
110,653 138,429 249,082
---------- ----------- --------------
Consumer Services (4.0%):
11 13 24 Brunswick Corp. 277 331 608
77 97 174 CBS Corp. (c) 2,436 3,068 5,504
86 116 202 Cendant Corp. 1,805 2,425 4,230
14 17 31 Clear Channel Communications (b) (c) 1,517 1,840 3,357
39 50 89 Comcast Corp., Class A 1,583 2,040 3,623
11 13 24 Dow Jones & Co., Inc. 588 740 1,328
30 38 68 Gannett, Inc. 2,116 2,736 4,852
14 14 Harrah's Entertainment, Inc. (b) (c) 320 320
12 18 30 Hasbro, Inc. 453 697 1,150
29 34 63 Hilton Hotels Corp. 821 975 1,796
10 10 King World Productions, Inc. (b) 255 255
13 11 24 Knight-Ridder, Inc. 692 631 1,323
27 35 62 Marriott International, Class A 887 1,130 2,017
29 38 67 Mattel, Inc. 1,206 1,613 2,819
10 14 24 McGraw-Hill Co., Inc. 808 1,136 1,944
69 85 154 Media One Group, Inc. (b) (c) 3,038 3,721 6,759
13 7 20 Meredith Corp. 605 325 930
20 24 44 Mirage Resorts, Inc. (b) (c) 418 513 931
14 13 27 New York Times Co., Class A 1,103 1,066 2,169
54 69 123 Tele-Communications, Inc., Class A (b) (c) 2,070 2,648 4,718
62 78 140 Time Warner, Inc. 5,271 6,647 11,918
11 12 23 Times Mirror Co., Class A 689 758 1,447
12 18 30 Tribune Co. 858 1,224 2,082
40 49 89 Viacom, Inc., Class B (b) 2,308 2,850 5,158
76 93 169 Walt Disney Co. 8,018 9,734 17,752
---------- ----------- --------------
39,567 49,423 88,990
---------- ----------- --------------
Energy (7.3%):
9 13 22 Amerada Hess Corp. 465 680 1,145
107 131 238 Amoco Corp. 4,447 5,437 9,884
7 8 15 Anadarko Petroleum Corp. (c) 443 546 989
10 12 22 Apache Corp. 315 389 704
8 9 17 Ashland, Inc. 425 469 894
35 44 79 Atlantic Richfield Co. 2,731 3,456 6,187
15 22 37 Baker Hughes, Inc. 534 777 1,311
24 24 Burlington Northern 1,029 1,029
19 19 Burlington Resources, Inc. 803 803
77 89 166 Chevron Corp. (c) 6,364 7,390 13,754
</TABLE>
See notes to financial statements.
<PAGE> 276
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
19 24 43 Dresser Industries, Inc. 858 1,065 1,923
16 16 DTE Energy, Inc. 629 629
271 333 604 Exxon Corp. 19,300 23,763 43,063
28 34 62 Halliburton Co. 1,253 1,537 2,790
8 5 13 Helmerich & Payne, Inc. 175 119 294
7 7 Kerr McGee Corp. 423 423
9 8 17 McDermott International, Inc. 324 274 598
85 108 193 Mobil Corp. 6,484 8,245 14,729
38 50 88 Occidental Petroleums Corp. 1,013 1,351 2,364
12 14 26 Oryx Energy Co. (b) 254 305 559
7 7 14 Pennzoil Co. 358 335 693
29 36 65 Phillips Petroleum Co. 1,410 1,731 3,141
12 12 Rowan Cos., Inc. 230 230
235 293 528 Royal Dutch Petroleum Co. (c) 12,900 16,043 28,943
55 68 123 Schlumberger Ltd. (c) 3,755 4,631 8,386
10 10 20 Sun, Inc. 396 396 792
19 24 43 Tenneco, Inc. 708 908 1,616
58 75 133 Texaco, Inc. 3,437 4,466 7,903
40 34 74 Union Pacific Resources Group, Inc. 699 600 1,299
30 34 64 Unocal Corp. (c) 1,072 1,201 2,273
32 40 72 USX-Marathon Group 1,086 1,358 2,444
6 8 14 Western Atlas, Inc. (b) 486 662 1,148
---------- ----------- --------------
73,124 89,816 162,940
---------- ----------- --------------
Financial Services (17.5%):
48 57 105 Allstate Corp. 4,396 5,239 9,635
51 63 114 American Express Co. 5,816 7,220 13,036
27 33 60 American General Corp. 1,923 2,354 4,277
77 96 173 American International Group, Inc. 11,235 14,005 25,240
18 22 40 Aon Corp. 1,282 1,533 2,815
39 47 86 Associates First Capital, Class A 2,997 3,642 6,639
77 96 173 Banc One Corp. (c) 4,303 5,332 9,635
41 52 93 Bank of New York Co., Inc. (c) 2,515 3,150 5,665
76 93 169 BankAmerica Corp. 6,533 8,032 14,565
34 40 74 BankBoston Corp. 1,869 2,248 4,117
11 13 24 Bankers Trust New York Corp. 1,272 1,549 2,821
15 19 34 BB&T Corp. 1,021 1,253 2,274
16 16 Bear Stearns Co., Inc. 882 882
6 8 14 Beneficial Corp. 882 1,151 2,033
9 9 Capital One Financial Corp. 1,118 1,118
29 36 65 Charles Schwab Corp. 941 1,174 2,115
92 116 208 Chase Manhattan Corp. 6,931 8,748 15,679
23 24 47 Chubb Corp. 1,811 1,905 3,716
23 29 52 Cigna Corp. 1,618 2,017 3,635
18 22 40 Cincinnati Financial Corp. 691 852 1,543
50 61 111 Citicorp 7,486 9,169 16,655
17 23 40 Comerica, Inc. 1,152 1,496 2,648
21 25 46 Conseco, Inc. (c) 982 1,155 2,137
12 14 26 Country Wide Credit 584 721 1,305
78 92 170 Federal Home Loan Mortgage Corp. 3,655 4,352 8,007
116 141 257 Federal National Mortgage Assoc. 7,076 8,590 15,666
24 33 57 Fifth Third Bancorp (c) 1,522 2,050 3,572
33 40 73 First Chicago NBD Corp. 2,889 3,578 6,467
106 132 238 First Union Corp. 6,182 7,699 13,881
28 39 67 Fleet Financial Group, Inc. 2,359 3,240 5,599
28 34 62 Franklin Resources, Inc. 1,534 1,860 3,394
8 10 18 General Re Corp. 2,128 2,656 4,784
7 8 15 Golden West Financial Corp. 705 885 1,590
15 19 34 Greentrree Financial Corp. 629 801 1,430
</TABLE>
See notes to financial statements.
<PAGE> 277
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
10 15 25 H.F. Ahmanson & Co. 700 1,061 1,761
12 16 28 Hartford Financial Services Group 1,384 1,805 3,189
35 44 79 Household International, Inc. (c) 1,758 2,192 3,950
21 26 47 Huntington Bancshares 707 875 1,582
20 24 44 J.P. Morgan & Co., Inc. 2,363 2,846 5,209
10 15 25 Jefferson Pilot Corp. 562 875 1,437
48 60 108 KeyCorp 1,724 2,121 3,845
11 16 27 Lehman Brothers Holding, Inc. 869 1,255 2,124
11 14 25 Lincoln National Corp. 1,051 1,285 2,336
27 34 61 Marsh & McLennan Co. 1,625 2,034 3,659
10 13 23 MBIA, Inc. 755 1,001 1,756
55 69 124 MBNA Corp. 1,811 2,262 4,073
30 34 64 Mellon Bank Corp. 2,061 2,397 4,458
14 18 32 Mercantile Bancorporation 725 886 1,611
36 47 83 Merrill Lynch & Co. (c) 3,344 4,351 7,695
12 16 28 MGIC Investment Corp. (c) 707 931 1,638
65 82 147 Morgan Stanley Dean Witter Discover 5,939 7,484 13,423
37 45 82 National City Corp. 2,613 3,182 5,795
103 131 234 NationsBank Corp. 7,896 9,987 17,883
12 15 27 Northern Trust Corp 945 1,175 2,120
81 101 182 Norwest Corp. 3,044 3,787 6,831
31 42 73 PNC Bank Corp. 1,691 2,259 3,950
8 9 17 Progressive Corp., Ohio 1,114 1,335 2,449
11 13 24 Providian Financial 882 1,017 1,899
13 15 28 Republic N Y Corp. 842 944 1,786
20 19 39 SAFECO Corp. 888 875 1,763
23 23 SLM Holding Corp. 1,142 1,142
22 32 54 St. Paul Co., Inc. 929 1,361 2,290
18 22 40 State Street Corp. 1,237 1,529 2,766
19 24 43 Summit Bancorp 921 1,133 2,054
22 25 47 Sunamerica, Inc. 1,241 1,446 2,687
24 29 53 SunTrust Banks, Inc. 1,992 2,386 4,378
29 34 63 Synovus Financial Corp. (c) 688 810 1,498
15 20 35 Torchmark Corp. 707 915 1,622
7 9 16 TransAmerica Corp. 785 1,040 1,825
125 156 281 Travelers Group, Inc. 7,602 9,439 17,041
81 102 183 U.S. Bancorp 3,491 4,391 7,882
19 21 40 UNUM Corp. 1,071 1,150 2,221
22 28 50 Wachovia Corp. 1,897 2,355 4,252
41 51 92 Washington Mutual, Inc. (c) 1,794 2,234 4,028
9 12 21 Wells Fargo & Co. 3,266 4,272 7,538
---------- ----------- --------------
172,540 217,481 390,021
---------- ----------- --------------
Health Care (12.0%):
171 209 380 Abbott Labs 6,998 8,537 15,535
16 20 36 Aetna 1,242 1,543 2,785
9 9 Allergan, Inc. 419 419
10 12 22 Alza Corp. (b) 441 507 948
143 179 322 American Home Products Co. 7,381 9,264 16,645
29 36 65 Amgen, Inc. (b) 1,882 2,372 4,254
8 8 Bard C.R., Inc. 295 295
8 8 Bausch & Lomb, Inc. 402 402
31 38 69 Baxter International, Inc. 1,689 2,026 3,715
14 18 32 Becton Dickinson & Co. (c) 1,115 1,368 2,483
13 16 29 Biomet, Inc. (b) 436 521 957
22 27 49 Boston Scientific Corp. (b) (c) 1,552 1,900 3,452
109 137 246 Bristol Myers Squibb Co. 12,541 15,701 28,242
12 15 27 Cardinal Health, Inc. 1,134 1,398 2,532
78 91 169 Columbia/HCA Healthcare Corp. (c) 2,267 2,643 4,910
</TABLE>
See notes to financial statements.
<PAGE> 278
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
125 152 277 Eli Lilly & Co. 8,243 10,052 18,295
16 20 36 Guidant Corp. 1,171 1,423 2,594
56 59 115 HBO & Co. 1,960 2,068 4,028
42 54 96 Healthsouth Corp. (b) 1,125 1,432 2,557
17 22 39 Humana, Inc. (b) 534 693 1,227
152 184 336 Johnson & Johnson 11,226 13,538 24,764
10 10 Mallinckrodt Group, Inc. 311 311
9 9 Manor Care, Inc. 343 343
54 65 119 Medtronic, Inc. 3,436 4,166 7,602
131 164 295 Merck & Co., Inc. 17,585 21,871 39,456
11 6 17 Millipore Corp. 302 176 478
142 176 318 Pfizer, Inc. 15,431 19,137 34,568
60 69 129 Pharmacia & Upjohn, Inc. 2,754 3,195 5,949
83 100 183 Schering Plough Corp. 7,588 9,186 16,774
3 3 Shared Medical Systems Corp. 194 194
12 12 St. Jude Medical Center, Inc. (b) 435 435
33 40 73 Tenet Healthcare Corp. (b) 1,046 1,239 2,285
9 9 U.S. Surgical, Corp. 401 401
25 25 50 United Healthcare Corp. 1,602 1,593 3,195
93 111 204 Warner Lambert Co. 6,423 7,730 14,153
---------- ----------- --------------
119,104 148,079 267,183
---------- ----------- --------------
Multi-Industry (1.2%):
65 77 142 Allied Signal, Inc. 2,865 3,419 6,284
28 32 60 Corning, Inc. (c) 977 1,095 2,072
5 5 10 FMC Corp. (b) 341 333 674
7 10 17 Harcourt General, Inc. 423 613 1,036
41 16 57 Loews Corp. 1,106 1,396 2,502
47 56 103 Minnesota Mining & Manufacturing Co. 3,854 4,587 8,441
2 2 Octel Corp. (b) 43 43
18 22 40 Textron, Inc. 1,294 1,612 2,906
16 17 33 TRW, Inc. 871 950 1,821
---------- ----------- --------------
11,731 14,048 25,779
---------- ----------- --------------
Raw Materials (3.0%):
27 31 58 Air Products & Chemical, Inc. 1,079 1,231 2,310
22 31 53 Alcan Aluminum Ltd. 613 848 1,461
19 24 43 Allegheny Teledyne, Inc. 431 551 982
19 24 43 Aluminum Co. of America (c) 1,251 1,577 2,828
85 14 99 Armco, Inc. (b) 544 90 634
10 6 16 ASARCO, Inc. 224 133 357
12 15 27 Avery Dennison Corp. 640 817 1,457
8 10 18 B. F. Goodrich Co. 397 482 879
38 49 87 Barrick Gold Corp. 734 946 1,680
31 31 Battle Mountain Gold Co. 184 184
15 15 Bethlehem Steel Corp. 186 186
24 13 37 Cyprus Amax Minerals Co. 315 174 489
26 32 58 Dow Chemical Co. (c) 2,506 3,077 5,583
124 155 279 Du Pont (EI) de Nemours & Co. 9,267 11,541 20,808
8 11 19 Eastman Chemical Co. 514 693 1,207
18 20 38 Engelhard Corp. 364 401 765
24 27 51 Freeport-McMoran Copper & Gold, Class B 363 416 779
9 9 Great Lakes Chemical Corp. 352 352
9 14 23 Hercules, Inc. 354 594 948
48 20 68 Homestake Mining Co. (c) 497 207 704
23 23 Inco Ltd. 309 309
68 80 148 Monsanto Co. (c) 3,772 4,490 8,262
14 20 34 Morton International, Inc. 341 492 833
9 10 19 Nalco Chemical Co. 302 335 637
</TABLE>
See notes to financial statements.
<PAGE> 279
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
19 21 40 Newmont Mining Corp. 445 501 946
8 12 20 Nucor Corp. 376 556 932
16 16 32 Pall Corp. 322 329 651
7 9 16 Phelps Dodge Corp. 385 505 890
33 33 Placer Dome, Inc. 383 383
17 21 38 Praxair, Inc. 796 979 1,775
7 9 16 Reynolds Metals Co. 401 508 909
6 9 15 Rohm & Haas Co. 638 917 1,555
11 14 25 Sigma-Aldrich Corp. 387 491 878
16 18 34 Union Carbide Corp. 856 971 1,827
12 12 USX - U.S. Steel Group, Inc. 384 384
10 10 W.R. Grace & Co. 168 168
30 13 43 Worthington Industries, Inc. 452 190 642
---------- ----------- --------------
29,566 37,008 66,574
---------- ----------- --------------
Retail (6.1%):
1 1 Abercrombie & Fitch Co. (b) 44 44
27 34 61 Albertsons, Inc. 1,398 1,774 3,172
32 39 71 American Stores Co. 786 947 1,733
15 13 28 Circuit City Stores, Inc. 684 621 1,305
12 15 27 Consolidated Stores Co. (b) 431 529 960
25 29 54 Costco Companies, Inc. (c) 1,603 1,855 3,458
43 52 95 CVS Corp. 1,670 2,030 3,700
38 22 60 Darden Restaurants, Inc. 596 346 942
48 59 107 Dayton Hudson Corp. 2,345 2,877 5,222
11 15 26 Dillard Department Stores, Inc., Class A 451 636 1,087
24 28 52 Federated Department Stores, Inc. (b) (c) 1,303 1,511 2,814
43 55 98 Gap, Inc. 2,668 3,412 6,080
8 8 Giant Food Inc., Class A 359 359
5 5 Great Atlantic & Pacific Tea, Inc. 175 175
79 100 179 Home Depot, Inc. 6,561 8,298 14,859
29 35 64 J.C. Penney, Inc. (c) 2,071 2,503 4,574
54 64 118 K Mart, Inc. (b) (c) 1,034 1,233 2,267
28 34 62 Kroger Co. (b) 1,194 1,450 2,644
31 31 62 Limited, Inc. 1,011 1,024 2,035
8 4 12 Longs Drug Stores, Inc. 234 121 355
41 47 88 Lowe's Co. 1,681 1,900 3,581
28 32 60 May Department Stores Co. 1,814 2,097 3,911
78 95 173 McDonald's Corp. 5,355 6,567 11,922
5 5 Mercantile Stores Co., Inc. 385 385
7 11 18 Nordstrom, Inc. 578 879 1,457
9 9 Pep Boys-Manny, Moe & Jack 166 166
27 32 59 Rite Aid Corp. (c) 1,025 1,218 2,243
45 53 98 Sears Roebuck & Co. 2,736 3,260 5,996
13 14 27 Tandy Corp. 698 741 1,439
34 42 76 TJX Co., Inc. 827 1,023 1,850
29 38 67 Toys R Us, Inc. (b) 673 905 1,578
17 21 38 Tricon Global Restaurants (b) 546 672 1,218
18 18 Venator Group, Inc. 346 346
247 307 554 Wal-Mart Stores, Inc. (c) 14,976 18,638 33,614
62 68 130 Walgreen Co. 2,563 2,807 5,370
15 17 32 Wendy's International, Inc. 341 410 751
18 21 39 Winn Dixie Stores, Inc. (c) 935 1,051 1,986
---------- ----------- --------------
60,788 74,810 135,598
---------- ----------- --------------
Shelter (1.2%):
5 5 10 Armstrong World Industries, Inc. 310 351 661
11 7 18 Boise Cascade Corp. 364 232 596
13 7 20 Centex Corp. (w/ warrants to purchase interest in CDC LP. 499 274 773
</TABLE>
See notes to financial statements.
<PAGE> 280
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
Class B units and shares of 3333 Holdings Corp)
11 13 24 Champion International Co. 530 631 1,161
5 5 Fleetwood Enterprises, Inc. 187 187
10 12 22 Georgia Pacific Corp. 612 733 1,345
32 41 73 International Paper Co. 1,392 1,762 3,154
20 5 25 Kaufman & Broad Home Corp. 642 169 811
63 77 140 Kimberly Clark Corp. 2,895 3,514 6,409
15 15 Louisiana Pacific Corp. 268 268
19 22 41 Masco Corp. 1,125 1,326 2,451
16 16 32 Mead Corp. 498 499 997
15 21 36 Owens-Illinois, Inc. (b) 685 943 1,628
3 3 Potlatch Corp. 146 146
6 6 Pulte Corp. 183 183
10 11 21 Sealed Air Corp. (b) 351 415 766
18 13 31 Stone Container Corp. 274 203 477
8 8 16 Temple Inland, Inc. 416 430 846
7 10 17 Union Camp Corp. 328 482 810
12 14 26 Westvaco Corp. 336 390 726
22 27 49 Weyerhaeuser Co. 1,006 1,269 2,275
14 16 30 Williamette Industries, Inc. 447 516 963
---------- ----------- --------------
12,710 14,923 27,633
---------- ----------- --------------
Technology (14.9%):
37 46 83 3Com Corp. (b) 1,126 1,406 2,532
9 10 19 Adobe Systems, Inc. 395 410 805
16 19 35 Advanced Micro Devices, Inc. (b) 273 319 592
23 29 52 AMP, Inc. 799 1,012 1,811
12 12 24 Andrew Corp. (b) 217 223 440
15 17 32 Apple Computer, Inc. (b) (c) 427 480 907
39 49 88 Applied Materials, Inc. (b) 1,141 1,433 2,574
21 26 47 Ascend Communications, Inc. (b) (c) 1,051 1,303 2,354
7 7 Auto Desk, Inc. 263 263
18 30 48 Bay Networks, Inc. (b) 594 978 1,572
110 137 247 Boeing Co. 4,887 6,103 10,990
21 21 Cabletron Systems, Inc. (b) 281 281
116 139 255 Cisco Systems, Inc. (b) 10,708 12,800 23,508
189 227 416 Compaq Computer Corp. (b) 5,366 6,433 11,799
61 75 136 Computer Associates International, Inc. 3,409 4,164 7,573
5 5 Data General Corp. (b) 74 74
73 89 162 Dell Computer Corp. (b) 6,817 8,272 15,089
16 16 DSC Communications Corp. (b) (c) 467 467
12 7 19 EG&G, Inc. 369 219 588
56 67 123 EMC Corp. (b) (c) 2,504 3,022 5,526
17 21 38 Gateway 2000, Inc. (b) 881 1,072 1,953
11 18 29 General Dynamics Corp. 515 825 1,340
17 17 General Instrument Corp. (b) 472 472
11 10 21 Harris Corp. 483 465 948
117 142 259 Hewlett Packard Co. 7,003 8,514 15,517
180 231 411 Intel Corp. 13,312 17,104 30,416
107 129 236 International Business Machines 12,247 14,768 27,015
9 11 20 KLA-Tencor Corp. (b) (c) 260 313 573
21 26 47 Lockheed Martin Corp. 2,250 2,797 5,047
18 18 LSI Logic Corp. (b) 413 413
143 179 322 Lucent Technologies, Inc. 11,881 14,893 26,774
24 28 52 Micron Technology, Inc. (b) (c) 589 704 1,293
267 335 602 Microsoft Corp. (b) 28,956 36,354 65,310
66 81 147 Motorola, Inc. 3,474 4,246 7,720
15 22 37 National Semiconductor Corp. (b) (c) 200 294 494
62 72 134 Northern Telecom, Ltd. 3,572 4,083 7,655
</TABLE>
See notes to financial statements.
<PAGE> 281
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
7 9 16 Northrop Grumman Corp. 760 931 1,691
47 49 96 Novell, Inc. (b) 598 626 1,224
114 134 248 Oracle Corp. (b) (c) 2,800 3,300 6,100
28 35 63 Parametric Technology Corp. (b) 759 940 1,699
5 6 11 Perkin-Elmer Corp. 298 382 680
11 12 23 Raychem Corp. 331 359 690
5 5 Raytheon Co., Class A 295 295
32 46 78 Raytheon Co., Class B (c) 1,891 2,732 4,623
25 28 53 Rockwell International Corp. (c) 1,196 1,323 2,519
11 11 Scientific-Atlanta, Inc. 271 271
28 34 62 Seagate Technology, Inc. (b) 664 810 1,474
23 23 Silicon Graphics, Inc. (b) 281 281
39 51 90 Sun Microsystems, Inc. (b) 1,706 2,215 3,921
8 6 14 Tektronix, Inc. 272 229 501
20 24 44 Tellabs, Inc. (b) (c) 1,439 1,739 3,178
43 52 95 Texas Instruments, Inc. 2,530 3,022 5,552
7 7 Thomas & Betts Corp. 347 347
25 34 59 Unisys Corp. 695 962 1,657
25 31 56 United Technologies Corp. 2,328 2,888 5,216
36 44 80 Xerox Corp. (c) 3,693 4,515 8,208
---------- ----------- --------------
147,961 184,851 332,812
---------- ----------- --------------
Transportation (1.0%):
21 25 46 AMR Corp. (b) 1,740 2,054 3,794
18 21 39 Burlington Northern Santa Fe Corp. 1,734 2,060 3,794
23 29 52 CSX Corp. 1,057 1,312 2,369
9 10 19 Delta Air Lines, Inc. 1,155 1,280 2,435
17 20 37 FDX Corp. (b) 1,094 1,279 2,373
40 52 92 Norfolk Southern Corp. 1,184 1,564 2,748
18 30 48 Southwest Airlines Co. 543 885 1,428
27 33 60 Union Pacific Corp. (c) 1,193 1,475 2,668
12 12 US Air Group 981 981
25 25 US Airways Group, Inc. 721 721
---------- ----------- --------------
10,421 12,890 23,311
---------- ----------- --------------
Utilities (9.7%):
64 77 141 Airtouch Communications, Inc. (b) 3,712 4,508 8,220
16 26 42 Alltel Corp. (c) 749 1,213 1,962
13 19 32 Ameren Corp. 510 744 1,254
20 26 46 American Electric Power, Inc. 920 1,168 2,088
123 151 274 Ameritech Corp. 5,526 6,798 12,324
178 221 399 AT&T Corp. (c) 10,183 12,627 22,810
18 20 38 Baltimore Gas & Electric Co. 549 624 1,173
169 213 382 Bell Atlantic Corp. 7,731 9,727 17,458
107 136 243 BellSouth Corp. 7,155 9,098 16,253
17 21 38 Carolina Power & Light Co. 725 925 1,650
20 29 49 Central & South West Corp. 545 778 1,323
15 21 36 Cinergy Corp. 538 744 1,282
10 14 24 Coastal Corp. 738 981 1,719
12 12 24 Columbia Gas System, Inc. 667 645 1,312
27 32 59 Consolidated Edison, Inc. 1,238 1,481 2,719
10 13 23 Consolidated Natural Gas Co. 565 744 1,309
20 20 Detroit Edison Co. 805 805
20 24 44 Dominion Resources, Inc. of Virginia 832 978 1,810
39 49 88 Duke Power Co., Inc. 2,322 2,893 5,215
5 2 7 Eastern Enterprises 210 92 302
47 49 96 Edison International 1,402 1,458 2,860
41 45 86 Enron Corp. (c) 2,243 2,424 4,667
30 32 62 Entergy Corp. 860 913 1,773
25 31 56 First Energy Corp. 781 964 1,745
</TABLE>
See notes to financial statements.
<PAGE> 282
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
21 25 46 Florida Power & Light Group, Inc. (c) 1,341 1,598 2,939
18 22 40 Frontier Corp. 578 700 1,278
14 16 30 General Public Utilities Corp. 516 608 1,124
108 132 240 GTE Corp. 5,993 7,323 13,316
33 38 71 Houston Industries 1,016 1,173 2,189
74 99 173 MCI Communications Corp. 4,301 5,735 10,036
29 33 62 Nextel Communications, Inc., Class A (b) 731 830 1,561
20 20 Niagara Mohawk Power Corp. (b) 294 294
7 7 NICOR, Inc. 297 297
15 19 34 Northern States Power Co. 427 549 976
4 3 7 Oneok, Inc. 171 133 304
32 40 72 Pacificorp 721 897 1,618
24 31 55 Peco Energy Corp. (c) 695 891 1,586
4 4 8 Peoples Energy Corp. 139 173 312
52 52 104 PG & E Corp. (c) 1,646 1,639 3,285
22 22 44 PP&L Resources, Inc. 493 497 990
24 33 57 Public Service Enterprise Group 813 1,139 1,952
201 252 453 SBC Communications, Inc. 8,048 10,080 18,128
18 18 Sempra Energy (b) 492 492
11 15 26 Sonat, Inc. 413 579 992
79 92 171 Southern Co. 2,199 2,547 4,746
50 59 109 Sprint Corp. 3,521 4,166 7,687
28 33 61 Texas Utilities (c) 1,151 1,364 2,515
46 56 102 The Williams Companies, Inc. (c) 1,554 1,896 3,450
23 29 52 Unicom Corp. 807 1,028 1,835
57 71 128 US West, Inc. (b) 2,682 3,321 6,003
111 139 250 WorldCom, Inc. (b) (c) 5,385 6,717 12,102
---------- ----------- --------------
96,042 119,998 216,040
---------- ----------- --------------
Total Common Stocks 981,306 1,223,123 2,204,429
---------- ----------- --------------
U.S. Treasury Obligations (0.1%):
U.S. Treasury Bills (0.1%):
$ $ 220 $ 220 7/16/98 (d) 220 220
885 885 7/23/98 (d) 882 882
15 15 8/20/98 (d) 15 15
520 520 8/27/98 (d) 516 516
---------- ----------- --------------
- 1,633 1,633
---------- ----------- --------------
Total U.S. Treasury Obligations
Repurchase Agreements (0.4%):
9,880 9,880 Prudential Securities, 6.10%, 7/1/98 (Collateralized by
$9,880 various U.S Government Securities, 6.10% - 6.25%,
4/30/01 - 6/26/03, market value $9,976) 9,880 9,880
---------- ----------- --------------
Total Repurchase Agreements - 9,880 9,880
---------- ----------- --------------
Short-Term Securities Held as Collateral (5.2%):
Master Notes (1.0%):
4,384 4,384 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 4,384 4,384
3,653 3,653 Danaher Corp., 6.68%, 10/9/98* 3,653 3,653
2,192 2,192 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 2,192 2,192
4,968 4,968 Morgan Stanley Mortgage Capital, 5.76%, 7/21/98* 4,969 4,969
1,315 1,315 NationsBanc Capital Markets, 6.70%, 7/1/98* 1,315 1,315
4,384 4,384 Williamette Industries, Inc., 5.85%, 7/23/98* 4,384 4,384
---------- ----------- --------------
- 20,897 20,897
---------- ----------- --------------
Put Bonds (1.4%):
3,653 3,653 Associates Corp. N.A., 5.79%, 1/4/99* 3,651 3,651
2,923 2,923 Branch Banking & Trust, 5.92%, 12/10/99* 2,923 2,923
1,461 1,461 Citicorp, 5.94%, 8/3/98* 1,461 1,461
3,361 3,361 Evangelical Lutheran, 5.74%, 4/28/00* 3,355 3,355
</TABLE>
See notes to financial statements.
<PAGE> 283
<TABLE>
<CAPTION>
The One Group Equity Index Fund / Pegasus Equity Index Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- --------- --------- ------------------------------------------------------- ----------- ------------ ---------------
<S> <C> <S> <C> <C> <C> <C>
4,384 4,384 GMAC, 5.85%, 11/10/99* 4,392 4,392
3,653 3,653 Goldman Sachs, 6.06%, 11/21/00* 3,653 3,653
3,653 3,653 Greenwich Capital, 6.11%, 12/13/99* 3,653 3,653
3,653 3,653 Lehman Brothers Holdings, 5.85%, 8/18/99* 3,653 3,653
1,461 1,461 Merrill Lynch, 6.07%, 11/13/98* 1,461 1,461
3,653 3,653 PNC Bank, 5.74%, 10/2/98* 3,651 3,651
---------- ----------- --------------
- 31,853 31,853
---------- ----------- --------------
Repurchase Agreements (2.8%):
14,613 14,613 Donaldson, Lufkin & Jenrette, 6.65%,
7/1/98 (Collateralized by $14,940 various
Corporate and Government Securities,
0.00% - 17.25%, 10/15/02 - 4/15/35, market value $15,175) 14,613 14,613
7,307 7,307 Goldman Sachs, 6.65%, 7/1/98 (Collateralized by $7,788
various Corporate Bonds, 0.00%, 7/7/98 - 9/18/98, market
value $7,759) 7,307 7,307
37,556 37,556 Lehman Brothers, 6.65%, 7/1/98 (Collateralized by $38,496
various Corporate Bonds, 0.00% - 10.13%, 9/15/99 -
10/17/96, market value $40,293) 37,556 37,556
25 25 Lehman Brothers, 6.47%, 7/1/98 (Collateralized by $27 Media
One Group Bonds, 0.00%, 10/5/98, market value $27) 25 25
1,169 1,169 Lehman Brothers, 6.00%, 7/1/98 (Collateralized by $7,318
various Government Securities, 0.00% - 7.50%, 12/1/18 -
5/1/24, market value $1,203) 1,169 1,169
1,461 1,461 Paine Webber, 6.40%, 7/1/98 (Collateralized by $1,459
various Corporate Bonds, 4.00% - 9.75%, 7/15/98 - 12/31/49,
market value $1,534) 1,461 1,461
---------- ----------- --------------
- 62,131 62,131
---------- ----------- --------------
Total Short-Term Securities Held as Collateral - 114,881 114,881
---------- ----------- --------------
Total (Cost $1,452,803) (a) $ 981,306 $1,358,421 $ 2,339,727
========== =========== ==============
------------
Percentages indicated are based on net assets of $2,226,068.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax
reporting of approximately $4,279. Cost for federal income tax purposes
differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
Unrealized appreciation..............................$ 912,740
Unrealized depreciation............................... (30,095)
-------------
Net unrealized appreciation..........................$ 882,645
=============
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
Current
Number Opening Market
of Positions Value
Contracts Contract Type (000) (000)
-------- ------------- --------- --------
74 Long S&P 500, September 1998 Futures $20,861 $21,146
</TABLE>
* The interest rate for this variable rate note, which will change
periodically, is based upon an index of market rates. The rate
reflected on the Schedule of Portfolio Investments is the rate
in effect at June 30, 1998.
<PAGE> 284
<TABLE>
<CAPTION>
The One Group Value Growth Fund / Pegasus Growth and Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ---------- --------- ----------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Paper (1.7%):
Financial Services (1.7%):
$ $ 12,800 $ 12,800 Merrill Lynch, 5.59%, 9/19/98 $ $ 12,646 $ 12,646
------------- ------------ -----------
Total Commercial Paper - 12,646 12,646
------------- ------------ -----------
Common Stocks (96.9%):
Business Equipment & Services (3.9%):
416 416 Automatic Data Processing, Inc. 30,316 30,316
578 578 Cognizant Corp. 36,414 36,414
67 67 Miller (Herman), Inc. 1,617 1,617
123 123 Service Corp. International 5,256 5,256
52 52 U.S.A. Waste Services, Inc. (b)(c) 2,553 2,553
------------- ------------ -----------
66,730 9,426 76,156
------------- ------------ -----------
Capital Goods (4.1%):
43 43 Cooper Industries, Inc. 2,368 2,368
825 825 Dover Corp. 28,256 28,256
89 89 Emerson Electric Co. 5,356 5,356
243 243 General Electric Co. 22,112 22,112
78 78 Harsco Corp. 3,569 3,569
39 39 Hubbell, Inc., Class B 1,640 1,640
62 62 Johnson Controls, Inc. 3,521 3,521
30 30 Medusa Corp. 1,883 1,883
120 120 Teleflex, Inc. 4,560 4,560
107 107 Tyco International Ltd. 6,747 6,747
------------- ------------ -----------
28,256 51,756 80,012
------------- ------------ -----------
Consumer Durable (0.5%):
121 121 Autozone, Inc. (b)(c) 3,874 3,874
104 104 Chrysler Corp. 5,852 5,852
------------- ------------ -----------
- 9,726 9,726
------------- ------------ -----------
Consumer Non-Durable (12.5%):
613 613 Anheuser-Busch Companies, Inc. 28,926 28,926
572 572 Bestfoods 33,212 33,212
134 134 Coca-Cola Co. 11,474 11,474
1,086 120 1,206 Conagra, Inc. 34,413 3,790 38,203
416 416 Crown Cork & Seal Co., Inc. 19,760 19,760
69 69 Interstate Bakeries Corp.(c) 2,277 2,277
120 120 Intimate Brands, Inc. 3,302 3,302
47 47 Lancaster Colony Corp. 1,788 1,788
90 90 McCormick & Co., Inc. 3,225 3,225
628 114 742 Newell Cos., Inc. 31,282 5,689 36,971
898 898 PepsiCo, Inc. 36,986 36,986
208 208 Philip Morris Co., Inc. 8,186 8,186
48 48 Procter & Gamble Co. 4,407 4,407
83 83 Quaker Oats Co. 4,560 4,560
72 72 Revlon, Inc., Class A (b)(c) 3,673 3,673
104 104 Rubbermaid, Inc. 3,458 3,458
90 90 Sara Lee Corp. 5,023 5,023
------------- ------------ -----------
184,579 60,852 245,431
------------- ------------ -----------
Consumer Services (5.1%):
123 123 Belo (A.H.) Corp., Series A 3,003 3,003
397 397 Gannett Co., Inc. 28,212 28,212
115 115 Hasbro, Inc. 4,505 4,505
143 143 Hilton Hotels Corp. 4,084 4,084
64 64 MGM Grand, Inc. (b) (c) 2,014 2,014
110 110 Tele-Communications, Inc., Class A (b)(c) 4,211 4,211
94 94 Time Warner, Inc. (c) 8,065 8,065
83 83 Viacom, Inc., Class B (b) 4,841 4,841
41 41 Walt Disney Co. 4,308 4,308
66 66 Washington Post Co. Class B 38,016 38,016
------------- ------------ -----------
66,228 35,031 101,259
------------- ------------ -----------
Energy (4.8%):
</TABLE>
See notes to financial statements.
<PAGE> 285
<TABLE>
<CAPTION>
The One Group Value Growth Fund / Pegasus Growth and Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ---------- --------- ----------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
58 58 Ashland, Inc. 2,984 2,984
302 302 British Petroleum PLC ADR 26,673 26,673
52 52 Devon Energy Corp. (c) 1,803 1,803
47 47 Dresser Industries, Inc. (c) 2,080 2,080
467 467 Enron Corp. 25,247 25,247
222 222 Exxon Corp. 15,845 15,845
217 217 Mobil Corp. 16,628 16,628
151 151 Royal Dutch Petroleum Co. (c) 8,259 8,259
131 131 Texaco, Inc. 7,813 7,813
79 79 Tosco Corp. (c) 2,324 2,324
48 48 Transocean Offshore, Inc. 2,114 2,114
81 81 Ultramar Diamond Shamrock Corp. 2,541 2,541
158 158 USX-Marathon Group 5,408 5,408
------------- ------------ -----------
68,548 51,171 119,719
------------- ------------ -----------
Financial Services (14.4%):
55 55 Allstate Corp. 5,008 5,008
187 45 232 American International Group, Inc. 27,229 6,526 33,755
29 29 Associates First Capital, Class A 2,260 2,260
311 311 BankAmerica Corp. 26,882 26,882
53 53 Bear Stearns Cos., Inc. 2,986 2,986
117 117 Charter One Financial, Inc. 3,925 3,925
116 116 Chase Manhattan Corp. 8,773 8,773
324 324 Chubb Corp. 26,042 26,042
63 63 Cigna Corp. 4,326 4,326
53 53 Equitable Co., Inc. 3,934 3,934
445 445 Federal Home Loan Mortgage Corp. 20,943 20,943
130 130 Federal National Mortgage Assoc. 7,916 7,916
113 113 First Tennessee National Corp. 3,560 3,560
86 86 First Union Corp. 5,021 5,021
51 51 Hartford Financial Services Group 5,833 5,833
102 102 MBNA Corp. 3,356 3,356
69 69 Mercantile Bankshares Corp. 2,409 2,409
98 98 Morgan Stanley Dean Witter Discover 8,918 8,918
79 79 National City Corp. 5,623 5,623
175 175 NationsBank Corp. 13,418 13,418
998 998 Norwest Corp. 37,300 37,300
282 31 313 PMI Group, Inc. 20,692 2,238 22,930
128 128 Southtrust Corp. 5,566 5,566
59 59 State Street Corp. 4,087 4,087
187 187 Travelers Group, Inc. 11,307 11,307
17 17 Wells Fargo & Co. 6,384 6,384
------------- ------------ -----------
159,088 123,374 282,462
------------- ------------ -----------
Health Care (11.0%):
654 654 Abbott Laboratories Corp. 26,732 26,732
630 162 792 American Home Products Corp. 32,602 8,389 40,991
58 58 Bausch & Lomb, Inc. 2,907 2,907
79 79 Baxter International, Inc. 4,240 4,240
50 50 Boston Scientific Corp. (b)(c) 3,553 3,553
352 115 467 Bristol Myers Squibb Co. 40,458 13,159 53,617
36 36 Cardinal Health, Inc. 3,394 3,394
90 90 Idexx Laboratories, Inc. (b) 2,229 2,229
42 42 Johnson & Johnson 3,112 3,112
98 98 Medtronic, Inc. 6,248 6,248
57 57 Merck & Co., Inc. 7,624 7,624
38 38 Pfizer, Inc. 4,152 4,152
423 77 500 Schering Plough Corp. 38,757 7,018 45,775
31 31 Sofamor Danek Group, Inc. (b) 2,649 2,649
130 130 Warner-Lambert Co. 8,991 8,991
------------- ------------ -----------
138,549 77,665 216,214
------------- ------------ -----------
Raw Materials (4.2%):
58 58 Betzdearborn, Inc. 2,430 2,430
</TABLE>
See notes to financial statements.
<PAGE> 286
<TABLE>
<CAPTION>
The One Group Value Growth Fund / Pegasus Growth and Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ---------- --------- ----------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
90 90 Crompton & Knowles Corp. 2,254 2,254
89 89 Du Pont (EI) de Nemours & Co. 6,627 6,627
106 106 Ferro Corp. 2,695 2,695
118 118 Morton International, Inc. 2,943 2,943
81 81 Nalco Chemical Co. 2,831 2,831
77 77 Olin Corp. 3,197 3,197
88 88 Praxair, Inc. 4,105 4,105
747 747 Sigma-Aldrich Corp. 26,238 26,238
425 425 Schlumberger Ltd. 29,033 29,033
------------- ------------ -----------
55,271 27,082 82,353
------------- ------------ -----------
Retail (4.2%):
113 113 Dayton Hudson Corp. 5,461 5,461
175 175 Just For Feet, Inc. (b)(c) 4,988 4,988
100 100 Kohl's Corp. (b) 5,167 5,167
143 143 Kroger Co. (b) 6,114 6,114
1,984 204 2,188 Officemax, Inc. (b) 32,736 3,371 36,107
60 60 Outback Steakhouse, Inc. (b)(c) 2,340 2,340
77 77 Safeway, Inc. (b) 3,141 3,141
226 226 Wal-Mart Stores, Inc. (c) 13,705 13,705
118 118 Williams Sonoma, Inc. (b) 3,744 3,744
------------- ------------ -----------
32,736 48,031 80,767
------------- ------------ -----------
Shelter (4.7%):
30 30 Armstrong World Industries, Inc. 2,035 2,035
626 112 738 Kimberly Clark Corp. 28,718 5,156 33,874
138 138 Leggett & Platt, Inc. 3,440 3,440
555 81 636 Masco Corp. 33,577 4,888 38,465
88 88 Pentair, Inc. 3,736 3,736
230 230 York International Corp. 10,020 10,020
------------- ------------ -----------
72,315 19,255 91,570
------------- ------------ -----------
Technology (14.9%):
782 782 AMP, Inc 26,881 26,881
88 88 American Power Conversion (b) 2,643 2,643
581 581 Andrew Corp. 10,487 10,487
63 63 Applied Materials, Inc. (b) 1,850 1,850
87 87 BMC Software, Inc. (b) 4,508 4,508
388 388 Boeing Co. 17,290 17,290
106 106 Cadence Design Systems, Inc (b)(c) 3,309 3,309
145 145 Cisco Systems, Inc. (b) 13,317 13,317
464 464 Compaq Computer Corp. 13,166 13,166
140 140 Dell Computer Corp. (b) 12,984 12,984
659 659 Electronic Data Systems Corp. 26,360 26,360
895 895 First Data Corp. 29,815 29,815
289 62 351 Gateway 2000, Inc. (b) 14,631 3,119 17,750
204 122 326 Hewlett Packard Co. 12,215 7,317 19,532
366 169 535 Intel Corp. 27,130 12,535 39,665
92 92 International Business Machines 10,609 10,609
38 38 Lockheed Martin Corp. 3,981 3,981
92 92 LSI Logic Corp. (b) 2,117 2,117
99 99 Lucent Technologies, Inc. 8,269 8,269
79 79 Maxim Integrated Products, Inc. (b) 2,487 2,487
230 230 Microsoft Corp. (b) 24,958 24,958
------------- ------------ -----------
177,975 114,003 291,978
------------- ------------ -----------
Telecommunications (0.3%):
193 193 Qwest Communications International (b) 6,743 6,743
------------- ------------ -----------
- 6,743 6,743
------------- ------------ -----------
Utilities (12.5%):
88 88 AES Corp. (b) 4,641 4,641
106 106 Baltimore Gas & Electric Co. 3,296 3,296
534 534 Bell Atlantic Corp. 24,364 24,364
</TABLE>
See notes to financial statements.
<PAGE> 287
<TABLE>
<CAPTION>
The One Group Value Growth Fund / Pegasus Growth and Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ---------- --------- ----------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
814 93 907 Century Telephone Enterprises 37,342 4,262 41,604
98 98 Cinergy Corp. 3,437 3,437
82 82 El Paso Natural Gas 3,137 3,137
135 135 Energy East Corp. 5,607 5,607
501 501 FPL Group, Inc. 31,563 31,563
118 118 General Public Utilities Corp. 4,462 4,462
147 147 GTE Corp. 8,155 8,155
62 62 L G & E Energy Corp. 1,678 1,678
925 61 986 MCN Corp. (c) 23,009 1,515 24,524
737 737 Pinnacle West Capital Corp. 33,165 33,165
248 248 SBC Communications, Inc. 9,915 9,915
120 120 Sprint Corp. 8,431 8,431
114 114 Williams Co. (c) 3,861 3,861
165 165 Worldcom, Inc. (b)(c) 7,983 7,983
------------- ------------ -----------
149,443 70,380 219,823
------------- ------------ -----------
Total Common Stocks 1,199,718 704,495 1,904,213
------------- ------------ -----------
Investment Companies - (1.6%)
29,334 29,334 Pegasus Cash Management Fund Class I (in shares) 29,234 29,234
------------- ------------ -----------
Total Investment Companies 29,234 - 29,234
------------- ------------ -----------
U.S. Treasury Obligations (0.3%):
U.S. Treasury Bills (0.3%):
$ $ 485 $ 485 8/20/98 (d) 482 482
2,250 2,250 9/17/98 (d) 2,197 2,197
55 55 9/24/98 (d) 54 54
------------- ------------ -----------
Total U.S. Treasury Obligations 2,197 536 2,733
------------- ------------ -----------
Repurchase Agreements (1.0%):
19,589 19,589 Prudential Securities, 6.10%, 7/1/98 (Collateralized by
$14,752 U.S. Government Securities, 6.10%- 8.75%, 6/26/03-
5/15/17, market value $19,981) 19,589 19,589
------------- ------------ -----------
Total Repurchase Agreements - 19,589 19,589
------------- ------------ -----------
Short-Term Securities Held as Collateral (2.6%):
Master Notes (0.5%):
1,875 1,875 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 1,875 1,875
1,563 1,563 Danaher Corp., 6.68%, 10/9/98* 1,563 1,563
938 938 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 938 938
2,125 2,125 Morgan Stanley Mortgage Capital, 5.76%, 7/21/98* 2,124 2,124
563 563 NationsBanc Capital Markets, 6.70%, 7/1/98* 563 563
1,875 1,875 Williamette Industries, Inc., 5.85%, 7/23/98* 1,875 1,875
------------- ------------ -----------
- 8,938 8,938
------------- ------------ -----------
Put Bonds (0.7%):
1,563 1,563 Associates Corp. N.A., 5.79%, 1/4/99* 1,562 1,562
1,250 1,250 Branch Banking & Trust, 5.92%, 12/10/99* 1,250 1,250
625 625 Citicorp, 5.94%, 8/3/98* 625 625
1,438 1,438 Evangelical Lutheran, 5.74%, 4/28/00* 1,435 1,435
1,875 1,875 GMAC, 5.85%, 11/10/99* 1,877 1,877
1,563 1,563 Goldman Sachs, 6.06%, 11/21/00* 1,563 1,563
1,563 1,563 Greenwich Capital, 6.11%, 12/13/99* 1,563 1,563
1,563 1,563 Lehman Brothers Holdings, 5.85%, 8/18/99* 1,563 1,563
625 625 Merrill Lynch, 6.07%, 11/13/98* 625 625
1,563 1,563 PNC Bank, 5.74%, 10/2/98* 1,562 1,562
------------- ------------ -----------
- 13,625 13,625
------------- ------------ -----------
Repurchase Agreements (1.4%):
6,251 6,251 Donaldson, Lufkin & Jenrette, 6.65%, 7/1/98 (Collateralized
by $6,391 various Corporate and Government Securities,
0.00% - 17.25%, 10/15/02 - 4/15/35, market value $6,491) 6,251 6,251
3,125 3,125 Goldman Sachs, 6.65%, 7/1/98 (Collateralized by $3,331
various Corporate Bonds, 0.00%, 7/7/98 - 9/18/98, market
value $3,319) 3,125 3,125
16,064 16,064 Lehman Brothers, 6.65%, 7/1/98 (Collateralized by $16,466
various Corporate Bonds, 0.00% - 10.13%, 9/15/99 -
10/17/96, market value $17,235) 16,065 16,065
</TABLE>
See notes to financial statements.
<PAGE> 288
<TABLE>
<CAPTION>
The One Group Value Growth Fund / Pegasus Growth and Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------- ---------- --------- ----------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
11 11 Lehman Brothers, 6.47%, 7/1/98 (Collateralized by $11 Media
One Group Bonds, 0.00%, 10/5/98, market value $11) 11 11
500 500 Lehman Brothers, 6.00%, 7/1/98 (Collateralized by $3,130
various Government Securities, 0.00% - 7.50%, 12/1/18 -
5/1/24, market value $515) 500 500
625 625 Paine Webber, 6.40%, 7/1/98 (Collateralized by $624 various
Corporate Bonds, 4.00% - 9.75%, 7/15/98 - 12/31/49, market
value $656) 625 625
------------- ------------ -----------
Total Short-Term Securities Held as Collateral - 26,577 26,577
------------- ------------ -----------
Total (Cost $1,480,823) (a) - 49,140 49,140
------------- ------------ -----------
____________ $1,231,149 $786,406 $2,017,555
============= ============ ===========
Percentages indicated are based on net assets of $1,964,946.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
approximately $145. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows (amounts in
thousands):
Unrealized appreciation......................................................... $ 566,603
Unrealized depreciation......................................................... (30,016)
-------------
Net unrealized appreciation.................................................... $ 536,587
=============
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
Current
Number Opening Market
of Positions Value
Contracts Contract Type (000) (000)
--------- ------------- --------- -------
146 Long S&P 500, September 1998 Futures $40,802 $41,719
</TABLE>
* The interest rate for this variable rate note, which will change
periodically, is based upon an index of market rates. The rate reflected on
the Schedule of Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
<PAGE> 289
<TABLE>
The One Group Disciplined Value Fund / Pegasus Intrinsic Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------------- ---------- --------- ---------------------------------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks (92.7%):
Business Equipment & Services (3.3%):
65 65 A.C. Nielson Corp. (b) $ $ 1,641 $ 1,641
24 24 America Online, Inc. (b) 2,544 2,544
35 35 Grey Advertising, Inc. 13,911 13,911
85 85 Jacobs Engineering Group, Inc. (b) 2,724 2,724
37 37 Kelly Services Inc., Class A 1,309 1,309
222 222 Office Depot, Inc. (b) (c) 7,006 7,006
48 48 Ogden Corp. 1,329 1,329
64 64 Olsten Corp. 716 716
40 40 Pittston Co. 1,475 1,475
90 90 Sensormatic Electronics Corp. (b) 1,260 1,260
53 53 Service Corp. International 2,272 2,272
60 60 Sotheby's Holdings, Class A 1,343 1,343
20 20 Standard Register Co. 708 708
126 126 Stewart Enterprises Corp., Class A 3,355 3,355
70 70 Sungard Data Systems, Inc. (b) (c) 2,686 2,686
36 36 U.S.A. Waste Services, Inc. (b) (c) 1,778 1,778
-------- ------- --------
13,911 32,146 46,057
-------- ------- --------
Capital Goods (3.5%):
128 128 Harsco Corp. 5,855 5,855
153 153 Hubbell, Inc., Class B 6,384 6,384
33 33 Johnson Controls, Inc. 1,883 1,883
36 36 Kennametal, Inc. 1,503 1,503
82 82 Mark IV Industries, Inc. 1,763 1,763
78 78 Medusa Corp. 4,895 4,895
139 139 Molex, Inc. 3,470 3,470
87 87 Southdown, Inc. 6,210 6,210
84 84 Teleflex, Inc. 3,200 3,200
81 81 Tennant Co. 3,588 3,588
116 116 Trinity Industries, Inc. 4,814 4,814
111 111 United States Filter Corp. (b) (c) 3,115 3,115
33 33 York International Corp. 1,438 1,438
-------- ------- --------
3,588 44,530 48,118
-------- ------- --------
Consumer Durable (1.5%):
42 42 Autozone, Inc. (b) (c) 1,341 1,341
390 390 Bandag, Inc. Class A 13,448 13,448
139 139 National Presto Industries, Inc. 5,428 5,428
-------- ------- --------
18,876 1,341 20,217
-------- ------- --------
Consumer Non-Durable (8.2%):
364 364 Diageo PLC 17,551 17,551
75 75 Farmer Brothers Co. 17,834 17,834
80 80 First Brands Corp. 2,050 2,050
82 82 Hormel Foods Corp. (c) 2,834 2,834
93 93 IBP, Inc. 1,686 1,686
335 335 Loews Corp. 29,213 29,213
98 98 McCormick & Co., Inc. 3,500 3,500
73 73 Newell Co. 3,636 3,636
441 441 Tate & Lyle PLC Sponsored 13,996 13,996
346 346 Tyson Foods, Inc., Class A 7,504 7,504
60 60 U.S. Foodservice (b) 2,104 2,104
236 236 UST, Inc. 6,383 6,383
46 46 Universal Corp. 1,719 1,719
75 75 Warnaco Group, Inc., Class A 3,183 3,183
-------- ------- --------
84,977 28,216 113,193
-------- ------- --------
Consumer Services (1.4%)
43 43 Banta Corp. 1,328 1,328
256 256 Belo (A.H.) Corp., Series A 6,244 6,244
36 36 Chris-Craft Industries, Inc. (b) 1,969 1,969
65 65 Hasbro, Inc. 2,555 2,555
20 20 Houghton Mifflin Co. 635 635
51 51 Lee Enterprises, Inc. 1,562 1,562
35 35 MGM Grand, Inc. (b) (c) 1,105 1,105
</TABLE>
See notes to financial statements.
<PAGE> 290
<TABLE>
The One Group Disciplined Value Fund / Pegasus Intrinsic Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------------- ---------- --------- ---------------------------------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
95 95 Promus Hotel Corp. (b) 3,658 3,658
14 14 Scholastic Corp. (b) 558 558
-------- ------- --------
- 19,614 19,614
-------- ------- --------
Energy (4.3%):
95 95 Amoco Corp. 3,938 3,938
36 36 Ashland, Inc. 1,859 1,859
71 71 Atlantic Richfield Co. 5,549 5,549
148 148 BJ Services Co. (b) (c) 4,301 4,301
145 145 ENSCO International, Inc. 2,519 2,519
53 53 Murphy Oil Corp. (c) 2,686 2,686
100 100 Nabors Industries, Inc. (b) 1,981 1,981
63 63 Noble Affiliates, Inc. 2,394 2,394
175 175 Noble Drilling Corp. (b) 4,211 4,211
102 102 Pioneer Natural Resources Co. 2,435 2,435
60 60 Tidewater, Inc. 1,980 1,980
293 293 Tosco Corp. (c) 8,607 8,607
194 194 Transocean Offshore, Inc. 8,633 8,633
172 172 Ultramar Diamond Shamrock Corp. 5,429 5,429
93 93 Valero Energy Corp. 3,103 3,103
-------- ------- --------
9,487 50,138 59,625
-------- ------- --------
Financial Services (28.5%):
126 126 A.G. Edwards, Inc. 5,379 5,379
105 105 Ambac Financial Group, Inc. 6,143 6,143
40 40 American Financial Group, Inc. 1,733 1,733
228 228 American National Insurance Co. 23,964 23,964
80 80 Associated Banc-Corp. 3,010 3,010
173 173 Associated Estates Realty 3,227 3,227
195 195 Bear Stearns Co., Inc. 11,090 11,090
29 29 Capital One Financial Corp. 3,601 3,601
234 234 Charter One Financial, Inc. 7,886 7,886
573 573 Citizens Corp. 17,958 17,958
21 21 CMAC Investment Corp. 1,292 1,292
134 134 Crestar Financial Corp. 7,311 7,311
188 188 Dime Bancorp, Inc. 5,628 5,628
437 437 Federal National Mortgage Association 26,566 26,566
226 226 Financial Security Assurance Holdings 13,306 13,306
51 51 Finova Group, Inc. 2,888 2,888
225 225 First Security Corp. 4,816 4,816
47 47 First Virginia Banks, Inc. 2,398 2,398
170 170 Firstar Corp. 6,460 6,460
263 263 Fund American Enterprises Holdings, Inc. 38,997 38,997
50 50 GATX Corp. 2,194 2,194
112 112 Hibernia Corp., Class A 2,261 2,261
18 18 HSB Group, Inc. 987 987
848 848 Leucadia National Corp. 28,023 28,023
187 187 Marshall & Ilsley Corp. 9,549 9,549
45 45 MBNA Corp. 1,485 1,485
103 103 Mercantile Bankshares Corp. 3,568 3,568
23 23 Northern Trust Corp 1,754 1,754
190 190 Ohio Casualty Corp. 8,403 8,403
137 137 Old Kent Financial Corp. 4,910 4,910
833 217 1,050 Old Republic International Corp. 24,429 6,346 30,775
628 86 714 Pacific Century Financial Corp. 15,065 2,064 17,129
201 201 Paine Webber Group, Inc. 8,596 8,596
54 54 PMI Group, Inc. 3,962 3,962
182 182 Provident Co., Inc. 6,279 6,279
670 670 PXRE Corp. 20,098 20,098
185 185 Regions Financial Corp. 7,597 7,597
116 116 Reliastar Financial Corp. 5,568 5,568
207 207 Safeco Corp. 9,426 9,426
249 249 Southtrust Corp. 10,847 10,847
30 30 State Street Corp. 2,085 2,085
123 123 TCF Financial Corp. 3,629 3,629
36 36 Transatlantic Holdings, Inc. 2,814 2,814
112 112 Union Planters Corp. 6,587 6,587
-------- ------- --------
229,462 162,717 392,179
-------- ------- --------
</TABLE>
See notes to financial statements.
<PAGE> 291
<TABLE>
The One Group Disciplined Value Fund / Pegasus Intrinsic Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------------- ---------- --------- ---------------------------------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Health Care (3.8%):
87 87 Allegiance Corp. 4,433 4,433
610 610 Arch Coal, Inc. 15,182 15,182
21 21 ATL Ultrasound, Inc. (b) 958 958
55 55 Bergen Brunswig Corp., Class A 2,551 2,551
147 147 Beverly Enterprises, Inc. (b) (c) 2,030 2,030
154 154 Block Drug, Inc., Class A 5,856 5,856
200 200 Chiron Corp. (b) 3,138 3,138
95 95 Genzyme Corp. (b) (c) 2,428 2,428
80 80 HBO & Co. 2,820 2,820
112 112 IDEXX Laboratories, Inc. (b) 2,786 2,786
43 43 NovaCare, Inc. (b) 505 505
57 57 PacifiCare Health Systems, Inc., Class B (b) 5,038 5,038
22 22 Sofamor Danek Group, Inc. (b) 1,904 1,904
46 46 Watson Pharmaceuticals, Inc. (b) 2,148 2,148
-------- ------- --------
21,038 30,739 51,777
-------- ------- --------
Multi-Industry (0.1%):
61 61 Gencorp, Inc. 1,540 1,540
-------- ------- --------
- 1,540 1,540
-------- ------- --------
Raw Materials (4.6%):
47 47 A. Schulman, Inc. 919 919
96 96 Airgas, Inc. (b) (c) 1,380 1,380
35 35 AK Steel Holding Corp. 626 626
28 28 Albemarle Corp. 618 618
28 28 Aluminum Co. of America (c) 1,820 1,820
43 43 B. F. Goodrich Co. 2,134 2,134
109 109 Cabot Corp. 3,522 3,522
12 12 Cleveland Cliffs, Inc. 644 644
38 38 Crompton & Knowles Corp. 957 957
590 590 DeBeers Consolidated Mines Ltd 10,325 10,325
33 33 Dexter Corp. 1,050 1,050
23 23 Fuller (H. B.) Co. 1,247 1,247
70 70 Hanna (M.A.) Co. 1,286 1,286
164 164 IMC Global, Inc. 4,940 4,940
83 83 Lubrizol Corp. 2,511 2,511
33 33 Minerals Technologies, Inc. 1,679 1,679
229 229 NCH Corp. 14,652 14,652
102 102 Olin Corp. 4,252 4,252
22 22 Praxair, Inc. 1,030 1,030
200 200 RPM, Inc. 3,400 3,400
37 37 Sigma-Aldrich Corp. 1,300 1,300
53 53 Wellman, Inc. 1,202 1,202
68 68 Witco Corp. 1,989 1,989
-------- ------- --------
24,977 38,506 63,483
-------- ------- --------
Retail (8.8%):
55 55 BJ's Wholesale Club, Inc. (b) 2,234 2,234
32 32 Bob Evans Farms, Inc. 678 678
88 88 Borders Group, Inc. (b) 3,256 3,256
98 98 Brinker International, Inc. (b) 1,887 1,887
43 43 Buffets, Inc. (b) 675 675
50 50 Claire's Stores, Inc. 1,034 1,034
105 105 CompUSA, Inc. (b) 1,897 1,897
82 82 Cracker Barrel 2,604 2,604
386 386 Enesco Group, Inc. 11,860 11,860
73 73 Fingerhut Companies, Inc. 2,409 2,409
58 58 Fred Meyer, Inc. (b) (c) 2,482 2,482
66 66 Hannaford Brothers Co. 2,900 2,900
100 100 Just For Feet, Inc. (b) 2,850 2,850
40 40 Kohl's Corp. (b) 2,075 2,075
470 470 Lubys Cafeterias, Inc. 8,256 8,256
85 85 OfficeMax, Inc. (b) 1,403 1,403
96 96 Outback Steakhouse, Inc. (b) (c) 3,743 3,743
299 48 347 Payless Shoesource, Inc. (b) 22,025 3,537 25,562
115 115 Proffitts, Inc. (b) 4,642 4,642
</TABLE>
See notes to financial statements.
<PAGE> 292
<TABLE>
The One Group Disciplined Value Fund / Pegasus Intrinsic Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------------- ---------- --------- ---------------------------------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
42 42 Saks Holdings, Inc. (b) 1,160 1,160
600 600 Sbarro, Inc. 16,287 16,287
552 552 Unifi, Inc. 18,916 18,916
70 70 Williams Sonoma, Inc. (b) 2,227 2,227
-------- ------- --------
77,344 43,693 121,037
-------- ------- --------
Shelter (1.9%):
59 59 Bowater, Inc. 2,788 2,788
19 19 Chesapeake Corp. 740 740
73 73 Clayton Homes, Inc. 1,387 1,387
116 116 Consolidated Papers, Inc. 3,161 3,161
108 108 Georgia Pacific Timber Corp. 2,484 2,484
134 134 Leggett & Platt, Inc. 3,350 3,350
35 35 Masco Corp. 2,118 2,118
148 148 Pentair, Inc. 6,289 6,289
69 69 Rayonier, Inc. 3,165 3,165
-------- ------- --------
- 25,482 25,482
-------- ------- --------
Technology (5.4%):
114 114 American Power Conversion (b) 3,420 3,420
77 77 Arrow Electronics, Inc. (b) 1,679 1,679
68 68 ATMEL Corp. (b) 927 927
35 35 Avnet, Inc. 1,887 1,887
100 100 Cirrus Logic, Inc. (b) 1,113 1,113
84 84 Cordant Technology, Inc. 3,874 3,874
38 38 Dell Computer Corp. (b) 3,527 3,527
22 22 Litton Industries, Inc. (b) 1,298 1,298
289 289 Lockheed Martin Corp. 30,598 30,598
130 130 LSI Logic Corp. (b) 2,998 2,998
47 47 NCR Corp. (b) 1,528 1,528
96 96 Qualcomm, Inc. (b) (c) 5,393 5,393
137 137 Quantum Corp. (b) 2,849 2,849
94 94 SCI Systems, Inc. (b) (c) 3,537 3,537
109 109 Sterling Software, Inc. (b) 3,222 3,222
88 88 Storage Technology Corp. (b) 3,816 3,816
33 33 Stratus Computer, Inc. (b) 825 825
46 46 Teradyne, Inc. (b) (c) 1,231 1,231
67 67 Vishay Intertechnology, Inc. (b) 1,202 1,202
-------- ------- --------
30,598 44,326 74,924
-------- ------- --------
Transportation (2.9%):
12 12 Alaska Air Group, Inc. (b) 655 655
451 58 509 Alexander & Baldwin, Inc. 13,122 1,689 14,811
43 43 ASA Holdings, Inc. 2,134 2,134
329 329 Canadian National Railway Co. 17,460 17,460
65 65 CNF Transportation, Inc. 2,762 2,762
75 75 Wisconsin Central Transportation Corp. (b) 1,641 1,641
57 57 Yellow Corp. (b) 1,058 1,058
-------- ------- --------
30,582 9,939 40,521
-------- ------- --------
Utilities (14.5%):
102 102 AES Corp. (b) 5,361 5,361
307 307 Allegheny Energy, Inc. 9,248 9,248
70 70 American Water Works, Inc. (c) 2,170 2,170
105 105 Baltimore Gas & Electric Co. 3,262 3,262
48 48 Calenergy, Inc. (b) 1,443 1,443
222 222 Century Telephone Enterprises 10,184 10,184
102 102 Cinergy Corp. 3,570 3,570
253 253 CMS Energy Corp. (c) 11,133 11,133
63 63 Conectiv, Inc. (b) 1,292 1,292
290 290 El Paso Natural Gas Co. 11,093 11,093
151 151 Energy East Corp. 6,285 6,285
83 83 Florida Progress Corp. 3,413 3,413
85 85 General Public Utilities Corp. 3,214 3,214
100 100 L G & E Energy Corp. 2,706 2,706
170 170 Marketspan Corporation 5,089 5,089
70 70 MCN Energy Group, Inc. 1,741 1,741
200 200 Montana Power Co. 6,943 6,943
</TABLE>
See notes to financial statements.
<PAGE> 293
<TABLE>
The One Group Disciplined Value Fund / Pegasus Intrinsic Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------------- ---------- --------- ---------------------------------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
236 236 New Century Energies, Inc. 10,702 10,702
39 39 New England Electric System 1,687 1,687
171 171 Nipsco Industries, Inc. (c) 4,788 4,788
80 80 Northeast Utilities (b) 1,355 1,355
122 122 OGE Energy Corp. 3,294 3,294
160 160 Pinnacle West Capital Corp. 7,182 7,182
166 166 Potomac Electric Power Co. 4,160 4,160
140 140 Qwest Communications International, Inc. (b) 4,880 4,880
251 251 SCANA Corp. (c) 7,483 7,483
342 342 Sierra Pacific Resources 12,422 12,422
112 112 SJW Corp. 6,584 6,584
509 509 Southwest Gas Corp. 12,444 12,444
393 393 St. Joseph Light & Power Co. 7,328 7,328
322 322 TECO Energy, Inc. 8,634 8,634
565 565 Washington Water Power Co. 12,680 12,680
130 130 The Williams Companies, Inc. (c) 4,381 4,381
36 36 UtiliCorp United, Inc. 1,357 1,357
------- ------- ---------
51,458 148,050 199,508
------- ------- ---------
Total Common Stocks 596,298 680,977 1,277,275
------- ------- ---------
Convertible Bonds (5.0%)
Financial Services (3.3%)
$ 16,385 $ $ 16,385 Nac Re Corp., 5.25%, 12/15/02 18,228 18,228
55,270 55,270 Roche Holding, Inc. Zero Coupon, 5/6/12 26,703 26,703
------- ------- ---------
44,931 - 44,931
------- ------- ---------
Retail (0.6%)
16,100 16,100 Pep Boys, Zero Coupon, 9/20/11 8,835 - 8,835
------- ------- ---------
Utilities (1.1%):
15,264 15,264 Potomac Electric Power Co., 5.00%, 9/1/02 14,882 14,882
------- ------- ---------
Total Convertible Bonds 68,648 - 68,648
------- ------- ---------
Preferred Stock (0.6%)
Financial Services (0.6%)
181 181 Salomon, Inc., 7.63% 8,632 8,632
------- ------- ---------
Total Preferred Stock 8,632 - 8,632
------- ------- ---------
U.S. Treasury Obligations (0.1%):
U.S. Treasury Bills (0.1%):
$ 700 $ $ 700 9/24/98 (d) 692 692
------- ------- ---------
Total U.S. Treasury Obligations 692 - 692
------- ------- ---------
Investment Companies (0.7%)
9,266 9,266 Pegasus Cash Management, Class I 9,266 9,266
------- ------- ---------
Total Investment Companies 9,266 - 9,266
------- ------- ---------
Repurchase Agreements (1.3%):
$ $ 18,245 $ 18,245 Prudential Securities, 6.10%, 7/1/98
(Collateralized by $18,437 various U.S
Government Securities, 5.25% - 6.10%,
11/30/99 - 6/26/03, market value $18,611) 18,245 18,245
------- ------- ---------
Total Repurchase Agreements - 18,245 18,245
------- ------- ---------
</TABLE>
See notes to financial statements.
<PAGE> 294
<TABLE>
The One Group Disciplined Value Fund / Pegasus Intrinsic Value Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- ---------------- ---------- --------- ---------------------------------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Securities Held as Collateral (4.3%):
Master Notes (0.8%):
2,270 2,270 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 2,270 2,270
1,892 1,892 Danaher Corp., 6.68%, 10/9/98* 1,892 1,892
1,135 1,135 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 1,135 1,135
2,573 2,573 Morgan Stanley Mortgage Capital, 5.76%, 7/21/98* 2,572 2,572
681 681 NationsBanc Capital Markets, 6.70%, 7/1/98* 681 681
2,270 2,270 Williamette Industries, Inc., 5.85%, 7/23/98* 2,270 2,270
-------- -------- ----------
- 10,820 10,820
-------- -------- ----------
Put Bonds (1.2%):
1,892 1,892 Associates Corp. N.A., 5.79%, 1/4/99* 1,891 1,891
1,513 1,513 Branch Banking & Trust, 5.92%, 12/10/99* 1,513 1,513
757 757 Citicorp, 5.94%, 8/3/98* 757 757
1,740 1,740 Evangelical Lutheran, 5.74%, 4/28/00* 1,737 1,737
2,270 2,270 GMAC, 5.85%, 11/10/99* 2,273 2,273
1,892 1,892 Goldman Sachs, 6.06%, 11/21/00* 1,892 1,892
1,892 1,892 Greenwich Capital, 6.11%, 12/13/99* 1,892 1,892
1,892 1,892 Lehman Brothers Holdings, 5.85%, 8/18/99* 1,892 1,892
757 757 Merrill Lynch, 6.07%, 11/13/98* 757 757
1,892 1,892 PNC Bank, 5.74%, 10/2/98* 1,890 1,890
-------- -------- ----------
- 16,494 16,494
-------- -------- ----------
Repurchase Agreements (2.3%):
7,567 7,567 Donaldson, Lufkin & Jenrette, 6.65%, 7/1/98
(Collateralized by $7,736 various Corporate and
Government Securities, 2.85% - 17.25%,
10/15/02 - 4/15/35, market value $7,858) 7,567 7,567
3,783 3,783 Goldman Sachs, 6.65%, 7/1/98 (Collateralized
by $4,032 various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value $4,018) 3,783 3,783
19,447 19,447 Lehman Brothers, 6.65%, 7/1/98 (Collateralized
by $19,933 various Corporate Bonds, 0.00% - 10.13%,
9/15/99 - 10/17/96, market value $20,864) 19,447 19,447
13 13 Lehman Brothers, 6.47%, 7/1/98 (Collateralized by
$14 Media One Group Bonds, 0.00%, 10/5/98, market
value $14) 13 13
605 605 Lehman Brothers, 6.00%, 7/1/98 (Collateralized by
$3,790 various Government Securities, 0.00% - 10.00%,
12/1/18 - 5/1/24, market value $623) 605 605
757 757 Paine Webber, 6.40%, 7/1/98 (Collateralized by $755
various Corporate Bonds, 4.00% - 9.75%, 7/15/98 -
12/31/49, market value $795) 757 757
-------- -------- ----------
- 32,172 32,172
-------- -------- ----------
Total Short-Term Securities Held as Collateral - 59,486 59,486
-------- -------- ----------
Total (Cost $1,209,164)(a) $683,536 $758,708 $1,442,244
======== ======== ==========
</TABLE>
- ----------
Percentages indicated are based on net assets of $1,377,220.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $161. Cost for federal income tax purposes from vale by
net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................ $ 260,505
Unrealized depreciation............................ (27,586)
---------
Net unrealized appreciation ....................... $ 232,919
=========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
<TABLE>
<CAPTION>
Current
Number Opening Market
of Positions Value
Contracts Contract Type (000) (000)
--------- ------------- --------- --------
<S> <C> <C> <C> <C>
5 Long S & P 500, September 1998 Futures $9,982 $10,287
</TABLE>
* The interest rate for this variable rate note, which will change
periodically, is based upon an index of market rates. The rate reflected on
Schedule of Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
<PAGE> 295
<TABLE>
The One Group Large Company Growth Fund / Pegasus Growth Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- -------------- --------- --------- ------------------------------------------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks (99.6%):
Business Equipment & Services (7.6%):
55 55 America Online (b) $ $ 5,830 $ 5,830
130 130 Automatic Data Processing, Inc. 9,474 9,474
455 455 Cendant Corp. (b) 9,498 9,498
360 360 Computer Associates International, Inc. 20,003 20,003
281 281 Interpublic Group of Companies, Inc. 17,023 17,023
60 60 Omnicom Group, Inc. (c) 2,993 2,993
535 535 Service Corp. International 22,938 22,938
538 538 Silicon Graphics (b) 6,523 6,523
340 340 Sun Microsystems, Inc. 14,769 14,769
358 358 U.S.A. Waste Services, Inc.(b) (c) 17,695 17,695
--------- --------- ---------
90,754 35,992 126,746
--------- --------- ---------
Capital Goods (8.2%):
405 405 Elan PLC ADR (b) 26,047 26,047
209 1,474 1,683 General Electric Co. 19,019 134,134 153,153
261 261 Illinois Tool Works, Inc. 17,405 17,405
225 345 570 Tyco International, Ltd (c) 14,175 21,741 35,916
--------- --------- ---------
76,646 155,875 232,521
--------- --------- ---------
Consumer Non-Durable (13.9%):
155 155 Anheuser Busch Co., Inc. 7,324 7,324
40 40 Avon Products, Inc. 3,100 3,100
110 110 Bestfoods 6,387 6,387
200 200 Campbell Soup Co. 10,636 10,636
1,008 1,008 Coca-Cola Co. 86,188 86,188
140 140 Colgate Palmolive Co. 12,320 12,320
151 151 Conagra, Inc. 4,791 4,791
447 447 Gillette Co. 25,351 25,351
65 65 H.J. Heinz Co. 3,654 3,654
210 210 Kellogg Co. 7,896 7,896
70 170 240 Newell Co. 3,487 8,483 11,970
400 582 982 PepsiCo, Inc. 16,475 23,958 40,433
343 1,101 1,444 Philip Morris Co., Inc. 13,506 43,356 56,862
149 568 717 Procter & Gamble Co. 13,568 51,740 65,308
75 75 Quaker Oats Co. 4,120 4,120
30 30 Ralston- Ralston Purina Group 3,504 3,504
190 190 Sara Lee, Corp. 10,634 10,634
250 250 Unilever N V 19,750 19,750
100 100 UST, Inc. 2,700 2,700
--------- --------- ---------
47,036 335,892 382,928
--------- --------- ---------
Consumer Services (2.7%):
740 740 Carnival Corp., Class A 29,323 29,323
165 165 Comcast Corp., Class A (c) 6,698 6,698
113 113 Disney (Walt) Co. 11,872 11,872
115 115 Gannett, Inc. 8,179 8,179
200 200 Hilton Hotels Corp. (c) 5,700 5,700
95 95 Mattel, Inc. (c) 4,024 4,024
190 190 Tele-Communications, Inc. (b) (c) 7,307 7,307
60 60 Tribune Co. 4,129 4,129
--------- --------- ---------
41,195 36,037 77,232
--------- --------- ---------
Energy (1.8%):
225 225 Baker Hughes, Inc. 7,776 7,776
90 90 Halliburton Co. (c) 4,015 4,015
90 230 320 Schlumberger Ltd. (c) 6,148 15,732 21,880
210 210 Western Atlas, Inc. (b) 17,824 17,824
--------- --------- ---------
31,748 19,747 51,495
--------- --------- ---------
Financial Services (10.8%):
294 294 AFLAC, Inc. 8,912 8,912
205 205 American Express Co. 23,370 23,370
</TABLE>
See notes to financial statements.
<PAGE> 296
<TABLE>
The One Group Large Company Growth Fund / Pegasus Growth Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- -------------- --------- --------- ------------------------------------------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
279 279 American International Group, Inc. (c) 40,686 40,686
115 115 Associates First Capital Corp. 8,841 8,841
73 73 Capital One Financial Corp. 9,066 9,066
171 171 Charles Schwab Corp. (c) 5,541 5,541
360 360 Chase Manhattan Corp. 27,210 27,210
227 227 Federal Home Loan Mortgage Corp. 10,683 10,683
320 320 Federal National Mortgage Assoc. 19,417 19,417
25 25 Fifth Third Bancorp 1,575 1,575
94 94 First Virginia Banks, Inc. 4,796 4,796
101 101 Franklin Resources, Inc. 5,476 5,476
200 200 Household International 9,950 9,950
69 69 Marsh & McLennan Co. (c) 4,170 4,170
444 210 654 MBNA Corp. (c) 14,652 6,933 21,585
182 40 222 MGIC Investment Group (c) 10,385 2,288 12,673
130 130 Morgan Stanley Dean Witter Discover (c) 11,906 11,906
100 100 National City Corp. 7,100 7,100
438 438 Norwest Corp. 16,370 16,370
210 59 269 State Street Corp. 14,595 4,094 18,689
20 20 T. Rowe Price Associates, Inc. 751 751
324 324 U.S. Bancorp 13,938 13,938
324 324 Unum Corp. 17,999 17,999
150 150 Washington Mutual, Inc. (c) 6,522 6,522
--------- --------- ---------
102,437 204,789 307,226
--------- --------- ---------
Health Care (19.4%):
471 471 Abbott Labs 19,236 19,236
344 539 883 American Home Products Co. 17,802 27,914 45,716
270 270 Amgen, Inc. (b) 17,651 17,651
90 90 Baxter International, Inc. 4,854 4,854
85 85 Boston Scientific Corp. (b) (c) 6,088 6,088
511 511 Bristol Myers Squibb Co. 58,676 58,676
75 75 Cardinal Health, Inc. (c) 7,031 7,031
450 450 Eli Lilly & Co. 29,755 29,755
194 50 244 Guidant Corp. 13,835 3,566 17,401
170 170 HBO & Co. 6,000 6,000
170 500 670 Johnson & Johnson 12,538 36,859 49,397
155 155 Medtronic, Inc. (c) 9,881 9,881
446 446 Merck & Co., Inc. 59,619 59,619
450 450 Mylan Laboratories, Inc. 13,528 13,528
204 531 735 Pfizer, Inc. 22,172 57,710 79,882
393 393 Schering Plough Corp. 36,013 36,013
456 456 Smithkline Beecham PLC ADR 27,588 27,588
206 206 Stryker Corp. 7,905 7,905
265 265 United Healthcare Corp. 16,828 16,828
550 550 Warner Lambert Co. 38,177 38,177
--------- --------- ---------
149,847 401,379 551,226
--------- --------- ---------
Multi-Industry (0.4%):
150 150 Minnesota Mining & Manufacturing Co. - 12,328 12,328
--------- --------- ---------
Raw Materials (2.1%):
488 488 Du Pont (EI) de Nemours & Co. 36,453 36,453
260 260 Monsanto Co. 14,523 14,523
186 186 Praxair, Inc. 8,707 8,707
--------- --------- ---------
8,707 50,976 59,683
--------- --------- ---------
Retail (8.1%):
120 120 Consolidated Stores Corp. (b) 4,350 4,350
85 85 Costco Cos., Inc.(b) (c) 5,360 5,360
160 160 CVS Corp. 6,238 6,238
189 189 Dayton Hudson Corp. (c) 9,186 9,186
425 425 Dollar General Corp. 16,814 16,814
</TABLE>
See notes to financial statements.
<PAGE> 297
<TABLE>
The One Group Large Company Growth Fund / Pegasus Growth Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- -------------- --------- --------- ------------------------------------------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
165 165 Gap, Inc. (c) 10,174 10,174
300 292 592 Home Depot, Inc. 24,919 24,257 49,176
808 808 Just For Feet, Inc. (b) (c) 23,025 23,025
125 125 Kroger Co. (b) 5,368 5,368
570 570 Officemax, Inc.(b) 9,405 9,405
413 413 Staples, Inc. 11,942 11,942
162 162 TJX Cos., Inc. 3,899 3,899
1,036 1,036 Wal-Mart Stores, Inc. (c) 62,949 62,949
343 215 558 Walgreen Co. 14,170 8,895 23,065
--------- --------- ---------
77,250 163,701 240,951
--------- --------- ---------
Shelter (0.4%):
239 239 Kimberly Clark Corp. - 10,963 10,963
--------- --------- ---------
Technology (17.0%):
365 365 Altera Corp.(b) 10,790 10,790
185 185 Applied Materials, Inc. (b) 5,460 5,460
125 125 Ascend Communications, Inc. (b) 6,195 6,195
293 453 746 Cisco Systems, Inc. (b) 26,928 41,679 68,607
204 204 Computer Associates International, Inc. (c) 11,313 11,313
0 0 Compuware Corp. (d) 5 5
147 565 712 Dell Computer Corp. (b) 13,643 52,476 66,119
255 255 EMC Corp. (b) (c) 11,436 11,436
50 50 Gateway 2000, Inc. (b) (c) 2,536 2,536
16 16 Hewlett Packard Co. 930 930
341 549 890 Intel Corp. 25,277 40,673 65,950
325 325 International Business Machines 37,314 37,314
160 551 711 Lucent Technologies, Inc. 13,310 45,795 59,105
436 1,177 1,613 Microsoft Corp. (b) 47,252 127,514 174,766
251 251 Northern Telecom, Ltd. 14,244 14,244
250 250 Oracle Corp.(b) (c) 6,146 6,146
85 85 Tellabs, Inc. (b) (c) 6,088 6,088
100 100 United Technologies Corp. 9,250 9,250
140 140 Xerox Corp. 14,258 14,258
--------- --------- ---------
137,200 433,312 570,512
--------- --------- ---------
Transportation (0.1%):
50 50 Southwest Airlines Company 1,481 1,481
30 30 US Airways Group, Inc. (b) 2,378 2,378
--------- --------- ---------
- 3,859 3,859
--------- --------- ---------
Utilities (6.9%):
355 355 AES Corp. (b) 18,660 18,660
528 230 758 Airtouch Communications, Inc. (b) 30,855 13,446 44,301
451 451 Ameritech Corp. 20,216 20,216
623 623 Bell Atlantic Corp. (c) 28,443 28,443
370 370 GTE Corp. 20,604 20,604
781 781 SBC Communications, Inc. 31,232 31,232
136 136 Tellabs, Inc. 9,741 9,741
380 100 480 WorldCom, Inc. (b) 18,406 4,844 23,250
--------- --------- ---------
77,662 118,785 196,447
--------- --------- ---------
Total Common Stocks 840,482 1,983,635 2,824,117
--------- --------- ---------
U.S. Treasury Obligations (0.0%)
U.S. Treasury Bills (0.0%)
$ 350 $ $ 350 9/17/98 (e) 346 346
--------- --------- ---------
Total U.S. Treasury Obligations 346 - 346
--------- --------- ---------
Investment Companies (0.2%)
5,421 5,421 Pegasus Cash Management Fund Class I (in shares) 5,421 5,421
--------- --------- ---------
Total Investment Companies 5,421 - 5,421
--------- --------- ---------
</TABLE>
See notes to financial statements.
<PAGE> 298
<TABLE>
The One Group Large Company Growth Fund / Pegasus Growth Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- -------------- --------- --------- ------------------------------------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Repurchase Agreements (0.1%):
$ $ 1,891 $ 1,891 Prudential Securities, 6.10%, 7/1/98
(Collateralized by $1,947 U.S. Treasury
Bills, 0.00%, 9/3/98, market value $1,929) 1,891 1,891
--------- ---------- ----------
Total Repurchase Agreements - 1,891 1,891
--------- ---------- ----------
Short-Term Securities Held as Collateral (9.2%):
Master Notes (2.3%):
6,760 6,760 Bear Stearns Mortgage Capital, 6.77%, 10/9/98* 6,760 6,760
5,633 5,633 Danaher Corp., 6.68%, 10/9/98* 5,633 5,633
3,380 3,380 Merrill Lynch Mortgage Capital, 6.75%, 7/23/98* 3,380 3,380
7,661 7,661 Morgan Stanley Mortgage Capital, 5.76%, 7/21/98* 7,662 7,662
2,028 2,028 NationsBanc Capital Markets, 6.70%, 7/1/98* 2,028 2,028
6,760 6,760 Williamette Industries, Inc., 5.85%, 7/23/98* 6,760 6,760
--------- ---------- ----------
- 32,223 32,223
--------- ---------- ----------
Put Bonds (3.5%):
5,633 5,633 Associates Corp. N.A., 5.79%, 1/4/99* 5,630 5,630
4,507 4,507 Branch Banking & Trust, 5.92%, 12/10/99* 4,507 4,507
2,253 2,253 Citicorp, 5.94%, 8/3/98* 2,253 2,253
5,183 5,183 Evangelical Lutheran, 5.74%, 4/28/00* 5,174 5,174
6,760 6,760 GMAC, 5.85%, 11/10/99* 6,771 6,771
5,633 5,633 Goldman Sachs, 6.06%, 11/21/00* 5,633 5,633
5,633 5,633 Greenwich Capital, 6.11%, 12/13/99* 5,633 5,633
5,633 5,633 Lehman Brothers Holdings, 5.85%, 8/18/99* 5,634 5,634
2,253 2,253 Merrill Lynch, 6.07%, 11/13/98* 2,253 2,253
5,633 5,633 PNC Bank, 5.74%, 10/2/98* 5,630 5,630
--------- ---------- ----------
- 49,118 49,118
--------- ---------- ----------
Repurchase Agreements (3.4%):
22,534 22,534 Donaldson, Lufkin & Jenrette, 6.65%, 7/1/98
(Collateralized by $23,038 various Corporate
and Government Securities, 0.00% - 17.25%,
10/15/02 - 4/15/35, market value $23,400) 22,534 22,534
11,267 11,267 Goldman Sachs, 6.65%, 7/1/98 (Collateralized
by $12,009 various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value $11,965) 11,267 11,267
57,911 57,911 Lehman Brothers, 6.65%, 7/1/98 (Collateralized
by $59,361 various Corporate Bonds, 0.00% - 10.13%,
9/15/99 - 10/17/96, market value $62,133) 57,910 57,910
39 39 Lehman Brothers, 6.47%, 7/1/98 (Collateralized
by $41 Media One Group Bonds, 0.00%, 10/5/98,
market value $41) 39 39
1,803 1,803 Lehman Brothers, 6.00%, 7/1/98 (Collateralized
by $11,285 various Government Securities, 0.00%
- 7.50%, 12/1/18 - 5/1/24, market value $1,856) 1,803 1,803
2,253 2,253 Paine Webber, 6.40%, 7/1/98 (Collateralized by
$2,249 various Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value $2,366) 2,253 2,253
--------- --------- ---------
- 95,806 95,806
--------- ---------- ----------
Total Short-Term Securities Held as Collateral - 177,147 177,147
--------- ---------- ----------
Total (Cost $1,927,578) (a) $846,249 $2,162,673 $3,008,922
========= ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 299
<TABLE>
The One Group Large Company Growth Fund / Pegasus Growth Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Pegasus One Group Combined Proforma
Shares or Shares or Shares or Pegasus One Group Combined
Principal Principal Principal Market Market Market
Amount Amount Amount Security Description Value Value Value
- -------------- --------- --------- ------------------------------------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Percentages are based on net assets of $2,838,316.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $3,503. Cost for federal i purposes differs from value by
net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 1,108,405
Unrealized depreciation......................... (30,564)
-----------
Net unrealized appreciation..................... $ 1,077,841
===========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Rounds to less than 1,000.
(e) Serves as margin deposit for futures contracts.
<TABLE>
<CAPTION>
Current
Number Opening Market
of Positions Value
Contracts Contract Type (000) (000)
--------- ------------- --------- -------
<S> <C> <C> <C>
22 Long S&P 500, September 1998 Futures $6,312 $6,286
</TABLE>
* The interest rate for this variable rate note, which will change
periodically, is based upon an index of market rates. The rate reflected on
the Schedule of Portfolio Investments is the rate in effect at June 30,
1998.
See notes to financial statements.
<PAGE> 300
<TABLE>
The One Group Investor Growth Fund / Pegasus Managed Assets Growth Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Proforma Pegasus One Group Combined
Pegasus One Group Combined Market Market Market
Shares Shares Shares Security Description Value Value Value
- ----------- ---------- -------- ---------------------------------------------------------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Companies (98.6%):
1,853 1,853 The One Group Disciplined Value Fund Fiduciary Class $ $ 31,315 $ 31,315
840 840 The One Group Government Bond Fund Fiduciary Class 8,489 8,489
1,473 1,473 The One Group Growth Opportunities Fund Fiduciary Class 33,163 33,163
890 890 The One Group Income Bond Fund Fiduciary Class 8,464 8,464
417 417 The One Group Intermediate Bond Fund Fiduciary Class 4,219 4,219
1,352 1,352 The One Group International Equity Index Fund Fiduciary Class 24,301 24,301
1,437 1,437 The One Group Large Company Growth Fund Fiduciary Class 32,631 32,631
1,812 1,812 The One Group Large Company Value Fund Fiduciary Class 30,264 30,264
402 402 The One Group Limited Volatility Fund Fiduciary Class 4,223 4,223
614 614 The One Group Prime Money Market Fund Fiduciary Class 614 614
688 688 The One Group Small Capitalization Fund Fiduciary Class 8,296 8,296
2,315 2,315 The One Group Value Growth Fund Fiduciary Class 31,278 31,278
287 287 Pegasus Bond Fund 3,061 3,061
51 51 Pegasus Growth Fund 873 873
361 361 Pegasus Growth and Value Fund 6,124 6,124
64 64 Pegasus High-Yield Bond Fund 655 655
66 66 Pegasus International Bond Fund 656 656
256 256 Pegasus International Equity Fund 3,500 3,500
273 273 Pegasus Intrinsic Value Fund 4,374 4,374
83 83 Pegasus Mid-Cap Opportunity Fund 1,751 1,751
52 52 Pegasus Small-Cap Opportunity Fund 885 885
------- -------- --------
Total Investment Companies 21,878 217,257 239,135
------- -------- --------
Total (Cost $220,706) (a) $21,878 $217,257 $239,135
======= ======== ========
</TABLE>
- ----------
Percentages indicated are based on net assets of $242,599.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $124. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation........................ $19,315
Unrealized depreciation........................ (1,010)
-------
Net unrealized appreciation.................... $18,305
=======
</TABLE>
See notes to financial statements.
<PAGE> 301
<TABLE>
THE ONE GROUP INVESTOR GROWTH & INCOME FUND / PEGASUS MANAGED ASSETS BALANCED FUND
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Proforma Pegasus One Group Combined
Pegasus One Group Combined Market Market Market
Shares Shares Shares Security Description Value Value Value
- ------------- ------------ ------- ------------------------------------------------------------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Investment Companies (99.4%):
1,426 1,426 The One Group Disciplined Value Fund Fiduciary Class $ $ 24,091 $ 24,091
2,202 2,202 The One Group Government Bond Fund Fiduciary Class 22,263 22,263
1,133 1,133 The One Group Growth Opportunities Fund Fiduciary Class 25,514 25,514
2,334 2,334 The One Group Income Bond Fund Fiduciary Class 22,199 22,199
1,311 1,311 The One Group Intermediate Bond Fund Fiduciary Class 13,269 13,269
1,161 1,161 The One Group International Equity Index Fund Fiduciary Class 20,855 20,855
1,184 1,184 The One Group Large Company Growth Fund Fiduciary Class 26,899 26,899
1,494 1,494 The One Group Large Company Value Fund Fiduciary Class 24,945 24,945
843 843 The One Group Limited Volatility Fund Fiduciary Class 8,861 8,861
718 718 The One Group Prime Money Market Fund Fiduciary Class 718 718
361 361 The One Group Small Capitalization Fund 4,351 4,351
449 449 The One Group Ultra Short-Term Income Fund Fiduciary Class 4,430 4,430
2,082 2,082 The One Group Value Growth Fund Fiduciary Class 28,127 28,127
7,272 7,272 Pegasus Bond Fund 77,587 77,587
490 490 Pegasus Growth Fund 8,312 8,312
3,430 3,430 Pegasus Growth and Value Find 58,176 58,176
1,608 1,608 Pegasus High-Yield Bond Fund 16,579 16,579
1,683 1,683 Pegasus International Bond Fund 16,591 16,591
2,441 2,441 Pegasus International Equity Fund 33,369 33,369
2,591 2,591 Pegasus Intrinsic Value Fund 41,537 41,537
789 789 Pegasus Mid-Cap Opportunity 16,703 16,703
500 500 Pegasus Small-Cap Opportunity Fund 8,458 8,458
-------- -------- --------
Total Investment Companies $277,312 226,522 503,834
-------- -------- --------
Total (Cost $478,319) (a) $277,312 $226,522 $503,834
======== ======== ========
</TABLE>
- ------------
Percentages indicated are based on net assets of $507,055.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax
reporting of approximately $440. Cost for federal income tax purposes
differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation.................... $ 27,884
Unrealized depreciation.................... (2,809)
--------
Net unrealized appreciation................ $ 25,075
=========
</TABLE>
See notes to financial statements.
<PAGE> 302
<TABLE>
The One Group Investor Balanced Fund / Pegasus Managed Assets Conservative Fund
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<CAPTION>
Proforma
Proforma Pegasus One Group Combined
Pegasus One Group Combined Market Market Market
Shares Shares Shares Security Description Value Value Value
- --------- --------- -------- --------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment Companies (98.7%):
800 800 The One Group Disciplined Value Fund Fiduciary Class $ $ 13,523 $ 13,523
3,302 3,302 The One Group Government Bond Fund Fiduciary Class 33,384 33,384
636 636 The One Group Growth Opportunities Fund Fiduciary Class 14,321 14,321
3,294 3,294 The One Group Income Bond Fund Fiduciary Class 31,328 31,328
1,734 1,734 The One Group Intermediate Bond Fund Fiduciary Class 17,544 17,544
796 796 The One Group International Equity Index Fund Fiduciary Class 14,306 14,306
760 760 The One Group Large Company Growth Fund Fiduciary Class 17,256 17,256
958 958 The One Group Large Company Value Fund Fiduciary Class 16,002 16,002
1,116 1,116 The One Group Limited Volatility Fund Fiduciary Class 11,724 11,724
956 956 The One Group Prime Money Market Fund Fiduciary Class 956 956
792 792 The One Group Ultra Short-Term Income Fund Fiduciary Class 7,816 7,816
1,530 1,530 The One Group Value Growth Fund Fiduciary Class 20,675 20,675
5,317 5,317 Pegasus Bond Fund 56,732 56,732
1,231 1,231 Pegasus International Bond Fund 12,138 12,138
1,177 1,177 Pegasus High Yield Bond Fund 12,132 12,132
160 160 Pegasus Growth Fund 2,717 2,717
1,114 1,114 Pegasus Growth and Value Fund 18,890 18,890
794 794 Pegasus International Equity Fund 10,857 10,857
841 841 Pegasus Intrinsic Value Fund 13,484 13,484
257 257 Pegasus Mid-Cap Opportunity Fund 5,446 5,446
163 163 Pegasus Small-Cap Opportunity Fund 2,757 2,757
-------- -------- --------
Total Investment Companies 135,153 198,835 333,988
-------- -------- --------
Total (Cost $315,556) (a) $135,153 $198,835 $333,988
======== ======== ========
</TABLE>
- ----------
Percentages indicated are based on net assets of $338,233.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $256. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation................... $19,317
Unrealized depreciation................... (1,141)
-------
Net unrealized appreciation............... $18,176
=======
</TABLE>
See notes to financial statements.
<PAGE> 303
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
U.S. Treasury Pegasus
Securities Treasury
Money Market Money Market Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS:
Investments, at amortized cost $ 756,587 $ 201,240 $ $ 957,827
Repurchase agreements, at cost 3,392,616 859,085 4,251,701
-------------- -------------- -------------- --------------
Total 4,149,203 1,060,325 5,209,528
Cash - 1 1
Interest receivable 11,892 5,754 17,646
Receivable for capital shares issued - - -
Prepaid expenses and other assets 60 17 77
-------------- -------------- -------------- --------------
Total Assets 4,161,155 1,066,097 - 5,227,252
-------------- -------------- -------------- --------------
LIABILITIES:
Dividends payable 15,780 3,001 18,781
Payable for capital shares redeemed - - -
Payable for return of collateral received for securities on loan 255,663 - 255,663
Accrued expenses and other payables:
Investment advisory fees 1,008 247 1,255
Administration fees 466 124 590
12b-1 fees 180 138 318
Other 918 1 919
-------------- -------------- -------------- --------------
Total Liabilities 274,015 3,511 - 277,526
-------------- -------------- -------------- --------------
NET ASSETS:
Capital 3,886,907 1,062,603 4,949,510
Undistributed (distributions in excess of)
net investment income 193 - 193
Accumulated undistributed net realized
gains (losses) from investment transactions 40 (17) 23
-------------- -------------- -------------- --------------
Net Assets $ 3,887,140 $ 1,062,586 $ - $ 4,949,726
============== ============== ============== ==============
Net Assets
Fiduciary/Class I $ 3,025,608 $ 843,484 $ $ 3,869,092
Class A 861,350 219,102 1,080,452
Class B 181 - 181
Class C 1 - 1
-------------- -------------- -------------- --------------
Total $ 3,887,140 $ 1,062,586 $ - $ 4,949,726
============== ============== ============== ==============
Outstanding units of beneficial interest
Fiduciary/Class I $ 3,025,409 $ 843,485 $ $ 3,868,894
Class A 861,313 219,118 1,080,431
Class B 181 - 181
Class C 1 - 1
-------------- -------------- -------------- --------------
Total 3,886,904 1,062,603 - 4,949,507
============== ============== ============== ==============
Net Asset Value:
Offering and redemption price per share, all classes $ 1.00 $ 1.00 $ $ 1.00
============== ============== ==============
<CAPTION>
Prime Pegasus
Money Market Money Market Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS:
Investments, at amortized cost $ 3,107,323 $ 2,567,767 $ $ 5,675,090
Repurchase agreements, at cost 102,434 118,457 220,891
-------------- -------------- -------------- --------------
Total 3,209,757 2,686,224 5,895,981
Cash 1 149 150
Interest receivable 30,105 21,421 51,526
Receivable for capital shares issued - 8,068 8,068
Prepaid expenses and other assets 18 347 365
-------------- -------------- -------------- --------------
Total Assets 3,239,881 2,716,209 - 5,956,090
-------------- -------------- -------------- --------------
LIABILITIES:
Dividends payable 13,774 5,238 19,012
Payable for capital shares redeemed - 674 674
Payable for return of collateral received for securities on loan - - 0
Accrued expenses and other payables:
Investment advisory fees 842 619 1,461
Administration fees 416 335 751
12b-1 fees 126 709 835
Other 822 82 904
-------------- -------------- -------------- --------------
Total Liabilities 15,980 7,657 - 23,637
-------------- -------------- -------------- --------------
NET ASSETS:
Capital 3,223,805 2,708,549 5,932,354
Undistributed (distributions in excess of)
net investment income 7 - 7
Accumulated undistributed net realized
gains (losses) from investment transactions 89 3 92
-------------- -------------- -------------- --------------
Net Assets $ 3,223,901 $ 2,708,552 $ - $ 5,932,453
============== ============== ============== ==============
Net Assets
Fiduciary/Class I $ 2,616,698 $ 1,540,126 $ $ 4,156,824
Class A 605,291 1,167,246 1,772,537
Class B 1,912 1,180 3,092
Class C - - 0
-------------- -------------- -------------- --------------
Total $ 3,223,901 $ 2,708,552 $ - $ 5,932,453
============== ============== ============== ==============
Outstanding units of beneficial interest
Fiduciary/Class I $ 2,616,620 $ 1,540,126 $ 4,156,746
Class A 605,275 1,167,243 1,772,518
Class B 1,912 1,180 3,092
Class C - - 0
-------------- -------------- -------------- --------------
Total 3,223,807 2,708,549 - 5,932,356
============== ============== ============== ==============
Net Asset Value:
Offering and redemption price per share, all classes $ 1.00 $ 1.00 $ 1.00
============== ============== ==============
</TABLE>
<PAGE> 304
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Municipal Municipal
Money Market Money Market Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS:
Investments, at amortized cost $ 613,922 $ 797,027 $ $ 1,410,949
Cash 4,548 340 4,888
Interest receivable 2,781 5,624 8,405
Receivable from brokers for investments sold 20,790 -- 20,790
Prepaid expenses and other assets 3 -- 3
----------- ----------- ------- -----------
Total Assets 642,044 802,991 -- 1,445,035
----------- ----------- ------- -----------
LIABILITIES:
Dividends payable 1,562 1,485 3,047
Payable to brokers for investments purchased 37,293 35,088 72,381
Payable for capital shares redeemed -- 1,282 1,282
Accrued expenses and other payables:
Investment advisory fees 126 199 325
Administration fees 78 100 178
12b-1 fees 22 127 149
Other 27 45 72
----------- ----------- ------- -----------
Total Liabilities 39,108 38,326 -- 77,434
----------- ----------- ------- -----------
NET ASSETS:
Capital 603,068 764,721 1,367,789
Undistributed (distributions in excess of)
net investment income (130) -- (130)
Accumulated undistributed net realized
gains (losses) from investment transactions (2) (56) (58)
----------- ----------- ------- -----------
Net Assets $ 602,936 $ 764,665 $ -- $ 1,367,601
=========== =========== ======= ===========
Net Assets
Fiduciary/Class I $ 498,127 $ 555,369 $ $ 1,053,496
Class A 104,809 209,296 314,105
----------- ----------- ------- -----------
Total $ 602,936 $ 764,665 $ -- $ 1,367,601
=========== =========== ======= ===========
Outstanding units of beneficial interest
Fiduciary/Class I 498,245 555,370 1,053,615
Class A 104,822 209,350 314,172
----------- ----------- ------- -----------
Total 603,067 764,720 -- 1,367,787
=========== =========== ======= ===========
Net Asset Value:
Offering and redemption price per share, all classes $ 1.00 $ 1.00 $ 1.00
=========== =========== ===========
</TABLE>
<PAGE> 305
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Volatility Pegasus Short
Bond Fund Bond Fund Adjustments
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 619,416 $ 254,217 $
Repurchase agreements, at cost 44,829 -
------------- -------------- ------------
Total (cost $908,012; $1,421,675, respectively) 664,245 254,217 -
Cash - -
Interest receivable 6,935 2,861
Receivable from brokers for investments sold 290 2,014
Receivable for capital shares issued 37 -
Deferred organization costs - 9 (9)
Prepaid expenses and other assets 4 84
------------- -------------- ------------
Total Assets 671,511 259,185 (9)
------------- -------------- ------------
LIABILITIES:
Dividends payable 2,991 -
Payable to brokers for investments purchased - -
Payable for capital shares redeemed 24 -
Payable for return of collateral received for securities on loan 55,051 -
Accrued expenses and other payables:
Investment advisory fees 162 76
Administration fees 87 33
12b-1 fees 7 9
Other 87 9
------------- -------------- ------------
Total Liabilities 58,409 127 -
------------- -------------- ------------
NET ASSETS:
Capital 617,555 257,919 (9)
Undistributed (distributions in excess of)
net investment income (194) (116)
Accumulated undistributed net realized gains (losses)
from investment transactions (13,659) 205
Net unrealized appreciation (depreciation) from
investments 9,400 1,050
------------- -------------- ------------
Net Assets $ 613,102 $ 259,058 $ (9)
============= ============== ============
Net Assets
Fiduciary/Class I $ 592,669 $ 244,702 $ (9)
Class A 15,582 14,082
Class B 4,851 274
Class C - -
------------- -------------- ------------
Total $ 613,102 $ 259,058 $ (9)
============= ============== ============
Outstanding units of beneficial interest
Fiduciary/Class I 56,405 24,120 (838)
Class A 1,484 1,387 (46)
Class B 459 27 (1)
Class C - - -
------------- -------------- ------------
Total 58,348 25,534 (885)
============= ============== ============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 10.51 $ 10.15
============= ==============
Class A
Redemption price per share $ 10.50 $ 10.15
============= ==============
Maximum sales charge 3.00% 1.00%
============= ==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 10.82 $ 10.25
============= ==============
Class B offering price per share $ 10.57 $ 10.06
============= ==============
Class C offering price per share $ - $ -
============= ==============
<CAPTION>
Pegasus
Proforma Intermediate Intermediate
Combined Bond Fund Bond Fund
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 873,633 $ 762,006 $ 588,321
Repurchase agreements, at cost 44,829 100,432 -
------------- -------------- --------------
Total (cost $908,012; $1,421,675, respectively) 918,462 862,438 588,321
Cash - - 3
Interest receivable 9,796 7,536 5,494
Receivable from brokers for investments sold 2,304 3,001 -
Receivable for capital shares issued 37 311 95
Deferred organization costs - - -
Prepaid expenses and other assets 88 3 200
------------- -------------- --------------
Total Assets 930,687 873,289 594,113
------------- -------------- --------------
LIABILITIES:
Dividends payable 2,991 3,821 12
Payable to brokers for investments purchased - - 60
Payable for capital shares redeemed 24 11 4
Payable for return of collateral received for securities on loan 55,051 122,850 -
Accrued expenses and other payables:
Investment advisory fees 238 209 194
Administration fees 120 104 82
12b-1 fees 16 24 54
Other 96 111 27
------------- -------------- --------------
Total Liabilities 58,536 127,130 433
------------- -------------- --------------
NET ASSETS:
Capital 875,465 736,895 587,405
Undistributed (distributions in excess of)
net investment income (310) 76 (346)
Accumulated undistributed net realized gains (losses)
from investment transactions (13,454) (4,821) (8,454)
Net unrealized appreciation (depreciation) from
investments 10,450 14,009 15,075
------------- -------------- --------------
Net Assets $ 872,151 $ 746,159 $ 593,680
============= ============== ==============
Net Assets
Fiduciary/Class I $ 837,362 $ 680,800 $ 506,611
Class A 29,664 44,567 86,341
Class B 5,125 19,924 728
Class C - 868 -
------------- -------------- --------------
Total $ 872,151 $ 746,159 $ 593,680
============= ============== ==============
Outstanding units of beneficial interest
Fiduciary/Class I 79,687 67,295 48,224
Class A 2,825 4,392 8,222
Class B 485 1,970 70
Class C - 86 -
------------- -------------- --------------
Total 82,997 73,743 56,516
============= ============== ==============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 10.51 $ 10.12 $ 10.51
============= ============== ==============
Class A
Redemption price per share $ 10.50 $ 10.15 $ 10.50
============= ============== ==============
Maximum sales charge 3.00% 4.50% 3.00%
============= ============== ==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 10.82 $ 10.63 $ 10.82
============= ============== ==============
Class B offering price per share $ 10.57 $ 10.12 $ 10.41
============= ============== ==============
Class C offering price per share $ - $ 10.14 $ -
============= ============== ==============
<CAPTION>
Proforma
Adjustments Combined
<S> <C> <C>
ASSETS:
Investments, at value $ $ 1,350,327
Repurchase agreements, at cost 100,432
------------ ----------------
Total (cost $908,012; $1,421,675, respectively) - 1,450,759
Cash 3
Interest receivable 13,030
Receivable from brokers for investments sold 3,001
Receivable for capital shares issued 406
Deferred organization costs 0
Prepaid expenses and other assets 203
------------ ----------------
Total Assets - 1,467,402
------------ ----------------
LIABILITIES:
Dividends payable 3,833
Payable to brokers for investments purchased 60
Payable for capital shares redeemed 15
Payable for return of collateral received for securities on loan 122,850
Accrued expenses and other payables:
Investment advisory fees 403
Administration fees 186
12b-1 fees 78
Other 138
------------ ----------------
Total Liabilities - 127,563
------------ ----------------
NET ASSETS:
Capital 1,324,300
Undistributed (distributions in excess of)
net investment income (270)
Accumulated undistributed net realized gains (losses)
from investment transactions (13,275)
Net unrealized appreciation (depreciation) from
investments 29,084
------------ ----------------
Net Assets $ - $ 1,339,839
============ ================
Net Assets
Fiduciary/Class I $ $ 1,187,411
Class A 130,908
Class B 20,652
Class C 868
------------ ----------------
Total $ - $ 1,339,839
============ ================
Outstanding units of beneficial interest
Fiduciary/Class I (2,519) 113,000
Class A (147) 12,467
Class B (56) 1,984
Class C (3) 83
------------ ----------------
Total (2,725) 127,534
============ ================
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 10.51
================
Class A
Redemption price per share $ 10.50
================
Maximum sales charge 4.50%
================
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 10.99
================
Class B offering price per share $ 10.41
================
Class C offering price per share $ 10.41
================
</TABLE>
<PAGE> 306
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Income Multi-Sector Proforma
Bond Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value $ 954,388 $ 129,914 $ $ 1,084,302
Repurchase agreements, at cost 111,685 - 111,685
----------- ----------- ----------- -----------
Total (cost $1,146,495; $923,467, respectively) 1,066,073 129,914 - 1,195,987
Cash - 2 2
Interest receivable 11,508 1,327 12,835
Receivable from brokers for investments sold 5,340 - 5,340
Receivable for capital shares issued 23 6 29
Deferred organization cost - 15 (15) -
Prepaid expenses and other assets 5 107 112
----------- ----------- ----------- -----------
Total Assets 1,082,949 131,371 (15) 1,214,305
----------- ----------- ----------- -----------
LIABILITIES:
Dividends payable 4,852 2 4,854
Payable to brokers for investment purchased - 30 30
Payable for capital shares redeemed 65 - 65
Payable for return of collateral received for securities on loan 148,916 - 148,916
Accrued expenses and other payables:
Investment advisory fees 305 41 346
Administration fees 130 15 145
12b-1 fees 14 9 23
Other 155 13 168
----------- ----------- ----------- -----------
Total Liabilities 154,437 110 - 154,547
----------- ----------- ----------- -----------
NET ASSETS:
Capital 951,477 125,111 (15) 1,076,573
Undistributed (distributions in excess of)
net investment income 296 29 325
Accumulated undistributed net realized gains (losses)
from investment transactions (68,302) 1,670 (66,632)
Net unrealized appreciation (depreciation) from
investments 45,041 4,451 49,492
----------- ----------- ----------- -----------
Net Assets $ 928,512 $ 131,261 $ (15) $ 1,059,758
=========== =========== =========== ===========
Net Assets
Fiduciary/Class I $ 898,263 $ 118,498 $ (15) $ 1,016,746
Class A 14,738 12,159 26,897
Class B 15,511 604 16,115
----------- ----------- ----------- -----------
Total $ 928,512 $ 131,261 $ (15) $ 1,059,758
=========== =========== =========== ===========
Outstanding units of beneficial interest
Fiduciary/Class I 94,421 14,643 16,611 125,675
Class A 1,550 1,504 271 3,325
Class B 1,617 74 294 1,985
----------- ----------- ----------- -----------
Total 97,588 16,221 17,176 130,985
=========== =========== =========== ===========
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 9.51 $ 8.09 $ 8.09
=========== =========== ===========
Class A
Redemption price per share $ 9.51 $ 8.09 $ 8.09
=========== =========== ===========
Maximum sales charge 4.50% 3.00% 4.50%
=========== =========== ===========
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest
cent) $ 9.96 $ 8.34 $ 8.47
=========== =========== ===========
Class B offering price per share $ 9.59 $ 8.12 $ 8.12
=========== =========== ===========
<CAPTION>
Pegasus
Intermediate Intermediate
Tax-Free Municipal Proforma
Bond Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value $ 511,831 $ 454,484 $ $ 966,315
Repurchase agreements, at cost - - -
----------- ----------- ----------- -----------
Total (cost $1,146,495; $923,467, respectively) 511,831 454,484 - 966,315
Cash 5 - 5
Interest receivable 6,855 7,459 14,314
Receivable from brokers for investments sold 9,946 - 9,946
Receivable for capital shares issued 12 2 14
Deferred organization cost - 16 (16) -
Prepaid expenses and other assets 3 49 52
----------- ----------- ----------- -----------
Total Assets 528,652 462,010 (16) 990,646
----------- ----------- ----------- -----------
LIABILITIES:
Dividends payable 1,942 20 1,962
Payable to brokers for investment purchased 12,545 6,968 19,513
Payable for capital shares redeemed - - -
Payable for return of collateral received for securities on loan - - -
Accrued expenses and other payables:
Investment advisory fees 162 146 308
Administration fees 71 54 125
12b-1 fees 7 14 21
Other 65 29 94
----------- ----------- ----------- -----------
Total Liabilities 14,792 7,231 - 22,023
----------- ----------- ----------- -----------
NET ASSETS:
Capital 486,040 435,465 (16) 921,489
Undistributed (distributions in excess of)
net investment income 233 65 298
Accumulated undistributed net realized gains (losses)
from investment transactions 3,710 278 3,988
Net unrealized appreciation (depreciation) from
investments 23,877 18,971 42,848
----------- ----------- ----------- -----------
Net Assets $ 513,860 $ 454,779 $ (16) $ 968,623
=========== =========== =========== ===========
Net Assets
Fiduciary/Class I $ 493,686 $ 433,801 $ (16) $ 927,471
Class A 14,515 20,177 34,692
Class B 5,659 801 6,460
----------- ----------- ----------- -----------
Total $ 513,860 $ 454,779 $ (16) $ 968,623
=========== =========== =========== ===========
Outstanding units of beneficial interest
Fiduciary/Class I 44,291 35,261 3,643 83,195
Class A 1,303 1,640 171 3,114
Class B 507 65 7 579
----------- ----------- ----------- -----------
Total 46,101 36,966 3,821 86,888
=========== =========== =========== ===========
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 11.15 $ 12.30 $ 11.15
=========== =========== ===========
Class A
Redemption price per share $ 11.14 $ 12.30 $ 11.14
=========== =========== ===========
Maximum sales charge 4.50% 3.00% 4.50%
=========== =========== ===========
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest
cent) $ 11.66 $ 12.68 $ 11.66
=========== =========== ===========
Class B offering price per share $ 11.16 $ 12.29 $ 11.16
=========== =========== ===========
</TABLE>
<PAGE> 307
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Income Equity Equity Income
Fund Fund Adjustments
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 996,472 $ 325,743 $
Repurchase agreements, at cost 32,051 -
-------------- -------------- --------------
Total (cost $818,363; $1,452,803, respectively) 1,028,523 325,743 -
Cash 1 -
Interest & dividends receivable 1,983 554
Receivable from brokers for investments sold 1,408 2,129
Receivable for capital shares issued 640 6
Deferred organization cost - 23 (23)
Prepaid expenses and other assets 5 113
-------------- -------------- --------------
Total Assets 1,032,560 328,568 (23)
-------------- -------------- --------------
LIABILITIES:
Dividends payable 789 11
Payable for capital shares redeemed 175 4
Payable for return of collateral received for securities on loan 52,967 -
Payable to brokers for investments purchased 1,351 28
Net payable for variation margin on futures contracts - -
Accrued expenses and other payables:
Investment advisory fees 588 129
Administration fees 135 39
12b-1 fees 157 18
Other 230 18
-------------- -------------- --------------
Total Liabilities 56,392 247 -
-------------- -------------- --------------
NET ASSETS:
Capital 447,045 267,637 (23)
Undistributed (distributions in excess of)
net investment income 162 105
Accumulated undistributed net realized gains (losses)
from investment and futures transactions 50,125 3,512
Net unrealized appreciation (depreciation) from
investments and futures 478,836 57,067
-------------- -------------- --------------
Net Assets $ 976,168 $ 328,321 $ (23)
============== ============== ==============
Net Assets
Fiduciary/Class I $ 691,878 $ 311,286 $ (23)
Class A 117,682 13,397
Class B 165,813 3,638
Class C 795 -
-------------- -------------- --------------
Total $ 976,168 $ 328,321 $ (23)
============== ============== ==============
Outstanding units of beneficial interest
Fiduciary/Class I 28,742 25,036 (12,104)
Class A 4,895 1,075 (518)
Class B 6,886 292 (141)
Class C 33 - -
-------------- -------------- --------------
Total 40,556 26,403 (12,763)
============== ============== ==============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 24.07 $ 12.43
============== ==============
Class A
Redemption price per share $ 24.04 $ 12.47
============== ==============
Maximum sales charge 4.50% 5.00%
============== ==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest
cent) $ 25.17 $ 13.13
============== ==============
Class B offering price per share $ 24.08 $ 12.47
============== ==============
Class C offering price per share $ 24.08 $ -
============== ==============
<CAPTION>
Pegasus
Proforma Equity Index Equity Index
Combined Fund Fund
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 1,322,215 $ 1,286,410 $ 981,306
Repurchase agreements, at cost 32,051 72,011 -
-------------- -------------- --------------
Total (cost $818,363; $1,452,803, respectively) 1,354,266 1,358,421 981,306
Cash 1 - -
Interest & dividends receivable 2,537 1,250 1,033
Receivable from brokers for investments sold 3,537 1,775 -
Receivable for capital shares issued 646 4,686 224
Deferred organization cost - - -
Prepaid expenses and other assets 118 4 245
-------------- -------------- --------------
Total Assets 1,361,105 1,366,136 982,808
-------------- -------------- --------------
LIABILITIES:
Dividends payable 800 707 2
Payable for capital shares redeemed 179 183 13
Payable for return of collateral received for securities on loan 52,967 114,880 -
Payable to brokers for investments purchased 1,379 4,321 1,104
Net payable for variation margin on futures contracts - 158 -
Accrued expenses and other payables:
Investment advisory fees 717 99 81
Administration fees 174 119 121
12b-1 fees 175 323 169
Other 248 568 28
-------------- -------------- --------------
Total Liabilities 56,639 121,358 1,518
-------------- -------------- --------------
NET ASSETS:
Capital 714,659 780,024 521,392
Undistributed (distributions in excess of)
net investment income 267 88 208
Accumulated undistributed net realized gains (losses)
from investment and futures transactions 53,637 20,942 16,205
Net unrealized appreciation (depreciation) from
investments and futures 535,903 443,724 443,485
-------------- -------------- --------------
Net Assets $ 1,304,466 $ 1,244,778 $ 981,290
============== ============== ==============
Net Assets
Fiduciary/Class I $ 1,003,141 $ 671,422 $ 697,422
Class A 131,079 218,518 281,046
Class B 169,451 351,624 2,822
Class C 795 3,214 -
-------------- -------------- --------------
Total $ 1,304,466 $ 1,244,778 $ 981,290
============== ============== ==============
Outstanding units of beneficial interest
Fiduciary/Class I 41,674 24,719 28,109
Class A 5,452 8,049 11,333
Class B 7,037 12,959 188
Class C 33 118 -
-------------- -------------- --------------
Total 54,196 45,845 39,630
============== ============== ==============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 24.07 $ 27.16 $ 24.81
============== ============== ==============
Class A
Redemption price per share $ 24.04 $ 27.15 $ 24.80
============== ============== ==============
Maximum sales charge 4.50% 4.50% 3.00%
============== ============== ==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest
cent) $ 25.17 $ 28.43 $ 25.57
============== ============== ==============
Class B offering price per share $ 24.08 $ 27.13 $ 14.99
============== ============== ==============
Class C offering price per share $ 24.08 $ 27.14 $ -
============== ============== ==============
<CAPTION>
Proforma
Adjustments Combined
<S> <C> <C>
ASSETS:
Investments, at value $ $ 2,267,716
Repurchase agreements, at cost 72,011
-------------- --------------
Total (cost $818,363; $1,452,803, respectively) - 2,339,727
Cash -
Interest & dividends receivable 2,283
Receivable from brokers for investments sold 1,775
Receivable for capital shares issued 4,910
Deferred organization cost -
Prepaid expenses and other assets 249
-------------- --------------
Total Assets - 2,348,944
-------------- --------------
LIABILITIES:
Dividends payable 709
Payable for capital shares redeemed 196
Payable for return of collateral received for securities on loan 114,880
Payable to brokers for investments purchased 5,425
Net payable for variation margin on futures contracts 158
Accrued expenses and other payables:
Investment advisory fees 180
Administration fees 240
12b-1 fees 492
Other 596
-------------- --------------
Total Liabilities - 122,876
-------------- --------------
NET ASSETS:
Capital 1,301,416
Undistributed (distributions in excess of)
net investment income 296
Accumulated undistributed net realized gains (losses)
from investment and futures transactions 37,147
Net unrealized appreciation (depreciation) from
investments and futures 887,209
-------------- --------------
Net Assets $ - $ 2,226,068
============== ==============
Net Assets
Fiduciary/Class I $ $ 1,368,844
Class A 499,564
Class B 354,446
Class C 3,214
-------------- --------------
Total $ - $ 2,226,068
============== ==============
Outstanding units of beneficial interest
Fiduciary/Class I (2,431) 50,397
Class A (981) 18,401
Class B (84) 13,063
Class C - 118
-------------- --------------
Total (3,496) 81,979
============== ==============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 27.16
==============
Class A
Redemption price per share $ 27.15
==============
Maximum sales charge 4.50%
==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 28.43
==============
Class B offering price per share $ 27.13
==============
Class C offering price per share $ 27.14
==============
</TABLE>
<PAGE> 308
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Value Growth Growth & Value
Fund Fund Adjustments
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 740,240 $ 1,231,149 $
Repurchase agreements, at cost 46,166 -
--------------- ---------------- ------------
Total (cost $1,480,823; $1,209,164, respectively) 786,406 1,231,149 -
Cash 1 -
Interest & dividends receivable 713 888
Receivable from brokers for investments sold - -
Receivable for capital shares issued 637 554
Prepaid expenses and other assets 3 226
--------------- ---------------- ------------
Total Assets 787,760 1,232,817 -
--------------- ---------------- ------------
LIABILITIES:
Dividends payable 179 7
Payable for capital shares redeemed 7 151
Payable for return of collateral received for securities on loan 49,140 -
Payable to brokers for investments purchased - 4,130
Net payable for variation margin on futures contracts 106 204
Accrued expenses and other payables:
Investment advisory fees 435 590
Administration fees 99 148
12b-1 fees 36 185
Other 183 31
--------------- ---------------- ------------
Total Liabilities 50,185 5,446 -
--------------- ---------------- ------------
NET ASSETS:
Capital 525,615 827,813
Undistributed (distributions in excess of)
net investment income 53 171
Accumulated undistributed net realized gains (losses)
from investment and futures transactions 42,561 31,084
Net unrealized appreciation (depreciation) from
investments and futures 169,346 368,303
--------------- ---------------- ------------
Net Assets $ 737,575 $ 1,227,371 $ -
=============== ================ ============
Net Assets
Fiduciary/Class I $ 630,340 $ 953,308 $
Class A 80,500 264,450
Class B 25,501 9,613
Class C 1,234 -
--------------- ---------------- ------------
Total $ 737,575 $ 1,227,371 $ -
=============== ================ ============
Outstanding units of beneficial interest
Fiduciary/Class I 46,646 56,216 14,347
Class A 5,964 15,605 3,984
Class B 1,902 939 (222)
Class C 92 - -
--------------- ---------------- ------------
Total 54,604 72,760 18,109
=============== ================ ============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 13.51 $ 16.96
=============== ================
Class A
Redemption price per share $ 13.50 $ 16.95
=============== ================
Maximum sales charge 4.50% 5.00%
=============== ================
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted
to nearest cent $ 14.14 $ 17.84
=============== ================
Class B offering price per share $ 13.40 $ 10.24
=============== ================
Class C offering price per share $ 13.47 $ -
=============== ================
<CAPTION>
Disciplined Intrinsic
Proforma Value Value
Combined Fund Fund
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 1,971,389 $ 708,291 $ 683,536
Repurchase agreements, at cost 46,166 50,417 -
---------------- --------------- ---------------
Total (cost $1,480,823; $1,209,164, respectively) 2,017,555 758,708 683,536
Cash 1 203 4
Interest & dividends receivable 1,601 672 755
Receivable from brokers for investments sold - 75,046 -
Receivable for capital shares issued 1,191 75 205
Prepaid expenses and other assets 229 4 90
---------------- --------------- ---------------
Total Assets 2,020,577 834,708 684,590
---------------- --------------- ---------------
LIABILITIES:
Dividends payable 186 499 12
Payable for capital shares redeemed 158 25 22
Payable for return of collateral received for securities on loan 49,140 59,486 -
Payable to brokers for investments purchased 4,130 79,792 936
Net payable for variation margin on futures contracts 310 - 79
Accrued expenses and other payables:
Investment advisory fees 1,025 415 337
Administration fees 247 96 84
12b-1 fees 221 30 93
Other 214 156 16
---------------- --------------- ---------------
Total Liabilities 55,631 140,499 1,579
---------------- --------------- ---------------
NET ASSETS:
Capital 1,353,428 501,412 540,750
Undistributed (distributions in excess of)
net investment income 224 1 (50)
Accumulated undistributed net realized gains (losses)
from investment and futures transactions 73,645 84,723 16,999
Net unrealized appreciation (depreciation) from
investments and futures 537,649 108,073 125,312
---------------- --------------- ---------------
Net Assets $ 1,964,946 $ 694,209 $ 683,011
================ =============== ===============
Net Assets
Fiduciary/Class I $ 1,583,648 $ 634,671 $ 545,391
Class A 344,950 29,443 132,278
Class B 35,114 30,095 5,342
Class C 1,234 - -
---------------- --------------- ---------------
Total $ 1,964,946 $ 694,209 $ 683,011
================ =============== ===============
Outstanding units of beneficial interest
Fiduciary/Class I 117,209 37,560 34,019
Class A 25,553 1,739 8,255
Class B 2,619 1,786 470
Class C 92 - -
---------------- --------------- ---------------
Total 145,473 41,085 42,744
================ =============== ===============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 13.51 $ 16.90 $ 16.03
================ =============== ===============
Class A
Redemption price per share $ 13.50 $ 16.93 $ 16.02
================ =============== ===============
Maximum sales charge 4.50% 4.50% 5.00%
================ =============== ===============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted
to nearest cent $ 14.14 $ 17.73 $ 16.86
================ =============== ===============
Class B offering price per share $ 13.40 $ 16.85 $ 11.37
================ =============== ===============
Class C offering price per share $ 13.47 $ - $ -
================ =============== ===============
<CAPTION>
Proforma
Adjustments Combined
<S> <C> <C>
ASSETS:
Investments, at value $ $ 1,391,827
Repurchase agreements, at cost 50,417
------------ ---------------
Total (cost $1,480,823; $1,209,164, respectively) - 1,442,244
Cash 207
Interest & dividends receivable 1,427
Receivable from brokers for investments sold 75,046
Receivable for capital shares issued 280
Prepaid expenses and other assets 94
------------ ---------------
Total Assets - 1,519,298
------------ ---------------
LIABILITIES:
Dividends payable 511
Payable for capital shares redeemed 47
Payable for return of collateral received for securities on loan 59,486
Payable to brokers for investments purchased 80,728
Net payable for variation margin on futures contracts 79
Accrued expenses and other payables:
Investment advisory fees 752
Administration fees 180
12b-1 fees 123
Other 172
------------ ---------------
Total Liabilities - 142,078
------------ ---------------
NET ASSETS:
Capital 1,042,162
Undistributed (distributions in excess of)
net investment income (49)
Accumulated undistributed net realized gains (losses)
from investment and futures transactions 101,722
Net unrealized appreciation (depreciation) from
investments and futures 233,385
------------ ---------------
Net Assets $ - $ 1,377,220
============ ===============
Net Assets
Fiduciary/Class I $ $ 1,180,062
Class A 161,721
Class B 35,437
Class C -
------------ ---------------
Total $ - $ 1,377,220
============ ===============
Outstanding units of beneficial interest
Fiduciary/Class I (1,747) 69,832
Class A (442) 9,552
Class B (153) 2,103
Class C - -
------------ ---------------
Total (2,342) 81,487
============ ===============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 16.90
===============
Class A
Redemption price per share $ 16.93
===============
Maximum sales charge 4.50%
===============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted
to nearest cent $ 17.73
===============
Class B offering price per share $ 16.85
===============
Class C offering price per share $ -
===============
</TABLE>
<PAGE> 309
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Large Company Pegasus
Growth Growth Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value $ 2,064,976 $ 846,249 $ $ 2,911,225
Repurchase agreements, at cost 97,697 - 97,697
------------- -------------- ------------ -------------
Total (cost $1,927,578) 2,162,673 846,249 - 3,008,922
Cash 1 - 1
Interest & dividends receivable 1,975 360 2,335
Receivable from brokers for investments sold 86,533 1,461 87,994
Receivable for capital shares issued 882 235 1,117
Net receivable for variation margin on futures contracts - - -
Deferred organization cost - 27 (27) -
Prepaid expenses and other assets 8 156 164
------------- -------------- ------------ -------------
Total Assets 2,252,072 848,488 (27) 3,100,533
------------- -------------- ------------ -------------
LIABILITIES:
Payable for capital shares redeemed 213 51 264
Payable for return of collateral received for securities on loan 177,147 - 177,147
Payable to brokers for investments purchased 81,870 145 82,015
Net payable for variation margin on futures contracts - 43 43
Accrued expenses and other payables:
Investment advisory fees 1,160 349 1,509
Administration fees 265 87 352
12b-1 fees 257 80 337
Other 532 18 550
------------- -------------- ------------ -------------
Total Liabilities 261,444 773 - 262,217
------------- -------------- ------------ -------------
NET ASSETS:
Capital 1,095,916 481,208 (27) 1,577,097
Undistributed (distributions in excess of)
net investment income - (644) (644)
Accumulated undistributed net realized gains (losses)
from investment, futures and options transactions 175,943 4,602 180,545
Net unrealized appreciation (depreciation) from
investments, futures and options transactions 718,769 362,549 1,081,318
------------- -------------- ------------ -------------
Net Assets $ 1,990,628 $ 847,715 $ (27) $ 2,838,316
============= ============== ============ =============
Net Assets
Fiduciary/Class I $ 1,510,521 $ 733,610 $ (27) $ 2,244,104
Class A 199,051 109,752 308,803
Class B 280,564 4,353 284,917
Class C 492 - 492
------------- -------------- ------------ -------------
Total $ 1,990,628 $ 847,715 $ (27) $ 2,838,316
============= ============== ============ =============
Outstanding units of beneficial interest
Fiduciary/Class I 66,523 43,204 (10,902) 98,825
Class A 8,534 6,472 (1,766) 13,240
Class B 12,341 262 (70) 12,533
Class C 22 - - 22
------------- -------------- ------------ -------------
Total 87,420 49,938 (12,738) 124,620
============= ============== ============ =============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 22.71 $ 16.98 $ 22.71
============= ============== =============
Class A
Redemption price per share $ 23.32 $ 16.96 $ 23.32
============= ============== =============
Maximum sales charge 4.50% 5.00% 4.50%
============= ============== =============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted
to nearest cent $ 24.42 $ 17.85 $ 24.42
============= ============== =============
Class B offering price per share $ 22.73 $ 16.64 $ 22.73
============= ============== =============
Class C offering price per share $ 22.57 $ - $ 22.57
============= ============== =============
</TABLE>
<PAGE> 310
<TABLE>
<CAPTION>
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited) Pegasus
Investor Managed Assets
Growth Growth
Fund Fund Adjustments
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $220,706; 478,319, respectively) $ 217,257 $ 21,878 $
Cash 1,265 -
Interest & dividends receivable 188 -
Receivable from brokers for investments sold 1,500 -
Receivable for capital shares issued 735 101
Receivable from advisor 31 -
Deferred organization cost - -
Prepaid expenses and other assets 1 44
------------- -------------- ------------
Total Assets 220,977 22,023 -
------------- -------------- ------------
LIABILITIES:
Dividends payable 84 1
Payable for capital shares redeemed 42 13
Payable to brokers for investments purchased - 59
Accrued expenses and other payables:
Investment advisory fees 9 11
Administration fees - 3
12b-1 fees 70 30
Other 73 6
------------- -------------- ------------
Total Liabilities 278 123 -
------------- -------------- ------------
NET ASSETS:
Capital 197,904 21,075
Undistributed (distributions in excess of)
net investment income 2,138 (7)
Accumulated undistributed net realized gains (losses)
from investment transactions 2,515 545
Net unrealized appreciation (depreciation) from
investments 18,142 287
------------- -------------- ------------
Net Assets $ 220,699 $ 21,900 $ -
============= ============== ============
Net Assets
Fiduciary/Class I $ 86,355 $ 1,583 $
Class A 55,057 9,404
Class B 70,515 10,913
Class C 8,772 -
------------- -------------- ------------
Total $ 220,699 $ 21,900 $ -
============= ============== ============
Outstanding units of beneficial interest
Fiduciary/Class I 6,451 132 (14)
Class A 4,131 788 (83)
Class B 5,236 928 (118)
Class C 658 - -
------------- -------------- ------------
Total 16,476 1,848 (215)
============= ============== ============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 13.39 $ 12.00
============= ==============
Class A
Redemption price per share $ 13.33 $ 11.94
============= ==============
Maximum sales charge 4.50% 5.00%
============= ==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 13.96 $ 12.57
============= ==============
Class B offering price per share $ 13.47 $ 11.76
============= ==============
Class C offering price per share $ 13.34 $ -
============= ==============
Pegasus
Investor Growth Managed Assets
Proforma & Income Balanced
Combined Fund Fund
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $220,706; 478,319, respectively) $ 239,135 $ 226,522 $ 277,312
Cash 1,265 819 -
Interest & dividends receivable 188 400 -
Receivable from brokers for investments sold 1,500 1,500 -
Receivable for capital shares issued 836 1,099 297
Receivable from advisor 31 9 -
Deferred organization cost - - 5
Prepaid expenses and other assets 45 1 155
------------- -------------- --------------
Total Assets 243,000 230,350 277,769
------------- -------------- --------------
LIABILITIES:
Dividends payable 85 300 6
Payable for capital shares redeemed 55 33 51
Payable to brokers for investments purchased 59 - 137
Accrued expenses and other payables: - -
Investment advisory fees 20 9 146
Administration fees 3 - 33
12b-1 fees 100 78 136
Other 79 99 31
------------- -------------- --------------
Total Liabilities 401 519 540
------------- -------------- --------------
NET ASSETS:
Capital 218,979 207,764 260,561
Undistributed (distributions in excess of)
net investment income 2,131 2,062 (67)
Accumulated undistributed net realized gains (losses)
from investment transactions 3,060 2,135 9,090
Net unrealized appreciation (depreciation) from
investments 18,429 17,870 7,645
------------- -------------- --------------
Net Assets $ 242,599 $ 229,831 $ 277,229
============= ============== ==============
Net Assets
Fiduciary/Class I $ 87,938 $ 98,060 $ 92,326
Class A 64,461 39,874 169,028
Class B 81,428 85,468 15,875
Class C 8,772 6,429 -
------------- -------------- --------------
Total $ 242,599 $ 229,831 $ 277,229
============= ============== ==============
Outstanding units of beneficial interest
Fiduciary/Class I 6,569 7,803 7,824
Class A 4,836 3,142 14,299
Class B 6,046 6,761 1,198
Class C 658 513 -
------------- -------------- --------------
Total 18,109 18,219 23,321
============= ============== ==============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 13.39 $ 12.57 $ 11.80
============= ============== ==============
Class A
Redemption price per share $ 13.33 $ 12.69 $ 11.82
============= ============== ==============
Maximum sales charge 4.50% 4.50% 5.00%
============= ============== ==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 13.96 $ 13.29 $ 12.44
============= ============== ==============
Class B offering price per share $ 13.47 $ 12.64 $ 13.25
============= ============== ==============
Class C offering price per share $ 13.34 $ 12.54 $ -
============= ============== ==============
<CAPTION>
Proforma
Adjustments Combined
<S> <C> <C>
ASSETS:
Investments, at value (cost $220,706; 478,319, respectively) $ $ 503,834
Cash 819
Interest & dividends receivable 400
Receivable from brokers for investments sold 1,500
Receivable for capital shares issued 1,396
Receivable from advisor 9
Deferred organization cost (5) -
Prepaid expenses and other assets 156
------------ ----------------
Total Assets (5) 508,114
------------ ----------------
LIABILITIES:
Dividends payable 306
Payable for capital shares redeemed 84
Payable to brokers for investments purchased 137
Accrued expenses and other payables: -
Investment advisory fees 155
Administration fees 33
12b-1 fees 214
Other 130
------------ ----------------
Total Liabilities - 1,059
------------ ----------------
NET ASSETS:
Capital (5) 468,320
Undistributed (distributions in excess of)
net investment income 1,995
Accumulated undistributed net realized gains (losses)
from investment transactions 11,225
Net unrealized appreciation (depreciation) from
investments 25,515
------------ ----------------
Net Assets $ (5) $ 507,055
============ ================
Net Assets
Fiduciary/Class I $ (5) $ 190,381
Class A 208,902
Class B 101,343
Class C 6,429
------------ ----------------
Total $ (5) $ 507,055
============ ================
Outstanding units of beneficial interest
Fiduciary/Class I (479) 15,148
Class A (979) 16,462
Class B 58 8,017
Class C - 513
------------ ----------------
Total (1,400) 40,140
============ ================
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 12.57
================
Class A
Redemption price per share $ 12.69
================
Maximum sales charge 4.50%
================
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 13.29
================
Class B offering price per share $ 12.64
================
Class C offering price per share $ 12.54
================
</TABLE>
<PAGE> 311
The One Group Family of Mutual Funds
Proforma Combined Statements of Assets and Liabilities
June 30, 1998
(Amounts in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Investor Managed Assets
Balanced Conservative
Fund Fund Adjustments
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $315,556) $ 198,835 $ 135,153 $
Cash 2,113 -
Interest & dividends receivable 535 -
Receivable from brokers for investments sold 1,000 -
Receivable for capital shares issued 1,472 230
Deferred organization cost - 31 (31)
Prepaid expenses and other assets 1 59
------------- -------------- ------------
Total Assets 203,956 135,473 (31)
------------- -------------- ------------
LIABILITIES:
Dividends payable 463 19
Payable for capital shares redeemed 55 135
Payable to brokers for investments purchased - 117
Accrued expenses and other payables:
Investment advisory fees 8 71
Administration fees - 16
12b-1 fees 64 108
Other 88 21
------------- -------------- ------------
Total Liabilities 678 487 -
------------- -------------- ------------
NET ASSETS:
Capital 185,728 128,626 (31)
Undistributed (distributions in excess of)
net investment income 1,413 (50)
Accumulated undistributed net realized gains (losses)
from investment transactions 1,624 2,491
Net unrealized appreciation (depreciation) from
investments 14,513 3,919
------------- -------------- ------------
Net Assets $ 203,278 $ 134,986 (31)
============= ============== ============
Net Assets
Fiduciary/Class I $ 93,557 $ 12,255 $ (31)
Class A 32,605 100,508
Class B 70,463 22,223
Class C 6,653 -
------------- -------------- ------------
Total $ 203,278 $ 134,986 $ (31)
============= ============== ============
Outstanding units of beneficial interest
Fiduciary/Class I 7,925 828 207
Class A 2,755 6,814 1,682
Class B 5,963 1,506 374
Class C 565 - -
------------- -------------- ------------
Total 17,208 9,148 2,263
============= ============== ============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 11.81 $ 14.81
============= ==============
Class A
Redemption price per share $ 11.83 $ 14.75
============= ==============
Maximum sales charge 4.50% 5.00%
============= ==============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 12.39 $ 15.53
============= ==============
Class B offering price per share $ 11.82 $ 14.76
============= ==============
Class C offering price per share $ 11.77 $ -
============= ==============
<CAPTION>
Proforma
Combined
<S> <C>
ASSETS:
Investments, at value (cost $315,556) $ 333,988
Cash 2,113
Interest & dividends receivable 535
Receivable from brokers for investments sold 1,000
Receivable for capital shares issued 1,702
Deferred organization cost -
Prepaid expenses and other assets 60
-------------
Total Assets 339,398
=============
LIABILITIES:
Dividends payable 482
Payable for capital shares redeemed 190
Payable to brokers for investments purchased 117
Accrued expenses and other payables:
Investment advisory fees 79
Administration fees 16
12b-1 fees 172
Other 109
-------------
Total Liabilities 1,165
-------------
NET ASSETS:
Capital 314,323
Undistributed (distributions in excess of)
net investment income 1,363
Accumulated undistributed net realized gains (losses)
from investment transactions 4,115
Net unrealized appreciation (depreciation) from
investments 18,432
-------------
Net Assets $ 338,233
-------------
Net Assets
Fiduciary/Class I $ 105,781
Class A 133,113
Class B 92,686
Class C 6,653
-------------
Total $ 338,233
=============
Outstanding units of beneficial interest
Fiduciary/Class I 8,960
Class A 11,251
Class B 7,843
Class C 565
-------------
Total 28,619
=============
Net Asset Value:
Fiduciary/Class I offering and redemption price per share $ 11.81
=============
Class A
Redemption price per share $ 11.83
=============
Maximum sales charge 4.50%
=============
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest cent) $ 12.39
=============
Class B offering price per share $ 11.82
=============
Class C offering price per share $ 11.77
=============
</TABLE>
<PAGE> 312
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
U.S. Treasury Pegasus
Securities Treasury
Money Market Money Market Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 184,497 $ 55,183 $ - $ 239,680
Income from securities lending 150 - - 150
-------------- -------------- -------------- --------------
Total Income 184,647 55,183 - 239,830
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 11,575 2,614 845 15,034
Administration fees 5,416 1,483 135 7,034
12b-1 fees (Class A) 1,955 513 23 2,491
12b-1 fees (Class B) 1 - - 1
Custodian and accounting fees 355 11 16 382
Legal and audit fees 176 53 (30) 199
Transfer agent fees 638 89 (58) 669
Registration, filing fees and other expenses 1,708 188 (17) 1,879
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 21,824 4,951 914 27,689
Less waivers and reimbursements (2,892) - (862) (3,754)
-------------- -------------- -------------- --------------
Net Expenses 18,932 4,951 52 23,935
-------------- -------------- -------------- --------------
Net Investment Income 165,715 50,232 (52) 215,935
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments Transactions:
Net realized gains (losses) from investment transactions 40 - - 40
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 165,755 $ 50,232 $ (52) $ 215,935
============== ============== ============== ==============
<CAPTION>
Prime Pegasus
Money Market Money Market Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 189,463 $ 139,797 $ - $ 329,260
Income from securities lending - - - 0
-------------- -------------- -------------- --------------
Total Income 189,463 139,797 - 329,260
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 11,482 6,847 1,689 20,018
Administration fees 5,374 3,659 336 9,369
12b-1 fees (Class A) 1,399 2,473 114 3,986
12b-1 fees (Class B) 10 5 - 15
Custodian and accounting fees 292 41 43 376
Legal and audit fees 148 101 (39) 210
Transfer agent fees 391 1,367 (321) 1,437
Registration, filing fees and other expenses 1,263 474 (22) 1,715
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 20,359 14,967 1,800 37,126
Less waivers and reimbursements (2,237) (295) (1,437) (3,969)
-------------- -------------- -------------- --------------
Net Expenses 18,122 14,672 363 33,157
-------------- -------------- -------------- --------------
Net Investment Income 171,341 125,125 (363) 296,103
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments Transactions:
Net realized gains (losses) from investment transactions 89 - - 89
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 171,430 $ 125,125 $ (363) $ 296,192
============== ============== ============== ==============
</TABLE>
<PAGE> 313
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Municipal Municipal
Money Market Money Market Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 21,708 $ 29,815 $ - $ 51,523
Dividend income 165 - - 165
---------------- ---------------- ---------------- ----------------
Total Income 21,873 29,815 - 51,688
---------------- ---------------- ---------------- ----------------
Expenses:
Investment advisory fees 2,087 2,436 406 4,929
Administration fees 977 1,218 112 2,307
12b-1 fees (Class A) 258 492 27 777
Custodian and accounting fees 51 32 9 92
Legal and audit fees 22 49 (27) 44
Transfer agent fees 33 77 (60) 50
Registration, filing fees and other expenses 163 19 (6) 176
---------------- ---------------- ---------------- ----------------
Total expenses before waivers 3,591 4,323 461 8,375
Less waivers (677) - (931) (1,608)
---------------- ---------------- ---------------- ----------------
Net Expenses 2,914 4,323 (470) 6,767
---------------- ---------------- ---------------- ----------------
Net Investment Income 18,959 25,492 470 44,921
================ ================ ================ ================
Realized / Unrealized Gains (Losses) from
Investments:
Net realized gains (losses) from investment transactions 11 - - 11
---------------- ---------------- ---------------- ----------------
Change in net assets resulting from operations $ 18,970 $ 25,492 $ 470 $ 44,932
================ ================ ================ ================
</TABLE>
<PAGE> 314
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Limited Pegasus
Volatility Short Proforma Proforma
Bond Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 38,915 $ 14,738 $ - $ 53,653
Income from securities lending 144 - - 144
-------------- -------------- -------------- --------------
Total Income 39,059 14,738 - 53,797
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 3,580 847 604 5,031
Administration fees 977 363 33 1,373
12b-1 fees (Class A) 63 19 7 89
12b-1 fees (Class B) 49 2 - 51
12b-1 fees (Class C) - - - -
Custodian and accounting fees 74 44 (33) 85
Legal and audit fees 24 33 (28) 29
Organization costs - 7 (7) -
Transfer agent fees 88 50 (25) 113
Registration, filing fees and other expenses 120 80 (4) 196
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 4,975 1,445 547 6,967
Less waivers and reimbursements (1,730) (38) (659) (2,427)
-------------- -------------- -------------- --------------
Net Expenses 3,245 1,407 (112) 4,540
-------------- -------------- -------------- --------------
Net Investment Income 35,814 13,331 112 49,257
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments:
Net realized gains (losses) from investment transactions (2,526) 353 - (2,173)
Net change in unrealized appreciation (depreciation)
from investments 4,699 794 - 5,493
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments 2,173 1,147 - 3,320
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 37,987 $ 14,478 $ 112 $ 52,577
============== ============== ============== ==============
<CAPTION>
Pegasus
Intermediate Intermediate Proforma Proforma
Bond Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 45,357 $ 35,438 $ - $ 80,795
Income from securities lending 287 - - 287
-------------- -------------- -------------- --------------
Total Income 45,644 35,438 - 81,082
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 3,951 2,127 1,062 7,140
Administration fees 1,078 798 72 1,948
12b-1 fees (Class A) 110 138 54 302
12b-1 fees (Class B) 147 4 - 151
12b-1 fees (Class C) 3 - - 3
Custodian and accounting fees 96 79 (60) 115
Legal and audit fees 21 48 (36) 33
Transfer agent fees 78 235 (73) 240
Registration, filing fees and other expenses 209 99 (5) 303
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 5,693 3,528 1,014 10,235
Less waivers and reimbursements (1,773) - (1,448) (3,221)
-------------- -------------- -------------- --------------
Net Expenses 3,920 3,528 (434) 7,014
-------------- -------------- -------------- --------------
Net Investment Income 41,724 31,910 434 74,068
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments:
Net realized gains (losses) from investment transactions 467 451 - 918
Net change in unrealized appreciation (depreciation)
from investments 11,026 10,157 - 21,183
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments 11,493 10,608 - 22,101
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 53,217 $ 42,518 $ 434 $ 96,169
============== ============== ============== ==============
</TABLE>
<PAGE> 315
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Income Multi-Sector Proforma Proforma
Bond Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 61,807 $ 8,277 $ - 70,084
Dividend income - - - -
Income from securities lending 280 - - 280
-------------- -------------- -------------- --------------
Total Income 62,087 8,277 - 70,364
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 5,074 501 257 5,832
Administration fees 1,385 188 19 1,592
12b-1 fees (Class A) 51 24 10 85
12b-1 fees (Class B) 138 5 - 143
Custodian and accounting fees 74 23 (15) 82
Legal and audit fees 27 30 (23) 34
Organization costs - 10 (10) -
Transfer agent fees 80 49 (27) 102
Registration, filing fees and other expenses 206 - - 206
-------------- -------------- -------------- --------------
Total expenses before waivers 7,035 830 211 8,076
Less waivers (1,720) - (274) (1,994)
-------------- -------------- -------------- --------------
Net Expenses 5,315 830 (63) 6,082
-------------- -------------- -------------- --------------
Net Investment Income 56,772 7,447 63 64,282
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments:
Net realized gains (losses) from investment transactions (13,587) 2,217 - (11,370)
Net change in unrealized appreciation (depreciation)
from investments 21,151 2,448 - 23,599
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments 7,564 4,665 - 12,229
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 64,336 $ 12,112 $ 63 $ 76,511
============== ============== ============== ==============
<CAPTION>
Pegasus
Intermediate Intermediate
Tax-Free Municipal Proforma Proforma
Bond Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 25,820 $ 20,657 $ - 46,477
Dividend income 85 - - 85
Income from securities lending - - - -
-------------- -------------- -------------- --------------
Total Income 25,905 20,657 - 46,562
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 2,931 1,618 807 5,356
Administration fees 800 607 55 1,462
12b-1 fees (Class A) 38 48 20 106
12b-1 fees (Class B) 46 7 - 53
Custodian and accounting fees 54 46 (42) 58
Legal and audit fees 14 39 (26) 27
Organization costs - 12 (12) -
Transfer agent fees 39 19 (24) 34
Registration, filing fees and other expenses 132 52 (15) 169
-------------- -------------- -------------- --------------
Total expenses before waivers 4,054 2,448 763 7,265
Less waivers (1,041) - (869) (1,910)
-------------- -------------- -------------- --------------
Net Expenses 3,013 2,448 (106) 5,355
-------------- -------------- -------------- --------------
Net Investment Income 22,892 18,209 106 41,207
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments:
Net realized gains (losses) from investment transactions 5,307 1,776 - 7,083
Net change in unrealized appreciation (depreciation)
from investments 7,769 7,223 - 14,992
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments 13,076 8,999 - 22,075
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 35,968 $ 27,208 $ 106 $ 63,282
============== ============== ============== ==============
</TABLE>
<PAGE> 316
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Income Equity Equity Income Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 1,924 $ 2,608 $ - $ 4,532
Dividend income 19,180 9,895 - 29,075
Income from securities lending 119 - - 119
-------------- -------------- -------------- --------------
Total Income 21,223 12,503 - 33,726
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 6,571 1,612 773 8,956
Administration fees 1,454 483 45 1,982
12b-1 fees (Class A) 346 32 13 391
12b-1 fees (Class B) 1,219 31 - 1,250
12b-1 fees (Class C) 4 - - 4
Custodian and accounting fees 62 55 (48) 69
Legal and audit fees 28 36 (24) 40
Organization costs - 15 (15) -
Transfer agent fees 439 31 (73) 397
Registration, filing fees and other expenses 294 24 (6) 312
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 10,417 2,319 665 13,401
Less waivers and reimbursements (99) - (13) (112)
-------------- -------------- -------------- --------------
Net Expenses 10,318 2,319 652 13,289
-------------- -------------- -------------- --------------
Net Investment Income 10,905 10,184 (652) 20,437
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments,
and futures transactions 76,585 47,730 - 124,315
Net change in unrealized appreciation
(depreciation) from investments and futures 98,696 (13,677) - 85,019
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments and futures 175,281 34,053 - 209,334
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 186,186 $ 44,237 $ (652) $ 229,771
============== ============== ============== ==============
<CAPTION>
Pegasus
Equity Index Index Equity Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 1,531 $ 116 $ - $ 1,647
Dividend income 15,277 13,740 - 29,017
Income from securities lending 210 - - 210
-------------- -------------- -------------- --------------
Total Income 17,018 13,856 - 30,874
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 2,978 870 1,738 5,586
Administration fees 1,626 1,305 118 3,049
12b-1 fees (Class A) 544 480 189 1,213
12b-1 fees (Class B) 2,522 16 - 2,538
12b-1 fees (Class C) 6 - - 6
Custodian and accounting fees 170 114 (82) 202
Legal and audit fees 34 49 (29) 54
Organization costs - 2 (2) -
Transfer agent fees 981 664 (152) 1,493
Registration, filing fees and other expenses 306 205 (12) 499
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 9,167 3,705 1,768 14,640
Less waivers and reimbursements (2,774) (60) (2,423) (5,257)
-------------- -------------- -------------- --------------
Net Expenses 6,393 3,645 (655) 9,383
-------------- -------------- -------------- --------------
Net Investment Income 10,625 10,211 655 21,491
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments,
and futures transactions 26,070 31,603 - 57,673
Net change in unrealized appreciation
(depreciation) from investments and future 216,751 182,618 - 399,369
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments and futures 242,821 214,221 - 457,042
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 253,446 $ 224,432 $ 655 $ 478,533
============== ============== ============== ==============
</TABLE>
<PAGE> 317
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Value Growth Growth & Value Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 1,683 $ 1,847 $ - $ 3,530
Dividend income 8,118 15,687 - 23,805
Income from securities lending 131 - - 131
-------------- -------------- -------------- --------------
Total Income 9,932 17,534 - 27,466
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 4,485 6,494 1,510 12,489
Administration fees 993 1,623 148 2,764
12b-1 fees (Class A) 216 463 184 863
12b-1 fees (Class B) 161 53 - 214
12b-1 fees (Class C) 2 - - 2
Custodian and accounting fees 70 114 (105) 79
Legal and audit fees 23 54 (27) 50
Transfer agent fees 168 756 (163) 761
Registration, filing fees and other expense 210 256 (7) 459
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 6,328 9,813 1,540 17,681
Less waivers and reimbursements (62) (86) (99) (247)
-------------- -------------- -------------- --------------
Net Expenses 6,266 9,727 1,441 17,434
-------------- -------------- -------------- --------------
Net Investment Income 3,666 7,807 (1,441) 10,032
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments,
and futures transactions 72,571 102,975 - 175,546
Net change in unrealized appreciation
(depreciation) from investments and futures 92,392 73,582 - 165,974
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments and futures 164,963 176,557 - 341,520
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 168,629 $ 184,364 $ (1,441) $ 351,552
============== ============== ============== ==============
<CAPTION>
Pegasus
Disciplined Intrinsic
Value Value Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 821 $ 4,039 $ - $ 4,860
Dividend income 10,584 13,937 - 24,521
Income from securities lending 251 - - 251
-------------- -------------- -------------- --------------
Total Income 11,656 17,976 - 29,632
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 4,759 3,737 868 9,364
Administration fees 1,053 934 85 2,072
12b-1 fees (Class A) 99 228 90 417
12b-1 fees (Class B) 254 32 - 286
Custodian and accounting fees 69 72 (58) 83
Legal and audit fees 20 40 (29) 31
Transfer agent fees 150 280 (87) 343
Registration, filing fees and other expense 129 63 (10) 182
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 6,533 5,386 859 12,778
Less waivers and reimbursements (28) - (91) (119)
-------------- -------------- -------------- --------------
Net Expenses 6,505 5,386 768 12,659
-------------- -------------- -------------- --------------
Net Investment Income 5,151 12,590 (768) 16,973
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments,
and futures transactions 141,237 37,765 - 179,002
Net change in unrealized appreciation
(depreciation) from investments and futures 9,794 33,471 - 43,265
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments and futures 151,031 71,236 - 222,267
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 156,182 $ 83,826 $ (768) $ 239,240
============== ============== ============== ==============
</TABLE>
<PAGE> 318
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Large Company Pegasus
Growth Growth Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 606 $ 319 $ - $ 925
Dividend income 18,607 4,809 - 23,416
Income from securities lending 252 - - 252
-------------- -------------- -------------- --------------
Total Income 19,465 5,128 - 24,593
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 12,024 4,048 802 16,874
Administration fees 2,661 1,012 92 3,765
12b-1 fees (Class A) 553 180 71 804
12b-1 fees (Class B) 1,953 24 (1) 1,976
12b-1 fees (Class C) 1 - - 1
Custodian and accounting fees 119 62 (68) 113
Legal and audit fees 49 40 (29) 60
Organization costs - 15 (15) -
Transfer agent fees 881 182 (53) 1,010
Registration, filing fees and other expenses 399 51 (10) 440
-------------- -------------- -------------- --------------
Total expenses before waivers 18,640 5,614 789 25,043
Less waivers (158) - (72) (230)
-------------- -------------- -------------- --------------
Net Expenses 18,482 5,614 717 24,813
-------------- -------------- -------------- --------------
Net Investment Income 983 (486) (717) (220)
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments,
and futures transactions 278,531 54,960 - 333,491
Net change in unrealized appreciation
(depreciation) from investments and futures 237,485 131,568 - 369,053
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments and futures 516,016 186,528 - 702,544
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 516,999 $ 186,042 $ (717) $ 702,324
============== ============== ============== ==============
</TABLE>
<PAGE> 319
<TABLE>
<CAPTION>
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited) Pegasus
Investor Managed Assets
Growth Growth Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Distribution Income $ 1,410 $ 389 $ - $ 1,799
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 57 84 (78) 63
Administration fees 114 19 (6) 127
12b-1 fees (Class A) 78 14 5 97
12b-1 fees (Class B) 327 61 - 388
12b-1 fees (Class C) 41 - - 41
Custodian and accounting fees 11 32 (13) 30
Legal and audit fees 6 24 (15) 15
Transfer agent fees 126 14 (3) 137
Registration, filing fees and other expenses 93 23 (1) 115
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 853 271 (111) 1,013
Less waivers and reimbursements (202) (66) 40 (228)
-------------- -------------- -------------- --------------
Net Expenses 651 205 (71) 785
-------------- -------------- -------------- --------------
Net Investment Income 759 184 71 1,014
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments
transactions 7,240 1,205 - 8,445
Net change in unrealized appreciation
(depreciation) from investments 14,046 4 - 14,050
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments 21,286 1,209 - 22,495
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 22,045 $ 1,393 $ 71 $ 25,509
============== ============== ============== ==============
<CAPTION>
Pegasus
Investor Growth Managed Assets
& Income Balanced Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Distribution Income $ 3,175 $ 9,817 $ - $ 12,992
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 67 1,653 (1,526) 194
Administration fees 134 382 (128) 388
12b-1 fees (Class A) 64 339 139 542
12b-1 fees (Class B) 391 102 1 494
12b-1 fees (Class C) 24 - - 24
Custodian and accounting fees 12 75 (33) 54
Legal and audit fees 7 36 (27) 16
Organization costs - 9 (9) -
Transfer agent fees 105 582 (86) 601
Registration, filing fees and other expenses 118 81 (2) 197
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 922 3,259 (1,671) 2,510
Less waivers and reimbursements (193) (273) (195) (661)
-------------- -------------- -------------- --------------
Net Expenses 729 2,986 (1,866) 1,849
-------------- -------------- -------------- --------------
Net Investment Income 2,446 6,831 1,866 11,143
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments
transactions 6,961 34,620 - 41,581
Net change in unrealized appreciation
(depreciation) from investments 14,037 (11,566) - 2,471
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments 20,998 23,054 - 44,052
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 23,444 $ 29,885 $ 1,866 $ 55,195
============== ============== ============== ==============
</TABLE>
<PAGE> 320
The One Group Family of Mutual Funds
Proforma Combined Statements of Operations
For the Twelve Months Ended June 30, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pegasus
Investor Managed Assets
Balanced Conservative Proforma Proforma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Total Income 4,519 5,553 - 10,072
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fees 65 750 (692) 123
Administration fees 129 173 (58) 244
12b-1 fees (Class A) 45 228 92 365
12b-1 fees (Class B) 297 143 - 440
12b-1 fees (Class C) 27 - - 27
Custodian and accounting fees 10 37 (24) 23
Legal and audit fees 6 28 (21) 13
Organization costs - 18 (18) -
Transfer agent fees 80 210 (24) 266
Registration, filing fees and other expenses 119 68 (4) 183
-------------- -------------- -------------- --------------
Total expenses before waivers and reimbursements 778 1,655 (749) 1,684
Less waivers and reimbursements (163) (132) (92) (387)
-------------- -------------- -------------- --------------
Net Expenses 615 1,523 (841) 1,297
-------------- -------------- -------------- --------------
Net Investment Income 3,904 4,030 841 8,775
============== ============== ============== ==============
Realized / Unrealized Gains (Losses) from
Investments and Futures:
Net realized gains (losses) from investments
transactions 5,351 10,299 - 15,650
Net change in unrealized appreciation
(depreciation) from investments 10,033 (2,333) - 7,700
-------------- -------------- -------------- --------------
Net realized/unrealized gains
(losses) from investments 15,384 7,966 - 23,350
-------------- -------------- -------------- --------------
Change in net assets resulting from operations $ 19,288 $ 11,996 $ 841 $ 32,125
============== ============== ============== ==============
</TABLE>
<PAGE> 321
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS,
(Unaudited)
1. Basis Of Combination:
---------------------
The unaudited Pro Forma Combined Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of fifteen investment portfolios offered by The One Group ("The One
Group Funds") and fifteen investment portfolios offered by Pegasus Funds ("the
Pegasus Funds") as if the proposed reorganization occurred as of and for the
fiscal year ended June 30, 1998. These statements have been derived from books
and records utilized in calculating daily net asset value at June 30, 1998.
Below are the fund names for The One Group Funds (O), the Pegasus Funds (P) and
the Surviving Funds.
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
THE ONE GROUP FUNDS PEGASUS FUNDS SURVIVING FUNDS
------------------- ------------- ---------------
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
U.S. Treasury Securities Money Treasury Money Market Fund U.S. Treasury Securities Money Market
Market Fund Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Prime Money Market Fund Money Market Fund Prime Money Market Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Municipal Money Market Fund Municipal Money Market Fund Municipal Money Market Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Limited Volatility Bond Fund Short Bond Fund Short Term Bond Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Intermediate Bond Fund Intermediate Bond Fund Intermediate Bond Fund (P)
- --------------------------------------- -------------------------------------- --------------------------------------
Income Bond Fund Multi Sector Bond Fund Income Bond Fund (P)
- --------------------------------------- -------------------------------------- --------------------------------------
Intermediate Tax-Free Bond Fund Intermediate Municipal Bond Fund Intermediate Tax-Free Bond Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Income Equity Fund Equity Income Fund Equity Income Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Equity Index Fund Equity Index Fund Equity Index Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Value Growth Fund Growth and Value Fund Diversified Equity Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Disciplined Value Fund Intrinsic Value Fund Mid-Cap Value Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Large Company Growth Fund Growth Fund Large-Cap Growth Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Investor Growth Fund Managed Assets Growth Fund Investor Growth Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Investor Growth & Income Fund Managed Assets Balanced Fund Investor Growth & Income Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
Investor Balanced Fund Managed Assets Conservative Fund Investor Balanced Fund (O)
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
The Plan of Reorganization provides that at the time the reorganization
becomes effective (the "Effective Time of the Reorganization"), all of the
assets and liabilities will be transferred such that at and after the Effective
Time of Reorganization, the assets and liabilities of the Pegasus Funds will
become the assets and liabilities of The One Group Funds. In exchange for the
transfer of assets and liabilities, the One Group Funds will issue to the
Pegasus Funds full and fractional shares of
(CONTINUED)
<PAGE> 322
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
the corresponding One Group Funds, and the Pegasus Funds will make a
liquidating distribution of such shares to its shareholders. The number of
shares of The One Group Funds so issued will be equal in value to the full and
fractional shares of the Pegasus Funds that are outstanding immediately prior
to the Effective Time of the Reorganization. At and after the Effective Time of
the Reorganization, all debts, liabilities and obligations of the Pegasus
Funds will attach to The One Group Funds and may thereafter be enforced against
The One Group Funds to the same extent as if they had been incurred by them. The
pro forma statements give effect to the proposed transfer described above.
Under the purchase method of accounting for business combinations under
generally accepted accounting principles, the basis on the part of The One Group
Funds, of the assets of the Pegasus Funds will be the fair market value of such
assets on the closing date of the transaction. The One Group Funds will
recognize no gain or loss for federal tax purposes on its issuance of shares in
the reorganization, and the basis to The One Group Funds of the assets of the
Pegasus Funds received pursuant to the reorganization will equal the fair market
value of the consideration furnished, and costs incurred, by The One Group Funds
in the reorganization -- i.e., the sum of the liabilities assumed, the fair
market value of The One Group Funds shares issued, and such costs. For
accounting purposes, the Surviving Funds are the survivor of this
reorganization. The pro forma statements reflect the combined results of
operations of the Pegasus Funds and The One Group Funds. However, should such
reorganization be effected, the statements of operations of The One Group Funds
will not be restated for precombination period results of the corresponding
Pegasus Funds.
The Pro Forma Combined Statements of Assets and Liabilities, Statements
of Operations, and Schedules of Portfolio Investments should be read in
conjunction with the historical financial statements of The One Group Funds and
The Pegasus Funds incorporated by reference in the Statement of Additional
Information.
The Pegasus Funds and The One Group Funds are each separate portfolios
of the Pegasus Funds and The One Group Funds, which are registered as open-end
management investment companies under the Investment Company Act of 1940 (the
"1940 Act").
Service Providers:
------------------
Banc One Investment Advisors Corporation (the "Advisor"), will serve as
the combined Funds' investment advisor. The One Group Services Company (the
"Administrator"), a wholly owned subsidiary of The BISYS Group, Inc. (BISYS)
will serve as the administrator and distributor
(CONTINUED)
<PAGE> 323
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
to the Funds.
Organizational Expenses:
------------------------
Organizational costs of the funds that are not Surviving Funds cannot
be carried over when being merged with another fund. Therefore, in the
Statements of Assets and Liabilities, the organizational costs were reclassified
against capital for the Non Surviving Funds rather than being carried forward.
Pegasus Funds:
--------------
The Pegasus Funds have several classes of shares which have identical
rights and privileges except with respect to fees paid under shareholder
servicing or distribution plans, expenses allocable exclusively to each class of
shares, voting rights on matters affecting a single class of shares, and the
exchange privilege of each class of shares. Class A shares are subject to an
initial sales charge. Class B shares are subject to a contingent deferred sales
charge (CDSC).
<TABLE>
<CAPTION>
------------------------------------------------ ----------------------------------------
PEGASUS FUNDS CLASSES OF SHARES
------------------------------------------------ ----------------------------------------
<S> <C>
Treasury Money Market Fund Class A & I
------------------------------------------------ ----------------------------------------
Money Market Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Municipal Money Market Fund Class A & I
------------------------------------------------ ----------------------------------------
Short Bond Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Intermediate Bond Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Multi Sector Bond Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Intermediate Municipal Bond Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Equity Income Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Equity Index Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Growth and Value Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Intrinsic Value Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Growth Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Managed Assets Growth Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Managed Assets Balanced Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
Managed Assets Conservative Fund Class A, B, & I
------------------------------------------------ ----------------------------------------
</TABLE>
Under the terms of the investment advisory agreement, the Advisor is
entitled to receive fees computed at an annual rate of the average daily net
assets. Such fees are accrued daily and paid
(CONTINUED)
<PAGE> 324
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
monthly.
<TABLE>
<CAPTION>
---------------------------------------------- -------------------------------------
PEGASUS FUNDS ADVISORY FEES ANNUAL RATE
---------------------------------------------- -------------------------------------
<S> <C>
Treasury Money Market Fund Tiered
---------------------------------------------- -------------------------------------
Money Market Fund Tiered
---------------------------------------------- -------------------------------------
Municipal Money Market Fund Tiered
---------------------------------------------- -------------------------------------
Short Bond Fund 0.35%
---------------------------------------------- -------------------------------------
Intermediate Bond Fund 0.40%
---------------------------------------------- -------------------------------------
Multi Sector Bond Fund 0.40%
---------------------------------------------- -------------------------------------
Intermediate Municipal Bond Fund 0.40%
---------------------------------------------- -------------------------------------
Equity Income Fund 0.50%
---------------------------------------------- -------------------------------------
Equity Index Fund 0.10%
---------------------------------------------- -------------------------------------
Growth and Value Fund 0.60%
---------------------------------------------- -------------------------------------
Intrinsic Value Fund 0.60%
---------------------------------------------- -------------------------------------
Growth Fund 0.60%
---------------------------------------------- -------------------------------------
Managed Assets Growth Fund 0.65%
---------------------------------------------- -------------------------------------
Managed Assets Balanced Fund 0.65%
---------------------------------------------- -------------------------------------
Managed Assets Conservative Fund 0.65%
---------------------------------------------- -------------------------------------
</TABLE>
TIERED:
0.30% First $1 billion
0.275% Next $1 billion
0.25% Over $2 billion
Under the terms of the administration agreement, the Administrator is
entitled to receive fees at an annual rate of the average daily net assets. Such
fees are accrued daily and paid monthly.
<TABLE>
<CAPTION>
---------------------------------------------- ---------------------------------------------
PEGASUS FUNDS ADMINISTRATION FEES ANNUAL RATE
---------------------------------------------- ---------------------------------------------
<S> <C>
Treasury Money Market Fund 0.15%
---------------------------------------------- ---------------------------------------------
Money Market Fund 0.15%
---------------------------------------------- ---------------------------------------------
Municipal Money Market Fund 0.15%
---------------------------------------------- ---------------------------------------------
Short Bond Fund 0.15%
---------------------------------------------- ---------------------------------------------
Intermediate Bond Fund 0.15%
---------------------------------------------- ---------------------------------------------
Multi Sector Bond Fund 0.15%
---------------------------------------------- ---------------------------------------------
Intermediate Municipal Bond Fund 0.15%
---------------------------------------------- ---------------------------------------------
</TABLE>
(CONTINUED)
<PAGE> 325
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
<TABLE>
<CAPTION>
---------------------------------------------- ---------------------------------------------
<S> <C>
Equity Income Fund 0.15%
---------------------------------------------- ---------------------------------------------
Equity Index Fund 0.15%
---------------------------------------------- ---------------------------------------------
Growth and Value Fund 0.15%
---------------------------------------------- ---------------------------------------------
Intrinsic Value Fund 0.15%
---------------------------------------------- ---------------------------------------------
Growth Fund 0.15%
---------------------------------------------- ---------------------------------------------
Managed Assets Growth Fund 0.15%
---------------------------------------------- ---------------------------------------------
Managed Assets Balanced Fund 0.15%
---------------------------------------------- ---------------------------------------------
Managed Assets Conservative Fund 0.15%
---------------------------------------------- ---------------------------------------------
</TABLE>
The One Group Funds:
- --------------------
The One Group Funds have several classes of shares which have
identical rights and privileges except with respect to fees paid under
shareholder servicing or distribution plans, expenses allocable exclusively to
each class of shares, voting rights on matters affecting a single class of
shares, and the exchange privilege of each class of shares. Class A shares are
subject to an initial sales charge upon purchase. Class B shares and Class C
shares are subject to a contingent deferred sales change (CDSC).
<TABLE>
<CAPTION>
----------------------------------------------------------- ------------------------------------
THE ONE GROUP FUNDS CLASSES OF SHARES
----------------------------------------------------------- ------------------------------------
<S> <C>
U.S. Treasury Securities Money Market Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Prime Money Market Fund Fiduciary, Class A, B
----------------------------------------------------------- ------------------------------------
Municipal Money Market Fund Fiduciary, Class A
----------------------------------------------------------- ------------------------------------
Limited Volatility Bond Fund Fiduciary, Class A, B
----------------------------------------------------------- ------------------------------------
Intermediate Bond Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Income Bond Fund Fiduciary, Class A, B
----------------------------------------------------------- ------------------------------------
</TABLE>
(CONTINUED)
<PAGE> 326
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
<TABLE>
<CAPTION>
----------------------------------------------------------- ------------------------------------
<S> <C>
Intermediate Tax-Free Bond Fund Fiduciary, Class A, B
----------------------------------------------------------- ------------------------------------
Income Equity Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Equity Index Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Value Growth Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Disciplined Value Fund Fiduciary, Class A, B
----------------------------------------------------------- ------------------------------------
Large Company Growth Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Investor Growth Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Investor Growth & Income Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
Investor Balanced Fund Fiduciary, Class A, B, C
----------------------------------------------------------- ------------------------------------
</TABLE>
Under the terms of the investment advisory agreement, the Advisor is
entitled to receive fees computed at an annual rate of the average daily net
assets. Such fees are accrued daily and paid monthly.
<TABLE>
<CAPTION>
----------------------------------------------------------- ------------------------------------
THE ONE GROUP FUNDS ADVISORY FEES ANNUAL RATE
----------------------------------------------------------- ------------------------------------
<S> <C>
U.S Treasury Securities Money Market Fund 0.35%
----------------------------------------------------------- ------------------------------------
Prime Money Market Fund 0.35%
----------------------------------------------------------- ------------------------------------
Municipal Money Market Fund 0.35%
----------------------------------------------------------- ------------------------------------
Limited Volatility Bond Fund 0.60%
----------------------------------------------------------- ------------------------------------
Intermediate Bond Fund 0.60%
----------------------------------------------------------- ------------------------------------
Income Bond Fund 0.60%
----------------------------------------------------------- ------------------------------------
Intermediate Tax-Free Bond Fund 0.60%
----------------------------------------------------------- ------------------------------------
Income Equity Fund Tiered
----------------------------------------------------------- ------------------------------------
Equity Index Fund 0.30%
----------------------------------------------------------- ------------------------------------
Value Growth Fund Tiered
----------------------------------------------------------- ------------------------------------
Disciplined Value Fund Tiered
----------------------------------------------------------- ------------------------------------
Large Company Growth Fund Tiered
----------------------------------------------------------- ------------------------------------
Investor Growth Fund 0.05%
----------------------------------------------------------- ------------------------------------
Investor Growth & Income Fund 0.05%
----------------------------------------------------------- ------------------------------------
Investor Balanced Fund 0.05%
----------------------------------------------------------- ------------------------------------
</TABLE>
TIERED:
0.74% First $1.5 billion
0.70% Next $ 500 million
0.65% Over $2 billion
(CONTINUED)
<PAGE> 327
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
Under the terms of the administration agreement, the Administrator is
entitled to receive fees computed at an annual rate (tiered) of the average
daily net assets. Such fees are accrued daily and paid monthly. The Advisor also
serves as Sub-Administrator of each Fund of the One Group, pursuant to an
agreement between the Administrator and the Advisor. Pursuant to this agreement,
the Advisor performs many of the Administrator's duties, for which the Advisor
receives a fee paid by the Administrator.
<TABLE>
<CAPTION>
--------------------------------------------------------- ---------------------------------------------
THE ONE GROUP FUNDS ADMINISTRATION FEES ANNUAL RATE
--------------------------------------------------------- ---------------------------------------------
<S> <C>
U.S Treasury Securities Money Market Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Prime Money Market Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Municipal Money Market Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Limited Volatility Bond Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Intermediate Bond Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Income Bond Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Intermediate Tax-Free Bond Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Income Equity Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Equity Index Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Value Growth Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Disciplined Value Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Large Company Growth Fund Tiered (a)
--------------------------------------------------------- ---------------------------------------------
Investor Growth Fund Tiered (b)
--------------------------------------------------------- ---------------------------------------------
Investor Growth & Income Fund Tiered (b)
--------------------------------------------------------- ---------------------------------------------
Investor Balanced Fund Tiered (b)
--------------------------------------------------------- ---------------------------------------------
</TABLE>
TIERED:
(a) (b)
0.20% First $1.5 billion 0.10% To $500 million
0.18% $1.5 billion to $2 billion 0.075% $500 million to $1 billion
0.16% Over $2 billion 0.05% Over $2 billion
The One Group Funds are tiered based on the total net assets of the
trust excluding Treasury Only Money Market Fund, Government Money Market Fund,
Investor Growth Fund, Investor Growth & Income Fund, Investor Balanced Fund and
Investor Conservative Growth Fund.
Pro Forma Adjustments and Pro Forma Combined Columns:
-----------------------------------------------------
The pro forma adjustments and pro forma combined columns of the
statements of operations
(CONTINUED)
<PAGE> 328
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
reflect the adjustments necessary to show expenses at the rates which would have
been in effect if the Pegasus Funds were included in The One Group Funds for
the fiscal year ended June 30, 1998. Investment Advisory, Administration and
12b-1 fees in the pro forma combined column are calculated at the rates in
effect for The One Group Funds based upon the combined net assets of the
Pegasus Funds and The One Group Funds.
The pro forma Statements of Assets and Liabilities and Schedules of
Portfolio Investments give effect to the proposed transfer of such assets as if
the reorganization had occurred at June 30, 1998.
2. Portfolio Valuation, Securities Transactions and Related Income:
----------------------------------------------------------------
Securities of the Money Market Funds are valued utilizing the amortized
cost method permitted in accordance with Rule 2a-7 under the 1940 Act. Under the
amortized cost method, discount or premium is amortized on a constant basis to
the maturity of the security. In addition, the Money Market Funds may not (a)
purchase any instrument with a remaining maturity greater than thirteen months
unless such instrument is subject to a demand feature, or (b) maintain a
dollar-weighted average maturity which exceeds 90 days.
Securities of the Non-Money Market Funds are valued at market value.
Short-term investments maturing in 60 days or less are valued at amortized cost,
which approximates market value.
Security transactions are accounted for on a trade date basis. Net
realized gains or losses from sales of securities are determined on the specific
identification cost method. Interest income and expenses are recognized on the
accrual basis. Dividends are recorded on the ex-divided date. Interest income,
including any discount or premium, is accrued as earned using the effective
interest method.
3. CAPITAL SHARES:
---------------
The pro forma net asset values per share assume the issuance of shares
of The One Group Funds, after any necessary stock splits, which would have
occurred at June 30, 1998 in connection with the proposed reorganization. The
pro forma number of shares outstanding consists of the following:
(CONTINUED)
<PAGE> 329
THE ONE GROUP FAMILY OF MUTUAL FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS, (Continued)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Shares Additional Proforma
outstanding at Shares Shares at
June 30, 1998 Assumed in the June 30, 1998
(000) Reorganization (000)
(000)
<S> <C> <C> <C>
U.S. Treasury Securities Money Market
Fund (O) 3,886,904 1,062,603 4,949,507
Prime Money Market Fund (O) 3,223,807 2,708,549 5,932,356
Municipal Money Market Fund (O) 603,067 764,720 1,367,787
Short Term Bond Fund (O) 58,348 24,649 82,997
Intermediate Bond Fund (P) 56,516 71,018 127,534
Income Bond Fund (P) 16,221 114,764 130,985
Intermediate Tax-Free Bond Fund (O) 46,101 40,787 86,888
Equity Income Fund (O) 40,556 13,640 54,196
Equity Index Fund (O) 45,845 36,134 81,979
Value Growth Fund (O) 54,604 90,869 145,473
Mid-Cap Value Fund (O) 41,085 40,402 81,487
Large-Cap Growth Fund (O) 87,420 37,200 124,620
Investor Growth Fund (O) 16,476 1,633 18,109
Investor Growth & Income Fund (O) 18,219 21,921 40,140
Investor Balanced Fund (O) 17,208 11,411 28,619
</TABLE>
<PAGE> 330
PART C
<PAGE> 331
FORM N-14
PART C. OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Information required by this item is incorporated by reference
to the Item 27 of Post-Effective Amendment No. 46 (filed October 19, 1998) to
Registrant's Registration Statement on Form N-1A (File No. 2-95973) under the
Securities Act of 1933 and the Investment Company Act of 1940 (File No.
811-4236).
ITEM 16. 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) Not applicable.
(4) Form of Agreement and Plan of Reorganization is filed
herewith.
(5) Instruments defining the Rights of Holders of Securities are
incorporated by reference to Exhibit (4) to Post-Effective
Amendment No. 46 (filed October 19, 1998) to Registrant's
Registration Statement on Form N-1A.
(6) (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 17, 1993) to Registrant's
Registration Statement on Form N-1A.
(b) Revised Schedule A to the Investment Advisory Agreement
between Registrant and Banc One Investment Advisors
Corporation is filed herewith.
(c) Sub-Investment Advisory Agreement dated October 1, 1996
between Banc One Investment Advisors
C-2
<PAGE> 332
Corporation and Independence International Associates, Inc. is
incorporated by reference to Exhibit (5)(c) to Post-Effective
Amendment No. 42 (filed June 16, 1997) to Registrant's
Registration Statement on Form N-1A.
(d) Sub-Investment Advisory Agreement, dated as of August 20, 1998
between Banc One Investment Advisors Corporation and Banc One
High Yield Partners, LLC is incorporated by reference to
Exhibit (5)(d) to Post-Effective Amendment No. 45 (filed
August 26, 1998) to Registrant's Registration Statement on
Form N-1A.
(7) (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).
(b) Revised Schedules A-E to the Distribution Agreement between
Registrant and One Group Services Company is filed herewith.
(c) Dealer's Agreement for The One Group 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).
(d) Form of Shareholder Servicing Agreement between the Registrant
and Participating Service Organizations is incorporated by
reference to Exhibit (7)(f) to Registrant's Registration
Statement on Form N-14 (filed on May 29, 1998).
(e) 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).
(8) (a) Deferred Compensation Plan for Trustees of The One Group is
incorporated by reference to Exhibit (7) to Post-Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration Statement on Form N-1A.
(b) Revised Deferred Compensation Plan for Trustees of The One
Group is filed herewith.
(9) (a) Custodian Contract dated as of July 29, 1988 between
Registrant and State Street Bank and Trust Company is
incorporated by reference to Exhibit (8)(a) to Post-Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration
C-3
<PAGE> 333
Statement on Form N-1A.
(b) Amendment to Custodian Contract dated as of July 29, 1988
between Registrant and State Street Bank and Trust Company is
incorporated by reference to Exhibit (8)(b) to Post Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration Statement on Form N-1A.
(c) Sub-Custodian Agreement between State Street Bank and Trust
Company, Bank One Trust Company, N.A. 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.
(d) First Amendment to the Subcustodian Agreement dated as of
December, 1996 between State Street Bank and Trust Company,
Bank One Trust Company, N.A. and the Registrant is
incorporated by reference to Exhibit (8)(d) to Post Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration Statement on Form N-1A.
(e) 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 incorporated by reference to Exhibit (8)(c) to
Post-Effective Amendment No. 44 (filed June 5, 1998) to the
Registrant's Registration Statement on Form N-1A.
(10) (a) Re-Executed Distribution and Shareholder Services Plan - Class
A and Service Class shares dated November 1, 1995 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.
(b) Revised Schedule A to the Distribution and Shareholder
Services Plan between the Registrant and One Group Services
Company is filed herewith.
(c) 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) Post-Effective
Amendment No. 43 filed August 29, 1997) to Registrant's
Registration Statement on Form N-1A.
(d) Revised Schedules A-B to the Distribution and Shareholder
Services Plan (Class B and Class C Shares) between the
Registrant and One Group Securities Company is filed herewith.
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(e) Multiple Class Plan for The One Group adopted by the Board of
Trustees on May 22, 1997, as amended November 19, 1998 is
filed herewith.
(f) 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.
(g) Form of Agency Services and Delegation Agreement between the
Registrant and Bank One Trust Company, N.A. 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.
(h) Form of Order Processing Agreement between the Registrant and
Bank One Trust Company, N.A. 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.
(i) 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.
(j) Services Agreement dated as of June 6, 1997 between the
Registrant and Charles Schwab & Company, is incorporated by
reference to Exhibit (9)(l) to Post-Effective Amendment No. 44
(filed June 5, 1998) to Registrant's Registration Statement on
Form N-1A.
(k) Operating Agreement dated as of June 6, 1997 between the
Registrant and Charles Schwab & Company, is incorporated by
reference to Exhibit (9)(m) to Post-Effective Amendment No. 44
(filed June 5, 1998) to Registrant's Registration Statement on
Form N-1A.
(l) Retirement Services Order Processing Agreement dated as of
June 6, 1997 between the Registrant and Charles Schwab &
Company, is incorporated by reference to Exhibit (9)(n) to
Post-Effective Amendment No. 44 (filed June 5, 1998) to
Registrant's Registration Statement on Form N-1A.
(11) Form of Opinion and Consent of Ropes & Gray, that shares are
validly issued, fully paid and non-assessable, is filed
herewith.
(12) Form of Opinion of Ropes & Gray, as to Tax Matters
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<PAGE> 335
is filed herewith.
(13) Purchase Agreement dated July 18, 1985, between Registrant and
Physicians Insurance Company of Ohio is incorporated by
reference to Exhibit (13) to Post-Effective Amendment No. 45
(filed August 26, 1998) to Registrant's Registration Statement
on Form N-1A.
(14) (a) Consent of PricewaterhouseCoopers LLP, is filed herewith.
(b) Consent of Ropes & Gray is filed herewith.
(c) Consent of Arthur Andersen LLP is filed herewith.
(15) Not applicable.
(16) Executed Powers of Attorney are filed herewith.
(17) (a) A Prospectus dated November 1, 1998 for The One Group Money
Market Funds, The One Group Investor Funds, The One Group Bond
Funds, The One Group Municipal Bond Funds and The One Group
Equity Funds is filed herewith.
(b) Prospectuses for the Pegasus Money Market Funds, Pegasus Cash
Management Funds, Pegasus Equity and Bond Funds, and Pegasus
Retirement Funds are filed herewith.
(c) Statement of Additional Information for The One Group, dated
November 1, 1998 is filed herewith.
(d) Statements of Additional Information for the Pegasus Funds
dated April 30, 1998.
(e) The One Group Annual Report for the period ended June 30, 1998
is filed herewith.
(f) Pegasus Funds Semi-Annual Reports for the period ended June
30, 1998 is filed herewith.
(g) Pegasus Funds Annual Reports for the period ended December 31,
1997 is filed herewith.
(h) Form of Proxy Ballot is filed herewith.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as amended,
the reoffering prospectus will contain the information
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<PAGE> 336
called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used until
the amendment is effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment shall be deemed to
be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
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<PAGE> 337
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of Washington, District
of Columbia, on the 17th day of December, 1998.
THE ONE GROUP
Registrant
*/s/ Mark S. Redman
------------------
MARK S. REDMAN
President
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
---------- ----- ----
*/s/ Mark S. Redman President December 17, 1998
------------------------
MARK S. REDMAN
*/s/ William Tomko Treasurer December 17, 1998
------------------------
WILLIAM TOMKO
*/s/ Peter C. Marshall Trustee December 17, 1998
------------------------
PETER C. MARSHALL
*/s/ Charles I. Post Trustee December 17, 1998
------------------------
CHARLES I. POST
*/s/ John S. Randall Trustee December 17, 1998
------------------------
JOHN S. RANDALL
*/s/ Frederick W. Ruebeck Trustee December 17, 1998
------------------------
FREDERICK W. RUEBECK
*/s/ Robert A. Oden, Jr. Trustee December 17, 1998
------------------------
ROBERT A. ODEN, JR.
*/s/ John F. Finn Trustee December 17, 1998
------------------------
JOHN F. FINN
*By:/s/ Alan G. Priest December 17, 1998
---------------------
ALAN G. PRIEST
ATTORNEY-IN-FACT
<PAGE> 338
EXHIBIT INDEX
Exhibit No. Page
- ----------- ----
(4) Form of Agreement and Plan of Reorganization
(6) (b) Revised Schedule A to the Investment Advisory Agreement between
Registrant and Banc One Investment Advisors Corporation
(7) (b) Revised Schedules A-E to the Distribution Agreement between
Registrant and One Group Services Company
(8) (b) Revised Deferred Compensation Plan for Trustees of Registrant
(10)(b) Revised Schedule A to the Distribution and Shareholder Services
Plan between the Registrant and One Group Services Company
(10)(d) Revised Schedules A-B to the Distribution and Shareholder
Services Plan (Class B and Class C Shares) between the
Registrant and One Group Services Company
(10)(e) Amended Multiple Class Plan (amended November 19, 1998)
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion of Ropes & Gray, as to Tax Matters
(14)(a) Consent of PricewaterhouseCoopers LLP
(14)(b) Consent of Ropes & Gray
(14)(c) Consent of Arthur Anderson LLP
(16) Executed Powers of Attorney
(17)(a) A Prospectus dated November 1, 1998 for The One Group Money
Market Funds, The One Group Investor Funds, The One Group Bond
Funds, The One Group Municipal Bond Funds, and The One Group
Equity Funds.
(17)(b) Prospectuses dated April 30,1998 for the Pegasus Money Market
Funds, Pegasus Cash Management Funds, Pegasus Equity and Bond
Funds and Pegasus Retirement Funds.
(17)(c) Statements of Additional Information for the Pegasus Funds dated
April 30, 1998.
(17)(d) Statement of Additional Information of The One Group, dated October 1,
1998.
(17)(e) The One Group Annual Report for the period ended June 30, 1998
(17)(f) Pegasus Funds Semi-Annual Reports for the period ended June 30, 1998
(17)(g) Pegasus Funds Annual Reports for the period ended December 31, 1997
(17)(h) Form of Proxy Ballot
<PAGE> 1
Exhibit 4
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This Agreement and Plan of Reorganization (the "Agreement") is made as
of ___________, 199_ by and between The One Group(R), a Massachusetts business
trust, ("One Group") and Pegasus Funds, a Massachusetts business trust
("Pegasus"). The capitalized terms used herein shall have the meaning ascribed
to them in this Agreement.
I. PLAN OF REORGANIZATION
----------------------
(a) Pegasus will sell, assign, convey, transfer and deliver to One Group,
and One Group will acquire, on the Exchange Date all of the properties and
assets existing at the Valuation Time in Pegasus Money Market Fund ("Pegasus
Money Market"), Pegasus Treasury Money Market Fund ("Pegasus Treasury"), Pegasus
Municipal Money Market Fund ("Pegasus Municipal"), Pegasus Michigan Municipal
Money Market Fund ("Pegasus Michigan Money Market"), Pegasus Cash Management
Money Market Fund ("Pegasus Cash Management"), Pegasus Treasury Prime Cash
Management Money Market Fund ("Pegasus Treasury Prime Cash"), Pegasus U.S.
Government Securities Cash Management Money Market Fund ("Pegasus Government
Cash"), Pegasus Municipal Cash Management Money Market Fund ("Pegasus Municipal
Cash"), Pegasus Treasury Cash Management Fund ("Pegasus Treasury Cash"), Pegasus
Short Bond Fund ("Pegasus Short Bond"), Pegasus Intermediate Bond Fund ("Pegasus
Intermediate Bond"), Pegasus Multi Sector Bond Fund ("Pegasus Multi Sector"),
Pegasus Bond Fund ("Pegasus Bond"), Pegasus High Yield Bond Fund ("Pegasus High
Yield"), Pegasus Intermediate Municipal Bond Fund ("Pegasus Intermediate
Municipal"), Pegasus Municipal Bond Fund ("Pegasus Municipal Bond"), Pegasus
Michigan Municipal Bond Fund ("Pegasus Michigan Municipal"), Pegasus Short
Municipal Bond Fund ("Pegasus Short Municipal"), Pegasus Equity Income Fund
("Pegasus Equity Income"), Pegasus Equity Index Fund ("Pegasus
1
<PAGE> 2
Equity Index"), Pegasus Growth and Value Fund ("Pegasus Value"), Pegasus
Intrinsic Value Fund ("Pegasus Intrinsic Value"), Pegasus Growth Fund ("Pegasus
Growth"), Pegasus Mid-Cap Opportunity Fund ("Pegasus Mid-Cap"), Pegasus
Small-Cap Opportunity Fund ("Pegasus Small-Cap"), Pegasus International Equity
Fund ("Pegasus International"), Pegasus Market Expansion Index Fund ("Pegasus
Expansion"), Pegasus Managed Assets Growth Fund ("Pegasus Managed Assets"),
Pegasus Managed Assets Balanced Fund ("Pegasus Managed Balanced"), and Pegasus
Managed Assets Conservative Fund ("Pegasus Managed Conservative") (Pegasus Money
Market, Pegasus Treasury, Pegasus Municipal, Pegasus Michigan Municipal, Pegasus
Cash Management, Pegasus Treasury Prime Cash, Pegasus Government Cash, Pegasus
Municipal Cash, Pegasus Treasury Cash, Pegasus Short Bond, Pegasus Intermediate
Bond, Pegasus Multi Sector, Pegasus Bond, Pegasus High Yield, Pegasus
Intermediate Municipal, Pegasus Municipal Bond, Pegasus Michigan Municipal,
Pegasus Short Municipal, Pegasus Equity Income, Pegasus Equity Index, Pegasus
Value, Pegasus Intrinsic Value, Pegasus Growth, Pegasus Mid-Cap, Pegasus
Small-Cap, Pegasus International, Pegasus Expansion, Pegasus Managed Assets,
Pegasus Managed Balanced, and Pegasus Managed Conservative, each is a "Pegasus
Fund" and are collectively the "Pegasus Funds"), such acquisition to be made by
The One Group Prime Money Market Fund ("One Group Prime"), The One Group U.S.
Treasury Securities Money Market Fund ("One Group Treasury Securities"), The One
Group Municipal Money Market Fund ("One Group Municipal"), The One Group
Michigan Municipal Money Market Fund, ("One Group Michigan Money Market"), The
One Group Cash Management Money Market Fund ("One Group Cash Management"), The
One Group Treasury Prime Cash Management Money Market Fund ("One Group Treasury
Prime Cash"), The One Group U.S. Government Securities Cash Management Money
Market Fund ("One Group Government
2
<PAGE> 3
Cash"), The One Group Municipal Cash Management Money Market ("One Group
Municipal Cash"), The One Group Treasury Cash Management ("One Group Treasury
Cash"), The One Group Limited Volatility Bond Fund ("One Group Limited
Volatility"), The One Group Intermediate Bond Fund ("One Group Intermediate
Bond"), The One Group Income Bond Fund ("One Group Income"), The One Group Bond
Fund ("One Group Bond"), The One Group High Yield Bond Fund ("One Group High
Yield"), The One Group Intermediate Tax-Free Bond Fund ("One Group Intermediate
Tax-Free"), The One Group Municipal Bond Fund ("One Group Municipal Bond"), The
One Group Michigan Municipal Bond Fund ("One Group Michigan Municipal"), The One
Group Short Municipal Bond Fund ("One Group Short Municipal"), The One Group
Equity Income Fund ("One Group Equity Income"), The One Group Equity Index Fund
("One Group Equity Index"), The One Group Value Growth Fund ("One Group Value"),
the One Group Disciplined Value Fund ("One Group Disciplined"), The One Group
Large Company Growth Fund ("One Group Growth"), The One Group Mid-Cap
Opportunities Fund ("One Group Mid-Cap"), The One Group Small Cap Opportunity
Fund ("One Group Small Cap"), The One Group International Equity Fund ("One
Group International"), The One Group Small Cap Index Fund ("One Group Small Cap
Index"), The One Group Investor Growth Fund ("One Group Investor Growth"), The
One Group Investor Growth & Income Fund ("One Group Investor Income") and The
One Group Investor Balanced Fund ("One Group Investor Balanced") (One Group
Prime, One Group Treasury Securities, One Group Municipal, One Group Michigan
Money Market, One Group Cash Management, One Group Treasury Prime Cash, One
Group Government Cash, One Group Municipal Cash, One Group Treasury Cash, One
Group Limited Volatility, One Group Intermediate Bond, One Group Income, One
Group Bond, One Group High Yield, One Group Intermediate Tax-Free, One Group
Municipal Bond,
3
<PAGE> 4
One Group Michigan Municipal, One Group Short Municipal, One Group Income
Equity, One Group Equity Index, One Group Value, One Group Disciplined, One
Group Growth, One Group Mid-Cap, One Group Small Cap, One Group International,
One Group Small Cap Index, One Group Investor Growth, One Group Investor Income
and One Group Investor Balanced, each is a "One Group Fund" and are collectively
the "One Group Funds"), respectively, of One Group. For purposes of this
Agreement the respective Pegasus Funds correspond to the One Group Funds as
follows: Pegasus Money Market corresponds to One Group Prime; Pegasus Treasury
corresponds to One Group Treasury Securities; Pegasus Municipal corresponds to
One Group Municipal; Pegasus Michigan Money Market corresponds to One Group
Michigan Money Market; Pegasus Cash Management corresponds to One Group Cash
Management; Pegasus Treasury Prime Cash corresponds to One Group Treasury Prime
Cash; Pegasus Government Cash corresponds to One Group Government Cash; Pegasus
Municipal Cash corresponds to One Group Municipal Cash; Pegasus Treasury Cash
corresponds to One Group Treasury Cash; Pegasus Short Bond corresponds to One
Group Limited Volatility; Pegasus Intermediate Bond corresponds to One Group
Intermediate Bond; Pegasus Multiple Sector Bond corresponds to One Group Income;
Pegasus Bond corresponds to One Group Bond; Pegasus High Yield corresponds to
One Group High Yield; Pegasus Intermediate Municipal corresponds to One Group
Intermediate Tax-Free; Pegasus Municipal Bond corresponds to One Group Municipal
Bond; Pegasus Michigan Municipal corresponds to One Group Michigan Municipal;
Pegasus Short Municipal corresponds to One Group Short Municipal; Pegasus Equity
Income corresponds to One Group Income Equity; Pegasus Equity Index corresponds
to One Group Equity Index; Pegasus Value corresponds to One Group Value; Pegasus
Intrinsic Value corresponds to One Group Disciplined; Pegasus Growth corresponds
to One Group Growth;
4
<PAGE> 5
Pegasus Mid-Cap corresponds to One Group Mid-Cap; Pegasus Small-Cap corresponds
to One Group Small Cap; Pegasus International corresponds to One Group
International; Pegasus Expansion corresponds to One Group Small Cap Index;
Pegasus Managed Assets corresponds to One Group Investor Growth; Pegasus Managed
Balanced corresponds to One Group Investor Income; and Pegasus Managed
Conservative corresponds to One Group Investor Balanced. In consideration
therefor, each One Group Fund shall, on the Exchange Date, assume all of the
liabilities of the corresponding Pegasus Fund, which liabilities shall include
any obligation of the corresponding Pegasus Fund to indemnify the Trustees and
officers of Pegasus Funds to the fullest extent permitted by applicable law and
by Pegasus's Declaration of Trust, as in affect as of the date of this
Agreement, and issue a number of full and fractional One Group Class A, Class B
or Class I shares of the corresponding One Group Fund (collectively, "Shares")
having an aggregate net asset value equal to the value of all of the assets of
each Pegasus Fund transferred to the corresponding One Group Fund on such date
less the value of all of the liabilities of each Pegasus Fund assumed by the
corresponding One Group Fund on that date. It is intended that each
reorganization described in this Agreement shall be a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transactions described in paragraph (a) of
this Agreement, each Pegasus Fund shall distribute in complete liquidation to
its respective shareholders of record as of the Exchange Date the Shares
received by it, each shareholder being entitled to receive that number of Shares
equal to the proportion which the number of shares of beneficial interest of the
applicable class of the Pegasus Fund held by such shareholder bears to the
number of such shares of such class of the Pegasus Fund outstanding on such
date. Pegasus Class I, Class A and Class B shareholders will receive One Group
Class I, Class A and Class B shares,
5
<PAGE> 6
respectively. Class I and Class S shareholders of Pegasus Cash Management,
Pegasus Treasury Prime Cash, Pegasus Government Cash, Pegasus Municipal Cash,
and Pegasus Treasury Cash, will receive Class I and Class A shares,
respectively, of One Group Cash Management, One Group Treasury Prime Cash, One
Group Government Cash, One Group Municipal Cash, and One Group Treasury Cash,
respectively.
II. AGREEMENT
---------
One Group and Pegasus represent, warrant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF PEGASUS. Pegasus and each Pegasus
Fund jointly and severally represent and warrant to and agree with One Group and
each One Group Fund that:
(a) Pegasus is a business trust duly established and validly existing
under the laws of the Commonwealth of Massachusetts and has power to own all of
its properties and assets and to carry out its obligations under this Agreement.
Pegasus and each Pegasus Fund is not required to qualify as a foreign
association in any jurisdiction. Pegasus and each Pegasus Fund has all necessary
federal, state and local authorizations to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set forth in
Section 1(l).
(b) Pegasus is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company, and such
registration has not been revoked or rescinded and is in full force and effect.
Each Pegasus Fund has elected to qualify and has qualified as a regulated
investment company under Part I of Subchapter M of the Code, as of and since its
first taxable year, and qualifies and intends to continue to qualify as a
regulated investment company for its taxable year ending upon its liquidation.
Each Pegasus
6
<PAGE> 7
Fund has been a regulated investment company under such sections of the Code at
all times since its inception.
(c) The statements of assets and liabilities, statements of operations,
statements of changes in net assets and schedules of portfolio investments
(indicating their market values) for each Pegasus Fund at and for the year ended
December 31, 1997, such statements and schedules having been audited by Arthur
Anderson, LLP, independent accountants to Pegasus, have been furnished to One
Group. Unaudited statements of net assets, statement of operations, statement of
changes in net assets, and schedules of portfolio investments for the period
ended June 30, 1998 also have been provided to One Group.
(d) The prospectuses of each Pegasus Fund dated April 30, 1998
(collectively, the "Pegasus Prospectuses") and the Statement of Additional
Information for the Pegasus Funds dated April 30, 1998 and on file with the
Securities and Exchange Commission (the "Commission"), which have been
previously furnished to One Group, did not as of their dates and do not as of
the date hereof contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Pegasus or any Pegasus Fund, threatened against
Pegasus or any Pegasus Fund which assert liability on the part of Pegasus or any
Pegasus Fund.
(f) There are no material contracts outstanding to which Pegasus or any
Pegasus Fund is a party, other than as disclosed in the Pegasus Prospectuses and
the corresponding Statement of Additional Information, or in the Registration
Statement and the Proxy Statement as defined herein.
7
<PAGE> 8
(g) Neither Pegasus nor any Pegasus Fund has any known liabilities of a
material nature, contingent or otherwise, other than those shown as belonging to
it on its above referenced statement of assets and liabilities as of June 30,
1998, and those incurred in the ordinary course of Pegasus's business as an
investment company since that date. Prior to the Exchange Date, Pegasus will
advise One Group of all known material liabilities, contingent or otherwise,
incurred by it and each Pegasus Fund subsequent to June 30, 1998, whether or not
incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean each
Pegasus Fund's investments shown on the schedule of its portfolio investments as
of June 30, 1998 referred to in Section 1(c) hereof, as supplemented with such
changes as Pegasus or each Pegasus Fund shall make after June 30, 1998, which
changes have been disclosed to One Group, and changes made on and after the date
of this Agreement after advising One Group of such proposed changes, and changes
resulting from stock dividends, stock split-ups, mergers and similar corporate
actions.
(i) Each Pegasus Fund has filed or will file all federal and state tax
returns which, to the knowledge of Pegasus's officers, are required to be filed
by each Pegasus Fund and has paid or will pay all federal and state taxes shown
to be due on said returns or on any assessments received by each Pegasus Fund.
All tax liabilities of each Pegasus Fund have been adequately provided for on
its books, and no tax deficiency or liability of any Pegasus Fund has been
asserted, and no question with respect thereto has been raised, by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval as described in Section 8(a) and otherwise as described in
Section 1(1), Pegasus on behalf of each Pegasus Fund will have full right, power
and authority to sell, assign, transfer and
8
<PAGE> 9
deliver the Investments and any other assets and liabilities of each Pegasus
Fund to be transferred to the corresponding One Group Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the Investments
and any such other assets and liabilities as contemplated by this Agreement, One
Group will, on behalf of each One Group Fund, acquire the Investments and any
such other assets subject to no encumbrances, liens or security interests in
favor of any third party creditor of Pegasus or a Pegasus Fund and, except as
described in Section 1(k), without any restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as amended (the
"1933 Act"), of any of the Investments would be required if they were, as of the
time of such transfer, the subject of a public distribution by either of Pegasus
or One Group, except as previously disclosed to One Group by Pegasus in writing.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Pegasus or any
Pegasus Fund of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, state securities or blue sky laws (which
term as used herein shall include the laws of the District of Columbia and of
Puerto Rico) or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act"), assuming that, for purposes of this representation, the Pegasus
Funds and The One Group may be considered affiliated persons or affiliated
persons of affiliated persons solely by reason of having a common investment
advisor.
(m) The registration statement (the "Registration Statement") filed with
the Commission by One Group on Form N-14 relating to the Shares issuable
hereunder, and the proxy statement of Pegasus included therein (the "Proxy
Statement"), on the effective date of the Registration
9
<PAGE> 10
Statement and insofar as they relate to Pegasus and the Pegasus Funds, (i) will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and (ii) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred to in Section
8(a) below and on the Exchange Date, the prospectus contained in the
Registration Statement of which the Proxy Statement is a part (the
"Prospectus"), as amended or supplemented by any amendments or supplements filed
with the Commission by One Group, insofar as it relates to Pegasus and the
Pegasus Funds, will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the representations
and warranties in this subsection shall apply only to statements of fact
relating to Pegasus and any Pegasus Fund contained in the Registration
Statement, the Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to Pegasus or any Pegasus Fund, as such
Registration Statement, Prospectus and Proxy Statement shall be furnished to
Pegasus in definitive form as soon as practicable following effectiveness of the
Registration Statement and before any public distribution of the Prospectus or
Proxy Statement.
(n) All of the issued and outstanding shares of beneficial interest of
each Pegasus Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws.
(o) Each of the Pegasus Funds is qualified, and will at all times through
the Exchange Date qualify for taxation as a "regulated investment company" under
Sections 851 and 852 of the Code.
10
<PAGE> 11
(p) At the Exchange Date, each of the Pegasus Funds, as One Group may
reasonably direct via written instructions, will have sold such of its assets,
if any, as necessary to assure that, after giving effect to the acquisition of
the assets pursuant to this Agreement, each of the One Group Funds (other than
One Group Michigan Money Market and One Group Michigan Municipal) will remain a
"diversified company" within the meaning of Section 5(b) (l) of the 1940 Act and
in compliance with such other mandatory investment restrictions as are set forth
in the One Group Prospectuses previously furnished to Pegasus.
2. REPRESENTATIONS AND WARRANTIES OF ONE GROUP. One Group and each One
Group Fund jointly and severally represent and warrant to and agree with Pegasus
and each Pegasus Fund that:
(a) One Group is a business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts and has power to carry on
its business as it is now being conducted and to carry out this Agreement. One
Group and each One Group Fund is not required to qualify as a foreign
association in any jurisdiction. One Group and each One Group Fund has all
necessary federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted and to fulfill
the terms of this Agreement, except as set forth in Section 2(i).
(b) One Group is registered under the 1940 Act as an open-end management
investment company, and such registration has not been revoked or rescinded and
is in full force and effect. Each One Group Fund that has had active operations
prior to the Exchange Date, has elected to qualify and has qualified as a
regulated investment company under Part I of Subchapter M of the Code, as of and
since its first taxable year, and qualifies and intends to continue to qualify
as a regulated investment company for its taxable year ending June 30, 1999.
Each One Group Fund
11
<PAGE> 12
that has had active operations prior to the Exchange Date, has been a regulated
investment company under such sections of the Code at all times since its
inception. Each One Group Fund that has not had active operations prior to the
Exchange Date intends to qualify as a regulated investment company under Part I
of Subchapter M under the Code.
(c) The statements of assets and liabilities, statements of operations,
statements of changes in net assets and schedules of portfolio investments
(indicating their market values) for each One Group Fund for the year ended June
30, 1998, such statements and schedules having been audited by
PricewaterhouseCoopers LLP, independent accountants to One Group, have been
furnished to Pegasus. Such statements of assets and liabilities and schedules
fairly present the financial position of the One Group Funds as of their
respective dates, and said statements of operations and changes in net assets
fairly reflect the results of its operations and changes in financial position
for the periods covered thereby in conformity with generally accepted accounting
principles.
(d) The prospectuses of each One Group Fund dated November 1, 1998,
(collectively, the "One Group Prospectuses"), and the Statement of Additional
Information for the One Group Funds, dated November 1, 1998, and on file with
the Commission, which have been previously furnished to Pegasus, did not as of
their dates and do not as of the date hereof contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of One Group or any One Group Fund, threatened
against One Group or any One Group Fund which assert liability on the part of
One Group or any One Group Fund.
12
<PAGE> 13
(f) There are no material contracts outstanding to which One Group or any
One Group Fund is a party, other than as disclosed in the One Group Prospectuses
and the corresponding Statement of Additional Information or in the Registration
Statement and the Proxy Statement.
(g) Neither One Group nor any One Group Fund has any known liabilities of
a material nature, contingent or otherwise, other than those shown as belonging
to it on its above referenced statement of assets and liabilities as of June 30,
1998 referred to above and those incurred in the ordinary course of the business
of One Group as an investment company or any One Group Fund since such date.
Prior to the Exchange Date, One Group will advise Pegasus of all known material
liabilities, contingent or otherwise, incurred by it and each One Group Fund
subsequent to June 30, 1998, whether or not incurred in the ordinary course of
business.
(h) Each One Group Fund has filed or will file all federal and state tax
returns which, to the knowledge of One Group's officers, are required to be
filed by each One Group Fund and has paid or will pay all federal and state
taxes shown to be due on said returns or on any assessments received by each One
Group Fund. All tax liabilities of each One Group Fund have been adequately
provided for on its books, and no tax deficiency or liability of any One Group
Fund has been asserted, and no question with respect thereto has been raised, by
the Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid.
(i) No consent, approval, authorization or order of any governmental
authority is required for the consummation by One Group or any One Group Fund of
the transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, state securities or Blue Sky
laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and otherwise as
described in Section 2 (i), One Group on behalf of each One Group Fund will have
full right, power and
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<PAGE> 14
authority to purchase the Investments and any other assets and assume the
liabilities of each Pegasus Fund to be transferred to the corresponding One
Group Fund pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy Statement,
on the effective date of the Registration Statement and insofar as they relate
to One Group and the One Group Funds: (i) will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules
and regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 8(a) and at the Exchange Date, the
Prospectus, as amended or supplemented by any amendments or supplements filed
with the Commission by One Group or any One Group Fund, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement, the Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by Pegasus or any Pegasus Fund for use in
the Registration Statement, the Prospectus or the Proxy Statement.
(l) Shares to be issued to each Pegasus Fund have been duly authorized
and, when issued and delivered pursuant to this Agreement and the Prospectus,
will be legally and validly issued and will be fully paid and nonassessable by
One Group and no shareholder of One Group will have any preemptive right of
subscription or purchase in respect thereof.
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<PAGE> 15
(m) The issuance of Shares pursuant to this Agreement will be in
compliance with all applicable federal and state securities laws.
(n) Each One Group Fund that has had active operations prior to the
Exchange Date is qualified and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections 851 and
852 of the Code. Each One Group Fund that has not had active operations prior to
the Exchange Date, upon the filing of its first income tax return at the
completion of its first taxable year will elect to be a regulated investment
company and until such time will take all steps necessary to ensure
qualification as a regulated investment company.
3. REORGANIZATION. (a) Subject to the requisite shareholder approval as
described in Section 8(a) and to the other terms and conditions contained herein
(including each Pegasus Fund's obligation to distribute to its respective
shareholders all of its investment company taxable income and net capital gain
as described in Section 9(k) hereof ), Pegasus and each Pegasus Fund agree to
sell, assign, convey, transfer and deliver to the corresponding One Group Fund,
and One Group and each One Group Fund agree to acquire from the corresponding
Pegasus Fund, on the Exchange Date all of the Investments and all of the cash
and other assets of each Pegasus Fund in exchange for that number of Shares of
the corresponding One Group Fund provided for in Section 4 and the assumption by
the corresponding One Group Fund of all the liabilities of the Pegasus Fund.
Pursuant to this Agreement, each Pegasus Fund will, as soon as practicable after
the Exchange Date, distribute in liquidation all of the Shares received by it to
its shareholders in exchange for their shares of beneficial interest of such
Pegasus Fund.
(b) Pegasus, on behalf of each Pegasus Fund, will pay or cause to be paid
to the corresponding One Group Fund any interest and cash dividends received by
it on or after the
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<PAGE> 16
Exchange Date with respect to the Investments transferred to the One Group Funds
hereunder. Pegasus, on behalf of each Pegasus Fund, will transfer to the
corresponding One Group Fund any rights, stock dividends or other securities
received by Pegasus or any Pegasus Fund after the Exchange Date as stock
dividends or other distributions on or with respect to the Investments
transferred, which rights, stock dividends and other securities shall be deemed
included in the assets transferred to each One Group Fund at the Exchange Date
and shall not be separately valued, in which case any such distribution that
remains unpaid as of the Exchange Date shall be included in the determination of
the value of the assets of the Pegasus Fund acquired by the corresponding One
Group Fund.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, One Group will
deliver to Pegasus a number of Shares having an aggregate net asset value equal
to the value of the assets of the corresponding Pegasus Fund acquired by each
One Group Fund, less the value of the liabilities of such Pegasus Fund assumed,
determined as hereafter provided in this Section 4.
(a) Subject to Section 4(d) hereof, the value of each Pegasus Fund's net
assets will be computed as of the Valuation Time using the valuation procedures
for the corresponding One Group Fund as set forth in the One Group Prospectus
for the particular One Group Fund.
(b) Subject to Section 4(d) hereof, the net asset value of a share of
each One Group Fund will be determined to the nearest full cent as of the
Valuation Time, using the valuation procedures set forth in the One Group
Prospectus for the particular One Group Fund.
(c) Subject to Section 4(d), the Valuation Time shall be 4:00 p.m.
Eastern Standard time on FRIDAY, MARCH 19, 1999, for all Pegasus and One Group
Funds other than, Pegasus Cash Management, Pegasus Treasury Prime Cash, Pegasus
Government Cash, Pegasus Municipal Cash, Pegasus Treasury Cash, One Group Cash
Management, One Group Treasury Prime Cash,
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<PAGE> 17
One Group Government Cash, One Group Municipal Cash, One Group Treasury Cash,
and Friday MARCH 26, 1999, for Pegasus Cash Management, Pegasus Treasury Prime
Cash, Pegasus Government Cash, Pegasus Municipal Cash, Pegasus Treasury Cash,
One Group Cash Management, One Group Treasury Prime Cash, One Group Government
Cash, One Group Municipal Cash, and One Group Treasury Cash or such earlier or
later day as may be mutually agreed upon in writing by the parties hereto (the
"Valuation Time").
(d) No formula will be used to adjust the net asset value of any Pegasus
Fund or One Group Fund to take into account differences in realized and
unrealized gains and losses.
(e) Each One Group Fund shall issue its Shares to the corresponding
Pegasus Fund on one share deposit receipt per class registered in the name of
the corresponding Pegasus Fund. Each Pegasus Fund shall distribute in
liquidation the Shares received by it hereunder pro rata to its shareholders of
each class of shares by redelivering such share deposit receipt to One Group's
transfer agent which will as soon as practicable set up open accounts for each
Pegasus Fund shareholder in accordance with written instructions furnished by
Pegasus.
(f) Each One Group Fund shall assume all liabilities of the corresponding
Pegasus Fund, whether accrued or contingent, in connection with the acquisition
of assets and subsequent dissolution of the corresponding Pegasus Fund or
otherwise, except that recourse for assumed liabilities relating to a particular
Pegasus Fund will be limited to the corresponding One Group Fund.
5. EXPENSES, FEES, ETC. (a) Subject to subsections 5(b) through 5 (e),
all fees and expenses, including accounting expenses, portfolio transfer taxes
(if any) or other similar expenses incurred in connection with the consummation
by One Group and Pegasus of the transactions contemplated by this Agreement will
be paid by the party directly incurring such
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<PAGE> 18
fees and expenses, except that the costs of proxy materials and proxy
solicitation will be borne by Banc One Investment Advisors Corporation;
provided, however, that such expenses will in any event be paid by the party
directly incurring such expenses if and to the extent that the payment by the
other party of such expenses would result in the disqualification of any One
Group Fund or any Pegasus Fund, as the case may be, as a "regulated investment
company" within the meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of Pegasus being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Pegasus's obligations referred to in Section 8(a) or Section 10) Pegasus shall
pay directly all reasonable fees and expenses incurred by One Group in
connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of One Group being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any condition
to One Group's obligations referred to in Section 8(a) or Section 9), One Group
shall pay directly all reasonable fees and expenses incurred by Pegasus in
connection with such transactions, including without limitation legal,
accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) One Group or Pegasus being either
unwilling or unable to go forward or (ii) the nonfulfillment or failure of any
condition to Pegasus or One Group's obligations referred to in Section 8(a),
Section 9 or Section 10 of this Agreement, then each of
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<PAGE> 19
Pegasus and One Group shall bear the expenses it has actually incurred in
connection with such transactions as specified in Section 5 of this Agreement.
(e) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated, no
party shall be liable to the other party for any damages resulting therefrom,
including without limitation consequential damages, except as specifically set
forth above.
6. PERMITTED ASSETS. One Group agrees to advise Pegasus promptly if at
any time prior to the Exchange Date the assets of any Pegasus Fund include any
assets that the corresponding One Group Fund is not permitted, or reasonably
believes to be unsuitable for it, to acquire, including without limitation any
security that, prior to its acquisition by any Pegasus Fund, One Group has
informed Pegasus is unsuitable for the corresponding One Group Fund to acquire.
7. EXCHANGE DATE. Delivery of the assets of the Pegasus Funds to be
transferred, assumption of the liabilities of the Pegasus Funds to be assumed,
and the delivery of Shares to be issued shall be made at the offices of Banc One
Investment Advisors Corporation at 9:00 am. on MONDAY, MARCH 22, 1999, for all
Pegasus and One Group Funds other than, Pegasus Cash Management, Pegasus
Treasury Prime Cash, Pegasus Government Cash, Pegasus Municipal Cash, Pegasus
Treasury Cash, One Group Cash Management, One Group Treasury Prime Cash, One
Group Government Cash, One Group Municipal Cash, One Group Treasury Cash, and
Monday, MARCH 29 1999, for Pegasus Cash Management, Pegasus Treasury Prime Cash,
Pegasus Government Cash, Pegasus Municipal Cash, Pegasus Treasury Cash, One
Group Cash Management, One Group Treasury Prime Cash, One Group Government Cash,
One Group Municipal Cash, and One Group Treasury Cash or at such other time and
date agreed to by
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<PAGE> 20
Pegasus and One Group, the date and time upon which such delivery is to take
place being referred to herein as the "Exchange Date."
8. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION. (a) Pegasus agrees to
call a special meeting of the shareholders of each Pegasus Fund as soon as is
practicable after the effective date of the Registration Statement for the
purpose of considering the sale of all of the assets of each Pegasus Fund to and
the assumption of all of the liabilities of each Pegasus Fund by the
corresponding One Group Fund as herein provided, adopting this Agreement, and
authorizing the liquidation and dissolution of any Pegasus Fund, and, except as
set forth in Section 13, it shall be a condition to the obligations of each of
the parties hereto that the holders of the shares of beneficial interest of each
Pegasus Fund, and each class of shares of each Pegasus Fund if such is required
under the 1940 Act, shall have approved this Agreement and the transactions
contemplated herein in the manner required by law and Pegasus's Declaration of
Trust at such a meeting on or before the Valuation Time.
(b) Pegasus and each Pegasus Fund agree that the liquidation and
dissolution of each Pegasus Fund will be effected in the manner provided in
Pegasus's Declaration of Trust in accordance with applicable law, and that it
will not make any distributions of any Shares to the shareholders of a Pegasus
Fund without first paying or adequately providing for the payment of all of such
Pegasus Fund's known debts, obligations and liabilities.
(c) Each of One Group and Pegasus will cooperate with the other, and each
will furnish to the other the information relating to itself required by the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
to be set forth in the Registration Statement, including the Prospectus and the
Proxy Statement.
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9. CONDITIONS TO ONE GROUP'S OBLIGATIONS. The obligations of One Group
and each One Group Fund hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby, including the liquidation and dissolution of the Pegasus
Funds, shall have been approved as set forth in Section 8(a).
(b) Pegasus shall have furnished to One Group a statement of each Pegasus
Fund's assets and liabilities, with values determined as provided in Section 4
of this Agreement, together with a list of Investments with their respective tax
costs, all as of the Valuation Time, certified on Pegasus's behalf by its
President (or any Vice President) and Treasurer, and a certificate of both such
officers, dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change in the
financial position of any Pegasus Fund since June 30, 1998, other than changes
in the Investments since that date or changes in the market value of the
Investments, or changes due to net redemptions of shares of the Pegasus Funds,
dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of Pegasus and each Pegasus Fund made in this
Agreement are true and correct in all material respects as if made at and as of
such dates, Pegasus and each Pegasus Fund has complied with this Agreement and
satisfied all the conditions on its part to be performed or satisfied at or
prior to each of such dates, and Pegasus shall have furnished to One Group a
statement, dated the Exchange Date, signed by Pegasus's President (or any Vice
President) and Treasurer certifying those facts as of such dates.
(d) Pegasus shall have delivered to One Group a letter from Arthur
Andersen, LLP dated the Exchange Date stating that such firm prepared the
federal and state income tax returns of
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each Pegasus Fund for the year ended December 31, 1997, and will prepare the
Federal and state income tax returns of each Pegasus Fund for the year ended
December 31, 1998.
(e) There shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) One Group shall have received an opinion of Drinker Biddle & Reath
LLP, in form reasonably satisfactory to One Group and dated the Exchange Date,
to the effect that (i) Pegasus is a business trust duly established and validly
existing under the laws of the Commonwealth of Massachusetts, and neither
Pegasus nor any Pegasus Fund is, to the knowledge of such counsel, required to
qualify to do business as a foreign association in any jurisdiction, (ii) this
Agreement has been duly authorized, executed, and delivered by Pegasus and,
assuming that the Registration Statement, the Prospectus and the Proxy Statement
comply with the 1933 Act, the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by One Group, is a valid
and binding obligation of Pegasus subject to applicable bankruptcy, insolvency,
fraudulent conveyance and similar laws or court decisions regarding enforcement
of creditors' rights generally, (iii) Pegasus and each Pegasus Fund has power to
sell, assign, convey, transfer and deliver the Investments and other assets
contemplated hereby and, upon consummation of the transactions contemplated
hereby in accordance with the terms of this Agreement, Pegasus and each Pegasus
Fund will have duly sold, assigned, conveyed, transferred and delivered such
Investments and other assets to One Group, (iv) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate Pegasus's Declaration of Trust, or Bylaws, as amended,
the current Pegasus Prospectus and Statement of Additional Information, or any
provision of any agreement known to such counsel to which Pegasus or any Pegasus
Fund is a party or by which it is bound, it being understood that with
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respect to investment restrictions as contained in Pegasus's Declaration of
Trust, or Bylaws, or then-current prospectus or statement of additional
information of each Pegasus Fund, such counsel may rely upon a certificate of an
officer of Pegasus whose responsibility it is to advise Pegasus with respect to
such matters and (v) no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by Pegasus or any
Pegasus Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act, and it being
understood that such opinion shall not be deemed to apply to One Group's
compliance obligations under the 1933 Act, 1934 Act, 1940 Act, state securities
or blue sky laws and H-S-R Act. For purposes of analysis regarding the 1940 Act,
Drinker Biddle & Reath LLP may assume as fact that the Pegasus Funds and the One
Group Funds may be considered affiliated persons or affiliated persons of an
affiliated person solely by reason of having a common investment adviser.
(g) One Group shall have received an opinion of Ropes & Gray, counsel to
One Group addressed to The One Group and each One Group Fund, in form reasonably
satisfactory to One Group and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) no gain or loss will be recognized by any
Pegasus Fund upon the transfer of the assets to the corresponding One Group Fund
in exchange for Shares and the assumption by such One Group Fund of the
liabilities of the Pegasus Fund; (ii) no gain or loss will be recognized by the
shareholders of any Pegasus Fund upon the exchange of their shares for Shares;
(iii) the basis of the Shares a Pegasus shareholder receives in connection with
the transaction will be the same as the basis of his or her Pegasus Fund shares
exchanged therefor; (iv) a Pegasus shareholder's holding period for his or her
Shares will be determined by including the period for which he or
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she held the Pegasus Fund shares exchanged therefor, provided that he or she
held such Pegasus Fund shares as capital assets; (v) no gain or loss will be
recognized by any One Group Fund upon the receipt of the assets of the
corresponding Pegasus Fund in exchange for Shares and the assumption by the One
Group Fund of the liabilities of the corresponding Pegasus Fund; (vi) the basis
in the hands of the One Group Fund of the assets of the corresponding Pegasus
Fund transferred to the One Group Fund in the transaction will be the same as
the basis of the assets in the hands of the corresponding Pegasus Fund
immediately prior to the transfer; and (vii) the holding periods of the assets
of the corresponding Pegasus Fund in the hands of the One Group Fund will
include the periods for which such assets were held by the corresponding Pegasus
Fund provided, that with respect to Pegasus Money Market, Pegasus Treasury,
Pegasus Municipal, Pegasus Michigan Municipal, Pegasus Cash Management, Pegasus
Treasury Prime Cash, Pegasus Government Cash, Pegasus Municipal Cash, Pegasus
Treasury Cash, One Group Prime, One Group Treasury Securities, One Group
Municipal, One Group Michigan Money Market, One Group Cash Management, One Group
Treasury Prime Cash, One Group Government Cash, One Group Municipal Cash, and
One Group Treasury Cash (the "Money Market Funds"), One Group shall seek an
opinion from Ropes & Gray with respect to Federal income tax matters enumerated
in this Section 9(g), but receipt of such opinion with respect to the Money
Market Funds shall not be a condition to the transaction.
(h) The assets of each Pegasus Fund to be acquired by the corresponding
One Group Fund will include no assets which the corresponding One Group Fund, by
reason of limitations contained in its Declaration of Trust or of investment
restrictions disclosed in the One Group Prospectuses in effect on the Exchange
Date, may not properly acquire.
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(i) The Registration Statement shall have become effective under the 1933
Act and applicable blue sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of One Group
contemplated by the Commission and or any state regulatory authority.
(j) All proceedings taken by Pegasus in connection with the transactions
contemplated by this Agreement and all documents incidental thereto reasonably
shall be satisfactory in form and substance to One Group.
(k) Prior to the Exchange Date, each Pegasus Fund shall have declared a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to its shareholders all of its investment
company taxable income for its taxable year ended December 31, 1998 and the
short taxable year beginning on January 1, 1999 and ending on the Exchange Date
(computed without regard to any deduction for dividends paid), and all of its
net capital gain realized in its taxable year ended December 31, 1998 and the
short taxable year beginning on January 1, 1999 and ending on the Exchange Date
(after reduction for any capital loss carryover).
(l) Pegasus shall have furnished to One Group a certificate, signed by
the President (or any Vice President) and the Treasurer of Pegasus, as to the
tax cost to One Group of the securities delivered to One Group pursuant to this
Agreement, together with any such other evidence as to such tax cost as One
Group may reasonably request.
(m) Pegasus's custodian shall have delivered to One Group a certificate
identifying all of the assets of each Pegasus Fund held by such custodian as of
the Valuation Time.
(n) Pegasus's transfer agent shall have provided to One Group (i) the
originals or true copies of all of the records of each Pegasus Fund in the
possession of such transfer agent as of
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the Exchange Date, (ii) a certificate setting forth the number of shares of each
class of Pegasus Fund outstanding as of the Valuation Time and (iii) the name
and address of each holder of record of any such shares of each Pegasus Fund and
the number of shares of each class held of record by each such shareholder.
(o) All of the issued and outstanding shares of beneficial interest of
each Pegasus Fund shall have been offered for sale and sold in conformity with
all applicable federal or state securities or blue sky laws and, to the extent
that any audit of the records of Pegasus or any Pegasus Fund or its transfer
agent by One Group or its agents shall have revealed otherwise, either (i)
Pegasus and each Pegasus Fund shall have taken all actions that in the
reasonable opinion of One Group, are necessary to remedy any prior failure on
the part of Pegasus to have offered for sale and sold such shares in conformity
with such laws or (ii) Pegasus shall have furnished (or caused to be furnished)
surety, or deposited (or caused to be deposited) assets in escrow, for the
benefit of One Group in amounts sufficient and upon terms satisfactory, in the
opinion of One Group, to indemnify One Group against any expense, loss, claim,
damage or liability whatsoever that may be asserted or threatened by reason of
such failure on the part of Pegasus to have offered and sold such shares in
conformity with such laws.
(p) Pegasus shall have duly executed and delivered to One Group bills of
sale, assignments, certificates and other instruments of transfer ("Transfer
Documents") as One Group may deem necessary or desirable to transfer all of
Pegasus's and each Pegasus Fund's entire right, title and interest in and to the
Investments and all other assets of each Pegasus Fund.
10. CONDITIONS TO PEGASUS'S OBLIGATIONS. The obligations of Pegasus and
each Pegasus Fund hereunder shall be subject to the following conditions:
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(a) This Agreement shall have been adopted and the transactions
contemplated hereby, including the liquidation and dissolution of the Pegasus
Funds, shall have been approved as described in Section 8(a).
(b) One Group shall have furnished to Pegasus a Statement of each One
Group Fund's net assets, together with a list of portfolio holdings with values
determined as provided in Section 4, all as of the Valuation Time, certified on
One Group's behalf by its President (or any Vice President) and Treasurer (or
any Assistant Treasurer), and a certificate of both such officers, dated the
Exchange Date, to the effect that as of the Valuation Time and as of the
Exchange Date there has been no material adverse change in the financial
position of any One Group Fund since June 30, 1998, other than changes in its
portfolio securities since that date, changes in the market value of its
portfolio securities, changes due to net redemptions, dividends paid or losses
from operations.
(c) One Group shall have executed and delivered to Pegasus an Assumption
of Liabilities Certificate and other instruments as Pegasus may deem necessary
and desirable dated as of the Exchange Date pursuant to which each One Group
Fund will assume all of the liabilities of the corresponding Pegasus Fund
existing at the Valuation Time in connection with the transactions contemplated
by this Agreement.
(d) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of One Group and each One Group Fund made in this
Agreement are true and correct in all material respects as if made at and as of
such dates, One Group and each One Group Fund has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to each of such dates, and One Group shall have furnished
to
27
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Pegasus a statement, dated the Exchange Date, signed by One Group's President
(or any Vice President) and Treasurer certifying those facts as of such dates.
(e) There shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) Pegasus shall have received an opinion of Ropes & Gray, in form
reasonably satisfactory to Pegasus and dated the Exchange Date, to the effect
that (i) One Group is a business trust and validly existing in conformity with
the laws of the Commonwealth of Massachusetts, and, (to the knowledge of such
counsel), neither One Group nor any One Group Fund is required to qualify to do
business as a foreign association in any jurisdiction, (ii) the Shares to be
delivered to Pegasus as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be fully paid and
nonassessable by One Group and no shareholder of One Group has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement has
been duly authorized, executed and delivered by One Group and, assuming that the
Prospectus, the Registration Statement and the Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by Pegasus, is a valid and binding
obligation of One Group, (iv) One Group and each One Group Fund has the power to
acquire and assume all of the liabilities of Pegasus and the Pegasus Funds and,
upon consummation of the transactions contemplated hereby in accordance with the
terms of this Agreement, One Group and each respective One Group Fund shall have
duly acquired and assumed such liabilities, (v) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate One Group's Declaration of Trust, as amended, or Code
of Regulations, One Group's current Prospectus and Statement of Additional
Information, or any provision of any agreement
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known to such counsel to which One Group or any One Group Fund is a party or by
which it is bound, it being understood that with respect to investment
restrictions as contained in One Group's Declaration of Trust, as amended, Code
of Regulations or then-current prospectus or statement of additional information
of each One Group Fund, such counsel may rely upon a certificate of an officer
of One Group whose responsibility it is to advise One Group with respect to such
matters, (vi) no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by One Group or any One
Group Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act and it being
understood that such opinion shall not be deemed to apply to Pegasus's
compliance obligations under the 1933 Act, 1934 Act, 1940 Act, state securities
or blue sky laws and the H-S-R Act; and (vii) the Registration Statement has
become effective under the 1933 Act, and to the best of the knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 1933 Act.
(g) Pegasus shall have received an opinion of Ropes & Gray addressed to
Pegasus and each Pegasus Fund, and in a form reasonably satisfactory to Pegasus
and dated the Exchange Date, with respect to the matters specified in Section
9(g) of this Agreement, subject to the provision in such Section 9(g).
(h) All proceedings taken by One Group in connection with the
transactions contemplated by this Agreement and all documents incidental thereto
reasonably shall be satisfactory in form and substance to Pegasus.
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(i) The Registration Statement shall have become effective under the 1933
Act and applicable blue sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of Pegasus,
contemplated by the Commission or any state regulatory authority.
11. INDEMNIFICATION. (a) The Pegasus Funds will indemnify and hold
harmless One Group, its trustees and its officers (for purposes of this
subsection, the "Indemnified Parties") against any and all expenses, losses,
claims, damages and liabilities at any time imposed upon or reasonably incurred
by any one or more of the Indemnified Parties in connection with, arising out
of, or resulting from any claim, action, suit or proceeding in which any one or
more of the Indemnified Parties may be involved or with which any one or more of
the Indemnified Parties may be threatened by reason of any untrue statement or
alleged untrue statement of a material fact relating to Pegasus or any Pegasus
Fund contained in the Registration Statement, the Prospectus or the Proxy
Statement or any amendment or supplement to any of the foregoing, or arising out
of or based upon the omission or alleged omission to state in any of the
foregoing a material fact relating to Pegasus or any Pegasus Fund required to be
stated therein or necessary to make the statements relating to Pegasus or any
Pegasus Fund therein not misleading, including, without limitation, any amounts
paid by any one or more of the Indemnified Parties in a reasonable compromise or
settlement of any such claim, action, suit or proceeding or threatened claim,
action, suit or proceeding made with the prior consent of Pegasus. The
Indemnified Parties will notify Pegasus in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against any Indemnified Party
as to any matters covered by this Section 11(a). Pegasus shall be entitled to
participate at its own expense in the defense of any claim, action, suit
30
<PAGE> 31
or proceeding covered by this Section 11(a), or, if it so elects, to assume at
its expense by counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and if Pegasus elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the defense
of any such claim, action, suit or proceeding at their expense. The Pegasus
Funds' obligation under this Section 11(a) to indemnify and hold harmless the
Indemnified Parties shall constitute a guarantee of payment so that the Pegasus
Funds will pay in the first instance any expenses, losses, claims, damages and
liabilities required to be paid by it under this Section 11(a) without the
necessity of the Indemnified Parties first paying the same.
(b) The One Group Funds will indemnify and hold harmless Pegasus, its
trustees and its officers (for purposes of this subsection, the "Indemnified
Parties") against any and all expenses, losses, claims, damages and liabilities
at any time imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or resulting from any
claim, action, suit or proceeding in which any one or more of the Indemnified
Parties may be involved or with which any one or more of the Indemnified Parties
may be threatened by reason of any untrue statement or alleged untrue statement
of a material fact relating to One Group or any One Group Fund contained in the
Registration Statement, the Prospectus or the Proxy Statement, or any amendment
or supplement to any of the foregoing, or arising out of or based upon the
omission or alleged omission to state in any of the foregoing a material fact
relating to One Group or any One Group Fund required to be stated therein or
necessary to make the statements relating to One Group or any One Group Fund
therein not misleading, including, without limitation, any amounts paid by any
one or more of the Indemnified Parties in a reasonable compromise or settlement
of any such claim, action, suit or proceeding, or threatened
31
<PAGE> 32
claim, action, suit or proceeding made with the prior consent of One Group. The
Indemnified Parties will notify One Group in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against any Indemnified Party
as to any matters covered by this Section 11(b). One Group shall be entitled to
participate at its own expense in the defense of any claim, action, suit or
proceeding covered by this Section 11(b), or, if it so elects, to assume at its
expense by counsel satisfactory to the Indemnified Parties the defense of any
such claim, action, suit or proceeding, and, if One Group elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the defense
of any such claim, action, suit or proceeding at their own expense. The One
Group Funds' obligation under this Section 11(b) to indemnify and hold harmless
the Indemnified Parties shall constitute a guarantee of payment so that the One
Group Funds will pay in the first instance any expenses, losses, claims, damages
and liabilities required to be paid by it under this Section 11(b) without the
necessity of the Indemnified Parties first paying the same.
12. NO BROKER, ETC. Each of One Group and Pegasus represents that there
is no person who has dealt with it who by reason of such dealings is entitled to
any broker's or finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
13. TERMINATION. One Group and Pegasus may, by mutual consent of their
respective trustees, terminate this Agreement, and One Group or Pegasus, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees, may waive any condition to their respective
obligations hereunder. If the transactions contemplated by this Agreement have
not been substantially completed by August 30, 1999, this Agreement shall
automatically terminate on that date unless a later date is agreed to by One
Group and Pegasus.
32
<PAGE> 33
Notwithstanding any other provision in this Agreement, in the event
shareholder approval of this Agreement and the transactions contemplated by this
Agreement is obtained with respect to only one or more Pegasus Funds but not all
of the Pegasus Funds, One Group and Pegasus agree to consummate those
transactions with respect to those Pegasus Funds whose shareholders have
approved this Agreement and those transactions.
In the event that shareholder approval of this Agreement and the
transactions contemplated by this Agreement is required, but is obtained with
respect to only one class of shares of a Pegasus Fund, the transaction with
respect to that Pegasus Fund will not be consummated unless and until
shareholder approval is obtained with respect to both classes.
14. RULE 145. Pursuant to Rule 145 under the 1933 Act, One Group will, in
connection with the issuance of any Shares to any person who at the time of the
transaction contemplated hereby is deemed to be an affiliate of a party to the
transaction pursuant to Rule 145 (c), cause to be affixed upon the certificates
issued to such person (if any) a legend as follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO THE ONE
GROUP OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (ii) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ONE GROUP SUCH REGISTRATION IS NOT REQUIRED."
and, further, One Group will issue stop transfer instructions to One Group's
transfer agent with respect to such shares. Pegasus will provide One Group on
the Exchange Date with the name of
33
<PAGE> 34
any shareholder of the Pegasus Funds who is to the knowledge of Pegasus an
affiliate of Pegasus on such date.
15. COVENANTS, ETC. DEEMED MATERIAL. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
16. SOLE AGREEMENT; AMENDMENTS This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
the Commonwealth of Massachusetts provided, however, that no such amendment may
have the effect of changing the provisions for determining the number or value
of shares to be paid to the Pegasus Fund's shareholders under Sections I(b) and
II(4)(b) this Agreement to the material detriment of such shareholder's without
their further approval.
17. AGREEMENT AND DECLARATION OF TRUST The names "Pegasus Funds" and
"Trustees of Pegasus Funds" refer respectively to Pegasus and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust, to which reference is hereby made and a copy of which is
on file at the office of the Secretary of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "Pegasus Funds" entered into in the name or
on behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or
34
<PAGE> 35
shareholders of Pegasus personally, but bind only the assets of Pegasus, and all
persons dealing with any of the series or funds of Pegasus, such as Pegasus
Funds, must look solely to the assets of Pegasus belonging to such series or
funds for the enforcement of any claims against Pegasus.
The names "The One Group" and "Trustees of The One Group" refer
respectively to One Group and the Trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated May 23,
1985 to which reference is hereby made and a copy of which is on file at the
office of the Secretary of The Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The One Group" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders or representatives of One Group personally, but bind only
the assets of One Group, and all persons dealing with any series or fund of One
Group, such as the One Group Funds, must look solely to the assets of One Group
belonging to such series for the enforcement of any claims against One Group.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
PEGASUS FUNDS
By:
-------------------------------
THE ONE GROUP
By:
-------------------------------
35
<PAGE> 1
Exhibit (6)(b)
Amended and Restated
Schedule A
to the
Investment Advisory Agreement between The One Group
and Banc One Investment Advisors Corporation
dated November 19, 1998
<TABLE>
<CAPTION>
Name of Fund Compensation
- ------------ ------------
<S> <C>
The Treasury Money Market Annual rate of eight one-hundredths of one
Fund percent (.08%) of The Treasury Money
Market Fund's average daily net assets.
The Treasury Only Money Annual rate of eight one-hundredths of one
Market Fund percent (.08%) of The Treasury Only
Money Market Fund's average daily net assets.
The Government Money Market Annual rate of eight one-hundredths of one
Fund percent (.08%) of The Government Money
Market Fund's average daily net assets.
The Tax Exempt Money Market Annual rate of eight one-hundredths of one
Fund percent (.08%) of The Tax Exempt Money Market
Fund's average daily net assets.
The Institutional Prime Money Annual rate of ten one-hundredths of one
Market Fund percent (.10%) of The Institutional Prime
Money Market Fund's average daily net
assets.
The U.S. Treasury Securities Annual rate of thirty-five one-hundredths
Money Market Fund of one percent (.35%) of The U.S. Treasury
Securities Money Market Fund's average daily
net assets.
The Prime Money Market Annual rate of thirty-five one-hundredths
Fund of one percent (.35%) of The Prime Money
Market Fund's average daily net assets.
The Municipal Money Market Annual rate of thirty-five one-hundredths
Fund of one percent (.35%) of The Municipal
Money Market Fund's average daily net assets.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
The Ohio Municipal Money Annual rate of thirty one-hundredths of
Market Fund one percent (.30%) of The Ohio Municipal
Money Market Fund's average daily net assets.
The Michigan Municipal Money Annual rate of thirty five one-hundredths of
Market Fund one percent (.35%) of The Michigan Municipal
Money Market Fund's average daily net assets.
The Cash Management Money Annual rate of twenty one-hundredths of
Market Fund one percent (.20%) of The Cash Management
Money Market Fund's average daily net assets.
The Treasury Cash Management Annual rate of twenty one-hundredths of
Money Market Fund one percent (.20%) of The Treasury Cash Management
Money Market Fund's average daily net assets.
The Treasury Prime Cash Annual rate of twenty one-hundredths of
Management Money Market Fund one percent (.20%) of The Treasury Prime Cash
Management Money Market Fund's average daily
net assets.
The U.S. Government Cash Annual rate of twenty one-hundredths of
Management Money Market Fund one percent (.20%) of The U.S. Government Cash
Management Money Market Fund's average daily
net assets.
The Municipal Cash Management Annual rate of twenty one-hundredths of
Money Market Fund one percent (.20%) of The Municipal Cash
Money Market Fund's average daily net assets.
The Balanced Fund Annual rate of sixty-five one-hundredths of one
percent (.65%) of The Asset Allocation Fund's
average daily net assets.
The Income Equity Fund Annual rate of seventy-four one-hundredths
of one percent (.74%) of The Income Equity
Fund's average daily net assets.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
The Mid Cap Value Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Disciplined
Value Fund's average daily net assets.
The Mid Cap Growth Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Growth Opportunities
Fund's average daily net assets.
The International Equity Annual rate of fifty-five one-hundredths
Index Fund of one percent (.55%) of The International
Equity Index Fund's average daily net assets.
The Equity Index Fund Annual rate of thirty one-hundredths of one
percent (.30%) of The Equity Index Fund's average
daily net assets.
The Large Cap Value Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Large Company
Value Fund's average daily net assets.
The Diversified Equity Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Value Growth
Fund's average daily net assets.
The Small Cap Growth Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Small Capitalization
Fund's average daily net assets.
The Large Cap Growth Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Large Company
Growth Fund's average daily net assets.
The Diversified Mid Cap Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Diversified
Mid Cap Fund's average daily net assets.
The Small Cap Value Annual rate of seventy-four one-hundredths
Fund of one percent (.74%) of The Small Cap
Value Fund's average daily net assets.
The Diversified International Annual rate of eighty one-hundredths
Fund of one percent (.80%) of The Diversified
International Fund's average daily net assets.
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
The Market Expansion Index Annual rate of thirty five one-hundredths
Fund of one percent (.35%) of The Market Expansion
Index Fund's average daily net assets.
The Income Bond Fund Annual rate of sixty one-hundredths of one
percent (.60%) of The Income Bond Fund's
average daily net assets.
The Short-Term Bond Annual rate of sixty one-hundredths of one
Fund percent (.60%) of The Limited Volatility
Bond Fund's average daily net assets.
The Government Bond Fund Annual rate of forty-five one-hundredths of
one percent (.45%) of The Government Bond Fund's
average daily net assets.
The Ultra Short-Term Bond Annual rate of fifty-five one-hundredths
Fund of one percent (.55%) of The Ultra Short-Term
Income Fund's average daily net assets.
The Treasury & Agency Annual rate of forty one-hundredths of one
Fund percent (.40%) of the Treasury & Agency
Fund's average daily net assets.
The High Yield Bond Fund Annual rate of seventy-five one-hundredths
of one percent (.75%) of the High Yield Bond
Fund's average daily net assets.
The Intermediate Bond Annual rate of sixty one-hundredths
Fund of one percent (.60%) of The Intermediate
Bond Fund's average daily net assets.
The Bond Fund Annual rate of sixty one-hundredths of one
percent (.60%) of the Bond Fund's average daily
net assets.
The Intermediate Tax-Free Annual rate of sixty one-hundredths of one
Bond Fund percent (.60%) of The Intermediate Tax-
Free Bond Fund's average daily net assets.
The Ohio Municipal Bond Annual rate of sixty one-hundredths of one
Fund percent (.60%) of The Ohio Municipal Bond
Fund's average daily net assets.
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
The Municipal Income Fund Annual rate of forty-five one-hundredths
of one percent (.45%) of The Municipal Income
Bond Fund's average daily net assets.
The Texas Municipal Bond Annual rate of forty-five one-hundredths
Fund of one percent (.45%) of The Texas Tax-
Free Bond Fund's average daily net assets.
The West Virginia Municipal Annual rate of forty-five one-hundredths
Bond Fund of one percent (.45%) of The West Virginia
Tax-Free Bond Fund's average daily net assets.
The Kentucky Municipal Bond Annual rate of forty-five one-hundredths
Fund of one percent (.45%) of The Kentucky Municipal
Bond Fund's average daily net assets.
The Louisiana Municipal Bond Annual rate of sixty one-hundredths
Fund of one percent (.60%) of The Louisiana Municipal
Bond Fund's average daily net assets.
The Arizona Municipal Bond Annual rate of forty-five one-hundredths
Fund of one percent (.45%) of The Arizona Municipal
Bond Fund's average daily net assets.
The Tax Free Bond Annual rate of forty-five one-hundredths
Fund of one percent (.45%) of The Tax-Free
Bond Fund's average daily net assets.
The Michigan Municipal Bond Annual rate of forty-five one-hundredths
Fund of one percent (.45%) of The Michigan
Municipal Bond Fund's average daily net assets.
The Short Term Municipal Bond Annual rate of sixty one-hundredths
Fund of one percent (.60%) of The Short-Term Municipal
Bond Fund's average daily net assets.
Investor Aggressive Growth Annual rate of five one-hundredths of one percent
Fund (.05%) of The Investor Aggressive Growth
Fund's average daily net assets.
Investor Conservative Growth Annual rate of five one-hundredths of one percent
Fund (.05%) of The Investor Conservative Growth Fund's
average daily net assets.
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Investor Growth & Income Annual rate of five one-hundredths of one percent
Fund (.05%) of The Investor Growth & Income Fund's
average daily net assets.
Investor Growth Fund Annual rate of five one-hundredths of one percent
(.05%) of The Investor Growth Fund's average daily
net assets.
Investor Balanced Annual rate of five one-hundredths of one percent
Fund (.05%) of the Investor Balanced Fund's average
daily net assets.
Investor Fixed Income Annual rate of five one-hundredths of one percent
Fund (.05%) of The Investor Fixed Income Fund's average
daily net assets.
</TABLE>
THE ONE GROUP
(formerly The Helmsman Fund)
By: Mark S. Redman
--------------------------------------
Dated: November 23, 1998
----------------------------------
BANC ONE INVESTMENT ADVISORS
CORPORATION
By: Mark Beeson
--------------------------------------
Dated: November 23, 1998
----------------------------------
<PAGE> 1
Exhibit (7)(b)
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE ONE GROUP(R)
AND
THE ONE GROUP SERVICES COMPANY
Name of the Fund
- ----------------
Money Market Funds
- ------------------
U.S. Treasury Securities Money Market Fund
Prime Money Market Fund
Municipal Money Market Fund (formerly Tax-Free Money Market Portfolio)
Ohio Municipal Money Market Fund
Michigan Municipal Money Market Fund Cash Management Money Market Fund
Institutional Prime Money Market Fund
Treasury Money Market Fund
Treasury Only Money Market Fund
Treasury Cash Management Money Market Fund
Treasury Prime Cash Management Money Market Fund
U.S. Government Cash Management Money Market Fund
Municipal Cash Management Money Market Fund
Government Money Market Fund
Tax Exempt Money Market Fund
Equity Funds
- ------------
Equity Income Fund
Mid Cap Value Fund
Mid Cap Growth Fund
International Equity Index Fund
Large Cap Value Fund
Equity Index Fund
Balanced Fund
Large Cap Growth Fund
Diversified Equity Fund
Small Cap Growth Fund
Diversified Mid Cap Fund
Market Expansion Value Fund
Diversified International Fund
Market Expansion Index Fund
Investor Aggressive Growth Fund
Investor Growth Fund
Investor Growth and Income Fund
Investor Balanced Fund
Investor Conservative Growth Fund
Fixed Income Funds
- ------------------
Income Bond Fund (formerly Income Portfolio)
Short-Term Bond Fund
Intermediate Tax-Free Bond Fund
Ohio Municipal Bond Fund
A-1
<PAGE> 2
Government Bond Fund
Ultra Short-Term Bond Fund
Treasury & Agency Fund
High Yield Bond Fund
Bond Fund
Municipal Income Fund (formerly Tax Free Bond Fund)
Texas Municipal Fund
West Virginia Municipal Bond Fund
Kentucky Municipal Bond Fund
Intermediate Bond Fund
Arizona Municipal Bond Fund
Louisiana Municipal Bond Fund
Michigan Municipal Bond Fund
Short-Term Municipal Bond Fund
Tax-Free Bond Fund
Investor Fixed Income Fund
The One Group(R) The One Group Services Company
By: William Tomko By: Mark S. Redman
---------------------- ---------------------------
Date: November 23, 1998 Date: November 23, 1998
-------------------- ---------------------------
A-2
<PAGE> 3
SCHEDULE B
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE ONE GROUP(R)
AND
THE ONE GROUP SERVICES COMPANY
Name of the Fund
- ----------------
Equity Funds
- ------------
Equity Income Fund
Mid Cap Value Fund
Mid Cap Growth Fund
International Equity Index Fund
Equity Index Fund
Large Cap Value Fund
Balanced Fund
Large Cap Growth Fund
Diversified Equity Fund
Small Cap Growth Fund
Diversified Mid Cap Fund
Small Cap Value Fund
Diversified International Fund
Market Expansion Index Fund
Investor Aggressive Growth Fund
Investor Growth Fund
Investor Growth and Income Fund
Investor Balanced Fund
Investor Conservative Growth Fund
Fixed Income Funds
- ------------------
Income Bond Fund (formerly Income Portfolio)
Short-Term Bond Fund
Intermediate Tax-Free Bond Fund
Ohio Municipal Bond Fund
Government Bond Fund
Ultra Short-Term Bond Fund
High Yield Bond Fund
Bond Fund
Investor Fixed Income Fund
Treasury & Agency Fund
Municipal Income Fund (formerly Tax Free Bond Fund)
Texas Municipal Bond Fund
West Virginia Municipal Bond Fund
Kentucky Municipal Bond Fund
Intermediate Bond Fund
B-1
<PAGE> 4
Arizona Municipal Bond Fund
Louisiana Municipal Bond Fund
Michigan Municipal Bond Fund
Short-Term Municipal Bond Fund
Tax-Free Bond Fund
The One Group(R) The One Group Services Company
By: William Tomko By: Mark S. Redman
---------------------- -----------------------------
Date: November 23, 1998 Date: November 23, 1998
--------------------- --------------------------
B-2
<PAGE> 5
SCHEDULE C
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE ONE GROUP(R)
AND
THE ONE GROUP SERVICES COMPANY
Distribution Plan Shares
------------------------
Name of the Fund
Money Market Funds
- ------------------
U.S. Treasury Securities Money Market Fund -- Service Class Shares
U.S. Treasury Securities Money Market Fund -- Class A Shares
Prime Money Market Fund -- Class A Shares
Prime Money Market Fund -- Service Class Shares
Municipal Money Market Fund (formerly Tax-Free Money Market Portfolio) --
Class A Shares
Municipal Money Market Fund (formerly Tax-Free Money Market Portfolio) --
Service Class Shares
Ohio Municipal Money Market Fund -- Class A Shares
Ohio Municipal Money Market Fund -- Service Class Shares
Michigan Municipal Money Market Fund -- Class A Shares
Michigan Municipal Money Market Fund -- Service Class Shares
Cash Management Money Market Fund -- Class A Shares
Treasury Cash Management Money Market Fund -- Class A Shares
Treasury Prime Cash Management Money Market Fund -- Class A Shares
U.S. Government Cash Management Money Market Fund -- Class A Shares
Municipal Cash Management Money Market Fund -- Class A Shares
Equity Funds
- ------------
Equity Income Fund -- Class A Shares
Mid Cap Value Fund -- Class A Shares
Mid Cap Growth Fund -- Class A Shares
International Equity Index Fund -- Class A Shares
Large Cap Value Fund -- Class A Shares
Equity Index Fund -- Class A Shares
Balanced Fund -- Class A Shares
Large Cap Growth Fund -- Class A Shares
Diversified Equity Fund -- Class A Shares
Small Cap Growth Fund -- Class A Shares
Diversified Mid Cap Fund -- Class A Shares
Small Cap Value Fund -- Class A Shares
Diversified International Fund -- Class A Shares
Market Expansion Index Fund -- Class A Shares
Investor Aggressive Growth Fund -- Class A Shares
Investor Growth Fund -- Class A Shares
Investor Growth and Income Fund -- Class A Shares
Investor Balanced Fund -- Class A Shares
Investor Conservative Growth Fund -- Class A Shares
C-1
<PAGE> 6
Fixed Income Funds
- ------------------
Income Bond Fund (formerly Income Portfolio) -- Class A Shares
Short-Term Bond Fund -- Class A Shares
Government Bond Fund -- Class A Shares
Ultra Short-Term Bond Fund -- Class A Shares
Treasury & Agency Fund -- Class A Shares
High Yield Bond Fund -- Class A Shares
Bond Fund -- Class A Shares
Intermediate Tax-Free Bond Fund -- Class A Shares
Ohio Municipal Bond Fund -- Class A Shares
Intermediate Bond Fund -- Class A Shares
Arizona Municipal Bond Fund -- Class A Shares
Louisiana Municipal Bond Fund -- Class A Shares
Michigan Municipal Bond Fund -- Class A Shares
Short-Term Municipal Bond Fund -- Class A Shares
Tax-Free Bond Fund -- Class A Shares
Municipal Income Fund (formerly Tax Free Bond Fund) -- Class A Shares
Texas Municipal Bond Fund -- Class A Shares
West Virginia Municipal Bond Fund -- Class A Shares
Kentucky Municipal Bond Fund
Investor Fixed Income Fund -- Class A Shares
The One Group(R) The One Group Services Company
By: William Tomko By: Mark S. Redman
------------------------- ---------------------------
Date: November 23, 1998 Date: November 23, 1998
------------------------ ---------------------------
C-2
<PAGE> 7
SCHEDULE D
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE ONE GROUP(R)
AND
THE ONE GROUP SERVICES COMPANY
CDSC Classes
------------
Name of the Fund
- ----------------
Money Market Funds
- ------------------
U.S. Treasury Securities Money Market Fund -- Class B Shares
Prime Money Market Fund -- Class B Shares
Equity Funds
- ------------
Equity Income Fund -- Class B Shares
Mid Cap Value Fund -- Class B Shares
Mid Cap Growth Fund -- Class B Shares
International Equity Index Fund -- Class B Shares
Large Cap Value Fund -- Class B Shares
Equity Index Fund -- Class B Shares
Balanced Fund-- Class B Shares
Large Cap Growth Fund -- Class B Shares
Diversified Equity Fund -- Class B Shares
Small Cap Growth Fund -- Class B Shares
Diversified Mid Cap Fund -- Class B Shares
Small Cap Value Fund -- Class B Shares
Diversified International Fund -- Class B Shares
Market Expansion Index Fund -- Class B Shares
Investor Aggressive Growth Fund -- Class B Shares
Investor Growth Fund -- Class B Shares
Investor Growth and Income Fund -- Class B Shares
Investor Balanced Fund -- Class B Shares
Investor Conservative Growth Fund -- Class B Shares
Fixed Income Funds
- ------------------
Income Bond Fund (formerly Income Portfolio) -- Class B Shares
Short-Term Bond Fund -- Class B Shares
Treasury & Agency Fund -- Class B Shares
Government Bond Fund -- Class B Shares
Ultra Short-Term Bond Fund -- Class B Shares
Intermediate Bond Fund -- Class B Shares
High Yield Bond Fund -- Class B Shares
Bond Fund -- Class B Shares
Intermediate Tax-Free Bond Fund -- Class B Shares
Ohio Municipal Bond Fund -- Class B Shares
Michigan Municipal Bond Fund -- Class B Shares
Short-Term Municipal Bond Fund -- Class B Shares
Tax-Free Bond Fund -- Class B Shares
Municipal Income Fund -- Class B Shares
Texas Municipal Bond Fund -- Class B Shares
D-1
<PAGE> 8
West Virginia Municipal Bond Fund -- Class B Shares
Kentucky Municipal Bond Fund -- Class B Shares
Arizona Municipal Bond Fund -- Class B Shares
Louisiana Municipal Bond Fund -- Class B Shares
Investor Fixed Income Fund -- Class B Shares
The One Group(R) The One Group Services Company
By: William Tomko By: Mark S. Redman
------------------------- ---------------------------
Date: November 23, 1998 Date: November 23, 1998
---------------------- --------------------------
D-2
<PAGE> 9
SCHEDULE E
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE ONE GROUP(R)
AND
THE ONE GROUP SERVICES COMPANY
CDSC Classes
------------
Name of the Fund
- ----------------
Equity Funds
- ------------
Income Equity Fund - Class C Shares
Disciplined Value Fund - Class C Shares
Growth Opportunities Fund - Class C Shares
Equity Index Fund - Class C Shares
Large Company Value Fund - Class C Shares
Asset Allocation Fund - Class C Shares
International Equity Index Fund - Class C Shares
Large Company Growth Fund - Class C Shares
Value Growth Fund - Class C Shares
Small Cap Growth Fund - Class C Shares
Diversified Mid Cap Fund -- Class C Shares
Small Cap Value Fund -- Class C Shares
Diversified International Fund -- Class C Shares
Market Expansion Index Fund -- Class C Shares
Investor Aggressive Growth Fund -- Class C Shares
Investor Growth Fund -- Class C Shares
Investor Growth & Income Fund -- Class C Shares
Investor Balanced Fund -- Class C Shares
Investor Conservative Growth Fund -- Class C Shares
Fixed Income Funds
- ------------------
Income Bond Fund (formerly Income Portfolio) -- Class C Shares
Limited Volatility Bond Fund -- Class C Shares
Government Bond Fund -- Class C Shares
Ultra Short-Term Income Fund (formerly Government ARM Fund) -- Class C Shares
Treasury & Agency Fund -- Class C Shares
High Yield Bond Fund -- Class C Shares
Bond Fund -- Class C Shares
Intermediate Tax-Free Bond Fund -- Class C Shares
Ohio Municipal Bond Fund -- Class C Shares
Intermediate Bond Fund -- Class C Shares
Arizona Municipal Bond Fund -- Class C Shares
Louisiana Municipal Bond Fund -- Class C Shares
Michigan Municipal Bond Fund -- Class C Shares
Short-Term Municipal Bond Fund -- Class C Shares
Municipal Bond Fund -- Class C Shares
Municipal Income Fund (formerly Tax Free Bond Fund) -- Class C Shares
Texas Municipal Bond Fund -- Class C Shares
West Virginia Municipal Bond Fund -- Class C Shares
Kentucky Municipal Bond Fund
Investor Fixed Income Fund -- Class C Shares
<PAGE> 10
Money Market Funds
- ------------------
Prime Money Market Fund - Class C Shares
U.S. Treasury Securities Money Market Fund - Class C Shares
Municipal Money Market Fund - Class C Shares
Ohio Municipal Money Market Fund - Class C Shares
Michigan Municipal Money Market Fund - Class C Shares
The One Group(R) The One Group Services Company
By: William Tomko By: Mark S. Redman
---------------------------- -----------------------------
Date: November 23, 1998 Date: November 23, 1998
-------------------------- ---------------------------
E-1
<PAGE> 1
Exhibit (8)(b)
DEFERRED COMPENSATION PLAN FOR
TRUSTEES OF THE ONE GROUP
This Deferred Compensation Plan for Trustees ("Plan") is designed to
permit members of the Board of Trustees of The One Group (the "Trust") to elect
to defer the receipt of all or a portion of the compensation earned by them as
such trustees in lieu of receiving payment of such compensation currently, and
to give the Trustees a pecuniary interest in the investment performance of the
Trust.
1. ELIGIBILITY. Any member of the Board of Trustees (the "Board") of the Trust
(each a "Trustee") shall be Eligible to participate in the Plan, if he or she so
elects.
2. AMOUNT OF DEFERRAL. A Trustee participating in the Plan (a "Participating
Trustee") may defer receipt of all or a specified portion of the compensation
(including fees for attending meetings) earned by such trustee for serving as a
member of the Board, or as a member of any committee of the Board of which such
trustee from time to time may be a member. Reimbursement of expenses associated
with attending meetings of the Board or committees of the Board may not be
deferred.
3. DEFERRED COMPENSATION ACCOUNT. A book entry deferred compensation account
(the "Account") shall be established in the name of each Participating Trustee.
Under the Plan, any compensation earned by a Participating Trustee will be
credited to his or her Account on the first business day after the date such
compensation otherwise would have been payable to such Participating Trustee.
4. DEFERRED COMPENSATION ACCOUNT INVESTMENT.
(a) Participating Trustees may specify Class I shares of one or more of
the funds of The One Group ("Eligible Funds") that will be used to measure the
investment performance of the Participating Trustee's Account. A Participating
Trustee may change his or her Eligible Fund selection, and exchange amounts
credited to the Participating Trustees's Account among Eligible Funds, no more
frequently then quarterly, to be effective on the first day of the following
quarter.
(b) The value of the Account will equal the amount such Account would
have had if the amount credited to it had been invested and reinvested in shares
of the designated Eligible Funds. The initial value of the amount credited to
the Account will be effected at the Eligible Fund's current net asset value as
set forth in The One Group's Declaration of Trust and currently effective
Registration Statement The Account will be credited or charged with book
adjustments representing all interest, dividends and other earnings and all
gains and losses that would have been realized had the amounts credited to the
Account actually been invested in the Eligible Funds.
(i) In the event that an Eligible Fund combines, reclassifies
or substitutes other securities by merger, consolidation or otherwise
for its outstanding shares, the number of shares credited to the
Participating Trustee's Account shall be adjusted to preserve rights
substantially proportionate to the rights held immediately prior to
such event.
(ii) On each payable date of a dividend or capital gains
distribution declared by the Board, the Account will be credited with
amounts representing the number of full and fractional shares of the
Eligible Fund that the shares credited to the Account would have
purchased if reinvested at the net asset value on the record date
established by the Board with respect to such dividend and/or capital
gains distribution.
<PAGE> 2
(c) The Plan does not obligate the Trust to purchase, hold or dispose
of any investments, and if the Trust should choose to purchase investments,
including the shares of Eligible Funds, in order to match its obligations
exactly, all such investments will continue to be part of the general assets and
property of the Trust. If the Trust purchases shares of the Eligible Funds, the
shares will be held solely in the name of the Trust. The Trust will not purchase
shares of Eligible Funds if the purchase of such shares would result in a
violation of Section 12(d)(1) of the Investment Company Act of 1940. If the
Trust purchases shares of Eligible Funds, it will vote such shares in proportion
to the votes of all other shareholders of such Eligible Fund.
5. MANNER OF ELECTING DEFERRAL.
(a) A Participating Trustee shall elect to participate in the Plan and
defer his or her compensation by completing, signing and filing with the Trust a
Notice of Election to Defer Compensation (the "Notice of Election"), a form of
which is attached to this Plan. The Notice of Election shall include:
(i) the amount of compensation to be deferred;
(ii) the name of the Eligible Fund or Funds against which
the performance of the Account is to be measured;
(iii) the manner of payment of such deferred compensation
(i.e., in a lump sum or the number of annual
installments);
(iv) the time or times of payment of such deferred
compensation; and
(v) any beneficiary designated pursuant to Section 8(c)
of the Plan.
(b) The Participating Trustee's deferred fees will be distributed
commencing on a date specified by the Participating Trustee on the Notice of
Election, which shall be no sooner than:
(i) the first business day of January of the year
following the year in which the Participating Trustee
ceases to be a trustee, and
(ii) a date one year after the deferral election.
Notwithstanding the foregoing, deferred compensation under the Plan shall be
distributed:
(i) in the event of the Participating Trustee's death, as
provided in Section 8(c) of this Plan, or
(ii) upon the occurrence of any of the following events:
1. the dissolution, liquidation , or winding up
of the Trust, whether voluntary or
involuntary;
2. the voluntary sale, conveyance or transfer
of all or substantially all of the Trust's
assets (unless the obligations of the Trust
have been assumed by another investment
company);
<PAGE> 3
3. the merger of the Trust into another
investment company or its consolidation with
one or more other investment companies
(unless the obligations of the Trust are
assumed by such surviving entity and the
surviving entity is another investment
company); or
4. the date on which an unforeseeable event
causing material financial hardship occurs
which is not within the Participating
Trustee's control, subject to approval by
the Plan's Administrator.
6. EFFECTIVE DATE OF DEFERRAL ELECTIONS.
(a) Any election by a trustee, or nominee for election as a trustee, to
defer compensation pursuant to the Plan shall be irrevocable from and after the
date on which such trustee's Notice of Election is filed with the Trust (except
as provided in Section 7(b) of the Plan), and shall be effective to defer such
person's compensation as a trustee as follows:
(i) as to any trustee in office on the effective date of
the Plan who files a Notice of Election no later than
60 days after such effective date, the Notice shall
be effective to defer any compensation which is
earned by such trustee after the date of the filing
of the Notice of Election;
(ii) as to any nominee for the office of trustee who has
not previously served as a trustee and who files a
Notice of Election prior to his election as a
trustee, such election to defer shall be effective to
defer any compensation which is earned by such
nominee after his election as a trustee; and
(iii) as to any other trustee, the election to defer shall
be effective to defer any compensation that is earned
from and after January 1 of the calendar year next
succeeding the year in which the Notice of Election
is filed.
(b) Any election to defer compensation made by a trustee shall continue
in effect until the Trust is notified in writing by such trustee prior to the
end of any calendar year that he or she wishes to terminate or modify such
election with respect to (and only with respect to) compensation earned after
the calendar year in which such amended Notice of Election is filed with the
Trust. Upon receipt by the Trust of such an amended Notice of Election, any
compensation earned by such trustee from and after January 1 of the calendar
year succeeding the day on which such notice was received shall be paid
currently and no longer deferred as provided in the Plan. However, any amounts
in such Participating Trustee's Account on such January 1 shall continue to be
payable in accordance with the Notice of Election (or Notices) pursuant to which
it was deferred.
(c) A Participating Trustee who has filed a Notice of Election to
terminate deferment of compensation may thereafter again file a Notice of
Election to participate pursuant to Section 6 hereof effective for the calendar
year subsequent to the calendar year in which he or she files the new Notice.
7. PAYMENT OF DEFERRED COMPENSATION.
(a) No payment may be made from any Account except as provided in this
Section.
(b) The aggregate value of a Participating Trustee's Account will be
paid in a lump sum or
<PAGE> 4
in installments, as specified in his or her Notice (or Notices) of Election and
at the time or times specified in the Notice (or Notices) of Election. If
installments are elected by a Participating Trustee, the amount of the first
payment shall be a fraction of the then value of such Participating Trustee's
Account, the numerator of which is one, and the denominator of which is the
total number of installments. The amount of each subsequent payment shall be a
fraction of the then value of such Participating Trustee's Account remaining
after the prior payment, the numerator of which is one and the denominator of
which is the total number of installments elected minus the number of
installments previously paid. If a lump sum is elected, payment shall be made in
the amount credited to the Participating Trustee's Account.
(c) In the event of a Participating Trustee's death before he or she
has received payment of all amounts in such Participating Trustee's Account, the
value of such Account shall be paid in accordance with the provisions of the
Plan as soon as reasonably possible to the beneficiary designated in such
Participating Trustee's Notice of Election. If such beneficiary does not survive
the Participating Trustee or no beneficiary is designated, payment of all
amounts in the Account shall be made in a lump sum to such Participating
Trustee's estate. Any beneficiary so designated by a Participating Trustee may
be changed at any time by notice in writing from such trustee to the Trust.
Payment under this subsection shall equal the amount credited to the
Participating Trustee's Account at the time of his death.
(d) Upon the occurrence of an unforeseen event causing material
financial hardship, the administrator shall distribute to the Participating
Trustee, in a single lump sum, an amount equal to the lesser of amount requested
by the Participating Trustee and amount remaining in the Account.
8. STATEMENT OF ACCOUNT. the Trust will furnish each Participating Trustee with
a quarterly statement setting forth the value of such Participating Trustee's
Account as of the end of each calendar quarter and all credits to and payments
from such Account during such quarter. Such statements will be furnished no
later than 60 days after the end of each calendar quarter.
9. RIGHTS IN ACCOUNT. Credits to Accounts shall remain part of the general
assets of the Trust, shall at all times be the sole and absolute property of the
Trust and shall in no event be deemed to constitute a fund, trust or collateral
security for the payment of the deferred compensation to which trustees are
entitled from such Accounts. The right of any Participating Trustee or his
designated beneficiary or estate to receive future payment of deferred
compensation under the provisions of the Plan shall be an unsecured claim
against general assets of the Trust, if any, available at the time of payment.
10. NON-ASSIGNABILITY. No Participating Trustee, his or her designated
beneficiary or estate, nor any other person shall have the right to encumber,
pledge, sell, assign or transfer the right to receive payments under this Plan,
except by will or by the laws of descent and distribution. All such payments and
the right thereto are expressly declared to be non-assignable.
11. ADMINISTRATION. The Plan shall be administered by such officers of the Trust
as are appointed by the Chairman of the Board or, if no Chairman of the Board
has been appointed, by the President of the Trust. All Notices shall be filed
with the officers as appointed and such officers shall be responsible for
maintaining records of all Accounts and for furnishing the quarterly statements
of account provided for in Section 8 of the Plan. Such officers shall also have
the general authority to interpret, construe and implement provisions of the
Plan. Any determination by such officers shall be binding on the Participating
Trustee and shall be final and conclusive.
12. AMENDMENT OR TERMINATION. The Plan may at any time be amended, modified or
terminated by the Board. However, no amendment, modification or termination
shall adversely affect any Participating
<PAGE> 5
Trustee's rights in respect of amounts theretofore credited to his or her
Account.
13. EFFECTIVE DATE. This Plan shall be effective as of __________________ and
any amendments hereto shall be effective on the date of adoption thereof by the
Board.
<PAGE> 6
Notice of Election to Defer Compensation
Under the
Deferred Compensation Plan
for the Trustees of
The One Group Investment Trust
----------------------------------------
I hereby elect to defer compensation to which I may hereafter become
entitled, as follows (check one):
1. Effective Date:
---------------
______(a) Compensation earned after the date of this election
______(b) Compensation earned after ______________________.
[future date]
2. Amount Deferred:
----------------
______(a) All Compensation
______(b) $ _______________ per quarter
______(c) Other: ________________________________________
_______________________________________________.
3. Time of Payment:
----------------
______(a) The first business day of January of the year
following the year in which I cease to be a Trustee
______(b) The first business day of _______________________
[specify]
________________________________________________.
[month(s) and year(s)]
4. Manner of Payments:
-------------------
______(a) Entire amount in a lump sum
______(b) In ______________________ equal installments
<PAGE> 7
5. Period of Election:
-------------------
Subject to my further election to change or terminate it, my
election shall continue:
______(a) Until I cease to be a Trustee
______(b) Until ______________________________________.
[specify date or event]
6. Designation of Beneficiary:
---------------------------
I hereby designate ________________________________________ of
____________________________* as my beneficiary to receive
payments in the event of my death before payments in full
hereunder have been made. In the event that the said
beneficiary predeceases me, I hereby designate
_______________________________ of
_______________________________* as beneficiary instead.
7. Eligible Funds
--------------
I hereby elect that my Account under the Plan be considered to
be invested as follows (in multiples of [ %]):
________________________ Fund _______________%
________________________ Fund _______________%
________________________ Fund _______________%
________________________ Fund _______________%
* If more than one beneficiary is to be designated, add a page listing
the beneficiaries and specify the percentage of each payment to be
received by each beneficiary.
<PAGE> 8
8. Amendment or Termination:
-------------------------
I hereby (amend) (terminate) my written directions as
indicated in Notice of Election to Defer Compensation dated
__________________, in accordance with Section 6(b) of the
Deferred Compensation Plan and in the following manner:
-------------------------------------------------------------
-------------------------------------------------------------
-----------------------------------
[Signature of Trustee]
Date:
------------------
- ------------------------
<PAGE> 1
Exhibit (10)(b)
SCHEDULE A TO THE
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
BETWEEN THE ONE GROUP(R) AND
ONE GROUP SERVICES COMPANY
Name of Fund
- ------------
Class A Shares:
Equity Income Fund (formerly Income Equity Fund)
Mid Cap Value Fund (formerly Disciplined Value Fund)
Mid Cap Growth Fund (formerly Growth Opportunities Fund)
International Equity Index Fund
Equity Index Fund
Large Cap Value Fund (formerly Large Company Value Fund)
Large Cap Growth Fund (formerly Large Company Growth Fund)
Balance Fund (formerly Asset Allocation Fund)
Diversified Equity Fund (formerly Value Growth Fund)
Small Cap Growth Fund (formerly Small Capitalization Fund)
Diversified Mid Cap Fund
Small Cap Value Fund
Diversified International Fund
Small Cap Index Fund
High Yield Bond Fund
Bond Fund
Income Bond Fund
Short-Term Bond Fund (formerly Limited Volatility Bond Fund)
Intermediate Bond Fund
Government Bond Fund
Ultra Short-Term Bond Fund (formerly Ultra Short-Term Income Fund)
Treasury & Agency Fund
Municipal Income Fund
Intermediate Tax-Free Bond Fund
Ohio Municipal Bond Fund
West Virginia Municipal Bond Fund
Kentucky Municipal Bond Fund
Arizona Municipal Bond Fund
Louisiana Municipal Bond Fund
Texas Tax-Free Bond Fund
Michigan Municipal Bond Fund
Short-Term Municipal Bond Fund
Tax-Free Bond Fund
Treasury Money Market Fund
Treasury Only Money Market Fund
Government Money Market Fund
Tax Exempt Money Market Fund
Institutional Prime Money Market Fund
<PAGE> 2
Investor Aggressive Growth Fund
Investor Growth Fund
Investor Growth and Income Fund
Investor Balanced Fund
Investor Conservative Growth Fund
Investor Fixed Income Fund
Class A Money Market Shares:
U.S. Treasury Securities Money Market Fund
Prime Money Market Fund
Municipal Money Market Fund
Ohio Municipal Money Market Fund
Michigan Municipal Money Market Fund
Cash Management Money Market Fund
Treasury Cash Management Money Market Fund
Treasury Prime Cash Management Money Market Fund
U.S. Government Cash Management Money Market Fund
Municipal Cash Management Money Market Fund
Service Class Shares:
U.S. Treasury Securities Money Market Fund
Prime Money Market Fund
Municipal Money Market Fund
Ohio Municipal Money Market Fund
Michigan Municipal Money Market Fund
THE ONE GROUP(R) ONE GROUP SERVICES COMPANY
By: By:
------------------------- -------------------------
Title: Title:
---------------------- ----------------------
Date: Date:
----------------------- -----------------------
<PAGE> 1
Exhibit (10)(d)
Schedule A to the
Distribution and Shareholder Services Plan
Class B and Class C Shares
between The One Group(R) and
One Group Services Company
Name of Fund
- ------------
Equity Income Fund (formerly Income Equity Fund)
Mid Cap Value Fund (formerly Disciplined Value Fund)
Mid Cap Growth Fund (formerly Growth Opportunities Fund)
Equity Index Fund
Large Cap Value Fund (formerly Large Company Value Fund)
Balanced Fund (formerly Asset Allocation Fund)
International Equity Index Fund
Large Cap Growth Fund (formerly Large Company Growth Fund)
Diversified Equity Fund (formerly Value Growth Fund)
Small Cap Growth Fund (formerly Small Capitalization Fund)
Diversified Mid Cap Fund
Small Cap Value Fund
Diversified International Fund
Market Expansion Index Fund
High Yield Bond Fund
Bond Fund
Income Bond Fund
Short-Term Bond Fund (formerly Limited Volatility Bond Fund)
Intermediate Bond Fund
Government Bond Fund
Short-Term Bond Fund (formerly Ultra Short-Term Income Fund)
Treasury & Agency Fund
Intermediate Tax-Free Bond Fund
Municipal Income Fund
Ohio Municipal Bond Fund
Texas Tax-Free Bond Fund
West Virginia Municipal Bond Fund
Kentucky Municipal Bond Fund
Arizona Municipal Bond Fund
Louisiana Municipal Bond Fund
Michigan Municipal Bond Fund
Short-Term Municipal Bond Fund
Tax-Free Bond Fund
Prime Money Market Fund
U.S. Treasury Securities Money Market Fund
Investor Conservative Growth Fund
Investor Growth Fund
Investor Balanced Fund
Investor Fixed-Income Fund
Investor Aggressive Growth Fund
Investor Growth and Income Fund
The One Group(R) One Group Services Company
By: William Tomko By: Mark S. Redman
--------------------------- -------------------------------
Title: Treasurer Title: President
-------------------------- -----------------------------
Date: November 23 , 1998 Date: November 23 , 1998
-------------------- ------------------------
<PAGE> 2
Schedule B to the
Distribution and Shareholder Services Plan
Class B and Class C Shares
between The One Group(R) and
One Group Services Company
Name of Fund
- ------------
Equity Income Fund (formerly Income Equity Fund)
Mid Cap Value Fund (formerly Disciplined Value Fund)
Mid Cap Growth Fund (formerly Growth Opportunities Fund)
Equity Index Fund
Large Cap Value Fund (formerly Large Company Value Fund)
Balanced Fund (formerly Asset Allocation Fund)
International Equity Index Fund
Large Cap Growth Fund (formerly Large Company Growth Fund)
Diversified Equity Fund (formerly Value Growth Fund)
Small Cap Growth Fund (formerly Small Capitalization Fund)
Diversified Mid Cap Fund
Small Cap Value Fund
Diversified International Fund
Market Expansion Index Fund
High Yield Bond Fund
Bond Fund
Income Bond Fund
Short-Term Bond Fund (formerly Limited Volatility Bond Fund)
Intermediate Bond Fund
Government Bond Fund
Short-Term Bond Fund (formerly Ultra Short-Term Income Fund)
Treasury & Agency Fund
Intermediate Tax-Free Bond Fund
Municipal Income Fund
Ohio Municipal Bond Fund
Texas Tax-Free Bond Fund
West Virginia Municipal Bond Fund
Kentucky Municipal Bond Fund
Arizona Municipal Bond Fund
Louisiana Municipal Bond Fund
Michigan Municipal Bond Fund
Short-Term Municipal Bond Fund
Tax-Free Bond Fund
Prime Money Market Fund
U.S. Treasury Securities Money Market Fund
Investor Conservative Growth Fund
Investor Growth Fund
Investor Balanced Fund
Investor Fixed-Income Fund
Investor Aggressive Growth Fund
Investor Growth and Income Fund
The One Group(R) One Group Services Company
By: William Tomko By: Mark S. Redman
--------------------------- -------------------------------
Title: Treasurer Title: President
-------------------------- -----------------------------
Date: November 23 , 1998 Date: November 23 , 1998
-------------------- ------------------------
<PAGE> 1
Exhibit (10)(e)
MULTIPLE CLASS PLAN FOR THE ONE GROUP
(AS AMENDED NOVEMBER 19, 1998)
-----------------
The One Group (the "Trust") is an open-end investment company that
offers units of beneficial interest ("shares") in forty separate portfolios
("funds") and five different classes of certain of the funds. The five classes
are Class A, Class B, Class C, Class I, and Service Class. The classes provide
for variations in distribution costs, voting rights, dividends, and per share
net asset value. The differences among the classes are discussed below. Attached
as Exhibit A, which may be amended from time to time, is a list of the funds and
the class of shares available in each fund.
A. Distribution and Shareholder Services
-------------------------------------
Class A, Class B and Class C shares are distributed to the general
public. Investors may purchase Class A, Class B and Class C shares of a fund by
completing and signing an account application form and mailing it, along with a
check (or other negotiable bank instrument or money order) to the Trust's
transfer agent and custodian. Subsequent purchases of shares may be made at any
time by mailing a check to the transfer agent.
Class A, Class B and Class C investors may make automatic monthly
investments in a fund from their bank, savings and loan or other depository
institution accounts. The Trust pays the costs associated with these transfers,
but reserves the right, upon thirty days' written notice, to impose reasonable
charges for this service.
Class I 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 a
fiduciary, advisory, agency, custodial or similar capacity (each an "Authorized
Financial Organization"). Purchases of Class I shares that are offered to
investors in certain retirement plans such as 401(k) and similar plans, other
than Individual Retirement Accounts, are purchased by a Shareholder Servicing
Agent on behalf of an investor.
Service Class shares are available only in the Prime Money Market, the
U.S. Treasury Securities Money Market Funds, the Municipal Money Market Fund,
the Ohio Municipal Money Market Fund and the Michigan Municipal Money Market
Fund. This class of shares is available to broker-dealers, other financial
intermediaries, banks and other depository institutions. Service Class shares
offer administrative and accounting (sweep processing) services.
A purchase order will be effective as of the day received by the
distributor if the distributor receives the order before 4:00 p.m., eastern
time. However, an order may be canceled if the transfer agent does not receive
Federal funds before close of business on the next Business Day for Class I
shares, and before the close of business on the fifth Business Day for Class A,
Class B and Class C shares.
<PAGE> 2
B. Sales Load
----------
Class A Shares
- --------------
Class A shares are subject to a front-end sales charge. The front-end
sales charge is based on a percentage of the offering price and may vary based
on the amount of purchase.
Class A shares also are subject to a distribution and shareholder
services fee assessed pursuant to the distribution and shareholder services plan
(the "Plan"). As provided in the Plan, the Trust will pay the distributor a fee
based on the average daily net assets of Class A shares of the fund. A certain
percentage of the fee payable under the Plan may be used as compensation for
shareholder services by the distributor and/or financial institutions and
intermediaries. All such fees that may be paid under the Plan will be paid
pursuant to Rule 12b-1 of the 1940 Act. The distributor may apply these fees
toward: (i) compensation for its services in connection with distribution
assistance or provision of shareholder services; or (ii) payments to financial
institutions and intermediaries such as banks (including affiliates of the
Adviser), savings and loan associations, insurance companies, investment
counselors, broker-dealers, and the distributor's affiliates and subsidiaries,
as compensation for services or reimbursement of expenses incurred in connection
with distribution assistance or provision of shareholder services.
A shareholder of Class A shares may reduce the sales charge by
completing the Letter of Intent section of the account application form. The
Letter of Intent includes a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period. In addition, pursuant
to a Letter of Intent, the Custodian will hold in escrow the difference between
the sales charge applicable to the amount initially purchased and the sales
charge paid at the time of investment, which is based on the amount covered by
the Letter of Intent.
No sales charge is imposed on Class A shares of the Fund: (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 the
Transfer Agent and Custodian and their subsidiaries and affiliates, of
broker/dealers who have entered into dealer agreements with The One Group and
their subsidiaries and affiliates, or of an investment sub-adviser of a Fund of
the Trust and such sub-adviser's subsidiaries and affiliates; (iv) sold to
affiliates of BANC ONE CORPORATION and certain accounts (other than Individual
Retirement Accounts) for which Authorized Financial Organizations act in
fiduciary, advisory, agency, custodial or similar capacities, or purchased by
investment advisers, 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 advisers,
financial planners or other intermediaries who place trades for their own
accounts if the
- 2 -
<PAGE> 3
accounts are linked to the master account of such investment adviser, financial
planner or other intermediary; (v) purchased with proceeds from the recent
redemption of Class I shares of a Fund of the Trust or acquired in an exchange
of Class I 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)
directly purchased with the proceeds of a distribution on a bond for which a
BANC ONE CORPORATION affiliate bank or trust company is the Trustee or Paying
Agent; (xi) purchased in connection with plans of reorganization of a Fund, such
as mergers, asset acquisitions and exchange offers to which the Fund is a party;
(xii) purchased by retirement and deferred compensation plans and trusts used to
fund these plans including, but not limited to, those defined in Sections
401(a), 403(b) or 457 of The Internal Revenue Code and rabbi trusts; or (xiii)
purchased by accounts participating in certain affinity programs sponsored by
BANK ONE CORPORATION and its affiliates and subsidiaries.
Further, an initial purchase of shares in the amount of $1 million or
more is not subject to a front-end sales charge. However, if such shares are
redeemed prior to the first anniversary of purchase, the shareholder will be
subject to a contingent deferred sales charge ("Class A CDSC") on the initial
purchase in an amount not to exceed any promotional incentives or additional
compensation paid by the Distributor to registered representatives who have sold
or are expected to sell significant amounts of shares of the Funds.
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 or
distribution and if conditions imposed by the Distributor are met. This 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.
Class B Shares
- --------------
Class B shares are subject to a Contingent Deferred Sales Charge and a
distribution and shareholder services fee. If the Shareholder redeems Class B
shares prior to the sixth anniversary of purchase, the Shareholder will pay a
Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gain distributions.
- 3 -
<PAGE> 4
The amount of the Contingent Deferred Sales Charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of shares, all payments during a month are aggregated and deemed to have been
made on the first day of the month.
In determining whether a particular redemption is subject to a
Contingent Deferred Sales Charge, it is assumed that the redemption is first of
any Class A shares in the Shareholder's Fund account (unless the Shareholder
elects to have Class B shares redeemed first) or shares representing capital
appreciation, next of shares acquired pursuant to reinvestment of dividends and
capital gain distributions, and finally of other shares held by the Shareholder
for the longest period of time. This method should result in the lowest possible
sales charge.
Class B shares of the fund also are subject to an ongoing distribution
and shareholder service fee as provided in the Class B and Class C distribution
and shareholder services plan (the "Class B and Class C Plan") at an annual rate
based on a percentage of the fund's average daily net assets. This fee
arrangement will cause Class B shares to have a higher expense ratio and to pay
lower dividends than Class A shares. Class B shares convert automatically to
Class A shares after six years, commencing from the end of the calendar month in
which the purchase order was accepted.
Proceeds from the Contingent Deferred Sales Charge and the distribution
and shareholder service fee under the Class B Plan are payable to the
distributor and financial intermediaries to defray the expenses of advance
brokerage commissions and expenses related to providing distribution-related and
shareholder services to the fund in connection with the sale of the Class B
shares, such as the payment of compensation to dealers and agents for selling
Class B shares. The combination of the Contingent Deferred Sales Charge and the
distribution and shareholder services fees facilitate the ability of the fund to
sell the Class B shares without a front-end sales charge.
The Contingent Deferred Sales Charge is waived on redemption of shares:
(i) for distributions that are limited to no more than 10% of the account value
annually, determined in the first year as of the date the redemption request is
received by the Transfer Agent, and in subsequent years, as of the most recent
anniversary of that date; (ii) following the death or disability of a
shareholder or a participant or beneficiary of certain qualifying retirement
plans if redemption is made within one year of such death or disability; or
(iii) to the extent that the redemption represents a minimum required
distribution from an Individual Retirement Account or other qualifying
retirement plan to a shareholder who has attained the age of 70 1/2; or (iv)
bought in connection with certain retirement plans, such as 401(k) and similar
qualified plan. In addition, the following circumstances are not deemed to
result in a "redemption" of Class B shares for purposes of the assessment of a
Contingent Deferred Sales Charge, which is therefore waived: (i) plans of
reorganization of the fund, such as mergers, asset acquisitions and exchange
offers to which the Fund is a party; or (ii) exchanges for Class B shares of
other funds of the Trust.
- 4 -
<PAGE> 5
Class C Shares
- --------------
Class C shares are subject to a Contingent Deferred Sales Charge and a
distribution and shareholder services fee. If the Shareholder redeems Class C
shares prior to the first anniversary of purchase, the Shareholder will pay a
Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gain distributions.
Solely for purposes of determining the number of years from the time of
any payment for the purchase of shares, all payments during a month are
aggregated and deemed to have been made on the first day of the month.
In determining whether a particular redemption is subject to a
Contingent Deferred Sales Charge, it is assumed that the redemption is first of
any Class A shares in the Shareholder's Fund account (unless the Shareholder
elects to have Class C shares redeemed first) or shares representing capital
appreciation, next of shares acquired pursuant to reinvestment of dividends and
capital gain distributions, and finally of other shares held by the Shareholder
for the longest period of time. This method should result in the lowest possible
sales charge.
Class C shares of the fund also are subject to an ongoing distribution
and shareholder service fee as provided in the Class B and Class C distribution
and shareholder services plan (the "Class B and Class C Plan") at an annual rate
based on a percentage of the fund's average daily net assets. This fee
arrangement will cause Class C shares to have a higher expense ratio and to pay
lower dividends than Class A shares.
Proceeds from the Contingent Deferred Sales Charge and the distribution
and shareholder service fee under the Class C Plan are payable to the
distributor and financial intermediaries to defray the expenses of advance
brokerage commissions and expenses related to providing distribution-related and
shareholder services to the fund in connection with the sale of the Class C
shares, such as the payment of compensation to dealers and agents for selling
Class C shares. The combination of the Contingent Deferred Sales Charge and the
distribution and shareholder services fees facilitate the ability of the fund to
sell the Class C shares without a front-end sales charge.
The Contingent Deferred Sales Charge is waived on redemption of shares:
(i) for distributions that are limited to no more than 10% of the account value
annually, determined in the first year as of the date the redemption request is
received by the Transfer Agent, and in subsequent years, as of the most recent
anniversary of that date; (ii) following the death or disability of a
shareholder or a participant or beneficiary of certain qualifying retirement
plans if redemption is made within one year of such death or disability; (iii)
if the Trust's Distributor receives notice prior to the time of a shareholder's
investment indicating that the Shareholder Servicing Agent, due to the nature of
the shareholder's account, waives the commission it would otherwise be paid; or
(iv) to
- 5 -
<PAGE> 6
the extent that the redemption represents a minimum required distribution from
an Individual Retirement Account or other qualifying retirement plan to a
shareholder who has attained the age of 70 1/2; or (iv) bought in connection
with certain retirement plans, such as 401(k) and similar qualified plan. In
addition, the following circumstances are not deemed to result in a "redemption"
of Class C shares for purposes of the assessment of a Contingent Deferred Sales
Charge, which is therefore waived: (i) plans of reorganization of the fund, such
as mergers, asset acquisitions and exchange offers to which the Fund is a party;
or (ii) exchanges for Class C shares of other funds of the Trust.
Class I Shares
- --------------
Class I shares are not subject to a sales charge at the time of
purchase or redemption, nor are they subject to a distribution or shareholder
services fee.
Service Class Shares
- --------------------
Service class shares are not subject to a sales charge at the time of
purchase or redemption. However, service class shares are subject to a
distribution and shareholder services fee based on a percentage of the fund's
average daily net assets.
C. Exchange Rights
---------------
Class A and Class I Shares
- --------------------------
Class I Shareholders of the Fund may exchange their shares for Class A
shares of the fund or for Class A shares or Class I shares of another fund of
the Trust.
Class A Shareholders may exchange their shares for Class I shares of
the fund or for Class I or Class A shares of another fund of the Trust if the
shareholder is eligible to purchase such shares.
The exchange privilege may be exercised only in those states where the
shares of the fund or such other fund of the Trust 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 that does not impose a sales charge for Class A shares of a
fund 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 charges 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). The exchange of Class I
shares for Class A shares also will require payment of the sales charge unless
the sales charge is waived.
- 6 -
<PAGE> 7
Class B Shares
- --------------
Class B shareholders of the 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 Shares
- --------------
Class C shareholders of the fund may exchange their shares for Class C
shares of any other fund of the Trust on the basis of the net asset value of the
exchanged Class C shares, without the payment of any Contingent Deferred Sales
Charge that might otherwise be due upon redemption of the outstanding Class C
shares. The newly acquired Class C 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 C 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 C shares, the
holding period for outstanding Class C shares of the fund from which the
exchange was made is "tacked" to the holding period of the newly acquired Class
C shares. For purposes of calculating the holding period applicable to the newly
acquired Class C shares, the newly acquired Class C shares shall be deemed to
have been issued on the date of receipt of the shareholder's order to purchase
the outstanding Class C shares of the fund from which the initial exchange was
made.
Service Class Shares
- --------------------
Service Class shareholders may not exchange their Service Class shares
for Class A, Class B, Class C, or Class I shares, nor may Class A, Class B,
Class C, or Class I shares be exchanged for Service Class shares.
- 7 -
<PAGE> 8
Additional Information Regarding Exchanges
- ------------------------------------------
The Trust reserves the right to change the terms or conditions of the
exchange privilege discussed herein upon sixty days' written notice. An exchange
between classes of shares of the same fund is not considered a taxable event;
however, an exchange between funds of the Trust is considered a sale of shares
and usually results in a capital gain or loss for Federal income tax purposes.
D. Conversion Rights
-----------------
Class B shares will automatically convert to Class A shares six or
eight years (depending on the fund) after the end of the month in which the
shares were purchased and will be subject to the lower distribution and fees
charged to Class A shares. Such conversion will be on the basis of the relative
net asset values of the two classes, without the imposition of any sales charge,
fee or other charge. The conversion is not a taxable event to a shareholder.
For purposes of conversion to Class A shares, shares received as
dividends and other distributions paid on Class B shares in a shareholder's fund
account will be considered to be held in a separate sub-account. Each time any
Class B shares in a shareholder's fund account (other than those in the
sub-account) convert to Class A shares, a pro-rata portion of the Class B shares
in the sub-account will also convert to Class A shares.
If a shareholder effects one or more exchanges among Class B shares of
the funds of the Trust during the six-year period, the Trust will aggregate the
holding periods for the shares of each fund of the Trust for purposes of
calculating that six-year period. Because the per share net asset value of the
Class A shares may be higher than that of the Class B shares at the time of
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
Class C shares issued through November 1, 1997 ("Grandfathered Shares")
will automatically convert to Class A shares six years after the end of the
month in which the shares were purchased under the terms above described with
respect to Class B shares (including the treatment of shares received as
dividends or as other distributions. All other Class C shares shall not convert
to Class A shares.
E. Voting Rights
-------------
Each share held entitles the shareholder of record to one vote. Each
fund of the Trust will vote separately on matters relating solely to that fund.
In addition, each class of a fund shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to that class, and shall
have separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class. However,
all fund shareholders will have equal voting rights on matters that affect all
fund shareholders equally.
- 8 -
<PAGE> 9
F. Expense Allocation
------------------
Each class shall pay the expenses associated with its different
distribution and shareholder services arrangement. Each class may, at the
Board's discretion, also pay a different share of other expenses, not including
advisory or custodial fees or other expenses related to the management of the
Trust's assets, if these expenses are actually incurred in a different amount by
that class, or if the class receives services of a different kind or to a
different degree than other classes. All other expenses will be allocated to
each class on the basis of the net asset value of that class in relation to the
net asset value of the Fund. However, money market funds operating in reliance
on Rule 2a-7, and other funds making daily distributions of their net investment
income, may allocate such other expenses to each share regardless of class, or
based on the relative net assets (settled shares).
Expenses may be waived or reimbursed by a fund's advisor, underwriter
or any other service provider to the fund.
G. Redemptions
-----------
Shareholders may redeem their shares without charge (except Class B and
Class C shares, and Class A shares initially purchased in an amount of $1
million or more, as provided above) on any Business Day; shares may ordinarily
be redeemed by mail, by telephone or by wire. All redemption orders are effected
at the net asset value per share next determined for Class A shares, except for
Class A shares initially purchased in an amount of $1 million or more, which
will be reduced by any applicable Class A CDSC, and at net asset value per share
next determined reduced by any applicable Contingent Deferred Sales Charge for
Class B and Class C shares, after receipt of a valid request for redemption.
Pursuant to the Systematic Withdrawal Plan, Class B and Class C
Shareholders may elect to receive, or may designate another person to receive,
distributions provided that the distributions are limited to no more than 10% of
their account value annually, determined in the first year as of the date the
redemption request is received by the Transfer Agent, and in subsequent years,
as of the most recent anniversary of that date. In addition, Shareholders who
have attained the age of 70 1/2 may elect to receive distributions, to the
extent that the redemption represents a minimum required distribution from an
Individual Retirement Account or other qualifying retirement plan.
H. Dividends
---------
Shareholders automatically receive all income dividends and capital
gain distributions in additional Class A, Class B, Class C, Service Class and
Class I shares, as applicable, at the net asset value next determined following
the record date, unless the shareholder has elected to take such payment in
cash. Reinvested dividends and distributions receive the same tax treatment as
dividends and distributions paid in cash.
- 9 -
<PAGE> 10
Class B shares received as dividends and capital gains distributions at
the net asset value next determined following the record date shall be held in a
separate Class B sub-account. Each time any Class B shares (other than those in
the sub-account) convert to Class A shares, a pro-rata portion of the Class B
shares in the sub-account will also convert to Class A shares.
The amount of dividends payable on Class I shares will be more than the
dividends payable on Class A, Class B, Class C, and Service Class shares because
of the distribution expenses charged to Class A, Class B, Class C, and Service
Class shares.
- 10 -
<PAGE> 11
EXHIBIT A
<TABLE>
<CAPTION>
NAME OF FUND CLASS OF SHARES
- ------------ ---------------
<S> <C>
U.S. Treasury Securities Class A, Class B, Class C, Class I,
Money Market Fund Service Class
Prime Money Market Fund Class A, Class B, Class C, Class I,
Service Class
Municipal Money Market Fund Class A, Class C, Class I, Service Class
Ohio Municipal Money Market Fund Class A, Class C, Class I, Service Class
Michigan Municipal Money Market Fund Class A, Class C, Class I, Service Class
Cash Management Money Market Fund Class A, Class I
Treasury Cash Management Money Market Fund Class A, Class I
Treasury Prime Cash Management Money Class A, Class I
Market Fund
U.S. Government Cash Management Class A, Class I
Money Market Fund
Municipal Cash Management Money Class A, Class I
Market Fund
Equity Income Fund Class A, Class B, Class C, Class I
Mid Cap Value Fund Class A, Class B, Class C, Class I
Mid Cap Growth Fund Class A, Class B, Class C, Class I
International Equity Index Fund Class A, Class B, Class C, Class I
Equity Index Fund Class A, Class B, Class C, Class I
Large Cap Value Fund Class A, Class B, Class C, Class I
</TABLE>
- 11 -
<PAGE> 12
<TABLE>
<S> <C>
Large Cap Growth Fund Class A, Class B, Class C, Class I
Balanced Fund Class A, Class B, Class C, Class I
Diversified Equity Fund Class A, Class B, Class C, Class I
Small Cap Growth Fund Class A, Class B, Class C, Class I
Diversified Mid Cap Fund Class A, Class B, Class C, Class I
Small Cap Value Fund Class A, Class B, Class C, Class I
Diversified International Fund Class A, Class B, Class C, Class I
Market Expansion Index Fund Class A, Class B, Class C, Class I
High Yield Bond Fund Class A, Class B, Class C, Class I
Bond Fund Class A, Class B, Class C, Class I
Income Bond Fund Class A, Class B, Class C, Class I
Short-Term Bond Fund Class A, Class B, Class C, Class I
Intermediate Bond Fund Class A, Class B, Class C, Class I
Government Bond Fund Class A, Class B, Class C, Class I
Ultra-Short Term Bond Fund Class A, Class B, Class C, Class I
Louisiana Municipal Bond Fund Class A, Class B, Class C, Class I
High Yield Bond Fund Class A, Class B, Class C, Class I
Municipal Income Fund Class A, Class B, Class C, Class I
Intermediate Tax-Free Bond Fund Class A, Class B, Class C, Class I
Ohio Municipal Bond Fund Class A, Class B, Class C, Class I
Texas Tax-Free Bond Fund Class A, Class B, Class C, Class I
West Virginia Municipal Bond Fund Class A, Class B, Class C, Class I
Kentucky Municipal Bond Fund Class A, Class B, Class C, Class I
Arizona Municipal Bond Fund Class A, Class B, Class C, Class I
Michigan Municipal Bond Fund Class A, Class B, Class C, Class I
Tax-Free Bond Fund Class A, Class B, Class C, Class I
Short-Term Municipal Bond Fund Class A, Class B, Class C, Class I
Treasury Money Market Fund Class I
</TABLE>
- 12 -
<PAGE> 13
<TABLE>
<S> <C>
Treasury Only Money Market Fund Class I
Government Money Market Fund Class I
Tax Exempt Money Market Fund Class I
Institutional Prime Money Market Fund Class I
Investor Aggressive Growth Fund Class A, Class B, Class C, Class I
Investor Growth Fund Class A, Class B, Class C, Class I
Investor Growth and Income Fund Class A, Class B, Class C, Class I
Investor Conservative Growth Fund Class A, Class B, Class C, Class I
Investor Balanced Fund Class A, Class B, Class C, Class I
Investor Fixed Income Fund Class A, Class B, Class C, Class I
Treasury & Agency Fund Class A, Class B, Class C, Class I
</TABLE>
- 13 -
<PAGE> 1
Exhibit 11
Opinion and Consent of Counsel
<PAGE> 2
[ROPES & GRAY ADDRESS]
December 17, 1998
The One Group(R)
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
You have informed us that you intend to file a Registration Statement
on Form N-14 under the Investment Company Act of 1940, as amended, with the
Securities and Exchange Commission (the "Commission") for the purpose of
providing disclosure with respect to the proposed consolidation of Pegasus Funds
into The One Group(R).
We have examined your Amended and Restated Agreement and Declaration of
Trust, as further amended, as on file at the office of the Secretary of The
Commonwealth of Massachusetts. We are familiar with the actions taken by your
Trustees to authorize the issuance of Shares of beneficial interest to Pegasus
Funds under the proposed transaction at net asset value and have assumed that
the Shares will be issued in accordance with that authorization. We have also
examined a copy of your Code of Regulations and such other documents as we have
deemed necessary for the purposes of this opinion.
Based on the foregoing, we are of the opinion that the Shares being
registered have been duly authorized and when issued to Pegasus Funds will be
legally 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 Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or its Trustees. The Declaration of Trust provides for indemnification out of
the property of the Trust for all loss and expense of any shareholder of the
Trust held personally liable solely by reason of his being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on account
of being a shareholder is limited to circumstances in which the Trust itself
would be unable to meet its obligations.
<PAGE> 3
The One Group(R)
December 17, 1998
Page 2
We consent to this opinion accompanying the N-14 when filed with the
Commission.
Very truly yours,
Ropes & Gray
<PAGE> 1
Exhibit 12
November , 1998
Pegasus Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Prime Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Prime Money Market Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Money Market Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999,
or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 2
Pegasus Money Market Fund December 17, 1998
The One Group Prime Money Market Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 3
Pegasus Money Market Fund December 17, 1998
The One Group Prime Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 4
November , 1998
Pegasus Treasury Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group U.S. Treasury Securities Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group U.S. Treasury Securities Money Market Fund
("Acquiring Fund") and Pegasus Fund (the "Target Trust"), a Massachusetts
business trust, on behalf of one of its series, Pegasus Treasury Money Market
Fund ("Target Fund"). The Agreement describes a proposed transaction (the
"Transaction") to occur on March 22, 1999, or such other date as may be decided
by the parties (the "Exchange Date"), pursuant to which Acquiring Fund will
acquire substantially all of the assets of Target Fund in exchange for shares of
beneficial interest in Acquiring Fund (the "Acquiring Fund Shares") and the
assumption by Acquiring Fund of all of the liabilities of Target Fund following
which the Acquiring Fund Shares received by Target Fund will be distributed by
Target Fund to its shareholders in liquidation and termination of Target Fund.
This opinion as to certain federal income tax consequences of the Transaction is
furnished to you pursuant to Sections 9(g) and 10(g) of the Agreement.
Capitalized terms not defined herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 5
Pegasus Treasury Money Market Fund December 17, 1998
The One Group U.S. Treasury Securities Money Market Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 6
Pegasus Treasury Money Market Fund December 17, 1998
The One Group U.S. Treasury Securities Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 7
November , 1998
Pegasus Municipal Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Municipal Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Municipal Money Market Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Municipal Money Market Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 8
Pegasus Municipal Money Market Fund December 17, 1998
The One Group Municipal Money Market Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 9
Pegasus Municipal Money Market Fund December 17, 1998
The One Group Municipal Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 10
November , 1998
Pegasus Michigan Municipal
Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Michigan Municipal
Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Michigan Municipal Money Market Fund ("Acquiring
Fund") and Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on
behalf of one of its series, Pegasus Michigan Municipal Money Market Fund
("Target Fund"). The Agreement describes a proposed transaction (the
"Transaction") to occur on March 22, 1999, or such other date as may be decided
by the parties (the "Exchange Date"), pursuant to which Acquiring Fund will
acquire substantially all of the assets of Target Fund in exchange for shares of
beneficial interest in Acquiring Fund (the "Acquiring Fund Shares") and the
assumption by Acquiring Fund of all of the liabilities of Target Fund following
which the Acquiring Fund Shares received by Target Fund will be distributed by
Target Fund to its shareholders in liquidation and termination of Target Fund.
This opinion as to certain federal income tax consequences of the Transaction is
furnished to you pursuant to Sections 9(g) and 10(g) of the Agreement.
Capitalized terms not defined herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 11
Pegasus Michigan Municipal Money Market Fund December 17, 1998
The One Group Michigan Municipal Money Market Fund
-2-
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 12
Pegasus Michigan Municipal Money Market Fund December 17, 1998
The One Group Michigan Municipal Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 13
November , 1998
Pegasus Cash Management Money
Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Cash Management
Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Cash Management Money Market Fund ("Acquiring
Fund") and Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on
behalf of one of its series, Pegasus Cash Management Money Market Fund ("Target
Fund"). The Agreement describes a proposed transaction (the "Transaction") to
occur on March 22, 1999, or such other date as may be decided by the parties
(the "Exchange Date"), pursuant to which Acquiring Fund will acquire
substantially all of the assets of Target Fund in exchange for shares of
beneficial interest in Acquiring Fund (the "Acquiring Fund Shares") and the
assumption by Acquiring Fund of all of the liabilities of Target Fund following
which the Acquiring Fund Shares received by Target Fund will be distributed by
Target Fund to its shareholders in liquidation and termination of Target Fund.
This opinion as to certain federal income tax consequences of the Transaction is
furnished to you pursuant to Sections 9(g) and 10(g) of the Agreement.
Capitalized terms not defined herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 14
Pegasus Cash Management Money Market Fund December 17, 1998
The One Group Cash Management Money Market Fund
-2-
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 15
Pegasus Cash Management Money Market Fund December 17, 1998
The One Group Cash Management Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 16
November , 1998
Pegasus Treasury Prime Cash Management
Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Treasury Prime Cash
Management Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Treasury Prime Cash Management Money Market Fund
("Acquiring Fund") and Pegasus Fund (the "Target Trust"), a Massachusetts
business trust, on behalf of one of its series, Pegasus Treasury Prime Cash
Management Money Market Fund ("Target Fund"). The Agreement describes a proposed
transaction (the "Transaction") to occur on March 22, 1999, or such other date
as may be decided by the parties (the "Exchange Date"), pursuant to which
Acquiring Fund will acquire substantially all of the assets of Target Fund in
exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 17
Pegasus Treasury Prime Cash Management Money Market Fund December 17, 1998
The One Group Treasury Prime Cash Management Money Market Fund
-2-
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 18
Pegasus Treasury Prime Cash Management Money Market Fund December 17, 1998
The One Group Treasury Prime Cash Management Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 19
November , 1998
Pegasus U.S. Government Securities Cash
Management Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group U.S. Government Securities
Cash Management Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group U.S. Government Securities Cash Management Money
Market Fund ("Acquiring Fund") and Pegasus Fund (the "Target Trust"), a
Massachusetts business trust, on behalf of one of its series, Pegasus U.S.
Government Securities Cash Management Money Market Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 20
December 17, 1998
Pegasus U.S. Government Securities Cash Management Money Market Fund
The One Group U.S. Government Securities Cash Management Money Market Fund
-2-
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 21
December 17, 1998
Pegasus U.S. Government Securities Cash Management Money Market Fund
The One Group U.S. Government Securities Cash Management Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 22
November , 1998
Pegasus Municipal Cash Management Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Municipal Cash Management Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Municipal Cash Management Money Market Fund
("Acquiring Fund") and Pegasus Fund (the "Target Trust"), a Massachusetts
business trust, on behalf of one of its series, Pegasus Municipal Cash
Management Money Market Fund ("Target Fund"). The Agreement describes a proposed
transaction (the "Transaction") to occur on March 22, 1999, or such other date
as may be decided by the parties (the "Exchange Date"), pursuant to which
Acquiring Fund will acquire substantially all of the assets of Target Fund in
exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 23
Pegasus Municipal Cash Management Money Market Fund December 17, 1998
The One Group Municipal Cash Management Money Market Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 24
Pegasus Municipal Cash Management Money Market Fund December 17, 1998
The One Group Municipal Cash Management Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 25
November , 1998
Pegasus Treasury Cash Management Money Market Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Treasury Cash Management Money Market Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Treasury Cash Management Money Market Fund
("Acquiring Fund") and Pegasus Fund (the "Target Trust"), a Massachusetts
business trust, on behalf of one of its series, Pegasus Treasury Cash Management
Money Market Fund ("Target Fund"). The Agreement describes a proposed
transaction (the "Transaction") to occur on March 22, 1999, or such other date
as may be decided by the parties (the "Exchange Date"), pursuant to which
Acquiring Fund will acquire substantially all of the assets of Target Fund in
exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 26
Pegasus Treasury Cash Management Money Market Fund December 17, 1998
The One Group Treasury Cash Management Money Market Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 27
Pegasus Treasury Cash Management Money Market Fund December 17, 1998
The One Group Treasury Cash Management Money Market Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 28
December 17, 1998
Pegasus Short Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Limited Volatility Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Limited Volatility Bond Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Short Bond Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999
, or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 29
Pegasus Short Bond Fund December 17, 1998
The One Group Limited Volatility Bond Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 30
Pegasus Short Bond Fund December 17, 1998
The One Group Limited Volatility Bond Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 31
December 17, 1998
Pegasus Intermediate Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Intermediate Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Intermediate Bond Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Intermediate Bond Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999,
or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 32
Pegasus Intermediate Bond Fund
The One Group Intermediate Bond Fund December 17, 1998
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 33
Pegasus Intermediate Bond Fund
The One Group Intermediate Bond Fund December 17, 1998
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 34
December 17, 1998
Pegasus Multi Sector Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Income Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Income Bond Fund ("Acquiring Fund") and Pegasus
Fund (the "Target Trust"), a Massachusetts business trust, on behalf of one of
its series, Pegasus Multi Sector Bond Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999,
or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 35
Pegasus Multi Sector Bond Fund
The One Group Income Bond Fund December 17, 1998
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 36
Pegasus Multi Sector Bond Fund
The One Group Income Bond Fund December 17, 1998
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 37
December 17, 1998
Pegasus Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Bond Fund ("Acquiring Fund") and Pegasus Fund (the
"Target Trust"), a Massachusetts business trust, on behalf of one of its series,
Pegasus Bond Fund ("Target Fund"). The Agreement describes a proposed
transaction (the "Transaction") to occur on March 22, 1999, or such other date
as may be decided by the parties (the "Exchange Date"), pursuant to which
Acquiring Fund will acquire substantially all of the assets of Target Fund in
exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 38
Pegasus Bond Fund
The One Group Bond Fund December 17, 1998
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 39
Pegasus Bond Fund
The One Group Bond Fund December 17, 1998
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 40
November , 1998
Pegasus High Yield Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group High Yield Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group High Yield Bond Fund ("Acquiring Fund") and Pegasus
Fund (the "Target Trust"), a Massachusetts business trust, on behalf of one of
its series, Pegasus High Yield Bond Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999,
or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 41
Pegasus High Yield Bond Fund
The One Group High Yield Bond Fund December 17, 1998
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 42
Pegasus High Yield Bond Fund
The One Group High Yield Bond Fund December 17, 1998
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 43
November , 1998
Pegasus Intermediate Municipal Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Intermediate Tax-Free Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Intermediate Tax-Free Bond Fund ("Acquiring Fund")
and Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf
of one of its series, Pegasus Intermediate Municipal Bond Fund ("Target Fund").
The Agreement describes a proposed transaction (the "Transaction") to occur on
March 22, 1999, or such other date as may be decided by the parties (the
"Exchange Date"), pursuant to which Acquiring Fund will acquire substantially
all of the assets of Target Fund in exchange for shares of beneficial interest
in Acquiring Fund (the "Acquiring Fund Shares") and the assumption by Acquiring
Fund of all of the liabilities of Target Fund following which the Acquiring Fund
Shares received by Target Fund will be distributed by Target Fund to its
shareholders in liquidation and termination of Target Fund. This opinion as to
certain federal income tax consequences of the Transaction is furnished to you
pursuant to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not
defined herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 44
Pegasus Intermediate Municipal Bond Fund December 17, 1998
The One Group Intermediate Tax-Free Bond Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 45
Pegasus Intermediate Municipal Bond Fund December 17, 1998
The One Group Intermediate Tax-Free Bond Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 46
November , 1998
Pegasus Municipal Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Municipal Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Municipal Bond Fund ("Acquiring Fund") and Pegasus
Fund (the "Target Trust"), a Massachusetts business trust, on behalf of one of
its series, Pegasus Municipal Bond Fund ("Target Fund"). The Agreement describes
a proposed transaction (the "Transaction") to occur on March 22, 1999, or such
other date as may be decided by the parties (the "Exchange Date"), pursuant to
which Acquiring Fund will acquire substantially all of the assets of Target Fund
in exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 47
Pegasus Municipal Bond Fund December 17, 1998
The One Group Municipal Bond Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 48
Pegasus Municipal Bond Fund December 17, 1998
The One Group Municipal Bond Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 49
November , 1998
Pegasus Michigan Municipal Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Michigan Municipal Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Michigan Municipal Bond Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Michigan Municipal Bond Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 50
Pegasus Michigan Municipal Bond Fund December 17, 1998
The One Group Michigan Municipal Bond Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 51
Pegasus Michigan Municipal Bond Fund December 17, 1998
The One Group Michigan Municipal Bond Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 52
November , 1998
Pegasus Short Municipal Bond Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Short Municipal Bond Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Short Municipal Bond Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Short Municipal Bond Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 53
Pegasus Short Municipal Bond Fund December 17, 1998
The One Group Short Municipal Bond Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 54
Pegasus Short Municipal Bond Fund December 17, 1998
The One Group Short Municipal Bond Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 55
November , 1998
Pegasus Equity Income Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Equity Income Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Equity Income Fund ("Acquiring Fund") and Pegasus
Fund (the "Target Trust"), a Massachusetts business trust, on behalf of one of
its series, Pegasus Equity Income Fund ("Target Fund"). The Agreement describes
a proposed transaction (the "Transaction") to occur on March 22, 1999, or such
other date as may be decided by the parties (the "Exchange Date"), pursuant to
which Acquiring Fund will acquire substantially all of the assets of Target Fund
in exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 56
Pegasus Equity Income Fund December 17, 1998
The One Group Equity Income Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 57
Pegasus Equity Income Fund December 17, 1998
The One Group Equity Income Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 58
November , 1998
Pegasus Equity Index Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Equity Index Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Equity Index Fund ("Acquiring Fund") and Pegasus
Fund (the "Target Trust"), a Massachusetts business trust, on behalf of one of
its series, Pegasus Equity Index Fund ("Target Fund"). The Agreement describes a
proposed transaction (the "Transaction") to occur on March 22, 1999, or such
other date as may be decided by the parties (the "Exchange Date"), pursuant to
which Acquiring Fund will acquire substantially all of the assets of Target Fund
in exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 59
Pegasus Equity Index Fund December 17, 1998
The One Group Equity Index Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 60
Pegasus Equity Index Fund December 17, 1998
The One Group Equity Index Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 61
November , 1998
Pegasus Growth and Value Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Value Growth Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Value Growth Fund ("Acquiring Fund") and Pegasus
Fund (the "Target Trust"), a Massachusetts business trust, on behalf of one of
its series, Pegasus Growth and Value Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999,
or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 62
Pegasus Growth and Value Fund December 17, 1998
The One Group Value Growth Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 63
Pegasus Growth and Value Fund December 17, 1998
The One Group Value Growth Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 64
November , 1998
Pegasus Intrinsic Value Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Disciplined Value Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Disciplined Value Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Intrinsic Value Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999,
or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 65
Pegasus Intrinsic Value Fund December 17, 1998
The One Group Disciplined Value Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 66
Pegasus Intrinsic Value Fund December 17, 1998
The One Group Disciplined Value Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 67
November , 1998
Pegasus Growth Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Large Company Growth Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Large Company Growth Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Growth Fund ("Target Fund"). The Agreement describes
a proposed transaction (the "Transaction") to occur on March 22, 1999, or such
other date as may be decided by the parties (the "Exchange Date"), pursuant to
which Acquiring Fund will acquire substantially all of the assets of Target Fund
in exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 9(g)
and 10(g) of the Agreement. Capitalized terms not defined herein are defined in
the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 68
Pegasus Growth Fund December 17, 1998
The One Group Large Company Growth Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 69
Pegasus Growth Fund December 17, 1998
The One Group Large Company Growth Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 70
November , 1998
Pegasus Mid-Cap Opportunity Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Mid-Cap Opportunity Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Mid- Cap Opportunity Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Mid-Cap Opportunity Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 71
Pegasus Mid-Cap Opportunity Fund December 17, 1998
The One Group Mid-Cap Opportunity Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 72
Pegasus Mid-Cap Opportunity Fund December 17, 1998
The One Group Mid-Cap Opportunity Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 73
November , 1998
Pegasus Small-Cap Opportunity Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Small-Cap Opportunity Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Small- Cap Opportunity Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Small-Cap Opportunity Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 74
Pegasus Small-Cap Opportunity Fund December 17, 1998
The One Group Small-Cap Opportunity Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 75
Pegasus Small-Cap Opportunity Fund December 17, 1998
The One Group Small-Cap Opportunity Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 76
November , 1998
Pegasus International Equity Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group International Equity Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group International Equity Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus International Equity Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 77
Pegasus International Equity Fund December 17, 1998
The One Group International Equity Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 78
Pegasus International Equity Fund December 17, 1998
The One Group International Equity Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 79
November , 1998
Pegasus Market Expansion Index Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Small-Cap Index Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Small- Cap Index Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Market Expansion Index Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 80
Pegasus Market Expansion Index Fund December 17, 1998
The One Group Small-Cap Index Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 81
Pegasus Market Expansion Index Fund December 17, 1998
The One Group Small-Cap Index Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 82
November , 1998
Pegasus Managed Assets Growth Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Investor Growth Fund Index Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Investor Growth Fund ("Acquiring Fund") and Pegasus
Fund (the "Target Trust"), a Massachusetts business trust, on behalf of one of
its series, Pegasus Managed Assets Growth Fund ("Target Fund"). The Agreement
describes a proposed transaction (the "Transaction") to occur on March 22, 1999,
or such other date as may be decided by the parties (the "Exchange Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain federal
income tax consequences of the Transaction is furnished to you pursuant to
Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 83
Pegasus Managed Assets Growth Fund December 17, 1998
The One Group Investor Growth Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 84
Pegasus Managed Assets Growth Fund December 17, 1998
The One Group Investor Growth Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 85
November , 1998
Pegasus Managed Assets Balanced Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Investor Growth & Income Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Investor Growth & Income Fund ("Acquiring Fund")
and Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf
of one of its series, Pegasus Managed Assets Balanced Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 86
Pegasus Managed Assets Balanced Fund December 17, 1998
The One Group Investor Growth & Income Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 87
Pegasus Managed Assets Balanced Fund December 17, 1998
The One Group Investor Growth & Income Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 88
November , 1998
Pegasus Managed Assets Conservative Fund
-- Pegasus Funds
3435 Stelzer Road
Columbus, Ohio 43219
The One Group Investor Balanced Fund
-- The One Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of November __, 1998 (the "Agreement"), between The One
Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of one
of its series, The One Group Investor Balanced Fund ("Acquiring Fund") and
Pegasus Fund (the "Target Trust"), a Massachusetts business trust, on behalf of
one of its series, Pegasus Managed Assets Conservative Fund ("Target Fund"). The
Agreement describes a proposed transaction (the "Transaction") to occur on March
22, 1999, or such other date as may be decided by the parties (the "Exchange
Date"), pursuant to which Acquiring Fund will acquire substantially all of the
assets of Target Fund in exchange for shares of beneficial interest in Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all
of the liabilities of Target Fund following which the Acquiring Fund Shares
received by Target Fund will be distributed by Target Fund to its shareholders
in liquidation and termination of Target Fund. This opinion as to certain
federal income tax consequences of the Transaction is furnished to you pursuant
to Sections 9(g) and 10(g) of the Agreement. Capitalized terms not defined
herein are defined in the Agreement.
Target Fund is a series of the Target Trust which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Acquiring Trust which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
<PAGE> 89
Pegasus Managed Assets Conservative Fund December 17, 1998
The One Group Investor Balanced Fund
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. Acquiring Fund and
Target Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same
as the basis of his or her Target Fund Shares exchanged
therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE> 90
Pegasus Managed Assets Conservative Fund December 17, 1998
The One Group Investor Balanced Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
DRAFT
Ropes & Gray
<PAGE> 1
Exhibit 14(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form N-14 (File No. 2-95973) of The One Group, of our reports dated August 18,
1998 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 Government 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 Small Capitalization 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 which
reports are included in the Annual Reports to Shareholders for the year ended
June 30, 1998. We also consent to the reference to our Firm under the caption
"Financial Statements" relating to The One Group in the Registration Statement
on Form N-14 (File No. 2-95973).
PricewaterhouseCoopers LLP
Columbus, Ohio
December 16, 1998
<PAGE> 1
EXHIBIT 14(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our firm
included in or made a part of the Registration Statement of The One Group (No.
2-95973) on Form N-14 under the Securities Act of 1933, as amended.
/s/ Ropes & Gray
ROPES & GRAY
Washington, D.C.
December 11, 1998
<PAGE> 1
EXHIBIT 14(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated February 24, 1998 and February 17, 1998, included in Pegasus Funds' and
Pegasus Money Market Funds' Annual Reports to Shareholders, respectively, for
the year ended December 31, 1997 (and to all references to our Firm) included in
or made a part of this registration statement on Form N-14 of The One Group.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Detroit, Michigan,
December 15, 1998.
<PAGE> 1
Exhibit 16
Executed Powers of Attorney
<PAGE> 2
POWER OF ATTORNEY
-----------------
Peter C. Marshall, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group (the "Group"), to comply with the Investment Company Act of 1940,
as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group and any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ Peter C. Marshall
-----------------------------------
Peter C. Marshall
<PAGE> 3
POWER OF ATTORNEY
-----------------
Charles I. Post, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group (the "Group"), to comply with the Investment Company Act of 1940,
as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group and any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ Charles I. Post
-----------------------------------
Charles I. Post
<PAGE> 4
POWER OF ATTORNEY
-----------------
John S. Randall, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group (the "Group"), to comply with the Investment Company Act of 1940,
as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group and any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ John S. Randall
-----------------------------------
John S. Randall
<PAGE> 5
POWER OF ATTORNEY
-----------------
Frederick W. Ruebeck, whose signature appears below, does
hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group (the "Group"), to comply with the Investment Company Act of 1940,
as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group and any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ Frederick W. Ruebeck
-----------------------------------
Frederick W. Ruebeck
<PAGE> 6
POWER OF ATTORNEY
-----------------
Robert A. Oden, Jr., whose signature appears below, does
hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group (the "Group"), to comply with the Investment Company Act of 1940,
as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group and any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ Robert A. Oden
-----------------------------------
Robert A. Oden
<PAGE> 7
POWER OF ATTORNEY
-----------------
John F. Finn, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group (the "Group"), to comply with the Investment Company Act of 1940,
as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group and any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: May 27, 1998
/s/ John F. Finn
-----------------------------------
John F. Finn
<PAGE> 8
POWER OF ATTORNEY
-----------------
Mark S. Redman, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Francoise M.
Haan, each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group
(the "Group"), to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all instruments and/or
documents pertaining to the federal registration of the shares of the Group,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Group and any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated: August 23, 1998
/s/ Mark S. Redman
-----------------------------------
Mark S. Redman
<PAGE> 9
POWER OF ATTORNEY
-----------------
William J. Tomko, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Maryellen M.
Lundquist, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group (the "Group"), to comply with the Investment Company Act of 1940,
as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group and any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: February 2, 1998
/s/ William J. Tomko
-----------------------------------
William J. Tomko
<PAGE> 1
THE ONE GROUP(R) FAMILY OF MUTUAL FUNDS
[GRAPHIC]
EQUITY FUNDS
COMBINED PROSPECTUS
NOVEMBER 1, 1998
THE ONE GROUP(R) ASSET ALLOCATION FUND
THE ONE GROUP(R) LARGE COMPANY GROWTH FUND
THE ONE GROUP(R) LARGE COMPANY VALUE FUND
THE ONE GROUP(R) GROWTH OPPORTUNITIES FUND
THE ONE GROUP(R) INTERNATIONAL EQUITY INDEX FUND
THE ONE GROUP(R) DISCIPLINED VALUE FUND
THE ONE GROUP(R) EQUITY INDEX FUND
THE ONE GROUP(R) INCOME EQUITY FUND
THE ONE GROUP(R) VALUE GROWTH FUND
THE ONE GROUP(R) SMALL CAPITALIZATION FUND
This prospectus describes ten mutual funds with a variety of investment
objectives, including total return, capital appreciation, current income, and
long-term capital growth. The information in this prospectus is important.
Please read it carefully before you invest, and save it for future reference.
PLEASE REMEMBER THAT SHARES OF THE FUNDS: o ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED BY BANK ONE CORPORATION OR ITS AFFILIATES; o ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY FEDERAL OR
STATE GOVERNMENTAL AGENCY; o 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.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
A BRIEF PREVIEW OF THE FUNDS................................ 1
ABOUT THE FUNDS............................................. 2
The One Group(R) Asset Allocation Fund................... 2
The One Group(R) Large Company Growth Fund............... 5
The One Group(R) Large Company Value Fund................ 8
The One Group(R) Growth Opportunities Fund............... 11
The One Group(R) International Equity Index Fund......... 14
The One Group(R) Disciplined Value Fund.................. 17
The One Group(R) Equity Index Fund....................... 20
The One Group(R) Income Equity Fund...................... 23
The One Group(R) Value Growth Fund....................... 26
The One Group(R) Small Capitalization Fund............... 29
MORE ABOUT THE FUNDS........................................ 32
HOW TO DO BUSINESS WITH THE ONE GROUP....................... 33
Purchasing Fund Shares................................... 33
Sales Charges............................................ 35
Sales Charge Reductions and Waivers...................... 36
Exchanging Fund Shares................................... 38
Redeeming Fund Shares.................................... 39
SHAREHOLDER INFORMATION..................................... 41
Voting Rights............................................ 41
Dividend Policies........................................ 42
Tax Treatment of the Funds............................... 43
Tax Treatment of Shareholders............................ 43
Shareholder Inquiries.................................... 43
ORGANIZATION AND MANAGEMENT OF THE FUNDS.................... 44
The Funds................................................ 44
The Board of Trustees.................................... 44
The Advisor.............................................. 44
The Sub-Advisor.......................................... 44
The Distributor.......................................... 45
The Administrator and Sub-Administrator.................. 45
The Transfer Agent, Custodian and Sub-Custodian.......... 45
Year 2000................................................ 45
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND
POLICIES.................................................. 46
Investment Practices..................................... 46
Investment Risks......................................... 49
Investment Policies...................................... 50
APPENDIX: DESCRIPTION OF RATINGS............................ 51
</TABLE>
<PAGE> 3
1
a brief preview of the funds
WHAT ARE THE GOALS OF THE ONE GROUP EQUITY FUNDS?
The Funds are designed for a variety of investment objectives,
including total return, capital appreciation, current income,
and long-term capital growth. Each Fund pursues a different
objective and involves different risks. Please read about each
Fund before investing.
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
The Funds normally will invest in a variety of equity
securities, including common stock. The Funds also may invest
in debt securities and preferred stocks which are convertible
into common stock, and lend their portfolio securities. Most
of the Funds may invest in securities of foreign issuers.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
Equity securities such as those in which the Funds may invest
are more volatile and carry more risk than some other forms of
investment. Accordingly, as with all equity investments, you
may lose money by investing in the Funds. The Funds may invest
in derivative securities. These securities may expose the
Funds to special risks. In addition, investments in foreign
securities may expose the Funds to risks that are different
from investments in U.S. securities. An investment in the
Funds is not a deposit of BANK ONE CORPORATION or its
affiliates and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
For more information about risks, please read "More About the
Funds" and "Investment Risks."
WHAT CLASSES OF SHARES ARE AVAILABLE?
The Funds currently offer four classes of Shares: Class A,
Class B, Class C and Class I. Class A, Class B and Class C
shares are offered to the general public. Class I shares are
offered to institutional investors, including affiliates of
BANK 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. The section called "How To Do Business
With The One Group" will provide more information. Class I
shares are not available to Individual Retirement Accounts
("IRA").
HOW DO I PURCHASE AND REDEEM SHARES?
You may buy and redeem shares of the Funds on any day that the
Funds are open for business. Class C shares are not available
for purchase in all of the Funds. 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 the last business day of
each month and are distributed periodically on the first
business day of each month. The One Group International Equity
Index Fund, however, distributes dividends annually. 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 FUNDS?
Banc One Investment Advisors Corporation ("Banc One Investment
Advisors"), an indirect subsidiary of BANK ONE CORPORATION,
serves as the advisor of the Funds. Banc One Investment
Advisors is paid a fee for its services. Independence
International Associates, Inc. (the "Sub-Advisor") serves as
Sub-Advisor to the International Equity Index 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."
<PAGE> 4
The One Group(R)
Asset Allocation Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks to provide total
return while preserving capital.
[LOGO] PRINCIPAL INVESTMENT STRATEGY
The Fund invests in a combination of
stocks, fixed income securities and
money market instruments. Banc One
Investment Advisors will regularly
review the Fund's asset allocations
and vary them over time to favor
investments which they believe will
provide the most favorable total
return. In making asset allocation
decisions, Banc One Investment
Advisors will evaluate projections
of risk, market and economic
conditions, volatility, yields and
expected return. Because the Fund
seeks total return over the long
term, Banc One Investment Advisors
will not attempt to time the market.
Rather, asset allocation shifts will
be made gradually over time.
[LOGO] PORTFOLIO SECURITIES
The Fund normally will invest
between 40% and 75% of its total
assets in all types of equity
securities, including the stock of
both large and small capitalization
companies, as well as growth and
value securities. Up to 20% of the
equities held by the Fund may be
foreign securities, including
American Depository Receipts.
Between 25% and 60% of the Fund's
total assets will be invested in
fixed income securities, including
bonds, notes, and other debt
securities. The balance of the
Fund's total assets will be invested
in money market instruments. For a
list of all the securities in which
the Fund may invest, please read
"Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity
securities, which may increase or
decrease in value. As a result, the
value of your investment in the Fund
may increase or decrease in value.
The Fund also will invest in fixed
income securities. The value of
these securities will change in
response to interest rate changes
and other factors. This is
especially true to the extent that
the Fund invests in debt securities
in the lowest investment grade
category. Such securities have
speculative characteristics. Before
you invest, please read "More About
the Funds" and "Investment
Practices."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts, and other investment
management professionals. Each team
member makes recommendations about
the securities in the Fund. The
research analysts provide in-depth
industry analysis and
recommendations, while the portfolio
managers determine strategy,
industry weightings, Fund holdings,
and cash positions.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .55% .55% .55% .55%
12b-1 Fees (after fee waiver) (5) .25% 1.00% 1.00% none
Other Expenses .40% .40% .40% .40%
Total Fund Operating
Expenses (after fee
waivers) (6) 1.20% 1.95% 1.95% .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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from the redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .65% for all
classes of shares.
(5) 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.
(6) Total Operating Expenses have been revised to reflect fee waivers.
Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.40% for Class A shares, 2.05% for
Class B shares, 2.05% for Class C shares and 1.05% for Class I 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
waivers) $ 59 $ 87 $118 $205
Class B $ 70 $ 91 $125 $208
Class B
(without fee
waiver) $ 71 $ 94 $130 $221
Class C $ 30 $ 61 $105 $227
Class C
(without fee
waiver) $ 31 $ 64 $110 $238
Class I $ 10 $ 30 $ 53 $117
Class I
(without fee
waiver) $ 11 $ 33 $ 58 $128
</TABLE>
Assuming no redemption 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
waivers) $ 59 $ 87 $118 $205
Class B $ 20 $ 61 $105 $208
Class B
(without fee
waiver) $ 21 $ 64 $110 $221
Class C $ 20 $ 61 $105 $227
Class C
(without fee
waiver) $ 21 $ 64 $110 $238
Class I $ 10 $ 30 $ 53 $117
Class I
(without fee
waiver) $ 11 $ 33 $ 58 $128
</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.
2
<PAGE> 5
The One Group(R) Asset Allocation Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance over the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.98 $ 11.71 $ 10.73 $ 9.64 $ 10.06 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.40 0.43 0.41 0.38 0.29 0.07
Net realized and unrealized gains
(losses) from investments 2.24 1.81 1.16 1.12 (0.38) 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.64 2.24 1.57 1.50 (0.09) 0.13
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.39) (0.43) (0.41) (0.37) (0.29) (0.07)
From net realized gains (1.43) (0.54) (0.18) (0.04) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.82) (0.97) (0.59) (0.41) (0.33) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.80 $ 12.98 $ 11.71 $ 10.73 $ 9.64 $ 10.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 22.12% 20.16% 14.87% 16.06% (1.01)% 5.45%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $105,243 $94,971 $50,323 $37,658 $42,751 $30,441
Ratio of expenses to average net
assets 0.85% 0.80% 0.94% 1.06% 1.06% 0.90%(b)
Ratio of net investment income to
average net assets 3.03% 3.55% 3.58% 3.72% 2.91% 3.03%(b)
Ratio of expenses to average net
assets* 1.03% 1.00% 1.19% 1.31% 1.33% 1.34%(b)
Ratio of net investment income to
average net assets* 2.85% 3.35% 3.33% 3.47% 2.64% 2.59%(b)
Portfolio turnover (c) 46.04% 80.96% 73.38% 115.36% 56.55% 4.05%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Class I Shares commenced offering on April 5,
1993. (b) Annualized. (c) Portfolio turnover is calculated on the basis of
the Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.00 $ 11.72 $ 10.74 $ 9.65 $ 10.06 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.36 0.39 0.37 0.35 0.27 0.05
Net realized and unrealized gains
(losses) from investments 2.24 1.83 1.16 1.13 (0.38) 0.07
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.60 2.22 1.53 1.48 (0.11) 0.12
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.36) (0.40) (0.37) (0.34) (0.26) (0.06)
In excess of net investment income -- -- -- (0.01) -- --
From net realized gains (1.43) (0.54) (0.18) (0.04) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.79) (0.94) (0.55) (0.39) (0.30) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.81 $ 13.00 $ 11.72 $ 10.74 $ 9.65 $10.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 21.71% 19.85% 14.48% 15.76% (1.19)% 5.23%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $50,456 $31,379 $17,849 $4,745 $1,691 $571
Ratio of expenses to average net
assets 1.10% 1.05% 1.19% 1.31% 1.33% 1.15%(b)
Ratio of net investment income to
average net assets 2.77% 3.30% 3.33% 3.57% 2.68% 2.84%(b)
Ratio of expenses to average net
assets* 1.38% 1.34% 1.54% 1.66% 1.67% 1.62%(b)
Ratio of net investment income to
average net assets* 2.49% 3.01% 2.98% 3.22% 2.34% 2.37%(b)
Portfolio turnover (c) 46.04% 80.96% 73.38% 115.36% 56.55% 4.05%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) The Fund commenced operations on April 2,
1993. (b) Annualized. (c) Portfolio turnover is calculated on the basis of
the Fund as a whole without distinguishing among the classes of shares issued.
3
<PAGE> 6
4
The One Group(R) Asset Allocation Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.04 $ 11.76 $ 10.76 $ 9.67 $ 10.37
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.26 0.30 0.28 0.27 0.08
Net realized and unrealized gains (losses) from
investments 2.26 1.83 1.18 1.14 (0.70)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.52 2.13 1.46 1.41 (0.62)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.26) (0.31) (0.28) (0.27) (0.08)
In excess of net investment income -- -- -- (0.01) --
From net realized gains (1.43) (0.54) (0.18) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.69) (0.85) (0.46) (0.32) (0.08)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.87 $ 13.04 $ 11.76 $ 10.76 $ 9.67
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 20.95% 18.90% 13.79% 14.90% (5.98)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $114,957 $ 43,900 $ 18,575 $ 3,019 $ 1,862
Ratio of expenses to average net assets 1.85% 1.81% 1.94% 2.07% 2.40%(c)
Ratio of net investment income to average net assets 2.01% 2.54% 2.58% 2.77% 1.99%(c)
Ratio of expenses to average net assets* 2.03% 2.01% 2.19% 2.31% 2.40%(c)
Ratio of net investment income to average net assets* 1.83% 2.34% 2.33% 2.52% 1.99%(c)
Portfolio turnover (d) 46.04% 80.96% 73.38% 115.36% 56.55%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Class B commenced offering shares on January 14, 1994. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<PAGE> 7
The One Group(R)
Large Company Growth Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks long-term capital
appreciation and growth of income by
investing primarily in equity
securities.
[LOGO] INVESTMENT STRATEGY
The Fund invests primarily in equity
securities of large,
well-established companies. The
weighted average capitalization of
companies in which the Fund invests
normally will exceed the market
median capitalization of the
Standard & Poor's 500 Composite
Stock Price Index ("S&P 500").*
[LOGO] PORTFOLIO SECURITIES
The Fund normally invests at least
65% of its total assets in the
equity securities of companies
described above, including common
stock, warrants and rights to buy
common stocks. The remainder of the
Fund's total assets may be invested
in nonconvertible fixed income
securities, options and futures,
repurchase agreements, and
securities issued by the U.S.
government and its agencies and
instrumentalities. For daily cash
management purposes, the Fund may
invest in repurchase agreements and
cash equivalents. For a list of all
the securities in which the Fund may
invest, please read "Investment
Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity
securities, which may increase or
decrease in value. As a result, the
value of your investment in the Fund
may increase or decrease in value.
The Fund also may invest in fixed
income securities. The value of
these securities will change in
response to interest rate changes
and other factors. This is
especially true to the extent the
Fund invests in debt securities with
speculative characteristics. Before
you invest, please read "More About
the Funds" and "Investment
Practices."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts, and other investment
management professionals. Each team
member makes recommendations about
the securities in the Fund. The
research analysts provide in-depth
industry analysis and
recommendations, while the portfolio
managers determine strategy,
industry weightings, Fund holdings,
and cash positions.
* "Standard & Poor's 500" is a
registered service mark of
Standard & Poor's Corporation,
which does not sponsor and is in
no way affiliated with the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees .74% .74% .74% .74%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .26% .26% .26% .26%
Total Fund Operating Expenses (after
fee waiver) (5) 1.25% 2.00% 2.00% 1.00%
<CAPTION>
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.35% for Class A 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 70 $ 93 $128 $213
Class C $ 30 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</TABLE>
Assuming no redemption at the end of the periods, 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 20 $ 63 $108 $213
Class C $ 20 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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.
5
<PAGE> 8
6
The One Group(R) Large Company Growth Fund Financial Highlights
- ------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993 1992(b)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.44 $ 15.44 $ 13.47 $ 11.32 $ 10.92 $ 9.85 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.04 0.12 0.18 0.20 0.20 0.23 0.08
Net realized and unrealized gains
(losses) from investments 6.13 4.79 2.14 3.04 0.67 1.12 (0.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 6.17 4.91 2.32 3.24 0.87 1.35 (0.08)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.02) (0.11) (0.18) (0.20) (0.20) (0.23) (0.07)
From net realized gains (2.88) (0.80) (0.17) (0.89) (0.27) (0.05) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.90) (0.91) (0.35) (1.09) (0.47) (0.28) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.71 $ 19.44 $ 15.44 $ 13.47 $ 11.32 $ 10.92 $ 9.85
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 35.75% 33.11% 17.36% 21.85% 8.04% 13.92% .(080)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $1,510,521 $1,142,864 $745,986 $531,595 $150,035 $41,317 $25,019
Ratio of expenses to average net
assets 0.99% 0.99% 0.96% 1.00% 0.78% 0.39% 0.30%(c)
Ratio of net investment income to
average net assets 0.21% 0.69% 1.20% 1.72% 1.87% 2.24% 2.37%(c)
Ratio of expenses to average net
assets* 0.99% 0.99% 0.99% 1.00% 1.13% 1.43% 1.49%(c)
Ratio of net investment income to
average net assets* 0.21% 0.69% 1.17% 1.72% 1.52% 1.21% 1.12%(c)
Portfolio turnover (a) 117.34% 57.17% 35.51% 14.22% 9.04% 10.61% 3.09%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) The Fund commenced
operations on February 28, 1992. (c) Annualized.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994(a)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.92 $ 15.83 $ 13.83 $ 11.62 $ 11.78
- -----------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (0.01) 0.08 0.14 0.17 0.04
Net realized and unrealized gains (losses) from
investments 6.30 4.88 2.17 3.10 (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 6.29 4.96 2.31 3.27 (0.12)
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- (0.07) (0.14) (0.16) (0.04)
In excess of net investment income (0.01) -- -- (0.01) --
From net realized gains (2.88) (0.80) (0.17) (0.89) --
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions (2.89) (0.87) (0.31) (1.06) (0.04)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 23.32 $ 19.92 $ 15.83 $ 13.83 $ 11.62
- -----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 35.43% 32.57% 16.85% 21.52% .(102)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 199,052 $125,910 $75,114 $27,428 $368
Ratio of expenses to average net assets 1.24% 1.24% 1.21% 1.26% 1.25%(c)
Ratio of net investment income to average net assets (0.04)% 0.44% 0.95% 1.49% 1.78%(c)
Ratio of expenses to average net assets* 1.34% 1.32% 1.34% 1.36% 1.35%(c)
Ratio of net investment income to average net assets* (0.14)% 0.36% 0.82% 1.39% 1.68%(c)
Portfolio turnover (d) 117.34% 57.17% 35.51% 14.22% 9.04%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Class A Shares commenced offering on January 1, 1994. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<PAGE> 9
The One Group(R) Large Company Growth Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.61 $ 15.63 $ 13.63 $ 11.47 $ 11.57
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) (0.10) (0.04) 0.05 0.09 0.03
Net realized and unrealized gains (losses) from
investments 6.10 4.82 2.17 3.06 (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 6.00 4.78 2.22 3.15 (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- -- (0.05) (0.09) (0.03)
In excess of net investment income -- -- -- (0.01) --
From net realized gains (2.88) (0.80) (0.17) (0.89) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.88) (0.80) (0.22) (0.99) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.73 $ 19.61 $ 15.63 $ 13.63 $ 11.47
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 34.39% 31.74% 16.41% 20.65% (0.66)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $280,563 $132,268 $56,261 $6,918 $334
Ratio of expenses to average net assets 1.99% 2.00% 1.96% 2.01% 1.99%(c)
Ratio of net investment income (loss) to average net
assets (0.80)% (0.33)% 0.20% 0.74% 0.96%(c)
Ratio of expenses to average net assets* 1.99% 2.00% 1.99% 2.01% 1.99%(c)
Ratio of net investment income (loss) to average net
assets* (0.80)% (0.33)% 0.17% 0.74% 0.96%(c)
Portfolio turnover (d) 117.34% 57.17% 35.51% 14.22% 9.04%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.98
- ----------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) (0.06)
Net realized and unrealized gains from investments 4.99
- ----------------------------------------------------------------------------
Total from Investment Activities 4.93
- ----------------------------------------------------------------------------
Distributions:
Net realized gains (1.34)
- ----------------------------------------------------------------------------
Total Distributions (1.34)
- ----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.57
- ----------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 27.63%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $492
Ratio of expenses to average net assets 1.98%(c)
Ratio of net investment income to average net assets (0.87)%(c)
Portfolio turnover (d) 117.34%
</TABLE>
(a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis
of the Fund as a whole without distinguishing among the classes of shares
issued.
7
<PAGE> 10
8
The One Group(R)
Large Company Value Fund
- ------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks capital appreciation with the incidental goal of achieving
current income by investing primarily in equity securities.
[LOGO] INVESTMENT STRATEGY
The Fund invests in equity securities of large capitalization companies that are
believed to be selling below their long-term investment values. The weighted
average capitalization of companies in which the Fund invests normally will
exceed the market median capitalization of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500").* The Fund also may invest in the stock of
companies which have "breakup values" well in excess of current market values or
which have uniquely undervalued corporate assets.
[LOGO] PORTFOLIO SECURITIES
The Fund normally invests at least 65% of its total assets in the equity
securities of companies described above, including common stocks and debt
securities and preferred stock that is convertible to common stock. A portion of
the Fund's assets will be held in cash equivalents. For a list of all the
securities in which the Fund may invest, please read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity securities, which may increase or decrease in value.
As a result, the value of your investment in the Fund may increase or decrease
in value. Before you invest, please read "More About the Funds" and "Investment
Practices."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of portfolio managers, research analysts, and
other investment management professionals. Each team member makes
recommendations about the securities in the Fund. The research analysts provide
in-depth industry analysis and recommendations, while the portfolio managers
determine strategy, industry weightings, Fund holdings, and cash positions. *
"Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering
price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees .74% .74% .74% .74%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .26% .26% .26% .26%
Total Fund Operating Expenses (after
fee waiver) (5) 1.25% 2.00% 2.00% 1.00%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.35% for Class A 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 70 $ 93 $128 $213
Class C $ 30 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</TABLE>
Assuming no redemption at the end of the 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 20 $ 63 $108 $213
Class C $ 20 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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.
<PAGE> 11
9
The One Group(R) Large Company Value Fund Financial Highlights
- -------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.79 $ 12.83 $ 12.87 $ 11.34 $ 11.64 $ 11.34
- ------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.21 0.27 0.31 0.31 0.20 0.18
Net realized and unrealized gains
(losses) from investments 2.84 3.01 1.20 2.18 (0.01) 0.58
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.05 3.28 1.51 2.49 0.19 0.76
- ------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.21) (0.26) (0.31) (0.32) (0.19) (0.18)
From net realized gains (0.93) (1.06) (1.24) (0.64) (0.30) (0.28)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.14) (1.32) (1.55) (0.96) (0.49) (0.46)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.70 $ 14.79 $ 12.83 $ 12.87 $ 11.34 $ 11.64
- ------------------------------------------------------------------------------------------------------------------------
Total Return 21.46% 27.10% 12.71% 23.42% (1.59)% 6.73%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 792,649 $ 686,156 $ 584,527 $ 365,376 $ 169,127 $ 132,833
Ratio of expenses to average net
assets 0.95% 0.97% 0.97% 1.00% 0.95% 0.86%
Ratio of net investment income to
average net assets 1.34% 1.99% 2.43% 2.74% 1.72% 1.62%
Ratio of expenses to average net
assets* 0.95% 0.97% 0.98% 1.01% 1.02% 1.12%
Ratio of net investment income to
average net assets* 1.34% 1.99% 2.42% 2.73% 1.65% 1.36%
Portfolio turnover (a) 47.35% 77.05% 186.84% 203.13% 111.72% 51.75%
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
CLASS I 1992 1991(c)
- ------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07 $ 10.00
- ------------------------------------------------------------------
Investment Activities:
Net investment income 0.21 0.08
Net realized and unrealized gains
(losses) from investments 1.34 0.07
- ------------------------------------------------------------------
Total from Investment Activities 1.55 0.15
- ------------------------------------------------------------------
Distributions:
From net investment income (0.21) (0.08)
From net realized gains (0.07) --
- ------------------------------------------------------------------
Total Distributions (0.28) (0.08)
- ------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.34 $ 10.07
- ------------------------------------------------------------------
Total Return 15.53% 4.47%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 62,075 $ 36,237
Ratio of expenses to average net
assets 0.82% 0.52%(b)
Ratio of net investment income to
average net assets 1.91% 2.48%(b)
Ratio of expenses to average net
assets* 1.34% 1.26%(b)
Ratio of net investment income to
average net assets* 1.39% 1.74%(b)
Portfolio turnover (a) 55.90% 19.87%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) Annualized. (c) The
Fund commenced operations on March 1, 1991.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(b)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 14.85 $ 12.87 $ 12.89 $ 11.34 $ 11.64 $ 11.33 $ 11.42
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.18 0.23 0.27 0.28 0.17 0.16 0.07
Net realized and unrealized
gains (losses) from
investments 2.84 3.04 1.22 2.20 (0.01) 0.59 (0.08)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.02 3.27 1.49 2.48 0.16 0.75 (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.17) (0.23) (0.27) (0.27) (0.16) (0.16) (0.08)
In excess of net investment
income -- -- -- (0.02) -- -- --
From net realized gains (0.93) (1.06) (1.24) (0.64) (0.30) (0.28) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.10) (1.29) (1.51) (0.93) (0.46) (0.44) (0.08)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.77 $ 14.85 $ 12.87 $ 12.89 $ 11.34 $ 11.64 $ 11.33
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales
Charge) 21.14% 26.90% 12.40% 22.64% 1.35% 6.64% (0.33%)(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $ 15,699 $ 14,832 $ 9,380 $ 3,481 $ 698 $ 451 $ 12
Ratio of expenses to average net
assets 1.20% 1.22% 1.22% 1.25% 1.20% 1.10% 1.02%(c)
Ratio of net investment income
to average net assets 1.10% 1.72% 2.18% 2.52% 1.57% 1.41% 2.12%(c)
Ratio of expenses to average net
assets* 1.30% 1.31% 1.33% 1.37% 1.37% 1.50% 1.22%(c)
Ratio of net investment income
to average net assets* 1.00% 1.63% 2.07% 2.41% 1.40% 1.01% 1.92%(c)
Portfolio turnover (a) 47.35% 77.05% 186.84% 203.13% 111.72% 51.75% 55.90%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) Class A Shares
commenced offering on February 28, 1992. (c) Annualized.
<PAGE> 12
10
The One Group(R) Large Company Value Fund Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.95 $ 12.98 $ 12.96 $ 11.41 $ 11.87
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.07 0.14 0.18 0.17 0.05
Net realized and unrealized gains (losses) from
investments 2.84 3.04 1.26 2.19 (0.46)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.91 3.18 1.44 2.36 (0.41)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.09) (0.15) (0.18) (0.17) (0.05)
From net realized gains (0.93) (1.06) (1.24) (0.64) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.02) (1.21) (1.42) (0.81) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.84 $ 14.95 $ 12.98 $ 12.96 $ 11.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 20.18% 25.86% 11.95% 22.28% 3.48%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 17,154 $ 9,288 $ 4,135 $ 861 $ 182
Ratio of expenses to average net assets 1.95% 1.97% 1.97% 2.00% 2.00%(c)
Ratio of net investment income to average net assets 0.33% 0.96% 1.43% 1.74% 1.06%(c)
Ratio of expenses to average net assets* 1.95% 1.97% 1.98% 2.01% 2.00%(c)
Ratio of net investment income to average net assets* 0.33% 0.96% 1.42% 1.72% 1.06%(c)
Portfolio turnover (d) 47.35% 77.05% 186.84% 203.13% 111.72%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Class B Shares commenced offering on January 14, 1994. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<PAGE> 13
11
The One Group(R)
Growth Opportunities Fund
- -------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks growth of capital and secondarily, current income by investing
primarily in equity securities.
[LOGO] INVESTMENT STRATEGY
The Fund invests in securities that have the potential to produce above-average
earnings growth per share over a one-to-three year period. Typically, the Fund
acquires shares of established companies with a history of above-average growth,
as well as those companies expected to enter periods of above-average growth.
Not all the securities purchased by the Fund will pay dividends. The Fund also
invests in smaller companies in emerging growth industries.
[LOGO] PORTFOLIO SECURITIES
The Fund normally invests at least 80% of its total assets in equity securities,
including common stocks and debt securities and preferred stocks that are
convertible to common stock. A portion of the Fund's assets will be held in cash
equivalents. For a list of all the securities in which the Fund may invest,
please read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity securities which may increase or decrease in value.
Therefore, the value of your investment in the Fund may increase or decrease in
value. Also, the stocks of smaller companies may be subject to greater risks
than those of larger companies. Before you invest, please read "More About the
Funds" and "Investment Practices."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of portfolio managers, research analysts, and
other investment management professionals. Each team member makes
recommendations about the securities in the Fund. The research analysts provide
in-depth industry analysis and recommendations, while the portfolio managers
determine strategy, industry weightings, Fund holdings, and cash positions.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees .74% .74% .74% .74%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .26% .26% .26% .26%
Total Fund Operating Expenses (after
fee waiver) (5) 1.25% 2.00% 2.00% 1.00%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from the redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.35% for Class A 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 70 $ 93 $128 $213
Class C $ 30 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</TABLE>
Assuming no redemption at the end of the 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 20 $ 63 $108 $213
Class C $ 20 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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.
<PAGE> 14
12
The One Group(R) Growth Opportunities Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance over the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.46 $ 18.81 $ 18.40 $ 15.96 $ 16.96 $ 14.54
- --------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (0.07) 0.25 0.20 0.06 0.07 0.06
Net realized and unrealized gains (losses) from
investments 5.70 3.59 3.83 2.98 (0.05) 2.99
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 5.63 3.84 4.03 3.04 0.02 3.05
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- (0.25) (0.20) (0.06) (0.07) (0.06)
In excess of net investment -- (0.02) -- -- -- --
From net realized gains (2.58) (2.92) (3.42) (0.54) (0.95) (0.57)
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.58) (3.19) (3.62) (0.60) (1.02) (0.63)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.51 $ 19.46 $ 18.81 $ 18.40 $ 15.96 $ 16.96
==========================================================================================================================
Total Return 31.11% 22.75% 24.63% 19.75% (0.16)% 21.36%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 868,901 $ 623,911 $ 532,525 $ 413,518 $ 389,567 $ 232,898
Ratio of expenses to average net assets 1.00% 0.99% 1.00% 0.98% 0.98% 0.89%
Ratio of net investment income to average net
assets (0.36)% 1.32% 1.15% 0.38% 0.42% 0.41%
Ratio of expenses to average net assets* 1.00% 0.99% 1.01% 0.98% 1.03% 1.11%
Ratio of net investment income to average net
assets* (0.36)% 1.32% 1.14% 0.38% 0.37% 0.19%
Portfolio turnover (a) 158.43% 301.35% 435.30% 132.63% 70.67% 64.64%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
CLASS I 1992 1991 1990 1989(b)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.92 $ 12.14 $ 10.71 $ 10.00
- ---------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.09 0.21 0.19 0.11
Net realized and unrealized gains (losses) from
investments 1.87 0.92 1.97 0.71
- ---------------------------------------------------------------------------------------------------
Total from Investment Activities 1.96 1.13 2.16 0.82
- ---------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.08) (0.21) (0.19) (0.11)
In excess of net investment -- -- -- --
From net realized gains (0.26) (0.14) (0.54) --
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.35) (0.73) (0.11)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.54 $ 12.92 $ 12.14 $ 10.71
===================================================================================================
Total Return 15.15% 9.85% 20.83% 24.86%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 131,533 $ 53,831 $ 31,804 $ 22,753
Ratio of expenses to average net assets 0.75% 0.45% 0.41% 0.38%(c)
Ratio of net investment income to average net
assets 1.23% 1.75% 1.65% 3.20%(c)
Ratio of expenses to average net assets* 0.51% 1.19% 1.15% 1.12%(c)
Ratio of net investment income to average net
assets* 0.03% 1.01% 0.91% 2.46%(c)
Portfolio turnover (a) 42.77% 68.83% 92.55% 68.51%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued. (b) The Fund
commenced operations on March 2, 1989; at that time, the Fund did not offer
multiple classes of shares. Subsequently all shares of the Fund were
redesignated as Class I shares. (c) Annualized.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(c)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 19.37 $ 18.76 $ 18.36 $ 15.93 $ 16.96 $ 14.54 $ 16.53
- -------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (0.08) 0.21 0.17 0.02 0.04 0.03 0.01
Net realized and unrealized
gains (losses) from
investments 5.65 3.58 3.80 2.98 (0.08) 3.00 (1.99)
- -------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 5.57 3.79 3.97 3.00 (0.04) 3.03 (1.98)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- (0.24) (0.15) (0.01) (0.03) (0.04) (0.01)
In excess of net investment
income -- (0.02) -- (0.02) (0.01) -- --
From net realized gains (2.58) (2.92) (3.42) (0.54) (0.95) (0.57) --
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.58) (3.18) (3.57) (0.57) (0.99) (0.61) (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.36 $ 19.37 $ 18.76 $ 18.36 $ 15.93 $ 16.96 $ 14.54
===============================================================================================================================
Total Return (Excludes Sales
Charge) 30.95% 22.52% 24.32% 19.50% (0.52)% 21.70%(a) (34.00)%(a)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $ 95,647 $ 43,370 $ 28,052 $ 11,178 $ 8,097 $ 5,757 $ 84
Ratio of expenses to average net
assets 1.25% 1.25% 1.25% 1.23% 1.22% 1.11%(a) 1.31%(a)
Ratio of net investment income
to average net assets (0.60)% 0.92% 0.90% 0.12% 0.27% 0.25%(a) 0.12%(a)
Ratio of expenses to average net
assets* 1.35% 1.34% 1.36% 1.33% 1.38% 1.48%(a) 1.50%(a)
Ratio of net investment income
(loss) to average net assets* (0.70)% 0.83% 0.79% 0.02% 0.11% (0.12)%(a) (0.07)%(a)
Portfolio turnover (b) 158.43% 301.35% 435.30% 132.63% 70.67% 64.64% 42.77%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Annualized. (b) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
(c) Class A Shares commenced offering on February 18, 1992.
<PAGE> 15
The One Group(R) Growth Opportunities Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.82 $ 18.43 $ 18.14 $ 15.85 $ 17.44
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) (0.15) 0.11 0.09 (0.07) (0.02)
Net realized and unrealized gains (losses) from
investments 5.35 3.44 3.69 2.90 (1.56)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 5.20 3.55 3.78 2.83 (1.58)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- (0.22) (0.07) -- (0.01)
In excess of net investment income -- (0.02) -- -- --
From net realized gains (2.58) (2.92) (3.42) (0.54) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.58) (3.16) (3.49) (0.54) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 21.44 $ 18.82 $ 18.43 $ 18.14 $ 15.85
=================================================================================================================================
Total Return (Excludes Sales Charge) 29.79% 21.73% 23.53% 18.47 % (9.07)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 90,930 $ 37,409 $ 12,910 $ 2,787 $ 1,131
Ratio of expenses to average net assets 2.00% 2.00% 2.00% 1.98 % 2.12 %(c)
Ratio of net investment income (loss) to average net
assets (1.35)% 0.01% 0.15% (0.63)% (0.55)%(c)
Ratio of expenses to average net assets* 2.00% 2.00% 2.01% 1.98 % 2.12 %(c)
Ratio of net investment income (loss) to average net
assets* (1.35)% 0.01% 0.14% (0.63)% (0.55)%(c)
Portfolio turnover (d) 158.43% 301.35% 435.30% 132.63 % 70.67 %
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.47
- ----------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) (0.04)
Net realized and unrealized gains from investments 2.77
- ----------------------------------------------------------------------------
Total from Investment Activities 2.73
- ----------------------------------------------------------------------------
Distributions:
Net realized gains (1.78)
- ----------------------------------------------------------------------------
Total Distributions (1.78)
- ----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.42
============================================================================
Total Return (Excludes Sales Charge) 14.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1,088
Ratio of expenses to average net assets 2.01%(c)
Ratio of net investment income to average net assets (1.31)%(c)
Portfolio turnover (d) 158.43 %
</TABLE>
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund as
a whole without distinguishing among the classes of shares issued.
<PAGE> 16
The One Group(R)
International Equity Index Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks to provide investment
results that correspond to the
aggregate price and dividend
performance of the securities in the
MSCI EAFE GDP Index.*
[LOGO] INVESTMENT STRATEGY
The Fund attempts to track the
capital performance and dividend
income of the Index by investing in
a representative portion of the
stocks which match as closely as
possible the characteristics of the
stocks which comprise the Index. The
Fund also will invest in stock index
futures. The Fund will attempt to
achieve a correlation between the
performance of its portfolio and
that of the MSCI EAFE GDP Index of
at least 0.90, without taking into
account expenses. Perfect
correlation would be 1.00.
[LOGO] PORTFOLIO SECURITIES
The Fund normally invests at least
65% of its total assets in foreign
equity securities, consisting of
common stocks (including American
Depository Receipts) and preferred
stocks, securities convertible to
common stock (provided they are
traded on an exchange or over-the-
counter), warrants and receipts. No
more than 10% of the Fund's assets
will be held in cash or cash
equivalents. The Fund may invest up
to 10% of its net assets in
securities of emerging international
markets such as Mexico, Chile and
Brazil, either directly through
local exchanges, through publicly
traded closed-end country funds, or
through "passive foreign investment
companies." A substantial portion of
the Fund's assets will be
denominated in foreign currencies.
For a list of all the securities in
which the Fund may invest, please
read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity
securities which may increase or
decrease in value. Therefore, the
value of your investment in the Fund
may increase or decrease in value.
Because the Fund's investments are
tied to an index, fluctuations in
the index will affect the value of
your investment in the Fund. Also,
investments in foreign securities
involve risks different from
investments in U.S. securities.
Before you invest, please read "More
About the Funds" and "Investment
Risks."
[LOGO] FUND MANAGEMENT
Independence International
Associates, Inc. ("Independence
International") serves as
sub-advisor to the Fund.
Independence International is an
indirect subsidiary of John Hancock
Mutual Life Insurance Company.
* Gross Domestic Produced Weighted
Morgan Stanley Capital
International Europe, Australia
and Far East Index. MSCI EAFE GDP
Index is a registered service mark
of Morgan Stanley Capital
International, which does not
sponsor and is in no way
affiliated with the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees .55% .55% .55% .55%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .40% .40% .40% .40%
Total Fund Operating Expenses (after
fee waiver) (5) 1.20% 1.95% 1.95% .95%
<CAPTION>
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from the redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.30% for Class A 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) $ 58 $ 84 $113 $195
Class B $ 70 $ 91 $125 $208
Class C $ 30 $ 61 $105 $227
Class I $ 10 $ 30 $ 53 $117
</TABLE>
Assuming no redemption at the end of the 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) $ 58 $ 84 $113 $195
Class B $ 20 $ 61 $105 $208
Class C $ 20 $ 61 $105 $227
Class I $ 10 $ 30 $ 53 $117
</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.
14
<PAGE> 17
15
The One Group(R) International Equity Index Fund Financial Highlights
- -------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.89 $ 15.17 $ 13.93 $ 13.46 $ 11.80 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.21 0.15 0.11 0.13 0.11 0.06
Net realized and unrealized
gains from investments 1.32 2.02 1.43 0.46 1.68 1.75
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.53 2.17 1.54 0.59 1.79 1.81
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.02) (0.17) (0.16) (0.08) (0.11) (0.01)
In excess of net investment
income -- (0.13) (0.02) -- -- --
From net realized gains (0.43) (0.15) (0.12) (0.04) (0.01) --
In excess of net realized gains -- -- -- -- (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.45) (0.45) (0.30) (0.12) (0.13) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.97 $ 16.89 $ 15.17 $ 13.93 $ 13.46 $ 11.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 9.54% 14.64% 11.22% 4.20% 15.44% 26.96%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $ 586,741 $ 449,949 $ 347,790 $ 218,299 $ 145,640 $ 35,384
Ratio of expenses to average
net assets 0.88% 0.86% 0.97% 1.04% 1.02% 1.22%(b)
Ratio of net investment income
to average net assets 1.29% 1.00% 1.04% 1.25% 1.27% 1.37%(b)
Ratio of expenses to average
net assets* 0.88% 0.86% 1.00% 1.04% 1.02% 2.34%(b)
Ratio of net investment income
to average net assets* 1.29% 1.00% 1.01% 1.25% 1.27% 0.25%(b)
Portfolio turnover (c) 9.90% 9.61% 6.28% 4.67% 7.74% 3.10%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Fiduciary Shares commenced offering on April 5, 1993. (b) Annualized. (c)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993(A)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.92 $ 15.16 $ 13.92 $ 13.49 $ 11.8 $ 11.74
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.19 0.11 0.14 0.12 0.09 0.02
Net realized and unrealized
gains from investments 1.31 2.03 1.40 0.43 1.67 0.04
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.50 2.14 1.54 0.55 1.76 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- (0.13) (0.16) (0.08) (0.05) --
In excess of net investment
income -- (0.10) (0.02) -- -- --
From net realized gains (0.43) (0.15) (0.12) (0.04) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.43) (0.38) (0.30) (0.12) (0.07) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.99 $ 16.92 $ 15.16 $ 13.92 $ 13.49 $ 11.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales
Charge) 9.34% 14.31% 11.20% 3.87% 15.18% 2.87%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $ 24,060 $ 12,562 $ 10,789 $ 5,028 $ 2,395 $ 153
Ratio of expenses to average
net assets 1.13% 1.11% 1.22% 1.28% 1.26% 1.47%(b)
Ratio of net investment income
to average net assets 1.11% 0.73% 0.79% 1.09% 1.15% 2.10%(b)
Ratio of expenses to average
net assets* 1.23% 1.19% 1.35% 1.38% 1.36% 2.35%(b)
Ratio of net investment income
to average net assets* 1.01% 0.65% 0.66% 0.99% 1.05% 1.22%(b)
Portfolio turnover (c) 9.90% 9.61% 6.28% 4.67% 7.74% 3.10%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
The Fund commenced operations on April 2, 1993. (b) Annualized. (c)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<PAGE> 18
16
The One Group(R) International Equity Index Fund Financial Highlights
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.44 $ 14.79 $ 13.73 $ 13.40 $ 13.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.08 0.09 0.03 0.03 0.06
Net realized and unrealized gains from investments 1.24 1.86 1.32 0.41 0.34
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.32 1.95 1.35 0.44 0.40
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- (0.08) (0.15) (0.07) --
In excess of net investment income -- (0.07) (0.02) -- --
From net realized gains (0.43) (0.15) (0.12) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.43) (0.30) (0.29) (0.11) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.33 $ 16.44 $ 14.79 $ 13.73 $ 13.40
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 8.48% 13.37% 9.97% 3.17% 3.23%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 13,307 $ 10,033 $ 5,856 $ 3,687 $ 1,872
Ratio of expenses to average net assets 1.88% 1.86% 1.97% 2.04% 2.00%(c)
Ratio of net investment income to average net assets 0.26% 0.08% 0.04% 0.25% 1.37%(c)
Ratio of expenses to average net assets* 1.88% 1.86% 2.00% 2.04% 2.00%(c)
Ratio of net investment income to average net assets* 0.26% 0.08% 0.01% 0.25% 1.37%(c)
Portfolio turnover (d) 9.90% 9.61% 6.28% 4.67% 7.74%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Class B Shares commenced offering on January 14, 1994. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
- ----------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.70
- ----------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) 0.06
Net realized and unrealized gains from investments
(losses) 2.45
- ----------------------------------------------------------------------------
Total from Investment Activities 2.51
- ----------------------------------------------------------------------------
Distributions:
Net realized gains (0.30)
- ----------------------------------------------------------------------------
Total Distributions (0.30)
- ----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.91
- ----------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 16.34%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 119
Ratio of expenses to average net assets 1.87%(c)
Ratio of net investment income to average net assets 2.88%(c)
Portfolio turnover (d) 9.90%
</TABLE>
(a) Period from commencement of operations. (b) Not annualized. (c)
Annualized. (d) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares issued.
<PAGE> 19
17
The One Group(R)
Disciplined Value Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks capital appreciation
with the secondary goal of achieving
current income by investing
primarily in equity securities.
LOGO INVESTMENT STRATEGY
The Fund primarily invests in the
equity securities of companies with
below-market average
price-to-earnings and price-to-book
value ratios. The Fund considers the
issuer's soundness and earnings
prospects. If Banc One Investment
Advisors determines that a company's
fundamentals are declining or that
the company's ability to pay
dividends has been impaired, it
likely may consider eliminating the
Fund's holding of the company's
stock.
LOGO PORTFOLIO SECURITIES
The Fund normally invests at least
80% of its total assets in equity
securities, including common stocks,
debt securities, and preferred
stocks that are convertible into
common stocks. A portion of the
Fund's assets will be held in cash
equivalents. For a list of all the
securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in equity
securities which may increase or
decrease in value. Therefore, the
value of your investment in the Fund
may increase or decrease in value.
Before you invest, please read "More
About the Funds" and "Investment
Practices."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts, and other investment
management professionals. Each team
member makes recommendations about
the securities in the Fund. The
research analysts provide in-depth
industry analysis and
recommendations, while the portfolio
managers determine strategy,
industry weightings, Fund holdings,
and cash positions.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3)
(as a percentage of average daily
net assets)
Investment Advisory Fees .74% .74% .74% .74%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .26% .26% .26% .26%
Total Fund Operating Expenses (after
fee waiver) (5) 1.25% 2.00% 2.00% 1.00%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from the redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.35% for Class A 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 70 $ 93 $128 $213
Class C $ 30 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 20 $ 63 $108 $213
Class C $ 20 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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.
<PAGE> 20
18
The One Group(R) Disciplined Value Fund Financial Highlights
- -------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.65 $ 14.69 $ 13.20 $ 11.90 $ 12.76 $ 11.49
- --------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.14 0.22 0.29 0.28 0.26 0.28
Net realized and unrealized gains from investments 3.99 2.57 2.27 1.57 0.29 1.27
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.13 2.79 2.56 1.85 0.55 1.55
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.14) (0.22) (0.29) (0.27) (0.26) (0.28)
From net realized gains (2.74) (1.61) (0.78) (0.28) (1.15) --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.88) (1.83) (1.07) (0.55) (1.41) (0.28)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.90 $ 15.65 $ 14.69 $ 13.20 $ 11.90 $ 12.76
- --------------------------------------------------------------------------------------------------------------------------
Total Return 28.27% 20.56% 20.10% 16.03% 4.04% 13.58%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 634,672 $ 562,302 $ 522,474 $ 448,530 $ 418,238 $ 211,785
Ratio of expenses to average net assets 0.96% 0.98% 0.99% 1.00% 0.93% 0.89
Ratio of net investment income to average net
assets 0.85% 1.52% 2.04% 2.21% 2.14% 2.30%
Ratio of expenses to average net assets* 0.96% 0.98% 1.00% 1.10% 0.98% 1.08%
Ratio of net investment income to average net
assets* 0.85% 1.52% 2.03% 2.11% 2.09% 2.11%
Portfolio turnover (a) 106.41% 92.66% 90.55% 176.66% 56.33% 108.79%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
CLASS I 1992 1991 1990 1989(b)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.20 $ 10.42 $ 10.85 $ 10.00
- ---------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.34 0.39 0.48 0.14
Net realized and unrealized gains from investments 1.29 (0.23) (0.09) 0.85
- ---------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.63 0.16 0.39 0.99
- ---------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.34) (0.38) (0.48) (0.14)
From net realized gains -- (0.34) --
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.38) (0.82) (0.14)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.49 $ 10.20 $ 10.42 $ 10.85
- ---------------------------------------------------------------------------------------------------------
Total Return 16.24% 1.75% 3.49% 29.90%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 155,234 $ 74,481 $ 59,992 $ 45,872
Ratio of expenses to average net assets 0.69% 0.41% 0.35% 0.33%(c)
Ratio of net investment income to average net
assets 3.17% 3.92% 4.36% 3.95%(c)
Ratio of expenses to average net assets* 1.23% 1.15% 1.09% 1.07%(c)
Ratio of net investment income to average net
assets* 2.63% 3.18% 3.62% 3.21%(c)
Portfolio turnover (a) 25.32% 49.62% 51.14% 14.66%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) Class I Shares
commenced offering on March 2, 1989. (c) Annualized.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(b)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.68 $ 14.72 $ 13.22 $ 11.91 $ 12.75 $ 11.49 $ 11.45
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.10 0.19 0.25 0.24 0.24 0.25 0.12
Net realized and unrealized gains from
investments 3.99 2.57 2.28 1.59 0.30 1.26 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.09 2.76 2.53 1.83 0.54 1.51 0.18
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.10) (0.19) (0.25) (0.24) (0.23) (0.25) (0.14)
From net realized gains (2.74) (1.61) (0.78) (0.26) (1.10) -- --
In excess of net realized gains -- -- -- (0.02) (0.05) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.84) (1.80) (1.03) (0.52) (1.38) (0.25) (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.93 $ 15.68 $ 14.72 $ 13.22 $ 11.91 $ 12.75 $ 11.49
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 27.90% 20.21% 19.80% 15.43% 3.95% 13.27% 1.56%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 29,443 $ 23,909 $ 20,838 $ 13,560 $ 10,448 $ 3,435 $ 35
Ratio of expenses to average net assets 1.21% 1.23% 1.24% 1.26% 1.18% 1.12% 1.29%(c)
Ratio of net investment income to average
net assets 0.60% 1.26% 1.79% 1.99% 2.00% 2.06% 2.43%(c)
Ratio of expenses to average net assets* 1.31% 1.31% 1.35% 1.36% 1.33% 1.46% 1.49%(c)
Ratio of net investment income to average
net assets* 0.50% 1.18% 1.68% 1.89% 1.85% 1.72% 2.23%(c)
Portfolio turnover (a) 106.41% 92.66% 90.55% 176.66% 56.33% 108.79% 25.32%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) Class A Shares
commenced offering on February 18, 1992. (c) Annualized.
<PAGE> 21
19
The One Group(R) Disciplined Value Fund Financial Highlights
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.64 $ 14.69 $ 13.19 $ 11.90 $ 12.60
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (0.02) 0.08 0.15 0.15 0.07
Net realized and unrealized gains (losses) from
investments 3.98 2.55 2.27 1.58 (0.70)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.96 2.63 2.42 1.73 (0.63)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.01) (0.07) (0.14) (0.15) (0.06)
In excess of net investment income -- -- -- (0.01) (0.01)
From net realized gains (2.74) (1.61) (0.78) (0.28) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.75) (1.68) (0.92) (0.44) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.85 $ 15.64 $ 14.69 $ 13.19 $ 11.90
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 26.97% 19.19% 18.93% 14.92% (5.00)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 30,094 $ 20,499 $ 16,305 $ 11,222 $ 5,356
Ratio of expenses to average net assets 1.96% 1.98% 1.99% 2.00% 1.96%(c)
Ratio of net investment income to average net assets (0.15)% 0.51% 1.04% 1.26% 1.80%(c)
Ratio of expenses to average net assets* 1.96% 1.98% 2.00% 2.01% 1.96%(c)
Ratio of net investment income to average net assets* (0.15)% 0.51% 1.03% 1.25% 1.80%(c)
Portfolio turnover (d) 106.41% 92.66% 90.55% 176.66% 56.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a)
Class B Shares commenced offering on January 14, 1994. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<PAGE> 22
20
The One Group(R)
Equity Index Fund
- -----------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks investment results that correspond to the aggregate price and
dividend performance of securities in the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index").*
[LOGO] INVESTMENT STRATEGY
The Fund invests primarily in stocks included in the S&P 500 Index and,
secondarily in stock index futures. Banc One Investment Advisors will seek to
achieve a correlation between the performance of the Fund and that of the S&P
500 Index. To implement this strategy, Banc One Investment Advisors generally
selects stocks in the order of their weightings in the S&P 500 Index beginning
with the heaviest weighted stocks. The Fund will attempt to achieve a
correlation between the performance of its portfolio and that of the S&P 500
Index of at least 0.95, without taking into account expenses. Perfect
correlation would be 1.00.
[LOGO] PORTFOLIO SECURITIES
The percentage of a stock that the Fund holds will be approximately the same
percentage that the stock represents in the S&P 500 Index. In addition, the Fund
may hold up to 10% of its net assets in cash or cash equivalents. For a list of
all the securities in which the Fund may invest, please read "Investment
Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity securities, which may increase or decrease in value.
Therefore, the value of your investment in the Fund may increase or decrease in
value. Because the Fund's investments are tied to an index, fluctuations in the
index will affect the value of your investment in the Fund. Before you invest,
please read "More About the Funds" and "Investment Risks."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of portfolio managers, research analysts, and
other investment management professionals. Each team member makes
recommendations about the securities in the Fund. The research analysts provide
in-depth industry analysis and recommendations, while the portfolio managers
determine strategy, industry weightings, Fund holdings, and cash positions.
* "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3)
Investment Advisory Fees (after
fee waiver) (4) .25% .25% .25% .25%
12b-1 Fees (after fee waiver) (5) .25% 1.00% 1.00% none
Other Expenses .25% .25% .25% .25%
Total Fund Operating Expenses (after
fee waivers) (6) .75% 1.50% 1.50% .50%
</TABLE>
(1) If you buy or sell shares through an account with a Shareholder
Servicing Agent, you may be charged separate transaction fees by the
Shareholder Servicing Agent. In addition, a $10.00 sub-minimum account
fee may be applicable and a $7.00 charge will be deducted from the
redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .30% for all
classes of shares.
(5) 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.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be .90% for Class A shares, 1.55% for
Class B shares, 1.55% for Class C shares and .55% for Class I 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 $ 52 $ 68 $ 85 $134
Class A
(without fee
waivers) $ 54 $ 72 $ 93 $151
Class B $ 65 $ 77 $102 $159
Class B
(without fee
waivers) $ 66 $ 79 $104 $167
Class C $ 25 $ 47 $ 82 $179
Class C
(without fee
waivers) $ 26 $ 49 $ 84 $185
Class I $ 5 $ 16 $ 28 $ 63
Class I
(without fee
waiver) $ 6 $ 18 $ 31 $ 69
</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 $ 52 $ 68 $ 85 $134
Class A
(without fee
waivers) $ 54 $ 72 $ 93 $151
Class B $ 15 $ 47 $ 82 $159
Class B
(without fee
waivers) $ 16 $ 49 $ 84 $167
Class C $ 15 $ 47 $ 82 $179
Class C
(without fee
waivers) $ 16 $ 49 $ 84 $185
Class I $ 5 $ 16 $ 28 $ 63
Class I
(without fee
waivers) $ 6 $ 18 $ 31 $ 69
</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.
<PAGE> 23
The One Group(R) Equity Index Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993 1992(b)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 21.80 $ 16.66 $ 14.03 $ 11.59 $ 11.92 $ 10.92 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.33 0.35 0.33 0.32 0.29 0.30 0.26
Net realized and
unrealized gains
(losses) from
investments 5.98 5.27 3.16 2.59 (0.20) 1.13 0.95
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Activities 6.31 5.62 3.49 2.91 0.09 1.43 1.21
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.32) (0.33) (0.33) (0.29) (0.29) (0.30) (0.26)
In excess of net
investment income -- -- (0.01) (0.02) (0.04) -- --
From net realized gains (0.63) (0.15) (0.52) (0.16) (0.09) (0.13) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.95) (0.48) (0.86) (0.47) (0.42) (0.43) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 27.16 $ 21.80 $ 16.66 $ 14.03 $ 11.59 $ 11.92 $ 10.92
=================================================================================================================================
Total Return 29.73% 34.30% 25.47% 25.79% 0.63% 13.04% 12.14%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period(000) $ 671,422 $ 480,819 $ 321,058 $ 234,895 $ 165,370 $ 96,446 $ 62,150
Ratio of expenses to
average net assets 0.35% 0.30% 0.30% 0.33% 0.46% 0.50% 0.73%(c)
Ratio of net investment
income to average net
assets 1.37% 1.87% 2.18% 2.57% 2.44% 2.46% 2.43%(c)
Ratio of expenses to
average net assets* 0.62% 0.61% 0.59% 0.66% 0.59% 0.87% 1.16%(c)
Ratio of net investment
income to average net
assets* 1.10% 1.56% 1.89% 2.24% 2.31% 2.09% 2.00%(c)
Portfolio turnover (a) 4.32% 5.81% 9.08% 2.71% 11.81% 2.71% 21.90%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued. (b) The Fund
commenced operations on July 2, 1991. (c) Annualized.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(B)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 21.81 $ 16.67 $ 14.02 $ 11.59 $ 11.91 $ 10.92 $ 10.94
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.26 0.29 0.27 0.29 0.28 0.30 0.08
Net realized and
unrealized gains
(losses) from
investments 5.97 5.28 3.18 2.58 (0.20) 1.10 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Activities 6.23 5.57 3.45 2.87 0.08 1.40 0.08
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.26) (0.28) (0.27) (0.28) (0.27) (0.28) (0.10)
In excess of net
investment income -- -- (0.01) -- (0.04) -- --
From net realized gains (0.63) (0.15) (0.52) (0.16) (0.09) (0.13) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.89) (0.43) (0.80) (0.44) (0.40) (0.41) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 27.15 $ 21.81 $ 16.67 $ 14.02 $ 11.59 $ 11.91 $ 10.92
=================================================================================================================================
Total Return (Excludes Sales
Charge) 29.33% 33.94% 25.16% 25.43% 0.56% 12.75% 1.32%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period(000) $ 218,518 $ 98,338 $ 32,186 $ 3,003 $ 1,416 $ 512 $ 5
Ratio of expenses to
average net assets 0.60% 0.55% 0.55% 0.56% 0.62% 0.52% 1.09%(c)
Ratio of net investment
income to average net
assets 1.11% 1.59% 1.93% 2.38% 2.37% 2.51% 1.97%(c)
Ratio of expenses to
average net assets* 0.96% 0.95% 0.94% 1.01% 0.94% 0.99% 1.27%(c)
Ratio of net investment
income to average net
assets* 0.75% 1.19% 1.54% 1.94% 2.05% 2.04% 1.79%(c)
Portfolio turnover (a) 4.32% 5.81% 9.08% 2.71% 11.81% 2.71% 21.90%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued. (b) Class A
Shares commenced offering on February 18, 1992. (c) Annualized.
21
<PAGE> 24
22
The One Group(R) Equity Index Fund Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.80 $ 16.68 $ 14.05 $ 11.61 $ 12.39
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.10 0.16 0.16 0.18 0.09
Net realized and unrealized gains (losses) from
investments 5.97 5.27 3.16 2.61 (0.78)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 6.07 5.43 3.32 2.79 (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.11) (0.16) (0.16) (0.19) (0.09)
In excess of net investment income -- -- (0.01) -- --
From net realized gains (0.63) (0.15) (0.52) (0.16) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.74) (0.31) (0.69) (0.35) (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 27.13 $ 21.80 $ 16.68 $ 14.05 $ 11.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 28.47% 32.93% 24.05% 24.58% (5.57)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 351,624 $ 168,699 $ 38,538 $ 1,408 $ 248
Ratio of expenses to average net assets 1.35% 1.30% 1.30% 1.34% 1.10%(c)
Ratio of net investment income to average net assets 0.36% 0.83% 1.18% 1.60% 2.08%(c)
Ratio of expenses to average net assets* 1.61% 1.61% 1.59% 1.67% 1.15%(c)
Ratio of net investment income to average net
assets* 0.10% 0.52% 0.89% 1.27% 2.03%(c)
Portfolio turnover (d) 4.32% 5.81% 9.08% 2.71% 11.81%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis
of the Fund as a whole without distinguishing among the classes of shares
issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
- -------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 22.60
- -------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.07
Net realized and unrealized gains (losses) from
investments 4.67
- -------------------------------------------------------------------------------
Total from Investment Activities 4.74
- -------------------------------------------------------------------------------
Distributions:
Net investment income (0.08)
Net realized gains (0.12)
- -------------------------------------------------------------------------------
Total Distributions (0.20)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 27.14
- -------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 21.07%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 3,214
Ratio of expenses to average net assets 1.35%(c)
Ratio of net investment income to average net assets 0.27%(c)
Ratio of expenses to average net assets* 1.60%(c)
Ratio of net investment income to average net assets* 0.02%(c)
Portfolio turnover (d) 4.32%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<PAGE> 25
23
The One Group(R)
Income Equity Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks current income
through regular payment of dividends
with the secondary goal of achieving
capital appreciation by investing
primarily in equity securities.
LOGO INVESTMENT STRATEGY
The Fund attempts to keep its yield
above the Standard & Poor's 500
Composite Price Index ("S&P 500
Index")* by investing in common
stocks of corporations which
regularly pay dividends, as well as
stocks with favorable long-term
fundamental characteristics.
Continued payment of dividends
cannot be assured. Because achieving
yield is the primary consideration
in selecting securities, stocks of
companies that are out of favor in
the financial community may also be
purchased.
LOGO PORTFOLIO SECURITIES
The Fund normally invests at least
65% of its total assets in the
equity securities of companies
described above, including common
stocks, debt securities, and
preferred stocks that are
convertible into common stocks. A
portion of the Fund's assets will be
held in cash equivalents. For a list
of all the securities in which the
Fund may invest, please read
"Investment Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in equity
securities, which may increase or
decrease in value. Therefore, the
value of your investment in the Fund
may increase or decrease in value.
Before you invest, please read "More
About the Funds" and "Investment
Practices."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts, and other investment
management professionals. Each team
member makes recommendations about
the securities in the Fund. The
research analysts provide in-depth
industry analysis and
recommendations, while the portfolio
managers determine strategy,
industry weightings, Fund holdings,
and cash positions.
* "Standard & Poor's 500" is a
registered service mark of
Standard & Poor's Corporation,
which does not sponsor and is in
no way affiliated with the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees .74% .74% .74% .74%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .26% .26% .26% .26%
Total Fund Operating Expenses (after
fee waiver) (5) 1.25% 2.00% 2.00% 1.00%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.35% for Class A 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 70 $ 93 $128 $213
Class C $ 30 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 20 $ 63 $108 $213
Class C $ 20 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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.
<PAGE> 26
24
The One Group(R) Income Equity Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 21.93 $ 17.65 $ 15.13 $ 13.22 $ 13.21 $ 12.24 $ 11.35 $ 11.06
- --------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.32 0.36 0.40 0.40 0.39 0.43 0.49 0.54
Net realized and unrealized
gains from investments 4.36 4.89 3.22 2.28 0.01 0.97 0.90 0.26
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.68 5.25 3.62 2.68 0.40 1.40 1.39 (0.51)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.31) (0.36) (0.40) (0.40) (0.39) (0.43) (0.50) --
From net realized gains (2.23) (0.61) (0.70) (0.37) -- -- -- (0.51)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.54) (0.97) (1.10) (0.77) (0.39) (0.43) (0.50) (0.51)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 24.07 $ 21.93 $ 17.65 $ 15.13 $ 13.22 $ 13.21 $ 12.24 $ 11.35
================================================================================================================================
Total Return 23.18% 30.90% 24.53% 21.04% 3.27% 11.56% 12.36% 7.48%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $691,878 $ 649,007 $ 321,827 $170,919 $198,787 $153,144 $125,050 $73,552
Ratio of expenses to average
net assets 1.00% 1.00% 0.98% 1.01% 0.98% 0.90% 0.70% 0.42%
Ratio of net investment income
to average net assets 1.39% 1.91% 2.44% 2.85% 3.18% 3.37% 4.12% 4.80%
Ratio of expenses to average
net assets* 1.00% 1.00% 1.01% 1.01% 1.05% 1.07% 1.23% 1.16%
Ratio of net investment income
to average net assets* 1.39% 1.91% 2.41% 2.85% 3.11% 3.20% 3.59% 4.06%
Portfolio turnover (a) 14.64% 28.18% 14.92% 4.03% 22.69% 7.53% 5.99% 9.36%
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
CLASS I 1990 1989(b)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.32 $ 9.10
- ------------------------------------------------------------------
Investment Activities:
Net investment income 0.53 0.45
Net realized and unrealized
gains from investments 0.77 1.22
- -----------------------------------------------------------------------------
Total from Investment Activities (0.56) (0.45)
- ----------------------------------------------------------------------------------------
Distributions:
From net investment income -- --
From net realized gains (0.56) (0.45)
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.45)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.06 $ 10.32
=========================================================================================================================
Total Return 12.79% 18.59%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $37,056 $24,591
Ratio of expenses to average
net assets 0.49% 0.66%
Ratio of net investment income
to average net assets 4.94% 5.35%
Ratio of expenses to average
net assets* 1.23% 1.42%
Ratio of net investment income
to average net assets* 4.20% 4.59%
Portfolio turnover (a) 9.81% 7.14%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares issued. (b) Share
class commenced operations July 2, 1987.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(b)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.90 $ 17.64 $ 15.11 $ 13.20 $ 13.20 $ 12.23 $ 12.34
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.25 0.31 0.38 0.03 0.36 0.40 0.20
Net realized and unrealized gains from
investments 4.37 4.87 3.20 2.29 -- 0.98 (0.10)
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.62 5.18 3.58 2.32 0.36 1.38 0.10
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.25) (0.31) (0.35) (0.03) (0.34) (0.41) (0.21)
In excess of net investment income -- -- -- (0.01) (0.02) -- --
From net realized gains (2.23) (0.61) (0.70) (0.37) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.48) (0.92) (1.05) (0.41) (0.36) (0.41) (0.21)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 24.04 $ 21.90 $ 17.64 $ 15.11 $ 13.20 $ 13.20 $ 12.23
================================================================================================================================
Total Return (Excludes Sales Charge) 22.91% 30.39% 24.23% 20.79% 2.95% 11.38% 2.16%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 117,682 $ 78,976 $44,284 $13,793 $12,054 $9,513 $118
Ratio of expenses to average net assets 1.25% 1.25% 1.23% 1.26% 1.23% 1.11% 1.29%(c)
Ratio of net investment income to average
net assets 1.15% 1.65% 2.19% 2.61% 3.01% 3.32% 3.97%(c)
Ratio of expenses to average net assets* 1.35% 1.34% 1.36% 1.36% 1.40% 1.43% 1.49%(c)
Ratio of net investment income to average
net assets* 1.05% 1.56% 2.06% 2.51% 2.84% 3.00% 3.77%(c)
Portfolio turnover (a) 14.64% 28.18% 14.92% 4.03% 22.69% 7.53% 5.99%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares issued. (b) Class A
Shares commenced offering on February 18, 1992. (c) Annualized.
<PAGE> 27
25
The One Group(R) Income Equity Fund Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.95 $ 17.68 $ 15.14 $ 13.23 $ 13.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.26 0.17 0.24 0.26 0.11
Net realized and unrealized gains (losses) from
investments 4.36 4.89 3.23 2.29 (0.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.62 5.06 3.47 2.55 (0.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.26) (0.18) (0.23) (0.25) (0.11)
In excess of net investment income -- -- -- (0.02) --
From net realized gains (2.23) (0.61) (0.70) (0.37) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.49) (0.79) (0.93) (0.64) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 24.08 $ 21.95 $ 17.68 $ 15.14 $ 13.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 21.97% 29.48% 23.41% 19.91% (3.37)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 165,813 $ 79,518 $ 29,169 $ 3,468 $ 1,714
Ratio of expenses to average net assets 1.99% 2.00% 1.98% 2.01% 1.95%(c)
Ratio of net investment income to average net
assets 0.39% 0.89% 1.44% 1.88% 2.70%(c)
Ratio of expenses to average net assets* 1.99% 2.00% 2.01% 2.02% 1.95%(c)
Ratio of net investment income to average net
assets* 0.39% 0.89% 1.41% 1.87% 2.70%(c)
Portfolio turnover (d) 14.64% 28.18% 14.92% 4.03% 22.69%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994. (b) Not
Annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis
of the Fund as a whole without distinguishing among the classes of shares
issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
- -------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.40
- -------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.06
Net realized and unrealized gains (losses) from
investments 3.39
- -------------------------------------------------------------------------------
Total from Investment Activities 3.45
- -------------------------------------------------------------------------------
Distributions:
Net investment income (0.07)
Net realized gains (0.70)
- -------------------------------------------------------------------------------
Total Distributions (0.77)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 24.08
- -------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 16.57%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 795
Ratio of expenses to average net assets 1.98%(c)
Ratio of net investment income to average net assets 0.38%(c)
Portfolio turnover (d) 14.64%
</TABLE>
(a) Period from commencement of operations. (b) Not annualized. (c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<PAGE> 28
26
The One Group(R)
Value Growth Fund
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks long term capital growth and growth of income with a secondary
objective of providing a moderate level of current income.
[LOGO] INVESTMENT STRATEGY
The Fund invests primarily in common stocks of overlooked or undervalued
companies that have the potential for earnings growth over time. The Fund uses a
multi-style approach, meaning that it may invest across varied capitalization
levels targeting both value and growth oriented companies. Because the Fund
seeks return over the long term, Banc One Investment Advisors will not attempt
to time the market.
[LOGO] PORTFOLIO SECURITIES
The Fund normally invests at least 65% of its total assets in equity securities
described above. Up to 35% of its total assets may be invested in U.S.
Government Securities, other investment grade fixed income securities, cash, and
cash equivalents. For a list of all the securities in which the Fund may invest,
please read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity securities which may increase or decrease in value.
As a result, your investment in the Fund may increase or decrease in value. The
Fund also may invest in fixed income securities. The value of these securities
will change in response to interest rate changes and other factors. This is
especially true to the extent that the Fund invests in debt securities with
speculative characteristics. Before you invest, please read "More About the
Funds" and "Investment Risks."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of portfolio managers, research analysts, and
other investment management professionals. Each team member makes
recommendations about the securities in the Fund. The research analysts provide
in-depth industry analysis and recommendations, while the portfolio managers
determine strategy, industry weightings, Fund holdings, and cash positions.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3)
(as a percentage of average daily
net assets)
Investment Advisory Fees .74% .74% .74% .74%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .26% .26% .26% .26%
Total Fund Operating Expenses (after
fee waiver) (5) 1.25% 2.00% 2.00% 1.00%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.35% for Class A 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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 70 $ 93 $128 $213
Class C $ 30 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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 $ 83 $111 $189
Class A
(without fee
waiver) $ 58 $ 86 $116 $200
Class B $ 20 $ 63 $108 $213
Class C $ 20 $ 63 $108 $233
Class I $ 10 $ 32 $ 55 $122
</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.
<PAGE> 29
27
The One Group(R) Value Growth Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
MARCH 26,
YEAR ENDED JUNE 30, 1996 TO
-------------------------- JUNE 30,
CLASS I 1998 1997 1996(a)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.51 $ 10.39 $ 10.00
- --------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.08 0.11 0.03
Net realized and unrealized gains from investments 3.36 2.85 0.39
- --------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.44 2.96 0.42
- --------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.08) (0.11) (0.03)
From net realized gains (1.36) (1.73) --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (1.44) (1.84) (0.03)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.51 $ 11.51 $ 10.39
- --------------------------------------------------------------------------------------------------------------
Total Return 32.26% 31.97% 10.49%(b)(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period(000) $630,340 $430,837 $191,212
Ratio of expenses to average net assets 0.98% 0.98% 0.95%(d)
Ratio of net investment income to average net assets 0.66% 1.06% 1.13%(d)
Ratio of expenses to average net assets* 0.98% 1.00% 1.04%(d)
Ratio of net investment income to average net assets* 0.66% 1.04% 1.04%(d)
Portfolio turnover (e) 62.37% 113.17% 65.21%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Period from date reorganized as a fund of The One
Group. (b) Represents total return for Class A Shares from December 1, 1995
through March 25, 1996 plus total return for Class I Shares for the period
from March 26, 1996 through June 30, 1996. (c) Not
annualized. (d) Annualized. (e) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS
JUNE 30, ENDED YEAR ENDED JUNE 30,
----------------------- JUNE 30, ----------------------------------
CLASS A 1998 1997 1996(a) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.50 $ 10.39 $ 11.15 $ 9.00 $ 10.02 $ 9.42
- ----------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.05 0.09 0.94 0.12 0.13 0.11
Net realized and unrealized gains
(losses) from investments 3.36 2.83 0.08 2.44 (0.56) 0.83
- ----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.41 2.92 1.02 2.56 (0.43) 0.94
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.05) (0.08) (0.94) (0.12) (0.14) (0.12)
In excess of net investment income -- -- (0.01) -- -- --
From net realized gains (1.36) (1.73) (0.83) (0.29) (0.45) (0.22)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.41) (1.81) (1.78) (0.41) (0.59) (0.34)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.50 $ 11.50 $ 10.39 $ 11.15 $ 9.00 $ 10.02
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 31.96% 31.53% 10.40%(b) 29.57% (4.32)% 10.13%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $80,500 $47,306 $35,984 $217,978 $173,198 $171,141
Ratio of expenses to average net assets 1.23% 1.23% 0.97%(c) 0.95% 0.96% 0.96%
Ratio of net investment income to average
net assets 0.40% 0.83% 0.85%(c) 1.25% 1.34% 1.21%
Ratio of expenses to average net assets* 1.33% 1.34% 1.05%(c) 0.95% 0.96% 0.96%
Ratio of net investment income to average
net assets* 0.30% 0.72% 0.77%(c) 1.25% 1.34% 1.21%
Portfolio turnover (d) 62.37% 113.17% 65.21% 77.00% 53.00% 66.00%
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
CLASS A 1992 1991
- ------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.80 $ 6.39
- ------------------------------------------------------------------
Investment Activities:
Net investment income 0.11 0.12
Net realized and unrealized gains
(losses) from investments 1.75 1.44
- ------------------------------------------------------------------
Total from Investment Activities 1.86 1.56
- ------------------------------------------------------------------
Distributions:
From net investment income (0.10) (0.14)
In excess of net investment income -- --
From net realized gains (0.14) (0.01)
- ------------------------------------------------------------------
Total Distributions (0.24) (0.15)
- ------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 7.80
- ------------------------------------------------------------------
Total Return (Excludes Sales Charge) 24.27% 24.97%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $133,614 $93,400
Ratio of expenses to average net assets 0.97% 0.95%
Ratio of net investment income to average
net assets 1.25% 1.73%
Ratio of expenses to average net assets* 0.97% 1.02%
Ratio of net investment income to average
net assets* 1.25% 1.66%
Portfolio turnover (d) 43.00% 54.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Upon reorganizing as a fund of The One Group, the Paragon
Value Growth Fund became the Value Growth Fund. Financial highlights for the
periods prior to March 26, 1996 represent the Paragon Value Growth Fund. The
per share data for the periods prior to March 26, 1996 have been restated to
reflect the impact of restatement of net asset value from $15.26 to $10.00
effective March 26, 1996. (b) Not annualized. (c) Annualized. (d) Portfolio
turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<PAGE> 30
28
The One Group(R) Value Growth Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS SEPTEMBER 9,
JUNE 30, ENDED YEAR ENDED 1994 TO
----------------------- JUNE 30, NOVEMBER 30, NOVEMBER 30,
CLASS B 1998 1997 1996(a) 1995 1994(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.47 $ 10.39 $ 11.16 $ 9.01 $ 9.85
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (0.02) 0.01 0.91 0.05 0.02
Net realized and unrealized gains (losses)
from investments 3.31 2.82 0.07 2.46 (0.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.29 2.83 0.98 2.51 (0.82)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- (0.02) (0.91) (0.07) (0.02)
In excess of net investment income -- -- (0.01) -- --
From net realized gains (1.36) (1.73) (0.83) (0.29) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.36) (1.75) (1.75) (0.36) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.40 $ 11.47 $ 10.39 $11.16 $ 9.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 30.89% 30.52% 9.96%(c) 28.74% (8.31)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $25,501 $10,517 $ 4,673 $2,923 $412
Ratio of expenses to average net assets 1.98% 1.98% 1.86%(d) 1.70% 1.71%(d)
Ratio of net investment income to average
net assets (0.35)% 0.07% 0.13%(d) 0.38% 0.76%(d)
Ratio of expenses to average net assets* 1.98% 2.00% 1.94%(d) 1.70% 1.71%(d)
Ratio of net investment income to average
net assets* (0.35)% 0.05% 0.05%(d) 0.38% 0.76%(d)
Portfolio turnover (e) 62.37% 113.17% 65.21% 77.00% 53.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Upon reorganizing as a fund of The One Group, the Paragon
Value Growth Fund became the Value Growth Fund. Financial highlights for the
periods prior to March 26, 1996 represent the Paragon Value Growth Fund. The
per share data for the periods prior to March 26, 1996 have been restated to
reflect the impact of restatement of net asset value from $15.21 to $10.00
effective March 26, 1996. (b) Class B Shares commenced offering September 9,
1994. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is
calculated on the basis of the Fund as a whole without distinguishing among
the classes of shares issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.76
- ------------------------------------------------------------------------------
Investment Activities:
Net realized and unrealized gains (losses) from
investments 2.35
- ------------------------------------------------------------------------------
Total from Investment Activities 2.35
- ------------------------------------------------------------------------------
Distributions:
Net investment income (0.01)
Net realized gains (0.63)
- ------------------------------------------------------------------------------
Total Distributions (0.64)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.47
- ------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 20.87%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $1,234
Ratio of expenses to average net assets 1.99%(c)
Ratio of net investment income to average net assets (0.43)%(c)
Portfolio turnover (d) 62.37 %
</TABLE>
(a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis
of the Fund as a whole without distinguishing among the classes of shares
issued.
<PAGE> 31
29
The One Group(R)
Small Capitalization Fund
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks long-term capital growth primarily by investing in a portfolio of
equity securities of small capitalization and emerging growth companies.
[LOGO] INVESTMENT STRATEGY
The Fund invests primarily in common stocks, debt securities, preferred stocks,
convertible securities, warrants, and other equity securities of small
capitalization companies. Generally, Banc One Investment Advisors selects a
portfolio of companies with a market capitalization equivalent to the median
market capitalization of the S&P Small-Cap 600 Index*, although the Fund may
occasionally hold securities of companies with larger capitalizations if doing
so contributes to the Fund's investment objective. This Fund was formerly called
The One Group Gulf South Growth Fund.
[LOGO] PORTFOLIO SECURITIES
The Fund invests at least 65% of its total assets in the securities described in
"Investment Strategy." Up to 35% of its total assets may be invested in U.S.
Government Securities, other investment grade fixed income securities, cash, and
cash equivalents. For a list of all the securities in which the Fund may invest,
please read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in equity securities which may increase or decrease in value.
As a result, your investment in the Fund may increase or decrease in value.
Also, smaller companies may be subject to greater business risks than larger
companies. Before you invest, please read "More About the Funds" and "Investment
Risks."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of portfolio managers, research analysts, and
other investment management professionals. Each team member makes
recommendations about the securities in the Fund. The research analysts provide
in-depth industry analysis and recommendations, while the portfolio managers
determine strategy, industry weightings, Fund holdings, and cash positions.
* "Standard & Poor's Small-Cap 600" is a registered service mark of Standard &
Poor's Corporation, which does not sponsor and is in no way affiliated with
the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees .74% .74% .74% .74%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .31% .31% .31% .31%
Total Fund Operating Expenses (after
fee waiver) (5) 1.30% 2.05% 2.05% 1.05%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.40% for Class A 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 $ 58 $ 84 $113 $195
Class A
(without fee
waiver) $ 59 $ 87 $118 $205
Class B $ 71 $ 94 $130 $219
Class C $ 31 $ 64 $110 $238
Class I $ 11 $ 33 $ 58 $128
</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 $ 58 $ 84 $113 $195
Class A
(without fee
waiver) $ 59 $ 87 $118 $205
Class B $ 21 $ 64 $110 $219
Class C $ 21 $ 64 $110 $238
Class I $ 11 $ 33 $ 58 $128
</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 REPRESENTATIONS OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE> 32
30
The One Group(R) Small Capitalization Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 26,
JUNE 30, 1996 TO
---------------------------- JUNE 30,
CLASS I 1998 1997 1996(a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.94 $ 10.75 $10.00
- --------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) -- (0.02) --
Net realized and unrealized gains from investments 2.44 1.31 0.78
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.44 1.29 0.78
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
From net realized gains (1.33) (1.10) (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.33) (1.10) (0.03)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.05 $ 10.94 $10.75
- --------------------------------------------------------------------------------------------------------------------------
Total Return 23.58% 13.44% 13.39%(b)(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $114,951 $78,318 $83,371
Ratio of expenses to average net assets 1.06% 1.02% 0.96%(d)
Ratio of net investment income (loss) to average net
assets (0.05)% (0.16)% (0.16)%(d)
Ratio of expenses to average net assets* 1.09% 1.12% 1.05%(d)
Ratio of net investment income (loss) to average net
assets* (0.08)% (0.26)% (0.25)%(d)
Portfolio turnover (e) 83.77% 92.01% 59.57%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Period from date reorganized as a fund of The One
Group. (b) Represents total return for Class A Shares from December 1, 1995
through March 25, 1996 plus total return for Class I Shares for the period
from March 26, 1996 through June 30, 1996. (c) Not
annualized. (d) Annualized. (e) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS
JUNE 30, ENDED YEAR ENDED NOVEMBER 30,
---------------------- JUNE 30, -----------------------------------------------
CLASS A 1998 1997 1996(a) 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.94 $ 10.73 $ 11.50 $ 9.36 $ 10.11 $ 9.48 $ 7.38
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) (0.03) (0.04) (0.07) (0.04) (0.04) (0.02) 0.01
Net realized and unrealized gains
(losses) from investments 2.44 1.35 1.40 2.35 (0.63) 0.88 2.10
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.41 1.31 1.33 2.31 (0.67) 0.86 2.11
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income -- -- -- -- -- (0.01) (0.01)
From net realized gains (1.33) (1.10) (2.10) (0.17) (0.08) (0.22) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.33) (1.10) (2.10) (0.17) (0.08) (0.23) (0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.02 $ 10.94 $ 10.73 $ 11.50 $ 9.36 $ 10.11 $ 9.48
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 23.28 % 13.52 % 12.85 %(b) 25.07 % (6.66)% 9.10 % 28.59 %
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $21,634 $17,299 $18,356 $95,467 $77,540 $74,982 $55,719
Ratio of expenses to average net
assets 1.31 % 1.27 % 1.05 %(c) 1.03 % 1.00 % 1.01 % 1.00 %
Ratio of net investment income (loss)
to average net assets (0.31)% (0.41)% (0.33)%(c) (0.36)% (0.38)% (0.21)% 0.15 %
Ratio of expenses to average net
assets* 1.44 % 1.45 % 1.07 %(c) 1.03 % 1.00 % 1.01 % 1.00 %
Ratio of net investment income (loss)
to average net assets* (0.44)% (0.59)% (0.35)%(c) (0.36)% (0.38)% (0.21)% 0.15 %
Portfolio turnover (d) 83.77 % 92.01 % 59.57 % 65.00 % 51.00 % 59.00 % 42.00 %
<CAPTION>
FIVE MONTHS
ENDED
NOVEMBER 30,
CLASS A 1991(e)
- ----------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.37
- ----------------------------------------------------
Investment Activities:
Net investment income (loss) 0.01
Net realized and unrealized gains
(losses) from investments 1.01
- ----------------------------------------------------
Total from Investment Activities 1.02
- ----------------------------------------------------
Distributions:
From net investment income (0.01
From net realized gains --
- ----------------------------------------------------
Total Distributions (0.01
- ----------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.38
- ----------------------------------------------------
Total Return (Excludes Sales Charge) 16.12 %(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $34,546
Ratio of expenses to average net
assets 1.05 %(c)
Ratio of net investment income (loss)
to average net assets 0.31 %(c)
Ratio of expenses to average net
assets* 1.05 %(c)
Ratio of net investment income (loss)
to average net assets* 0.31 %(c)
Portfolio turnover (d) 12.00 %
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Upon reorganizing as a fund of The One Group, the Paragon Gulf
South Growth Fund became the Gulf South Growth Fund. Financial highlights for
the periods prior to March 26, 1996 represent the Paragon Gulf South Growth
Fund. The per share data for the periods prior to March 26, 1996 have been
restated to reflect the impact of restatement of net asset value from $15.70
to $10.00 effective March 26, 1996. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued. (e) Period from commencement of operations.
<PAGE> 33
The One Group(R) Small Capitalization Fund Financial Highlights
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED Months Year September 12,
JUNE 30, ended ended 1994 to
----------------------- June 30, November 30, November 30,
CLASS B 1998 1997 1996(a) 1995 1994(b)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.84 $ 10.72 $ 11.56 $ 9.47 $ 10.40
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment loss (0.03) (0.10) (0.06) (0.07) (0.01)
Net realized and unrealized gains (losses) from
investments 2.31 1.32 1.35 2.33 (0.92)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.28 1.22 1.29 2.26 (0.93)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net realized gains (1.33) (1.10) (2.13) (0.17) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.33) (1.10) (2.13) (0.17) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.79 $ 10.84 $ 10.72 $ 11.56 $ 9.47
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 22.24 % 12.74 % 12.47 %(c) 24.21 % (9.08)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $8,567 $3,835 $2,545 $1,814 $231
Ratio of expenses to average net assets 2.06 % 2.02 % 1.87 %(d) 1.78 % 1.75 %(d)
Ratio of net investment income (loss) to average
net assets (1.02)% (1.16)% (1.10)%(d) (1.16)% (0.90)%(d)
Ratio of expenses to average net assets* 2.09 % 2.12 % 1.92 %(d) 1.78 % 1.75 %(d)
Ratio of net investment income (loss) to average
net assets* (1.05)% (1.26)% (1.15)%(d) (1.16)% (0.90)%(d)
Portfolio turnover (e) 83.77 % 92.01 % 59.57 % 65.00 % 51.00 %
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Upon reorganizing as a fund of The One Group, the Paragon Gulf
South Growth Fund became the Gulf South Growth Fund. Financial highlights for
the periods prior to March 26, 1996 represent the Paragon Gulf South Growth
Fund. The per share data for the periods prior to March 26, 1996 have been
restated to reflect the impact of restatement of net asset value from $15.48
to $10.00 effective March 26, 1996. (b) Class B Shares commenced offering
September 12, 1994. (c) Not annualized. (d) Annualized. (e) Portfolio
turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.03
- ----------------------------------------------------------------------------
Investment Activities:
Net investment income (loss) (0.02)
Net realized and unrealized gains (losses) from
investments 0.29
- ----------------------------------------------------------------------------
Total from Investment Activities 0.27
- ----------------------------------------------------------------------------
Distributions:
Net realized gains (1.33)
- ----------------------------------------------------------------------------
Total Distributions (1.33)
- ----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.97
- ----------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 3.08%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $90
Ratio of expenses to average net assets 2.05%(c)
Ratio of net investment income to average net assets (0.85)%(c)
Ratio of expenses to average net assets* 2.07%(c)
Ratio of net investment income to average net assets* (0.87)%(c)
Portfolio turnover (d) 83.77%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
31
<PAGE> 34
more about the funds
32
Portfolio Quality
- ----------------------------------------------------
The Funds only purchase securities that meet certain rating criteria.
- - >If the Funds invest in municipal bonds, the bonds must be rated as investment
grade.
- - >Other municipal securities, such as tax-exempt commercial paper, notes and
variable rate demand obligations, must be rated in one of the two highest
investment grade categories at the time of investment.
- - >Corporate bonds generally will be rated in one of the three highest
investment grade categories.
- - >Banc One Investment Advisors reserves the right to invest in corporate bonds
which present attractive opportunities and are rated in the lowest investment
grade category. These corporate bonds may be riskier than higher rated bonds.
If the securities are unrated, Banc One Investment Advisors must determine that
they are of comparable quality to rated securities. Banc One Investment Advisors
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
- ----------------------------------------------------
Each 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 will follow
guidelines adopted by The One Group Board of Trustees in determining whether an
investment is illiquid.
Special Risk
Considerations
- ----------------------------------------------------
DERIVATIVES: Some of the Funds may invest in securities that are considered to
be "derivatives." Derivatives are securities that derive their value from the
performance of underlying assets or securities. These include:
- - >options, futures contracts, and options on futures contracts
- - >warrants
- - >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
- - >currency forwards
- - >structured instruments
These securities may be more volatile than other investments. Derivatives
present, to varying degrees, market, credit, leverage, liquidity, and management
risks. For a more detailed discussion of these risks, please read "Investment
Risks." A Fund's use of derivatives may cause the Fund to recognize higher
amounts of short-term capital gains (generally taxed at ordinary income tax
rates) than it would if the Fund did not use such instruments.
SMALL CAPITALIZATION COMPANIES: Investments in smaller, younger companies may be
riskier than investments in larger, more established companies. These companies
may be more vulnerable to changes in economic conditions, specific industry
conditions, market fluctuations, and other factors effecting the profitability
of other companies. Because economic events may have a greater impact on smaller
companies, there may be a greater and more frequent fluctuation in their stock
price. This may cause frequent and unexpected increases or decreases in the
value of your investment.
FIXED INCOME SECURITIES: Investments in fixed income securities (for example,
bonds) will increase or decrease in value based on changes in interest rates. If
rates increase, the value of a Fund's investments generally declines. 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 also are 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. Fixed income securities also are subject to the
risk that the issuer of the security will be unable to meet its repayment
obligation.
INDEX FUNDS: An index fund's investment objective is to track the performance of
a specified index. Therefore, securities may be purchased, retained and sold by
an index fund at times when an actively managed fund would not do so. As a
result, you can expect greater risk of loss (and a correspondingly greater
prospect of gain) from changes in the value of securities that are heavily
weighted in the index than would be the case if the funds were not fully
invested in such securities. Because of this, an index fund's share price can be
volatile and you should be able to handle sudden, and sometimes substantial,
fluctuations in the value of your investment.
INTERNATIONAL FUNDS: Investments in foreign securities involve risks different
from investments in U.S. securities. For more details, see "Investment
Practices" and "Investment Risks." Because of these risk factors, the share
price of the International Equity Index Fund is expected to be volatile, and you
should be able to sustain sudden, and sometimes substantial, fluctuations in the
value of your investment.
<PAGE> 35
how to do business with The One Group
33
Purchasing
Fund Shares
- ----------------------------------------------------
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
Funds are open for business, other than weekends, days on which the New York
Stock Exchange ("NYSE") is closed, 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 Time ("ET") will be effective that day. On occasion, the NYSE will
close before 4 p.m. ET. When that happens, purchase requests received after
the NYSE closes will be effective the following business day.
- - Purchase orders may be cancelled by the Fund's Custodian, State Street Bank
and Trust Company, if it does not receive "federal funds" by 4:00 p.m. ET (i)
on the business day after the order is placed if you are buying Class I
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 a 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.
- - Class I 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 for six or more years, Class B shares may be
more 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 and, in
1999, may offer an education plan. These plans allow participants to defer taxes
while their retirement and education savings grow. The education IRA requires a
minimum investment of $500. Call The One Group Services Company at
1-800-480-4111 for an 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 each 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 a Fund's
investments and other assets allocable to a class (minus class expenses) by
the number of outstanding shares in that class.
- - A Fund's NAV changes every day. NAV is calculated each business day following
the close of the NYSE at 4:00 p.m. ET. On occasion, the NYSE will close before
4 p.m. ET. When that happens, NAV will be calculated as of the time the NYSE
closes.
HOW DO I OPEN AN ACCOUNT?
1. Read the prospectus carefully, and select the Fund or Funds most appropriate
for you.
2. Decide how much you want to invest.
- The minimum initial investment is $1,000 ($100 for employees of BANK ONE
CORPORATION and its affiliates).
- Subsequent investments must be at least $100 ($25 for employees of BANK 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.
<PAGE> 36
34
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 a 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), authorize a bank transfer, or initiate a
wire transfer to the following wire address:
State Street Bank and Trust Company
Attn: Custody & Shareholder Services
ABA 011 000 028
DDA 99034167
FBO The One Group Fund (ex: The One Group Asset Allocation Fund -- A)
Your Account Number (ex: 123456789)
Your Account Registration (ex: John Smith & Mary Smith, JTWROS)
- - 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 over the telephone 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 systematic investments by sending a letter
to:
State Street Bank and Trust Company
c/o The One Group
P.O. Box 8528
Boston, MA 02266-8528
CONVERSION FEATURE
Your Class B shares automatically convert to Class A shares after eight years
(measured from the end of the month in which they 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 Federal income 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.
<PAGE> 37
35
Sales Charges
- ----------------------------------------------------
The One Group Services Company compensates Shareholder Servicing Agents who sell
shares of The One Group. Compensation comes from sales charges, 12b-1 fees and
payments by The One Group Services Company from its own resources. 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. Occasionally, cash
incentives will be paid to select Shareholder Servicing Agents. Those
Shareholder Servicing Agents who may receive special incentives include Banc One
Securities Corporation, The Advisors Group, United Planners Financial Services
of America, Inc., The Legend Group, and Rosewood Retirement Advisory Services,
LLC.
CLASS A SHARES
This table shows the amount of sales charge you pay 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> <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 these shares within six years of the purchase date, 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> <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 0.00%
</TABLE>
The One Group Services Company pays a commission of 4.00% of the original
purchase price to Shareholder Servicing Agents who sell Class B shares.
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:
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
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.
<PAGE> 38
36
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.
- - If you exchange Class B or Class C shares of an unrelated mutual fund for
Class B or Class C shares of The One Group in connection with a fund
reorganization, the CDSC applicable to your original shares (including the
period of time you have held those shares) will be applied to The One Group
shares you receive in the reorganization.
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. 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 Class I 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. During the last fiscal year, The
One Group Services Company received 12b-1 fees totaling .25% and 1.00% of the
average daily net assets of Class A and Class B shares, respectively.
- - 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 investment
representative. 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.
WAIVER OF THE CLASS A SALES CHARGE
No sales charge is imposed on Class A shares of the Funds 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.
- BANK ONE CORPORATION and its subsidiaries and affiliates.
<PAGE> 39
37
- 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 BANK 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 Class I shares of a Fund of The One
Group or acquired in an exchange of Class I 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, including a
Fund of The One Group, 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 IRA 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 Funds:
1. Provided that you withdraw no more than 10% of your account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged 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 Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged in connection with plans of reorganizations of a Fund, such as
mergers, asset acquisitions and exchange offers to which a Fund is a party.
<PAGE> 40
38
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, is waiving its commission.
To take advantage of any of these sales charge waivers, you must qualify for
such waiver in advance. 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:
- - Class I shares of a Fund may be exchanged for Class A shares of that Fund or
for Class A or Class I shares of another Fund of The One Group.
- - Class A shares of a Fund may be exchanged for Class I shares of that Fund or
for Class A or Class I shares of another Fund of The One Group, but only if
you are eligible to purchase those shares.
- - Class B shares of a Fund may be exchanged for Class B shares of another Fund
of The One Group.
- - Class C shares of a Fund may be exchanged for Class C shares of another Fund
of The One Group.
The One Group Funds offer a Systematic Exchange Privilege which allows you to
automatically exchange shares of one fund to another on a monthly or quarterly
basis. This privilege is useful in Dollar Cost Averaging. To participate in this
privilege, please select it on your account application. To learn more about it,
please call The One Group Services Company at 1-800-480-4111.
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., ET.
- - 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 Class I 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:
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 a Fund, you will not pay a sales
charge at 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 for
Federal income tax purposes.
- - 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.
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
<PAGE> 41
39
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 result in excessive transaction costs or otherwise adversely
affect other shareholders.
REDEEMING
FUND SHARES
- --------------------------------------------------------------------------------
WHEN CAN I REDEEM SHARES?
You may redeem all or some of your shares on any day that the Funds are open for
business.
- - Redemption requests received by The One Group Services Company before 4:00
p.m. ET (or when the NYSE closes) 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 to 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
1-800-480-4111.
- - 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;
3. the redemption check is mailed to the shareholder at the record address;
or
4. the redemption is payable by wire or bank transfer (ACH) to a pre-existing
bank account.
- - On the Account Application Form you may elect to have the redemption proceeds
mailed or wired to:
1. a designated commercial bank; or
2. State Street Bank and Trust Company or your Shareholder Servicing Agent.
- - State Street Bank and Trust Company may charge you a wire redemption fee. The
current charge is $7.00.
- - 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 Class I shares and the Fund receives your redemption
request by 4:00 p.m. ET (or when the NYSE closes), 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. ET (or when the NYSE closes), 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 State Street Bank and Trust 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.
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.
<PAGE> 42
40
- - 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.
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 charges
a sub-minimum account fee. Accounts under $1,000 that are not participating in
a Systematic Investment Plan will be assessed an annual fee of $10.00. The
sub-minimum account fee will not apply to IRA accounts and the accounts of
employees of BANK ONE CORPORATION and its affiliates.
- - The One Group may suspend your ability to redeem when:
1. Trading on the New York Stock Exchange ("NYSE") is restricted.
2. The NYSE is closed (other then weekend and holiday closings).
3. The SEC has permitted a suspension.
4. An emergency exists.
The Statement of Additional Information offers more details about this
process.
- - You generally will recognize a gain or loss on a redemption for Federal income
tax purposes. You should talk to your tax advisor before making a redemption.
<PAGE> 43
shareholder information
41
Voting Rights
- ----------------------------------------------------
The Funds do not hold annual shareholder meetings, but may hold special
meetings. The special meetings are held, for example, to elect or remove
Trustees, change a 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. Each Fund,
and each class of shares within each 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.
BANK ONE CORPORATION (One First National Plaza, Chicago, Illinois 60670),
through its affiliates, may be deemed for purposes of the Investment Company Act
of 1940, to control the Funds. This is because as of July 30, 1998, BANK ONE
CORPORATION or its affiliates possessed the power to vote substantially all of
the Class I shares of the Funds.
On the same date, the following shareholders owned 25% or more of Class A, Class
B or Class C shares of the Funds. As a consequence, they are considered to be
controlling persons of these classes of the Funds listed below.
<TABLE>
<CAPTION>
PERCENTAGE OF TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C>
Dean Witter For The Benefit Of Selma Large Company Growth Fund 30.88% Record
J Berry & Colin G Berry JTTEN Class C
Church St. Station B PO Box 250
New York, NY 10008-0250
Strafe & Co. Large Company Growth Fund 90.89% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Disciplined Value Fund 86.48% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Banc One Securities Corp. FBO Growth Opportunities Fund 78.53% Record
The One Investment Solution Class C
733 Greencrest Dr.
Westerville, OH 43081-4903
Strafe & Co. Cash Div Cash Growth Opportunities Fund 84.32% Record
C/O Bank One Trust Co. Class I
Attn: Mutual Fund 0393
100 E. Broad Street
Columbus, OH 43215
Dean Witter For The Benefit Of McKee Income Equity Fund 71.70% Record
Char TR/Lynn A. Hammond & Clare W. Class C
White Co-TTEES
Church St. Station B PO Box 250
New York, NY 10013-0250
Strafe & Co. Income Equity Fund 92.64% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Banc One Securities Corp FBO Equity Index Fund 32.30% Beneficial
The One Investment Solution Class A
733 Greencrest Dr.
Westerville, OH 43081-4903
Banc One Securities Corp FBO Equity Index Fund 62.48% Beneficial
The One Investment Solution Class C
733 Greencrest Dr.
Westerville, OH 43081-4903
Strafe & Co. Equity Index Fund 88.78% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
</TABLE>
<PAGE> 44
42
<TABLE>
<CAPTION>
PERCENTAGE OF TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C>
Banc One Sec. Svgs. Plan-Equity Fund Equity Index Fund 30.56% Beneficial
100 E. Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co. Large Company Value Fund 89.11% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Banc One Securities Corp. FBO International Equity Index Fund 49.22% Beneficial
The One Investment Solution Class C
733 Greencrest Dr.
Westerville, OH 43081-4903
Dean Witter For The Benefit Of International Equity Index Fund 26.58% Record
Robert M. Lynch Class C
PO Box 250 Church Street Station
New York, NY 1008-0250
Strafe & Co. International Equity Index Fund 87.62% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Banc One Securities Corp. FBO Value Growth Fund 66.95% Beneficial
The One Investment Solution Class C
733 Greencrest Dr.
Westerville, OH 43081-4903
Strafe & Co. Value Growth Fund 83.80% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Small Company Growth Fund 77.52% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Asset Allocation Fund 79.54% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
</TABLE>
Dividend Policies
- ----------------------------------------------------
DIVIDENDS
The Funds generally declare dividends on the last business day of each month.
Dividends are distributed on the first business day of the next month. Capital
gains, if any, for all Funds are distributed at least annually.
The Funds pay 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 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.
Dividends payable on Class I 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.
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.
<PAGE> 45
43
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 FUNDS
- --------------------------------------------------------------------------------
TAX STATUS OF THE FUND
Each Fund intends to qualify as a "regulated investment company" for Federal
income tax purposes. If the Funds qualify, as they have in the past, they will
pay no federal income tax on the earnings they distribute 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 DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gains) on at least an
annual basis. Dividends you receive from a Fund, whether reinvested or received
in cash, will be taxable to you. Dividends from a 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 Funds 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 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.
TAX INFORMATION
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category. Even though the Funds provide 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.
REPORTING
-----------------------------------------------------------------------------
In March and September you will receive a financial report from The One
Group. In addition, The One Group will periodically send you proxy
statements and other reports.
-----------------------------------------------------------------------------
<PAGE> 46
organization and management of the funds
fund name
fund assets
44
THE FUNDS
Each Fund is a series of The One Group, an open-end management investment
company. The One Group currently consists of 40 separate Funds. Ten of the Funds
are described in this prospectus; the other Funds are described in separate
prospectuses. Each Fund described in this prospectus is diversified. Each Fund
is supervised by the Board of Trustees.
THE BOARD OF TRUSTEES
The Trustees oversee the management and administration of the Funds. The
Trustees are responsible for making major decisions about each Fund's investment
objectives and policies, but delegate the day-to-day administration of the Funds
to the officers of The One Group.
THE ADVISOR
Banc One Investment Advisors makes the day-to-day investment decisions for the
Funds and continuously reviews, supervises and administers the Funds' 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 June 30, 1998,
Banc One Investment Advisors, an indirect, wholly-owned subsidiary of BANK ONE
CORPORATION, managed over $59 billion in assets.
For the fiscal year ended June 30, 1998, the Funds paid advisory fees at the
following rates:
<TABLE>
<CAPTION>
Annual Rate As Percentage
of Average Daily Net Assets
<S> <C> <C> <C>
The One Group(R) Asset Allocation Fund .55%
The One Group(R) Large Company Growth
Fund .74%
The One Group(R) Large Company Value Fund .74%
The One Group(R) Growth Opportunities
Fund .74%
The One Group(R) International Equity
Index Fund .47%
The One Group(R) Disciplined Value Fund .74%
The One Group(R) Equity Index Fund .10%
The One Group(R) Income Equity Fund .74%
The One Group(R) Value Growth Fund .74%
The One Group(R) Small Capitalization
Fund .74%
</TABLE>
THE SUB-ADVISOR
Independence International Associates, Inc. ("Independence International"), 53
State Street, Boston, Massachusetts, 02109, is the sub-advisor to the
International Equity Index Fund. Independence International specializes in the
management of international equity portfolios. Independence International is an
indirect subsidiary of John Hancock Mutual Life Insurance Company. As of June
30, 1998, Independence International had approximately $2.2 billion in assets
under management.
For the fiscal year ended June 30, 1998, Banc One Investment Advisors paid
Independence International sub-investment advisory fees at the following rates:
<TABLE>
<CAPTION>
Annual Rate As Percentage
of Average Daily Net Assets
<S> <C> <C> <C>
Up to $10 million .275%
Over $10,000,000 up to $25,000,000 .225%
Over $25,000,000 up to $50,000,000 .195%
Over $50,000,000 up to $100,000,000 .125%
Over $100,000,000 .060%
</TABLE>
<PAGE> 47
45
THE DISTRIBUTOR
The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio 43219, a
wholly-owned subsidiary of The BISYS Group, Inc., markets the Funds 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 Funds' administrator. The One
Group Services Company is responsible for responding to shareholder inquiries
and requests for information, as well as providing regulatory compliance and
reporting. 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 Funds are not included in the
calculations. 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 statementing, distributes dividends, and processes buy and
sell requests. As the Funds' custodian, State Street holds the Funds' assets,
settles all portfolio trades and assists in calculating the Funds' net asset
values. Bank One Trust Company, N.A. serves as sub-custodian in connection with
the Funds' securities lending activities under an agreement with State Street
Bank and Trust Company. Bank One Trust Company, N.A. is paid a fee by the Funds
for this service.
YEAR 2000
Preparing for the Year 2000 is a high priority for The One Group Family of
Mutual Funds. Both The One Group Services Company and Banc One Investment
Advisors have formed dedicated teams to help them successfully achieve Year 2000
compliance. In addition, these teams are responsible for assessing the readiness
of all other service providers to The One Group. Year 2000 remediation efforts
are directed toward both information technology and non-information technology
systems. Non-information technology systems include elevators, photocopy
machines, and facsimile machines, and should have no significant impact on the
delivery of services to The One Group.
Banc One Investment Advisors has identified 49 information technology systems
and interfaces that provide service and support to The One Group. Each system is
assigned a priority rating: high, medium or low. Systems rated "high" are those
which are essential to the operation of The One Group. Each system rated "high"
is scheduled to be Year 2000 compliant by December 31, 1998. All systems will be
tested for compliance throughout 1999.
Many, if not all, of the systems are owned or operated by third party servicers
(for example, The One Group's Custodian). Consequently, remediation efforts must
be made by those servicers. Banc One Investment Advisors and The One Group
Services Company have, and will continue to, monitor the remediation progress of
the service providers. This process involves documentation, on-site visits, and
review of remediation plans and test results. Both Banc One Investment Advisors
and The One Group Services Company have budgeted in excess of $700,000 in fiscal
year 1998 and over $1 million in fiscal year 1999 toward the remediation effort
for all systems and interfaces. Neither The One Group nor its shareholders will
bear any of the direct remediation expenses.
Neither The One Group Services Company nor Banc One Investment Advisors
currently anticipates that the move to Year 2000 will have a material impact on
their ability to continue to provide the Funds with service at current levels.
Likewise, The One Group currently anticipates that the move to Year 2000 will
not have a material impact on its operations.
<PAGE> 48
details about the funds' investment practices and policies
46
INVESTMENT PRACTICES
- -------------------------------------------------------------------------------
The Funds invest in a variety of securities and employ 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 Funds, as well as the
risks inherent in their use. Equity securities are subject mainly to market
risk. 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. Following the table is a more complete discussion of risk.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
fund name fund code
---------------------------------------------------------------------------
<S> <C>
The One Group(R) Asset Allocation Fund 1
The One Group(R) Large Company Growth Fund 2
The One Group(R) Large Company Value Fund 3
The One Group(R) Growth Opportunities Fund 4
The One Group(R) Disciplined Value Fund 5
The One Group(R) Income Equity Fund 6
The One Group(R) Value Growth Fund 7
The One Group(R) Small Capitalization Fund 8
The One Group(R) International Equity Index
Fund 9
The One Group(R) Equity Index Fund 10
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
INSTRUMENT FUND CODE RISK TYPE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, STRIPS, and 1-10 Market
CUBES.
TREASURY RECEIPTS: TRS, TIGRs, and CATS. 1-10 Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-10 Market
agencies and instrumentalities of the U.S. Government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1-10 Market
stated maturity. Credit
Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 1-10 Liquidity
exchange for the deposit of funds. Credit
Market
COMMON STOCK: Shares of ownership of a company. 1-10 Market
REPURCHASE AGREEMENTS: The purchase of a security and the 1-10 Credit
simultaneous commitment to return the security to the seller Market
at an agreed upon price on an agreed upon date. This is Liquidity
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 1-10 Market
simultaneous commitment to buy the security back at an Leverage
agreed upon price on an agreed upon date. This is treated as
a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 33-1/3% of the 1-10 Credit
Fund's total assets. In return the Fund will receive cash, Market
other securities, and/or letters of credit as collateral. Leverage
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1-10 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Liquidity
INVESTMENT COMPANY SECURITIES: Shares of other mutual funds, 1-10 Market
including money market funds 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 when
investing in funds for which it serves as investment
advisor.
CONVERTIBLE SECURITIES: Bonds or preferred stock that 1-10 Market
convert to common stock. Credit
</TABLE>
<PAGE> 49
47
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
INSTRUMENT FUND CODE RISK TYPE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CALL AND PUT OPTIONS: A call option gives the buyer the 1-10 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy, a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
FUTURES AND RELATED OPTIONS: A contract providing for the 1-10 Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
REAL ESTATE INVESTMENT TRUSTS ("REITS"): Pooled investment 1-10 Liquidity
vehicles which invest primarily in income producing real Management
estate or real estate related loans or interest. Market
Regulatory
Tax
Pre-payment
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 1-10 Credit
on and accepted by a commercial bank. Maturities are Liquidity
generally six months or less. Market
COMMERCIAL PAPER: Secured and unsecured short-term 1-10 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
FOREIGN SECURITIES: Stocks issued by foreign companies, as 1-9 Market
well as commercial paper of foreign issuers and obligations Political
of foreign banks, overseas branches of U.S. banks and Liquidity
supranational entities. Includes American Depository Foreign Investment
Receipts.
RESTRICTED SECURITIES: Securities not registered under the 1-10 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1-10 Credit
interest rates which are reset daily, weekly, quarterly or Liquidity
some other period and which may be payable to the Fund on Market
demand.
WARRANTS: Securities, typically issued with preferred stock 1-3, 7-10 Market
or bonds, that give the holder the right to buy a Credit
proportionate amount of common stock at a specified price.
PREFERRED STOCK: A class of stock that generally pays a 1-10 Market
dividend at a specified rate and has preference over common
stock in the payment of dividends and in liquidation.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 1 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations ("CMOs"), Real Estate Credit
Mortgage Investment Conduits ("REMICs") and Stripped Regulatory
Mortgage-Backed Securities ("SMBS").
CORPORATE DEBT SECURITIES: Corporate bonds and 1 Market
non-convertible debt securities. Credit
DEMAND FEATURES: Securities that are subject to puts and 1 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
ASSET-BACKED SECURITIES: Securities secured by company 1 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets.
MORTGAGE DOLLAR ROLLS: A transaction in which a Fund sells 1 Pre-payment
securities for delivery in a current month and Market
simultaneously contracts with the same party to repurchase Regulatory
similar but not identical securities on a specified future
date.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"): Loans in a mortgage 1 Pre-payment
pool which provide for a fixed initial mortgage interest Market
rate for a specified period of time, after which the rate Credit
may be subject to periodic adjustments. Regulatory
SWAPS, CAPS AND FLOORS: A Fund may enter into these 1-10 Management
transactions to manage its exposure to changing interest Credit
rates and other factors. Swaps involve an exchange of Liquidity
obligations by two parties. Caps and floors entitle a Market
purchaser to a principal amount from the seller of the cap
or floor to the extent that a specified index exceeds or
falls below a predetermined interest rate or amount.
</TABLE>
<PAGE> 50
48
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
NEW FINANCIAL PRODUCTS: New options and futures contracts 1-10 Management
and other financial products continue to be developed and Credit
the Funds may invest in such options, contracts and Market
products. Liquidity
STRUCTURED INSTRUMENTS: Debt securities issued by agencies 1 Market
and instrumentalities of the U.S. government, banks, Liquidity
municipalities, corporations and other businesses whose Management
interest and/or principal payments are indexed to foreign Credit
currency exchange rates, interest rates, or one or more Foreign Investment
other referenced indices.
MUNICIPAL SECURITIES: Securities issued by a state or 1 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include private activity Political
bonds and industrial development bonds, as well as General Tax
Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Project Notes, other
short-term tax-exempt obligations, municipal leases, and
obligations of municipal housing authorities and single
family revenue bonds.
OBLIGATIONS OF SUPRANATIONAL AGENCIES: Obligations of 9 Credit
supranational agencies who are chartered to promote economic Foreign Investment
development and are supported by various governments and
governmental agencies.
CURRENCY FUTURES AND RELATED OPTIONS: The Funds may engage 9 Management
in transactions in financial futures and related options, Liquidity
which are generally described above. The Funds will enter Credit
into these transactions in foreign currencies for hedging Market
purposes only. Political
Leverage
Foreign Investment
FORWARD FOREIGN EXCHANGE TRANSACTIONS: Contractual agreement 9 Management
to purchase or sell one specified currency for another Liquidity
currency at a specified future date and price. The Funds Credit
will enter into forward foreign exchange transactions for Market
hedging purposes only. Political
Leverage
Foreign Investment
STANDARD & POOR'S DEPOSITORY RECEIPTS ("SPDRS"): SPDRs 1-8, 10 Market
represent ownership in a long-term unit investment trust
that holds a portfolio common stocks designed to track the
price performance and dividend yield of the S&P 500 Index. A
SPDR entitles a holder to receive proportionate quarterly
cash distributions corresponding to the dividends that
accrue to the S&P 500 Index stocks in the underlying
portfolio, less trust expenses.
</TABLE>
<PAGE> 51
49
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 Funds may fluctuate, as will the value of
your investment in the Funds. Certain investments are more susceptible to these
risk than others.
- - CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become 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.
- - LEVERAGE RISK. The risk associated with securities or practices 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. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments. This
also 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 my 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. Pre-payments generally accelerate when interest rates decline.
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.
<PAGE> 52
50
- - 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.
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Each Fund's investment objective and the 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 Funds. The full text of the
fundamental policies can be found in the Statement of Additional Information.
Each Fund may not:
1. Purchase an issuer's securities 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, and repurchase agreements involving these
securities. This restriction applies with respect to 75% of a Fund's total
assets.
2. Concentrate its investments in the securities of one or more issuers
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 a 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.
The One Group Equity Index Fund may not:
1. Invest more than 10% of its total assets in securities issued or guaranteed
by the United States, its agencies or instrumentalities.
Additional investment policies can be found in the Statement of Additional
Information.
TEMPORARY DEFENSIVE POSITION
Sometimes Banc One Investment Advisors or the Sub-Advisor decides that the Funds
should temporarily be invested in cash and cash equivalents. Cash equivalents
include:
- - Securities issued by the U.S. Government, its agencies and instrumentalities
- - Repurchase Agreements
- - Certificates of Deposit
- - Bankers' Acceptances
- - Commercial Paper (rated in one of the two highest rating categories)
- - Variable Rate Master Demand Notes
- - Bank Money Market Deposit Accounts
The Asset Allocation Fund, the Large Company Growth Fund, the Large Company
Value Fund, the Disciplined Value Fund, the Income Equity Fund, the Growth
Opportunities Fund, the Value Growth Fund, and the Small Capitalization Fund may
temporarily invest up to 100% of their total assets in cash and cash
equivalents. The International Equity Index Fund and Equity Index Fund may
temporarily invest only 10% of their total assets in cash and cash equivalents.
The International Equity Index Fund may invest up to 20% of its total assets in
debt securities issued or guaranteed by foreign governments or any of their
political subdivisions, agencies or instrumentalities, or by supranational
issuers rated in one of the three highest rating categories.
While the Funds are engaged in a temporary defensive position, they will not be
pursuing their investment objectives. Therefore, the Funds 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 Funds and may result in additional tax consequences to you. The portfolio
turnover rate for each Fund for the fiscal year ended June 30, 1998 is shown on
the Financial Highlights. To the extent portfolio turnover results in short-term
capital gains, such gains will generally be taxed at ordinary income tax rates.
<PAGE> 53
appendix
51
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.
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.
FITCH'S IBCA INC. ("FITCH")
F1 Highest capacity for timely repayment. Those issues rated F1+ possess a
particularly strong credit feature.
F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
MOODY'S INVESTORS SERVICE ("MOODY'S")
PRIME-1 Superior ability for repayment.
PRIME-2 Strong ability for repayment.
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.
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.
<PAGE> 54
52
DESCRIPTION OF INSURANCE RATINGS
MOODY'S
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.
S&P
S&P's credit rating is a current opinion of the creditworthiness of an obligor
with respect to a specific financial obligation, a specific class of financial
obligations, or a specific financial program.
AAA This is 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 An obligation rated A 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.
DESCRIPTION OF CORPORATE/
MUNICIPAL BOND RATINGS
S&P
Investment Grade
AAA The highest rating. The rating indicates an extremely strong capacity to
meet its financial commitment.
AA Differs from AAA issues only in a small degree. The obligor's capacity
to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories. However, 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 to meet its financial commitment on the obligation.
Speculative Grade
BB Less vulnerable to non-payment than other speculative issues. However,
these bonds face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on the obligation.
B More vulnerable to non-payment than obligations rated BB, but currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, they are not likely to have the
capacity to meet its financial commitment on the obligation.
CC Currently highly vulnerable to non-payment.
C This rating may be 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 Bonds in payment default.
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
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
<PAGE> 55
53
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).
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. Ca is the lowest rating.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
MOODY'S
MIG1 & Short-term municipal securities rated MIG1 or VMIG1 are of the best
VMIG1 quality. They have strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG2 & These Short-term municipal securities are of high quality. Margins of
VMIG2 protection are ample although not so large as in the preceding group.
MIG3 & Favorable quality. All security elements are accounted for, but the
VMIG3 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.
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.
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 ad-
<PAGE> 56
54
verse 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.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") assigns ratings to specific debt instruments
with original maturities of one year or less. 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.
<PAGE> 57
INVESTMENT ADVISOR AND SUB-ADMINISTRATOR
Banc One Investment Advisors Corporation
1111 Polaris Parkway
P.O. Box 710211
Columbus, OH 43271-0211
SUB-ADVISOR
Independence International Associates, Inc.
75 State Street
Boston, MA 02109
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 8500
Boston, MA 02266-8500
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, OH 43215
THE STATEMENT OF ADDITIONAL INFORMATION CON-
TAINS MORE DETAILED INFORMATION ABOUT THE FUNDS.
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-F-121
<PAGE> 58
THE ONE GROUP(R) FAMILY OF MUTUAL FUNDS
[GRAPHIC]
BOND FUNDS
COMBINED PROSPECTUS
NOVEMBER 1, 1998
THE ONE GROUP(R) INTERMEDIATE BOND FUND
THE ONE GROUP(R) INCOME BOND FUND
THE ONE GROUP(R) GOVERNMENT BOND FUND
THE ONE GROUP(R) ULTRA SHORT-TERM INCOME FUND
THE ONE GROUP(R) LIMITED VOLATILITY BOND FUND
THE ONE GROUP(R) TREASURY & AGENCY FUND
THE ONE GROUP(R) HIGH YIELD BOND FUND
This prospectus describes seven mutual funds with a variety of investment
objectives, including income, capital preservation, tax-exempt income, and low
volatility. The information in this prospectus is important. Please read it
carefully before you invest, and save it for future reference.
PLEASE REMEMBER THAT SHARES OF THE FUNDS: o ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED BY BANK ONE CORPORATION OR ITS AFFILIATES; o ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY FEDERAL OR
STATE GOVERNMENTAL AGENCY; o 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.
O69385
<PAGE> 59
<TABLE>
<S> <C>
A BRIEF PREVIEW OF THE FUNDS................................ 1
ABOUT THE FUNDS............................................. 2
The One Group(R) Intermediate Bond Fund.................. 2
The One Group(R) Income Bond Fund........................ 5
The One Group(R) Government Bond Fund.................... 8
The One Group(R) Ultra Short-Term Income Fund............ 11
The One Group(R) Limited Volatility Bond Fund............ 14
The One Group(R) Treasury & Agency Fund.................. 17
The One Group(R) High Yield Bond Fund.................... 20
MORE ABOUT THE FUNDS........................................ 22
HOW TO DO BUSINESS WITH THE ONE GROUP....................... 25
Purchasing Fund Shares................................... 25
Sales Charges............................................ 27
Sales Charge Reductions and Waivers...................... 29
Exchanging Fund Shares................................... 31
Redeeming Fund Shares.................................... 32
SHAREHOLDER INFORMATION..................................... 34
Voting Rights............................................ 34
Dividend Policies........................................ 35
Tax Treatment of the Funds............................... 35
Tax Treatment of Shareholders............................ 35
Shareholder Inquiries.................................... 36
ORGANIZATION AND MANAGEMENT OF THE FUNDS.................... 37
The Funds................................................ 37
The Board of Trustees.................................... 37
The Advisor.............................................. 37
The Sub-Advisor.......................................... 37
Banc One High Yield Partners--Prior Performance of
Pacholder Associates, Inc.............................. 37
The Distributor.......................................... 39
The Administrator and Sub-Administrator.................. 39
The Transfer Agent, Custodian and Sub-Custodian.......... 39
Year 2000................................................ 39
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND
POLICIES.................................................. 40
Investment Practices..................................... 40
Investment Risks......................................... 43
Investment Policies...................................... 44
APPENDIX: DESCRIPTION OF RATINGS............................ 45
</TABLE>
table of contents
<PAGE> 60
1
a brief preview of the funds
WHAT ARE THE GOALS OF THE ONE GROUP BOND FUNDS?
The Funds are designed for a variety of investment objectives,
including:
- current income
- current income consistent with the preservation of capital
- current income with a primary focus on income that is
exempt from state income taxes
- current income consistent with low volatility of principal.
Each Fund pursues a different objective and involves different
risks. Please read about each Fund before investing.
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
The Intermediate Bond Fund, the Limited Volatility Bond Fund,
the Ultra Short-Term Income Fund, and the Income Bond Fund
invest in high and medium grade debt securities of all types
with average maturities ranging from one to twenty years. The
Income Bond Fund and the High Yield Bond Fund also may invest
in lower grade debt securities, although the Income Bond Fund
will limit its investments in such securities to no more than
30% of its total assets. The Government Bond Fund and the
Treasury & Agency Fund invest in obligations issued or
guaranteed by the U.S. government, its agencies and
instrumentalities. Several of the Funds may invest in
preferred stock.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The Funds invest in fixed-income investments that are subject
to market fluctuations as a result of changes in interest
rates. As a result, the value of investments in the Funds may
decrease during periods of rising interest rates and increase
during periods of declining interest rates. In addition, some
of the Funds invest in mortgage-related securities which have
significantly greater price and yield volatility than
traditional fixed-income securities. Fixed income securities
also are subject to the risk that the issuer of the security
will be unable to meet its payment obligation. Also, the
Income Bond Fund and the High Yield Bond Fund may invest in
securities in ANY rating category, some of which are regarded
as predominately speculative. An investment in the Funds is
not a deposit of BANK ONE CORPORTAION or its affiliates and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. For more
information about risks, please read "More About the Funds"
and "Investment Risks."
WHAT CLASSES OF SHARES ARE AVAILABLE?
The Funds currently offer four classes of Shares: Class A,
Class B, Class C and Class I. Class A, Class B and Class C
shares are offered to the general public. Class I shares are
offered to institutional investors, including affiliates of
BANK ONE CORPORTAION and any bank, depository institution,
insurance company, pension plan or other organization
authorized to act in fiduciary, advisory, agency, custodial or
similar capacities. Class I shares are not available to
Individual Retirement Accounts ("IRA"). The section called
"How To Do Business With The One Group" will provide more
information.
HOW DO I PURCHASE AND REDEEM SHARES?
You may buy and redeem shares of the Funds on any day that the
Funds are open for business. Class C shares are not available
for purchase in all of the funds. 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 FUNDS?
Banc One Investment Advisors Corporation ("Banc One Investment
Advisors"), an indirect subsidiary of BANK ONE CORPORTAION,
serves as the advisor of the Funds. Banc One Investment
Advisors is paid a fee for its services. Banc One High Yield
Partners, LLC (the "Sub-Advisor") serves as Sub-Advisor to the
High Yield Bond 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."
<PAGE> 61
The One Group(R)
Intermediate Bond Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks current income
consistent with the preservation of
capital by investing in high and
medium-grade fixed-income securities
with intermediate maturities.
LOGO INVESTMENT STRATEGY
Generally, the Fund invests in debt
securities of all types including
bonds, notes, U.S. Government
obligations, and taxable and
tax-exempt municipal securities
rated as investment grade at the
time of investment, (or, if unrated,
determined by Banc One Investment
Advisors, to be of comparable
quality). The Fund's average
weighted maturity will ordinarily
range between three and ten years,
taking into account expected
prepayment of principal on certain
investments, although the Fund may
shorten the weighted average
maturity to as little as one year
for temporary defensive purposes.
LOGO PORTFOLIO SECURITIES
The Fund normally invests at least
80% of its total assets in debt
securities. Debt securities include
bonds, notes and other obligations.
As a matter of fundamental policy,
at least 65% of the Fund's total
assets will consist of bonds and at
least 50% of total assets will
consist of obligations issued by the
U.S. Government or its agencies and
instrumentalities, some of which may
be subject to repurchase agreements.
However, the Fund intends to hold at
least 65% of its total assets in
such government obligations. Up to
20% of the Fund's total assets may
be invested in preferred stock. For
a list of all the securities in
which the Fund may invest, please
read "Investment Practices."
LOGO RISK CONSIDERATIONS
The Fund may invest in debt
securities that are rated in the
lowest investment grade category.
Such investments are considered to
have speculative characteristics. In
addition, the Fund invests in
fixed-income securities. The value
of these securities will change in
response to interest rate changes
and other factors. This is
especially true to the extent the
Fund invests in debt securities in
the lowest investment grade
category. The Fund also invests in
mortgage-related securities which
may have greater price and yield
volatility than traditional fixed
income securities. Before you
invest, please read "More About the
Funds" and "Investment Risks."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .90% .90%
Other Expenses .22% .22% .22%
Total Fund Operating
Expenses (after fee
waivers) (6) .87% 1.52% 1.52%
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.40%
none
.22%
.62%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .60% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.17% for Class A shares, 1.82% for
Class B shares, 1.82% for Class C shares and .82% for Class I
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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 56 $ 80 $106 $181
Class B $ 65 $ 78 $103 $164
Class B
(without fee
waivers) $ 68 $ 87 $119 $197
Class C $ 25 $ 48 $ 83 $181
Class C
(without fee
waivers) $ 28 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 56 $ 80 $106 $181
Class B $ 15 $ 48 $ 83 $164
Class B
(without fee
waivers) $ 18 $ 57 $ 99 $197
Class C $ 15 $ 48 $ 85 $181
Class C
(without fee
waivers) $ 18 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</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.
2
<PAGE> 62
3
THE ONE GROUP(R) INTERMEDIATE BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993(e) 1992(c)(e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.92 $ 9.84 $ 10.01 $ 9.72 $ 10.51 $ 10.09 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.64 0.65 0.66 0.66 0.60 0.63 0.22
Net realized and unrealized gains (losses)
from investments and futures 0.20 0.08 (0.17) 0.29 (0.67) 0.42 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.84 0.73 0.49 0.95 (0.07) 1.05 0.30
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.64) (0.65) (0.66) (0.66) (0.60) (0.63) (0.21)
In excess of net investment income -- -- -- -- (0.02) -- --
Net realized gains -- -- -- -- (0.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.65) (0.66) (0.66) (0.72) (0.63) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.12 $ 9.92 $ 9.84 $ 10.01 $ 9.72 $ 10.51 $ 10.09
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 8.71% 7.68% 4.95% 10.15% (0.74)% 10.67% 3.00%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 680,800 $ 522,423 $ 230,812 $ 191,216 $ 98,483 $ 44,252 $ 23,457
Ratio of expenses to average net assets 0.56% 0.54% 0.54% 0.56% 0.32% 0.39% 0.36%(b)
Ratio of net investment income to average
net assets 6.37% 6.63% 6.56% 6.88% 6.04% 6.14% 6.99%(b)
Ratio of expenses to average net assets* 0.83% 0.81% 0.87% 0.99% 0.87% 1.17% 1.33%(b)
Ratio of net investment income to average
net assets* 6.10% 6.36% 6.23% 6.45% 5.49% 5.36% 6.02%(b)
Portfolio Turnover (a) 60.08% 55.91% 101.06% 99.71% 85.62% 21.51% 11.74%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued. (b) Annualized.
(c) The Fund commenced operations February 28, 1992. (d) Not annualized.
(e) Audited by other auditors.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
CLASS A 1998 1997 1996 1995(a)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 9.87 $ 10.04 $ 9.45
- ---------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.62 0.63 0.64 0.37
Net realized and unrealized gains (losses) from
investments and futures 0.20 0.08 (0.17) 0.59
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.82 0.71 0.47 0.96
- ---------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.62) (0.63) (0.64) (0.37)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.62) (0.63) (0.64) (0.37)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.15 $ 9.95 $ 9.87 $ 10.04
- ---------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 8.47% 7.40% 4.77% 10.29%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 44,567 $ 18,763 $ 13,706 $ 4,941
Ratio of expenses to average net assets 0.81% 0.78% 0.79% 0.83%(c)
Ratio of net investment income to average net assets 6.12% 6.35% 6.31% 6.64%(c)
Ratio of expenses to average net assets* 1.18% 1.16% 1.22% 1.66%(c)
Ratio of net investment income to average net assets* 5.75% 5.97% 5.88% 5.81%(c)
Portfolio Turnover (d) 60.08% 55.91% 101.06% 99.71%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class A Shares commenced operations November 30, 1994. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis
of the Fund as a whole without distinguishing among the classes of shares
issued.
<PAGE> 63
4
THE ONE GROUP(R) INTERMEDIATE BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
CLASS B 1998 1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.92 $ 9.83 $ 10.01 $ 9.45
- --------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.55 0.56 0.58 0.23
Net realized and unrealized gains (losses) from
investments and futures 0.20 0.09 (0.18) 0.56
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.75 0.65 0.40 0.79
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.55) (0.56) (0.58) (0.23)
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.55) (0.56) (0.58) (0.23)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.12 $ 9.92 $ 9.83 $ 10.01
- --------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 7.78% 6.83% 4.10% 8.22%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 19,924 $ 10,152 $ 6,077 $ 266
Ratio of expenses to average net assets 1.46% 1.44% 1.44% 1.51%(c)
Ratio of net investment income to average net assets 5.47% 5.71% 5.66% 6.15%(c)
Ratio of expenses to average net assets* 1.83% 1.81% 1.87% 2.34%(c)
Ratio of net investment income to average net assets* 5.10% 5.34% 5.23% 5.31%(c)
Portfolio Turnover (d) 60.08% 55.91% 101.06% 99.71%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a) The
Fund commenced operations on November 30, 1994. (b) Not annualized.
(c) Annualized. (d)Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
- -------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07
- -------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.73
Net realized and unrealized gains (losses) from
investments and futures 0.07
- -------------------------------------------------------------------------------
Total from Investment Activities 0.80
- -------------------------------------------------------------------------------
Distributions:
Net investment income (0.73)
- -------------------------------------------------------------------------------
Total Distributions (0.73)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.14
- -------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 8.20%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 868
Ratio of expenses to average net assets 1.46%(c)
Ratio of net investment income to average net assets 5.44%(c)
Ratio of expenses to average net assets* 1.82%(c)
Ratio of net investment income to average net assets* 5.08%
Portfolio Turnover (d) 60.08%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<PAGE> 64
5
The One Group(R)
INCOME BOND FUND
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks a high level of
current income by investing
primarily in a diversified portfolio
of high, medium and low grade debt
securities.
[LOGO] INVESTMENT STRATEGY
The Fund invests in all types of
debt securities rated as investment
grade or below investment grade, as
well as convertible securities,
preferred stock, and loan
participations. The Fund's average
weighted maturity will normally
range between five and twenty years,
although the Fund may shorten its
weighted average to as little as two
years if deemed appropriate for
temporary defensive purposes.
[LOGO] PORTFOLIO SECURITIES
The Fund invests at least 70% of its
total assets in debt securities of
all types rated as investment grade
at the time of investment or, if
unrated, determined to be of
comparable quality by Banc One
Investment Advisors. In addition, up
to 30% of the Fund's total assets
may be invested in convertible
securities, preferred stock, loan
participations and debt securities
rated below investment grade or, if
unrated, determined by Banc One
Investment Advisors to be of
comparable quality. Securities rated
below investment grade are called
"high yield bonds," "non-investment
grade bonds" and "junk bonds." These
securities generally 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. Even though it
may invest in debt securities in all
rating categories, the Fund will not
invest more than 20% of its total
assets in securities rated below the
fifth rating category. As a matter
of fundamental policy, at least 65%
of the Fund's total assets will
consist of bonds. The Fund also may
purchase taxable or tax-exempt
municipal securities. For a list of
all the securities in which the Fund
may invest, please read "Investment
Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in debt securities
rated below investment grade that
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
smaller, less creditworthy companies
or highly indebted firms. The credit
quality of securities in the high
yield bond market can change
suddenly and unexpectedly. Before
you invest, please read "More About
the Funds" and "Investment Risks."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3)
(as a percentage of average daily
net assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .90% .90% none
Other Expenses .22% .22% .22% .22%
Total Fund Operating Expenses (after
fee waiver) (6) .87% 1.52% 1.52% .62%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .60% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.17% for Class A shares, 1.82% for
Class B shares, 1.82% for Class C shares and .82% for Class I 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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 56 $ 80 $106 $181
Class B $ 65 $ 78 $103 $164
Class B
(without fee
waivers) $ 68 $ 87 $119 $197
Class C $ 25 $ 48 $ 83 $181
Class C
(without fee
waivers) $ 28 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 56 $ 80 $106 $181
Class B $ 15 $ 48 $ 83 $164
Class B
(without fee
waivers) $ 18 $ 57 $ 99 $197
Class C $ 15 $ 48 $ 83 $181
Class C
(without fee
waivers) $ 18 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</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.
<PAGE> 65
6
THE ONE GROUP(R) INCOME BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.42 $ 9.33 $ 9.54 $ 9.23 $ 10.43 $ 10.18
- ---------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.64 0.64 0.65 0.64 0.54 0.66
Net realized and unrealized gains (losses) from
investments and futures 0.09 0.09 (0.21) 0.35 (0.74) 0.38
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.73 0.73 0.44 0.99 (0.20) 1.04
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.64) (0.64) (0.65) (0.64) (0.57) (0.66)
Net realized gains -- -- -- (0.04) (0.43) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.64) (0.65) (0.68) (1.00) (0.79)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.51 $ 9.42 $ 9.33 $ 9.54 $ 9.23 $ 10.43
- ---------------------------------------------------------------------------------------------------------------------------
Total Return 7.97% 8.10% 4.62% 11.29% (2.54)% 10.62%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 898,263 $ 730,754 $ 520,239 $ 474,124 $ 560,071 $ 483,291
Ratio of expenses to average net assets 0.61% 0.60% 0.59% 0.59% 0.53% 0.56%
Ratio of net investment income to average net
assets 6.73% 6.85% 6.76% 6.94% 5.35% 6.44%
Ratio of expenses to average net assets* 0.81% 0.80% 0.81% 0.86% 0.85% 0.90%
Ratio of net investment income to average net
assets* 6.53% 6.65% 6.54% 6.67% 5.03% 6.10%
Portfolio Turnover (a) 30.83% 55.18% 95.52% 262.25% 131.04% 143.52%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
CLASS I 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.59 $ 9.49 $ 9.92 $ 9.88
- ---------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.71 0.79 0.80 0.64
Net realized and unrealized gains (losses) from
investments and futures 0.59 0.06 (0.20) 0.04
- ---------------------------------------------------------------------------------------------------
Total from Investment Activities 1.30 0.85 0.60 0.68
- ---------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.71) (0.75) (0.80) (0.64)
Net realized gains -- -- (0.23) --
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.71) (0.75) (1.03) (0.64)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.18 $ 9.59 $ 9.49 $ 9.92
- ---------------------------------------------------------------------------------------------------
Total Return 13.85% 9.20% 6.37% 7.32%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 376,898 $ 269,856 $ 57,308 $ 49,128
Ratio of expenses to average net assets 0.49% 0.29% 0.40% 0.45%
Ratio of net investment income to average net
assets 7.18% 7.88% 8.27% 8.66%
Ratio of expenses to average net assets* 1.04% 0.89% 1.00% 1.06%
Ratio of net investment income to average net
assets* 6.63% 7.28% 7.67% 8.05%
Portfolio Turnover (a) 32.50% 39.63% 119.23% 194.19%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.41 $ 9.32 $ 9.54 $ 9.22 $ 10.43 $ 10.16 $ 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.62 0.62 0.63 0.61 0.52 0.63 0.26
Net realized and unrealized gains (losses)
from investments and futures 0.10 0.09 (0.23) 0.36 (0.75) 0.41 0.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.72 0.71 0.40 0.97 (0.23) 1.04 0.37
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.62) (0.62) (0.62) (0.60) (0.55) (0.64) (0.27)
In excess of net investment income -- -- -- (0.01) -- -- --
Net realized gains -- -- -- (0.04) (0.43) (0.13) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.62) (0.62) (0.62) (0.65) (0.98) (0.77) (0.27)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.51 $ 9.41 $ 9.32 $ 9.54 $ 9.22 $ 10.43 $ 10.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 7.82% 7.85% 4.26% 10.90% (2.33)% 10.58% 10.16%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 14,738 $ 14,325 $ 10,127 $ 6,796 $ 5,347 $ 7,064 $ 188
Ratio of expenses to average net assets 0.86% 0.85% 0.84% 1.01% 0.78% 0.77% 0.97%(b)
Ratio of net investment income to average
net assets 6.49% 6.59% 6.51% 6.57% 5.25% 6.12% 6.58%(b)
Ratio of expenses to average net assets* 1.16% 1.15% 1.16% 1.38% 1.20% 1.26% 1.27%(b)
Ratio of net investment income to average
net assets* 6.19% 6.29% 6.19% 6.20% 4.83% 5.63% 6.28%(b)
Portfolio Turnover (a) 30.83% 55.18% 95.52% 262.25% 131.04% 143.52% 32.50%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued. (b) Annualized.
(c) Class A Shares commenced offering on February 18, 1992.
<PAGE> 66
7
THE ONE GROUP(R) INCOME BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 9.40 $ 9.62 $ 9.29 $ 9.97
- ----------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.56 0.56 0.56 0.56 0.17
Net realized and unrealized gains (losses) from
investments and futures 0.10 0.09 (0.21) 0.38 (0.70)
- ----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.66 0.65 0.35 0.94 (0.53)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.56) (0.56) (0.57) (0.57) (0.15)
Net realized gains -- -- -- (0.04) --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.56) (0.57) (0.61) (0.15)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.59 $ 9.49 $ 9.40 $ 9.62 $ 9.29
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 7.13% 7.15% 3.65% 10.63% (5.29)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 15,511 $ 10,873 $ 6,110 $ 1,887 $ 723
Ratio of expenses to average net assets 1.51% 1.50% 1.49% 1.49% 1.45%(c)
Ratio of net investment income to average net assets 5.83% 5.95% 5.86% 6.16% 5.20%(c)
Ratio of expenses to average net assets* 1.81% 1.80% 1.81% 1.86% 1.84%(c)
Ratio of net investment income to average net assets* 5.53% 5.65% 5.54% 5.80% 4.81%(c)
Portfolio Turnover (d) 30.83% 55.18% 95.52% 262.25% 131.04%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 17, 1994. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis
of the Fund as a whole without distinguishing among the classes of shares
issued.
<PAGE> 67
The One Group(R)
Government Bond Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks a high level of
current income with liquidity and
safety of principal.
LOGO INVESTMENT STRATEGY
The Fund limits its investments to
securities issued by the U.S.
Government and its agencies and
instrumentalities or related to
securities issued by the U.S.
Government and its agencies and
instrumentalities. The Fund's
average weighted remaining maturity
will ordinarily range between three
and fifteen years, taking into
account expected prepayment of
principal on certain investments.
However, the Fund's average weighted
remaining maturity may be outside
this range if warranted by market
conditions.
LOGO PORTFOLIO SECURITIES
At least 65% of the Fund's total
assets will be invested in debt
instruments with principal and
interest guaranteed by the U.S.
Government or its agencies and
instrumentalities, some of which may
be subject to repurchase agreements,
and other securities representing an
interest in or secured by mortgages
that are issued or guaranteed by
certain U.S. government agencies or
instrumentalities. For a list of all
the securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund's ability to achieve higher
income is not as great as that of
funds that invest in lower-quality
instruments. In addition, the Fund
invests in fixed-income securities.
The value of these securities will
change in response to interest rate
changes and other factors. The Fund
also invests in mortgage-related
securities which may have greater
price and yield volatility than
traditional fixed income securities.
Before you invest, please read "More
About the Funds" and "Investment
Risks."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (3)
(as a percentage of average daily
net assets)
Investment Advisory Fees .45% .45% .45%
12b-1 Fees (after fee waiver) (4) .25% .90% .90%
Other Expenses .24% .24% .24%
Total Fund Operating Expenses (after
fee waiver) (5) .94% 1.59% 1.59%
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.45%
none
.24%
.69%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.04% for Class A shares and 1.69% for Class B shares and Class
C 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 $ 54 $ 74 $ 95 $155
Class A
(without fee
waiver) $ 55 $ 77 $100 $166
Class B $ 66 $ 80 $107 $172
Class B
(without fee
waiver) $ 67 $ 83 $112 $183
Class C $ 26 $ 50 $ 87 $189
Class C
(without fee
waiver) $ 27 $ 53 $ 92 $200
Class I $ 7 $ 22 $ 38 $ 86
</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 $ 54 $ 74 $ 95 $155
Class A
(without fee
waiver) $ 55 $ 77 $100 $166
Class B $ 16 $ 50 $ 87 $172
Class B
(without fee
waiver) $ 17 $ 53 $ 92 $183
Class C $ 16 $ 50 $ 87 $189
Class C
(without fee
waiver) $ 17 $ 53 $ 92 $200
Class I $ 7 $ 22 $ 38 $ 86
</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.
8
<PAGE> 68
The One Group(R) Government Bond Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.69 $ 9.56 $ 9.81 $ 9.35 $ 10.15 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.60 0.62 0.62 0.62 0.51 0.20
Net realized and unrealized gains (losses)
from investments and futures 0.42 0.13 (0.25) 0.46 (0.77) 0.15
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.02 0.75 0.37 1.08 (0.26) 0.35
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.60) (0.62) (0.62) (0.61) (0.50) (0.20)
In excess of net investment income -- -- -- (0.01) (0.02) --
In excess of net realized gains -- -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.60) (0.62) (0.62) (0.62) (0.54) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 9.69 $ 9.56 $ 9.81 $ 9.35 $ 10.15
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 10.81% 8.10% 3.81% 12.04% (2.73)% 9.03%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $851,517 $724,423 $677,326 $379,826 $209,692 $52,152
Ratio of expenses to average net assets 0.62% 0.62% 0.68% 0.71% 0.68% 0.69%(b)
Ratio of net investment income to average net
assets 6.05% 6.45% 6.34% 6.65% 5.13% 5.43%(b)
Ratio of expenses to average net assets* 0.67% 0.68% 0.69% 0.73% 0.71% 1.05%(b)
Ratio of net investment income to average net
assets* 6.00% 6.39% 6.33% 6.63% 5.10% 5.07%(b)
Portfolio Turnover (c) 91.49% 60.53% 62.70% 106.14% 377.78% 139.24%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a) The
Fund commenced offering on February 8, 1993. (b) Annualized. (c) Portfolio
turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.69 $ 9.56 $ 9.81 $ 9.35 $ 10.17 $ 10.22
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.58 0.60 0.60 0.61 0.48 0.17
Net realized and unrealized gains (losses)
from investments and futures 0.42 0.13 (0.25) 0.45 (0.79) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.00 0.73 0.35 1.06 (0.31) 0.12
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.58) (0.60) (0.60) (0.59) (0.47) (0.17)
In excess of net investment income -- -- -- (0.01) (0.02) --
In excess of net realized gains -- -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.58) (0.60) (0.60) (0.60) (0.51) (0.17)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 9.69 $ 9.56 $ 9.81 $ 9.35 $ 10.17
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 10.54% 7.83% 3.58% 11.84% (3.16)% 5.35%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $31,548 $34,727 $38,800 $8,130 $1,690 $840
Ratio of expenses to average net assets 0.87% 0.87% 0.93% 0.97% 0.92% 0.95%(b)
Ratio of net investment income to average net
assets 5.80% 6.20% 6.09% 6.46% 4.84% 5.56%(b)
Ratio of expenses to average net assets* 1.02% 1.03% 1.04% 1.09% 1.05% 1.44%(b)
Ratio of net investment income to average net
assets* 5.65% 6.04% 5.98% 6.34% 4.71% 5.07%(b)
Portfolio Turnover (c) 91.49% 60.53% 62.70% 106.14% 377.78% 139.24%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Class A Shares commenced offering on March 6,
1993. (b) Annualized. (c) Portfolio turnover is calculated on the basis of
the Fund as a whole without distinguishing among the classes of shares issued.
9
<PAGE> 69
10
THE ONE GROUP(R) GOVERNMENT BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.69 $ 9.56 $ 9.81 $ 9.35 $ 10.04
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.52 0.54 0.54 0.55 0.18
Net realized and unrealized gains (losses) from
investments and futures 0.42 0.13 (0.25) 0.46 (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.94 0.67 0.29 1.01 (0.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.52) (0.54) (0.54) (0.55) (0.16)
In excess of net investment income -- -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (0.54) (0.54) (0.55) (0.18)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 9.69 $ 9.56 $ 9.81 $ 9.35
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 9.86% 7.14% 2.95% 11.20% (4.99)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 20,922 $ 11,729 $ 10,782 $ 2,513 $ 656
Ratio of expenses to average net assets 1.52% 1.52% 1.58% 1.62% 1.52%(c)
Ratio of net investment income to average net assets 5.14% 5.55% 5.44% 5.76% 4.60%(c)
Ratio of expenses to average net assets* 1.67% 1.68% 1.69% 1.74% 1.63%(c)
Ratio of net investment income to average net assets 4.99% 5.39% 5.33% 5.64% 4.49%(c)
Portfolio Turnover (d) 91.49% 60.53% 62.70% 106.14% 377.78%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<PAGE> 70
The One Group(R)
Ultra Short-Term Income Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks a high level of
current income consistent with low
volatility of principal by investing
in a diversified portfolio of
short-term investment grade
securities.
LOGO INVESTMENT STRATEGY
The Fund invests in all types of
debt securities, including money
market instruments, adjustable rate
mortgage backed securities and
taxable and tax-exempt municipal
securities. The Fund will maintain a
maximum duration approximately equal
to that of a two-year U.S. Treasury
security, although the Fund's actual
duration is expected to be
approximately equal to that of a one
year U.S. Treasury security.
LOGO PORTFOLIO SECURITIES
The Fund normally invests at least
80% of its total assets in debt
securities. In addition, up to 20%
of the Fund's total assets may be
invested in other securities,
including preferred stock. The Fund
will invest in adjustable rate
mortgage pass-through securities and
other securities representing an
interest in or secured by mortgages
with periodic interest rate resets
(some of which may be subject to
repurchase agreements). These
securities often are issued or
guaranteed by the U.S. Government,
its agencies or instrumentalities.
However, the Fund may also purchase
mortgage-backed securities that are
issued by non-governmental entities.
Such securities may or may not have
private insurer guarantees of timely
payments. For a list of all the
securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in fixed-income
investments that are subject to
market fluctuations as a result of
changes in interest rates. As a
result, the value of investments in
the Fund may decrease during periods
of rising interest rates. In
addition, the Fund invests in
mortgage-related securities which
may have greater price and yield
volatility than traditional
fixed-income securities. The Fund
also uses investment management
hedging techniques that may expose
the Fund to special risks. Before
you invest, please read "More About
the Funds" and "Investment Risks."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 3.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3)
(as a percentage of average daily
net assets)
Investment Advisory Fees (after fee
waiver) (4) .30% .30% .30% .30%
12b-1 Fees (after fee waiver) (5) .25% .75% .75% none
Other Expenses .25% .25% .25% .25%
Total Fund Operating Expenses
(after fee waivers) (6) .80% 1.30% 1.30% .55%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .55% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.15% for Class A shares, 1.80% for
Class B shares, 1.80% for Class C shares, and .80% for Class I 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 $ 38 $ 55 $ 73 $126
Class A
(without fee
waivers) $ 41 $ 65 $ 91 $166
Class B $ 43 $ 61 $ 71 $130
Class B
(without fee
waivers) $ 48 $ 77 $ 97 $179
Class C $ 23 $ 41 $ 71 $157
Class C
(without fee
waivers) $ 28 $ 57 $ 97 $212
Class I $ 6 $ 18 $ 31 $ 69
Class I
(without fee
waiver) $ 8 $ 26 $ 44 $ 99
</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 $ 38 $ 55 $ 73 $126
Class A
(without fee
waivers) $ 41 $ 65 $ 91 $166
Class B $ 13 $ 41 $ 71 $130
Class B
(without fee
waivers) $ 18 $ 57 $ 97 $179
Class C $ 13 $ 41 $ 71 $157
Class C
(without fee
waivers) $ 18 $ 57 $ 97 $212
Class I $ 6 $ 18 $ 31 $ 69
Class I
(without fee
waiver) $ 8 $ 26 $ 44 $ 99
</TABLE>
Class B shares automatically convert to Class A shares after six (6) 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.
11
<PAGE> 71
The One Group(R) Ultra Short-Term Income Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $ 9.79 $ 9.84 $ 9.85 $ 10.03 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.59 0.62 0.62 0.55 0.36 0.17
Net realized and unrealized gains (losses)
from investments and futures (0.01) 0.05 (0.07) (0.05) (0.15) 0.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.58 0.67 0.55 0.50 0.21 0.20
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.58) (0.59) (0.60) (0.48) (0.37) (0.17)
In excess of net investment income -- -- -- (0.03) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.58) (0.59) (0.60) (0.51) (0.39) (0.17)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.87 $ 9.87 $ 9.79 $ 9.84 $ 9.85 $ 10.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 6.00% 7.14% 5.71% 5.14% 2.16% 4.93%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $188,133 $114,413 $57,276 $51,050 $139,593 $154,413
Ratio of expenses to average net assets 0.30% 0.35% 0.45% 0.61% 0.65% 0.58%(b)
Ratio of net investment income to average net
assets 5.92% 6.02% 6.20% 5.18% 3.70% 4.71%(b)
Ratio of expenses to average net assets* 0.81% 0.81% 1.06% 1.01% 0.81% 1.03%(b)
Ratio of net investment income to average net
assets* 5.41% 5.56% 5.59% 4.78% 3.54% 4.26%(b)
Portfolio Turnover (c) 41.15% 70.36% 67.65% 2.91% 242.20% 109.96%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a) The
Fund commenced operations on February 2, 1993. (b) Annualized. (c) Portfolio
turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $ 9.78 $ 9.83 $ 9.84 $ 10.03 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.56 0.58 0.58 0.52 0.36 0.14
Net realized and unrealized gains (losses)
from investments and futures (0.01) 0.09 (0.06) (0.06) (0.17) 0.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.55 0.67 0.52 0.46 0.19 0.17
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.55) (0.58) (0.57) (0.46) (0.34) (0.14)
In excess of net investment income -- -- -- (0.01) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.55) (0.58) (0.57) (0.47) (0.38) (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.87 $ 9.87 $ 9.78 $ 9.83 $ 9.84 $ 10.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 5.75% 7.00% 5.42% 4.84% 1.95% 4.78%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $24,747 $29,643 $3,969 $4,631 $19,053 $3,106
Ratio of expenses to average net assets 0.54% 0.61% 0.70% 0.86% 0.89% 0.81%(b)
Ratio of net investment income to average net
assets 5.66% 5.78% 5.95% 4.88% 3.54% 4.47%(b)
Ratio of expenses to average net asset* 1.15% 1.17% 1.41% 1.36% 1.14% 1.34%(b)
Ratio of net investment income to average net
asset* 5.05% 5.22% 5.24% 4.38% 3.29% 3.95%(b)
Portfolio Turnover (c) 41.15% 70.36% 67.65% 2.91% 242.20% 109.96%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a) The
Fund commenced offering on March 10, 1993. (b) Annualized. (c) Portfolio
turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
12
<PAGE> 72
13
THE ONE GROUP(R) ULTRA SHORT-TERM INCOME FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.81 $ 9.76 $ 9.84 $ 9.86 $ 9.98
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.52 0.54 0.52 0.47 0.12
Net realized and unrealized gains (losses) from
investments and futures (0.01) 0.05 (0.07) (0.04) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.51 0.59 0.45 0.43 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.51) (0.54) (0.53) (0.45) (0.12)
In excess of net investment income -- -- -- -- (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.51) (0.54) (0.53) (0.45) (0.13)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.81 $ 9.81 $ 9.76 $ 9.84 $ 9.86
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge 5.32% 6.22% 4.63% 4.77% (0.09)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 4,531 $ 2,818 $ 1,144 $ 160 $ 15
Ratio of expenses to average net assets 0.99% 1.07% 1.20% 1.31% 1.41%(c)
Ratio of net investment income to average net assets 5.23% 5.18% 5.45% 4.91% 3.49%(c)
Ratio of expenses to average net assets* 1.75% 1.81% 2.06% 1.96% 1.83%(c)
Ratio of net investment income to average net assets* 4.47% 4.44% 4.59% 4.26% 3.07%(c)
Portfolio Turnover (d) 41.15% 70.36% 67.65% 2.91% 242.20%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Fund commenced offering on January 14, 1994. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<PAGE> 73
The One Group(R)
Limited Volatility Bond Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks current income
consistent with preservation of
capital through investment in high
and medium-grade fixed-income
securities.
LOGO INVESTMENT STRATEGY
The Fund invests in all types of
debt securities with short to
intermediate maturities. The Fund's
average weighted maturity will
ordinarily range between one and
five years taking into account
expected prepayment of principal on
certain investments, although the
Fund may shorten the weighted
average maturity to as little as 90
days for temporary defensive
purposes.
LOGO PORTFOLIO SECURITIES
The Fund invests at least 80% of its
total assets in debt securities with
short to intermediate maturities. At
least 65% of the Fund's total assets
will consist of bonds and at least
65% of total assets will consist of
obligations issued by the U.S.
Government, its agencies, or
instrumentalities (some of which may
be subject to repurchase
agreements). The Fund also may
purchase taxable or tax-exempt
municipal securities. Up to 20% the
total assets may be invested in
preferred stock. For a list of all
the securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund may invest in debt
securities that are rated in the
lowest investment grade category.
Such investments are considered to
have speculative characteristics. In
addition, the Fund invests in
fixed-income securities. The value
of these securities will change in
response to interest rate changes
and other factors. Also, the Fund
invests in mortgage-related
securities which may have greater
price and yield volatility than
traditional fixed-income securities.
Before you invest, please read "More
About the Funds" and "Investment
Risks."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 3.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .75% .75% none
Other Expenses .22% .22% .22% .22%
Total Fund Operating Expenses (after
fee waiver) (6) .87% 1.37% 1.37% .62%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .60% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.17% for Class A shares, 1.82% for
Class B shares, 1.82% for Class C shares and .82% for Class I 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 $ 39 $ 57 $ 77 $134
Class A
(without fee
waivers) $ 42 $ 66 $ 92 $168
Class B $ 44 $ 63 $ 75 $138
Class B
(without fee
waivers) $ 48 $ 77 $ 99 $181
Class C $ 24 $ 43 $ 75 $165
Class C
(without fee
waivers) $ 28 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</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 $ 39 $ 57 $ 77 $134
Class A
(without fee
waivers) $ 42 $ 66 $ 92 $168
Class B $ 14 $ 43 $ 75 $138
Class B
(without fee
waivers) $ 18 $ 57 $ 99 $181
Class C $ 14 $ 43 $ 75 $165
Class C
(without fee
waivers) $ 18 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</TABLE>
Class B shares automatically convert to Class A shares after six (6) 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.
14
<PAGE> 74
The One Group(R) Limited Volatility Bond Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.47 $ 10.42 $ 10.53 $ 10.33 $ 10.87 $ 10.72
- ------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.63 0.63 0.64 0.60 0.54 0.61
Net realized and unrealized gains
(losses) from investments and
futures 0.04 0.05 (0.11) 0.19 (0.45) 0.25
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.67 0.68 0.53 0.79 0.09 0.86
- ------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.63) (0.63) (0.64) (0.59) (0.55) (0.62)
In excess of net investment income -- -- -- -- (0.02) --
Net realized gains -- -- -- -- (0.06) (0.09)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.63) (0.63) (0.64) (0.59) (0.63) (0.71)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.51 $ 10.47 $ 10.42 $ 10.53 $ 10.33 $ 10.87
- ------------------------------------------------------------------------------------------------------------------------
Total Return 6.59% 6.75% 5.13% 7.96% 0.79% 8.27%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $592,669 $563,979 $604,916 $410,746 $447,394 $397,820
Ratio of expenses to average net
assets 0.53% 0.51% 0.51% 0.52% 0.50% 0.56%
Ratio of net investment income to
average net assets 6.01% 6.06% 6.06% 5.82% 5.10% 5.70%
Ratio of expenses to average net
assets* 0.82% 0.81% 0.82% 0.85% 0.85% 0.90%
Ratio of net investment income to
average net assets* 5.72% 5.76% 5.75% 5.49% 4.75% 5.36%
Portfolio Turnover (a) 56.99% 66.61% 75.20% 76.43% 30.61% 40.28%
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
CLASS I 1992 1991
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.26 $ 10.00
- ---------------------------------------------------------------------------
Investment Activities:
Net investment income 0.70 0.58
Net realized and unrealized gains
(losses) from investments and
futures 0.47 0.25
- --------------------------------------------------------------------------------------
Total from Investment Activities 1.17 0.83
- -------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.70) (0.57)
In excess of net investment income -- --
Net realized gains (0.01) --
- ------------------------------------------------------------------------------------------------------------
Total Distributions (0.71) (0.57)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.72 $ 10.26
- ------------------------------------------------------------------------------------------------------------------------
Total Return 11.75% 9.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $301,907 $154,991
Ratio of expenses to average net
assets 0.52% 0.32%(b)
Ratio of net investment income to
average net assets 6.63% 7.49%(b)
Ratio of expenses to average net
assets* 1.04% 0.92%(b)
Ratio of net investment income to
average net assets* 6.11% 6.89%(b)
Portfolio Turnover (a) 43.87% 24.69%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (A)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (B) Annualized.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(c)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.46 $ 10.41 $ 10.52 $ 10.32 $ 10.87 $ 10.72 $ 10.61
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.61 0.61 0.63 0.56 0.52 0.59 0.24
Net realized and unrealized
gains (losses) from
investments and futures 0.04 0.05 (0.13) 0.21 (0.46) 0.24 0.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.65 0.66 0.50 0.77 0.06 0.83 0.37
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.61) (0.61) (0.61) (0.56) (0.51) (0.59) (0.26)
In excess of net investment
income -- -- -- (0.01) (0.04) -- --
Net realized gains -- -- -- -- (0.06) (0.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.61) (0.61) (0.61) (0.57) (0.61) (0.68) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.50 $ 10.46 $ 10.41 $ 10.52 $ 10.32 $ 10.87 $ 10.72
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales
Charge) 6.32% 6.47% 4.86% 7.67% 0.49% 8.04% 9.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $15,582 $20,055 $21,343 $12,516 $15,216 $15,719 $161
Ratio of expenses to average net
assets 0.78% 0.76% 0.76% 0.77% 0.75% 0.76% 0.99%(b)
Ratio of net investment income
to average net assets 5.77% 5.81% 5.81% 5.57% 4.92% 5.35% 5.95%(b)
Ratio of expenses to average net
assets* 1.17% 1.16% 1.17% 1.20% 1.20% 1.27% 1.29%(b)
Ratio of net investment income
to average net assets* 5.38% 5.41% 5.40% 5.14% 4.47% 4.84% 5.65%(b)
Portfolio Turnover (a) 56.99% 66.61% 75.20% 76.43% 30.61% 40.28% 43.87%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) Annualized. (c) Class
A Shares commenced offering on February 18, 1992.
15
<PAGE> 75
16
THE ONE GROUP(R) LIMITED VOLATILITY BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.53 $ 10.49 $ 10.60 $ 10.40 $ 10.78
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.58 0.55 0.55 0.53 0.17
Net realized and unrealized gains (losses) from
investments and futures 0.04 0.04 (0.10) 0.19 (0.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.62 0.59 0.45 0.72 (0.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.58) (0.55) (0.56) (0.52) (0.15)
In excess of net realized gains -- -- -- -- (0.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.58) (0.55) (0.56) (0.52) (0.18)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.57 $ 10.53 $ 10.49 $ 10.60 $ 10.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 5.98% 5.74% 4.28% 7.18% (1.81)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 4,851 $ 4,920 $ 4,923 $ 2,906 $ 1,974
Ratio of expenses to average net assets 1.11% 1.20% 1.26% 1.28% 1.26%(c)
Ratio of net investment income to average net assets 5.44% 5.21% 5.31% 5.10% 4.39%(c)
Ratio of expenses to average net assets* 1.64% 1.81% 1.82% 1.86% 1.86%(c)
Ratio of net investment income to average net assets* 4.91% 4.60% 4.75% 4.52% 3.79%(c)
Portfolio Turnover (d) 56.99% 66.61% 75.20% 76.43% 30.61%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis
of the Fund as a whole without distinguishing among the classes of shares
issued.
<PAGE> 76
17
The One Group(R)
TREASURY & AGENCY FUND
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks a high level of
current income by investing in U.S.
Treasury and other U.S. Agency
obligations with a primary, but not
exclusive, focus on issues that
produce income exempt from state
income taxes.
[LOGO] INVESTMENT STRATEGY
The Fund invests in U.S. Treasury
and other U.S. Agency obligations
including fixed-income securities
and mortgage-related securities.
Normally, the Fund's average
weighted maturity will range between
two and five years.
[LOGO] PORTFOLIO SECURITIES
The Fund normally invests at least
65% of its total assets in U.S.
Treasury bills, notes and other
obligations issued or guaranteed by
the U.S. Treasury ("Treasury
Obligations") and securities issued
or guaranteed by U.S. Government
agencies and instrumentalities.
Treasury Obligations may include
Separately Traded Registered
Interest and Principal Securities
("STRIPS"), Coupon Under Book Entry
Safekeeping ("CUBES"), and
securities of other government-only
investment companies, including
other funds of The One Group. The
Fund also may invest in government
mortgage-backed securities and
government adjustable rate mortgage
loans ("ARMs"), as well as engage in
securities lending. For a list of
all the securities in which the Fund
may invest, please read "Investment
Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in fixed-income
securities. The value of these
securities will change in response
to interest rate changes and other
factors. Before you invest, please
read "More About the Funds" and
"Investment Risks."
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.00% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 3.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .20% .20% .20% .20%
12b-1 Fees (after fee waiver) (5) .25% .75% .75% none
Other Expenses .25% .25% .25% .25%
Total Fund Operating Expenses (after
fee waiver) (6) .70% 1.20% 1.20% .45%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .40% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of fees, Total Operating Expenses would
be 1.00% for Class A shares, 1.65% for Class B shares, 1.65% for Class C
shares and .65% for Class I 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 $ 37 $ 52 $ 68 $114
Class A
(without fee
waivers) $ 40 $ 61 $ 84 $149
Class B $ 42 $ 58 $ 66 $119
Class B
(without fee
waivers) $ 47 $ 72 $ 90 $162
Class C $ 22 $ 38 $ 66 $145
Class C
(without fee
waivers) $ 27 $ 52 $ 90 $195
Class I $ 5 $ 14 $ 25 $ 57
Class I
(without fee
waivers) $ 7 $ 21 $ 36 $ 81
</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 $ 37 $ 52 $ 68 $114
Class A
(without fee
waivers) $ 40 $ 61 $ 84 $149
Class B $ 12 $ 38 $ 66 $119
Class B
(without fee
waivers) $ 17 $ 52 $ 90 $162
Class C $ 12 $ 38 $ 66 $145
Class C
(without fee
waivers) $ 17 $ 52 $ 90 $195
Class I $ 5 $ 14 $ 25 $ 57
Class I
(without fee
waivers) $ 7 $ 21 $ 36 $ 81
</TABLE>
Class B shares automatically convert to Class A shares after six (6) 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.
<PAGE> 77
18
THE ONE GROUP(R) TREASURY & AGENCY FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
JANUARY 20, 1997
YEAR ENDED THROUGH
CLASS I JUNE 30, 1998 JUNE 30, 1997(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.62 0.28
Net realized and unrealized gains (losses) from
investments and futures 0.15 (0.01)
- -----------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.77 0.27
- -----------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.62) (0.28)
Net realized gains (0.05) --
- -----------------------------------------------------------------------------------------------------------
Total Distributions (0.67) (0.28)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 9.99
- -----------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 7.91% 2.78%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 95,073 $ 110,084
Ratio of expenses to average net assets 0.35% 0.45%(c)
Ratio of net investment income to average net assets 6.16% 6.44%(c)
Ratio of expenses to average net assets* 0.65% 0.78%(c)
Ratio of net investment income to average net assets* 5.86% 6.11%(c)
Portfolio Turnover (d) 41.60% 54.44%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
JANUARY 20, 1997
YEAR ENDED THROUGH
CLASS A JUNE 30, 1998 JUNE 30, 1997(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.63 0.29
Net realized and unrealized gains (losses) from
investments and futures 0.16 (0.02)
- -----------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.79 0.27
- -----------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.63) (0.29)
Net realized gains (0.05) --
- -----------------------------------------------------------------------------------------------------------
Total Distributions (0.68) (0.29)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 9.98
- -----------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 8.10% 2.78%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 35,213 $ 94
Ratio of expenses to average net assets 0.58% 0.71%(c)
Ratio of net investment income to average net assets 5.87% 6.47%(c)
Ratio of expenses to average net assets* 0.98% 1.15%(c)
Ratio of net investment income to average net assets* 5.47% 6.03%(c)
Portfolio Turnover (d) 41.60% 54.44%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<PAGE> 78
19
THE ONE GROUP(R) TREASURY & AGENCY FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 20, 1997
YEAR ENDED THROUGH
CLASS B JUNE 30, 1998 JUNE 30, 1997(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.58 0.26
Net realized and unrealized gains (losses) from
investments and futures 0.14 (0.01)
- ------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.72 0.25
- ------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.58) (0.26)
Net realized gains (0.05) --
- ------------------------------------------------------------------------------------------------------------
Total Distributions (0.63) (0.26)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.08 $ 9.99
- ------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 7.33% 2.58%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 12,483 $ 80
Ratio of expenses to average net assets 1.08% 1.23%(c)
Ratio of net investment income to average net assets 5.39% 6.30%(c)
Ratio of expenses to average net assets* 1.63% 1.81%(c)
Ratio of net investment income to average net assets* 4.84% 5.72%(c)
Portfolio Turnover (d) 41.60% 54.44%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<PAGE> 79
The One Group(R)
High Yield Bond Fund
LOGO 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.
LOGO 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.
LOGO PORTFOLIO SECURITIES
The Fund normally invests at least
80% of its 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 generally 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."
LOGO 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."
LOGO FUND MANAGEMENT
Banc One High Yield Partners, LLC
serves as sub-advisor to the Fund.
Banc One High Yield Partners, LLC is
controlled by Banc One Investment
Advisors and Pacholder Associates,
Inc. Anthony L. Longi, Jr., an
officer of Banc One High Yield
Partners, LLC 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
with Pacholder Associates, Inc.
since 1987.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (3) .60% .60% .60%
12b-1 Fees (after fee waiver) (4) .25% .90% .90%
Other Expenses (5) .35% .35% .35%
Total Fund Operating Expenses (after
fee waivers) (6) 1.20% 1.85% 1.85%
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.60%
none
.35%
.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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be 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.
(5) Other Expenses are based on estimated amounts for the current fiscal
year.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.45% for Class A shares, 2.10% for
Class B shares, 2.10% for Class C shares and 1.10% for Class I 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
<S> <C> <C>
Class A $ 57 $ 81
Class A
(without
fee
waiver) $ 59 $ 89
Class B $ 69 $ 88
Class B
(without
fee
waiver) $ 71 $ 96
Class C $ 29 $ 58
Class C
(without
fee
waiver) $ 31 $ 66
Class I $ 10 $ 30
Class I
(without
fee
waiver) $ 11 $ 35
</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
<S> <C> <C>
Class A $ 57 $ 81
Class A
(without
fee
waiver) $ 59 $ 89
Class B $ 19 $ 58
Class B
(without
fee
waiver) $ 21 $ 66
Class C $ 19 $ 58
Class C
(without
fee
waiver) $ 21 $ 66
Class I $ 10 $ 30
Class I
(without
fee
waiver) $ 11 $ 35
</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.
20
<PAGE> 80
21
THE ONE GROUP(R) HIGH YIELD BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This section normally would include Financial Highlights for the Fund. Because
the Fund had not begun operations as of June 30, 1998, there are no Financial
Highlights for the Fund.
<PAGE> 81
more about the funds
22
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, municipalities,
securities issued or guaranteed by foreign governments, their agencies or
instrumentalities, securities issued by domestic and supranational banks,
mortgage-related securities, asset-backed securities, stripped government
securities and zero coupon obligations.
Portfolio Quality
- ----------------------------------------------------
The Funds only purchase securities that meet the following criteria:
DEBT SECURITIES
- - The Government Bond Fund and the Treasury & Agency Fund may invest in debt
securities rated in any of the three highest investment grade rating
categories.
- - The Ultra Short-Term Income Fund, the Intermediate Bond Fund, and the Limited
Volatility Bond Fund may invest in debt securities rated in any of the four
investment grade rating categories.
- - The Income Bond Fund and the High Yield Bond Fund may purchase securities in
ANY rating category. Please read "Special Risk Considerations" and "High
Yield/Junk Bonds" for more information about the Income Bond Fund.
PREFERRED STOCK
- - The Ultra Short-Term Income Fund, the Limited Volatility Bond Fund and the
Intermediate Bond Fund may only invest in preferred stock rated in any of the
four highest rating categories.
- - The Income Bond Fund and the High Yield Bond Fund may invest in preferred
stock in any rating category.
MUNICIPAL SECURITIES
- - The Intermediate Bond Fund, the Limited Volatility Bond Fund and the Ultra
Short-Term Income Fund may only invest in municipal bonds rated in any of the
four highest rating categories.
- - The Intermediate Bond Fund and the Ultra Short-Term Income Fund may only
invest in other municipal securities, such as tax-exempt commercial paper,
notes, and variable rate demand obligations which are rated in the highest or
second highest rating categories. The Limited Volatility Bond Fund may invest
in such securities only if they are rated in the highest rating category.
- - The Income Bond Fund and the High Yield Bond Fund may invest in municipal
securities rated in ANY category.
COMMERCIAL PAPER
- - The Intermediate Bond Fund, the Limited Volatility Bond Fund and the Ultra
Short-Term Income Fund may invest in commercial paper rated in the highest or
second highest rating category.
- - The High Yield Bond Fund and the Income Bond Fund may invest in commercial
paper in any rating category.
If the securities are unrated, Banc One Investment Advisors must determine that
they are of comparable quality to rated securities. Banc One Investment Advisors
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
- ----------------------------------------------------
Each 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 will follow
guidelines adopted by The One Group Board of Trustees in determining whether an
investment is illiquid.
Special Risk
Considerations
- ----------------------------------------------------
FIXED INCOME SECURITIES: Investments in fixed income securities (for example,
bonds) will increase or decrease in value based on changes in interest rates. If
rates increase, the value of a Fund's investments generally declines. 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 also are 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. Fixed income securities also are subject to the
risk that the issuer of the security will be unable to meet its repayment
obligation.
<PAGE> 82
DERIVATIVES: Some of the Funds may invest in securities that are considered to
be derivatives. "Derivatives" are securities that derive their value from the
performance of underlying assets or securities. 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
- - inverse floating rate instruments
These securities may be more volatile than other investments. Derivatives
present, to varying degrees, market, credit, leverage, liquidity, and management
risks. For a more detailed discussion of these risks, please read "Investment
Risks." The Fund's use of derivatives may cause the Fund to recognize higher
amounts of short-term capital gains (generally taxed at ordinary income tax
rates) than it would if the Fund did not use such instruments.
LOWER RATED SECURITIES: The Intermediate Bond Fund, the Ultra Short-Term Income
Fund and the Income Bond Fund may invest in debt securities rated in the lowest
investment grade category. Securities in this rating category are considered to
have speculative characteristics. Changes in economic conditions or other
circumstances may have a greater effect on the ability of issuers of these
securities to make principal and interest payments than they do on issuers of
higher grade securities.
HIGH YIELD/JUNK BONDS: The Income Bond Fund and the High Yield Bond Fund invest
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 Funds 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 Funds would experience a decrease
in income and a decline in the market value of its investments. The Funds 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 Funds' 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, economic and market developments.
During periods of economic uncertainty and change, the market price of the
Funds' investments and the Funds' 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 Funds' 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 Funds' investments, valuation of such investments
is much more dependent on judgment than is the case with higher rated
securities.
LIQUIDITY. There may be no established secondary or public market for the Funds'
investments. As a result, the Funds 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 Funds will not rely solely on ratings issued by established credit
rating agencies, but will use such ratings in conjunction with Banc One
Investment Advisor's or the Sub-Advisor's 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
23
<PAGE> 83
investment risk, achievement of the Funds' investment objectives will be more
dependent on Banc One Investment Advisor's or the Sub-Advisor's credit analysis
than would be the case if the Funds were investing in higher rated securities.
The Funds may seek to hedge investments through transactions in options, futures
contracts and related options. The Funds also may use swap agreements to further
manage exposure to lower rated securities.
EXPERIENCE OF ADVISOR AND SUB-ADVISOR. The High Yield Bond Fund's portfolio
manager 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. The Sub-Advisor, Banc One
Investment Advisors and the portfolio manager have limited experience in
managing an open-end investment company (like the Fund) that primarily invests
in high yield, high risk bonds.
FOREIGN SECURITIES: Investments in foreign securities involve risks different
from investments in U.S. securities. For more details, see "Investment
Practices" and "Investment Risks." Because of these risk factors, the share
price of the a Fund investing in foreign securities is expected to be volatile,
and you should be able to sustain sudden, and sometimes substantial,
fluctuations in the value of your investment.
24
<PAGE> 84
how to do business with The One Group
25
Purchasing
Fund Shares
- ----------------------------------------------------
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
Funds are open for business, other than weekends, days on which the New York
Stock Exchange ("NYSE") is closed, and the following holidays: New Year's 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 Time ("ET"), will be effective that day. On occasion, the NYSE will
close before 4 p.m. ET. When that happens, purchase requests received after
the NYSE closes will be effective the following business day.
- - Purchase orders may be cancelled by the Fund's Custodian, State Street Bank
and Trust Company, if it does not receive "federal funds" by 4:00 p.m. ET (i)
on the business day after the order is placed if you are buying Class I
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 a 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.
- - Class I 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 and, in
1999, may offer an education plan. These plans allow participants to defer taxes
while their retirement and education savings grow. The education IRA requires a
minimum investment of $500. Call The One Group Services Company at
1-800-480-4111 for an 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 each 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 a Fund's
investments and other assets allocable to a class (minus class expenses) by
the number of outstanding shares in that class.
- - A Fund's NAV changes every day. NAV is calculated each business day following
the close of the NYSE at 4:00 p.m. ET. On occasion, the NYSE will close before
4:00 p.m ET. When that happens, NAV will be calculated as of the time the NYSE
closes.
HOW DO I OPEN AN ACCOUNT?
1. Read the prospectus carefully, and select the Fund or Funds most appropriate
for you.
2. Decide how much you want to invest.
- The minimum initial investment for all Funds except the Treasury & Agency
Fund is $1,000 ($100 for employees of BANK ONE CORPORTAION and its
affiliates). The minimum initial investment for the Treasury & Agency Fund
is $50,000.
- Subsequent investments for all Funds except the Treasury & Agency Fund must
be at least $100 ($25 for employees of BANK ONE CORPORTAION and its
affiliates). Subsequent investments for the Treasury & Agency Fund must be
at least $1,000.
- You may purchase no more than $250,000 of Class B shares at one time.
- The One Group Services Company may waive these minimums.
<PAGE> 85
26
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.
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 a 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), authorize a bank transfer or initiate a
wire transfer to the following wire address:
State Street Bank & Trust Company
Attn: Custody & Shareholder Services
ABA 011 000 028
DDA 99034167
FBO The One Group Fund (ex: The One Group Intermediate Bond Fund -- A)
Your Account Number (ex: 123456789)
Your Account Registration (ex: John Smith & Mary Smith, JTWROS)
- - 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 over the telephone 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, except for The Treasury & Agency Fund. 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 systematic investments by calling The One
Group Services Company at 1-800-480-4111 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
CONVERSION FEATURE
- - Your Class B shares automatically convert to Class A shares.
- - Class B shares of the Intermediate Bond Fund, the Income Bond Fund, the
Government Bond Fund and the High Yield Bond Fund automatically convert to
Class A shares after eight years. Class B shares of the Ultra Short-Term
Income Fund, the Limited Volatility Bond Fund, and the Treasury & Agency Fund
automatically convert to Class A shares after six years.
- - Conversion periods are measured from the end of the month in which the Class B
shares were purchased.
<PAGE> 86
27
- - 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 Federal income 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 six and eight year time periods.
SALES CHARGES
- ----------------------------------------------------
The One Group Services Company compensates Shareholder Servicing Agents who sell
shares of The One Group. Compensation comes from: sales charges, 12b-1 fees and
payments by The One Group Services Company from its own resources. 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. Occasionally,
cash incentives will be paid to select Shareholder Servicing Agents. Those
Shareholder Servicing Agents who may receive special incentives include Banc One
Securities Corporation, The Advisors Group, United Planners Financial Services
of America, Inc., The Legend Group, and Rosewood Retirement Advisory Services,
LLC.
CLASS A SHARES
If you buy Class A shares of THE LIMITED VOLATILITY BOND FUND, THE ULTRA
SHORT-TERM INCOME FUND and THE TREASURY & AGENCY FUND, 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 3.00% 3.09% 2.70%
$100,000-$249,999 2.50% 2.56% 2.18%
$250,000-$499,999 2.00% 2.04% 1.64%
$500,000-$999,999 1.50% 1.52% 1.20%
$1,000,000* 0.00% 0.00% 0.00%
</TABLE>
If you buy Class A shares of THE INTERMEDIATE BOND FUND, THE INCOME BOND FUND,
THE GOVERNMENT BOND FUND and THE HIGH YIELD BOND FUND 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.
<PAGE> 87
28
CLASS B SHARES
Class B shares are offered at NAV, without any up-front sales charges. However,
if you redeem Class B shares of the INTERMEDIATE BOND FUND, THE INCOME BOND
FUND, THE GOVERNMENT BOND FUND or THE HIGH YIELD BOND FUND 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
AMOUNT SUBJECT TO
YEARS SINCE PURCHASE 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>
Or if you redeem Class B shares of the ULTRA SHORT-TERM INCOME FUND, THE LIMITED
VOLATILITY BOND FUND or THE TREASURY & AGENCY FUND prior to the fourth
anniversary of purchase, you will be assessed a CDSC according to the following
schedule:
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
<S> <C>
0-1 3.00%
1-2 3.00%
2-3 2.00%
3-4 1.00%
more than 4 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
Intermediate Bond Fund, the Income Bond Fund, the Government Bond Fund and the
High Yield Bond Fund. Shareholder Servicing Agents who sell Class B shares of
the Ultra Short-Term Income Fund, the Limited Volatility Bond Fund and the
Treasury & Agency Fund receive a commission of 2.75% from The One Group Services
Company.
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:
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
<S> <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
<PAGE> 88
29
the shares you have held for the longest time and thus have the lowest CDSC.
- - If you exchange Class B or Class C shares of an unrelated mutual fund for
Class B or Class C shares of The Group in connection with a fund
reorganization, the CDSC applicable to your original shares (including the
period of time you have held those shares) will be applied to The One Group
shares you receive in the reorganization.
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% for the
Intermediate Bond Fund, the Income Bond Fund, the Government Bond Fund and
the High Yield Bond Fund and to .75% for the Limited Volatility Bond Fund,
the Ultra Short-Term Income Fund, and the Treasury & Agency Fund. 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 Class I 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. During the last fiscal year, The
One Group Services Company received 12b-1 fees totaling .25% of the average
daily net assets of the Class A shares of the Funds. In addition, The One
Group Services Company received 12b-1 fees totaling .90% of the average daily
net assets of the Class B shares of the Intermediate Bond Fund, the Income
Bond Fund, and the Government Bond Fund, and .75% for Class B shares of the
Limited Volatility Bond Fund, the Ultra Short-Term Income Fund, and the
Treasury & Agency Fund.
- - 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.
WAIVER OF THE CLASS A SALES CHARGE
No sales charge is imposed on Class A shares of the Funds 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.
- BANK ONE CORPORTAION and its subsidiaries and affiliates.
<PAGE> 89
30
- 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 BANK ONE CORPORTAION 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 Class I shares of a Fund of The One
Group or acquired in an exchange of Class I 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, including a
Fund of The One Group, 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 IRA 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 Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged 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 Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged 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.
<PAGE> 90
31
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, is waiving their commission.
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:
- - Class I shares of a Fund may be exchanged for Class A shares of that Fund or
for Class A or Class I shares of another Fund of The One Group.
- - Class A shares of a Fund may be exchanged for Class I shares of that Fund or
for Class A or Class I shares of another Fund of The One Group, but only if
you are eligible to purchase those shares.
- - Class B shares of a Fund may be exchanged for Class B shares of another Fund
of The One Group.
- - Class C shares of a Fund may be exchanged for Class C shares of another Fund
of The One Group.
The One Group Funds offer a Systematic Exchange Privilege which allows you to
automatically exchange shares of one fund to another on a monthly or quarterly
basis. This privilege is useful in Dollar Cost Averaging. To participate in this
privilege, please select it on your account application. To learn more about it,
please call The One Group Services Company at 1-800-480-4111.
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., ET.
- - 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 Class I 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:
1. That do 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 a Fund, you will not pay a sales
charge at 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 for
Federal income tax purposes.
- - 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.
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.
<PAGE> 91
32
- - 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 result in excessive transaction costs or otherwise adversely
affect other shareholders.
REDEEMING
FUND SHARES
- ----------------------------------------------------
WHEN CAN I REDEEM SHARES?
- - You may redeem all or some of your shares on any day that the Funds are open
for business.
- - Redemption requests received by The One Group Services Company before 4:00
p.m. ET (or when the NYSE closes) 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 to 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
1-800-480-4111.
- - 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;
3. the redemption check is mailed to the shareholder at the record address;
or
4. the redemption is payable by wire or bank transfer (ACH) to a pre-existing
bank account.
- - On the Account Application Form you may elect to have the redemption proceeds
mailed or wired to:
1. a designated commercial bank; or
2. State Street Bank and Trust Company or your Shareholder Servicing Agent.
- - State Street Bank and Trust Company may charge you a wire redemption fee. The
current charge is $7.00.
- - 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 Class I shares and the Fund receives your redemption
request by 4:00 p.m. ET (or when the NYSE closes), 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. ET (or when the NYSE closes), 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 State Street Bank and Trust 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.
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
<PAGE> 92
33
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 charges
a sub-minimum account fee. Accounts under $1,000 that are not participating in
a Systematic Investment Plan will be assessed an annual fee of $10.00. The
sub-minimum account fee will not apply to IRA accounts and the accounts of
employees of BANK ONE CORPORTAION and its affiliates.
- - The One Group may suspend your ability to redeem when:
1. Trading on the New York Stock Exchange ("NYSE") is restricted.
2. The NYSE is closed (other then weekend and holiday closings).
3. The SEC has permitted a suspension.
4. An emergency exists.
The Statement of Additional Information offers more details about this
process.
- - You generally will recognize a gain or loss on a redemption for Federal income
tax purposes. You should talk to your tax advisor before making a redemption.
<PAGE> 93
shareholder information
34
Voting Rights
- ----------------------------------------------------
The Funds do not hold annual shareholder meetings, but may hold special
meetings. The special meetings are held, for example, to elect or remove
Trustees, change a 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. Each Fund,
and each class of shares within each 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.
BANK ONE CORPORTAION (One First National Plaza, Chicago Illinois, 60670),
through its affiliates, may be deemed for purposes of the Investment Company Act
of 1940 to control the Funds. This is because as of July 30, 1998, BANK ONE
CORPORTAION or its affiliates possessed the power to vote substantially all of
the Class I shares of the Funds.
On the same date, the following shareholders owned 25% or more of Class A, Class
B or Class C shares of the Funds. As a consequence, they are considered to be
controlling persons of these classes of the Funds listed below.
<TABLE>
<CAPTION>
PERCENTAGE OF TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C> <C>
Strafe & Co. Income Bond Fund 88.91% Record
c/o Bank One Trust Co. Class I
Attn: Mutual Funds
100 E. Broad St.
Columbus, OH 43215-3607
Strafe & Co. Government Bond Fund 88.55% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad St.
Columbus, OH 43215-3607
Strafe & Co. Ultra Short-Term 89.12% Record
Attn: Mutual Funds 0393 Income Fund
100 E. Broad St. Class I
Columbus, OH 43215-3607
Banc One Securities Corp. FBO Intermediate Bond Fund 55.94% Beneficial
The One Investment Solution Class A
733 Greencrest Dr.
Westerville, OH 43081-4903
Banc One Securities Corp. FBO Intermediate Bond Fund 55.34% Beneficial
The One Investment Solution Class C
733 Greencrest Dr.
Westerville, OH 43081-4903
Strafe & Co. Intermediate Bond Fund 91.33% Record
Attn: Mutual Funds Class I
100 E. Broad St.
Columbus, OH 43215-3607
Strafe & Co. Treasury & Agency Fund 99.87% Record
Attn: Mutual Funds Class I
100 E. Broad St.
Columbus, OH 43215-3607
</TABLE>
<PAGE> 94
35
DIVIDEND POLICIES
- ----------------------------------------------------
DIVIDENDS
The Funds generally declare dividends on each business day. Dividends are
distributed on the first business day of each month. Capital gains, if any, for
all Funds are distributed at least annually. To maintain a relatively even rate
of distributions from the Treasury & Agency Fund, the monthly distributions for
that Fund may be fixed from time to time at rates consistent with Banc One
Investment Advisors' long-term earnings expectations.
Dividends payable on Class I 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 Funds pay 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 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 FUNDS
- ----------------------------------------------------
TAX STATUS OF THE FUND
Each Fund intends to qualify as a "regulated investment company" for Federal
income tax purposes. If the Funds qualify, as they have in the past, they will
pay no federal income tax on the earnings they distribute 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
Some of the Funds may acquire certain securities issued with original issue
discount (including zero-coupon securities). Current Federal tax requires that a
holder (such as a 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 a Fund receives no payment in cash on the security during the
year. As an investment company, a Fund must pay out substantially all of its net
investment income each year, including any original issue discount. Accordingly,
a Fund may be required to pay out in income distribution each year an amount
which is greater than the total amount of cash interest a Fund actually
received. Such distributions will be made from the cash assets of a Fund or by
liquidation of investments if necessary. If a distribution of cash necessitates
the liquidation of investments, Banc One Investment Advisors or the Sub-Adviser
will select which securities to sell and a Fund may realize a gain or loss from
those sales. In the event a 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
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gains) on at least an
annual basis. Dividends you receive from a Fund, whether reinvested or received
in cash, will be taxable to you. Dividends from a Fund's net investment income
will be taxable as ordinary income and dividends from a Fund's long-term capital
gains
<PAGE> 95
36
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 Funds 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.
TAX INFORMATION
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category. Even though the Funds provide 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.
REPORTING
In March and September you will receive a financial report from The One
Group. In addition, The One Group will periodically send you proxy
statements and other reports.
<PAGE> 96
organization and management of the funds
fund name
37
THE FUNDS
Each Fund is a series of The One Group, an open-end management investment
company. The One Group currently consists of 40 separate Funds. Each Fund
described in this prospectus is diversified. Seven of the Funds are described in
this prospectus; the other Funds are described in separate prospectuses. Each
Fund is supervised by the Board of Trustees.
THE BOARD OF TRUSTEES
The Trustees oversee the management and administration of the Funds. The
Trustees are responsible for making major decisions about each Fund's investment
objectives and policies, but delegate the day-to-day administration of the Funds
to the officers of The One Group.
THE ADVISOR
Banc One Investment Advisors makes the day-to-day investment decisions for the
Funds and continuously reviews, supervises and administers the Funds' 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 June 30, 1998,
Banc One Investment Advisors, an indirect, wholly-owned subsidiary of BANK ONE
CORPORTAION, managed over $59 billion in assets.
For the fiscal year ended June 30, 1998, the Funds paid investment advisory fees
at the following rates:
<TABLE>
<CAPTION>
Annual Rate As Percentage
of Average Daily Net Assets
<S> <C> <C> <C>
The One Group(R) Intermediate Bond Fund .33%
The One Group(R) Income Bond Fund .40%
The One Group(R) Government Bond Fund .43%
The One Group(R) Ultra Short-Term Income
Fund .21%
The One Group(R) Limited Volatility Bond
Fund .31%
The One Group(R) Treasury & Agency Fund .20%
</TABLE>
THE SUB-ADVISOR
Banc One High Yield Partners, LLC ("Banc One High Yield Partners") makes the
day-to-day investment decisions for the High Yield Bond Fund and administers the
Fund's investment program, subject to supervision by Banc One Investment
Advisors and the Trustees. Banc One High Yield Partners was formed in May, 1998
to provide investment advice related to high yield, high risk investments to the
High Yield Bond Fund and other advisory clients. Banc One High Yield 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. Banc One High Yield Partners is entitled to a fee for its
services. The fee, which is equal to .70% of the Fund's average daily net
assets, is calculated daily and paid monthly. Banc One Investment Advisors pays
Banc One High Yield Partners' fee. Banc One High Yield Partners has agreed to
waive part of its fee. The fee waiver is voluntary and may be terminated at any
time.
BANC ONE HIGH YIELD PARTNERS -- PRIOR PERFORMANCE OF PACHOLDER ASSOCIATES, INC.
Banc One High Yield Partners, the Sub-Advisor of the High Yield Bond Fund, was
formed as a limited liability company under an agreement between Banc One
Investment Advisors and Pacholder Associates, Inc. ("Pacholder"). Under the
Agreement, Pacholder is responsible for providing portfolio management services
on behalf of Banc One High Yield Partners for the High Yield Bond Fund.
Pacholder is also responsible for advising the Pacholder Fund, Inc., a
closed-end fund (the "Pacholder Fund") through a limited liability company known
as Pacholder & Company, LLC.(1)
The following table shows historical performance of the Pacholder Fund, a fund
with substantially similar investment objectives, policies, strategies and risks
to the High Yield Bond Fund as measured against a specified market index. This
information is provided to show the past performance of Pacholder in managing a
substantially similar fund. THIS INFORMATION DOES NOT REPRESENT THE PERFORMANCE
OF THE HIGH YIELD BOND FUND. YOU SHOULD NOT CONSIDER THIS PERFORMANCE DATA AS AN
INDICATION OF FUTURE PERFORMANCE OF THE HIGH YIELD BOND FUND OR THE PACHOLDER
FUND.
(1) Prior to August 21, 1998, Pacholder was responsible for advising the
Pacholder Fund through a partnership known as Pacholder & Company.
<PAGE> 97
38
With the exception of 1995, the expense ratio of the Pacholder Fund has been
higher than the projected expense ratio of High Yield Bond Fund. The expense
ratio has an impact on the total return that shareholders in the fund would
realize. Unlike the High Yield Bond Fund, the Pacholder Fund pays a performance
based investment advisory fee. With the exception of investment advisory fees
paid in 1991 and 1995, the Pacholder Fund's investment advisory fees have been
higher than the contractual advisory fees of the High Yield Bond Fund.
Unlike the High Yield Bond Fund, the Pacholder Fund is a closed-end fund that
has issued both common and preferred stock. Holders of preferred stock in the
Pacholder Fund are entitled to fixed rate distributions. The first column shows
the NAV return realized by holders of common shares in the Pacholder Fund after
distributions were made to preferred shareholders. The second column shows the
NAV return that would have been realized if preferred shares had not been
issued. The third column compares the performance of the Pacholder Fund to a
specified market index.
PACHOLDER FUND HISTORICAL PERFORMANCE(1)
<TABLE>
<CAPTION>
TOTAL RETURN
ASSUMING
COMMON STOCK IS
COMMON NOT LEVERAGED
SHAREHOLDERS' THROUGH ISSUANCE CS FIRST BOSTON
RETURN BASED ON OF PREFERRED HIGH YIELD
NAV(2) STOCK(3) INDEX
<S> <C> <C> <C> <C>
1989(4) NA NA
1990 -0.87% -0.87%(2)(5) -6.38%
1991 36.71% 36.71%(2)(5) 43.75%
1992 18.78% 19.38% 16.66%
1993 20.27% 18.40% 18.91%
1994 0.72% 2.21% -0.97%
1995 10.68% 10.41% 17.38%
1996 20.40% 16.63% 12.42%
1997 15.44% 12.00% 12.63%
1/1/98-9/30/98 -6.61% -3.32% -2.10%
1 YR Average Annual -5.50% -2.06% -0.52%
Return(6)
3 YR Average Annual 9.15% 8.36% 8.44%
Return(6)
5 YR Average Annual 8.51% 8.11% 8.51%
Return(6)
Average Annual Return since 12.49% 12.16% 11.97%
1990(4)(6)
</TABLE>
(1) Performance information is provided net of Fund expenses. The net investment
performance represents total return, assuming reinvestment of all dividends
and proceeds from capital transactions.
(2) Return to holders of common shares of the Pacholder Fund after distribution
of dividends to preferred shareholders. Performance was derived using the
method for calculating the total return of a closed-end fund as required by
SEC Form N-2. The returns through December 31, 1997 were audited by the
Pacholder Fund's independent auditor in conjunction with the audit of the
Pacholder Fund.
(3) Adjusts total return to show what shareholders would have received if the
Pacholder Fund's common stock was not leveraged through the issuance of
preferred stock. Assumes no distribution of dividends to preferred
shareholders and that all shareholders in the Pacholder Fund hold common
stock. The net investment performance has been computed in accordance with
the Performance Presentation Standards established by the Association for
Investment Management and Research ("AIMR-PPS"), but has not been verified
by an entity independent of Banc One Investment Advisors and Pacholder.
(4) The Pacholder Fund commenced operation on November 23, 1988. However, the
Pacholder Fund was not managed with substantially similar investment
objectives to the High Yield Bond Fund in 1988 and 1989.
(5) No preferred stock was issued prior to April 6, 1992.
(6) For period ended September 30, 1998.
<PAGE> 98
39
THE DISTRIBUTOR
The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio 43219, a
wholly-owned subsidiary of The BISYS Group, Inc., markets the Funds 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 Funds' administrator. The One
Group Services Company is responsible for responding to shareholder inquiries
and requests for information, as well as providing regulatory reporting and
compliances. 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 Funds are not included in the
calculations.
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 Funds' custodian, State Street holds the Funds' assets, settles
all portfolio trades and assists in calculating the Funds' net asset values.
Bank One Trust Company, N.A. serves as sub-custodian in connection with the
Funds' 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 Funds
for this service.
YEAR 2000
Preparing for the Year 2000 is a high priority for The One Group Family of
Mutual Funds. Both The One Group Services Company and Banc One Investment
Advisors have formed dedicated teams to help them successfully achieve Year 2000
compliance. In addition, these teams are responsible for assessing the readiness
of all other service providers to The One Group. Year 2000 remediation efforts
are directed toward both information technology and non-information technology
systems. Non-information technology systems include elevators, photocopy
machines, and facsimile machines, and should have no significant impact on the
delivery of services to The One Group.
Banc One Investment Advisors has identified 49 information technology systems
and interfaces that provide service and support to The One Group. Each system is
assigned a priority rating: high, medium or low. Systems rated "high" are those
which are essential to the operation of The One Group. Each system rated "high"
is scheduled to be Year 2000 compliant by December 31, 1998. All systems will be
tested for compliance throughout 1999.
Many, if not all, of the systems are owned or operated by third party servicers
(for example, The One Group's Custodian). Consequently, remediation efforts must
be made by those servicers. Banc One Investment Advisors and The One Group
Services Company have, and will continue to, monitor the remediation progress of
the service providers. This process involves documentation, on-site visits, and
review of remediation plans and test results. Both Banc One Investment Advisors
and The One Group Services Company have budgeted in excess of $700,000 in fiscal
year 1998 and over $1 million in fiscal year 1999 toward the remediation effort
for all systems and interfaces. Neither The One Group nor its shareholders will
bear any of the direct remediation expenses.
Neither The One Group Services Company nor Banc One Investment Advisors
currently anticipates that the move to Year 2000 will have a material impact on
their ability to continue to provide the Funds with service at current levels.
Likewise, The One Group currently anticipates that the move to Year 2000 will
not have a material impact on its operations.
<PAGE> 99
40
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND POLICIES
Investment Practices
The Funds invest in a variety of securities and employ 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 Funds, as well as the
risks inherent in their use. 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. Following the table is a more complete discussion of
risk.
<TABLE>
<CAPTION>
fund name fund code
<S> <C>
--------------------------------------------------------------
The One Group(R) Intermediate Bond Fund 1
The One Group(R) Income Bond Fund 2
The One Group(R) Government Bond Fund 3
The One Group(R) Ultra Short-Term Income Fund 4
The One Group(R) Limited Volatility Bond Fund 5
The One Group(R) Treasury & Agency Fund 6
The One Group(R) High Yield Bond Fund 7
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, STRIPS, and 1-7 Market
CUBES.
TREASURY RECEIPTS: TRS, TIGRs, and CATS. 1-7 Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-7 Market
agencies and instrumentalities of the U.S. Government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1, 2, 4, Credit
stated maturity. 5, 7 Market
Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 1, 2, 4, Market
exchange for the deposit of funds. 5, 7 Liquidity
Credit
REPURCHASE AGREEMENTS: The purchase of a security and the 1-7 Credit
simultaneous commitment to return the security to the seller Market
at an agreed upon price on an agreed upon date. This is Liquidity
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 1-7 Market
simultaneous commitment to buy the security back at an Leverage
agreed upon price on an agreed upon date. This is treated as
a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 33-1/3% of the 1-7 Credit
Fund's total assets. In return the Fund will receive cash, Market
other securities, and/or letters of credit as collateral. Leverage
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1-5, 7 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Liquidity
INVESTMENT COMPANY SECURITIES: Shares of other mutual funds, 1, 2, 4-7 Market
including money market funds of The One Group and shares of
other investment companies for which Banc One Investment
Advisors serves as investment advisor or administrator. The
Treasury & Agency Fund will only purchase shares of
investment companies which invest exclusively in U.S.
Treasury and other U.S. Agency obligations. Banc One
Investment Advisors will waive certain fees when investing
in funds for which it serves as investment advisor.
CONVERTIBLE SECURITIES: Bonds or preferred stock that 1, 2, 4, 7 Market
convert to common stock. Credit
CALL AND PUT OPTIONS: A call option gives the buyer the 1-4, 7 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy, a security at a specified price. The Funds Leverage
will sell covered call and secured put options.
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 100
41
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
FUTURES AND RELATED OPTIONS: A contract providing for the 1-4, 5, 7 Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
REAL ESTATE INVESTMENT TRUSTS ("REITS"): Pooled investment 2, 7 Liquidity
vehicles which invest primarily in income producing real Management
estate or real estate related loans or interest. Market
Pre-payment
Tax
Regulatory
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 1, 2, 4, Credit
on and accepted by a commercial bank. Maturities are 5, 7 Liquidity
generally six months or less. Market
COMMERCIAL PAPER: Secured and unsecured short-term
promissory
notes issued by corporations and other entities. Maturities
generally vary from
a few days to nine months. 1, 2, 4, Credit
5, 7 Liquidity
Market
FOREIGN SECURITIES: Debt issued by foreign governments, 1, 2, 4, Market
foreign corporations, domestic subsidiaries of foreign 5, 7 Political
corporations, and foreign banks, as well as commercial paper Liquidity
of foreign issuers and obligations of foreign banks and Investment
overseas branches of U.S. Foreign banks and of foreign
issuers and supranational entities. The High Yield Bond Fund
also may purchase equity securities issued by the entities
listed above.
RESTRICTED SECURITIES: Securities not registered under the 1, 2, 4, Liquidity
Securities Act of 1933, such as privately placed commercial 5, 7 Market
paper and Rule 144A securities.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1-7 Market
interest rates which are reset daily, weekly, quarterly or Credit
some other period and which may be payable to the Fund on Liquidity
demand. The Treasury & Agency Fund will invest in these
securities only if they are issued by the U.S. Treasury or
another U.S. Government Agency.
WARRANTS: Securities, typically issued with preferred stock 2, 7 Market
or bonds that give the holder the right to buy a Credit
proportionate amount of common stock at a specified price.
PREFERRED STOCK: A class of stock that generally pays a 1, 2, 4, Market
dividend at a specified rate and has preference over common 5, 7
stock in the payment of dividends and in liquidation.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 1-7 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations ("CMOs") and Real Estate Credit
Mortgage Investment Conduits ("REMICs"). Regulatory
CORPORATE DEBT SECURITIES: Corporate bonds and 1, 2, 4, Market
non-convertible debt securities. 5, 7 Credit
DEMAND FEATURES: Securities that are subject to puts and 1, 2, 4, Market
standby commitments to purchase the securities at a fixed 5, 7 Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
ASSET-BACKED SECURITIES: Securities secured by company 1, 2, 4, Pre-payment
receivables, home equity loans truck and auto loans, leases, 5, 7 Market
credit card receivables and other securities backed by other Credit
types of receivables or other assets.
MORTGAGE DOLLAR ROLLS: A transaction in which a Fund sells 1-7 Pre-payment
securities for delivery in a current month and Market
simultaneously contracts with the same party to repurchase Regulatory
similar but not identical securities on a specified future
date.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"): Loans in a mortgage 1-7 Pre-payment
pool which provide for a fixed initial mortgage interest Market
rate for a specified period of time, after which the rate Credit
may be subject to periodic adjustments. The Treasury & Regulatory
Agency Fund will only buy Government ARMs.
SWAPS, CAPS AND FLOORS: A Fund may enter into these 1-4, 5, 7 Management
transactions to manage its exposure to changing interest Credit
rates and other factors. Swaps involve an exchange of Liquidity
obligations by two parties. Caps and floors entitle a Market
purchaser to a principal amount from the seller of the cap
or floor to the extent that a specified index exceeds or
falls below a predetermined interest rate or amount.
</TABLE>
<PAGE> 101
42
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
NEW FINANCIAL PRODUCTS: New options and futures contracts 1-4, 7 Management
and other financial products continue to be developed and Credit
the Fund may invest in such options, contracts and products. Market
Liquidity
STRUCTURED INSTRUMENTS: Debt securities issued by agencies 1-7 Market
and instrumentalities of the U.S. government, banks, Liquidity
municipalities, corporations and other businesses whose Management
interest and/or principal payments are indexed to foreign Credit
currency exchange rates, interest rates, or one or more Foreign Investment
other referenced indices.
MUNICIPAL SECURITIES: Securities issued by a state or 1, 2, 4, Credit
political subdivision to obtain funds for various public 5, 7 Political
purposes Municipal securities include private activity bonds Tax
and industrial development bonds, as well as General Market
Obligation Notes, Anticipation Notes, Bond Tax Anticipation
Notes, Revenue Anticipation Notes, Project Notes, other
short-term tax-exempt obligations, municipal leases, and
obligations of municipal housing authorities and single
family revenue bonds.
ZERO COUPON DEBT SECURITIES: Bonds and other debt that pay 1-7 Credit
no interest, but are issued at a discount from their value Market
at maturity. When held to maturity, their entire return Zero Coupon
equals the difference between their issue price and their
maturity value.
ZERO-FIXED-COUPON DEBT SECURITIES: Zero coupon debt 1-7 Credit
securities which convert on a specified date to interest Market
bearing debt securities. Zero Coupon
STRIPPED MORTGAGE-BACKED SECURITIES: Derivative multi-class 1-4, 7 Pre-payment
mortgage securities which are usually structured with two Market
classes of shares that receive different proportions of the Credit
interest and principal from a pool of mortgage assets. These Regulatory
include IOs and POs. The Funds only invest in Stripped
Mortgage-Backed Securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
INVERSE FLOATING RATE INSTRUMENTS: Leveraged floating rate 1-4, 7 Market
debt instruments with interest rates that reset in the Leverage
opposite direction from the market rate of interest to which Credit
the inverse floater is indexed.
LOAN PARTICIPATIONS AND ASSIGNMENTS: Participations in, or 1, 2, 4, Credit
assignments of all or a portion of loans to corporations or 5, 7 Political
to governments, including governments of the less developed Liquidity
countries ("LDC's"). Foreign Investment
Market
FIXED RATE MORTGAGE LOANS: Investments in fixed rate 1-7 Credit
mortgage loans or mortgage pools which bear simple interest Pre-payment
at fixed annual rates and have original terms ranging from 5 Regulatory
to 40 years. Market
SHORT-TERM FUNDING AGREEMENTS: Investments in short-term 1, 2, 4, Credit
funding agreements issued by banks and highly rated U.S. 5, 7 Liquidity
insurance companies such as Guaranteed Investment Contracts Market
("GIC's") and Bank Investment Contracts ("BIC's").
COMMON STOCK: Shares of ownership of a company. 7 Market
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 102
43
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 Funds may fluctuate, as will the value of
your investment in the Funds. Certain investments are more susceptible to these
risk than others.
- - CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become 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.
- - LEVERAGE RISK. The 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. The 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.
<PAGE> 103
44
- - 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.
- - ZERO COUPON RISK. The risk associated with changes in interest rates. 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. This risk is similar to Market Risk, which is described
above.
Investment Policies
- ----------------------------------------------------
Each 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 Funds. In addition to
the fundamental policies mentioned earlier, the following fundamental policies
apply to each Fund as specified. The full text of the fundamental policies can
be found in the Statement of Additional Information.
Each 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 a Fund's total assets.
2. Concentrate their investment in the securities of one or more issuers
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 a 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
or the Sub-Advisor, the Funds may invest up to 100% of their assets in money
market instruments, and may hold a portion of their assets in cash for liquidity
purposes. While the Funds are engaged in a temporary defensive position, they
will not be pursuing their investment objectives. Therefore, the Funds 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 Funds and may result in additional tax consequences to you. The portfolio
turnover rate for each Fund for the fiscal year ended June 30, 1998 is shown on
the Financial Highlights. The estimated portfolio turnover rate for the High
Yield Bond Fund will not exceed 100%. To the extent portfolio turnover results
in short-term capital gains, such gains will generally be taxed at ordinary
income tax rates.
<PAGE> 104
appendix
45
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 or a Sub-Advisor 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 facts 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.
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 IBCA, INC. ("FITCH")
F1 Highest capacity for timely repayment. Those issues rated F1+ possess a
particularly strong credit feature.
F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
F3 Adequate capacity for timely repayment, but more susceptible to adverse
changes business, economic or financial conditions than for obligations
in higher categories.
<PAGE> 105
46
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.
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.
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.
<PAGE> 106
47
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).
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
Investment Grade
AAA Highest rating category. The obligor's capacity for timely repayment of
principal and interest is extremely strong.
AA The obligor's capacity for timely repayment is very strong.
A Bonds and preferred stock considered to be investment grade and of high
credit quality. The obligor's ability for timely repayment is strong.
However, adverse changes in business, economic, or financial conditions
are more likely to affect the capacity for timely repayment than
obligations in higher rated categories.
BBB The obligor's capacity for timely repayment of principal and interest
is adequate. However, adverse changes in business, economic or
financial conditions and circumstances, are more likely to affect the
capacity for timely repayment than for obligations in higher rated
categories.
Non-Investment Grade
BB Obligations for which capacity for timely repayment of principal and
interest is uncertain. These obligations are speculative to some degree
and capacity for repayment remains susceptible over time to adverse
changes in business, financial or economic conditions.
B The Obligor's capacity for timely repayment of principal and interest
is uncertain. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or
financial conditions and these obligations are far more speculative
than those in higher rated categories.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions and these
obligations are far more speculative than those in higher rated
categories.
CC Obligations which are highly speculative or which have a high risk of
default.
C Obligations which are currently in default.
<PAGE> 107
48
DESCRIPTION OF INSURANCE RATINGS
MOODY'S
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.
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 & Short-term municipal securities rated MIG1 or VMIG1 are of the best
VMIG1 quality. They have strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
<PAGE> 108
49
MIG2 & These short-term municipal securities rated are of high quality.
VMIG2 Margins of protection are ample although not so large as in the
preceding group.
MIG3 & Favorable quality. All security elements are accounted for, but the
VMIG3 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.
MIG4 & This denotes adequate quality protection commonly regarded as required
VMIG4 of an investment security is present and although not distinctly or
predominantly speculative, there is a specific risk.
SG This denotes speculative quality. Our instruments in this category each
margins of protection.
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.
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.
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
<PAGE> 109
50
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.
NR 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.
DESCRIPTION OF MUNICIPAL BOND RATINGS
(Including Foreign, Mortgage
and Asset-Backed Securities)
S&P
Investment Grade
AAA The highest rating. The rating indicates an extremely strong capacity
to meet its financial commitment.
AA Differs from AAA issues only in a small degree. The obligor's capacity
to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories. However, 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 to meet its financial commitment on the obligations.
Speculative Grade
BB Less vulnerable to non-payment than other speculative issues. However,
these bonds face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on the obligations.
B More vulnerable to non-payment than obligations rated BB, but currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, they are not likely to have the
capacity to meet its financial commitment on the obligation.
CC Currently highly vulnerable to non-payment.
C This rating may be 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 Bonds in payment default.
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
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.
<PAGE> 110
51
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).
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. Ca is the lowest rating.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") assigns ratings to specific debt instruments
with original maturities of one year or less. 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.
<PAGE> 111
INVESTMENT ADVISOR AND SUB-ADMINISTRATOR
Banc One Investment Advisors Corporation
1111 Polaris Parkway
P.O. Box 710211
Columbus, OH 43271-0211
SUB-INVESTMENT 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 8500
Boston, MA 02266-8500
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, OH 43215
THE STATEMENT OF ADDITIONAL INFORMATION CON-
TAINS MORE DETAILED INFORMATION ABOUT THE FUNDS.
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-F-123
<PAGE> 112
THE ONE GROUP(R) FAMILY OF MUTUAL FUNDS
[GRAPHIC]
MUNICIPAL BOND FUNDS
COMBINED PROSPECTUS
NOVEMBER 1, 1998
THE ONE GROUP(R) INTERMEDIATE TAX-FREE BOND FUND
THE ONE GROUP(R) MUNICIPAL INCOME FUND
THE ONE GROUP(R) ARIZONA MUNICIPAL BOND FUND
THE ONE GROUP(R) WEST VIRGINIA MUNICIPAL BOND FUND
THE ONE GROUP(R) LOUISIANA MUNICIPAL BOND FUND
THE ONE GROUP(R) OHIO MUNICIPAL BOND FUND
THE ONE GROUP(R) KENTUCKY MUNICIPAL BOND FUND
This prospectus describes seven mutual funds that attempt to produce income
exempt from Federal and/or state income tax. The information in this prospectus
is important. Please read it carefully before you invest, and save it
for future reference.
PLEASE REMEMBER THAT SHARES OF THE FUNDS: o ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED BY BANK ONE CORPORATION OR ITS AFFILIATES; o ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY FEDERAL OR
STATE GOVERNMENTAL AGENCY; o 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.
<PAGE> 113
TABLE OF CONTENTS
<TABLE>
<S> <C>
A BRIEF PREVIEW OF THE FUNDS................................ 1
ABOUT THE FUNDS............................................. 2
The One Group(R) Intermediate Tax-Free Bond Fund......... 2
The One Group(R) Municipal Income Fund................... 5
The One Group(R) Arizona Municipal Bond Fund............. 8
The One Group(R) West Virginia Municipal Bond Fund....... 11
The One Group(R) Louisiana Municipal Bond Fund........... 14
The One Group(R) Ohio Municipal Bond Fund................ 17
The One Group(R) Kentucky Municipal Bond Fund............ 20
MORE ABOUT THE FUNDS........................................ 23
HOW TO DO BUSINESS WITH THE ONE GROUP....................... 24
Purchasing Fund Shares................................... 24
Sales Charges............................................ 26
Sales Charge Reductions and Waivers...................... 28
Exchanging Fund Shares................................... 30
Redeeming Fund Shares.................................... 31
SHAREHOLDER INFORMATION..................................... 33
Voting Rights............................................ 33
Dividend Policies........................................ 34
Tax Treatment of the Funds............................... 34
Tax Treatment of Shareholders............................ 34
Shareholder Inquiries.................................... 35
ORGANIZATION AND MANAGEMENT OF THE FUNDS.................... 36
The Funds................................................ 36
The Board of Trustees.................................... 36
The Advisor.............................................. 36
The Distributor.......................................... 36
The Administrator and Sub-Administrator.................. 36
The Transfer Agent, Custodian and Sub-Custodian.......... 36
Year 2000................................................ 37
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND POLICIES.. 38
Investment Practices..................................... 38
Investment Risks......................................... 40
Investment Policies...................................... 41
APPENDIX: DESCRIPTION OF RATINGS............................ 43
</TABLE>
<PAGE> 114
1
a brief preview of the funds
WHAT ARE THE GOALS OF THE MUNICIPAL BOND FUNDS?
The Funds are designed to produce income exempt from Federal
and/ or state income tax. Each Fund pursues a different
investment objective and involves different risks. These Funds
may not be appropriate for Individual Retirement Accounts,
Qualified Plans, and other Retirement Plans that receive
favorable tax treatment. Please read about each Fund before
investing.
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
The Intermediate Tax-Free Bond Fund, and the Municipal Income
Fund invest in debt securities issued by or on behalf of
states, territories, and possessions of the United States and
their agencies that produce interest that is exempt from
Federal income tax. The Arizona Municipal Bond Fund, the West
Virginia Municipal Bond Fund, the Louisiana Municipal Bond
Fund, the Kentucky Municipal Bond Fund, and the Ohio Municipal
Bond Fund invest in debt securities of their respective states
that produce interest that is exempt from Federal income tax
and the personal income tax of each Fund's respective state.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The Funds invest in fixed-income investments that are subject
to market fluctuations as a result of changes in interest
rates. As a result, the value of investments in the Funds may
decrease during periods of rising interest rates and increase
during periods of declining interest rates. In addition, some
of the Funds invest in mortgage-related securities which may
have greater price and yield volatility than traditional
fixed-income securities. Fixed income securities also are
subject to the risk that the issuer of the security will be
unable to meet its repayment obligation. All of the Funds,
except the Intermediate Tax-Free Bond Fund and the Municipal
Income Fund, are non-diversified funds which expose investors
to special risks, including risks associated with state
specific investments. An investment in the Funds is not a
deposit of BANK ONE CORPORATION or its affiliates and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. For more
information about risks, please read "More About the Funds"
and "Investment Risks."
WHAT CLASSES OF SHARES ARE AVAILABLE?
The Funds currently offer four classes of Shares: Class A,
Class B, Class C and Class I. Class A, Class B and Class C
shares are offered to the general public. Class I shares are
offered to institutional investors, including affiliates of
BANK 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. The section called "How To Do Business
With The One Group" will provide more information.
HOW DO I PURCHASE AND REDEEM SHARES?
You may buy and redeem shares of the Funds on any day that the
Funds are open for business. Class C shares are not available
for purchase in all of the funds. 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 periodically 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 FUNDS?
Banc One Investment Advisors Corporation ("Banc One Investment
Advisors"), an indirect subsidiary of BANK ONE CORPORATION,
serves as the advisor of the Funds. Banc One Investment
Advisors is paid a fee for its services. 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."
<PAGE> 115
The One Group(R)
Intermediate Tax-Free Bond Fund
LOGO INVESTMENT OBJECTIVE
The Fund is a diversified fund that
seeks current income exempt from
Federal income taxes consistent with
prudent investment management and
the preservation of capital.
LOGO INVESTMENT STRATEGY
The Fund invests in bonds and notes
of states, territories and
possessions of the United States,
including the District of Columbia,
and their respective authorities,
political subdivisions, agencies and
instrumentalities, the interest on
which is exempt from Federal income
tax ("Municipal Securities"). The
Fund's average weighted maturity
normally will range between three
and ten years.
LOGO PORTFOLIO SECURITIES
The Fund invests at least 80% of its
net assets in Municipal Securities.
As a matter of fundamental policy,
the Fund invests at least 65% of its
total assets in bonds. The Fund also
may invest in mortgage-backed
securities, restricted securities,
and mortgage dollar rolls. The
securities in which the Fund invests
may have fixed rates of return or
floating or variable rates. For a
list of all securities in which the
Fund may invest, please read
"Investment Practices."
LOGO RISK CONSIDERATIONS
The Fund may invest in Municipal
Securities that are rated in the
lowest investment grade. Even though
such securities are generally
considered investment grade, they
are considered to have speculative
characteristics. Issuers of such
securities are more vulnerable to
changes in economic conditions than
issuers of higher grade securities.
The Municipal Securities are also
fixed income investments. The value
of these securities will change in
response to interest rate changes
and other factors. In addition, the
Fund invests in mortgage-related
securities which have significantly
greater price and yield volatility
than traditional fixed-income
securities. Before you invest,
please read "More About the Funds"
and "Investment Risks."
LOGO TAX CONSIDERATIONS
Up to 20% of the Fund's assets may
be invested in Municipal Securities,
the interest on which may be subject
to the Federal alternative minimum
tax for individuals. Shareholders
who are subject to the Federal
alternative minimum tax may have all
or a portion of their income from
the Fund subject to Federal income
tax. In addition, corporate
shareholders will be required to
take the interest on Municipal
Securities into account in
determining their alternative
minimum taxable income.
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .42% .42% .42%
12b-1 Fees (after fee waiver) (5) .25% .90% .90%
Other Expenses .24% .24% .24%
Total Fund Operating Expenses (after
fee waivers) (6) .91% 1.56% 1.56%
</TABLE>
<TABLE>
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.42%
none
.24%
.66%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .60% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.19 % for Class A shares, 1.84% for
Class B shares, 1.84% for Class C shares and .84% for Class I 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 $ 54 $ 73 $ 93 $152
Class A
(without fee
waivers) $ 57 $ 81 $107 $183
Class B $ 66 $ 79 $105 $168
Class B
(without fee
waivers) $ 69 $ 88 $120 $199
Class C $ 26 $ 49 $ 85 $186
Class C
(without fee
waivers) $ 29 $ 58 $100 $216
Class I $ 7 $ 21 $ 37 $ 82
Class I
(without fee
waiver) $ 9 $ 27 $ 47 $104
</TABLE>
Assuming no redemption 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 $ 54 $ 73 $ 93 $152
Class A
(without fee
waivers) $ 57 $ 81 $107 $183
Class B $ 16 $ 49 $ 85 $168
Class B
(without fee
waivers) $ 19 $ 58 $101 $199
Class C $ 16 $ 49 $ 85 $186
Class C
(without fee
waivers) $ 19 $ 58 $100 $216
Class I $ 7 $ 21 $ 37 $ 82
Class I
(without fee
waiver) $ 9 $ 27 $ 47 $104
</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.
2
<PAGE> 116
3
THE ONE GROUP(R) INTERMEDIATE TAX-FREE BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.92 $ 10.67 $ 10.64 $ 10.49 $ 11.15 $ 10.69
- ------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.52 0.54 0.52 0.54 0.52 0.53
Net realized and unrealized gains
(losses) from investments 0.31 0.27 0.04 0.15 (0.52) 0.49
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.83 0.81 0.56 0.69 0.00 1.02
- ------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.52) (0.54) (0.51) (0.54) (0.53) (0.52)
In excess of net investment income -- -- -- -- (0.01) --
Net realized gains (0.08) (0.02) (0.02) -- (0.01) (0.04)
In excess of net realized gains -- -- -- -- (0.11) --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.60) (0.56) (0.53) (0.54) (0.66) (0.56)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.15 $ 10.92 $ 10.67 $ 10.64 $ 10.49 $ 11.15
- ------------------------------------------------------------------------------------------------------------------------
Total Return 7.74% 7.76% 5.39% 6.75% (0.11)% 9.79%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $493,686 $451,089 $217,201 $211,229 $182,611 $166,489
Ratio of expenses to average net assets 0.60% 0.58% 0.54% 0.53% 0.48% 0.54%
Ratio of net investment income to
average net assets 4.70% 5.05% 4.87% 5.17% 4.78% 4.93%
Ratio of expenses to average net
assets* 0.81% 0.81% 0.87% 0.88% 0.84% 0.94%
Ratio of net investment income to
average net assets* 4.49% 4.82% 4.54% 4.82% 4.42% 4.53%
Portfolio turnover (a) 109.03% 86.89% 111.58% 199.76% 105.98% 31.99%
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
CLASS I 1992 1991(c)
- --------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.28 $ 10.00
- --------------------------------------------------------------------
Investment Activities:
Net investment income 0.55 0.49
Net realized and unrealized gains
(losses) from investments 0.42 0.27
- --------------------------------------------------------------------
Total from Investment Activities 0.97 0.76
- --------------------------------------------------------------------
Distributions:
Net investment income (0.55) (0.48)
In excess of net investment income -- --
Net realized gains (0.01) --
In excess of net realized gains -- --
- --------------------------------------------------------------------
Total Distributions (0.56) (0.48)
- --------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.69 $ 10.28
- --------------------------------------------------------------------
Total Return 9.54% 9.49%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $142,672 $82,192
Ratio of expenses to average net assets 0.55% 0.30%(b)
Ratio of net investment income to
average net assets 5.28% 6.04%(b)
Ratio of expenses to average net
assets* 1.07% 0.90%(b)
Ratio of net investment income to
average net assets* 4.77% 5.44%(b)
Portfolio turnover (a) 11.50% 35.15%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) Annualized. (c) The
Class I commenced operations on September 4, 1990.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(c)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.91 10.67 10.63 $ 10.48 $ 11.14 $ 10.69 10.57
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.50 0.51 0.50 0.51 0.50 0.55 0.15
Net realized and unrealized gains
(losses) from investments 0.31 0.26 0.05 0.15 (0.52) 0.44 0.18
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.81 0.77 0.55 0.66 (0.02) 0.99 0.33
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.50) (0.51) (0.49) (0.49) (0.52) (0.50) (0.21)
In excess of net investment
income -- -- -- (0.02) (0.01) -- --
Net realized gains (0.08) (0.02) (0.02) -- -- (0.04) --
In excess of net realized gains -- -- -- -- (0.11) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.58) (0.53) (0.51) (0.51) (0.64) (0.54) (0.21)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.14 10.91 10.67 $ 10.63 $ 10.48 $ 11.14 10.69
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales
Charge) 7.50% 7.39% 5.28% 6.49% (0.33)% 9.47% 8.68%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $14,515 $8,457 $6,622 $5,614 $5,556 $5,480 $5
Ratio of expenses to average net
assets 0.85% 0.83% 0.79% 0.78% 0.73% 0.71% 1.02%(b)
Ratio of net investment income to
average net assets 4.45% 4.75% 4.62% 4.91% 4.57% 4.77% 4.91%(b)
Ratio of expenses to average net
assets* 1.16% 1.15% 1.22% 1.23% 1.19% 1.27% 1.32%(b)
Ratio of net investment income to
average net assets* 4.14% 4.43% 4.19% 4.46% 4.11% 4.21% 4.61%(b)
Portfolio turnover (a) 109.03% 86.89% 111.58% 199.76% 105.98% 31.99 11.50%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a)
Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued. (b) Annualized. (c) Class
A Shares commenced offering on February 18, 1992.
<PAGE> 117
4
THE ONE GROUP(R) INTERMEDIATE TAX-FREE BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.93 $10.68 $10.65 $10.50 $ 11.18
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.43 0.45 0.43 0.46 0.17
Net realized and unrealized gains (losses) from
investments 0.31 0.27 0.04 0.14 (0.67)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.74 0.72 0.47 0.60 (0.50)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.43) (0.45) (0.42) (0.45) (0.17)
Net realized gains (0.08) (0.02) (0.02) -- --
In excess of net realized gains -- -- -- -- (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.51) (0.47) (0.44) (0.45) (0.18)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.16 $10.93 $10.68 $10.65 $ 10.50
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.81% 6.82% 4.48% 5.89% (4.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $5,659 $3,307 $2,439 $1,116 $ 549
Ratio of expenses to average net assets 1.50% 1.47% 1.44% 1.43% 1.40%(c)
Ratio of net investment income to average net assets 3.80% 4.09% 3.97% 4.29% 4.08%(c)
Ratio of expenses to average net assets* 1.81% 1.78% 1.87% 1.88% 1.85%(c)
Ratio of net investment income to average net assets* 3.49% 3.78% 3.54% 3.84% 3.63%(c)
Portfolio turnover (d) 109.03% 86.89% 111.58% 199.76% 105.98%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a)
Class B Shares commenced offering on January 14, 1994. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<PAGE> 118
The One Group(R)
Municipal Income Fund
LOGO INVESTMENT OBJECTIVE
The Fund is a diversified fund that
seeks current income exempt from
Federal income taxes.
LOGO INVESTMENT STRATEGY
The Fund invests in debt securities
of states, territories and
possessions of the United States,
including the District of Columbia,
and their respective authorities,
political subdivisions, agencies and
instrumentalities, the interest on
which is exempt from Federal income
tax ("Municipal Securities"). The
Fund's average weighted maturity
normally will range from five to
fifteen years, although the Fund may
shorten its average weighted
maturity to as little as two years
if appropriate for temporary
defensive purposes.
LOGO PORTFOLIO SECURITIES
The Fund invests at least 80% of its
net assets in Municipal Securities.
As a matter of fundamental policy,
the Fund invests at least 65% of its
total assets in bonds. As a matter
of fundamental policy, the Fund will
not invest more than 25% of its net
assets (i) in securities within a
single industry; or (ii) in
securities of governmental units or
issuers in the same state,
territory, or possession. However,
the Fund will, from time to time,
invest more than 25% of its net
assets in municipal housing
authority obligations and
single-family mortgage revenue
bonds. The Fund also may invest in
mortgage-backed securities,
restricted securities, and mortgage
dollar rolls. The securities in
which the Fund invests may have
fixed rates of return or floating or
variable rates. For a list of all
securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund may invest in Municipal
Securities that are rated in the
lowest investment grade. Even though
such securities are generally
considered investment grade
securities, they are considered to
have speculative characteristics.
Issuers of such securities are more
vulnerable to changes in economic
conditions than issuers of higher
grade securities. The Municipal
Securities are also fixed-income
investments. The value of these
securities will change in response
to interest rates and other factors.
In addition, the Fund invests in
mortgage-related securities which
may have greater price and yield
volatility than traditional
fixed-income securities. Before you
invest, please read "More About the
Funds" and "Investment Risks."
LOGO TAX CONSIDERATIONS
Up to 100% of the Fund's assets may
be invested in Municipal Securities
the interest on which may be subject
to Federal alternative minimum tax
for individuals. Shareholders who
are subject to the Federal
alternative minimum tax may have all
or a portion of their income from
the Fund subject to Federal income
tax. In addition, corporate
shareholders will be required to
take the interest on Municipal
Securities into account in
determining their alternative
minimum taxable income.
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .35% .35% .35%
12b-1 Fees (after fee waiver) (5) .25% .90% .90%
Other Expenses .27% .27% .27%
Total Fund Operating Expenses (after
fee waivers) (6) .87% 1.52% 1.52%
</TABLE>
<TABLE>
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.35%
none
.27%
.62%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .45% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.07% for Class A shares, 1.72% for
Class B shares, 1.72% for Class C shares and .72% for Class I 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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 55 $ 78 $101 $170
Class B $ 65 $ 78 $103 $164
Class B
(without fee
waivers) $ 67 $ 84 $113 $186
Class C $ 25 $ 48 $ 83 $181
Class C
(without fee
waivers) $ 27 $ 54 $ 93 $203
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 7 $ 23 $ 40 $ 89
</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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 55 $ 78 $101 $170
Class B $ 15 $ 48 $ 83 $164
Class B
(without fee
waivers) $ 17 $ 54 $ 93 $186
Class C $ 15 $ 48 $ 83 $181
Class C
(without fee
waivers) $ 17 $ 54 $ 93 $203
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 7 $ 23 $ 40 $ 89
</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.
5
<PAGE> 119
The One Group(R) Municipal Income Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.84 $ 9.66 $ 9.69 $ 9.66 $ 10.11 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.51 0.53 0.56 0.57 0.56 0.19
Net realized and unrealized gains
(losses) from investments 0.27 0.18 (0.03) 0.03 (0.42) 0.11
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.78 0.71 0.53 0.60 0.14 0.30
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.51) (0.53) (0.56) (0.57) (0.56) (0.19)
In excess of net realized gains -- -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.51) (0.53) (0.56) (0.57) (0.59) (0.19)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 9.84 $ 9.66 $ 9.69 $ 9.66 $ 10.11
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 8.09% 7.49% 5.54% 6.46% 1.36% 5.18%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $617,885 $408,577 $241,115 $185,916 $152,763 $40,777
Ratio of expenses to average net
assets 0.57% 0.57% 0.56% 0.56% 0.54% 0.54%(b)
Ratio of net investment income to
average net assets 5.08% 5.38% 5.70% 6.02% 5.61% 5.66%(b)
Ratio of expenses to average net
assets* 0.67% 0.68% 0.76% 0.74% 0.71% 1.01%(b)
Ratio of net investment income to
average net assets* 4.98% 5.27% 5.50% 5.84% 5.44% 5.19%(b)
Portfolio turnover (c) 69.76% 62.83% 83.17% 66.02% 101.48% 66.12%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a) The
Fund commenced operations on February 9, 1993. (b) Annualized. (c) Portfolio
turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $ 9.69 $ 9.72 $ 9.67 $ 10.12 $ 10.06
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.49 0.51 0.55 0.55 0.55 0.19
Net realized and unrealized gains
(losses) from investments 0.27 0.18 (0.04) 0.05 (0.43) 0.05
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.76 0.69 0.51 0.60 0.12 0.24
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.49) (0.51) (0.54) (0.55) (0.54) (0.18)
In excess of net realized gains -- -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.51) (0.54) (0.55) (0.57) (0.18)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.87 $ 9.69 $ 9.72 $ 9.67 $ 10.12
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 7.84% 7.24% 5.35% 6.21% 1.34% 6.86%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $101,805 $41,829 $25,787 $11,462 $10,725 $4,106
Ratio of expenses to average net
assets 0.82% 0.82% 0.81% 0.81% 0.79% 0.80%(b)
Ratio of net investment income to
average net assets 4.83% 5.13% 5.45% 5.76% 5.44% 5.71%(b)
Ratio of expenses to average net
assets* 1.02% 1.03% 1.11% 1.09% 1.06% 1.36%(b)
Ratio of net investment income to
average net assets* 4.63% 4.92% 5.15% 5.48% 5.17% 5.15%(b)
Portfolio turnover (c) 69.76% 62.83% 83.17% 66.02% 101.48% 66.12%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Class A Shares commenced offering on February 23, 1993.
(b) Annualized. (c) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
6
<PAGE> 120
The One Group(R) Municipal Income Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.84 $ 9.66 $ 9.69 $ 9.62 $ 10.10
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.42 0.44 0.47 0.49 0.24
Net realized and unrealized gains (losses) from
investments 0.26 0.18 (0.03) 0.07 (0.48)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.68 0.62 0.44 0.56 (0.24)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.42) (0.44) (0.47) (0.49) (0.24)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.42) (0.44) (0.47) (0.49) (0.24)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 9.84 $ 9.66 $ 9.69 $ 9.62
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 7.04% 6.55% 4.65% 5.58% (1.98)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $56,911 $36,258 $23,204 $8,326 $4,855
Ratio of expenses to average net assets 1.47% 1.47% 1.46% 1.46% 1.41%(c)
Ratio of net investment income to average net assets 4.18% 4.48% 4.80% 5.14% 4.95%(c)
Ratio of expenses to average net assets* 1.67% 1.67% 1.76% 1.74% 1.62%(c)
Ratio of net investment income to average net
assets* 3.98% 4.28% 4.50% 4.86% 4.74%(c)
Portfolio turnover (d) 69.76% 62.83% 83.17% 66.02% 101.48%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Class B Shares commenced offering on January 14,
1994. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is
calculated on the basis of the Fund as a whole without distinguishing among
the classes of shares issued.
<TABLE>
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
CLASS C 1998(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.96
- ----------------------------------------------------------------------------
Investment Activities:
Net investment income 0.68
Net realized and unrealized gains (losses) from
investments 0.13
- ----------------------------------------------------------------------------
Total from Investment Activities 0.81
- ----------------------------------------------------------------------------
Distributions:
Net investment income (0.68)
- ----------------------------------------------------------------------------
Total Distributions (0.68)
- ----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.09
- ----------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 8.28%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $2,216
Ratio of expenses to average net assets 1.47%(c)
Ratio of net investment income to average net assets 4.18%(c)
Ratio of expenses to average net assets* 1.67%(c)
Ratio of net investment income to average net assets* 3.98%(c)
Portfolio turnover (d) 69.76%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
7
<PAGE> 121
The One Group(R)
Arizona Municipal Bond Fund
LOGO INVESTMENT OBJECTIVE
The Fund is a non-diversified fund
that seeks current income exempt
from Federal income tax and Arizona
personal income tax, consistent with
the preservation of principal.
LOGO INVESTMENT STRATEGY
The Fund invests in debt securities
issued by or on behalf of Arizona
and its respective authorities,
political subdivisions, agencies and
instrumentalities, the interest on
which, in the opinion of issuer's
counsel, is exempt from Federal
income tax and Arizona personal
income tax ("Arizona Municipal
Securities"). The Fund's average
weighted maturity normally will be
between five and twenty years,
although the Fund may invest in
securities of any maturity.
LOGO PORTFOLIO SECURITIES
The Fund invests at least 80% of its
total assets in Arizona Municipal
Securities. This is a fundamental
policy. The Fund also may invest up
to 20% of its total assets in bonds
and notes of states (other than
Arizona) as well as of territories
and possessions of the United
States, including the District of
Columbia, and their respective
authorities, agencies,
instrumentalities, and political
subdivisions, the interest on which
is exempt from Federal income tax
("Municipal Securities"). The
securities in which the Fund invests
may have fixed rates of return or
floating or variable rates. For a
list of all securities in which the
Fund may invest, please read
"Investment Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in Arizona
Municipal Securities, which may be
impacted by economic and political
developments in Arizona. The Arizona
Municipal Securities also include
fixed-income investments. The value
of these securities will change in
response to interest rate changes
and other factors. Before you
invest, please read "More About the
Funds" and "Investment Risks."
LOGO TAX CONSIDERATIONS
Up to 100% of the Fund's assets may
be invested in Arizona Municipal
Securities and Municipal Securities
the interest on which may be subject
to Federal alternative minimum tax
for individuals. Shareholders who
are subject to the Federal
alternative minimum tax may have all
or a portion of their income from
the Fund subject to Federal income
tax. In addition, corporate
shareholders will be required to
take the interest on Municipal
Securities and Arizona Municipal
Securities into account in
determining their alternative
minimum taxable income.
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .90% .90%
Other Expenses .32% .32% .32%
Total Fund Operating Expenses (after
fee waivers) (6) .97% 1.62% 1.62%
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.40%
none
.32%
.72%
</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 $10.00 sub minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .45% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.12% for Class A shares, 1.77% for
Class B shares, 1.77% for Class C shares and .77% for Class I 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 $ 54 $ 75 $ 96 $159
Class A
(without fee
waivers) $ 56 $ 79 $104 $175
Class B $ 66 $ 81 $108 $175
Class B
(without fee
waivers) $ 68 $ 86 $116 $191
Class C $ 26 $ 51 $ 88 $192
Class C
(without fee
waivers) $ 28 $ 56 $ 96 $208
Class I $ 7 $ 23 $ 40 $ 89
Class I
(without fee
waiver) $ 8 $ 25 $ 43 $ 95
</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 $ 54 $ 75 $ 96 $159
Class A
(without fee
waivers) $ 56 $ 79 $104 $175
Class B $ 16 $ 51 $ 88 $175
Class B
(without fee
waivers) $ 18 $ 56 $ 96 $191
Class C $ 16 $ 51 $ 88 $192
Class C
(without fee
waivers) $ 18 $ 56 $ 96 $208
Class I $ 7 $ 23 $ 40 $ 89
Class I
(without fee
waiver) $ 8 $ 25 $ 43 $ 95
</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.
8
<PAGE> 122
The One Group(R) Arizona Municipal Bond Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance over the past 10 years, or since inception, if less than
10 years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
JAN. 20,
YEAR 1997
ENDED THROUGH
JUNE 30, JUNE 30,
CLASS I 1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.06 $ 10.00
- -------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.49 0.23
Net realized and unrealized gains from investments 0.16 0.06
- -------------------------------------------------------------------------------------------
Total from Investment Activities 0.65 0.29
- -------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.49) (0.23)
Net realized gain (0.07) --
- -------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.23)
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.15 $ 10.06
- -------------------------------------------------------------------------------------------
Total Return 6.58% 2.90%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $248,590 $255,755
Ratio of expenses to average net assets 0.59% 0.59%(c)
Ratio of net investment income to average net assets 4.79% 5.09%(c)
Ratio of expenses to average net assets* 0.65% 0.66%(c)
Ratio of net investment income to average net assets* 4.73% 5.02%(c)
Portfolio turnover (d) 20.89% 5.66%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<TABLE>
<CAPTION>
JAN. 20,
YEAR 1997
ENDED THROUGH
JUNE 30, JUNE 30,
CLASS A 1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 10.00
- -------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.46 0.15
Net realized and unrealized gains (losses) from
investments 0.16 (0.01)
- -------------------------------------------------------------------------------------------
Total from Investment Activities 0.62 0.14
- -------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.46) (0.15)
Net realized gain (0.07) --
- -------------------------------------------------------------------------------------------
Total Distributions (0.53) (0.15)
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.08 $ 9.99
- -------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.30% 1.40%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $1,321 $1,500
Ratio of expenses to average net assets 0.84% 0.85%(c)
Ratio of net investment income to average net assets 4.53% 4.90%(c)
Ratio of expenses to average net assets* 1.01% 0.96%(c)
Ratio of net investment income to average net assets* 4.36% 4.79%(c)
Portfolio turnover (d) 20.89% 5.66%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
9
<PAGE> 123
The One Group(R) Arizona Municipal Bond Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR JAN. 20, 1997
ENDED THROUGH
JUNE 30, JUNE 30,
CLASS B 1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $10.00
- -----------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.13 0.00
Net realized and unrealized gains (losses) from
investments 0.14 0.09
- -----------------------------------------------------------------------------------------------
Total from Investment Activities 0.27 0.09
- -----------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.13) --
Net realized gains (0.07) --
- -----------------------------------------------------------------------------------------------
Total Distributions (0.20) --
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.16 $10.09
- -----------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 2.67% 0.90%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $290 --(c)
Ratio of expenses to average net assets 1.50% --(d)
Ratio of net investment income to average net assets 3.88% --(d)
Ratio of expenses to average net assets* 1.64% --(d)
Ratio of net investment income to average net assets* 3.74% --(d)
Portfolio turnover (e) 20.89% 5.66%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Amount is less than $1,000. (d) Since net assets are less
than $1,000, ratios have not been presented. (e) Portfolio turnover is
calculated on the basis of the Fund as a whole without distinguishing among
the classes of shares issued.
10
<PAGE> 124
The One Group(R)
West Virginia Municipal Bond Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund is a non-diversified fund
that seeks current income exempt
from Federal income tax and West
Virginia personal income tax,
consistent with the preservation of
principal.
[LOGO] INVESTMENT STRATEGY
The Fund invests in debt securities
issued by, or on behalf of, West
Virginia and its respective
authorities, political subdivisions,
agencies and instrumentalities, the
interest on which, in the opinion of
issuer's counsel, is exempt from
Federal income tax and West Virginia
personal income tax ("West Virginia
Municipal Securities"). Generally,
the Fund's average weighted maturity
will be between five and twenty
years, although the Fund may invest
in securities of any maturity.
[LOGO] PORTFOLIO SECURITIES
The Fund invests at least 80% of its
total assets in West Virginia
Municipal Securities. This is a
fundamental policy. The Fund also
may invest up to 20% of its total
assets in bonds and notes of states
(other than West Virginia) as well
as of territories and possessions of
the United States, including the
District of Columbia, and their
respective authorities, agencies,
instrumentalities, and political
subdivisions, the interest on which
is exempt from Federal income tax
("Municipal Securities"). The
securities in which the Fund invests
may have fixed rates of return or
floating or variable rates. For a
list of all securities in which the
Fund may invest, please read
"Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in West Virginia
Municipal Securities, which may be
impacted by economic and political
developments in West Virginia. The
West Virginia Municipal Securities
also include fixed-income
investments. The value of these
securities will change in response
to interest rate changes and other
factors. Before you invest, please
read "More About the Funds" and
"Investment Risks."
[LOGO] TAX CONSIDERATIONS
Up to 100% of the Fund's assets may
be invested in West Virginia
Municipal Securities and Municipal
Securities the interest on which may
be subject to Federal alternative
minimum tax for individuals.
Shareholders who are subject to the
Federal alternative minimum tax may
have all or a portion of their
income from the Fund subject to
Federal income tax. In addition,
corporate shareholders will be
required to take the interest on
Municipal Securities and West
Virginia Municipal Securities into
account in determining their
alternative minimum taxable income.
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .90% .90%
Other Expenses .32% .32% .32%
Total Fund Operating Expenses (after
fee waivers) (6) .97% 1.62% 1.62%
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.40%
none
.32%
.72%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .45% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.12% for Class A shares, 1.77% for
Class B shares, 1.77% for Class C shares and .77% for Class I 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 $ 54 $ 75 $ 96 $159
Class A
(without fee
waivers) $ 56 $ 79 $104 $175
Class B $ 66 $ 81 $108 $175
Class B
(without fee
waivers) $ 68 $ 86 $116 $191
Class C $ 26 $ 51 $ 88 $192
Class C
(without fee
waivers) $ 28 $ 56 $ 96 $208
Class I $ 7 $ 23 $ 40 $ 89
Class I
(without fee
waiver) $ 8 $ 25 $ 43 $ 95
</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 $ 54 $ 75 $ 96 $159
Class A
(without fee
waivers) $ 56 $ 79 $104 $175
Class B $ 16 $ 51 $ 88 $175
Class B
(without fee
waivers) $ 18 $ 56 $ 96 $191
Class C $ 16 $ 51 $ 88 $192
Class C
(without fee
waivers) $ 18 $ 56 $ 96 $208
Class I $ 7 $ 23 $ 40 $ 89
Class I
(without fee
waiver) $ 8 $ 25 $ 43 $ 95
</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.
11
<PAGE> 125
The One Group(R) West Virginia Municipal Bond Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR JAN. 20, 1997
ENDED THROUGH
JUNE 30, JUNE 30,
CLASS I 1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.06 $ 10.00
- ------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.50 0.22
Net realized and unrealized gains from investments 0.22 0.06
- ------------------------------------------------------------------------------------------------
Total from Investment Activities 0.72 0.28
- ------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.50) (0.22)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.22)
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.28 $ 10.06
- ------------------------------------------------------------------------------------------------
Total Return 7.36% 2.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $102,413 $96,270
Ratio of expenses to average net assets 0.60% 0.59%(c)
Ratio of net investment income to average net assets 4.93% 5.04%(c)
Ratio of expenses to average net assets* 0.72% 0.67%(c)
Ratio of net investment income to average net assets* 4.81% 4.96%(c)
Portfolio turnover (d) 16.69% 6.21%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<TABLE>
<CAPTION>
YEAR JAN. 20, 1997
ENDED THROUGH
JUNE 30, JUNE 30,
CLASS A 1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.15 $ 10.00
- ------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.48 0.16
Net realized and unrealized gains from investments 0.21 0.15
- ------------------------------------------------------------------------------------------------
Total from Investment Activities 0.69 0.31
- ------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.48) (0.16)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.48) (0.16)
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.36 $ 10.15
- ------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.98% 3.08%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $2,024 $808
Ratio of expenses to average net assets 0.85% 0.84%(c)
Ratio of net investment income to average net assets 4.68% 4.94%(c)
Ratio of expenses to average net assets* 1.07% 0.97%(c)
Ratio of net investment income to average net assets* 4.46% 4.81%(c)
Portfolio turnover (d) 16.69% 6.21%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
12
<PAGE> 126
13
THE ONE GROUP(R) WEST VIRGINIA MUNICIPAL BOND FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR JAN. 20, 1997
ENDED THROUGH
JUNE 30, JUNE 30,
CLASS B 1998 1997(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.12 $10.00
- -----------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.42 0.14
Net realized and unrealized gains from investments 0.23 0.12
- -----------------------------------------------------------------------------------------------
Total from Investment Activities 0.65 0.26
- -----------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.42) (0.14)
- -----------------------------------------------------------------------------------------------
Total Distributions (0.42) (0.14)
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.35 $10.12
- -----------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.57% 2.64%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $3,352 $ 614
Ratio of expenses to average net assets 1.50% 1.49%(c)
Ratio of net investment income to average net assets 4.05% 4.08%(c)
Ratio of expenses to average net assets* 1.72% 1.62%(c)
Ratio of net investment income to average net assets* 3.83% 3.95%(c)
Portfolio turnover (d) 16.69% 6.21%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated. (a)
Period from commencement of operations. (b) Not annualized. (c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued.
<PAGE> 127
14
The One Group(R)
LOUISIANA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund is a non-diversified fund that seeks current income both consistent
with the preservation of principal and exempt from Federal income tax and
Louisiana income tax.
[LOGO] INVESTMENT STRATEGY
The Fund invests in investment grade municipal securities issued by or on behalf
of Louisiana and its authorities, political subdivisions, agencies and
instrumentalities, the interest on which, in the opinion of issuer's counsel, is
exempt from both Federal income tax and Louisiana state income tax ("Louisiana
Municipal Securities"). The Fund's average weighted maturity normally will be
between five and twenty years, although the Fund may invest in securities of any
maturity.
[LOGO] PORTFOLIO SECURITIES
The Fund invests at least 80% of its net assets in Louisiana Municipal
Securities. This is a fundamental policy. The Fund also may hold up to 20% of
its total assets in cash or invest in municipal securities of other states
("Municipal Securities"), short-term taxable investments including repurchase
agreements, and U.S. Government Securities or other cash equivalents. The
securities in which the Fund invests may have fixed rates of return or floating
or variable rates. For a list of all securities in which the Fund may invest,
please read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in Louisiana Municipal Securities, which may be impacted by
economic and political developments in Louisiana. The Louisiana Municipal
Securities also include fixed-income investments. The value of these securities
will change in response to interest rate changes and other factors. Before you
invest, please read "More About the Funds" and "Investment Risks."
[LOGO] TAX CONSIDERATIONS
Up to 100% of the Fund's assets may be invested in Louisiana Municipal
Securities and Municipal Securities the interest on which may be subject to
Federal alternative minimum tax for individuals. Shareholders who are subject to
the Federal alternative minimum tax may have all or a portion of their income
from the Fund subject to Federal income tax. In addition, corporate shareholders
will be required to take the interest on Municipal Securities and Louisiana
Municipal Securities into account in determining their alternative minimum
taxable income.
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of portfolio managers, research analysts and fixed
income traders. The team works together to establish general duration and sector
strategies for the Fund. Each team member makes recommendations about securities
in the Fund. The research analysts and trading personnel provide individual
security and sector recommendations, while the portfolio managers select and
allocate individual securities in a manner designed to meet the investment
objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES) (3)
(as a percentage of average
daily net assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .90% .90% none
Other Expenses .32% .32% .32% .32%
Total Fund Operating Expenses (after
fee waivers) (6) .97% 1.62% 1.62% .72%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .60% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.27% for Class A shares, 1.92% for
Class B shares, 1.92% for Class C shares and .92% for Class I 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 $ 54 $ 75 $ 96 $159
Class A (without fee waivers) $ 57 $ 83 $112 $191
Class B $ 66 $ 81 $108 $175
Class B (without fee waivers) $ 69 $ 90 $124 $207
Class C $ 26 $ 51 $ 88 $192
Class C (without fee waivers) $ 29 $ 60 $104 $224
Class I $ 7 $ 23 $ 40 $ 89
Class I (without fee waiver) $ 9 $ 29 $ 51 $113
- ----------------------------------------------------------------------
</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 $ 54 $ 75 $ 96 $159
Class A (without fee waivers) $ 57 $ 83 $112 $191
Class B $ 16 $ 51 $ 88 $175
Class B (without fee waivers) $ 19 $ 60 $104 $207
Class C $ 16 $ 51 $ 88 $192
Class C (without fee waivers) $ 19 $ 60 $104 $224
Class I $ 7 $ 23 $ 40 $ 89
Class I (without fee waiver) $ 9 $ 29 $ 51 $113
</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.
<PAGE> 128
The One Group(R) Louisiana Municipal Bond Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, MARCH 26, 1996
--------------------- THROUGH
CLASS I 1998 1997 JUNE 30, 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 9.93 $ 10.00
- --------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.50 0.49 0.13
Net realized and unrealized gains (losses) from
investments 0.16 0.17 (0.07)
- --------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.66 0.66 0.06
- --------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.50) (0.49) (0.13)
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.49) (0.13)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.26 $ 10.10 $ 9.93
- --------------------------------------------------------------------------------------------------------
Total Return 6.62% 6.81% 0.90%(b)(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 92,690 $113,338 $136,041
Ratio of expenses to average net assets 0.60% 0.62% 0.71%(d)
Ratio of net investment income to average net assets 4.85% 4.91% 4.76%(d)
Ratio of expenses to average net assets* 0.83% 0.84% 0.86%(d)
Ratio of net investment income to average net assets* 4.62% 4.69% 4.61%(d)
Portfolio turnover (e) 12.03% 17.39% 16.72%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from date reorganized as a fund of The One
Group. (b) Not annualized. (c) Represents total return for Class A Shares
from December 1, 1995 through March 25, 1996 plus total return for Class I
Shares for the period March 26, 1996 through June 30,
1996. (d) Annualized. (e) Portfolio turnover is calculated on the basis of
the Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS
JUNE 30, ENDED YEAR ENDED NOVEMBER 30,
------------------ JUNE 30, --------------------------------------------------------
CLASS A 1998 1997 1996(A) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 9.93 $ 10.09 $ 9.38 $ 10.27 $ 9.92 $ 9.73 $ 9.51
- ---------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.47 0.47 0.24 0.50 0.49 0.52 0.55 0.56
Net realized and unrealized gains
(losses) from investments 0.16 0.17 (0.16) 0.71 (0.79) 0.42 0.26 0.22
- ---------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.63 0.64 0.08 1.21 (0.30) 0.94 0.82 0.78
- ---------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.47) (0.47) (0.24) (0.50) (0.49) (0.52) (0.55) (0.56)
Net realized gains -- -- -- -- (0.10) (0.07) (0.07) --
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.47) (0.24) (0.50) (0.59) (0.59) (0.62) (0.56)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.26 $ 10.10 $ 9.93 $ 10.09 $ 9.38 $ 10.27 $ 9.92 $ 9.73
- ---------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.35% 6.55% 0.84%(b) 13.11% (2.97)% 9.65% 8.64% 8.45%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $47,078 $48,498 $53,479 $206,119 $196,820 $196,534 $135,692 $ 88,503
Ratio of expenses to average net
assets 0.85% 0.87% 0.69%(c) 0.62% 0.65% 0.62% 0.58% 0.61%
Ratio of net investment income to
average net assets 4.60% 4.66% 4.71%(c) 5.07% 4.97% 5.07% 5.70% 5.86%
Ratio of expenses to average net
assets* 1.18% 1.19% 0.86%(c) 0.77% 0.80% 0.78% 0.83% 0.86%
Ratio of net investment income to
average net assets* 4.27% 4.34% 4.54%(c) 4.92% 4.82% 4.91% 5.45% 5.61%
Portfolio turnover (d) 12.03% 17.39% 16.72% 28.00% 24.00% 25.00% 32.00% 35.00%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Upon reorganizing as a fund of The One Group, the Paragon
Louisiana Tax-Free Fund became the Louisiana Municipal Bond Fund. Financial
highlights for the periods prior to March 26, 1996 represents the Paragon
Louisiana Tax-Free Fund. The per share data for the periods prior to March 26,
1996 have been restated to reflect the impact of restatement of net asset
value from $10.67 to $10.00 effective March 26, 1996. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
15
<PAGE> 129
The One Group(R) Louisiana Municipal Bond Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS SEPT. 16, 1994
JUNE 30, ENDED YEAR ENDED THROUGH
----------------- JUNE 30, NOV. 30, NOV. 30,
CLASS B 1998 1997 1997(A) 1995 1994(B)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.10 $ 9.93 $10.09 $ 9.36 $ 9.73
- --------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.41 0.40 0.21 0.42 0.08
Net realized and unrealized gains (losses) from
investments 0.16 0.17 (0.16) 0.73 (0.37)
- --------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.57 0.57 0.05 1.15 (0.29)
- --------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.41) (0.40) (0.21) (0.42) (0.08)
- --------------------------------------------------------------------------------------------------------------
Total Distributions (0.41) (0.40) (0.21) (0.42) (0.08)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.26 $10.10 $ 9.93 $10.09 $ 9.36
- --------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 5.69% 5.87% 0.48%(c) 12.52% (2.94)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $5,474 $3,835 $3,223 $2,115 $ 204
Ratio of expenses to average net assets 1.50% 1.51% 1.50%(d) 1.37% 1.41%(d)
Ratio of net investment income to average net assets 3.95% 4.02% 3.98%(d) 4.27% 4.45%(d)
Ratio of expenses to average net assets* 1.83% 1.85% 1.70%(d) 1.52% 1.56%(d)
Ratio of net investment income to average net assets* 3.62% 3.68% 3.78%(d) 4.12% 4.30%(d)
Portfolio turnover (e) 12.03% 17.39% 16.72% 28.00% 24.00%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Upon reorganizing as a fund of The One Group, the Paragon
Louisiana Tax-Free Fund became the Louisiana Municipal Bond Fund. Financial
highlights for the periods prior to March 26, 1996 represents the Paragon
Louisiana Tax-Free Fund. The per share data for the periods prior to March 26,
1996 have been restated to reflect the impact of restatement of net asset
value from $10.70 to $10.00 effective March 26, 1996. (b) Class B Shares
commenced offering on September 16, 1994. (c) Not
annualized. (d) Annualized. (e) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
16
<PAGE> 130
The One Group(R)
Ohio Municipal Bond Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund is a non-diversified fund
that seeks current income exempt
from Federal income tax and Ohio
personal income tax, consistent with
the preservation of principal.
[LOGO] INVESTMENT STRATEGY
The Fund invests in debt securities
issued by, or on behalf of, Ohio and
its respective authorities,
political subdivisions, agencies and
instrumentalities, the interest on
which, in the opinion of issuer's
counsel, is exempt from Federal
income tax and Ohio personal income
tax ("Ohio Municipal Securities").
Generally, the Fund's average
weighted maturity will be between
five and twenty years, although the
Fund may invest in securities of any
maturity.
[LOGO] PORTFOLIO SECURITIES
The Fund invests at least 80% of its
total assets in Ohio Municipal
Securities. This is a fundamental
policy. The Fund also may invest up
to 20% of its total assets in bonds
and notes of states (other than
Ohio) as well as territories and
possessions of the United States,
including the District of Columbia,
and their respective authorities,
agencies, instrumentalities, and
political subdivisions, the interest
on which, in the opinion of issuer's
counsel, is exempt from Federal
income tax ("Municipal Securities").
The securities in which the Fund
invests may have fixed rates of
return or floating or variable
rates. For a list of all securities
in which the Fund may invest, please
read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in Ohio Municipal
Securities, which may be impacted by
economic and political developments
in Ohio. The Ohio Municipal
Securities also include fixed-income
investments. The value of these
securities will change in response
to interest rate changes and other
factors. Before you invest, please
read "More About the Funds" and
"Investment Risks."
[LOGO] TAX CONSIDERATIONS
Up to 100% of the Fund's assets may
be invested in Ohio Municipal
Securities and Municipal Securities,
the interest on which may be subject
to Federal alternative minimum tax
for individuals. Shareholders who
are subject to the Federal
alternative minimum tax may have all
or a portion of their income from
the Fund subject to Federal income
tax. In addition, corporate
shareholders will be required to
take the interest on Municipal
Securities and Ohio Municipal
Securities into account in
determining their alternative
minimum taxable income.
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .90% .90% none
Other Expenses .22% .22% .22% .22%
Total Fund Operating Expenses (after
fee waivers) (6) .87% 1.52% 1.52% .62%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .60% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.17% for Class A shares, 1.82% for
Class B shares, 1.82% for Class C shares and .82% for Class I 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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 56 $ 80 $106 $181
Class B $ 65 $ 78 $103 $164
Class B
(without fee
waivers) $ 68 $ 87 $119 $197
Class C $ 25 $ 48 $ 83 $181
Class C
(without fee
waivers) $ 28 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</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 $ 53 $ 72 $ 91 $147
Class A
(without fee
waivers) $ 56 $ 80 $106 $181
Class B $ 15 $ 48 $ 83 $164
Class B
(without fee
waivers) $ 19 $ 60 $104 $205
Class C $ 15 $ 48 $ 83 $181
Class C
(without fee
waivers) $ 18 $ 57 $ 99 $214
Class I $ 6 $ 20 $ 35 $ 77
Class I
(without fee
waiver) $ 8 $ 26 $ 46 $101
</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.
17
<PAGE> 131
The One Group(R) Ohio Municipal Bond Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993 1992(C)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.88 $ 10.69 $ 10.65 $ 10.58 $ 11.11 $ 10.48 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.56 0.56 0.56 0.55 0.51 0.54 0.56
Net realized and unrealized gains
(losses) from investments 0.20 0.19 0.04 0.07 (0.50) 0.62 0.47
- --------------------------------------------------------------------------------------------------------------------
Total from Investment Distributions: 0.76 0.75 0.60 0.62 0.01 -- --
- --------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.56) (0.56) (0.56) (0.55) (0.52) (0.53) (0.55)
In excess of net realized gains -- -- -- -- (0.02) -- --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.56) (0.56) (0.55) (0.54) (0.53) (0.55)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.08 $ 10.88 $ 10.69 $ 10.65 $ 10.58 $ 11.11 $ 10.48
- --------------------------------------------------------------------------------------------------------------------
Total Return 7.13% 7.22% 5.69% 6.07% 0.07% 11.43% 10.64%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $149,890 $133,172 $80,611 $79,993 $93,261 $74,792 $45,199
Ratio of expenses to average net
assets 0.54% 0.54% 0.57% 0.58% 0.53% 0.55% 0.63%(b)
Ratio of net investment income to
average net assets 5.09% 5.24% 5.17% 5.29% 4.76% 5.14% 5.61%(b)
Ratio of expenses to average net
assets* 0.83% 0.84% 0.95% 0.91% 0.86% 0.94% 1.21%(b)
Ratio of net investment income to
average net assets* 4.80% 4.94% 4.79% 4.96% 4.43% 4.75% 5.03%(b)
Portfolio turnover (a) 10.49% 7.45% 24.61% 77.69% 16.77% 26.67% 9.78%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares
issued. (b) Annualized. (c) Fund commenced operation on July 2, 1991.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(C)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.91 $ 10.72 $ 10.68 $ 10.61 $ 11.13 $ 10.48 $10.29
- ----------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.54 0.54 0.55 0.53 0.50 0.52 0.20
Net realized and unrealized gains
(losses) from investments 0.20 0.19 0.03 0.07 (0.48) 0.64 0.21
- ----------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.74 0.73 0.58 0.60 0.02 1.16 0.41
- ----------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.54) (0.54) (0.54) (0.51) (0.50) (0.51) (0.22)
In excess of net investment income -- -- -- (0.02) (0.02) -- --
In excess of net realized gains -- -- -- -- (0.02) -- --
- ----------------------------------------------------------------------------------------------------------------
Total Distributions (0.54) (0.54) (0.54) (0.53) (0.54) (0.51) (0.22)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.11 $ 10.91 $ 10.72 $ 10.68 $ 10.61 $ 11.13 $10.48
- ----------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.87% 6.95% 5.44% 5.79% (0.05)% 11.40% 10.85%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $17,297 $16,114 $16,507 $12,006 $14,883 $13,092 $ 41
Ratio of expenses to average net
assets 0.79% 0.79% 0.82% 0.82% 0.78% 0.77% 1.01%(b)
Ratio of net investment income to
average net assets 4.83% 4.96% 4.92% 5.01% 4.63% 4.85% 5.16%(b)
Ratio of expenses to average net
assets* 1.18% 1.19% 1.30% 1.25% 1.21% 1.25% 1.40%(b)
Ratio of net investment income to
average net assets* 4.44% 4.56% 4.44% 4.58% 4.20% 4.37% 4.77%(b)
Portfolio turnover (a) 10.49% 7.45% 24.61% 77.69% 16.77% 26.67% 9.78%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares
issued. (b) Annualized. (c) Class A Shares commenced offering on February
18, 1992.
18
<PAGE> 132
The One Group(R) Ohio Municipal Bond Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.98 $ 10.79 $ 10.75 $ 10.68 $ 11.31
- -----------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.47 0.47 0.48 0.43 0.17
Net realized and unrealized gains (losses) from
investments 0.20 0.19 0.03 0.07 (0.62)
- -----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.67 0.66 0.51 0.50 (0.45)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.47) (0.47) (0.47) (0.43) (0.17)
In excess of net investment income -- -- -- -- (0.01)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.47) (0.47) (0.43) (0.18)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.18 $ 10.98 $ 10.79 $ 10.75 $ 10.68
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.20% 6.26% 4.79% 5.17% (4.02)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $26,138 $14,316 $ 8,854 $ 3,209 $ 2,043
Ratio of expenses to average net assets 1.44% 1.44% 1.47% 1.48% 1.28%(c)
Ratio of net investment income to average net assets 4.19% 4.33% 4.27% 4.40% 4.23%(c)
Ratio of expenses to average net assets* 1.83% 1.84% 1.95% 1.91% 1.68%(c)
Ratio of net investment income to average net assets* 3.80% 3.93% 3.79% 3.97% 3.83%(c)
Portfolio turnover (d) 10.49% 7.45% 24.61% 77.69% 16.77%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Class B Shares commenced offering on January 14,
1994. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is
calculated on the basis of the Fund as a whole without distinguishing among
the classes of shares issued.
19
<PAGE> 133
The One Group(R)
Kentucky Municipal Bond Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund is a non-diversified fund
that seeks current income exempt
from Federal income tax and Kentucky
personal income tax, consistent with
the preservation of principal.
[LOGO] INVESTMENT STRATEGY
The Fund invests in debt securities
issued by, or on behalf of, Kentucky
and its respective authorities,
political subdivisions, agencies and
instrumentalities, the interest on
which, in the opinion of issuer's
counsel, is exempt from Kentucky
personal income tax ("Kentucky
Municipal Securities"), as well as
debt securities that, in the opinion
of issuer's counsel, produce
interest that is exempt from Federal
income tax ("Municipal Securities").
Generally, the Fund's average
weighted maturity will be between
five and twenty years, although the
Fund may invest in securities of any
maturity.
[LOGO] PORTFOLIO SECURITIES
The Fund invests at least 80% of its
total assets in Municipal
Securities. Alternatively, the Fund
invests its assets so that at least
80% of its annual interest income is
exempt from Federal income tax. The
Fund invests at least 65% of its
total assets in Kentucky Municipal
Securities. Each of these investment
policies are fundamental. The Fund
may also invest up to 35% of its
total assets in bonds and notes of
states (other than Kentucky) as well
as territories and possessions of
the United States, including the
District of Columbia, and their
respective authorities, agencies,
instrumentalities, and political
subdivisions, the interest on which
is exempt from Federal income tax.
The securities in which the Fund
invests may have fixed rates of
return or floating or variable
rates. For a list of all securities
in which the Fund may invest, please
read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in Kentucky
Municipal Securities, which may be
impacted by economic and political
developments in Kentucky. The Fund's
investments also include
fixed-income investments. The value
of these securities will change in
response to interest rate changes
and other factors. Before you
invest, please read "More About the
Funds" and "Investment Risks."
[LOGO] TAX CONSIDERATIONS
Up to 100% of the Fund's assets may
be invested in Kentucky Municipal
Securities and Municipal Securities
the interest on which may be subject
to Federal alternative minimum tax
for individuals. Shareholders who
are subject to the Federal
alternative minimum tax may have all
or a portion of their income from
the Fund subject to Federal income
tax. In addition, corporate
shareholders will be required to
take the interest on Municipal
Securities and Kentucky Municipal
Securities into account in
determining their alternative
minimum taxable income.
[LOGO] FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts and fixed income traders.
The team works together to establish
general duration and sector
strategies for the Fund. Each team
member makes recommendations about
securities in the Fund. The research
analysts and trading personnel
provide individual security and
sector recommendations, while the
portfolio managers select and
allocate individual securities in a
manner designed to meet the
investment objectives of the Fund.
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (3) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (4) .40% .40% .40%
12b-1 Fees (after fee waiver) (5) .25% .90% .90%
Other Expenses .32% .32% .32%
Total Fund Operating Expenses (after
fee waivers) (6) .97% 1.62% 1.62%
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.40%
none
.32%
.72%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(4) Without the fee waiver, Investment Advisory Fees would be .45% for all
classes of shares.
(5) 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 of fees, 12b-1 fees would be .35%
for Class A shares and 1.00% for Class B and Class C shares.
(6) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.12% for Class A shares, 1.77% for
Class B shares, 1.77% for Class C shares and .77% for Class I 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 $ 54 $ 75 $ 96 $159
Class A
(without fee
waivers) $ 56 $ 79 $104 $175
Class B $ 66 $ 81 $108 $175
Class B
(without fee
waivers) $ 68 $ 86 $116 $191
Class C $ 26 $ 51 $ 88 $192
Class C
(without fee
waivers) $ 28 $ 56 $ 96 $208
Class I $ 7 $ 23 $ 40 $ 89
Class I
(without fee
waiver) $ 8 $ 25 $ 43 $ 95
</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 $ 54 $ 75 $ 96 $159
Class A
(without fee
waivers) $ 56 $ 79 $104 $175
Class B $ 16 $ 51 $ 88 $175
Class B
(without fee
waivers) $ 18 $ 56 $ 96 $191
Class C $ 16 $ 51 $ 88 $192
Class C
(without fee
waivers) $ 18 $ 56 $ 96 $208
Class I $ 7 $ 23 $ 40 $ 89
Class I
(without fee
waiver) $ 8 $ 25 $ 43 $ 95
</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.
20
<PAGE> 134
The One Group(R) Kentucky Municipal Bond Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years or since inception, if less than 10
years. Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate a shareholder would have
earned on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
JANUARY 20, FEBRUARY 1, MARCH 12,
YEAR ENDED JUNE 30, 1995 TO 1994 TO 1993 TO
----------------------------------------- JUNE 30, JANUARY 19, JANUARY 31,
CLASS I 1998 1997 1996 1995(A) 1995(A) 1994(B)(C)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.20 $ 10.04 $ 9.92 $ 9.49 $ 10.45 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.51 0.50 0.50 0.20 0.41 0.36
Net realized and unrealized
gains (losses) from
investments 0.20 0.16 0.12 0.43 (0.95) 0.43
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.71 0.66 0.62 0.63 (0.54) 0.79
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.51) (0.50) (0.50) (0.20) (0.42) (0.34)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.51) (0.50) (0.50) (0.20) (0.42) (0.34)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.20 $ 10.04 $ 9.92 $ 9.49 $ 10.45
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 7.11% 6.74% 6.35% 6.56%(d) (5.17)%(d) 8.05%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $122,220 $116,830 $30,300 $32,520 $41,953 $64,663
Ratio of expenses to average
net assets 0.60% 0.59% 0.68% 0.65%(e) 1.03%(e) 0.70%(e)
Ratio of net investment income
to average net assets 4.94% 5.12% 4.60% 4.70%(e) 4.27%(e) 4.19%(e)
Ratio of expenses to average
net assets* 0.69% 0.72% 1.02% 0.97%(e) 1.05%(e) 0.91%(e)
Ratio of net investment income
to average net assets* 4.85% 4.99% 4.26% 4.38%(e) 4.25%(e) 3.98%(e)
Portfolio turnover (f) 5.81% 13.30% 16.78% 19.75% 10.00% 5.00%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from date reorganized as a fund of The One Group. (b)
Prior to reorganizing as a fund of The One Group, the Fund offered only one
class of shares. (c) Period from commencement of operations. (d) Not
annualized. (e) Annualized. (f) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<TABLE>
<CAPTION>
JANUARY 20,
YEAR ENDED JUNE 30, 1995 TO
----------------------------------------- JUNE 30,
CLASS A 1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.21 $ 10.05 $ 9.93 $ 9.49
- -------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.49 0.48 0.44 0.19
Net realized and unrealized gains from investments 0.20 0.16 0.12 0.44
- -------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.69 0.64 0.56 0.63
- -------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.49) (0.48) (0.44) (0.19)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.48) (0.44) (0.19)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.41 $ 10.21 $ 10.05 $ 9.93
- -------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.86% 6.46% 5.70% 5.66%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $7,899 $5,554 $8,178 $8,818
Ratio of expenses to average net assets 0.85% 0.84% 0.93% 0.90%(c)
Ratio of net investment income to average net assets 4.69% 4.66% 4.35% 4.44%(c)
Ratio of expenses to average net assets* 1.04% 1.04% 1.37% 1.33%(c)
Ratio of net investment income to average net assets* 4.50% 4.46% 3.91% 4.01%(c)
Portfolio turnover (d) 5.81% 13.30% 16.78% 19.75%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from date reorganized as a fund of The One
Group. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is
calculated on the basis of the Fund as a whole without distinguishing among
the classes of shares issued.
21
<PAGE> 135
The One Group(R) Kentucky Municipal Bond Fund Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, MARCH 16, 1995
--------------------------------------- TO
CLASS B 1998 1997 1996 JUNE 30, 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.15 $ 9.99 $ 9.87 $ 9.75
- ----------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.42 0.41 0.38 0.14
Net realized and unrealized gains from investments 0.20 0.16 0.13 0.12
- ----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.62 0.57 0.51 0.26
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net investment income (0.42) (0.41) (0.39) (0.14)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.42) (0.41) (0.39) (0.14)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.35 $ 10.15 $ 9.99 $ 9.87
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 6.20% 5.81% 5.16% 2.63%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $5,581 $2,399 $1,457 $79
Ratio of expenses to average net assets 1.51% 1.47% 1.58% 1.58%(c)
Ratio of net investment income to average net assets 4.04% 4.05% 3.70% 3.89%(c)
Ratio of expenses to average net assets* 1.70% 1.70% 2.02% 2.21%(c)
Ratio of net investment income to average net assets* 3.85% 3.82% 3.26% 3.25%(c)
Portfolio turnover (d) 5.81% 13.30% 16.78% 19.75%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Class B Shares commenced offering on March 16, 1995. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
22
<PAGE> 136
more about the funds
23
WHEN THE PROSPECTUS REFERS TO "BONDS," WHAT TYPES OF INVESTMENTS ARE INCLUDED?
"Bonds" include debt instruments issued by the U.S. Treasury, U.S. Government
agencies, mortgage related securities, municipalities and zero coupon
obligations as well as debt instruments issued by states and their respective
authorities, political subdivisions, agencies and instrumentalities.
Portfolio Quality
- ----------------------------------------------------
The Funds only purchase securities that meet certain rating criteria:
- - Municipal Securities that are bonds must be rated as investment grade.
- - Arizona Municipal Securities, West Virginia Municipal Securities, Louisiana
Municipal Securities, Ohio Municipal Securities, and Kentucky Municipal
Securities that are bonds must be rated as investment grade.
- - Other securities such as taxable and tax-exempt commercial paper, notes, and
variable demand obligations must be rated in one of the two highest investment
grade categories.
- - The Louisiana Municipal Bond Fund may also invest in short-term tax-exempt
municipal securities rated at least MIG3 (VMIG3) by Moody's or SP-2 by S&P.
These securities may have speculative characteristics.
If the securities are unrated, Banc One Investment Advisors must determine that
they are of comparable quality to rated securities. Banc One Investment Advisors
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
- ----------------------------------------------------
Each 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 will follow
guidelines adopted by The One Group Board of Trustees in determining whether an
investment is illiquid.
Special Risk
Considerations
- ----------------------------------------------------
FIXED INCOME SECURITIES: Investments in fixed income securities (for example,
bonds) will increase or decrease in value based on changes in interest rates. If
rates increase, the value of a Fund's investments generally declines. 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 also are 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. Fixed income securities also are subject to the
risk that the issuer of the security will be unable to meet its repayment
obligation.
DERIVATIVES: Some of the Funds may invest in securities that are considered to
be "derivatives." "Derivatives" are securities that derive their value from the
performance of underlying assets or securities. These include:
- - options
- - futures contracts
- - 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)
- - structured instruments
- - swaps, caps and floors
- - new financial products
- - inverse floating rate instruments
These securities may be more volatile than other investments. Derivatives
present, to varying degrees, market, credit, leverage, liquidity, and management
risks. The Fund's use of derivatives may cause the Fund to recognize higher
amounts of short-term capital gains (generally taxed at ordinary income tax
rates) than it would if the Fund did not use such instruments. For a more
detailed discussion of these risks, please read "Investment Risks".
NON-DIVERSIFIED FUNDS: All of the Funds (except the Intermediate Tax-Free Bond
Fund and the Municipal Income Fund) are "non-diversified" funds. This means that
the Funds may invest a more significant portion of their assets in the
securities of a single issuer than can a "diversified" fund. In addition, the
Funds' investments are concentrated geographically. These concentrations
increase the risk of loss to the Funds if an issuer fails to make interest or
principal payments or if the market value of a security declines.
MUNICIPAL SECURITIES: Because the Arizona Municipal Bond Fund, the West Virginia
Municipal Bond Fund, the Louisiana Municipal Bond Fund,
<PAGE> 137
how to do business with The One Group
24
the Ohio Municipal Bond Fund, and the Kentucky Municipal Bond Fund are not
diversified and because they concentrate in securities of Arizona, West
Virginia, Louisiana, Ohio, and Kentucky issuers, respectively, certain factors
may have a disproportionate negative effect on the Funds' investments. These
factors may include certain economic conditions, constitutional amendments,
legislative measures, executive orders, administrative regulations and voter
initiatives. For instance, the Ohio economy relies to a significant degree on
manufacturing. As a result, economic activity in Ohio tends to be cyclical,
which may affect the market value of Ohio Municipal Securities or the ability of
issuers to make timely payments of interest and principal. In addition,
agriculture is an important segment of the Ohio economy, and the state has
instituted several programs to provide financial assistance to farmers.
Similarly, coal mining and related industries are an important part of the West
Virginia economy. Increased government regulation and a reduced demand for coal
has adversely affected that industry. While revenues in recent years have been
adequate, an aging population and little or no population growth have put
increase financial pressure on state and local governments.
The Louisiana economy, like that of West Virginia, is heavily dependent on a
single industry, in this case energy (oil and gas). Louisiana continues to
recover from the oil price declines of the mid-1980's, although its debt burden
is well above that of other states, while wealth and income indicators are below
the national average. Both West Virginia and Louisiana post unemployment rates
above the national average.
Arizona's population growth continues to outpace the national average. However,
this growth is expensive and Arizona's economic outlook depends on its ability
to match long-term revenues with expenditures. In addition, Arizona's continued
growth depends to some extent on its ability to manage its water resources.
As of June 30, 1998, the Kentucky unemployment rate was below the national
average, and the state showed a surplus in its General Fund for the prior fiscal
year. However, unlike the municipal securities of most states, nearly all
Kentucky Municipal Securities are not general obligations of the issuer; rather,
payment depends on revenues generated by the property financed by the security.
For a more complete description of the risks of investing in state specific
securities, please see the Statement of Additional Information.
Purchasing
Fund Shares
- ----------------------------------------------------
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
Funds are open for business, other than weekends, days on which the New York
Stock Exchange ("NYSE") is closed, 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 4:00 p.m.
Eastern time ("ET"), will be effective that day. On occasion, the NYSE will
close before 4:00 p.m. When that happens, purchases received after the NYSE
closes will be effective the following business day.
- - Purchase orders may be cancelled by the Fund's Custodian, State Street Bank
and Trust Company, if it does not receive "federal funds" by 4:00 p.m. ET (i)
on the business day after the order is placed if you are buying Class I
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 a Fund and/or its shareholders to
accept the order.
- - Shares are electronically recorded. Therefore, certificates will not be
issued.
<PAGE> 138
25
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.
- - Class I 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.
HOW MUCH DO SHARES COST?
- - Shares are sold at net asset value ("NAV") plus a sales charge, if any.
- - Each class of shares in each 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 a Fund's
investments and other assets allocable to a class (minus class expenses) by
the number of outstanding shares in that class.
- - A Fund's NAV changes every day. NAV is calculated each business day following
the close of the NYSE at 4:00 p.m. ET. On occasion, the NYSE will close before
4:00 p.m. ET. When that happens, NAV will be calculated as of the time the
NYSE closes.
HOW DO I OPEN AN ACCOUNT?
1. Read the prospectus carefully, and select the Fund or Funds most appropriate
for you.
2. Decide how much you want to invest.
- The minimum initial investment is $1,000 ($100 for employees of BANK ONE
CORPORATION and its affiliates).
- Subsequent investments must be at least $100 ($25 for employees of BANK 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.
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
5. All checks should be in U.S. dollars. Third party checks will not be
accepted. Redemptions from a 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), authorize a bank transfer or initiate a
wire transfer to the following wire address:
State Street Bank & Trust Company
Attn: Custody & Shareholder Services
ABA 011 000 028
DDA 99034167
FBO The One Group Fund (ex: The One Group Intermediate Tax-Free Bond
Fund -- A)
Your Account Number (ex: 123456789)
Your Account Registration (ex: John Smith & Mary Smith, JTWROS)
- - 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.
<PAGE> 139
26
- - You may revoke your right to make purchases over the telephone 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 systematic investments by calling The One
Group Services Company at 1-800-480-4111 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
CONVERSION FEATURE
Your Class B shares automatically convert to Class A shares after eight years
(measured from the end of the month in which they 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 Federal income 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.
Sales Charges
- ----------------------------------------------------
The One Group Services Company compensates Shareholder Servicing Agents who sell
shares of The One Group. Compensation comes from: sales charges, 12b-1 fees and
payments by The One Group Services Company from its own resources. 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. Occasionally, cash
incentives will be paid to select Shareholder Servicing Agents. Those
Shareholder Servicing Agents who may receive special incentives include Banc One
Securities Corporation, The Advisors Group, United Planners Financial Services
of America, Inc., The Legend Group, and Rosewood Retirement Advisory Services,
LLC.
<PAGE> 140
27
CLASS A SHARES
This table shows the amount of sales charge you pay 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> <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 these shares within six years of the purchase date, 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> <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 0.00%
</TABLE>
The One Group Services Company pays a commission of 4.00% of the original
purchase price to Shareholder Servicing Agents who sell Class B shares.
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:
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
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.
<PAGE> 141
28
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 Class I 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. During the last fiscal year, The
One Group Services Company received 12b-1 fees totaling .25% and 1.00% of the
average daily net assets of Class A and Class B shares, respectively.
- - 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 of any One Group Fund (except a money
market fund) 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.
WAIVER OF THE CLASS A SALES CHARGE
No sales charge is imposed on Class A shares of the Funds 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.
- BANK 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 BANK 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
<PAGE> 142
29
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 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 Class I shares of a Fund of The One
Group or acquired in an exchange of Class I 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, including a
Fund of The One Group, 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 IRA 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 Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged 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 Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged 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, is waiving its commissions.
To take advantage of any of these sales charge waivers, you must qualify for
such waiver in advance. To see if you qualify, contact The One Group Services
Company at 1-800-480-4111 or your Shareholder Servicing Agent.
<PAGE> 143
30
Exchanging
Fund Shares
- ----------------------------------------------------
WHAT ARE MY EXCHANGE PRIVILEGES?
You may make the following exchanges:
- - Class I shares of a Fund may be exchanged for Class A shares of that Fund or
for Class A or Class I shares of another Fund of The One Group.
- - Class A shares of a Fund may be exchanged for Class I shares of that Fund or
for Class A or Class I shares of another Fund of The One Group, but only if
you are eligible to purchase those shares.
- - Class B shares of a Fund may be exchanged for Class B shares of another Fund
of The One Group.
- - Class C shares of a Fund may be exchanged for Class C shares of another Fund
of The One Group.
The One Group Funds offer a Systematic Exchange Privilege which allows you to
automatically exchange shares of one fund to another on a monthly or quarterly
basis. This privilege is useful in Dollar Cost Averaging. To participate in this
privilege, please select it on your account application. To learn more about it,
please call The One Group Services Company at 1-800-480-4111.
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. ET.
- - 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 Class I 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:
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 a Fund, you will not pay a sales
charge at 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.
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
<PAGE> 144
31
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 result in excessive transaction costs or otherwise adversely
affect other shareholders.
Redeeming
Fund Shares
- ----------------------------------------------------
WHEN CAN I REDEEM SHARES?
- - You may redeem all or some of your shares on any day that the Funds are open
for business.
- - Redemption requests received by The One Group Services Company before 4:00
p.m. ET (or when the NYSE closes) 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
1-800-480-4111.
- - 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;
3. the redemption check is mailed to the shareholder at the record address;
or
4. the redemption is payable by wire or bank transfer (ACH) to a pre-existing
bank account.
- - On the Account Application Form you may elect to have the redemption proceeds
mailed or wired to:
1. a designated commercial bank; or
2. State Street Bank and Trust Company or your Shareholder Servicing Agent.
- - State Street Bank and Trust Company may charge you a wire redemption fee. The
current charge is $7.00.
- - 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 Class I shares and the Fund receives your redemption
request by 4:00 p.m. ET (or when the NYSE closes), 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. ET (or when the NYSE closes), 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 State Street Bank and Trust 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.
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.
<PAGE> 145
32
- - 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 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 charges
a sub-minimum account fee. Accounts under $1,000 that are not participating in
a Systematic Investment Plan will be assessed an annual fee of $10.00. The
sub-minimum account fee will not apply to IRA accounts and the accounts of
employees of BANK ONE CORPORATION and its affiliates.
- - The One Group may suspend your ability to redeem when:
1. Trading on the NYSE is restricted.
2. The NYSE is closed (other than weekend and holiday closings).
3. The SEC has permitted a suspension.
4. An emergency exists.
The Statement of Additional Information offers more details about this process.
- - You generally will recognize a gain or loss on a redemption for Federal income
tax purposes. You should talk to your tax advisor before making a redemption.
<PAGE> 146
shareholder information
33
Voting Rights
- ----------------------------------------------------
The Funds do not hold annual shareholder meetings, but may hold special
meetings. The special meetings are held, for example, to elect or remove
Trustees, change a 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. Each Fund,
and each class of shares within each 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. BANK ONE CORPORATION (One First National Plaza,
Chicago, Illinois, 60670), through its affiliates, may be deemed for purposes of
the Investment Company Act of 1940 to control the Funds. This is because as of
July 30, 1998, BANK ONE CORPORATION or its affiliates possessed the power to
vote substantially all of the Class I shares of each Fund other than the
Kentucky Municipal Bond Fund.
On that same date, the following shareholders owned 25% or more of Class A,
Class B or Class C shares of the Funds. As a consequence, they are considered to
be controlling persons of these classes of the Funds.
<TABLE>
<CAPTION>
PERCENTAGE OF TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C> <C>
Northern Trust Bank of AZ Ttee Arizona Municipal Bond Fund 33.72% Record
For Thomas A. Brand & Rev Trust Class A
PO Box 92956
Chicago, IL 60675-2956
Carolyn S. Ward Arizona Municipal Bond Fund Class 25.81% Beneficial
James D. Ward JT TEN B
825 W. Annadale
Tucson, AZ 85737-6923
Strafe & Co. Arizona Municipal Bond Fund 100.00% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street Columbus, OH
43215-3607
Strafe & Co. c/o Bank One Trust Co. Income Bond Fund 88.91% Record
Attn Mutual Funds Class I
100 E. Broad St.
Columbus, OH 43215-3607
Strafe & Co. Ohio Municipal Bond Fund 98.98% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Louisiana Municipal Bond Fund 98.38% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Banc One Securities Corp FBO Municipal Income Fund 44.14% Beneficial
The One Investment Solution Class A
733 Greencrest Dr.
Westerville, OH 43081-4903
Banc One Securities Corp FBO Municipal Income Fund 39.48% Beneficial
The One Investment Solution Class C
733 Greencrest Dr.
Westerville, OH 43081-4903
Dean Witter for the Benefit of Municipal Income Fund 25.64% Record
Gale R. Hershberger & Linda L. Class C
Hershberger JTTEN
Church St. Station B
PO Box 250
New York, NY 10013-0250
Strafe & Co. Municipal Income Fund 99.15% Record
Attn: Mutual Funds Class I
100 E. Broad Street
Columbus, OH 43215-3607
Dean Witter for the Benefit of West Virginia Municipal Bond Fund 26.33% Record
Stephen A. Lewis Class A
3720 Noyles Avenue
5 World Trade Center 6th Floor
New York, NY 10048-0205
Strafe & Co. West Virginia Municipal Bond Fund 98.52% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
</TABLE>
<PAGE> 147
34
Dividend Policies
- ----------------------------------------------------
DIVIDENDS
The Funds generally declare dividends daily. Dividends are distributed on the
first business day of each month. Capital gains, if any, for all Funds are
distributed at least annually.
The Funds pay 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 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.
Dividends payable on Class I 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.
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 Funds
- ----------------------------------------------------
TAX STATUS OF THE FUND
Each Fund intends to qualify as a "regulated investment company" for Federal
income tax purposes. If the Funds qualify, as they have in the past, they will
pay no Federal income tax on the earnings they distribute 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.
FEDERAL TAXATION OF DISTRIBUTIONS
EXEMPT-INTEREST DIVIDENDS. If, at the close of each quarter of its taxable year,
at least 50% of the value of a Fund's assets consists of obligations the
interest on which is excludable from gross income, the Fund may pay
"exempt-interest dividends" to you. Generally, exempt-interest dividends are
excludable from gross income. However:
1. If you receive Social Security or Railroad Retirement benefits, you may be
taxed on a portion of such benefits if you receive exempt-interest dividends
from the Funds.
2. Receipt of exempt-interest dividends may result in liability for Federal
alternative minimum tax and for state and local taxes, both for individual
and corporate shareholders.
INTEREST ON PRIVATE ACTIVITY BONDS: The Municipal Income Fund, the Arizona
Municipal Bond Fund, the West Virginia Municipal Bond Fund, the Kentucky
Municipal Bond Fund, the Louisiana Municipal Bond Fund, and the Ohio Municipal
Bond Fund may invest as much as 100% of their assets in municipal securities
issued to finance private activities the interest on which is a tax preference
item for purposes of the Federal alternative minimum tax ("Private Activity
Bonds"). The Intermediate Tax-Free Bond Fund may invest as much as 20% of its
assets in such Private Activity Bonds. As a result, Fund shareholders who are
subject to the Federal alternative minimum tax may have all or a portion of
their income from those Funds subject to Federal income tax. Additionally,
corporate shareholders will be required to take the interest on municipal
securities (including municipal securities of each Fund's respective state) into
account in determining their alternative minimum taxable income. Persons who are
substantial users of facilities financed by Private Activity Bonds or who are
"related persons" of such substantial users should consult their tax advisors
before investing in the Funds.
INVESTMENT INCOME AND CAPITAL GAINS DIVIDENDS. Each Fund will distribute
substantially all of its net investment income (including, for this purpose, net
short-term capital gains) on at least an annual basis. Dividends you receive
from a Fund,
<PAGE> 148
35
other than "exempt-interest dividends," will be taxable to you, whether
reinvested or received in cash. Dividends from a Fund's net investment income,
if any, will be taxable as ordinary income and capital gains dividends 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.
STATE AND LOCAL TAXATION OF DISTRIBUTIONS: Dividends that are derived from the
Funds' investments in U.S. government obligations may not be entitled to the
exemptions from state and local taxes that would be available if you purchased
U.S. government obligations directly.
The funds will notify you annually of the percentage of income and distributions
derived from U.S. government obligations. Unless otherwise discussed below,
investment income and capital gains dividends may be subject to state and local
taxes.
LOUISIANA TAXES: Distributions from the Louisiana Municipal Bond Fund, which are
derived from interest on tax-exempt obligations of the State of Louisiana or its
political subdivisions and certain obligations of the United States or its
territories, are exempt from Louisiana income tax.
ARIZONA TAXES: Exempt-interest dividends from the Arizona Municipal Bond Fund,
which are derived from interest on tax-exempt obligations of the State of
Arizona and its political subdivisions and certain obligations of the United
States or its territories are exempt from Arizona income tax. Other
distributions from the Fund, including those related to long-term and short-term
capital gains, will be subject to Arizona income tax. Arizona law does not
permit a deduction for interest paid or accrued on indebtedness incurred or
continued to purchase or carry obligations, the interest on which is exempt from
Arizona income tax.
WEST VIRGINIA TAXES: Distributions from the West Virginia Municipal Bond Fund
which are derived from interest or dividends on obligations or securities of a
West Virginia state or local municipal governmental body generally are exempt
from West Virginia income tax. In addition, you will not pay that tax on the
portion of your income from the Fund which represents interest or dividends
received on obligations or securities of the United States and some of its
authorities, commissions or instrumentalities.
KENTUCKY TAXES: Dividends received from the Kentucky Municipal Bond Fund which
are derived from interest on Kentucky Municipal Securities are exempt from the
Kentucky individual income tax. Dividends paid from interest earned on
securities that are merely guaranteed by the Federal government, repurchase
agreements collateralized by U.S. government obligations, or from interest
earned on obligations of other states are not exempt from Kentucky individual
income tax. Any distributions of net short-term and net long-term capital gain
earned by the Fund are includable in each Shareholder's Kentucky adjusted gross
income as dividend income and long-term capital gain, respectively, and are both
taxed at ordinary income tax rates.
OHIO TAXES: Dividends received from the Ohio Municipal Bond Fund which are
derived from interest on Ohio Municipal Securities are exempt from the Ohio
personal income tax. In addition, gain from the sale or transfer of certain Ohio
Municipal Securities is also exempt from Ohio income tax. Certain Ohio
municipalities may have retained the right to tax dividends from the Fund.
Corporate investors must include the Fund shares in the corporation's tax base
for purposes of the Ohio franchise tax net worth computation, but not for the
net income computation.
Information in the preceding paragraphs in based on the current law as well as
current policies of the various state Departments of Taxation, all of which may
change.
TAX INFORMATION
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category. Even though the Funds provide 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.
REPORTING
In 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.
<PAGE> 149
organization and management of the funds
fund name
36
THE FUNDS
Each Fund is a series of The One Group, an open-end management investment
company. The One Group currently consists of 40 separate Funds. Seven of the
Funds are described in this prospectus; the other Funds are described in
separate prospectuses. Two of the Funds described in this prospectus are
diversified, and five of the Funds described in this prospectus are
non-diversified. Each Fund is supervised by the Board of Trustees.
THE BOARD OF TRUSTEES
The Trustees oversee the management and administration of the Funds. The
Trustees are responsible for making major decisions about each Fund's investment
objectives and policies, but delegate the day-to-day administration of the Funds
to the officers of The One Group.
THE ADVISOR
Banc One Investment Advisors makes the day-to-day investment decisions for the
Funds and continuously reviews, supervises and administers the Funds' 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 June 30, 1998,
Banc One Investment Advisors, an indirect, wholly-owned subsidiary of BANK ONE
CORPORATION, managed over $59 billion in assets. For the fiscal year ended June
30, 1998, the Funds paid investment advisory fees at the following rates:
<TABLE>
<CAPTION>
Annual Rate As Percentage
of Average Daily Net Assets
<S> <C> <C> <C>
The One Group(R) Intermediate Tax-Free Bond
Fund.......................................... .30%
The One Group(R) Municipal Income Fund........ .35%
The One Group(R) Arizona Municipal Bond
Fund.......................................... .41%
The One Group(R) West Virginia Municipal Bond
Fund.......................................... .34%
The One Group(R) Louisiana Municipal Bond
Fund.......................................... .37%
The One Group(R) Ohio Municipal Bond Fund..... .30%
The One Group(R) Kentucky Municipal Fund...... .30%
</TABLE>
THE DISTRIBUTOR
The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio 43219, a
wholly-owned subsidiary of The BISYS Group, Inc., markets the Funds 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 Funds' 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 Funds are not included in the
calculations. 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 Funds' custodian, State Street holds the Funds' assets, settles
all portfolio trades and assists in calculating the Funds' net asset values.
Bank One Trust Company, N.A. serves as sub-custodian in connection with the
Funds' securities lending activities under an agreement with State Street Bank
and Trust Company and Bank One Trust Company, N.A. Bank One Trust Company, N.A.
is paid a fee by the Funds for this service.
<PAGE> 150
37
YEAR 2000
Preparing for the Year 2000 is a high priority for The One Group Family of
Mutual Funds. Both The One Group Services Company and Banc One Investment
Advisors have formed dedicated teams to help them successfully achieve Year 2000
compliance. In addition, these teams are responsible for assessing the readiness
of all other service providers to The One Group. Year 2000 remediation efforts
are directed toward both information technology and non-information technology
systems. Non-information technology systems include elevators, photocopy
machines, and facsimile machines, and should have no significant impact on the
delivery of services to The One Group.
Banc One Investment Advisors has identified 49 information technology systems
and interfaces that provide service and support to The One Group. Each system is
assigned a priority rating: high, medium or low. Systems rated "high" are those
which are essential to the operation of The One Group. Each system rated "high'
is scheduled to be Year 2000 compliant by December 31, 1998. All systems will be
tested for compliance throughout 1999.
Many, if not all, of the systems are owned or operated by third party servicers
(for example, The One Group's Custodian). Consequently, remediation efforts must
be made by those servicers. Banc One Investment Advisors and The One Group
Services Company have, and will continue to, monitor the remediation progress of
the service providers. This process involves documentation, on-site visits, and
review of remediation plans and test results. Both Banc One Investment Advisors
and The One Group Services Company have budgeted in excess of $700,000 in fiscal
year 1998 and over $1 million in fiscal year 1999 toward the remediation effort
for all systems and interfaces. Neither The One Group nor its shareholders will
bear any of the direct remediation expenses.
Neither The One Group Services Company nor Banc One Investment Advisors
currently anticipates that the move to Year 2000 will have a material impact on
their ability to continue to provide the Funds with service at current levels.
Likewise, The One Group currently anticipates that the move to Year 2000 will
not have a material impact on its operations.
<PAGE> 151
details about the funds' investment practices and policies
fund name
38
Investment Practices
The Funds invest in a variety of securities and employ 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 Funds, as well as the
risks inherent in their use. 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. Following the table is a more complete discussion of
risk.
<TABLE>
<CAPTION>
fund code
<S> <C> <C> <C>
The One Group(R) Intermediate Tax-Free Bond
Fund 1
The One Group(R) Municipal Income Fund 2
The One Group(R) Arizona Municipal Bond Fund 3
The One Group(R) West Virginia Municipal Bond
Fund 4
The One Group(R) Louisiana Municipal Bond Fund 5
The One Group(R) Ohio Municipal Bond Fund 6
The One Group(R) Kentucky Municipal Bond Fund 7
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, STRIPS, and 1-7 Market
CUBES.
TREASURY RECEIPTS: TRS, TIGRS, and CATS. 1-7 Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-7 Market
agencies and instrumentalities of the U.S. Government. These
include Credit Ginnie Mae, Fannie Mae and Freddie Mac.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1-7 Market
stated maturity. Credit
Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 1-7 Liquidity
exchange for the deposit of funds. Credit
Market
REPURCHASE AGREEMENTS: The purchase of a security and the 1-7 Credit
simultaneous commitment to return the security to the seller Market
at an agreed upon price on an agreed upon date. This is Liquidity
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 1-7 Market
simultaneous commitment to buy the security back at an Leverage
agreed upon price on an agreed upon date. This is treated as
a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 331/3% of a Fund's 1-7 Credit
total assets. In return the Fund will receive cash, other Market
securities, and/or letters of credit as collateral. Leverage
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1-7 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Liquidity
INVESTMENT COMPANY SECURITIES: Shares of other mutual funds, 1-7 Market
including money market funds 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 when
investing in funds for which it serves as investment
advisor.
CALL AND PUT OPTIONS: A call option gives the buyer the 1-7 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy, a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
FUTURES AND RELATED OPTIONS: A contract providing for the 1-7 Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 1-7 Credit
on and accepted by a commercial bank. Maturities are Liquidity
generally six months or less. Market
</TABLE>
<PAGE> 152
39
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
COMMERCIAL PAPER: Secured and unsecured short-term 1-7 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
RESTRICTED SECURITIES: Securities not registered under the 1-7 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1-7 Market
interest rates which are reset daily, weekly, quarterly or Credit
some other period and which may be payable to the Fund on Liquidity
demand.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 1-7 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations ("CMOs"), and Real Credit
Estate Mortgage Investment Conduits ("REMICs"). Regulatory
DEMAND FEATURES: Securities that are subject to puts and 1-7 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
MORTGAGE DOLLAR ROLLS: A transaction in which a Fund sells 1-7 Pre-payment
securities for delivery in a current month and Market
simultaneously contracts with the same party to repurchase Regulatory
similar but not identical securities on a specified future
date.
SWAPS, CAPS AND FLOORS: A Fund may enter into these 1-7 Management
transactions to manage its exposure to changing interest Credit
rates and other factors. Swaps involve an exchange of Liquidity
obligations by two parties. Caps and floors entitle a Market
purchaser to a principal amount from the seller of the cap
or floor to the extent that a specified index exceeds or
falls below a predetermined interest.
NEW FINANCIAL PRODUCTS: New options and futures contracts 1-7 Management
and other financial products continue to be developed and Credit
the Fund may invest in such options, contracts and products. Market
Liquidity
STRUCTURED INSTRUMENTS: Debt securities issued by agencies 1-7 Market
and instrumentalities of the U.S. government, banks, Liquidity
municipalities, corporations and other businesses whose Management
interest and/or principal payments are indexed to foreign Credit
currency exchange rates, interest rates, or one or more Foreign Investment
other referenced indices.
MUNICIPAL SECURITIES: Securities issued by a state or 1-7 Credit
political subdivision to obtain funds for various public Political
purposes. Municipal securities include private activity Tax
bonds and industrial development bonds, as well as General Market
Obligation Notes, Anticipation Notes, Bond Tax Anticipation
Notes, Revenue Anticipation Notes, Project Notes, other
short-term tax-exempt obligations, municipal leases,
participations in pools of municipal securities, and
obligations of municipal housing authorities and single
family revenue bonds.
STRIPPED MORTGAGE-BACKED SECURITIES: Derivative multi-class 1-7 Pre-payment
mortgage securities which are usually structured with two Market
classes of shares that receive different proportions of the Credit
interest and principal from a pool of mortgage assets. These Regulatory
include IO's and PO's.
ASSET-BACKED SECURITIES: Securities secured by company 1-7 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets.
ZERO-COUPON DEBT SECURITIES: Bonds and other debt that pay 1-7 Credit
no interest, but are issued at a discount from their value Market
at maturity. When held to maturity, their entire return
equals the differences between their issue price and their
maturity value.
INVERSE FLOATING RATE INSTRUMENTS: Leveraged floating rate 1-7 Credit
debt instruments with interest rates that reset in the Market
opposite direction from the market rate of interest to which Leverage
the inverse floater is indexed.
LOAN PARTICIPATIONS AND ASSIGNMENTS: Participations in, or 1-7 Market
assignments of municipal securities, including municipal Credit
leases. Political
Liquidity
Tax
</TABLE>
<PAGE> 153
40
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 Funds may fluctuate, as will the value of
your investment in the Funds. 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.
- - LEVERAGE RISK. The risk associated with securities or practices 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 normally prevails 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. Risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments. This
also 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. Pre-payments generally accelerate when interest rates decline.
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.
<PAGE> 154
41
- - 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.
Investment Policies
- ----------------------------------------------------
Each Fund's investment objective and the 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 Funds. In addition to the fundamental
policies mentioned earlier, the following fundamental policies apply to each
Fund as specified. The full text of the fundamental policies can be found in the
Statement of Additional Information.
INVESTMENT POLICIES FOR SPECIFIC FUNDS
The Intermediate Tax-Free Bond Fund and the Municipal Income 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, and repurchase agreements involving these
securities. This restriction applies to 75% of a Fund's total assets.
2. Concentrate in a particular industry or group of industries. This does not
include Municipal Securities or governmental guarantees of Municipal
Securities, and with respect to the Municipal Income Fund, housing authority
obligations. Private activity bonds that are backed only by the assets and
revenues of a non-governmental issuer are not Municipal Securities for
purposes of this restriction.
The Arizona Municipal Bond Fund, the West Virginia Municipal Bond Fund, the
Louisiana Municipal Bond Fund, the Ohio Municipal Bond Fund and the Kentucky
Municipal Bond Fund may not:
1. Purchase the securities of an issuer if as a result more than 25% of its
total assets would be invested in the securities of that issuer. This
restriction applies with respect to 50% of a Fund's total assets. With
respect to the remaining 50% of its total assets, a Fund may not 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. This restriction does not apply
to securities issued or guaranteed by the United States, its agencies, or
instrumentalities, securities of regulated investment companies, and
repurchase agreement involving such securities.
2. Concentrate their investment in the securities of one or more issuers
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;
- Municipal Securities; and
- Ohio Municipal Securities, Kentucky Municipal Securities, Arizona Municipal
Securities, West Virginia Municipal Securities, and Louisiana Municipal
Securities or governmental guarantees of such securities. With respect to
the Arizona Municipal Bond Fund and the West Virginia Municipal Bond Fund,
private activity bonds that are backed only by the assets and revenues of a
non-governmental issuer are not Arizona Municipal Securities or West
Virginia Municipal Securities for purposes of this restriction.
INVESTMENT POLICIES FOR ALL FUNDS
None of the Funds may make loans, except that a 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, each Fund may invest up to 100% of its assets
in money market instruments and may hold a portion of its assets in cash for
liquidity purposes.
The Arizona Municipal Bond Fund, the West Virginia Municipal Bond Fund, the
Louisiana Municipal Bond Fund and the Ohio Municipal Bond Fund also may invest
up to 20% of their total assets in securities other than Arizona, West Virginia,
Louisiana and Ohio Municipal Securities, respectively. The Kentucky Municipal
Bond Fund may invest up to 35% of its total assets in securities other than
Kentucky Municipal Securities.
While the Funds are engaged in a temporary defensive position, they will not be
pursuing their investment objectives. Therefore, the Funds will pursue a
temporary defensive position only when market conditions warrant.
<PAGE> 155
42
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 Funds and may result in additional tax consequences to you. The portfolio
turnover rate for each Fund for the fiscal year ended June 30, 1998 is shown on
the Financial Highlights. To the extent portfolio turnover results in short-term
capital gains, such gains will generally be taxed at ordinary income tax rates.
<PAGE> 156
appendix
43
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.
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.
FITCH IBCA, INC. ("FITCH")
F1 Highest capacity for timely repayment. Those issues rated F1+ possess a
particularly strong credit feature.
F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
MOODY'S INVESTORS SERVICE ("MOODY'S")
PRIME-1 Superior ability for repayment.
PRIME-2 Strong ability for repayment.
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.
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.
<PAGE> 157
44
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.
DESCRIPTION OF INSURANCE RATINGS
MOODY'S
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.
S&P
S&P's credit rating is a current opinion of the creditworthiness of an obligor
with respect to a specific financial obligation, a specific class of financial
obligations, or a specific financial program.
AAA This is 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 An obligation rated A 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.
DESCRIPTION OF MUNICIPAL BOND RATINGS
(including mortgage and asset-backed securities)
S&P
Investment Grade
AAA The highest rating. The rating indicates an extremely strong capacity to
meet its financial commitment.
AA Differs from AAA issues only in a small degree. The obligor's capacity
to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories. However, capacity to meet its financial commitment on
the obligations is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligations.
Speculative Grade
BB Less vulnerable to non-payment than other speculative issues. However,
these bonds face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on the obligation.
B More vulnerable to non-payment than obligations rated BB, but currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, they are not likely to have the
capacity to meet its financial commitment on the obligation.
<PAGE> 158
45
CC Currently highly vulnerable to non-payment.
C This rating may be 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 Bonds in payment default.
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
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).
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. Ca is the lowest rating.
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 MIG2 or VMIG2 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.
<PAGE> 159
46
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.
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.
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.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") assigns ratings to specific debt instruments
with original maturities of one year or less. 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.
<PAGE> 160
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 161
INVESTMENT ADVISOR AND SUB-ADMINISTRATOR
Banc One Investment Advisors Corporation
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 8500
Boston, MA 02266-8500
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, OH 43215
THE STATEMENT OF ADDITIONAL INFORMATION CON-
TAINS MORE DETAILED INFORMATION ABOUT THE FUNDS.
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-F-123
<PAGE> 162
THE ONE GROUP(R) FAMILY OF MUTUAL FUNDS
[GRAPHIC]
THE ONE GROUP(R) INVESTOR FUNDS
COMBINED PROSPECTUS
NOVEMBER 1, 1998
THE ONE GROUP(R) INVESTOR GROWTH FUND
THE ONE GROUP(R) INVESTOR GROWTH & INCOME FUND
THE ONE GROUP(R) INVESTOR BALANCED FUND
THE ONE GROUP(R) INVESTOR CONSERVATIVE GROWTH FUND
This prospectus describes four mutual funds that invest in other mutual funds.
The funds in this prospectus pursue a variety of investment objectives,
including growth, total return, capital appreciation, and current income. The
information in this prospectus is important. Please read it carefully before
you invest, and save it for future reference.
PLEASE REMEMBER THAT SHARES OF THE FUNDS: o ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED BY BANK ONE CORPORATION OR ITS AFFILIATES; o ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY FEDERAL OR
STATE GOVERNMENTAL AGENCY; o 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.
<PAGE> 163
TABLE OF CONTENTS
<TABLE>
<S> <C>
A BRIEF PREVIEW OF THE FUNDS................................ 1
ABOUT THE FUNDS............................................. 2
The One Group(R) Investor Growth Fund.................... 2
The One Group(R) Investor Growth & Income Fund........... 5
The One Group(R) Investor Balanced Fund.................. 8
The One Group(R) Investor Conservative Growth Fund....... 11
MORE ABOUT THE FUNDS........................................ 14
HOW TO DO BUSINESS WITH THE ONE GROUP....................... 15
Purchasing Fund Shares................................... 15
Sales Charges............................................ 17
Sales Charge Reductions and Waivers...................... 18
Exchanging Fund Shares................................... 20
Redeeming Fund Shares.................................... 21
SHAREHOLDER INFORMATION..................................... 23
Voting Rights............................................ 23
Dividend Policies........................................ 23
Tax Treatment of the Funds............................... 24
Tax Treatment of Shareholders............................ 24
Shareholder Inquiries.................................... 24
ORGANIZATION AND MANAGEMENT OF THE FUNDS.................... 25
The Funds................................................ 25
The Board of Trustees.................................... 25
The Advisor.............................................. 25
The Distributor.......................................... 25
The Administrator and Sub-Administrator.................. 25
The Transfer Agent, Custodian and Sub-Custodian.......... 25
Year 2000................................................ 25
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND
POLICIES.................................................. 27
Investment Practices..................................... 27
Investment Policies...................................... 30
APPENDIX A: DETAILS ABOUT THE UNDERLYING FUNDS' INVESTMENT
PRACTICES................................................. 31
APPENDIX B: DESCRIPTION OF RATINGS.......................... 36
</TABLE>
<PAGE> 164
1
a brief preview of the funds
WHAT ARE THE GOALS OF THE ONE GROUP INVESTOR FUNDS?
The Funds are designed for a variety of investment objectives,
including total return, capital appreciation, current income,
and long-term capital growth. Each Fund pursues a different
objective and involves different risks. Please read about each
Fund before investing.
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
The Funds normally will invest in a diversified group of One
Group mutual funds, which invest primarily in equity, fixed
income and money market instruments. Shares are available for
long-term investors, including tax-advantaged retirement
accounts; the Funds should not be used for short-term trading
purposes. The Funds' investment return is diversified by its
investment in the underlying mutual funds which invest in
growth and income stocks, foreign securities, debt securities,
and cash or cash equivalents. The underlying mutual funds in
which the Funds will invest have the following
characteristics:
<TABLE>
<S> <C>
The One Group(R) Prime Money Market Fund.................... Money Market
The One Group(R) Limited Volatility Bond Fund............... Fixed Income
The One Group(R) Intermediate Bond Fund..................... Fixed Income
The One Group(R) Income Bond Fund........................... Fixed Income
The One Group(R) Government Bond Fund....................... Fixed Income
The One Group(R) Ultra Short-Term Income Fund............... Fixed Income
The One Group(R) High Yield Bond Fund....................... Fixed Income
The One Group(R) Disciplined Value Fund..................... Equity
The One Group(R) International Equity Index Fund............ Equity
The One Group(R) Large Company Growth Fund.................. Equity
The One Group(R) Large Company Value Fund................... Equity
The One Group(R) Growth Opportunities Fund.................. Equity
The One Group(R) Value Growth Fund.......................... Equity
The One Group(R) Small Capitalization Fund.................. Equity
The One Group(R) Income Equity Fund......................... Equity
The One Group(R) Equity Index Fund.......................... Equity
</TABLE>
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The investments of each Fund are concentrated in the
underlying funds, so each Fund's investment performance is
directly related to the performance of the underlying funds.
Each Fund's net asset value will fluctuate with changes in the
equity and bond markets and the value of the mutual funds in
which it invests. In addition, as a matter of fundamental
policy, each Fund must allocate its investments among the
underlying funds. As a result, the Funds do not have the same
flexibility to invest as a mutual fund without such
constraints. An investment in the Funds is not a deposit of
BANK ONE CORPORATION or its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. For more information about risks,
please read "More About the Funds" and "Investment Risks."
WHAT CLASSES OF SHARES ARE AVAILABLE?
The Funds currently offer four classes of Shares: Class A,
Class B, Class C and Class I. Class A, Class B and Class C
shares are offered to the general public. Class I shares are
offered to institutional investors, including affiliates of
BANK 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. The section called "How To Do Business
With The One Group" will provide more information. Class I
shares are not available to Individual Retirement Accounts
("IRA").
HOW DO I PURCHASE AND REDEEM SHARES?
You may buy and redeem shares of the Funds on any day that the
Funds are 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 monthly and 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 FUNDS?
Banc One Investment Advisors Corporation ("Banc One Investment
Advisors"), an indirect subsidiary of BANK ONE CORPORATION,
serves as the advisor of the Funds. Banc One Investment
Advisors is paid a fee for its services. Banc One Investment
Advisors also serves as the advisor to the underlying mutual
funds, for which it receives a fee.
<PAGE> 165
The One Group(R)
Investor Growth Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks long-term capital
appreciation by investing primarily
in a diversified group of The One
Group mutual funds which invest
primarily in equity securities.
LOGO INVESTMENT STRATEGY
The Fund invests 80% to 100% of its
total assets in nine mutual funds
of The One Group which invest
primarily in equity securities, up
to 20% of its total assets in six
mutual funds of The One Group that
invest primarily in fixed income
securities, and up to 10% of its
total assets in one money market
fund of The One Group. The Fund
also may hold cash and cash
equivalents.
LOGO PORTFOLIO SECURITIES
The Fund will invest in the
underlying mutual funds within the
following range:
<TABLE>
<S> <C>
The One Group(R) Prime Money Market Fund 0-10%
The One Group(R) Limited Volatility Bond Fund 0-20%
The One Group(R) Intermediate Bond Fund 0-20%
The One Group(R) Income Bond Fund 0-20%
The One Group(R) High Yield Bond Fund 0-20%
The One Group(R) Government Bond Fund 0-20%
The One Group(R) Ultra Short-Term Income Fund 0-20%
The One Group(R) Disciplined Value Fund 0-40%
The One Group(R) International Equity Index
Fund 0-40%
The One Group(R) Large Company Growth Fund 0-48%
The One Group(R) Large Company Value Fund 0-55%
The One Group(R) Growth Opportunities Fund 0-40%
The One Group(R) Value Growth Fund 0-50%
The One Group(R) Small Capitalization Fund 0-40%
The One Group(R) Income Equity Fund 0-50%
The One Group(R) Equity Index Fund 0-50%
</TABLE>
LOGO RISK CONSIDERATIONS
The Fund's investments are
concentrated in other mutual funds,
so the Fund's investment performance
is directly related to the
performance of those mutual funds.
In addition, as a matter of
fundamental policy, the Fund must
allocate its investments primarily
among the mutual funds. As a result,
the Fund's investment flexibility is
limited. The Fund may invest in a
mutual fund which invests in medium
or lower grade bonds, which can be
volatile. Medium and lower grade
bonds are speculative. See "Special
Risk Considerations."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none
Maximum Sales Charge Imposed on
Purchases
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption
proceeds, as applicable) none(2) 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (as a
percentage of average daily net
assets) (3)
Investment Advisory Fees .05% .05% .05%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00%
Other Expenses .15% .15% .15%
Total Fund Operating Expenses
(after fee waivers) (5) .45% 1.20% 1.20%
<CAPTION>
CLASS I
<S> <C>
none
none
none
none
.05
none
.15%
.20%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be .55% for Class A shares.
The Fund will indirectly pay a portion of the expenses incurred by the
underlying funds. The following chart
provides the expense ratio for each
underlying fund in which the Fund invests
(based on the current fund prospectus).
Some of these expense ratios may include
a voluntary reduction of investment
advisory fees.
[CAPTION]
<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
<S> <C>
<S> <C>
The One Group(R) Prime
Money Market Fund .52%
The One Group(R)
Limited Volatility
Bond Fund .62%
The One Group(R)
Intermediate Bond Fund .62%
The One Group(R) Income
Bond Fund .62%
The One Group(R) High
Yield Bond Fund .95%
The One Group(R)
Government Bond Fund .69%
The One Group(R) Ultra
Short-Term Income Fund .55%
The One Group(R)
Disciplined Value Fund 1.00%
The One Group(R)
International Equity
Index Fund .95%
The One Group(R) Large
Company Growth Fund 1.00%
The One Group(R) Large
Company Value Fund 1.00%
The One Group(R) Growth
Opportunities Fund 1.00%
The One Group(R) Value
Growth Fund 1.00%
The One Group(R) Small
Capitalization Fund 1.05%
The One Group(R) Income
Equity Fund 1.00%
The One Group(R) Equity
Index Fund .50%
</TABLE>
After combining the total operating expenses of the Fund with those of the
underlying funds, the estimated average
weighted expense ratio for Class A shares
is 1.32%, for Class B shares is 2.07%,
for Class C shares is 2.07%, and for
Class I shares is 1.07%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming: (1) payment of the
maximum sales charges; (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 $ 58 $ 85 $114 $197
Class A (without fee
waiver) $ 59 $ 89 $121 $212
Class B $ 71 $ 95 $131 $221
Class B (without fee
waiver) $ 71 $ 96 $133 $228
Class C $ 31 $ 65 $111 $240
Class C (without fee
waiver) $ 31 $ 66 $113 $244
Class I $ 11 $ 34 $ 59 $131
Class I (without fee
waiver) $ 11 $ 35 $ 61 $135
</TABLE>
Assuming no redemption 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 $ 58 $ 85 $114 $197
Class A (without fee
waiver) $ 59 $ 89 $121 $212
Class B $ 21 $ 65 $111 $221
Class B (without fee
waiver) $ 21 $ 66 $113 $228
Class C $ 21 $ 65 $111 $240
Class C (without fee
waiver) $ 21 $ 66 $113 $244
Class I $ 11 $ 34 $ 59 $131
Class I (without fee
waiver) $ 11 $ 35 $ 61 $135
</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 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.
2
<PAGE> 166
3
THE ONE GROUP(R) INVESTOR GROWTH FUND FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS I JUNE 30, 1998 June 30, 1997(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.25 $ 10.00
- ------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.12 0.09
Net realized and unrealized gains (losses) from
investments 2.49 1.25
- ------------------------------------------------------------------------------------------------
Total from Investment Activities 2.61 1.34
- ------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.12) (0.09)
Net realized gain (0.35) --
- ------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.09)
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.39 $ 11.25
- ------------------------------------------------------------------------------------------------
Total Return 23.81% 13.50%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 86,355 $ 31,318
Ratio of expenses to average net assets 0.20% 0.20%(c)
Ratio of net investment income to average net assets 1.04% 1.70%(c)
Ratio of expenses to average net assets* 0.36% 0.77%(c)
Ratio of net investment income to average net assets* 0.88% 1.13%(c)
Portfolio turnover (d) 4.05% 18.49%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS A JUNE 30, 1998 June 30, 1997(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.21 $ 10.00
- ------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.10 0.07
Net realized and unrealized gains (losses) from
investments 2.47 1.21
- ------------------------------------------------------------------------------------------------
Total from Investment Activities 2.57 1.28
- ------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.10) (0.07)
Net realized gain (0.35) --
- ------------------------------------------------------------------------------------------------
Total Distributions (0.45) (0.07)
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.33 $ 11.21
- ------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 23.44% 12.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 55,057 $ 4,439
Ratio of expenses to average net assets 0.45% 0.46%(c)
Ratio of net investment income to average net assets 0.78% 1.82%(c)
Ratio of expenses to average net assets* 0.70% 1.62%(c)
Ratio of net investment income to average net assets* 0.53% 0.66%(c)
Portfolio turnover (d) 4.05% 18.49%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<PAGE> 167
The One Group(R) Investor Growth Fund Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS B JUNE 30, 1998 June 30, 1997(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.34 $ 10.00
- ----------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.02 0.04
Net realized and unrealized gains (losses) from
investments 2.48 1.34
- ----------------------------------------------------------------------------------------------------
Total from Investment Activities 2.50 1.38
- ----------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.02) (0.04)
Net realized gains (0.35) --
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.37) (0.04)
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.47 $ 11.34
- ----------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 22.52% 13.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 70,515 $ 7,651
Ratio of expenses to average net assets 1.20% 1.20%(c)
Ratio of net investment income to average net assets 0.04% 0.97%(c)
Ratio of expenses to average net assets* 1.35% 2.18%(c)
Ratio of net investment income to average net assets* (0.11)% (0.01%)(c)
Portfolio turnover (d) 4.05% 18.49%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30,
CLASS C 1998(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.25
- ----------------------------------------------------------------------------
Investment Activities:
Net investment income 0.02
Net realized and unrealized gains (losses) from
investments 2.45
- ----------------------------------------------------------------------------
Total from Investment Activities 2.47
- ----------------------------------------------------------------------------
Distributions:
Net investment income (0.03)
Net realized gains (0.35)
- ----------------------------------------------------------------------------
Total Distributions (0.38)
- ----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.34
- ----------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 22.42%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $8,772
Ratio of expenses to average net assets 1.20%
Ratio of net investment income to average net assets 0.04%
Ratio of expenses to average net assets* 1.35%
Ratio of net investment income to average net assets* (0.11)%
Portfolio turnover (b) 4.05%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations on July 1,
1997. (b) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares issued.
4
<PAGE> 168
5
The One Group(R)
INVESTOR GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation and growth of income by investing
primarily in a diversified group of The One Group mutual funds which invest
primarily in equity securities.
[LOGO] INVESTMENT STRATEGY
The Fund invests 60% to 80% of its total assets in nine mutual funds of The One
Group which invest primarily in equity securities, 20% to 40% of its total
assets in six mutual funds of The One Group that invest primarily in fixed
income securities, and up to 10% of its total assets in one money market fund of
The One Group. The Fund also may hold cash and cash equivalents.
[LOGO] PORTFOLIO SECURITIES
The Fund will invest in the underlying mutual funds within the following ranges:
<TABLE>
<S> <C>
The One Group(R) Prime Money Market Fund 0-10%
The One Group(R) Limited Volatility Bond Fund 0-30%
The One Group(R) Intermediate Bond Fund 0-30%
The One Group(R) Income Bond Fund 0-30%
The One Group(R) High Yield Bond Fund 0-30%
The One Group(R) Government Bond Fund 0-30%
The One Group(R) Ultra Short-Term Income Fund 0-30%
The One Group(R) Disciplined Value Fund 0-40%
The One Group(R) International Equity Index Fund 0-40%
The One Group(R) Large Company Growth Fund 0-50%
The One Group(R) Large Company Value Fund 0-60%
The One Group(R) Growth Opportunities Fund 0-40%
The One Group(R) Value Growth Fund 0-60%
The One Group(R) Small Capitalization Fund 0-40%
The One Group(R) Income Equity Fund 0-60%
The One Group(R) Equity Index Fund 0-60%
</TABLE>
[LOGO] RISK CONSIDERATIONS
The Fund's investments are concentrated in other mutual funds, so the Fund's
investment performance is directly related to the performance of those mutual
funds. In addition, as a matter of fundamental policy, the Fund must allocate
its investments primarily among the mutual funds. As a result, the Fund's
investment flexibility is limited. The Fund may invest in a mutual fund which
invests in medium or lower grade bonds, which can be volatile. Medium and lower
grade bonds are speculative. See "Special Risk Considerations."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50% none none none
Maximum Contingent Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets) (3)
Investment Advisory Fees .05% .05% .05% .05%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .15% .15% .15% .15%
Total Operating Expenses (after fee waivers) (5) .45% 1.20% 1.20% .20%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be .55% for Class A shares.
The Fund will indirectly pay a portion of the expenses incurred by the
underlying funds. The following chart provides the expense ratio for each
underlying fund (based on the current fund prospectus). Some of these expense
ratios may include a voluntary reduction of investment advisory fees.
<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
<S> <C>
The One Group(R) Prime Money Market Fund .52%
The One Group(R) Limited Volatility Bond Fund .62%
The One Group(R) Intermediate Bond Fund .62%
The One Group(R) Income Bond Fund .62%
The One Group(R) High Yield Bond Fund .95%
The One Group(R) Government Bond Fund .69%
The One Group(R) Ultra Short-Term Income Fund .55%
The One Group(R) Disciplined Value Fund 1.00%
The One Group(R) International Equity Index Fund .95%
The One Group(R) Large Company Growth Fund 1.00%
The One Group(R) Large Company Value Fund 1.00%
The One Group(R) Growth Opportunities Fund 1.00%
The One Group(R) Value Growth Fund 1.00%
The One Group(R) Small Capitalization Fund 1.05%
The One Group(R) Income Equity Fund 1.00%
The One Group(R) Equity Index Fund .50%
</TABLE>
After combining the total operating expenses of the Fund with those of the
underlying funds, the estimated average weighted expense ratio for Class A
shares is 1.30%, for Class B shares is 2.05%, for Class C shares is 2.05%, and
for Class I shares is 1.05%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming: (1) payment of the maximum sales charges; (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 $ 58 $ 84 $113 $195
Class A (without fee waiver) $ 59 $ 89 $121 $212
Class B $ 71 $ 94 $130 $219
Class B (without fee waiver) $ 71 $ 96 $133 $228
Class C $ 31 $ 64 $110 $238
Class C (without fee waiver) $ 31 $ 66 $113 $244
Class I $ 11 $ 33 $ 58 $128
Class I (without fee waiver) $ 11 $ 35 $ 61 $135
- ----------------------------------------------------------------------------------
</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 $ 58 $ 84 $113 $195
Class A (without fee waiver) $ 59 $ 89 $121 $212
Class B $ 21 $ 64 $110 $219
Class B (without fee waiver) $ 21 $ 66 $113 $228
Class C $ 21 $ 64 $110 $238
Class C (without fee waiver) $ 21 $ 66 $113 $244
Class I $ 11 $ 33 $ 58 $128
Class I (without fee waiver) $ 11 $ 35 $ 61 $135
</TABLE>
Class B shares automatically convert to Class A shares after eight (8) years.
Therefore, the "10 Years" examples above reflect the conversion.
These examples are designed to assist you in understanding the 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.
<PAGE> 169
6
THE ONE GROUP(R) INVESTOR GROWTH & INCOME FUND FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS I JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.93 $ 10.00
- --------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.25 0.15
Net realized and unrealized gains from investments 1.92 0.93
- --------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.17 1.08
- --------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.25) (0.15)
Net realized gain (0.28) --
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.53) (0.15)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.57 $ 10.93
- --------------------------------------------------------------------------------------------------------
Total Return 20.34% 10.87%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $98,060 $43,660
Ratio of expenses to average net assets 0.20% 0.20%(c)
Ratio of net investment income to average net assets 2.17% 2.78%(c)
Ratio of expenses to average net assets* 0.34% 0.66%(c)
Ratio of net investment income to average net assets* 2.03% 2.32%(c)
Portfolio turnover (d) 11.38% 18.07%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS A JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.02 $ 10.00
- --------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.22 0.12
Net realized and unrealized gains from investments 1.95 1.02
- --------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.17 1.14
- --------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.22) (0.12)
Net realized gain (0.28) --
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.12)
- --------------------------------------------------------------------------------------------------------
\NET ASSET VALUE, END OF PERIOD $ 12.69 $ 11.02
- --------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 20.18% 11.50%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $39,874 $4,262
Ratio of expenses to average net assets 0.45% 0.46%(c)
Ratio of net investment income to average net assets 1.91% 2.67%(c)
Ratio of expenses to average net assets* 0.67% 1.26%(c)
Ratio of net investment income to average net assets* 1.69% 1.87%(c)
Portfolio turnover (d) 11.38% 18.07%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Not
annualized. (c) Annualized. (d) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing among the classes of
shares issued.
<PAGE> 170
7
THE ONE GROUP(R) INVESTOR GROWTH & INCOME FUND FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS B JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.00 $ 10.00
- --------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.14 0.09
Net realized and unrealized gains from investments 1.92 1.00
- --------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.06 1.09
- --------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.14) (0.09)
Net realized gain (0.28) --
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.42) (0.09)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.64 $ 11.00
- --------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 19.13% 11.02%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 85,468 $ 8,896
Ratio of expenses to average net assets 1.20% 1.21%(c)
Ratio of net investment income to average net assets 1.15% 1.94%(c)
Ratio of expenses to average net assets* 1.32% 1.89%(c)
Ratio of net investment income to average net assets* 1.03% 1.26%(c)
Portfolio turnover (d) 11.38% 18.07%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund
as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30,
CLASS C 1998(a)
- --------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.93
- --------------------------------------------------------------------------
Investment Activities:
Net investment income 0.14
Net realized and unrealized gains (losses) from
investments 1.90
- --------------------------------------------------------------------------
Total from Investment Activities 2.04
- --------------------------------------------------------------------------
Distributions:
Net investment income (0.15)
Net realized gains (0.28)
- --------------------------------------------------------------------------
Total Distributions (0.43)
- --------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.54
- --------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 19.08%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $6,429
Ratio of expenses to average net assets 1.20%
Ratio of net investment income to average net assets 1.14%
Ratio of expenses to average net assets* 1.31%
Ratio of net investment income to average net assets* 1.03%
Portfolio turnover (b) 11.38%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations on July 1,
1997. (b) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares issued.
<PAGE> 171
8
The One Group(R)
INVESTOR BALANCED FUND
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks high total return consistent with the
preservation of capital by investing primarily in a diversified group of The One
Group mutual funds which invest primarily in equity and fixed income securities.
[LOGO] INVESTMENT STRATEGY
The Fund invests 40% to 60% of its total assets in nine mutual funds of The One
Group which invest primarily in equity securities, 40% to 60% of its total
assets in five mutual funds of The One Group which invest primarily in fixed
income securities, and up to 10% of its total assets in one money market fund of
The One Group. The Fund also may hold cash and cash equivalents.
[LOGO] PORTFOLIO SECURITIES
The Fund will invest in the underlying mutual funds within the following range:
<TABLE>
<S> <C>
The One Group(R) Prime Money Market Fund 0-10%
The One Group(R) Limited Volatility Bond Fund 0-50%
The One Group(R) Intermediate Bond Fund 0-50%
The One Group(R) Income Bond Fund 0-50%
The One Group(R) Government Bond Fund 0-50%
The One Group(R) Ultra Short-Term Income Fund 0-50%
The One Group(R) Disciplined Value Fund 0-30%
The One Group(R) International Equity Index
Fund 0-30%
The One Group(R) Large Company Growth Fund 0-40%
The One Group(R) Large Company Value Fund 0-50%
The One Group(R) Growth Opportunities Fund 0-30%
The One Group(R) Value Growth Fund 0-40%
The One Group(R) Small Capitalization Fund 0-30%
The One Group(R) Income Equity Fund 0-40%
The One Group(R) Equity Index Fund 0-40%
</TABLE>
[LOGO] RISK CONSIDERATIONS
The Fund's investments are concentrated in other mutual funds, so the Fund's
investment performance is directly related to the performance of those mutual
funds. In addition, as a matter of fundamental policy, the Fund must allocate
its investments primarily among the mutual funds. As a result, the Fund's
investment flexibility is limited. The Fund may invest in a mutual fund which
invests in medium or lower grade bonds, which can be volatile. See "Special Risk
Considerations."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption
proceeds, as applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets) (3)
Investment Advisory Fees .05% .05% .05% .05%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .15% .15% .15% .15%
Total Operating Expenses (after fee waivers) (5) .45% 1.20% 1.20% .20%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be .55% for Class A shares.
The Fund will indirectly pay a portion of the expenses incurred by the
underlying funds. The following chart provides the expense ratio for each
underlying fund in which the Fund invests (based on the current fund
prospectus). Some of these expense ratios may include a voluntary reduction of
investment advisory fees.
<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
<S> <C>
The One Group(R) Prime Money Market Fund .52%
The One Group(R) Limited Volatility Bond Fund .62%
The One Group(R) Intermediate Bond Fund .62%
The One Group(R) Income Bond Fund .62%
The One Group(R) Government Bond Fund .69%
The One Group(R) Ultra Short-Term Income Fund .55%
The One Group(R) Disciplined Value Fund 1.00%
The One Group(R) International Equity Index Fund .95%
The One Group(R) Large Company Growth Fund 1.00%
The One Group(R) Large Company Value Fund 1.00%
The One Group(R) Growth Opportunities Fund 1.00%
The One Group(R) Value Growth Fund 1.00%
The One Group(R) Small Capitalization Fund 1.05%
The One Group(R) Income Equity Fund 1.00%
The One Group(R) Equity Index Fund .50%
</TABLE>
After combining the total operating expenses of the Fund with those of the
underlying funds, the estimated average weighted expense ratio for Class A
shares is 1.25%, for Class B shares is 2.00%, for Class C shares is 2.00%, and
for Class I shares is 1.00%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in the Fund,
assuming: (1) payment of the maximum sales charges; (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 $ 83 $111 $189
Class A (without fee waiver) $ 59 $ 88 $119 $208
Class B $ 70 $ 93 $128 $213
Class B (without fee waiver) $ 71 $ 95 $131 $223
Class C $ 30 $ 63 $108 $233
Class C (without fee waiver) $ 31 $ 65 $111 $240
Class I $ 10 $ 32 $ 55 $122
Class I (without fee waiver) $ 11 $ 34 $ 59 $131
- ----------------------------------------------------------------------------------
</TABLE>
Assuming no redemption at the end of the 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 $ 83 $111 $189
Class A (without fee waiver) $ 59 $ 88 $119 $208
Class B $ 20 $ 63 $108 $213
Class B (without fee waiver) $ 21 $ 65 $111 $223
Class C $ 20 $ 63 $108 $233
Class C (without fee waiver) $ 21 $ 65 $111 $240
Class I $ 10 $ 32 $ 55 $122
Class I (without fee waiver) $ 11 $ 34 $ 59 $131
</TABLE>
Class B shares automatically convert to Class A shares after eight (8) years.
Therefore, the "10 Years" examples above reflect the conversion.
These examples are designed to assist you in understanding the 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.
<PAGE> 172
9
THE ONE GROUP(R) INVESTOR BALANCED FUND FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS I JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.63 $ 10.00
- --------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.37 0.21
Net realized and unrealized gains from investments 1.39 0.63
- --------------------------------------------------------------------------------------------------
Total from Investment Activities 1.76 0.84
- --------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.36) (0.21)
Net realized gains (0.22) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.58) (0.21)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.81 $ 10.63
- --------------------------------------------------------------------------------------------------
Total Return 17.02% 8.48%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $93,557 $ 72,155
Ratio of expenses to average net assets 0.20% 0.20%(c)
Ratio of net investment income to average net assets 3.31% 3.84%(c)
Ratio of expenses to average net assets* 0.32% 0.56%(c)
Ratio of net investment income to average net assets* 3.19% 3.48%(c)
Portfolio turnover (d) 9.71% 12.20%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS A JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.66 $ 10.00
- --------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.34 0.17
Net realized and unrealized gains from investments 1.39 0.66
- --------------------------------------------------------------------------------------------------
Total from Investment Activities 1.73 0.83
- --------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.34) (0.17)
Net realized gains (0.22) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.17)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.83 $ 10.66
- --------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 16.62% 8.41%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $32,605 $ 2,176
Ratio of expenses to average net assets 0.45% 0.47%(c)
Ratio of net investment income to average net assets 3.01% 3.78%(c)
Ratio of expenses to average net assets* 0.66% 1.12%(c)
Ratio of net investment income to average net assets* 2.80% 3.13%(c)
Portfolio turnover (d) 9.71% 12.20%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<PAGE> 173
10
THE ONE GROUP(R) INVESTOR BALANCED FUND FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS B JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.65 $ 10.00
- --------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.26 0.16
Net realized and unrealized gains from investments 1.39 0.65
- --------------------------------------------------------------------------------------------------
Total from Investment Activities 1.65 0.81
- --------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.26) (0.16)
Net realized gains (0.22) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.48) (0.16)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.82 $ 10.65
- --------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 15.85% 8.22%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $70,463 $ 5,672
Ratio of expenses to average net assets 1.20% 1.22%(c)
Ratio of net investment income to average net assets 2.26% 2.93%(c)
Ratio of expenses to average net assets* 1.31% 1.73%(c)
Ratio of net investment income to average net assets* 2.15% 2.42%(c)
Portfolio turnover (d) 9.71% 12.20%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30,
CLASS C 1998(a)
- --------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.63
- --------------------------------------------------------------------------
Investment Activities:
Net investment income 0.26
Net realized and unrealized gains (losses) from
investments 1.37
- --------------------------------------------------------------------------
Total from Investment Activities 1.63
- --------------------------------------------------------------------------
Distributions:
Net investment income (0.27)
Net realized gains (0.22)
- --------------------------------------------------------------------------
Total Distributions (0.49)
- --------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.77
- --------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 15.66%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $6,653
Ratio of expenses to average net assets 1.20%
Ratio of net investment income to average net assets 2.24%
Ratio of expenses to average net assets* 1.30%
Ratio of net investment income to average net assets* 2.14%
Portfolio turnover (b) 9.71%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations on July 1,
1997. (b) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares issued.
<PAGE> 174
11
The One Group(R)
INVESTOR CONSERVATIVE GROWTH FUND
- --------------------------------------------------------------------------------
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks income and capital appreciation by investing primarily in a
diversified group of The One Group mutual funds which invest primarily in equity
and fixed income securities.
[LOGO] INVESTMENT STRATEGY
The Fund invests 20% to 40% of its total assets in nine mutual funds of The One
Group which invest primarily in equity securities, 60% to 80% of its total
assets in five mutual funds of The One Group which invest primarily in fixed
income securities, and up to 10% of its total assets in one money market fund of
The One Group. The Fund also may hold cash and cash equivalents.
[LOGO] PORTFOLIO SECURITIES
The Fund will invest in the underlying mutual funds within the following range:
<TABLE>
<S> <C>
The One Group(R) Prime Money Market Fund 0-10%
The One Group(R) Limited Volatility Bond Fund 0-70%
The One Group(R) Intermediate Bond Fund 0-70%
The One Group(R) Income Bond Fund 0-70%
The One Group(R) Government Bond Fund 0-70%
The One Group(R) Ultra Short-Term Income Fund 0-70%
The One Group(R) Disciplined Value Fund 0-20%
The One Group(R) International Equity Index Fund 0-20%
The One Group(R) Large Company Growth Fund 0-20%
The One Group(R) Large Company Value Fund 0-20%
The One Group(R) Growth Opportunities Fund 0-20%
The One Group(R) Value Growth Fund 0-20%
The One Group(R) Small Capitalization Fund 0-20%
The One Group(R) Income Equity Fund 0-20%
The One Group(R) Equity Index Fund 0-20%
</TABLE>
[LOGO] RISK CONSIDERATIONS
The Fund's investments are concentrated in other mutual funds, so the Fund's
investment performance is directly related to the performance of those mutual
funds. In addition, as a matter of fundamental policy, the Fund must allocate
its investments primarily among the mutual funds. As a result, the Fund's
investment flexibility is limited. The Fund may invest in a mutual fund which
invests in medium or lower grade bonds, which can be volatile. See "Special Risk
Considerations."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption
proceeds, as applicable) none(2) 5.00% 1.00% none
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSES (as a
percentage of average daily net
assets) (3)
Investment Advisory Fees .05% .05% .05% .05%
12b-1 Fees (after fee waiver) (4) .25% 1.00% 1.00% none
Other Expenses .15% .15% .15% .15%
Total Operating Expenses (after fee
waivers) (5) .45% 1.20% 1.20% .20%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Expense information has been restated to reflect current fees.
(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.
(5) Without the voluntary reduction of 12b-1 fees, Total Operating Expenses
would be .55% for Class A shares.
The Fund will indirectly pay a portion of the expenses incurred by the
underlying funds. The following chart provides the expense ratio for each
underlying fund in which the Fund invests (based on the current fund
prospectus). Some of these expense ratios may include a voluntary reduction of
investment advisory fees.
<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
<S> <C>
The One Group(R) Prime Money Market Fund .52%
The One Group(R) Limited Volatility Bond Fund .62%
The One Group(R) Intermediate Bond Fund .62%
The One Group(R) Income Bond Fund .62%
The One Group(R) Government Bond Fund .69%
The One Group(R) Ultra Short-Term Income Fund .55%
The One Group(R) Disciplined Value Fund 1.00%
The One Group(R) International Equity Index Fund .95%
The One Group(R) Large Company Growth Fund 1.00%
The One Group(R) Large Company Value Fund 1.00%
The One Group(R) Growth Opportunities Fund 1.00%
The One Group(R) Value Growth Fund 1.00%
The One Group(R) Small Capitalization Fund 1.05%
The One Group(R) Income Equity Fund 1.00%
The One Group(R) Equity Index Fund .50%
</TABLE>
After combining the total operating expenses of the Fund with those of the
underlying funds, the estimated average weighted expense ratio for Class A
shares is 1.18%, for Class B shares is 1.93%, for Class C shares is 1.93%, and
for Class I shares is .93%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in the Fund,
assuming: (1) payment of the maximum sales charges; (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 $ 56 $ 81 $107 $182
Class A (without fee waiver) $ 59 $ 87 $118 $204
Class B $ 70 $ 91 $124 $206
Class B (without fee waiver) $ 71 $ 94 $130 $220
Class C $ 30 $ 61 $104 $225
Class C (without fee waiver) $ 31 $ 64 $110 $237
Class I $ 9 $ 30 $ 51 $114
Class I (without fee waiver) $ 11 $ 33 $ 57 $127
- ----------------------------------------------------------------------------------
</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 $ 56 $ 81 $107 $182
Class A (without fee waiver) $ 59 $ 87 $118 $204
Class B $ 20 $ 61 $104 $206
Class B (without fee waiver) $ 21 $ 64 $110 $220
Class C $ 20 $ 61 $104 $225
Class C (without fee waiver) $ 21 $ 64 $110 $237
Class I $ 9 $ 30 $ 51 $114
Class I (without fee waiver) $ 11 $ 33 $ 57 $127
</TABLE>
Class B shares automatically convert to Class A shares after eight (8) years.
Therefore, the "10 Years" examples above reflect the conversion.
These examples are designed to assist you in understanding the 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.
<PAGE> 175
12
THE ONE GROUP(R) INVESTOR CONSERVATIVE GROWTH FUND FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS I JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.33 $ 10.00
- --------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.46 0.26
Net realized and unrealized gains (losses) from
investments 0.82 0.33
- --------------------------------------------------------------------------------------------------
Total from Investment Activities 1.28 0.59
- --------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.45) (0.26)
Net realized gains (0.10) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.55) (0.26)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.06 $ 10.33
- --------------------------------------------------------------------------------------------------
Total Return 12.73% 6.00%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $30,352 $ 15,038
Ratio of expenses to average net assets 0.20% 0.20%(c)
Ratio of net investment income to average net assets 4.43% 4.92%(c)
Ratio of expenses to average net assets* 0.56% 1.46%(c)
Ratio of net investment income to average net assets* 4.07% 3.66%(c)
Portfolio turnover (d) 3.22% 28.46%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS A JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.32 $ 10.00
- --------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.43 0.22
Net realized and unrealized gains (losses) from
investments 0.82 0.32
- --------------------------------------------------------------------------------------------------
Total from Investment Activities 1.25 0.54
- --------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.43) (0.22)
Net realized gains (0.10) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.53) (0.22)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.04 $ 10.32
- --------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 12.38% 5.46%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $12,538 $ 1,299
Ratio of expenses to average net assets 0.45% 0.47%(c)
Ratio of net investment income to average net assets 4.12% 4.76%(c)
Ratio of expenses to average net assets* 0.82% 3.05%(c)
Ratio of net investment income to average net assets* 3.75% 2.18%(c)
Portfolio turnover (d) 3.22% 28.46%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<PAGE> 176
13
THE ONE GROUP(R) INVESTOR CONSERVATIVE GROWTH FUND FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 10, 1996
YEAR ENDED THROUGH
CLASS B JUNE 30, 1998 JUNE 30, 1997(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.33 $ 10.00
- --------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.37 0.19
Net realized and unrealized gains (losses) from
investments 0.81 0.33
- --------------------------------------------------------------------------------------------------
Total from Investment Activities 1.18 0.52
- --------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.36) (0.19)
Net realized gains (0.10) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.46) (0.19)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.05 $ 10.33
- --------------------------------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 11.53% 5.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $39,489 $ 2,616
Ratio of expenses to average net assets 1.20% 1.21%(c)
Ratio of net investment income to average net assets 3.37% 4.06%(c)
Ratio of expenses to average net assets* 1.47% 3.52%(c)
Ratio of net investment income to average net assets* 3.10% 1.75%(c)
Portfolio turnover (d) 3.22% 28.46%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized. (d) Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing among the classes of shares issued.
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30,
CLASS C 1998(a)
- --------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.33
- --------------------------------------------------------------------------
Investment Activities:
Net investment income 0.35
Net realized and unrealized gains (losses) from
investments 0.81
- --------------------------------------------------------------------------
Total from Investment Activities 1.16
- --------------------------------------------------------------------------
Distributions:
Net investment income (0.36)
Net realized gains (0.10)
- --------------------------------------------------------------------------
Total Distributions (0.46)
- --------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.03
- --------------------------------------------------------------------------
Total Return (Excludes Sales Charge) 11.48%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $3,788
Ratio of expenses to average net assets 1.20%
Ratio of net investment income to average net assets 3.39%
Ratio of expenses to average net assets* 1.47%
Ratio of net investment income to average net assets* 3.12%
Portfolio turnover (b) 3.22%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations on July 1,
1997. (b) Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing among the classes of shares issued.
<PAGE> 177
more about the funds
14
Illiquid Investments
- ----------------------------------------------------
Each 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 will follow
guidelines adopted by The One Group Board of Trustees in determining whether an
investment is illiquid.
Temporary
Defensive Position
- ----------------------------------------------------
Banc One Investment Advisors may decide that because of market conditions the
Funds should temporarily be invested in instruments other than the underlying
mutual funds. Therefore, the Funds are permitted for temporary defensive
purposes to invest up to 100% of their assets in short-term fixed income
securities. These securities include obligations of the U.S. Government and its
agencies and instrumentalities, commercial paper, bank certificates of deposit,
repurchase agreements, bankers' acceptances, variable amount master demand notes
and bank money market deposit accounts.
To the extent that the Funds are engaged in a temporary defensive position, they
will not be pursuing their investment objective.
Special Risk
Considerations
- ----------------------------------------------------
EQUITY FUNDS: Because equity funds invest primarily in equity securities, which
fluctuate in value, the funds' shares will fluctuate in value. In addition,
certain investment management techniques that the funds may use, such as the
purchase and sale of futures, options and forward commitments, could expose the
funds to potentially greater risk of loss than more traditional equity
investments.
FIXED INCOME FUNDS: Investments in fixed income securities (for example, bonds)
will increase or decrease in value based on changes in interest rates. If rates
increase, the value of a Fund's investments generally declines. 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 also are 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. Fixed income securities also are subject to the
risk that the issuer of the security will be unable to meet its repayment
obligation.
INDEX FUNDS: An index fund's investment objective is to track the performance of
a specified index. Therefore, securities may be purchased, retained and sold by
an index fund at times when an actively managed fund would not do so. As a
result, you can expect greater risk of loss (and a correspondingly greater
prospect of gain) from changes in the value of securities that are heavily
weighted in the index than would be the case if the funds were not fully
invested in such securities. Because of this, an index fund's share price can be
volatile and you should be able to handle sudden, and sometimes substantial,
fluctuation in the value of your investment.
INTERNATIONAL FUNDS: Funds investing in foreign securities are subject to
special risks. These risks may include future unfavorable political and economic
developments, possible withholding taxes, seizure of foreign deposits, currency
controls, higher transaction costs, and delayed settlements of transactions.
Securities of some foreign companies are less liquid, and their prices more
volatile, than securities of comparable U.S. companies. Additionally, there may
be less public information available about foreign issuers. Finally, since the
funds may invest in securities denominated in foreign currencies, changes in
exchange rates may affect the value of investments in the funds.
SMALL CAPITALIZATION FUNDS: Smaller, less seasoned companies may be subject to
greater business risk than larger, established companies. They may be more
vulnerable to changes in economic conditions, specific industry conditions,
market fluctuations and other factors affecting the profitability of other
companies. Therefore, the stock price of smaller capitalization companies may be
subject to greater price fluctuations than that of larger, established
companies. Due to these and other risk factors, the price movement of the
securities held by the funds may be volatile and the net asset value of shares
of the funds may fluctuate.
HIGH YIELD BOND FUNDS: High yield securities that are rated below investment
grade or are unrated are commonly known as "junk bonds." These securities are
considered speculative investments by major credit rating agencies. High yield
bonds involve a greater risk of default and price volatility than U.S.
government bonds and other high quality fixed-income securities. These debt
instruments generally offer a higher current yield than that available from
higher grade issuers, but typically involve greater risk. The yields on these
bonds will fluctuate over time. Low rated and unrated securities are especially
subject to adverse changes in general economic conditions and to changes in the
financial condition of their issuers. During periods of economic downturns or
rising interest rates, issuers of these instruments may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default.
<PAGE> 178
how to do business with The One Group
15
Purchasing
Fund Shares
- ----------------------------------------------------
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
Funds are open for business, other than weekends, days on which the New York
Stock Exchange ("NYSE") is closed, and the following holidays: New Year's 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 4:00 p.m.
Eastern Time ("ET"), will be effective that day. On occasion, the NYSE will
close before 4 p.m. ET. When that happens, purchase requests received after
the NYSE closes will be effective the following business day.
- - Purchase orders may be cancelled by the Fund's Custodian, State Street Bank
and Trust Company, if it does not receive "federal funds" by 4:00 p.m. ET (i)
on the business day after the order is placed if you are buying Class I
shares, and (ii) on the third business day if you are purchasing Class A,
Class B and 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 a 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.
- - Class I 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 for 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, and in
1999, may offer an education plan. These plans allow participants to defer taxes
while their retirement and education savings grow. The education IRA requires a
minimum investment of $500. Call The One Group Services Company at
1-800-480-4111 for an 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 each 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 a Fund's
investments and other assets allocable to a class (minus class expenses) by
the number of outstanding shares in that class.
- - A Fund's NAV changes every day. NAV is calculated each business day following
the close of the NYSE at 4:00 p.m. ET. On occasion, the NYSE will close before
4:00 p.m. ET. When that happens, NAV will be calculated as of the time the
NYSE closes.
HOW DO I OPEN AN ACCOUNT?
1. Read the prospectus carefully, and select the Fund or Funds most appropriate
for you.
2. Decide how much you want to invest.
- The minimum initial investment is $1,000 ($100 for employees of BANK ONE
CORPORATION and its affiliates).
- Subsequent investments must be at least $100 ($25 for employees of BANK 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.
<PAGE> 179
16
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 a 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), authorize a bank transfer, or initiate a
wire transfer to the following wire address:
State Street Bank & Trust Company
Attn: Custody & Shareholder Services
ABA 011 000 028
DDA 99034167
FBO The One Group Fund (ex: The One Group Investor Balanced Fund -- A)
Your Account Number (ex: 123456789)
Your Account Registration (ex: John Smith & Mary Smith, JTWROS)
- - 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 over the telephone 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 systematic investments by calling The One
Group Services Company at 1-800-480-4111 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
CONVERSION FEATURE
Your Class B shares automatically convert to Class A shares after eight years
(measured from the end of the month in which they 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 Federal income 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.
<PAGE> 180
17
SALES CHARGES
- ----------------------------------------------------
The One Group Services Company compensates Shareholder Servicing Agents who sell
shares of The One Group. Compensation comes from sales charges, 12b-1 fees and
payment by The One Group Services Company from its own resources. 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. Occasionally, cash
incentives will be paid to select Shareholder Servicing Agents. Those
Shareholder Servicing Agents who may receive special incentives include Banc One
Securities Corporation, The Advisors Group, United Planners Financial Services
of America, Inc., The Legend Group, and Rosewood Retirement Advisory Services,
LLC.
CLASS A SHARES
This table shows the amount of sales charge you pay 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 these shares within six years of the purchase date, 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 0.00%
</TABLE>
The One Group Services Company pays a commission of 4.00% of the original
purchase price to Shareholder Servicing Agents who sell Class B shares.
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:
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
- ------------------------------------------------
<S> <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.
<PAGE> 181
18
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.
- - If you exchange Class B or Class C shares of an unrelated mutual fund for
Class B or Class C shares of The Group in connection with a fund
reorganization, the CDSC applicable to your original shares (including the
period of time you have held those shares) will be applied to The One Group
shares you receive in the reorganization.
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. 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 Class I 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. During the last fiscal year, The
One Group Services Company received 12b-1 fees totaling .25%, 1.00% and 1.00%
of the average daily net assets of Class A, Class B and Class C shares,
respectively.
- - 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.
WAIVER OF THE CLASS A SALES CHARGE
No sales charge is imposed on Class A shares of the Funds 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.
<PAGE> 182
19
- BANK 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 BANK ONE CORPORATION and certain accounts (other than IRA
Accounts) for which an Intermediary acts in a fiduciary, advisory, agency,
custodial or similar capacity.
- Accounts 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 on the books and
record of the broker or agent.
5. Bought with proceeds from the sale of Class I shares of a Fund of The One
Group or acquired in an exchange of Class I 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, including a
Fund of The One Group, 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 IRA 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 Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged 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 Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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.
<PAGE> 183
20
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. Exchanged 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, is waiving its commission.
To take advantage of any of these sales charge waivers, you must qualify for
such waiver in advance. 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:
- - Class I shares of a Fund may be exchanged for Class A shares of that Fund or
for Class A or Class I shares of another Fund of The One Group.
- - Class A shares of a Fund may be exchanged for Class I shares of that Fund or
for Class A or Class I shares of another Fund of The One Group, but only if
you are eligible to purchase those shares.
- - Class B shares of a Fund may be exchanged for Class B shares of another Fund
of The One Group.
- - Class C shares of a Fund may be exchanged for Class C shares of another Fund
of The One Group.
The One Group Funds offer a Systematic Exchange Privilege which allows you to
automatically exchange shares of one fund to another on a monthly or quarterly
basis. This privilege is useful in Dollar Cost Averaging. To participate in this
privilege, please select it on your account application. To learn more about it,
please call The One Group Services Company at 1-800-480-4111.
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. ET.
- - 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 Class I 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:
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 a Fund, you will not pay a sales
charge at 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 for
Federal income tax purposes.
- - 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.
<PAGE> 184
21
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 result in excessive transaction costs or otherwise adversely
affect other shareholders.
REDEEMING FUND SHARES
- ----------------------------------------------------
WHEN CAN I REDEEM SHARES?
You may redeem all or some of your shares on any day that the Funds are open for
business.
- - Redemption requests received by The One Group Services Company before 4:00
p.m. ET (or when the NYSE closes) 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 to 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
1-800-480-4111.
- - 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;
3. the redemption check is mailed to the shareholder at the record address;
or
4. the redemption is payable by wire or bank transfer (ACH) to a pre-existing
bank account.
- - On the Account Application Form you may elect to have the redemption proceeds
mailed or wired to:
1. a designated commercial bank or
2. State Street Bank and Trust Company or your Shareholder Servicing Agent.
- - State Street Bank and Trust Company may charge you a wire redemption fee. The
current charge is $7.00.
- - 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 Class I shares and the Fund receives your redemption
request by 4:00 p.m. ET (or when the NYSE closes), you will receive that day's
NAV.
- - If you own Class B and Class C shares and the Fund receives your redemption
request by 4:00 p.m. ET (or when the NYSE closes), 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 State Street Bank and Trust 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.
<PAGE> 185
22
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.
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 charges
a sub-minimum account fee. Accounts under $1,000 that are not participating in
a Systematic Investment Plan will be assessed an annual fee of $10.00. The
sub-minimum account fee will not apply to IRA accounts and the accounts of
employees of BANK ONE CORPORATION and its affiliates.
- - The One Group may suspend your ability to redeem when:
1. Trading on the NYSE is restricted.
2. The NYSE is closed (other than weekend and holiday closings).
3. The SEC has permitted a suspension.
4. An emergency exists.
The Statement of Additional Information offers more detail about this
process.
- - You generally will recognize a gain or loss on a redemption for Federal income
tax purposes. You should talk to your tax adviser before making a redemption.
<PAGE> 186
shareholder information
23
Voting Rights
- ----------------------------------------------------
The Funds do not hold annual shareholder meetings, but may hold special
meetings. The special meetings are held, for example, to elect or remove
Trustees, change a 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. Each Fund,
and each class of shares within each 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.
BANK ONE CORPORATION (One First National Plaza, Chicago, Illinois, 60670),
through its affiliates, may be deemed for purposes of the Investment Company Act
of 1940, to control the Funds. This is because as of July 30,1998, BANK ONE
CORPORATION or its affiliates possessed the power to vote substantially all of
the Class I shares of the Funds.
On that same date, the following shareholders owned 25% or more of the Class C
shares of the Funds. As a consequence, they are considered to be controlling
persons of Class C shares of the Funds.
<TABLE>
<CAPTION>
PERCENTAGE OF TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C> <C>
Bank One TTEE Investor Growth 5.68% Record
Harrison Holding Corp. 401K Fund
C/O Banc One Investment Mgmt. Class A
Retirement Services - Daily R K
190 Heatherdown Drive
Westerville, OH 43081-2868
Strafe & Co. Investor Growth 69.73% Record
C/O Bank One Trust Co. Fund
Attn: Mutual Funds Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Investor Growth & 81.94% Record
C/O Bank One Trust Co. Income Fund
Attn: Mutual Funds Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Investor Balanced 88.52% Record
C/O Bank One Trust Co. Fund
Attn: Mutual Funds Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Investor 85.27% Record
C/O Bank One Trust Co. Conservative
Attn: Mutual Funds Growth Fund
100 E. Broad Street Class I
Columbus, OH 43215-3607
</TABLE>
Dividend Policies
- ----------------------------------------------------
DIVIDENDS
The Funds generally declare dividends monthly. Dividends are distributed on the
first Business Day of each month. Capital gains, if any, for all Funds are
distributed at least annually.
The Funds pay 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 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.
Dividends payable on Class I 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.
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
<PAGE> 187
24
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 FUNDS
- ----------------------------------------------------
TAX STATUS OF THE FUND
Each Fund intends to qualify as a "regulated investment company" for Federal
income tax purposes. If the Funds qualify, as they have in the past, they will
pay no federal income tax on the earnings they distribute to shareholders.
TAX TREATMENT OF SHAREHOLDERS
- ----------------------------------------------------
TAXATION OF SHAREHOLDER TRANSACTIONS
A sale, exchange, or redemption of shares of the Funds generally will produce
either a taxable gain or a loss. You are responsible for any tax liabilities
generated by your transactions.
TAXATION OF DISTRIBUTIONS
Dividends you receive from a Fund, whether reinvested or received in cash, will
be taxable to you. Dividends from a Fund's net investment income (including, for
this purpose, net short-term capital gains) 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 Funds 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 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.
TAX INFORMATION
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category. Even though the Funds provide 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.
REPORTING
In March and September you will receive a financial report from The One
Group. In addition, The One Group will periodically send you proxy
statements and other reports.
<PAGE> 188
organization and management of the funds
25
THE FUNDS
Each Fund is a series of The One Group, an open-end management investment
company. The One Group currently consists of 40 separate Funds. Four of the
Funds are described in this prospectus; the other Funds are described in
separate prospectuses. Each Fund described in this prospectus is diversified.
Each Fund is supervised by the Board of Trustees.
THE BOARD OF TRUSTEES
The Trustees oversee the management and administration of the Funds. The
Trustees are responsible for making major decisions about each Fund's investment
objectives and policies, but delegate the day-to-day administration of the Funds
to the officers of The One Group.
THE ADVISOR
Banc One Investment Advisors makes the day-to-day investment decisions for the
Funds and continuously reviews, supervises and administers the Funds' 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 June 30, 1998,
Banc One Investment Advisors, an indirect, wholly-owned subsidiary of BANK ONE
CORPORATION, managed over $59 billion in assets. For the fiscal year ended June
30, 1998, the Funds paid investment advisory fees of less than 0.01% of the
average daily net assets of The One Group Investor Conservative Growth Fund, and
0.025%, 0.014% and 0.024% of the average daily net assets of The One Group
Investor Growth Fund, The One Group Investor Growth and Income Fund, and The One
Group Investor Balanced Fund, respectively.
No single person is responsible for managing the assets of the Funds. Rather,
investment decisions for the Funds are made by committee. Banc One Investment
Advisors also serves as the advisor to the underlying mutual funds, for which it
receives a fee.
THE DISTRIBUTOR
The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio 43219, a
wholly-owned subsidiary of The BISYS Group, Inc., markets the Funds 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 Funds' administrator. The One
Group Services Company is responsible for responding to shareholder inquiries
and requests for information, as well as providing regulatory compliance and
reporting. For these services, The One Group Services Company receives an annual
fee of .10% of each Fund's average daily net assets, on the first $500,000,000
in Fund assets. The fee declines to .075% on net assets between $500,000,000 and
$1 billion, and to .05% on assets over $1 billion. The fee is calculated daily
and paid monthly. 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 statementing, distributes dividends, and processes buy and
sell requests. As the Funds' custodian, State Street holds the Funds' assets,
settles all portfolio trades and assists in calculating the Funds' net asset
values. Bank One Trust Company, N.A. serves as sub-custodian in connection with
The One Group's securities lending activities under an agreement with State
Street Bank and Trust Company. Bank One Trust Company, N.A. is paid a fee for
this service.
YEAR 2000
Preparing for the Year 2000 is a high priority for The One Group Family of
Mutual Funds. Both The One Group Services Company and Banc One Investment
Advisors have formed dedicated teams to help them successfully achieve Year 2000
compliance. In addition, these teams are responsible for assessing the readiness
of all other service providers to The One Group. Year 2000 remediation efforts
are directed toward both information technology and non-information technology
systems. Non-information technology systems include elevators, photocopy
machines, and facsimile machines, and should have no significant impact on the
delivery of services to The One Group.
Banc One Investment Advisors has identified 49 information technology systems
and interfaces that provide service and support to The One Group. Each system is
assigned a priority rating: high, medium or low. Systems rated "high" are those
which are essential to the operation of The One Group. Each system rated "high"
is scheduled to be Year 2000 compliant by December 31, 1998.
<PAGE> 189
26
All systems will be tested for compliance throughout 1999.
Many, if not all, of the systems are owned or operated by third party servicers
(for example, The One Group's Custodian). Consequently, remediation efforts must
be made by those servicers. Banc One Investment Advisors and The One Group
Services Company have, and will continue to, monitor the remediation progress of
the service providers. This process involves documentation, on-site visits, and
review of remediation plans and test results. Both Banc One Investment Advisors
and The One Group Services Company have budgeted in excess of $700,000 in fiscal
year 1998 and over $1 million in fiscal year 1999 toward the remediation effort
for all systems and interfaces. Neither The One Group nor its shareholders will
bear any of the direct remediation expenses.
Neither The One Group Services Company nor Banc One Investment Advisors
currently anticipates that the move to Year 2000 will have a material impact on
their ability to continue to provide the Funds with service at current levels.
Likewise, The One Group currently anticipates that the move to Year 2000 will
not have a material impact on its operations.
<PAGE> 190
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND POLICIES
27
INVESTMENT PRACTICES
The following is a brief description of the principal investment policies of the
underlying funds.
THE ONE GROUP(R) PRIME MONEY MARKET FUND
The One Group(R) Prime Money Market Fund seeks current income with liquidity and
stability of principal. The fund intends to comply with the regulations of the
Securities and Exchange Commission applicable to money market funds using the
amortized cost method for calculating net asset value. These regulations impose
certain quality, maturity and diversification restraints on investments by the
fund. Under these regulations, the fund will invest only in U.S.
dollar-denominated securities, will maintain an average maturity on a
dollar-weighted basis of 90 days or less, and will acquire only "eligible
securities" that present minimal credit risks and are treated as having a
maturity of 397 days or less.
THE ONE GROUP(R) LIMITED VOLATILITY BOND FUND
The One Group(R) Limited Volatility Bond Fund seeks current income consistent
with preservation of capital through investment in high and medium-grade
fixed-income securities. The Fund normally invests at least 80% of total assets
in debt securities of all types with short to intermediate maturities. Debt
securities include bonds, notes and other obligations. At least 65% of the
Fund's total assets will consist of bonds rated in one of the three highest
investment grade categories at the time of investment, or if unrated, determined
by Banc One Investment Advisors to be of comparable quality, and at least 65% of
total assets will consist of obligations issued by the U.S. government or its
agencies and instrumentalities, some of which may be subject to repurchase
agreements. Many investments will satisfy both requirements. Under normal market
conditions, it is anticipated that the fund's average weighted maturity will
range between one and five years. The fund may also purchase taxable or
tax-exempt municipal securities. Up to 20% of the fund's total assets may be
invested in preferred stocks.
THE ONE GROUP(R) INTERMEDIATE BOND FUND
The One Group(R) Intermediate Bond Fund seeks current income consistent with the
preservation of capital through investments in high and medium-grade
fixed-income securities with intermediate maturities. The fund will normally
invest at least 80% of total assets in debt securities of all types. Debt
securities include bonds, notes and other obligations. At least 65% of the
fund's total assets will consist of bonds rated in one of the three highest
investment grade categories at the time of investment, or if unrated, determined
by Banc One Investment Advisors to be of comparable quality, and at least 50% of
total assets will consist of obligations issued by the U.S. government or its
agencies and instrumentalities, some of which may be subject to repurchase
agreements. Many investments will satisfy both requirements. The Fund also may
invest in more speculative debt securities if they present attractive
opportunities and are rated in the lowest investment grade category. The fund
may also purchase taxable or tax-exempt municipal securities. Under normal
market conditions, it is anticipated that the fund's average weighted maturity
will range between three and ten years. Up to 20% of the fund's total assets may
be invested in preferred stocks.
THE ONE GROUP(R) INCOME BOND FUND
The One Group(R) Income Bond Fund seeks a high level of current income by
investing primarily in a diversified portfolio of high, medium and low grade
debt securities. The Fund normally will invest at least 70% of its total assets
in debt securities of all types rated as investment grade at the time of
investment or, if unrated, determined by Banc One Investment Advisors to be of
comparable quality. In addition, up to 30% of the Fund's total assets may be
invested in convertible securities, preferred stock, loan participations and
debt securities rated below investment grade or, if unrated, determined by Banc
One Investment Advisors to be of comparable quality. Securities rated below
investment grade are called "high yield bonds," "non-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 ("S&P")
and Ba or lower by Moody's Investors Service, Inc. ("Moody's"), and are
considered to have speculative characteristics. Even though it may invest in
debt securities in all rating categories, the Fund will not invest more than 20%
of its total assets in securities rated below the fifth rating category. As a
matter of fundamental policy, at least 65% of the Fund's total assets will
consist of bonds. The Fund also may purchase taxable or tax-exempt municipal
securities.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range between five and twenty years. The Fund may shorten
its effective weighted average maturity to as little as two years if deemed
appropriate for temporary defensive purposes.
<PAGE> 191
28
THE ONE GROUP(R) HIGH YIELD BOND FUND
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. 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. The Fund
normally invests at least 80% of the Fund's total assets in debt securities
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.
THE ONE GROUP(R) GOVERNMENT BOND FUND
The One Group(R) Government Bond Fund seeks a high level of current income with
liquidity and safety of principal. The Fund will limit its investments to
securities issued by the U.S. Government and its agencies and instrumentalities
or related to securities issued by the U.S. Government and its agencies and
instrumentalities. At least 65% of the total assets of the Fund will be invested
in obligations guaranteed as to principal and interest by the U.S. Government or
its agencies and instrumentalities, some of which may be subject to repurchase
agreements, and other securities representing an interest in or collateralized
by mortgages that are issued or guaranteed by the U.S. government, its agencies
or instrumentalities. The average weighted remaining maturity of the fund is
expected to be between three and fifteen years, however, the Fund's average
weighted remaining maturity may be outside this range if warranted by market
conditions. The balance of the Fund's assets may be invested in debt securities
and taxable or tax-exempt municipal securities.
THE ONE GROUP(R) ULTRA SHORT-TERM
INCOME FUND
The One Group(R) Ultra Short-Term Income Fund seeks a high level of current
income consistent with low volatility of principal by investing in a diversified
portfolio of short-term investment grade securities. The Fund normally invests
at least 80% of its total assets in debt securities of all types, including
money market instruments. In addition, up to 20% of the fund's total assets may
be invested in other securities, including preferred stock. The fund will invest
in adjustable rate mortgage pass-through securities and other securities
representing an interest in or collateralized by mortgages with periodic
interest rate resets, some of which may be subject to repurchase agreements.
These securities often are issued or guaranteed by the U.S. government, its
agencies or instrumentalities. However, the Fund also may purchase
mortgage-backed securities that are issued by non-governmental entities. Such
securities may or may not have private insurer guarantees as to timely payments.
The fund also may purchase mortgage and interest rate swaps and interest rate
floors and caps. The fund also may employ other investment techniques to enhance
returns, such as loans of fund securities, mortgage dollar rolls, repurchase
agreements, options contracts and reverse repurchase agreements. The Fund will
maintain a maximum duration of approximately two years.
THE ONE GROUP(R) DISCIPLINED VALUE FUND
The One Group(R) Disciplined Value Fund seeks capital appreciation with the
secondary goal of achieving current income by investing primarily in equity
securities. The Fund will invest mainly in equity securities with below-market
average price-to-earnings and price-to-book value ratios. The issuer's soundness
and earnings prospects also will be considered. If Banc One Investment Advisors
determines that a company's fundamentals are declining or that the company's
ability to pay dividends has been impaired, it likely will eliminate the Fund's
holding of the company's stock. The Fund normally invests at least 80% of the
value of its total assets in equity securities consisting of common stocks and
debt securities and preferred stocks that are convertible into common stocks.
The fund also may enter into options and futures transactions. The balance of
the fund's assets will be held in cash equivalents.
THE ONE GROUP(R) INTERNATIONAL EQUITY INDEX FUND
The One Group(R) International Equity Index Fund seeks to provide investment
results that correspond to the aggregate price and dividend performance of the
securities in the Gross Domestic Product
<PAGE> 192
29
Weighted Morgan Stanley Capital International Europe, Australia and Far East
Index ("MSCI EAFE GDP Index" or "EAFE GDP Index").(1) The Fund normally will
invest at least 65% of the value of its total assets in foreign equity
securities, which are representative of the Index and secondarily in stock index
futures. The Fund's investments will consist of common stocks (including
sponsored and unsponsored American Depository Receipts) and preferred stocks,
securities convertible into common stocks (only if they are listed on registered
exchanges or actively traded in the over-the-counter market), warrants and
depository receipts. No more than 10% of the fund's net assets will be held in
cash or cash equivalents. The fund may invest up to 10% of its net assets in
securities of emerging international markets. A substantial portion of the
fund's assets will be denominated in foreign currencies.
THE ONE GROUP(R) LARGE COMPANY GROWTH FUND
The One Group(R) Large Company Growth Fund seeks long-term capital appreciation
and growth of income by investing primarily in equity securities. The Fund will
normally invest at least 65%, of the value of its total assets in equity
securities consisting of common stocks, warrants and any rights to purchase
common stocks. To achieve its objective, the Fund will invest primarily in
equity securities of large, well established companies with weighted average
capitalization in excess of the market median capitalization of the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index").(2) The fund may invest
the remainder of its assets in any combination of nonconvertible fixed income
securities, repurchase agreements, options and futures contracts, securities
issued by the U.S. government and its agencies and instrumentalities, and cash
equivalents.
THE ONE GROUP(R) LARGE COMPANY VALUE FUND
The One Group(R) Large Company Value Fund seeks capital appreciation with the
incidental goal of achieving current income by investing primarily in equity
securities. The Fund will invest in equity securities of large capitalization
companies that are believed to be selling below their long-term investment
values. The average weighted market capitalization of the companies in which the
Fund invests will normally exceed the median market capitalization of the S&P
500 Index. In addition, the Fund may invest in stock of companies which have
"breakup" values well in excess of current market values or which have uniquely
undervalued corporate assets. The Fund normally will invest at least 80% of the
value of its total assets in equity securities consisting of common stocks and
debt securities and preferred stocks which are convertible into common stocks.
The remainder of the fund's assets will be held in cash equivalents.
THE ONE GROUP(R) GROWTH OPPORTUNITIES FUND
The One Group(R) Growth Opportunities Fund seeks growth of capital and,
secondarily, current income by investing primarily in equity securities. The
Fund invests in securities that have the potential to produce above-average
earnings growth per share over a one-to-three year period. Typically, the Fund
acquires shares of established companies with a history of above-average growth,
as well as those companies expected to enter periods of above-average growth.
Not all the securities purchased by the Fund will pay dividends. The Fund also
invests in smaller companies in emerging growth industries. At least 80% of the
value of its total assets will be invested in equity securities consisting of
common stocks and debt securities and preferred stocks that are convertible into
common stocks. The fund also may enter into options and futures transactions.
The remainder of the fund's assets will be held in cash equivalents.
THE ONE GROUP(R) VALUE GROWTH FUND
The One Group(R) Value Growth Fund seeks long-term capital growth and growth of
income with a secondary objective of providing a moderate level of current
income. The Fund invests primarily in common stocks of overlooked or undervalued
companies that have the potential for earnings growth over time. The Fund uses a
multi-style approach, meaning that it may invest across varied capitalization
levels targeting both value and growth oriented companies. Because the Fund
seeks return over the long term, Banc One Investment Advisors will not attempt
to time the market. The Fund normally will invest at least 65% of the value of
its total assets in securities with the characteristics described above.
Although the fund intends to invest all of its assets in such securities, up to
35% of its total assets may be held in cash or invested in U.S. Government
Securities, other investment grade fixed-income securities cash and cash
equivalents.
THE ONE GROUP(R) SMALL CAPITALIZATION FUND
The One Group(R) Small Capitalization Fund seeks long-term capital growth
primarily by investing in a portfolio of equity securities of
small-capitalization and emerging growth companies. The Fund invests primarily
in a portfolio of common stocks, debt
- ---------------
(1) "MSCI EAFE GDP Index" is a registered service mark of Morgan Stanley Capital
International, which does not sponsor and is in no way affiliated with the
fund.
(2) "Standard & Poor's 500" is a registered trademark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the
Fund.
<PAGE> 193
30
securities, preferred stocks, convertible securities, warrants and other equity
securities of small capitalization companies. Generally, Banc One Investment
Advisors selects a portfolio of companies with a capitalization equivalent to
the median market capitalization of the S&P Small-Cap 600 Index,(3) although the
Fund may occasionally hold securities of companies whose market capitalizations
are considerably larger if doing so contributes to the Fund's investment
objective. At least 65% of the value of the Fund's total assets normally will be
invested in securities with the characteristics described above. Up to 35% of
its total assets may be held in cash or invested in U.S. Government Securities,
other investment grade fixed-income securities and cash equivalents.
THE ONE GROUP(R) INCOME EQUITY FUND
The One Group(R) Income Equity Fund seeks current income through regular payment
of dividends with the secondary goal of achieving capital appreciation by
investing primarily in equity securities. The Fund attempts to keep its yield
above the S&P 500 Index by investing in common stocks of corporations which
regularly pay dividends, although continued payment of dividends cannot be
assured. The fund will invest primarily in stocks with favorable, long-term
fundamental characteristics, but stocks of companies that are out of favor in
the financial community also may be purchased. The Fund normally invests at
least 80% of the value of its total assets in equity securities consisting of
common stocks, and debt securities and preferred stocks which are convertible
into common stocks. The Fund also may enter into options and futures
transactions. The balance of the Fund's assets will be held in cash equivalents.
THE ONE GROUP(R) EQUITY INDEX FUND
The One Group(R) Equity Index Fund seeks investment results that correspond to
the aggregate price and dividend performance of the securities in the S&P 500
Index. The Fund normally invests in many of the stocks which comprise the S&P
500 Index and secondarily in stock index futures. Cash reserves will not
normally exceed 10% of the fund's net assets. The Advisor generally selects
stocks for the Fund in the order of their weightings in the S&P 500 Index
beginning with the heaviest weighted stocks. The percentage of the Fund's assets
to be invested in each stock is approximately the same as the percentage it
represents in the S&P 500 Index.
Details about each underlying fund's investment practices and the risks
associated with those practices can be found in Appendix B.
INVESTMENT POLICIES
- ------------------------------------------------------------------------------
Each Fund's investment objective and the 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 Funds. The full text of the
fundamental policies can be found in the Statement of Additional Information.
Each Fund may not:
1. Purchase an issuer's securities if as a result more then 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 any of that issuer.
This does not include securities issued or guaranteed by the United States,
its agencies or instrumentalities, securities of other registered investment
companies and repurchase agreements involving these securities. This
restriction applies with respect to 75% of a Fund's total assets.
2. Concentrate its investments in the securities of one or more issuers
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 a 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 can be found in the Statement of Additional
Information.
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 Funds and may result in additional tax consequences to
you. To the extent portfolio turnover results in short-term capital gains, such
gains will generally be taxed at ordinary income tax rates. The portfolio
turnover rate for each Fund for the fiscal year ended June 30, 1998 is shown on
the Financial Highlights.
- ---------------
(3) "Standard & Poor's Small-Cap 600" is a registered trademark of Standard &
Poor's Corporation, which does not sponsor and is in no way affiliated with
the Fund.
<PAGE> 194
APPENDIX A
31
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
The underlying funds invest in a variety of securities and employ 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 Funds, as
well as the risks inherent in their use. For a more complete discussion, see the
Statement of Additional Information. Following the table is a more complete
discussion of risk.
<TABLE>
<CAPTION>
FUND NAME
FUND CODE
- ------------------------------------------------------------------------------
<S> <C> <C>
The One Group(R) Prime Money Market Fund 1
The One Group(R) Limited Volatility Bond Fund 2
The One Group(R) Intermediate Bond Fund 3
The One Group(R) Income Bond Fund 4
The One Group(R) High Yield Bond Fund 5
The One Group(R) Government Bond Fund 6
The One Group(R) Ultra Short-Term Income Fund 7
The One Group(R) Disciplined Value Fund 8
The One Group(R) International Equity Index Fund 9
The One Group(R) Large Company Growth Fund 10
The One Group(R) Large Company Value Fund 11
The One Group(R) Growth Opportunities Fund 12
The One Group(R) Value Growth Fund 13
The One Group(R) Small Capitalization Fund 14
The One Group(R) Income Equity Fund 15
The One Group(R) Equity Index Fund 16
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, STRIPS, and CUBES 1-16 Market
TREASURY RECEIPTS: TRS, TIGRs, and CATS. 1-16 Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-16 Market
agencies and instrumentalities of the U.S. Government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1-5, 7-16 Market
stated maturity. Credit
Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 1-5, 7-16 Liquidity
exchange for the deposit of funds. Credit
Market
COMMON STOCK: Shares of ownership of a company. 5, 7-16 Market
REPURCHASE AGREEMENTS: The purchase of a security and the 1-16 Credit
simultaneous commitment to return the security to the seller Market
at an agreed upon price on an agreed upon date. This is Liquidity
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 1-16 Market
simultaneous commitment to buy the security back at an Leverage
agreed upon price on an agreed upon date. This is treated as
a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 33 1/3% of a Fund's 1-16 Credit
total assets. In return the Fund will receive cash, other Market
securities, and/or letters of credit. Leverage
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1-16 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Liquidity
INVESTMENT COMPANY SECURITIES: Shares of other mutual funds, 1-5, 7-16 Market
including money market funds 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 when
investing in funds for which it serves as investment
advisor.
CONVERTIBLE SECURITIES: Bonds or preferred stock that 3-5, 7-16 Market
convert to common stock. Credit
</TABLE>
<PAGE> 195
32
<TABLE>
<S> <C> <C>
CALL AND PUT OPTIONS: A call option gives the buyer the right to buy, and 3-16 Management
obligates the seller of the option to sell, a security at a specified price. A put Liquidity
option gives the buyer the right to sell, and obligates the seller of the option Credit
to buy, a security at a specified price. The Funds will sell only covered call Market
and secured put options. Leverage
FUTURES AND RELATED OPTIONS: A contract providing for the future sale and purchase 2-16 Management
of a specified amount of a specified security, class of securities, or an index at Market
a specified time in the future and at a specified price. Credit
Liquidity
Leverage
REAL ESTATE INVESTMENT TRUSTS ("REITS"): Pooled investment vehicles which invest 2-16 Liquidity
primarily in income producing real estate or real estate related loans or Management
interest. Market
Pre-payment
Tax
Regulatory
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn on and accepted by a 1-5, 7, Credit
commercial bank. Maturities are generally six months or less. 8, Liquidity
10-16 Market
COMMERCIAL PAPER: Secured and unsecured short-term promissory notes issued by 1-5, 7, Credit
corporations and other entities. Maturities generally vary from a few days to nine 8, Liquidity
months. 10-16 Market
FOREIGN SECURITIES: Stocks or debt issued by foreign companies, as well as 1-5, 7-15 Market
commercial paper of foreign issuers and obligations of foreign banks, overseas Political
branches of U.S. banks and supranational entities. Includes American Depository Liquidity
Receipts. Foreign Investment
RESTRICTED SECURITIES: Securities not registered under the Securities Act of 1933, 1-5, 7-15 Liquidity
such as privately placed commercial paper and Rule 144A securities. Market
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with interest rates which are 1-8, Market
reset daily, weekly, quarterly or some other period and which may be payable to 10-15 Credit
the Fund on demand. Liquidity
WARRANTS: Securities, typically issued with preferred stock or bonds, that give 1, 4, 5, Market
the holder the right to buy a proportionate amount of common stock at a specified 9-11, 13, Credit
price. 14, 16
PREFERRED STOCK: A class of stock that generally pays a dividend at a specified 2-5, 9, Market
rate and has preference over common stock in the payment of dividends and in 11, 14,
liquidation. 15
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real estate loans and 1-7 Pre-payment
pools of loans. These include collateralized mortgage obligations ("CMOs"), Real Market
Estate Investment Conduits ("REMICs"), and Stripped Mortgage-Backed Securities Credit
("SMBS"). Regulatory
DEMAND FEATURES: Securities that are subject to puts and standby commitments to 1-5, 7 Market
purchase the securities at a fixed price (usually with accrued interest) within a Liquidity
fixed period of time following demand by a Fund. Management
ASSET-BACKED SECURITIES: Securities secured by company receivables, home equity 1-5, 7 Pre-payment
loans, truck and auto loans, leases, credit card receivables and other securities Market
backed by other types of receivable or other assets. Credit
MORTGAGE DOLLAR ROLLS: A transaction in which a Fund sells securities for delivery 2-7 Pre-payment
in a current month and simultaneously contracts with the same party to repurchase Market
similar but not identical securities on a specified future date. Regulatory
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"): Loans in a mortgage pool which provide 2-7 Pre-payment
for a fixed initial mortgage interest rate for a specified period of time, after Market
which the rate may be subject to periodic adjustments. Credit
Regulatory
CORPORATE DEBT SECURITIES: Corporate bonds and non-convertible debt securities. 3-5, 7 Market
Credit
SWAPS, CAPS AND FLOORS: A Fund may enter into these transactions to manage its 2-16 Market
exposure to changing interest rates and other factors. Swaps involve an exchange Management
of obligations by two parties. Caps and floors entitle a purchaser to a principal Credit
amount from the seller of the cap or floor to the extent that a specified index Liquidity
exceeds or falls below a predetermined interest rate or amount.
NEW FINANCIAL PRODUCTS: New options and futures contracts, and other financial 3-16 Management
products continue to be developed and the Fund may invest in such options, Credit
contracts and products. Market
Liquidity
</TABLE>
<PAGE> 196
33
<TABLE>
<S> <C> <C>
STRUCTURED INSTRUMENTS: Debt securities issued by agencies and 3-7 Market
instrumentalities of the U.S. government, banks, municipalities, corporations Liquidity
and other businesses whose interest and/or principal payments are indexed to Management
foreign currency exchange rates, interest rates, or one or more other Credit
referenced indices. Foreign Investment
MUNICIPAL SECURITIES: Securities issued by a state or political subdivision 2-5, 7 Market
to obtain funds for various public purposes. Municipal securities include Credit
private activity bonds and industrial development bonds, as well as General Political
Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Tax
Anticipation Notes, Project Notes, other short-term tax-exempt obligations,
municipal leases, and obligations of municipal housing authorities and single
family revenue bonds.
OBLIGATIONS OF SUPRANATIONAL AGENCIES: Obligations of supranational agencies 9 Credit
who are chartered to promote economic development and are supported by Foreign Investment
various governments and governmental agencies.
CURRENCY FUTURES AND RELATED OPTIONS: The Fund may engage in transactions in 9 Management
financial futures and related options, which are generally described above. Liquidity
The Fund will enter into these transactions in foreign currencies and for Credit
hedging purposes only. Market
Political
Leverage
Foreign Investment
FORWARD FOREIGN EXCHANGE TRANSACTIONS: Contractual agreement to purchase or 9 Management
sell one specified currency for another currency at a specified future date Liquidity
and price. The Fund will enter into forward foreign exchange transactions for Credit
hedging purposes only. Market
Political
Leverage
Foreign Investment
ZERO COUPON DEBT SECURITIES: Bonds and other debt that pay no interest, but 2-5, 7 Credit
are issued at a discount from their value at maturity. When held to maturity, Market
their entire returns equals the difference between their issue price and Zero Coupon
their maturity value.
ZERO-FIXED-COUPON DEBT SECURITIES: Zero-coupon debt securities which convert 2-5, 7 Credit
on a specified date to interest-bearing debt securities. Market
Zero Coupon
STRIPPED MORTGAGE-BACKED SECURITIES: Derivative multi-class mortgage 3-7 Pre-payment
securities which are usually structured with two classes of shares that Market
receive different proportions of the interest and principal from a pool of Credit
mortgage assets. These Regulatory include IOs and POs. The Funds only invest
in Stripped Mortgage Backed securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
INVERSE FLOATING RATE INSTRUMENTS: Leveraged floating rate debt instruments 3-7 Market
with interest rates that reset in the opposite direction from the market rate Leverage
of interest to which the inverse floater is indexed. Credit
LOAN PARTICIPATIONS AND ASSIGNMENTS: Participations in, or assignments of all 2-5, 7 Credit
or a portion of loans to corporations or to governments of the less developed Political
countries ("LDCs"). Foreign Investment
Market
Liquidity
FIXED RATE MORTGAGE LOANS: Investments in fixed rate mortgage loans or 2-5, 7 Credit
mortgage pools which bear simple interest at fixed annual rates and have Pre-payment
original terms ranging from 5 to 40 years. Regulatory
Market
SHORT-TERM FUNDING AGREEMENTS: Investments in short-term funding agreements 1-5, 7 Credit
issued by banks and highly rated U.S. insurance companies such as Guaranteed Liquidity
Investment Contracts (GICs) and Bank Investment Contracts (BICs). Market
STANDARD & POOR'S DEPOSITORY RECEIPTS ("SPDRS"): SPDRs represent ownership in 8, 10-16 Market
a long-term unit investment trust that holds a portfolio common stocks
designed to track the price performance and dividend yield of the S&P 500
Index. A SPDR entitles a holder to receive proportionate quarterly cash
distributions corresponding to the dividends that accrue to the S&P 500 Index
stocks in the underlying portfolio, less trust expenses.
PARTICIPATION INTERESTS: Investments in municipal securities, including 1 Credit
municipal leases, from financial institutions such as commercial and Market
investment banks, savings and loan associations and insurance companies. Tax
These interest may take the form of participations, beneficial interests in
trusts, partnership interests or any other form of indirect ownership that
allows the Funds to treat the income from the investment as exempt from
Federal Income Tax.
</TABLE>
<PAGE> 197
34
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 underlying funds may fluctuate, as will the
value of the Fund's investments in the underlying funds. Ultimately, the value
of your investment will be affected. 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 become 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.
- - LEVERAGE RISK. The risk associated with securities or practices 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 normally prevails 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, seizures of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
- - FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments. This
also 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. Pre-payments generally accelerate when interest rates decline.
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.
<PAGE> 198
35
- - 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.
- - ZERO COUPON RISK. The risk associated with changes in interest rates. 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. This risk is similar to Market Risk, which is described
above.
<PAGE> 199
appendix b
36
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 facts 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.
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 IBCA, INC. ("FITCH")
F1 Highest capacity for timely repayment. Those issues rated F1+ possess a
particularly strong credit feature.
F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
F3 Adequate capacity for timely repayment, but more susceptible to adverse
changes business, economic or financial conditions than for obligations
in higher categories.
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37
B Capacity for timely repayment is uncertain and 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.
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.
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 condi-
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38
tions, 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).
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
Investment Grade
AAA Highest rating category. The obligor's capacity for timely repayment of
principal and interest is extremely strong.
AA The obligor's capacity for timely repayment is very strong.
A Bonds and preferred stock considered to be investment grade and of high
credit quality. The obligor's ability for timely repayment is strong.
However, adverse changes in business, economic, or financial conditions
are more likely to affect the capacity for timely repayment than
obligations in higher rated categories.
BBB The obligor's capacity for timely repayment of principal and interest is
adequate. However, adverse changes in business, economic or financial
conditions and circumstances, are more likely to affect the capacity for
timely repayment than for obligations in higher rated categories.
BB Obligations for which capacity for timely repayment of principal and
interest is uncertain. These obligations are speculative to some degree
and capacity for timely repayment remains susceptible over time to
adverse changes in business, financial or economic conditions.
B The Obligor's capacity for timely repayment of principal and interest
is uncertain. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or
financial conditions and these obligations are far more speculative
than those in higher rated categories.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions and these
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39
obligations are far more speculative than those in higher rated
categories.
CC Obligations which are highly speculative or which have a high risk of
default.
C Obligations which are currently in default.
DESCRIPTION OF INSURANCE RATINGS
MOODY'S
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.
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.
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40
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.
MIG4 &
VMIG4 This denotes adequate quality protection commonly regarded as
required of an investment security is present and although not
distinctly or predominantly speculative, there is a specific risk.
SG This denotes speculative quality. Our instruments in this category
each margins of protection.
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.
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
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41
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.
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.
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.
DESCRIPTION OF MUNICIPAL BOND RATINGS (INCLUDING FOREIGN, MORTGAGE AND
ASSET-BACKED SECURITIES)
S&P
Investment Grade
AAA The highest rating. The rating indicates an extremely strong capacity
to meet its financial commitment.
AA Differs from AAA issues only in a small degree. The obligor's capacity
to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories. However, 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 to meet its financial commitment on the obligations.
Speculative Grade
BB Less vulnerable to non-payment than other speculative issues. However,
these bonds face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on the obligations.
B More vulnerable to non-payment than obligations rated BB, but currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, they are not likely to have the
capacity to meet its financial commitment on the obligation.
CC Currently highly vulnerable to non-payment.
C This rating may be 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 Bonds in payment default.
<PAGE> 205
42
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
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).
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. Ca is the lowest rating.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") assigns ratings to specific debt instruments
with original maturities of one year or less. 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.
<PAGE> 206
INVESTMENT ADVISOR AND SUB-ADMINISTRATOR
Banc One Investment Advisors Corporation
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 02266-85
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, OH 43215
THE STATEMENT OF ADDITIONAL INFORMATION CON-
TAINS MORE DETAILED INFORMATION ABOUT THE FUNDS.
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).
<PAGE> 207
THE ONE GROUP(R) FAMILY OF MUTUAL FUNDS
[GRAPHIC]
MONEY MARKET FUNDS
COMBINED PROSPECTUS
NOVEMBER 1, 1998
THE ONE GROUP(R) PRIME MONEY MARKET FUND
THE ONE GROUP(R) MUNICIPAL MONEY MARKET FUND
THE ONE GROUP(R) OHIO MUNICIPAL MONEY MARKET FUND
THE ONE GROUP(R) U.S. TREASURY SECURITIES MONEY MARKET FUND
This prospectus describes four money market mutual funds with a variety of
investment objectives, including current income, interest income exempt from
Federal Income Tax, and interest income exempt from Federal Income Tax and Ohio
Personal Income Tax. The information in this prospectus is important. Please
read it carefully before you invest, and save it for future reference.
PLEASE REMEMBER THAT SHARES OF THE FUNDS: o ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED BY BANK ONE CORPORATION OR ITS AFFILIATES; o ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY FEDERAL OR
STATE GOVERNMENTAL AGENCY; o INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THE ONE GROUP OHIO MUNICIPAL MONEY MARKET FUND MAY INVEST A SIGNIFICANT PORTION
OF ITS ASSETS IN THE SECURITIES OF A SINGLE ISSUER. AS A RESULT, AN INVESTMENT
IN THE FUND MAY ENTAIL MORE RISKS THAN AN INVESTMENT IN ANOTHER TYPE OF MONEY
MARKET FUND.
THERE IS NO ASSURANCE THAT THE FUNDS WILL MEET THEIR INVESTMENT OBJECTIVES OR
BE ABLE TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE ON A CONTINUOUS BASIS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 208
TABLE OF CONTENTS
<TABLE>
<S> <C>
A BRIEF PREVIEW OF THE FUNDS................................ 1
ABOUT THE FUNDS............................................. 2
The One Group(R) Prime Money Market Fund................. 2
The One Group(R)Municipal Money Market Fund.............. 5
The One Group(R)Ohio Municipal Money Market Fund......... 7
The One Group(R)U.S. Treasury Securities Money Market
Fund................................................... 9
MORE ABOUT THE FUNDS........................................ 12
HOW TO DO BUSINESS WITH THE ONE GROUP....................... 13
Purchasing Fund Shares................................... 13
Sales Charges............................................ 15
Sales Charge Reductions and Waivers...................... 16
Exchanging Fund Shares................................... 17
Redeeming Fund Shares.................................... 18
SHAREHOLDER INFORMATION..................................... 20
Voting Rights............................................ 20
Dividend Policies........................................ 21
Tax Treatment of the Funds............................... 21
Tax Treatment of Shareholders............................ 21
Shareholder Inquiries.................................... 22
ORGANIZATION AND MANAGEMENT OF THE FUNDS.................... 23
The Funds................................................ 23
The Board of Trustees.................................... 23
The Advisor.............................................. 23
The Distributor.......................................... 23
The Administrator and Sub-Administrator.................. 23
The Transfer Agent, Custodian and Sub-Custodian.......... 23
Year 2000 ............................................... 23
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND
POLICIES.................................................. 25
Investment Practices..................................... 25
Investment Risks......................................... 27
Investment Policies...................................... 27
APPENDIX: DESCRIPTION OF RATINGS............................ 29
</TABLE>
<PAGE> 209
1
a brief preview of the funds
WHAT ARE THE GOALS OF THE ONE GROUP MONEY MARKET FUNDS?
The Funds are designed for a variety of investment objectives,
including current income, interest income exempt from Federal
Income Tax, and interest income exempt from Federal Income Tax
and Ohio Personal Income Tax. Each Fund pursues a different
objective and involves different risks. All of the Funds will
use their best efforts to maintain a constant net asset value
of $1.00 per share, although there is no guarantee that the
Funds will be able to do so. Please read about each Fund
before investing.
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
The Funds will invest only in U.S. dollar-denominated
securities, will maintain an average maturity on a dollar-
weighted basis of 90 days or less, and will acquire only
"eligible securities" that present minimal credit risks and
have a maturity of 397 days or less. The Funds intend to
comply with Rule 2a-7 under the Investment Company Act of
1940.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The Funds invest in securities that are backed by "credit
enhancements" such as letters of credit. The value of
investments in the Funds could decrease if the credit quality
of the credit enhancement provider declines. The Prime Money
Market Fund invests in mortgage-related securities which have
significantly greater price and yield volatility than
traditional fixed income securities. In addition, the Prime
Money Market Fund invests in U.S. dollar denominated foreign
securities which may expose the Fund to risks that are
different from investments in U.S. Securities. The Ohio
Municipal Money Market Fund is a non-diversified fund which
expose investors to special risks. An investment in the Funds
is not a deposit of BANK ONE CORPORATION or its affiliates and
is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. For more
information about risks, please read "More About the Funds"
and "Investment Risks."
WHAT CLASSES OF SHARES ARE AVAILABLE?
Each Fund currently offers Class A, Class C and Class I
shares. Class A and Class C shares are offered to the general
public. Class I shares are offered to institutional investors,
including affiliates of BANK 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. Class I shares are
not available to Individual Retirement Accounts ("IRA").
The Prime Money Market Fund and the U.S. Treasury Securities
Money Market Fund also offer Class B and Service Class shares.
Class B shares are offered to the general public. Service
Class shares are offered to entities purchasing such shares on
behalf of investors requiring additional administrative or
accounting services such as sweep processing. The section
called "How To Do Business With The One Group" will provide
more information.
HOW DO I PURCHASE AND REDEEM SHARES?
You may buy and redeem shares of the Funds on any day that the
Funds are open for business. Class C Shares are not available
for purchase in all of the Funds. 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 periodically. 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 FUNDS?
Banc One Investment Advisors Corporation ("Banc One Investment
Advisors"), an indirect subsidiary of BANK ONE CORPORATION,
serves as the advisor of the Funds. Banc One Investment
Advisors is paid a fee for its services. 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."
<PAGE> 210
The One Group(R)
Prime Money Market Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund is a diversified money
market fund that seeks current
income with liquidity and stability
of principal.
[LOGO] PORTFOLIO SECURITIES
The Fund invests exclusively in high
quality money market instruments.
These instruments include U.S.
Treasury obligations, obligations
issued or guaranteed by U.S.
agencies or instrumentalities,
mortgage-backed securities,
commercial paper, bank obligations
and deposit notes. The Fund also may
invest in commercial paper issued by
foreign issuers. The Fund may invest
up to 10% of its net assets in
illiquid investments such as certain
restricted securities and private
placements. The Fund also engages in
securities lending. For a list of
all of the securities in which the
Fund may invest, please read
"Investment Policies."
[LOGO] RISK CONSIDERATIONS
The Fund invests in securities that
are backed by "credit enhancements"
such as letters of credit. The value
of your investment in the Fund could
decrease if the value of the
securities in the portfolio
decreases in response to declining
credit quality of a credit
enhancement provider. The Fund also
invests in U.S. dollar denominated
foreign investments which involve
risks that are different from
investments in U.S. companies. In
addition, the Fund invests in
mortgage-related securities which
have a significantly greater price
and yield volatility than
traditional fixed-income securities.
Before you invest, please read "More
About the Funds" and "Investment
Risks."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (2) (as a
percentage of average daily net
assets)
Investment Advisory Fees .35% .35% .35%
12b-1 Fees (after fee waiver) (3) .25% 1.00% 1.00%
Other Expenses .17% .17% .17%
Total Fund Operating Expenses (after
fee waivers) (4) .77% 1.52% 1.52%
<CAPTION>
SERVICE
CLASS CLASS I
<C> <C>
none none
none none
none none
none none
.35% .35%
.55% none
.17% .17%
1.07% .52%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Expense information has been restated to reflect current fees.
(3) Due to 12b-1 fees, long-term Class A, Class B, Class C and Service Class
shareholders may pay more than the equivalent of the maximum front-end
sales charges permitted under the rules of the National Association of
Securities Dealers. Without the voluntary waiver of fees, 12b-1 fees
would be .75% for Service Class shares.
(4) Without a voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.27% for Service 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 $ 8 $ 25 $ 43 $ 95
Class B $ 65 $ 78 $103 $161
Class C $ 25 $ 48 $ 83 $181
Class I $ 5 $ 17 $ 29 $ 65
</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 $ 8 $ 25 $ 43 $ 95
Class B $ 15 $ 48 $ 83 $161
Class C $ 15 $ 48 $ 83 $181
Class I $ 5 $ 17 $ 29 $ 65
</TABLE>
Class B shares automatically convert to Class A shares after eight years.
Therefore, the "10 years" examples above
reflect this conversion.
Because of the nature of the shares, shareholders are not expected to remain
in Service Class shares for more than a
very limited period of time. However, a
shareholder investing in the Service
Class shares on a continual basis for a
period of one month would pay $1, three
months would pay $3, one year would pay
$11. Without the voluntary fee reduction,
that shareholder would pay $1 after one
month, $3 after three months, and $13
after one year.
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.
2
<PAGE> 211
3
THE ONE GROUP(R) PRIME MONEY MARKET FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.053 0.051 0.054 0.052 0.031 0.030
- ----------------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.053) (0.051) (0.054) (0.052) (0.031) (0.030)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------------------
Total Return 5.39% 5.20% 5.49% 5.34% 3.19% 3.09%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $2,616,698 $2,563,768 $2,186,562 $1,965,416 $1,600,876 $979,275
Ratio of expenses to average net
assets 0.51% 0.48% 0.44% 0.41% 0.40% 0.44%
Ratio of net investment income to
average net assets 5.26% 5.08% 5.34% 5.27% 3.18% 3.05%
Ratio of expenses to average net
assets* 0.58% 0.56% 0.55% 0.57% 0.59% 0.62%
Ratio of net investment income
average net assets* 5.19% 5.00% 5.23% 5.12% 2.99% 2.87%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
CLASS I 1992 1991 1990
- ------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------
Investment Activities:
Net investment income 0.045 0.069 0.080
- ------------------------------------------------------------------------
Less: Distributions
Net investment income (0.045) (0.069) (0.080)
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------
Total Return 4.64% 7.12% 8.33%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $946,504 $760,726 $562,680
Ratio of expenses to average net
assets 0.59% 0.68% 0.64%
Ratio of net investment income to
average net assets 4.49% 6.86% 8.02%
Ratio of expenses to average net
assets* 0.76% 0.83% 0.79%
Ratio of net investment income
average net assets* 4.32% 6.71% 7.87%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.050 0.048 0.051 0.050 0.027 0.030 0.013
- ------------------------------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.050) (0.048) (0.051) (0.050) (0.027) (0.030) (0.013)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 5.13% 4.94% 5.22% 5.08% 2.93% 2.83% 3.51%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $605,291 $332,646 $315,374 $201,968 $74,759 $61,106 $ 511
Ratio of expenses to average net assets 0.76% 0.73% 0.69% 0.67% 0.65% 0.65% 0.79%(b)
Ratio of net investment income to average
net assets 5.01% 4.83% 5.09% 5.02% 2.92% 2.67% 3.40%(b)
Ratio of expenses to average net assets* 0.83% 0.91% 0.90% 0.92% 0.90% 0.99% 0.94%(b)
Ratio of net investment income to average
net assets* 4.94% 4.65% 4.88% 4.77% 2.67% 2.33% 3.25%(b)
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class A Shares commenced offering on February 18, 1992. (b) Annualized.
<PAGE> 212
4
THE ONE GROUP(R) PRIME MONEY MARKET FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30, 1998
--------------
NOVEMBER 21,
TO
JUNE 30, JUNE 30,
CLASS B 1998 1997(a)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.043 0.026
- ------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.043) (0.026)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 4.35% 2.63%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1,912 $ 618
Ratio of expenses to average net assets 1.51% 1.51%(c)
Ratio of net investment income to average net assets 4.25% 4.16%(c)
Ratio of expenses to average net assets* 1.57% 1.59%(c)
Ratio of net investment income to average net assets* 4.19% 4.08%(c)
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized.
<PAGE> 213
The One Group(R)
Municipal Money Market Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund is a diversified fund that
seeks as high a level of current
interest income exempt from Federal
income tax as is consistent with
capital preservation and stability
of principal.
[LOGO] PORTFOLIO SECURITIES
As a matter of fundamental policy,
the Fund will invest at least 80% of
its total assets in municipal
securities. These are securities
issued by or on behalf of the
states, territories and possessions
of the United States, including the
District of Columbia, and their
political subdivisions, agencies,
instrumentalities and authorities.
These municipal securities produce
interest that, in the opinion of
bond counsel for the issuer, is
exempt from Federal income tax.
However, the Fund may invest as much
as 100% of its assets in municipal
securities that produce income that
is subject to the Federal
alternative minimum tax. If you are
subject to the Federal alternative
minimum tax, please read the section
of this prospectus entitled "Tax
Treatment of Shareholders" before
you invest. The Fund also may invest
up to 20% of its total assets in
other types of securities, such as
taxable money market instruments,
including repurchase agreements. For
a list of all the securities in
which the Fund may invest, please
read "Investment Practices."
[LOGO] RISK CONSIDERATIONS
The Fund invests in securities that
are backed by "credit enhancements"
such as letters of credit. The value
of your investment in the Fund could
decrease if the value of the
securities in the portfolio
decreases in response to declining
credit quality of a credit
enhancement provider. In addition,
the Fund invests in mortgage-related
securities which have a
significantly greater price and
yield volatility than traditional
fixed-income securities. Before you
invest, please read "More
Information about the Funds" and
"Investment Risks."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS C CLASS I
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering
price) none none none
Maximum Contingent Deferred Sales
Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) none 1.00% none
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (2) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (3) .27% .27% .27%
12b-1 Fees (4) .25% 1.00% none
Other Expenses .20% .20% .20%
Total Fund Operating Expenses (after
fee waiver) (5) .72% 1.47% .47%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Expense information has been restated to reflect current fees.
(3) Without a fee waiver, Investment Advisory Fees would be .35% for all
classes of shares.
(4) Due to 12b-1 fees, long-term Class A and Class C shareholders may pay
more than the equivalent of the maximum front-end sales charges
permitted under the rules of the National Association of Securities
Dealers.
(5) Total Operating Expenses have been revised to reflect fee waivers.
Without a voluntary reduction of Investment Advisory fees, Total
Operating Expenses would be .80% for Class A shares, 1.55% for Class C
shares and .55% for Class I 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 $ 7 $ 23 $ 40 $ 89
Class A
(without fee
waiver) $ 8 $ 26 $ 44 $ 99
Class C $ 25 $ 46 $ 80 $176
Class C
(without fee
waiver) $ 26 $ 49 $ 84 $185
Class I $ 5 $ 15 $ 26 $ 59
Class I
(without fee
waiver) $ 6 $ 18 $ 31 $ 69
</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 $ 7 $ 23 $ 40 $ 89
Class A
(without fee
waiver) $ 8 $ 26 $ 44 $ 99
Class C $ 15 $ 46 $ 80 $176
Class C
(without fee
waiver) $ 16 $ 49 $ 84 $185
Class I $ 5 $ 15 $ 26 $ 59
Class I
(without fee
waiver) $ 6 $ 18 $ 31 $ 69
</TABLE>
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.
5
<PAGE> 214
The One Group(R) Municipal Money Market Fund Financial Highlights
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.032 0.031 0.033 0.032 0.021 0.021
- ----------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.032) (0.031) (0.033) (0.032) (0.021) (0.021)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------------
Total Return 3.27% 3.19% 3.34% 3.28% 2.16% 2.15%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $498,127 $467,420 $459,807 $437,743 $352,702 $175,277
Ratio of expenses to average net assets 0.45% 0.43% 0.41% 0.41% 0.40% 0.46%
Ratio of net investment income to
average net assets 3.22% 3.16% 3.29% 3.26% 2.13% 2.12%
Ratio of expenses to average net assets* 0.56% 0.55% 0.59% 0.59% 0.60% 0.66%
Ratio of net investment income to
average net assets* 3.11% 3.04% 3.11% 3.08% 1.93% 1.92%
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
CLASS I 1992 1991 1990
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000
- -------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.034 0.050 0.057
- -----------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.034) (0.050) (0.057)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------------
Total Return 3.47% 5.17% 5.82%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $170,961 $166,200 $145,712
Ratio of expenses to average net assets 0.43% 0.32% 0.36%
Ratio of net investment income to
average net assets 3.41% 5.04% 5.66%
Ratio of expenses to average net assets* 0.80% 0.67% 0.76%
Ratio of net investment income to
average net assets* 3.04% 4.69% 5.26%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.030 0.029 0.030 0.030 0.021 0.019 0.009
- ---------------------------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.030) (0.029) (0.030) (0.030) (0.021) (0.019) (0.009)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 3.01% 2.97% 3.08% 3.02% 1.96% 1.89% 2.48%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $104,809 $48,185 $50,720 $56,518 $41,595 $18,932 $ 122
Ratio of expenses to average net assets 0.70% 0.68% 0.66% 0.66% 0.65% 0.66% 0.84%(b)
Ratio of net investment income to average net
assets 2.97% 2.91% 3.04% 3.01% 1.92% 1.82% 2.44%(b)
Ratio of expenses to average net assets* 0.81% 0.90% 0.94% 0.94% 0.91% 1.01% 0.99%(b)
Ratio of net investment income to average net
assets* 2.86% 2.69% 2.76% 2.73% 1.66% 1.47% 2.29%(b)
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Class A shares commenced offering on February 18, 1992.
(b) Annualized.
6
<PAGE> 215
The One Group(R)
Ohio Municipal Money Market Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund is a non-diversified money
market fund that seeks as high a
level of current interest income
exempt from Federal income tax and
Ohio personal income tax as is
consistent with capital preservation
and stability of principal.
[LOGO] PORTFOLIO SECURITIES
The Fund will invest at least 80% of
its total assets in Ohio municipal
securities. These are securities
issued by, or on behalf of, the
State of Ohio and its political
subdivisions, agencies,
instrumentalities and authorities.
Ohio municipal securities produce
interest that, in the opinion of
bond counsel for the issuer, is
exempt from both Federal income tax
and Ohio personal income tax. The
Fund also may invest up to 20% of
its total assets in non-Ohio
municipal securities, i.e.,
municipal securities issued by
states, territories and possessions
of the United States, including the
District of Columbia, other than
Ohio, as well as their political
subdivisions, agencies,
instrumentalities and authorities
that produce interest exempt from
Federal income tax. The Fund has the
ability to invest as much as 100% of
its assets in non-Ohio municipal
securities that produce income that
is subject to the Federal
alternative minimum tax. If you are
subject to the Federal alternative
minimum tax, please read the section
of this prospectus entitled "Tax
Treatment of Shareholders" before
you invest. Finally, the Fund also
may invest up to 20% of its total
assets in other types of securities,
such as taxable money market
instruments, including repurchase
agreements. For a list of all the
securities in which the Fund may
invest, please read "Investment
Practices."
[LOGO] RISK CONSIDERATIONS
Because of the relatively small
number of issuers of Ohio municipal
securities, the Fund's performance
is effected to a greater extent by
the success of one or a few issuers
than is the performance of a
diversified fund. In addition, the
Fund invests in mortgage-related
securities which have a
significantly greater price and
yield volatility than traditional
fixed-income securities. Before you
invest, please read "More About the
Funds" and "Investment Risks."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS C CLASS I
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none 1.00% none
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (2) (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waiver) (3) .27% .27% .27%
12b-1 Fees (4) .25% 1.00% none
Other Expenses .18% .18% .18%
Total Fund Operating Expenses (after
fee waivers) (5) .70% 1.45% .45%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Expense information has been restated to reflect current fees.
(3) Without a fee waiver, Investment Advisory Fees would be .30% for all
classes of shares.
(4) Due to 12b-1 fees, long-term Class A and Class C shareholders may pay
more than the equivalent of the maximum front-end sales charges
permitted under the rules of the National Association of Securities
Dealers.
(5) Total Operating Expenses have been revised to reflect fee waivers.
Without a voluntary reduction of Investment Advisory Fees, Total
Operating Expenses would be .73% for Class A shares, 1.48% for Class C
shares and .48% for Class I 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 $ 7 $ 22 $ 39 $ 87
Class A
(without fee
waivers) $ 7 $ 23 $ 41 $ 91
Class C $ 25 $ 46 $ 79 $174
Class C
(without fee
waivers) $ 25 $ 47 $ 81 $177
Class I $ 5 $ 14 $ 25 $ 57
Class I
(without fee
waivers) $ 5 $ 15 $ 27 $ 60
</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 $ 7 $ 22 $ 39 $ 87
Class A
(without fee
waivers) $ 7 $ 23 $ 41 $ 91
Class C $ 15 $ 46 $ 79 $174
Class C
(without fee
waiver) $ 15 $ 47 $ 81 $177
Class I $ 5 $ 14 $ 25 $ 57
Class I
(without fee
waivers) $ 5 $ 15 $ 27 $ 60
</TABLE>
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.
7
<PAGE> 216
8
THE ONE GROUP(R) OHIO MUNICIPAL MONEY MARKET FUND FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
JUNE 9,
YEARS ENDED JUNE 30, 1993 TO
---------------------------------------------------- JUNE 30,
CLASS I 1998 1997 1996 1995 1994 1993(a)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.033 0.032 0.033 0.032 0.022 0.013
- ---------------------------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.033) (0.032) (0.032) (0.032) (0.022) (0.013)
In excess of net investment income -- -- (0.001) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.033) (0.032) (0.033) (0.032) (0.022) (0.013)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 3.31% 3.22% 3.34% 3.20% 2.25% 2.14%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $77,224 $56,442 $55,915 $51,806 $55,375 $ 3,500
Ratio of expenses to average net assets 0.40% 0.40% 0.41% 0.41% 0.34% 0.08%(b)
Ratio of net investment income to average
net assets 3.27% 3.17% 3.19% 3.13% 2.29% 2.07%(b)
Ratio of expenses to average net assets* 0.53% 0.53% 0.71% 0.60% 0.57% 0.51%(b)
Ratio of net investment income to average
net assets* 3.14% 3.04% 2.89% 2.94% 2.06% 1.64%(b)
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as
indicated. (a) Period from commencement of operations. (b) Annualized.
<TABLE>
<CAPTION>
JUNE 9,
YEARS ENDED JUNE 30, 1993 TO
------------------------------------------------------ JUNE 30,
CLASS A 1998 1997 1996 1995 1994 1993(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.030 0.029 0.030 0.029 0.021 0.009
- ---------------------------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.030) (0.029) (0.029) (0.029) (0.021) (0.009)
In excess of net investment income -- -- (0.001) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.030) (0.029) (0.030) (0.029) (0.021) (0.009)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 3.06% 2.96% 3.08% 2.98% 2.09% 2.34%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 39,100 $30,479 $41,132 $35,790 $ 37,356 $25,125
Ratio of expenses to average net
assets 0.65% 0.65% 0.66% 0.63% 0.44% 0.26%(b)
Ratio of net investment income to
average net assets 2.98% 2.90% 2.94% 2.91% 2.05% 2.03%(b)
Ratio of expenses to average net
assets* 0.78% 0.88% 1.06% 0.95% 0.94% 0.92%(b)
Ratio of net investment income to
average net assets* 2.85% 2.67% 2.54% 2.59% 1.55% 1.37%(b)
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Annualized.
<PAGE> 217
The One Group(R)
U.S. Treasury Securities Money Market Fund
[LOGO] INVESTMENT OBJECTIVE
The Fund is a diversified money
market fund that seeks current
income with liquidity and stability
of principal.
[LOGO] PORTFOLIO SECURITIES
The Fund will invest exclusively in
short-term U.S. Treasury obligations
including repurchase agreements
collateralized by such Treasury
obligations and when-issued
securities. The Fund also engages in
securities lending. For a list of
all the securities in which the Fund
may invest, please read "Investment
Practices."
[LOGO] RISK CONSIDERATIONS
Before you invest, please read "More
About the Funds" and "Investment
Risks."
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable) none 5.00% 1.00%
Redemption Fees none none none
Exchange Fees none none none
ANNUAL OPERATING EXPENSES (2) (as a
percentage of average daily net
assets)
Investment Advisory Fees .35% .35% .35%
12b-1 Fees (after fee waiver) (3) .25% 1.00% 1.00%
Other Expenses .17% .17% .17%
Total Fund Operating Expenses (after
fee waivers) (4) .77% 1.52% 1.52%
<CAPTION>
SERVICE
CLASS CLASS I
<C> <C>
none none
none none
none none
none none
.35% .35%
.55% none
.17% .17%
1.07% .52%
</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 $10.00 sub-minimum account fee may be applicable and a
$7.00 charge will be deducted from redemption amounts paid by wire.
(2) Expense information has been restated to reflect current fees.
(3) 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 under the rules of the National Association of Securities
Dealers. Without the voluntary waiver of fees, 12b-1 fees would be .75%
for Service Class shares.
(4) Total Operating Expenses have been revised to reflect fee waivers.
Without a voluntary reduction of 12b-1 fees, Total Operating Expenses
would be 1.27% for Service 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 $ 8 $ 25 $ 43 $ 95
Class B $ 65 $ 78 $103 $161
Class C $ 25 $ 48 $ 83 $181
Class I $ 5 $ 17 $ 29 $ 65
</TABLE>
Assuming no redemption at the end of the 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 $ 8 $ 25 $ 43 $ 95
Class B $ 15 $ 48 $ 83 $161
Class C $ 15 $ 48 $ 83 $181
Class I $ 5 $ 17 $ 29 $ 65
</TABLE>
Because of the nature of the shares, shareholders are not expected to remain
in Service Class shares for more than a
very limited period of time. However, a
shareholder investing in the Service
Class shares on a continual basis for a
period of one month would pay $1, three
months would pay $3, and one year would
pay $11. Without the voluntary fee
reduction, that shareholder would pay $1
after one month, $3 after three months,
and $13 after one year.
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.
9
<PAGE> 218
10
THE ONE GROUP(R) U.S. TREASURY SECURITIES MONEY MARKET FUND FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights are intended to help you understand the Fund's
financial performance for the past 10 years, or since inception if less than 10
years. The total returns in the table represent the rate a shareholder would
have earned on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is incorporated by reference in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------------------------------------------------
CLASS I 1998 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- -------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.051 0.050 0.052 0.050 0.030 0.029 0.043
- -------------------------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.051) (0.050)(a) (0.052) (0.050) (0.030) (0.029) (0.043)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- -------------------------------------------------------------------------------------------------------------------------------
Total Return 5.19% 5.07% 5.34% 5.07% 3.01% 2.89% 4.40%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $3,025,608 $2,243,376 $1,844,590 $1,178,091 $969,326 $492,862 $410,146
Ratio of expenses to average
net assets 0.52% 0.46% 0.42% 0.41% 0.40% 0.45% 0.55%
Ratio of net investment
income to average net
assets 5.07% 4.95% 5.17% 4.96% 3.02% 2.85% 4.25%
Ratio of expenses to average
net assets* 0.60% 0.57% 0.56% 0.59% 0.58% 0.67% 0.77%
Ratio of net investment
income to average net
assets* 4.99% 4.84% 5.03% 4.78% 2.84% 2.63% 4.04%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------
CLASS I 1991 1990
- ------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.000 $ 1.000
- ------------------------------------------------------
Investment Activities:
Net investment income 0.062 0.078
- ------------------------------------------------------
Less: Distributions
Net investment income (0.062) (0.078)
- ------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
- ------------------------------------------------------
Total Return 6.63% 8.10%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $339,987 $119,544
Ratio of expenses to average
net assets 0.60% 0.59%
Ratio of net investment
income to average net
assets 6.20% 7.82%
Ratio of expenses to average
net assets* 0.80% 0.79%
Ratio of net investment
income to average net
assets* 6.00% 7.62%
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Includes $.000002 short term capital gain.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------------------------------
CLASS A 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.048 0.047 0.050 0.047 0.027
- ---------------------------------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.048) (0.047)(a) (0.050) (0.047) (0.027)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------
Total Return 4.92% 4.81% 5.08% 4.81% 2.76%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $861,350 $530,164 $110,864 $ 98,723 $ 53,423
Ratio of expenses to average net assets 0.77% 0.72% 0.67% 0.66% 0.63%
Ratio of net investment income to
average net assets 4.82% 4.71% 4.92% 4.71% 2.81%
Ratio of expenses to average net assets* 0.86% 0.93% 0.91% 0.94% 0.87%
Ratio of net investment income to
average net assets* 4.73% 4.50% 4.68% 4.43% 2.57%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
CLASS A 1993 1992(b)
- ------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
- ------------------------------------------------------------------------
Investment Activities:
Net investment income 0.026 0.012
- ------------------------------------------------------------------------
Less: Distributions
Net investment income (0.026) (0.012)
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
- ------------------------------------------------------------------------
Total Return 2.63% 3.38%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 30,759 $ 6
Ratio of expenses to average net assets 0.65% 0.59%(c)
Ratio of net investment income to
average net assets 2.52% 2.51%(c)
Ratio of expenses to average net assets* 1.02% 0.71%(c)
Ratio of net investment income to
average net assets* 2.15% 2.39%(c)
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Includes $.000002 short term capital gain. (b) Class A Shares
commenced offering on February 18, 1992. (c) Annualized.
<PAGE> 219
11
THE ONE GROUP(R) U.S. TREASURY SECURITIES MONEY MARKET FUND FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR NOVEMBER 21,
ENDED 1996 TO
JUNE 30, JUNE 30,
CLASS B 1998 1997(a)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
- -------------------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.041 0.024
- -------------------------------------------------------------------------------------------
Less: Distributions
Net investment income (0.041) (0.024)(b)
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
- -------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 4.14% 2.44%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 181 $ 49
Ratio of expenses to average net assets 1.52% 1.48%(d)
Ratio of net investment income to average net assets 4.06% 3.97%(d)
Ratio of expenses to average net assets* 1.60% 1.59%(d)
Ratio of net investment income to average net assets* 3.98% 3.86%(d)
</TABLE>
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations. (b) Includes $.000002 short
term capital gain. (c) Not annualized. (d) Annualized.
<TABLE>
<CAPTION>
FEBRUARY 18,
1998 TO
JUNE 30,
CLASS C 1998(a)
- -------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000
- -------------------------------------------------------------------------------
Investment Activities:
Net investment income 0.015
- -------------------------------------------------------------------------------
Less: Distributions:
Net investment income (0.015)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000
- -------------------------------------------------------------------------------
Total Return 1.47%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1
Ratio of expenses to average net assets 1.57%(c)
Ratio of net investment income to average net assets 4.01%(c)
</TABLE>
(a) Period from commencement of operations. (b) Not annualized.
(c) Annualized.
<PAGE> 220
more about the funds
12
Portfolio Quality
- ----------------------------------------------------
Securities will be purchased by the Funds only if Banc One Investment Advisors
determine that they present minimal credit risk under guidelines adopted by the
Board of Trustees. In addition, unless a more specific rating is specified, all
investments of the Funds must be rated in one of the two highest rating
categories described in "Description of Ratings" in the Appendix. If an
investment is unrated, Banc One Investment Advisors must determine that it is of
comparable quality to a rated security. Banc One Investment Advisors 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
- ----------------------------------------------------
Each Fund may invest up to 10% 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 will follow
guidelines adopted by The One Group Board of Trustees in determining whether an
investment is illiquid.
Special Risk
Considerations
- ----------------------------------------------------
NET ASSET VALUE: There is no assurance that the Funds will meet their investment
objectives or be able to maintain a net asset value of $1.00 per share on a
continuous basis.
NON-DIVERSIFIED FUNDS: The Ohio Municipal Money Market Fund is a
"non-diversified" fund. "Non-diversified" means that the Fund may invest a
significantly greater portion of its assets in the securities of a single issuer
than can a "diversified" fund. In addition, the Fund's investments are
concentrated geographically. These concentrations increase the risk of loss to
the Fund if the issuer of a security fails to make interest or principal
payments or if the market value of a security declines. Investment in the Fund
may entail more risks than an investment in another type of money market fund.
THE OHIO ECONOMY: The Ohio Municipal Money Market Fund's investments are
concentrated in the State of Ohio. While Ohio's economy has become increasingly
diversified, it continues to rely to a significant degree on durable goods
manufacturing, such as automobiles, tires, steel and household appliances. These
industries tend to be cyclical. Agriculture also is an important part of the
Ohio economy, and the state has several programs that provide financial
assistance to farmers. Although obligations issued by the state and its
political subdivisions are payable from specific sources or taxes, future
economic difficulties and the impact on state and local government finances may
negatively affect the market value of the Ohio municipal securities held by the
Ohio Municipal Money Market Fund.
FIXED INCOME SECURITIES: Investments in fixed income securities (for example,
bonds) will increase or decrease in value based on changes in interest rates. If
rates increase, the value of a Fund's investments generally declines. 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 also are 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. Fixed income securities also are subject to the
risk that the issuer of the security will be unable to meet its repayment
obligation.
DERIVATIVES: Some of the Funds may invest in securities that are considered to
be derivatives. "Derivatives" are securities that derive their value from the
performance of underlying assets or securities. These securities may be more
volatile than other securities. These include mortgage-backed securities,
including collateralized mortgage obligations and Real Estate Mortgage
Investment Conduits (CMOs and REMICs) and asset-backed securities. Derivatives
present, to varying degrees, market, credit, leverage, liquidity, and management
risks. The Fund's use of derivatives may cause the Fund to recognize higher
amounts of short-term capital gains (generally taxed at ordinary income tax
rates) than it would if the Fund did not use such instruments. For a more
detailed discussion of these risks, please read "Investment Risks."
<PAGE> 221
how to do business with The One Group
13
Purchasing
Fund Shares
- ----------------------------------------------------
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
Funds are open for business, other than weekends, days on which the New York
Stock Exchange ("NYSE") is closed, and the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving, and
Christmas.
- - Purchase requests will be effective on the day received by The One Group
Services Company and you will be eligible to receive dividends declared the
same day, if such purchase orders are received by The One Group Services
Company:
(i) before 11:00 a.m., Eastern Time ("ET"), for the Ohio Municipal Money
Market Fund;
(ii) before 12:00 noon, ET, for the Municipal Money Market Fund; and
(iii) before 4:00 p.m., ET, for the Prime Money Market Fund and the U.S.
Treasury Securities Money Market Fund.
In addition, the Fund's custodian, State Street Bank and Trust Company, must
receive "federal funds" before 4:00 p.m., ET on such day. If State Street
Bank and Trust Company does not receive federal funds by the cut-off time,
the purchase order will not be effective until the next business day on which
federal funds are timely received by State Street Bank and Trust Company.
- - On occasion, the NYSE will close before 4 p.m. ET. When that happens, purchase
requests received after the NYSE closes will be effective the following
business day.
- - 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 a 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.
- - Class I 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."
- - Service Class shares are available to Intermediaries purchasing shares on
behalf of investors requiring additional administrative or accounting services
such as sweep processing.
- - 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 and, in
1999, may offer an education plan. These plans allow participants to defer taxes
while their retirement and education savings grow. The education IRA requires a
minimum investment of $500. Call The One Group Services Company at
1-800-480-4111 for an Adoption Agreement.
HOW MUCH DO SHARES COST?
- - Shares are sold at net asset value ("NAV").
- - NAV per share is calculated by dividing the total market value of a Fund's
investment and other assets allocable to a class (minus class expenses) by the
number of outstanding shares in that class. The Funds use their best efforts
to maintain their NAV at $1.00, although there is no guarantee that they will
be able to do so.
- - NAV is calculated each business day as of 11:00 a.m. and following the close
of the NYSE at 4:00 p.m., ET, for the Ohio Municipal Money Market Fund; as of
12:00 noon and 4:00 p.m., ET, for the Municipal Money Market Fund, and as of
2:00 p.m. and 4:00 p.m., ET, for the Prime Money Market Fund and the U.S.
Treasury Securities Money Market Fund. On occasion, the NYSE will close before
4:00 p.m ET. When that happens, NAV will be calculated as of the time the NYSE
closes.
<PAGE> 222
14
HOW DO I OPEN AN ACCOUNT?
1. Read the prospectus carefully, and select the Fund or Funds most appropriate
for you.
2. Decide how much you want to invest. The minimum initial investment is $1,000
($100 for employees of BANK ONE CORPORATION and its affiliates).
- Subsequent investments must be at least $100 ($25 for employees of BANK ONE
CORPORATION and its affiliates).
- 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.
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 a 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 payable to "The One Group" to State Street Bank and
Trust Company (see address above), authorize a bank transfer, or initiate a
wire transfer to the following wire address:
State Street Bank & Trust Company
Attn: Custody & Shareholder Services
ABA 011 000 028
DDA 99034167
FBO The One Group Fund (ex: The One Group
Prime Money Market Fund -- A)
Your Account Number (ex: 123456789)
Your Account Registration (ex: John Smith &
Mary Smith, JTWROS)
- - 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 over the telephone 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 systematic investments by calling The One
Group Services Company at 1-800-480-4111 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
MAY I WRITE CHECKS ON MY ACCOUNT?
Class A and Class C shareholders may write checks for $250 or more.
<PAGE> 223
15
- - Checks may be payable to any person and your account will continue to earn
dividends until the check clears.
- - Checks are free, but your bank or the payee may charge you for stop payment
orders, insufficient funds, or other valid reasons.
- - You can not use this option to close your account because of the difficulty of
determining the exact value of your account.
- - You must wait ten (10) calendar days before you can write a check against
shares purchased by a check.
TO SELECT THIS OPTION:
- - Select the "Check Writing" option on the Account Application Form.
- - Complete, sign and return a signature card and other forms sent to you by
State Street Bank and Trust Company. You will receive a supply of checks that
will be drawn on State Street Bank and Trust Company.
CONVERSION FEATURE
Your Class B shares automatically convert to Class A shares after eight years
(measured from the end of the month in which they 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.
- - 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.
Sales Charges
- ----------------------------------------------------
The One Group Services Company compensates Shareholder Servicing Agents who sell
shares of The One Group. Compensation comes from sales charges, 12b-1 fees and
payments by The One Group Services Company from its own resources. 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. Occasionally, cash
incentives will be paid to select Shareholder Servicing Agents. Those
Shareholder Servicing Agents who may receive special incentives include Banc One
Securities Corporation, The Advisors Group, United Planners Financial Services
of America, Inc., The Legend Group, and Rosewood Retirement Advisory Services,
LLC.
CLASS B SHARES
Class B shares are offered at NAV, without any up-front sales charges. However,
if you redeem these shares within six years of the purchase date, 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> <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 0.00%
</TABLE>
The One Group Services Company pays a commission of 4.00% of the original
purchase price to Shareholder Servicing Agents who sell Class B shares.
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:
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
<S> <C> <C>
0-1 1.00%
After first year none
</TABLE>
<PAGE> 224
16
The One Group Services Company pays a commission of 1.00% of the original
purchase price to Shareholder Servicing Agents who sell Class C shares.
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 net amount redeemed.
- - A sales charge is not 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.
- - If you exchange Class B or Class C shares of an unrelated mutual fund for
Class B or Class C shares of The Group in connection with a fund
reorganization, the CDSC applicable to your original shares (including the
period of time you have held those shares) will be applied to The One Group
shares you receive in the reorganization.
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 brokers and other 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 .25% of the average daily net assets of
the Fund.
2. Class B and Class C shares pay a 12b-1 fee of 1.00% of the average daily
net assets of the Fund. 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. Service Class shares pay a 12b-1 fee of .75% of the average daily net
assets of the Fund, which is currently being waived to .55%.
4. There are no 12b-1 fees for Class I 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. During the last fiscal year, The
One Group Services Company received 12b-1 fees totaling .25% and 1.00% of the
average daily net assets of Class A and Class B shares, respectively.
- - 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
- ----------------------------------------------------
WAIVER OF THE CLASS B SALES CHARGE
No sales charge is imposed on redemptions of Class B shares of the Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
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 joint 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. Exchanged 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.
WAIVER OF THE CLASS C SALES CHARGE
No sales charge is imposed on redemptions of Class C shares of the Funds:
1. Provided that you withdraw no more than 10% of the account value annually.
You do not have to participate in the Systematic Withdrawal Plan to take
advantage of this waiver.
2. If you buy the shares in connection with certain retirement plans, such as
401(k) and similar qualified plans.
<PAGE> 225
17
3. If you are the shareholder (or a joint 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 distributions from an IRA Account or other
qualifying retirement plan, but only if you are at least age 70 1/2.
5. Exchanged 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, is waiving its commission.
To take advantage of any of these sales charge waivers, you must qualify for
such waiver in advance. 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:
- - Class I shares of a Fund may be exchanged for Class A shares of that Fund or
for Class A or Class I shares of another Fund of The One Group.
- - Class A shares of a Fund may be exchanged for Class I shares of that Fund or
for Class A or Class I shares of another Fund of The One Group, but only if
you are eligible to purchase those shares.
- - Class B shares of a Fund may be exchanged for Class B shares of another Fund
of The One Group.
- - Class C shares of a Fund may be exchanged for Class C shares of another Fund
of The One Group.
- - Service Class shares do not have exchange privileges.
The One Group Funds offer a Systematic Exchange Privilege which allows you to
automatically exchange shares of one fund to another on a monthly or quarterly
basis. This privilege is useful in Dollar Cost Averaging. To participate in this
privilege, please select it on your account application. To learn more about it,
please call The One Group Services Company at 1-800-480-4111.
The One Group may change the terms and conditions of your exchange privileges
upon 60 days written notice. The One Group does not charge a fee for this
privilege.
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:
(i) 11:00 a.m. ET, for the Ohio Municipal Money Market Fund,
(ii) 12:00 noon ET, for the Municipal Money Market Fund, and
(iii) 2:00 p.m. ET, for the Prime Money Market Fund and the U.S. Treasury
Securities Money Market Fund.
- - 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 Class I 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:
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 a Fund, you will not pay a sales
charge at 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.
<PAGE> 226
18
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 for
Federal income tax purposes.
- - 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.
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 result in excessive transaction costs or otherwise adversely
affect other shareholders.
Redeeming
Fund Shares
- ----------------------------------------------------
WHEN CAN I REDEEM SHARES?
- - You may redeem all or some of your shares on any day that the Funds are open
for business.
- - Redemption requests received by The One Group Services Company before 4:00
p.m. ET (or when the NYSE closes), 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 to State Street Bank and Trust Company at the
following address:
State Street Bank and Trust Company
c/o The One Group
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
1-800-480-4111.
- - 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;
3. the redemption check is mailed to the shareholder at the record address;
or
4. the redemption is payable by wire or bank transfer (ACH) to a pre-existing
bank account.
- - On the Account Application Form you may elect to have the redemption proceeds
mailed or wired to:
1. a designated commercial bank; or
2. State Street Bank and Trust Company or your Shareholder Servicing Agent.
- - State Street Bank and Trust Company may charge you a wire redemption fee. The
current charge is $7.00.
- - Your redemption proceeds will ordinarily be paid within seven days after
receipt of the redemption request. However, the Funds will attempt to honor
requests for next day payment on redemptions, if the request is received
before:
(i) 11:00 a.m. ET, for the Ohio Municipal Money Market Fund,
(ii) 12:00 noon ET, for the Municipal Money Market Fund, and
(iii) 2:00 p.m. ET, for the Prime Money Market Fund and the U.S. Treasury
Securities Money Market Fund.
- - The Funds also will attempt to honor requests for payments in two business
days, if the redemption request is received after the times listed above.
WHAT WILL MY SHARES BE WORTH?
- - The NAV of shares of the Funds are expected to remain constant at $1.00 per
share, although there is no assurance that this will always be the case.
- - If you own Class A, Service Class or Class I shares, you will receive the NAV
calculated after your redemption request is received. Please read "How Much Do
Shares Cost?"
<PAGE> 227
19
- - If you own Class B or Class C shares, you will receive the NAV calculated
after your redemption request is received, 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 State Street Bank and Trust 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.
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. 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.
2. 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. You also may elect to receive payments
of less than $100 each.
3. 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. The redemption price of shares is expected
to remain constant at $1.00 per share, although there is no assurance that
this will always be the case.
- - 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 charges
a sub-minimum account fee. Accounts under $1,000 that are not participating in
a Systematic Investment Plan will be assessed an annual fee of $10.00. The
sub-minimum account fee will not apply to IRA accounts and the accounts of
employees of BANK ONE CORPORATION and its affiliates.
- - The One Group may suspend your ability to redeem when: 1) Trading on the NYSE
is restricted; 2) the NYSE is closed (other than weekend and holiday
closings); 3) the SEC has permitted a suspension; or 4) an emergency exists.
The Statement of Additional Information offers more details about this
process.
- - You generally will recognize a gain or loss on a redemption for Federal income
tax purposes. You should talk to your tax advisor before making a redemption.
<PAGE> 228
shareholder information
20
Voting Rights
- ----------------------------------------------------
The Funds do not hold annual shareholder meetings, but may hold special
meetings. The special meetings are held, for example, to elect or remove
Trustees, change a 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. Each Fund,
and each class of shares within each 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.
BANK ONE CORPORATION (One First National Plaza, Chicago, Illinois, 60670),
through its affiliates, may be deemed for purposes of The Investment Company Act
of 1940, to control the Funds. This is because as of July 30, 1998, BANK ONE
CORPORATION or its affiliates possessed the power to vote substantially all of
the Class I shares of the Funds. On the same date, the following shareholders
owned 25% or more of Class A, Class B, or Class C shares of the Funds. As a
consequence, they are considered to be controlling persons of those classes of
the Funds.
<TABLE>
<CAPTION>
PERCENTAGE OF TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C> <C>
Dean Witter FBO Prime Money Market 55.38% Record
Banc One Securities Fund
PO Box 250 Class A
Church Street Station
New York, NY 10013-0250
BISYS Fund Services Inc. Prime Money Market 34.99% Record
FBO Bank One Corporate Fund
3435 Stelzer Road Suite 1000 Class A
Columbus, OH 43219-6004
Strafe & Co. Prime Money Market 90.15% Record
Bank One Trust Co., NA Fund
Department 0393 S.T.I.F. Class I
Columbus, OH 43271-0001
BISYS Fund Services Inc. US Treasury Securities 38.66% Record
FBO Bank One Corporate Sweep Money Market Fund
3435 Stelzer Road Suite 1000 Class A
Columbus, OH 43219-6004
Dean Witter FBO US Treasury Securities 29.27% Record
Banc One Securities Money Market Fund
PO Box 250 Class A
Church Street Station
New York, NY 10013-0250
BISYS Fund Services Inc. US Treasury Securities 26.40% Record
FBO Bank One Texas Sweep Money Market Fund
3435 Stelzer Road Suite 1000 Class A
Columbus, OH 43219-6004
The One Group Services Company US Treasury Securities 86.96% Beneficial
C/O Fund Administration Money Market Fund
3435 Stelzer Road Class C
Columbus, OH 43219-6004
Strafe & Co. (N) US Treasury Securities 80.94% Record
Bank One Ohio Trust Co., NA Money Market Fund
Department 0393 S.T.I.F. Class I
Columbus, OH 43271-0001
Dean Witter FBO Municipal Money 58.27% Record
Banc One Securities Market Fund
PO Box 250 Class A
Church Street Station
New York, NY 10013-0250
</TABLE>
<PAGE> 229
21
<TABLE>
<CAPTION>
PERCENTAGE OF TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C> <C>
BISYS Fund Services Inc. Municipal Money 38.79% Record
FBO Banc One Corporate Sweep Market Fund
3435 Stelzer Road Suite 1000 Class A
Columbus, OH 43219-6004
Strafe & Co. (D) Municipal Money 96.77% Record
Bank One Ohio Trust Co., NA Market Fund
Department 0393 S.T.I.F. Class I
Columbus, OH 43271-0001
Dean Witter FBO Ohio Municipal Money 99.10% Record
Banc One Securities Market Fund
PO Box 250 Class A
Church Street Station
New York, NY 10013-0250
Strafe & Co. Ohio Municipal Money 97.33% Record
C/O Bank One Trust Co. Market Fund
Attn: Mutual Funds Class I
100 E. Broad Street
Columbus, OH 43215-3607
</TABLE>
Dividend Policies
- ----------------------------------------------------
DIVIDENDS
The Funds generally declare dividends on each business day. Dividends are
distributed on the first business day of each month. Capital gains, if any, for
all Funds are distributed at least annually.
Dividends payable on Class I shares will be more than those payable on other
classes of shares. This is because Class A, Class B, Class C and Service Class
shares have higher distribution expenses.
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 Funds
- ----------------------------------------------------
TAX STATUS OF THE FUND
Each Fund intends to qualify as a "regulated investment company" for Federal
income tax purposes. If the Funds qualify, as they have in the past, they will
pay no federal income tax on the earnings they distribute to shareholders.
Tax Treatment of Shareholders
- ----------------------------------------------------
TAXATION OF SHAREHOLDER TRANSACTIONS
A sale, exchange, or redemption of Fund shares will generally produce either a
taxable gain or a loss. You are responsible for any tax liabilities generated by
your transactions.
TAXATION OF DISTRIBUTIONS -- PRIME MONEY MARKET FUND AND U.S. TREASURY
SECURITIES MONEY MARKET FUND
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to investors on at
least an annual basis. Dividends you receive from a Fund, whether reinvested or
received in cash, will be taxable to you. Dividends from a 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,
<PAGE> 230
22
will be considered to have been paid the previous December.
TAXATION OF DIVIDENDS -- THE OHIO MUNICIPAL MONEY MARKET FUND AND THE MUNICIPAL
MONEY MARKET FUND
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to investors on at
least an annual basis. These Funds may pay "exempt-interest dividends" if at
least 50% of the value of Fund assets at the end of each quarter of the Fund's
taxable year consists of obligations the interest on which is excludable from
gross income. Exempt-interest dividends are generally excludable from an
investor's gross income for regular Federal income tax purposes. However, the
receipt of exempt-interest dividends may cause recipients of Social Security or
Railroad Retirement benefits to be taxed on a portion of such benefits. In
addition, the receipt of exempt-interest dividends may result in liability for
Federal alternative minimum tax and for state and local taxes, both for
individuals and corporate shareholders. Corporate shareholders will be required
to take the interest on municipal securities into account in determining their
alternative minimum taxable income.
OHIO TAXATION OF DIVIDENDS FROM THE OHIO MUNICIPAL MONEY MARKET FUND
Dividends received from the Ohio Municipal Money Market Fund that result from
interest on Ohio municipal securities are exempt from the Ohio personal income
tax. Some Ohio statutes provide that interest on and gain from the sale of Ohio
municipal securities is exempt from all taxation in Ohio. Dividends that are
attributable to interest on or gain from the sale of certain obligations issued
under such statutes should be exempt from Ohio personal income tax. Ohio
municipalities may not impose income taxes on dividends on any intangible
property (including such property of the Fund) unless the intangible income was
not exempt from municipal income taxation before April 2, 1986 and the tax was
approved in an election held on November 8, 1988. Corporate shareholders will be
required to include the interest on Ohio municipal securities in their
alternative minimum-taxable income. In addition, corporate shareholders must
include the Fund shares in the corporation's tax base for purposes of the Ohio
franchise tax net worth computation, but not for the net income computation.
Information in this paragraph is based on current statutes and regulations as
well as current policies of the Ohio Department of Taxation, all of which may
change.
TAXATION OF RETIREMENT PLANS
Distributions by the Funds 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 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.
TAX INFORMATION
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category. Even though the Funds provide 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.
REPORTING
In 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.
<PAGE> 231
organization and management of the funds
fund name
23
THE FUNDS
Each Fund is a series of The One Group, an open-end management investment
company. The One Group currently consists of 40 separate Funds. Four of the
Funds are described in this prospectus; the other Funds are described in
separate prospectuses. Each Fund is supervised by the Board of Trustees.
THE BOARD OF TRUSTEES
The Trustees oversee the management and administration of the Funds. The
Trustees are responsible for making major decisions about each Fund's investment
objectives and policies, but delegate the day-to-day administration of the Funds
to the officers of The One Group.
THE ADVISOR
Banc One Investment Advisors makes the day-to-day investment decisions for the
Funds and continuously reviews, supervises and administers the Funds' 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 June 30, 1998,
Banc One Investment Advisors, an indirect, wholly-owned subsidiary of BANK ONE
CORPORATION, managed over $59 billion in assets.
For the fiscal year ended June 30, 1998, the Funds paid investment advisory fees
at the following rate:
<TABLE>
<CAPTION>
Annual Rate As Percentage
of Average Daily Net Assets
<S> <C> <C> <C>
The One Group(R) Prime Money Market Fund .32%
The One Group(R) Municipal Money Market
Fund .25%
The One Group(R) Ohio Municipal Money
Market
Fund .24%
The One Group(R) U.S. Treasury Securities
Money
Market Fund .30%
</TABLE>
THE DISTRIBUTOR
The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio 43219, a
wholly-owned subsidiary of The BISYS Group, Inc., markets the Funds 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 Funds' administrator. The One
Group Services Company is responsible for responding to shareholder inquiries
and requests for information, as well as providing regulatory compliance and
reporting. 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 Funds are not included in the
calculations. 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 record
keeping and statements, distributes dividends, and processes buy and sell
requests. As the Funds' custodian, State Street holds the Funds' assets, settles
all portfolio trades and assists in calculating the Funds' net asset values.
Bank One Trust Company, N.A. serves as sub-custodian in connection with the
Funds' securities lending activities under an agreement with State Street Bank
and Trust Company. Bank One Trust Company, N.A. is paid a fee for this service.
YEAR 2000
Preparing for the Year 2000 is a high priority for The One Group Family of
Mutual Funds. Both The One Group Services Company and Banc One Investment
Advisors have formed dedicated teams to help them successfully achieve Year 2000
compliance. In addition, these teams are responsible for assessing the readiness
of all other service providers to The One Group. Year 2000 remediation efforts
are directed toward both information technology and non-information technology
systems. Non-information technology systems include elevators, photocopy
machines, and facsimile machines,
<PAGE> 232
24
and should have no significant impact on the delivery of services to The One
Group.
Banc One Investment Advisors has identified 49 information technology systems
and interfaces that provide service and support to The One Group. Each system is
assigned a priority rating: high, medium or low. Systems rated "high" are those
which are essential to the operation of The One Group. Each system rated "high"
is scheduled to be Year 2000 compliant by December 31, 1998. All systems will be
tested for compliance throughout 1999.
Many, if not all, of the systems are owned or operated by third party servicers
(for example, The One Group's Custodian). Consequently, remediation efforts must
be made by those servicers. Banc One Investment Advisors and The One Group
Services Company have, and will continue to, monitor the remediation progress of
the service providers. This process involves documentation, on-site visits, and
review of remediation plans and test results. Both Banc One Investment Advisors
and The One Group Services Company have budgeted in excess of $700,000 in fiscal
year 1998 and over $1 million in fiscal year 1999 toward the remediation effort
for all systems and interfaces. Neither The One Group nor its shareholders will
bear any of the direct remediation expenses.
Neither The One Group Services Company nor Banc One Investment Advisors
currently anticipates that the move to Year 2000 will have a material impact on
their ability to continue to provide the Funds with service at current levels.
Likewise, The One Group currently anticipates that the move to Year 2000 will
not have a material impact on its operations.
<PAGE> 233
details about the funds' investment practices and policies
fund name
25
Investment Practices
The Funds invest in a variety of securities and employ 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 Funds, as well as the
risks inherent in their use. 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. Following the table is a more complete discussion of
risk.
<TABLE>
<CAPTION>
fund code
<S> <C> <C> <C>
The One Group(R) Prime Money Market Fund 1
The One Group(R) Municipal Money Market Fund 2
The One Group(R) Ohio Municipal Money Market Fund 3
The One Group(R) U.S. Treasury Securities Money
Market Fund 4
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, STRIPS, and 1-4 Market
CUBES. The U.S. Treasury Securities Money Market Fund does
not buy STRIPS and CUBES.
TREASURY RECEIPTS: TRS, TIGRS, and CATS. 1-3 Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-3 Market
agencies and instrumentalities of the U.S. Government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1-3 Market
stated maturity. Credit
Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 1-3 Liquidity
exchange for the deposit of funds. Credit
Market
REPURCHASE AGREEMENTS: The purchase of a security and the 1-4 Credit
simultaneous commitment to return the security to the seller Market
at an agreed upon price on an agreed upon date. This is Liquidity
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 1-2 Market
simultaneous commitment to buy the security back at an Leverage
agreed upon price on an agreed upon date. This is treated as
a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 33% of the 1-4 Credit
securities owned by a Fund. In return the Fund will receive Market
cash and/or other securities as collateral. Leverage
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1-4 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Liquidity
INVESTMENT COMPANY SECURITIES: Shares of other mutual funds, 1-3 Market
including money market funds 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 when
investing in funds for which it serves as investment
advisor.
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 1-3 Credit
on and accepted by a commercial bank. Maturities are Liquidity
generally six months or less. Market
COMMERCIAL PAPER: Secured and unsecured short-term 1-3 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
</TABLE>
<PAGE> 234
26
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN SECURITIES: Commercial paper of foreign issuers and 1 Market
obligations of foreign banks, overseas branches of U.S. Political
banks and supranational entities. Liquidity
Foreign
Investment
RESTRICTED SECURITIES: Securities not registered under the 1-3 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1-3 Market
interest rates which are reset daily, weekly, quarterly or Credit
some other period and which may be payable to the Fund on Liquidity
demand.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 1-3 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations ("CMOs") and Real Estate Credit
Mortgage Investment Conduits ("REMICs"). Regulatory
DEMAND FEATURES: Securities that are subject to puts and 1-3 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
MUNICIPAL SECURITIES: Securities issued by a state or 1-3 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include private activity Political
bonds and industrial development bonds, as well as General Tax
Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Project Notes, other
short-term tax-exempt obligations, municipal leases, and
obligations of municipal housing authorities and single
family revenue bonds.
SHORT-TERM FUNDING AGREEMENTS: Agreements issued by banks 1 Market
and highly rated insurance companies such as Guaranteed Credit
Investment Contracts ("GICs") and Bank Investment Contracts Liquidity
("BICs").
PARTICIPATION INTERESTS: Interests in municipal securities, 1-3 Credit
including municipal leases, from financial institutions such Tax
as commercial and investment banks, savings and loan Market
associations and insurance companies. These interests may
take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect
ownership that allows the Funds to treat the income from the
investment as exempt from Federal Income Tax.
ASSET-BACKED SECURITIES: Securities secured by company 1, 2 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets. Regulatory
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 235
27
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 Funds may fluctuate, as will the value of
your investment in the Funds. 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 become 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.
- - LEVERAGE RISK. The risk associated with securities or practices (such as
borrowing) that multiply small index or market movements into large changes in
value.
- - LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that normally prevails 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. 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. Risks associated with higher transaction costs,
delayed settlements, currency controls, and adverse economic developments.
This also 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. Pre-payments generally accelerate when interest rates decline.
When mortgage and other obligations are pre-paid, a Fund may have to reinvest
in securities with a lower yield. Further, with early repayment, a Fund may
fail to recoup 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.
INVESTMENT POLICIES
- ----------------------------------------------------
Each Fund's investment objective and the 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 Funds. In addition to the fundamental
policies mentioned earlier, the following fundamental policies apply to each
Fund as specified. The full text of the fundamental policies can be found in the
Statement of Additional Information.
<PAGE> 236
28
FUNDAMENTAL POLICIES OF EACH FUND
Each Fund:
1. Will use its best efforts to maintain a constant net asset value of $1.00 per
share, although there is no guarantee that the Funds will be able to do so.
2. Will not make loans, except that a 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.
FUNDAMENTAL POLICIES OF SPECIFIC FUNDS
The Prime Money Market Fund:
1. Will not concentrate its investments in the securities of one or more issuers
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, domestic bank
certificates of deposit or bankers' acceptances, and repurchase agreements
involving such securities, municipal securities or governmental guarantees of
municipal securities. In addition, private activity bonds backed only by the
revenues and assets of a non-governmental user will not be deemed to be
municipal securities.
The Prime Money Market Fund, the Municipal Money Market Fund and the U.S.
Treasury Securities Money Market Fund:
1. Will not purchase an issuer's securities if as a result more than 5% of a
Fund's 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, and repurchase agreements
involving these securities. This restriction applies with respect to 75% of a
Fund's total assets. The Funds may invest the remaining 25% of their total
assets without restriction.
The U.S. Treasury Securities Money Market Fund:
1. Will invest only in U.S. Treasury obligations and repurchase agreements
collateralized by such obligations.
The Ohio Municipal Money Market Fund:
1. Will not purchase an issuer's securities if as a result more than 25% 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 50% of the Fund's total assets. With
respect to the remaining 50% of its total assets, the Fund will not purchase
an issuer's securities if as a result more than 5% of its total assets would
be invested in the securities of that issuer.
2. Will not concentrate its investments in the securities of one or more issuers
conducting their principal business in a particular industry or group of
industries. This does not include municipal securities or governmental
guarantees of municipal securities. In addition, private activity bonds
backed only by the assets and revenues of a non-governmental user will not be
deemed to be Ohio municipal securities.
The Municipal Money Market Fund:
1. Will not concentrate its investments in the securities of one or more issuers
conducting their principal business in a particular industry or group of
industries. This does not include municipal securities or governmental
guarantees of municipal securities. In addition, private activity bonds
backed only by the revenues and assets of a non-governmental user will not be
deemed to be municipal securities.
Additional investment policies can be found in the Statement of Additional
Information.
TEMPORARY DEFENSIVE POSITION
Sometimes the Ohio Municipal Money Market Fund and the Municipal Money Market
Fund may temporarily invest up to 100% of their total assets in securities that
are not municipal securities, such as taxable money market instruments
(including repurchase agreements) and may hold uninvested cash pending
investment. While the Funds are engaged in a temporary defensive position, they
will not be pursuing their investment objectives. Therefore, the Funds will
pursue a temporary defensive position only when market conditions warrant.
<PAGE> 237
appendix
29
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.
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.
FITCH'S IBCA, INC ("FITCH")
F1 Highest capacity for timely repayment. Those issues rated F1+ possess a
particularly strong credit feature.
F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
MOODY'S INVESTORS SERVICE ("MOODY'S")
PRIME-1 Superior ability for repayment.
PRIME-2 Strong ability for repayment.
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.
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.
<PAGE> 238
30
DESCRIPTION OF INSURANCE RATINGS
MOODY'S
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.
S&P
S&P's credit rating is a current opinion of the creditworthiness of an obligor
with respect to a specific financial obligation, a specific class of financial
obligations, or a specific financial program.
AAA This is 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 An obligation rated A 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.
DESCRIPTION OF CORPORATE/
MUNICIPAL BOND RATINGS
S&P
Investment Grade
AAA The highest rating. The rating indicates an extremely strong capacity to
meet its financial commitment.
AA Differs from AAA issues only in a small degree. The obligor's capacity
to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories. However, capacity to meet its financial commitment on
the obligations is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligations.
Speculative Grade
BB Less vulnerable to non-payment than other speculative issues. However,
these bonds face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on the obligation.
B More vulnerable to non-payment than obligations rated BB, but currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions will likely impair the capacity to
meet its financial commitment on the obligation.
CC Currently highly vulnerable to non-payment.
C This rating may be 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 Bonds in payment default.
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
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 or fluctuation of protective elements may be
greater, or there may be other elements present that make the
<PAGE> 239
31
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).
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. Ca is the lowest rating.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
MOODY'S
MIG1 &
VMIG1
Short-term municipal securities rated MIG1 or are of the best VMIG1 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 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.
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.
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 ad-
<PAGE> 240
32
verse 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.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") assigns ratings to specific debt instruments
with original maturities of one year or less. 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.
<PAGE> 241
INVESTMENT ADVISOR AND SUB-ADMINISTRATOR
Banc One Investment Advisors Corporation
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 8500
Boston, MA 02266-8500
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, OH 43215
THE STATEMENT OF ADDITIONAL INFORMATION CON-
TAINS MORE DETAILED INFORMATION ABOUT THE FUNDS.
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.
TOG-F-124
<PAGE> 1
Exhibit 17(b)
Prospectus April 30, 1998 PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH,
MASSACHUSETTS 01581
24 HOUR YIELD AND
PERFORMANCE
INFORMATION
PURCHASE AND
REDEMPTION ORDERS:
(800) 688-3350
Pegasus Funds (the "Trust") is offering in this Prospectus Class A shares,
Class B shares and Class I shares in the following twenty-two investment
portfolios (the "Funds"), divided into four general fund types: Asset
Allocation; Equity; Bond; and Municipal Bond:
BOND FUNDS
ASSET ALLOCATION FUNDS
The Intermediate Bond Fund
The Managed Assets Conservative Fund
The Bond Fund
The Managed Assets Balanced Fund
The Short Bond Fund
The Managed Assets Growth Fund
The Multi Sector Bond Fund (formerly
EQUITY FUNDS the Income Fund)
The Equity Income Fund The International Bond Fund
The Growth Fund The High Yield Bond Fund
The Mid-Cap Opportunity Fund MUNICIPAL BOND FUNDS
The Small-Cap Opportunity Fund The Municipal Bond Fund
The Intrinsic Value Fund The Short Municipal Bond Fund
The Growth and Value Fund The Intermediate Municipal Bond Fund
The Equity Index Fund The Michigan Municipal Bond Fund
The Market Expansion Index Fund
The International Equity Fund
This Prospectus sets forth concisely information that a prospective investor
should consider before investing. Investors should read this Prospectus and
retain it for future reference. Additional information about the Trust,
contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request
and without charge by writing to the Trust at the above address. The Statement
of Additional Information bears the same date as this Prospectus and is
incorporated by reference into this Prospectus in its entirety.
Investors should recognize that the share price, yield and investment return
of each Fund fluctuate and are not guaranteed.
THE HIGH YIELD BOND FUND'S PORTFOLIO CONSISTS PRIMARILY OF LOWER-RATED
CORPORATE DEBT OBLIGATIONS, WHICH ARE COMMONLY REFERRED TO AS "JUNK BONDS."
THESE LOWER-RATED BONDS MAY BE MORE SUSCEPTIBLE TO REAL OR PERCEIVED ADVERSE
ECONOMIC CONDITIONS THAN INVESTMENT GRADE BONDS. THESE LOWER-RATED BONDS ARE
REGARDED AS PREDOMINANTLY SPECULATIVE WITH REGARD TO EACH ISSUER'S CONTINUING
ABILITY TO MAKE INTEREST AND PRINCIPAL PAYMENTS (I.E., THE BONDS ARE SUBJECT TO
THE RISK OF DEFAULT). IN ADDITION, THE SECONDARY TRADING MARKET FOR LOWER-RATED
BONDS MAY BE LESS LIQUID THAN THE MARKET FOR INVESTMENT GRADE BONDS. PURCHASERS
SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE HIGH
YIELD BOND FUND. SEE THE SECTIONS OF THIS PROSPECTUS ENTITLED "RISK FACTORS --
LOWER-RATED SECURITIES" AND "SUPPLEMENTAL INFORMATION." THE HIGH YIELD BOND
FUND'S SUB-ADVISER WILL ENDEAVOR TO LIMIT THESE RISKS THROUGH DIVERSIFYING THE
PORTFOLIO AND THROUGH CAREFUL CREDIT ANALYSIS OF INDIVIDUAL ISSUERS.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED
OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS AFFILIATES, AND
ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY. INVESTMENT IN THE TRUST
INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
Table of Contents
3 Highlights
5 Background
6 Fund Expenses
13 Financial Highlights
31 Description of the Funds
39 How to Buy Shares
44 Shareholder Services
46 How to Redeem Shares
48 Management of the Trust
51 Distribution and Shareholder Services Plans
52 Dividends and Distributions
52 Taxes
54 Performance Information
55 General Information
A-1 Supplemental Information
B-1 Debt Ratings
<PAGE> 3
Highlights
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each Fund's investment objective is set forth on pages 4 and 5 of this
Prospectus. Each Asset Allocation Fund will invest substantially all of its
assets in Class I shares in each of the Funds described in this Prospectus,
other than the Market Expansion Index Fund and Municipal Bond Funds, and in
Class I shares in the Pegasus Money Market Fund, a diversified portfolio of the
Trust also described in this Prospectus whose shares are offered by a separate
Prospectus (the "Money Market Fund") (collectively, the "Underlying Funds").
INVESTMENT ADVISER
First Chicago NBD Investment Management Company ("FCNIMCO") is the investment
adviser to each of the Funds (the "Investment Adviser"). Each Fund has agreed
to pay the Investment Adviser an annual fee as set forth under "Management of
the Funds." Federated Investment Counseling ("Federated" or the "Sub-Adviser")
serves as sub-adviser to the High Yield Bond Fund. The Sub-Adviser's fee is
paid by FCNIMCO and not by the High Yield Bond Fund.
DESCRIPTION OF CLASSES
Each Fund offers Class A shares, Class B shares and Class I shares. Each share
represents an identical pro rata interest in a Fund's investment portfolio.
Class A shares are sold at net asset value per share plus an initial sales
charge imposed at the time of purchase. The initial sales charge may be reduced
or waived for certain purchases. Class A shares of each Fund are subject to a
shareholder servicing fee.
Class B shares are sold at net asset value per share with no initial sales
charge at the time of purchase; as a result, the entire purchase price is
immediately invested in the Fund. Class B shares may be subject to a contingent
deferred sales charge ("CDSC") and are subject to a distribution fee and
shareholder servicing fee.
Class I shares are sold at net asset value with no sales charge to qualified
trust, custody and/or agency account clients of The First National Bank of
Chicago ("FNBC"), NBD Bank ("NBD"), American National Bank and Trust Company
("ANB") or their affiliates, qualified retirement, profit sharing, 401(k) or
other employee benefit plans or other programs, broker-dealers, registered
investment advisers and other financial institutions which have entered into an
agreement with a "mutual fund supermarket" or similar program, and the Asset
Allocation Funds.
See "How to Buy Shares" on page 39 of this Prospectus.
HOW TO BUY SHARES
Class A and Class B shares may be purchased through a number of institutions
including the Investment Adviser, NBD, FNBC, ANB and their affiliates,
including First Chicago NBD Investment Services, Inc. ("FCNIS"), a registered
broker-dealer, BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("Distributor" or "BISYS"), which serves the Trust as its distributor,
and certain banks, securities dealers and other industry professionals such as
investment advisers, accountants and estate planning firms (collectively,
"Service Agents").
The minimum initial investment is $1,000. All subsequent investments must be
at least $100.
Investors purchasing Class I shares through their Fiduciary Accounts (as
defined under "How to Buy Shares") at the Investment Adviser, NBD, FNBC, ANB or
their affiliates should contact such entity directly for appropriate
instructions, as well as for information about conditions pertaining to the
account and any related fees. Class I shares may be purchased for a Fiduciary
Account or Eligible Retirement Plan (as defined under "How to Buy Shares") only
by a custodian, trustee, investment manager or other entity authorized to act
on behalf of such Account or Plan.
See "How to Buy Shares" on page 39 of this Prospectus.
SHAREHOLDER SERVICES
The Funds offer shareholders certain services and privileges including:
Exchange Privilege, Letter of Intent and Automatic Investment Plan. Certain
services and privileges may not be available through all Service Agents.
See "Shareholder Services" on page 44 of this Prospectus.
HOW TO REDEEM SHARES
Generally, investors should contact their representatives at the Investment
Adviser, NBD, FNBC, ANB or appropriate Service Agent or financial institution
for redemption instructions. Investors who are not clients of the Investment
Adviser, NBD, FNBC, ANB or a Service Agent or financial institution may redeem
Fund shares by written request to First Data Investor Services Group, Inc. (the
"Transfer Agent").
See "How to Redeem Shares" on page 46 of this Prospectus.
Pegasus Funds
3
<PAGE> 4
INVESTMENT RISKS
Investments in the Funds are subject to a number of risks. Certain of the Funds
may invest in equity securities, debt securities, lower-rated securities
(commonly known as junk bonds), foreign securities, foreign currency and
foreign commodity transactions, mortgage-related securities, derivative
instruments and in other Funds. Additionally, the International Equity,
International Bond, Municipal Bond, Short Municipal Bond, Intermediate
Municipal Bond and Michigan Municipal Bond Funds are non-diversified. See
"Description of the Funds--Risk Factors" on page 36 of this Prospectus for a
description of certain risks associated with such investments and with an
investment in non-diversified funds.
Pegasus Funds
ASSET ALLOCATION FUNDS
These Funds offer investors a convenient means of investing in shares of the
Underlying Funds in order to achieve a target asset allocation in the Equity,
Debt and Cash Equivalent market sectors.
The MANAGED ASSETS CONSERVATIVE FUND seeks to provide long-term total return;
capital appreciation is a secondary consideration.
The MANAGED ASSETS BALANCED FUND seeks to achieve long-term total return
through a combination of capital appreciation and current income.
The MANAGED ASSETS GROWTH FUND seeks to achieve long-term total return;
current income is a secondary consideration.
EQUITY FUNDS
These Funds will invest principally in common stocks, preferred stocks and
convertible securities, including those in the form of depository receipts, as
well as warrants to purchase such securities (collectively, "Equity
Securities"):
The EQUITY INCOME FUND seeks to provide income; capital appreciation and
growth of earnings are secondary, but nonetheless important, goals. In seeking
to achieve its objective, this Fund will invest primarily in income-producing
Equity Securities of domestic issuers.
The GROWTH FUND seeks long-term capital appreciation. In seeking to achieve
its objective, this Fund will invest primarily in Equity Securities of domestic
issuers believed by the Investment Adviser to have above-average growth
characteristics.
The MID-CAP OPPORTUNITY FUND seeks to achieve long-term capital appreciation.
In seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of companies with intermediate market capitalizations.
The SMALL-CAP OPPORTUNITY FUND seeks long-term capital appreciation. In
seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of companies with small capitalizations.
The INTRINSIC VALUE FUND seeks to provide long-term capital appreciation. In
seeking to achieve its objective, this Fund will invest primarily in Equity
Securities believed by the Investment Adviser to represent a value or potential
worth which is not fully recognized by prevailing market prices.
The GROWTH AND VALUE FUND seeks to achieve long-term capital growth, with
income a secondary consideration. In seeking to achieve its objective, this
Fund will invest primarily in Equity Securities of larger companies that are
attractively priced relative to their growth potential.
The EQUITY INDEX FUND seeks to provide a return which substantially duplicates
the price and yield performance of domestically traded common stock in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index").
The MARKET EXPANSION INDEX FUND seeks to provide a return which substantially
duplicates the price and yield performance of domestically traded common stocks
in the small and mid capitalization equity markets, as represented by a market
capitalization weighted combination of the Standard & Poor's SmallCap 600 Index
("S&P SmallCap Index") and the Standard & Poor's MidCap 400 Index ("S&P MidCap
Index").
The INTERNATIONAL EQUITY FUND seeks to achieve long-term capital appreciation.
In seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of foreign issuers.
BOND FUNDS
These Funds will invest principally in a broad range of debt securities ("Debt
Securities"). Debt Securities in which the Bond Funds normally invest include:
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (ii) corporate, bank and commercial obligations; (iii)
securities issued or guaranteed by foreign governments, their agencies or
instrumentalities; (iv) securities issued by supranational banks; (v) mortgage
backed securities; (vi) securities representing interests in pools of assets;
and (vii) variable-rate bonds, zero coupon bonds, debentures, and various types
of demand instruments. Obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities may include mortgage backed securities, as
well as "stripped securities" (both interest-only and principal-only) and
custodial receipts for Treasury securities:
The INTERMEDIATE BOND FUND seeks to maximize total rate of return while
providing relative stability of principal by investing predominantly in
intermediate-term Debt Securities. While the Fund may purchase securities with
maturities or average lives of up to 15 years, during normal market conditions,
its average portfolio maturity is expected to be between 3 and 6 years.
4
Pegasus Funds
<PAGE> 5
The BOND FUND seeks to maximize total rate of return by investing
predominantly in intermediate and long-term Debt Securities. During normal
market conditions, the Fund's average weighted portfolio maturity is expected
to be between 6 and 12 years.
The SHORT BOND FUND seeks to maximize total rate of return while providing
relative stability of principal. While the Fund may purchase Debt Securities
with maturities or average lives of up to 10 years, during normal market
conditions, its average weighted portfolio maturity will be limited to a
maximum of 3 years.
The MULTI SECTOR BOND FUND seeks to provide as high a level of current income
as is consistent with relative stability of principal. In seeking to achieve
its objective, this Fund will invest primarily in a portfolio of U.S. dollar
denominated investment grade Debt Securities of domestic and foreign issuers
which, under normal market conditions, will have a dollar-weighted average
maturity expected to range between 3 and 10 years.
The INTERNATIONAL BOND FUND seeks both long-term capital appreciation and
current income. In seeking to achieve its objective, the Fund will invest
primarily in investment grade Debt Securities of foreign issuers.
The HIGH YIELD BOND FUND seeks high current income. In seeking to achieve its
objective, the Fund will invest primarily in a diversified portfolio of fixed
income securities which, under normal market conditions, are expected to be
lower-rated corporate debt obligations or unrated obligations of comparable
quality.
MUNICIPAL BOND FUNDS
These Funds will invest principally in obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their respective political subdivisions, agencies (including
multi-state agencies), instrumentalities and authorities, the interest from
which is, in the opinion of bond counsel for the issuers, exempt from regular
federal income tax ("Municipal Obligations"):
The MUNICIPAL BOND FUND seeks to provide as high a level of current income
exempt from federal income tax as is consistent with relative stability of
principal. In seeking to achieve its objective, this Fund will invest primarily
in a portfolio of investment grade Municipal Obligations without regard to
maturity.
The SHORT MUNICIPAL BOND FUND seeks to provide as high a level of current
income exempt from federal income tax as is consistent with relative stability
of principal. In seeking to achieve its objective, this Fund will invest
primarily in a portfolio of investment grade Municipal Obligations which, under
normal market conditions, will have a dollar-weighted average maturity
generally between one and three years.
The INTERMEDIATE MUNICIPAL BOND FUND seeks to provide as high a level of
current income exempt from federal income tax as is consistent with relative
stability of principal. In seeking to achieve its objective, this Fund will
invest primarily in a portfolio of investment grade Municipal Obligations
which, under normal conditions, will have a dollar-weighted average maturity
expected to range between 3 and 10 years.
The MICHIGAN MUNICIPAL BOND FUND seeks to provide as high a level of current
income exempt from federal, and to the extent possible, from State of Michigan
income taxes as is consistent with relative stability of principal. In seeking
to achieve its objective, this Fund will invest primarily in a portfolio of
investment grade debt obligations issued by the State of Michigan, its
political subdivisions, municipalities, corporations and authorities, and
certain territories and possessions of the United States; the interest on which
is, in the opinion of bond counsel to the issuers, exempt from federal and
State of Michigan income taxes ("Michigan Municipal Obligations") without
regard to maturity.
Background
Shares of each of the Funds have been classified into three separate classes of
shares--Class A shares, Class B shares and Class I shares. Each share
represents an equal proportionate interest in the related Fund.
Pegasus Funds
5
<PAGE> 6
Fund Expenses
The purpose of the following tables is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear, the payment of
which will reduce an investor's return on an annual basis.
Expense Table
<TABLE>
<CAPTION>
CLASS A CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX, BOND, EQUITY INDEX,
MARKET EXPANSION INTERNATIONAL MARKET EXPANSION
INDEX+, MULTI BOND, HIGH INDEX+, MULTI
SECTOR BOND, YIELD BOND, SECTOR BOND,
INTERMEDIATE MUNICIPAL INTERMEDIATE
SHORT BOND BOND AND BOND AND SHORT BOND BOND AND
AND SHORT INTERMEDIATE MICHIGAN ALL AND SHORT INTERMEDIATE ALL
SHAREHOLDER MUNICIPAL MUNICIPAL MUNICIPAL OTHER MUNICIPAL MUNICIPAL OTHER
TRANSACTION EXPENSES BOND FUNDS BOND FUNDS BOND FUNDS FUNDS BOND FUNDS BOND FUNDS FUNDS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 1.00% 3.00% 4.50% 5.00% None None None
- -----------------------------------------------------------------------------------------------------------------------------
Transaction Fee Imposed on Purchases+ None 0.50%+ None None None 0.50%+ None
- -----------------------------------------------------------------------------------------------------------------------------
Sales Charge on Reinvested Dividends None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge Imposed On
Redemptions (as a percentage of the
amount subject to charge) None* None* None* None* 1.00% 3.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None None None
<CAPTION>
CLASS I
SHAREHOLDER ALL
TRANSACTION EXPENSES FUNDS+
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
- -----------------------------------------------------------------------------------------------------------------------------
Transaction Fee Imposed on Purchases+ 0.50%+
- -----------------------------------------------------------------------------------------------------------------------------
Sales Charge on Reinvested Dividends None
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge Imposed On
Redemptions (as a percentage of the
amount subject to charge) None
- -----------------------------------------------------------------------------------------------------------------------------
Redemption Fees None
- -----------------------------------------------------------------------------------------------------------------------------
Exchange Fees None
</TABLE>
- --------------------------------------------------------------------------------
* A contingent deferred sales charge of up to 1.00% may be assessed on certain
redemptions of Class A shares purchased without an initial sales charge as
part of an investment of $1 million or more.
+ A transaction fee only applies to the Market Expansion Index Fund. To prevent
the Market Expansion Index Fund from being adversely affected by the
transaction costs associated with share purchases, the Fund will sell shares
at a price equal to the net asset value of the shares plus a transaction fee
equal to 0.50% of such value. Such fees are not sales charges, but are
retained by the Fund for the benefit of all shareholders. This fee will not
apply to in-kind contributions, reinvested dividends or capital gain
contributions; however, it will apply to exchanges. Furthermore, a sales
charge will also be imposed on purchases of Class A shares. Currently, a
transaction fee is not being charged; however, the Fund reserves the right to
impose this fee at a future date. See "Transaction Fee Imposed on Share
Purchases" below.
Pegasus Funds
6
<PAGE> 7
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Class A Shares
<TABLE>
<CAPTION>
MANAGEMENT 12B- TOTAL
FEES AFTER 1 OTHER OPERATING
WAIVERS FEES EXPENSES(1) EXPENSES(1)(4)
- -------------------------------------------------------------------------------
ASSET ALLOCATION FUNDS:
<S> <C> <C> <C> <C>
Managed Assets Conservative
Fund 0.52%(2)(3) None 0.73%(2)(3) 1.25%(2)(3)
Managed Assets Balanced
Fund 0.52%(2)(3) None 0.73%(2)(3) 1.25%(2)(3)
Managed Assets Growth Fund 0.23%(2)(3) None 1.02%(2)(3) 1.25%(2)(3)
- -------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund 0.50% None 0.45% 0.95%
Growth Fund 0.60% None 0.47% 1.07%
Mid-Cap Opportunity Fund 0.60% None 0.54% 1.14%
Small-Cap Opportunity Fund 0.70% None 0.49% 1.19%
Intrinsic Value Fund 0.60% None 0.49% 1.09%
Growth and Value Fund 0.60% None 0.51% 1.11%
Equity Index Fund 0.10% None 0.55% 0.65%
Market Expansion Index Fund 0.00%(3) None 0.82%(3) 0.82%(3)
International Equity Fund 0.80% None 0.52% 1.32%
- -------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund 0.40% None 0.50% 0.90%
Bond Fund 0.40% None 0.48% 0.88%
Short Bond Fund 0.35% None 0.49% 0.84%
Multi Sector Bond Fund 0.40% None 0.50% 0.90%
International Bond Fund 0.52%(3) None 0.63%(3) 1.15%(3)
High Yield Bond Fund 0.60%(3) None 0.54%(3) 1.14%(3)
- -------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% None 0.48% 0.88%
Short Municipal Bond Fund 0.33%(3) None 0.54%(3) 0.87%(3)
Intermediate Municipal Bond
Fund 0.40% None 0.45% 0.85%
Michigan Municipal Bond
Fund 0.40% None 0.51% 0.91%
</TABLE>
- --------------------------------------------------------------------------------
(1) Other Expenses and Total Operating Expenses for each Fund reflect current
expenses.
(2) Expenses for the Asset Allocation Funds include expenses borne indirectly
by them in connection with their investments in the Underlying Funds. There
is no layering of fees--see "Management of the Funds--Investment Adviser
and Co-Administrators" on page 48 for additional information regarding the
fees related to the "fund of funds" structure of the Asset Allocation
Funds.
(3) Absent fee waivers and/or expense reimbursements, Total Operating Expenses
applicable to Class A shares of the Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Market Expansion Index,
International Bond, High Yield Bond and Short Municipal Bond Funds would
have been 1.38%, 1.38%, 1.67%, 1.17%, 1.33%, 1.24% and 0.94%, respectively.
(4) The Investment Adviser has voluntarily agreed to limit the total operating
expenses of the Funds as stated below:
<TABLE>
<S> <C>
Managed Assets Conservative Fund 1.25%
Managed Assets Balanced Fund 1.25%
Managed Assets Growth Fund 1.25%
Equity Income Fund 1.21%
Growth Fund 1.25%
Mid-Cap Opportunity Fund 1.27%
Small-Cap Opportunity Fund 1.42%
Intrinsic Value Fund 1.19%
Growth and Value Fund 1.12%
Equity Index Fund 0.86%
Market Expansion Index Fund 0.82%
</TABLE>
<TABLE>
<S> <C>
International Equity Fund 1.44%
Intermediate Bond Fund 1.04%
Bond Fund 0.99%
Short Bond Fund 0.86%
Multi Sector Bond Fund 0.92%
International Bond Fund 1.15%
High Yield Bond Fund 1.14%
Municipal Bond Fund 0.98%
Short Municipal Bond Fund 0.87%
Intermediate Municipal Bond Fund 0.93%
Michigan Municipal Bond Fund 0.98%
</TABLE>
Waivers and/or reimbursements may be discontinued or modified at any time
without notice.
Pegasus Funds
7
<PAGE> 8
EXAMPLE
Based upon the assumptions in the foregoing chart an investor would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund $62 $88 $116 $194
Managed Assets Balanced Fund $62 $88 $116 $194
Managed Assets Growth Fund $62 $88 $116 $194
- --------------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund $59 $79 $100 $161
Growth Fund $60 $82 $106 $175
Mid-Cap Opportunity Fund $61 $85 $110 $182
Small-Cap Opportunity Fund $62 $86 $112 $188
Intrinsic Value Fund $61 $83 $107 $177
Growth and Value Fund $61 $84 $108 $179
Equity Index Fund $36 $50 $ 65 $109
Market Expansion Index Fund $38 $55 N/A N/A
International Equity Fund $63 $90 $119 $202
- --------------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund $39 $58 $ 79 $138
Bond Fund $54 $72 $ 92 $149
Short Bond Fund $19 $37 $ 56 $113
Multi Sector Bond Fund $39 $58 $ 79 $138
International Bond Fund $56 $80 $106 $179
High Yield Bond Fund $61 $85 $110 $182
- --------------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
Municipal Bond Fund $54 $72 $ 92 $149
Short Municipal Bond Fund $19 $38 N/A N/A
Intermediate Municipal Bond Fund $38 $56 $ 76 $132
Michigan Municipal Bond Fund $54 $73 $ 93 $152
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
8
<PAGE> 9
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Class B Shares
<TABLE>
<CAPTION>
MANAGEMENT TOTAL
FEES 12B-1 OTHER OPERATING
AFTER WAIVERS FEES EXPENSES(1) EXPENSES(1)(4)
- -------------------------------------------------------------------------------
ASSET ALLOCATION FUNDS:
<S> <C> <C> <C> <C>
Managed Assets Conserva-
tive Fund 0.52%(2)(3) 0.75% 0.73%(2)(3) 2.00%(2)(3)
Managed Assets Balanced
Fund 0.52%(2)(3) 0.75% 0.73%(2)(3) 2.00%(2)(3)
Managed Assets Growth
Fund 0.23%(2)(3) 0.75% 1.02%(2)(3) 2.00%(2)(3)
- -------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund 0.50% 0.75% 0.45% 1.70%
Growth Fund 0.60% 0.75% 0.47% 1.82%
Mid-Cap Opportunity Fund 0.60% 0.75% 0.54% 1.89%
Small-Cap Opportunity
Fund 0.70% 0.75% 0.49% 1.94%
Intrinsic Value Fund 0.60% 0.75% 0.49% 1.84%
Growth and Value Fund 0.60% 0.75% 0.51% 1.86%
Equity Index Fund 0.10% 0.75% 0.55% 1.40%
Market Expansion Index
Fund 0.00%(3) 0.75% 0.82%(3) 1.57%(3)
International Equity Fund 0.80% 0.75% 0.52% 2.07%
- -------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund 0.40% 0.75% 0.50% 1.65%
Bond Fund 0.40% 0.75% 0.48% 1.63%
Short Bond Fund 0.35% 0.75% 0.49% 1.59%
Multi Sector Bond Fund 0.40% 0.75% 0.50% 1.65%
International Bond Fund 0.52%(3) 0.75% 0.63%(3) 1.90%(3)
High Yield Bond Fund 0.60%(3) 0.75% 0.54%(3) 1.89%(3)
- -------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% 0.75% 0.48% 1.63%
Short Municipal Bond Fund 0.33%(3) 0.75% 0.54%(3) 1.62%(3)
Intermediate Municipal
Bond Fund 0.40% 0.75% 0.45% 1.60%
Michigan Municipal Bond
Fund 0.40% 0.75% 0.51% 1.66%
</TABLE>
- --------------------------------------------------------------------------------
(1) Other Expenses and Total Operating Expenses for each Fund reflect current
expenses.
(2) Expenses for the Asset Allocation Funds include expenses borne indirectly
by them in connection with their investments in the Underlying Funds. There
is no layering of fees--see "Management of the Funds--Investment Adviser
and Co-Administrators" on page 48 for additional information regarding the
fees related to the "fund of funds" structure of the Asset Allocation
Funds.
(3) Absent fee waivers and/or expense reimbursements, Total Operating Expenses
applicable to Class B shares of the Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Market Expansion Index,
International Bond, High Yield Bond and Short Municipal Bond Funds would
have been 2.13%, 2.13%, 2.42%, 1.92%, 2.08%, 1.99% and 1.69%, respectively.
(4) The Investment Adviser has voluntarily agreed to limit the total operating
expenses of the Funds as stated below:
<TABLE>
<S> <C>
Managed Assets Conservative Fund 2.00%
Managed Assets Balanced Fund 2.00%
Managed Assets Growth Fund 2.00%
Equity Income Fund 1.96%
Growth Fund 2.00%
Mid-Cap Opportunity Fund 2.02%
Small-Cap Opportunity Fund 2.17%
Intrinsic Value Fund 1.94%
Growth and Value Fund 1.87%
Equity Index Fund 1.41%
Market Expansion Index Fund 1.57%
</TABLE>
<TABLE>
<S> <C>
International Equity Fund 2.19%
Intermediate Bond Fund 1.79%
Bond Fund 1.74%
Short Bond Fund 1.61%
Multi Sector Bond Fund 1.67%
International Bond Fund 1.90%
High Yield Bond Fund 1.89%
Municipal Bond Fund 1.73%
Short Municipal Bond Fund 1.62%
Intermediate Municipal Bond Fund 1.68%
Michigan Municipal Bond Fund 1.73%
</TABLE>
Waivers and/or reimbursements may be discontinued or modified at any time
without notice.
Pegasus Funds
9
<PAGE> 10
EXAMPLE
Based upon the assumptions in the foregoing chart, an investor would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
ASSET ALLOCATION FUNDS:
<S> <C> <C> <C> <C>
Managed Assets Conservative Fund $71/$21* $93/63* $129/$109* $206+
Managed Assets Balanced Fund $71/$21* $93/63* $129/$109* $206+
Managed Assets Growth Fund $71/$21* $93/63* $129/$109* $206+
- ------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund $67/$17* $84/$54* $113/$ 93* $173+
Growth Fund $69/$19* $88/$58* $119/$ 99* $186+
Mid-Cap Opportunity Fund $69/$19* $90/$60* $123/$103* $194+
Small-Cap Opportunity Fund $70/$20* $91/$61* $126/$106* $199+
Intrinsic Value Fund $69/$19* $88/$58* $120/$100* $188+
Growth and Value Fund $69/$19* $89/$59* $121/$101* $190+
Equity Index Fund $44/$14* $65/$45* $ 87/$ 77* $129+
Market Expansion Index Fund $46/$16* $70/$50* N/A N/A
International Equity Fund $71/$21* $96/$66* $132/$112* $213+
- ------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund $47/$17* $72/$52* $100/$ 90* $158+
Bond Fund $67/$17* $82/$52* $109/$ 89* $165+
Short Bond Fund $26/$16* $ 42+ $ 62+ $118+
Multi Sector Bond Fund $47/$17* $72/$52* $100/$ 90* $158+
International Bond Fund $69/$19* $88/$58* $120/$100* $195+
High Yield Bond Fund $69/$19* $90/$60* $123/$103* $194+
- ------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
Municipal Bond Fund $67/$17* $82/$52* $109/$ 89* $165+
Short Municipal Bond Fund $26/$17* $ 43+ N/A N/A
Intermediate Municipal Bond Fund $46/$16* $71/$51* $ 98/$ 88* $152+
Michigan Municipal Bond Fund $67/$17* $83/$53* $111/$ 91* $168+
</TABLE>
- --------------------------------------------------------------------------------
* Assuming no redemption of Class B shares.
+ Assumes conversion to Class A shares.
Pegasus Funds
10
<PAGE> 11
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Class I Shares
<TABLE>
<CAPTION>
MANAGEMENT 12B- TOTAL
FEES 1 OTHER OPERATING
AFTER WAIVERS FEES EXPENSES(1) EXPENSES(1)(4)
- -------------------------------------------------------------------------------
ASSET ALLOCATION FUNDS:
<S> <C> <C> <C> <C>
Managed Assets Conserva-
tive Fund 0.52%(2)(3) None 0.48%(2)(3) 1.00%(2)(3)
Managed Assets Balanced
Fund 0.52%(2)(3) None 0.48%(2)(3) 1.00%(2)(3)
Managed Assets Growth Fund 0.23%(2)(3) None 0.77%(2)(3) 1.00%(2)(3)
- -------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund 0.50% None 0.20% 0.70%
Growth Fund 0.60% None 0.22% 0.82%
Mid-Cap Opportunity Fund 0.60% None 0.29% 0.89%
Small-Cap Opportunity Fund 0.70% None 0.24% 0.94%
Intrinsic Value Fund 0.60% None 0.24% 0.84%
Growth and Value Fund 0.60% None 0.26% 0.86%
Equity Index Fund 0.10% None 0.30% 0.40%
Market Expansion Index
Fund 0.00%(3) None 0.57%(3) 0.57%(3)
International Equity Fund 0.80% None 0.27% 1.07%
- -------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund 0.40% None 0.25% 0.65%
Bond Fund 0.40% None 0.23% 0.63%
Short Bond Fund 0.35% None 0.24% 0.59%
Multi Sector Bond Fund 0.40% None 0.25% 0.65%
International Bond Fund 0.52%(3) None 0.38%(3) 0.90%(3)
High Yield Bond Fund 0.60%(3) None 0.29%(3) 0.89%(3)
- -------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% None 0.23% 0.63%
Short Municipal Bond Fund 0.33%(3) None 0.29%(3) 0.62%(3)
Intermediate Municipal
Bond Fund 0.40% None 0.20% 0.60%
Michigan Municipal Bond
Fund 0.40% None 0.26% 0.66%
</TABLE>
- --------------------------------------------------------------------------------
(1) Other Expenses and Total Operating Expenses for each Fund reflect current
expenses.
(2) Expenses for the Asset Allocation Funds include expenses borne indirectly
by them in connection with their investments in the Underlying Funds. There
is no layering of fees--see "Management of the Funds--Investment Adviser
and Co-Administrators" on page 48 for additional information regarding the
fees related to the "fund of funds" structure of the Asset Allocation
Funds.
(3) Absent fee waivers and/or expense reimbursements, Total Operating Expenses
applicable to Class I shares of the Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Market Expansion Index,
International Bond, High Yield Bond and Short Municipal Bond Funds would
have been 1.13%, 1.13%, 1.42%, 0.92%, 1.08%, 0.99% and 0.69%, respectively.
(4) The Investment Adviser has voluntarily agreed to limit the total operating
expenses of the Funds as stated below:
<TABLE>
<S> <C>
Managed Assets Conservative Fund 1.00%
Managed Assets Balanced Fund 1.00%
Managed Assets Growth Fund 1.00%
Equity Income Fund 0.96%
Growth Fund 1.00%
Mid-Cap Opportunity Fund 1.02%
Small-Cap Opportunity Fund 1.17%
Intrinsic Value Fund 0.94%
Growth and Value Fund 0.87%
Equity Index Fund 0.51%
Market Expansion Index Fund 0.57%
</TABLE>
<TABLE>
<S> <C>
International Equity Fund 1.19%
Intermediate Bond Fund 0.79%
Bond Fund 0.74%
Short Bond Fund 0.61%
Multi Sector Bond Fund 0.67%
International Bond Fund 0.90%
High Yield Bond Fund 0.89%
Municipal Bond Fund 0.73%
Short Municipal Bond Fund 0.62%
Intermediate Municipal Bond Fund 0.68%
Michigan Municipal Bond Fund 0.73%
</TABLE>
Waivers and/or reimbursements may be discontinued or modified at any time
without notice.
Pegasus Funds
11
<PAGE> 12
EXAMPLE
Based upon the assumptions in the foregoing chart, an investor would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund $10 $ 32 $55 $123
Managed Assets Balanced Fund $10 $ 32 $55 $123
Managed Assets Growth Fund $10 $ 32 $55 $123
- --------------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund $ 7 $ 22 $39 $ 87
Growth Fund $ 8 $ 27 $46 $103
Mid-Cap Opportunity Fund $ 9 $ 29 $50 $110
Small-Cap Opportunity Fund $10 $ 30 $52 $116
Intrinsic Value Fund $ 9 $ 27 $47 $104
Growth and Value Fund $ 9 $ 28 $48 $106
Equity Index Fund $ 4 $ 13 $22 $ 51
Market Expansion Index Fund $ 6 $ 18 N/A N/A
International Equity Fund $11 $ 34 $59 $131
- --------------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund $ 7 $ 21 $36 $ 81
Bond Fund $ 6 $ 20 $35 $ 79
Short Bond Fund $ 6 $ 19 $33 $ 74
Multi Sector Bond Fund $ 7 $ 21 $36 $ 81
International Bond Fund $ 9 $ 29 $50 $110
High Yield Bond $ 9 $ 29 $50 $110
- --------------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
Municipal Bond Fund $ 6 $ 20 $35 $ 79
Short Municipal Bond Fund $ 6 $ 20 N/A N/A
Intermediate Municipal Bond Fund $ 6 $ 19 $34 $ 75
Michigan Municipal Bond Fund $ 7 $ 21 $37 $ 82
</TABLE>
- --------------------------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLES SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. THE MANAGED ASSETS GROWTH FUND, HIGH YIELD BOND FUND, SHORT
MUNICIPAL BOND FUND AND MARKET EXPANSION INDEX FUND ARE NEW AND THE ABOVE
FIGURES REGARDING THESE FUNDS ARE BASED ON ADJUSTMENTS AND/OR EXPENSES EXPECTED
TO BE INCURRED DURING THE FUNDS' CURRENT FISCAL YEAR. MOREOVER, WHILE EACH
EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S ACTUAL PERFORMANCE MAY RESULT IN
AN ACTUAL RETURN GREATER OR LESS THAN 5%.
Long-term investors in Class B shares of a Fund could pay more in 12b-1 fees
than the economic equivalent of paying a front-end sales charge. Investors in
the Asset Allocation Funds should recognize that they may invest directly in
the Underlying Funds and that by investing in Underlying Funds through the
Asset Allocation Funds, an investor may pay more than he or she would otherwise
have paid by directly investing in the Underlying Funds. The Investment
Adviser, NBD, FNBC, ANB and their affiliates and certain Service Agents and
financial institutions may charge their clients fees which are not reflected in
the foregoing tables in connection with an investment in the Funds.
12
Pegasus Funds
<PAGE> 13
Financial Highlights
The tables below provide supplementary information to the Funds' financial
statements, which are incorporated by reference into their Statement of
Additional Information and set forth certain information concerning the
historic investment results of Fund shares. They present a per share analysis
of how each Fund's net asset value has changed during the periods presented.
The tables for the fiscal periods ended December 31, 1995 and prior with
respect to the Managed Assets Conservative, Equity Income, Growth, Small-Cap
Opportunity, Multi Sector Bond, International Bond, Municipal Bond and
Intermediate Municipal Bond Funds have been derived from the financial
statements which have been audited by Ernst & Young LLP, such Funds' prior
independent auditors, whose report dated February 23, 1996 expressed an
unqualified opinion on such financial statements. The tables for all Funds for
the fiscal years ended December 31, 1997 and 1996, and for periods prior to
December 31, 1995 with respect to the Managed Assets Balanced, Mid-Cap
Opportunity, Intrinsic Value, Growth and Value, Equity Index, International
Equity, Intermediate Bond, Bond, Short Bond and Michigan Municipal Bond Funds,
have been derived from such Funds' financial statements which have been audited
by Arthur Andersen LLP, the Trust's independent auditors. Arthur Andersen's
report thereon is incorporated by reference into the Statement of Additional
Information along with the financial statements. The financial data included in
these tables should be read in conjunction with the financial statements and
related notes incorporated by reference into the Statement of Additional
Information. Further information about the performance of the Funds is
available in the annual report to shareholders. The Statement of Additional
Information and the annual report to shareholders may be obtained from the
Trust free of charge by calling (800) 688-3350.
13
Pegasus Funds
<PAGE> 14
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED ASSETS CONSERVATIVE FUND
CLASS A SHARES
YEAR ENDED
1997 $15.34 0.58 1.35 (0.58) -- (1.74) -- --
1996 $14.54 0.56 0.89 (0.56) -- (0.09) -- --
1995 $12.13 0.64 2.48 (0.68) -- (0.03) -- --
1994 $13.11 0.73 (0.98) (0.72) -- (0.01) -- --
1993 $12.68 0.72 0.61 (0.72) -- (0.18) -- --
1992 $12.56 0.79 0.26 (0.77) -- (0.16) -- --
1991 $10.79 0.83 1.77 (0.83) -- -- -- --
1990 $11.54 0.86 (0.54) (0.88) -- (0.19) -- --
1989 $10.66 0.88 1.10 (0.89) -- (0.21) -- --
1988 $ 9.73 0.78 0.92 (0.74) -- (0.03) -- --
1987 $10.75 0.70 (0.85) (0.77) -- (0.10) -- --
CLASS B SHARES
YEAR ENDED
1997 $15.36 0.47 1.35 (0.47) -- (1.74) -- --
1996 $14.56 0.44 0.89 (0.44) -- (0.09) -- --
1995(1) $12.42 0.45 2.17 (0.45) -- (0.03) -- --
1994(2) $13.05 0.51 (0.91) (0.54) -- (0.01) -- --
CLASS I SHARES
YEAR ENDED
1997 $15.38 0.59 1.37 (0.60) -- (1.74) -- --
1996 $14.57 0.60 0.89 (0.59) -- (0.09) -- --
1995(4) $12.42 0.57 2.18 (0.57) -- (0.03) -- --
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED FUND
CLASS A SHARES
YEAR ENDED
1997 $11.63 0.32 1.43 (0.31) -- (1.15) -- --
1996 $11.24 0.35 1.06 (0.34) -- (0.68) -- --
1995 $ 9.53 0.35 1.83 (0.35) -- (0.12) -- --
1994 $10.00 0.28 (0.48) (0.27) -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $12.81 0.24 1.61 (0.24) -- (1.15) -- --
1996(5) $12.16 0.08 0.81 (0.07) -- (0.17) -- --
CLASS I SHARES
YEAR ENDED
1997 $11.59 0.34 1.47 (0.34) -- (1.15) -- --
1996 $11.24 0.39 1.02 (0.38) -- (0.68) -- --
1995 $ 9.53 0.35 1.83 (0.35) -- (0.12) -- --
1994 $10.00 0.28 (0.48) (0.27) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH FUND
CLASS A SHARES
YEAR ENDED
1997 $10.08 0.17 1.60 (0.16) -- (0.18) -- --
1996(6) $10.00 0.00 0.08 0.00 -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $ 9.99 0.11 1.55 (0.12) -- (0.18) -- --
1996(6) $10.00 0.00 (0.01) 0.00 -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $10.13 0.21 1.59 (0.18) -- (0.18) -- --
1996(6) $10.00 0.00 0.13 0.00 -- -- -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C> <C> <C>
MANAGED ASSETS CONSERVATIVE FUND
CLASS A SHARES
YEAR ENDED
1997 (2.32)
1996 (0.65)
1995 (0.71)
1994 (0.73)
1993 (0.90)
1992 (0.93)
1991 (0.83)
1990 (1.07)
1989 (1.10)
1988 (0.77)
1987 (0.87)
CLASS B SHARES
YEAR ENDED
1997 (2.21)
1996 (0.53)
1995(1) (0.48)
1994(2) (0.55)
CLASS I SHARES
YEAR ENDED
1997 (2.34)
1996 (0.68)
1995(4) (0.60)
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED FUND
CLASS A SHARES
YEAR ENDED
1997 (1.46)
1996 (1.02)
1995 (0.47)
1994 (0.27)
CLASS B SHARES
YEAR ENDED
1997 (1.39)
1996(5) (0.24)
CLASS I SHARES
YEAR ENDED
1997 (1.49)
1996 (1.06)
1995 (0.47)
1994 (0.27)
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH FUND
CLASS A SHARES
YEAR ENDED
1997 (0.34)
1996(6) --
CLASS B SHARES
YEAR ENDED
1997 (0.30)
1996(6) --
CLASS I SHARES
YEAR ENDED
1997 (0.36)
1996(6) --
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
14
<PAGE> 15
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
CONVERSION ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $14.95 13.10% $ 90,835 1.24% 3.74% 1.33% 102.37% $0.05
-- $15.34 10.11% $ 69,301 1.18% 3.64% 1.33% 63.41% $0.05
-- $14.54 26.40% $ 51,997 1.17% 4.88% 1.54% 8.23% --
-- $12.13 (1.92)% $ 44,367 0.63% 5.77% 1.67% 28.69% --
-- $13.11 10.70% $ 51,586 0.39% 5.54% 1.65% 16.40% --
-- $12.68 8.68% $ 34,262 0.02% 6.24% 1.88% 22.14% --
-- $12.56 24.87% $ 14,038 -- 7.04% 2.16% 26.02% --
-- $10.79 2.94% $ 8,950 -- 7.71% 2.58% 29.97% --
-- $11.54 19.08% $ 7,407 -- 7.74% 2.96% 49.46% --
-- $10.66 17.78% $ 5,890 -- 7.38% 2.62% 15.71% --
-- $ 9.73 (1.73)% $ 4,989 -- 6.61% 2.69% 23.99% --
-- $14.97 12.29% $ 13,378 1.99% 2.99% 2.08% 102.37% $0.05
-- $15.36 9.26% $ 5,736 1.93% 2.89% 2.07% 63.41% $0.05
-- $14.56 21.42%++ $ 2,175 1.92%+ 3.89%+ 2.12%+ 8.23%++ --
(12.10)(3) -- (3.13)%++ -- 1.21%+ 4.10%+ 2.17%+ 28.69%++ --
-- $15.00 13.34% $ 10,309 0.99% 3.99% 1.08% 102.37% $0.05
-- $15.38 10.43% $ 1,501 0.93% 3.89% 1.19% 63.41% $0.05
-- $14.57 22.55%++ $ 1,294 0.77%+ 5.12%+ 1.22%+ 8.23%++ --
- ---------------------------------------------------------------------------------------------------
-- $11.92 15.28% $141,804 1.24% 2.71% 1.32% 116.87% $0.05
-- $11.63 12.99% $ 26,775 1.09% 3.13% 1.16% 50.50% $0.07
-- $11.24 23.18% $ 9,986 0.91% 3.40% 1.09% 31.76% --
-- $ 9.53 (1.95)% $ 8,168 0.85% 3.41% 1.56% 37.49% --
-- $13.27 14.59% $ 10,026 1.99% 1.96% 2.07% 116.87% $0.05
-- $12.81 7.30%++ $ 1,890 1.96%+ 1.35%+ 2.03%+ 50.50% $0.07+
-- $11.91 15.79% $102,042 0.99% 2.96% 1.07% 116.87% $0.05
-- $11.59 13.04% $101,596 0.94% 3.28% 1.01% 50.50% $0.07
-- $11.24 23.18% $ 83,638 0.91% 3.40% 1.09% 31.76% --
-- $ 9.53 (1.95)% $ 45,999 0.85% 3.41% 1.56% 37.49% --
- ---------------------------------------------------------------------------------------------------
-- $11.51 17.75% $ 5,725 1.24% 1.69% 2.29% 39.35% --
-- $10.08 0.80%++ $ 75 1.20%+ (0.45)%+ (3.50)%+ 0.00% --
-- $11.35 16.69% $ 5,936 1.99% 0.94% 3.04% 39.35% --
-- $ 9.99 (0.10)%++ $ 17 1.95%+ (1.20)%+ (4.25)%+ 0.00% --
-- $11.57 17.87% $ 1,430 0.99% 1.94% 2.04% 39.35% --
-- $10.13 1.30%++ $ 594 0.95%+ 0.20%+ (3.25)%+ 0.00% --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
15
<PAGE> 16
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INCOME FUND
CLASS A SHARES
YEAR ENDED
1997 $13.29 0.41 2.37 (0.41) -- (2.60) -- --
1996 $12.22 0.39 1.90 (0.38) -- (0.84) -- --
1995(7) $10.00 0.36 2.57 (0.36) (0.01) (0.34) -- --
CLASS B SHARES
YEAR ENDED
1997 $13.28 0.29 2.39 (0.31) -- (2.60) -- --
1996 $12.22 0.30 1.88 (0.28) -- (0.84) -- --
1995(7) $10.00 0.29 2.56 (0.29) -- (0.34) -- --
CLASS I SHARES
YEAR ENDED
1997 $13.25 0.44 2.38 (0.45) -- (2.60) -- --
1996 $12.21 0.45 1.87 (0.44) -- (0.84) -- --
1995(7) $10.00 0.42 2.55 (0.42) -- (0.34) -- --
- ---------------------------------------------------------------------------------------------------------------------
GROWTH FUND
CLASS A SHARES
YEAR ENDED
1997 $12.64 (0.01) 3.40 0.00 -- (0.96) -- --
1996 $11.97 0.05 1.04 (0.06) -- (0.36) -- --
1995(7) $10.00 0.11 2.86 (0.11) -- (0.89) -- --
CLASS B SHARES
YEAR ENDED
1997 $12.56 (0.06) 3.32 0.00 -- (0.96) -- --
1996 $11.95 (0.02) 0.99 0.00 -- (0.36) -- --
1995(7) $10.00 0.06 2.84 (0.06) -- (0.89) -- --
CLASS I SHARES
YEAR ENDED
1997 $12.63 0.02 3.41 (0.02) -- (0.96) -- --
1996 $11.97 0.09 1.02 (0.09) -- (0.36) -- --
1995(7) $10.00 0.15 2.86 (0.15) -- (0.89) -- --
- ---------------------------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY FUND
CLASS A SHARES
YEAR ENDED
1997 $17.61 (0.03) 4.87 0.00 -- (1.56) -- --
1996 $15.15 0.02 3.74 (0.02) -- (1.28) -- --
1995 $13.34 0.06 2.57 (0.06) -- (0.76) -- --
1994 $14.49 0.07 (0.54) (0.07) -- (0.49) (0.02) (0.10)
1993 $12.37 0.10 2.87 (0.10) -- (0.75) -- --
1992(8) $10.95 0.08 1.88 (0.08) -- (0.46) -- --
CLASS B SHARES
YEAR ENDED
1997 $ 9.57 (0.03) 2.60 0.00 -- (1.56) -- --
1996(9) $10.00 0.00 0.79 (0.01) -- (1.21) -- --
CLASS I SHARES
YEAR ENDED
1997 $17.61 0.01 4.88 (0.01) -- (1.56) -- --
1996 $15.15 0.04 3.74 (0.04) -- (1.28) -- --
1995 $13.34 0.06 2.57 (0.06) -- (0.76) -- --
1994 $14.49 0.07 (0.54) (0.07) -- (0.49) (0.02) (0.10)
1993 $12.37 0.10 2.87 (0.10) -- (0.75) -- --
1992 $10.40 0.11 2.43 (0.11) -- (0.46) -- --
1991(10) $10.00 0.09 0.43 (0.09) -- (0.03) -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
EQUITY INCOME FUND
CLASS A SHARES
YEAR ENDED
1997 (3.01)
1996 (1.22)
1995(7) (0.71)
CLASS B SHARES
YEAR ENDED
1997 (2.91)
1996 (1.12)
1995(7) (0.63)
CLASS I SHARES
YEAR ENDED
1997 (3.05)
1996 (1.28)
1995(7) (0.76)
- ---------------------------------------------------------------------------------------------------------------------
GROWTH FUND
CLASS A SHARES
YEAR ENDED
1997 (0.96)
1996 (0.42)
1995(7) (1.00)
CLASS B SHARES
YEAR ENDED
1997 (0.96)
1996 (0.36)
1995(7) (0.95)
CLASS I SHARES
YEAR ENDED
1997 (0.98)
1996 (0.45)
1995(7) (1.04)
- ---------------------------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY FUND
CLASS A SHARES
YEAR ENDED
1997 (1.56)
1996 (1.30)
1995 (0.82)
1994 (0.68)
1993 (0.85)
1992(8) (0.54)
CLASS B SHARES
YEAR ENDED
1997 (1.56)
1996(9) (1.22)
CLASS I SHARES
YEAR ENDED
1997 (1.57)
1996 (1.32)
1995 (0.82)
1994 (0.68)
1993 (0.85)
1992 (0.57)
1991(10) (0.12)
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
16
<PAGE> 17
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
CONVERSION ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $13.06 21.57% $ 12,583 0.95% 2.90% -- 41.31% $0.05
-- $13.29 19.29% $ 12,956 0.91% 3.29% 0.95% 61.41% $0.04
-- $12.22 29.78%++ $ 2,873 1.11%+ 3.33%+ 1.44%+ 44.07%++ --
-- $13.05 20.73% $ 3,157 1.70% 2.15% -- 41.31% $0.05
-- $13.28 18.28% $ 1,885 1.66% 2.54% 1.81% 61.41% $0.04
-- $12.22 28.97%++ $ 593 1.90%+ 2.65%+ 2.65%+ 44.07%++ --
-- $13.02 21.95% $304,260 0.70% 3.15% -- 41.31% $0.05
-- $13.25 19.58% $314,649 0.66% 3.54% 0.74% 61.41% $0.04
-- $12.21 30.27%++ $283,927 0.65%+ 4.08%+ 0.77%+ 44.07%++ --
- ---------------------------------------------------------------------------------------------------
-- $15.07 26.76% $ 62,562 1.04% (0.08)% -- 22.89% $0.05
-- $12.64 20.10% $ 23,273 1.04% 0.43% 1.07% 61.95% $0.02
-- $11.97 29.98%++ $ 4,329 1.21%+ 0.86%+ 1.39%+ 106.02%++ --
-- $14.86 25.90% $ 2,161 1.79% (0.83)% -- 22.89% $0.05
-- $12.56 19.04% $ 1,094 1.79% (0.32)% 1.89% 61.95% $0.02
-- $11.95 29.15%++ $ 268 2.04%+ 0.02%+ 2.60%+ 106.02%++ --
-- $15.08 27.10% $578,490 0.79% 0.17%+ -- 22.89% $0.05
-- $12.63 20.36% $533,406 0.79% 0.68% 0.85% 21.95% $0.02
-- $11.97 30.38%++ $293,944 0.80%+ 1.46%+ 0.92%+ 106.02%++ --
- ---------------------------------------------------------------------------------------------------
-- $20.89 27.56% $234,020 1.09% (0.20)% -- 37.54%(26) $0.05
-- $17.61 24.91% $ 91,516 0.93% 0.12% -- 34.87% $0.04
-- $15.15 19.88% $ 71,858 0.89% 0.37% -- 53.55% --
-- $13.34 (3.27)% $ 64,326 0.90% 0.53% -- 37.51% --
-- $14.49 24.01% $ 53,977 0.86% 0.71% -- 33.99% --
-- $12.37 27.93% $ 5,111 0.85%+ 1.05%+ -- 34.44%+ --
-- $10.58 27.10% $ 3,965 1.84% (0.95)% -- 37.54%(26) $0.05
-- $ 9.57 7.94%++ $ 154 1.81%+ (0.59)%+ -- 34.87% $0.04
-- $20.93 27.91% $803,670 0.84% 0.05% -- 37.54%(26) $0.05
-- $17.61 25.03% $677,608 0.81% 0.24% -- 34.87% $0.04
-- $15.15 19.88% $579,094 0.89% 0.37% -- 53.55% --
-- $13.34 (3.27)% $460,673 0.90% 0.53% -- 37.51% --
-- $14.49 24.01% $311,688 0.86% 0.71% -- 33.99% --
-- $12.37 24.56% $161,312 0.84% 1.09% -- 34.44% --
-- $10.40 8.92%+ $108,046 0.84%+ 1.56%+ -- 2.92% --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
17
<PAGE> 18
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SMALL-CAP OPPORTUNITY FUND
CLASS A SHARES
YEAR ENDED
1997 $13.70 (0.06) 4.16 -- -- (1.77) -- --
1996 $12.20 (0.02) 3.02 -- -- (1.50) -- --
1995(7) $10.00 0.02 2.45 (0.02) -- (0.25) -- --
CLASS B SHARES
YEAR ENDED
1997 $13.58 (0.07) 4.00 -- -- (1.77) -- --
1996 $12.12 (0.04) 3.00 -- -- (1.50) -- --
1995(7) $10.00 (0.03) 2.40 -- -- (0.25) -- --
CLASS I SHARES
YEAR ENDED
1997 $13.80 (0.05) 4.24 -- -- (1.77) -- --
1996 $12.19 (0.01) 3.13 -- (0.01) (1.50) -- --
1995(7) $10.00 0.06 2.44 (0.06) -- (0.25) -- --
- ---------------------------------------------------------------------------------------------------------------------
INTRINSIC VALUE FUND
CLASS A SHARES
YEAR ENDED
1997 $13.70 0.23 3.17 (0.24) -- (1.20) -- --
1996 $11.89 0.28 2.50 (0.28) -- (0.69) -- --
1995 $10.48 0.29 2.24 (0.30) -- (0.82) -- --
1994 $11.05 0.31 (0.38) (0.30) -- (0.20) -- --
1993 $10.40 0.29 1.23 (0.28) -- (0.59) -- --
1992(8) $10.70 0.22 0.33 (0.21) -- (0.64) -- --
CLASS B SHARES
YEAR ENDED
1997 $10.18 0.25 2.19 (0.19) -- (1.20) -- --
1996(9) $10.00 0.04 0.79 (0.06) -- (0.59) -- --
CLASS I SHARES
YEAR ENDED
1997 $13.71 0.28 3.15 (0.27) -- (1.20) -- --
1996 $11.89 0.29 2.51 (0.29) -- (0.69) -- --
1995 $10.48 0.29 2.24 (0.30) -- (0.82) -- --
1994 $11.05 0.31 (0.38) (0.30) -- (0.20) -- --
1993 $10.40 0.29 1.23 (0.28) -- (0.59) -- --
1992 $ 9.89 0.29 1.14 (0.28) -- (0.64) -- --
1991(10) $10.00 0.17 (0.02) (0.17) -- (0.09) -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
SMALL-CAP OPPORTUNITY FUND
CLASS A SHARES
YEAR ENDED
1997 (1.77)
1996 (1.50)
1995(7) (0.27)
CLASS B SHARES
YEAR ENDED
1997 (1.77)
1996 (1.50)
1995(7) (0.25)
CLASS I SHARES
YEAR ENDED
1997 (1.77)
1996 (1.51)
1995(7) (0.31)
- ---------------------------------------------------------------------------------------------------------------------
INTRINSIC VALUE FUND
CLASS A SHARES
YEAR ENDED
1997 (1.44)
1996 (0.97)
1995 (1.12)
1994 (0.50)
1993 (0.87)
1992(8) (0.85)
CLASS B SHARES
YEAR ENDED
1997 (1.39)
1996(9) (0.65)
CLASS I SHARES
YEAR ENDED
1997 (1.47)
1996 (0.98)
1995 (1.12)
1994 (0.50)
1993 (0.87)
1992 (0.92)
1991(10) (0.26)
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
18
<PAGE> 19
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
CONVERSION ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $16.03 30.16% $ 21,836 1.18% (0.68)% -- 58.29% $0.05
-- $13.70 24.59% $ 6,697 1.13% (0.29)% 1.24% 93.82% $0.05
-- $12.20 24.80%++ $ 672 1.25%+ 0.19%+ 2.56%+ 38.89%++ --
-- $15.74 29.17% $ 1,799 1.93% (1.43)% -- 58.29% $0.05
-- $13.58 24.42% $ 110 1.88% (1.04)% 3.04% 93.82% $0.05
-- $12.12 23.76%++ $ 15 2.00%+ (0.51)% 9.52%+ 38.89%++ --
-- $16.22 30.60% $217,908 0.93% (0.43)% -- 58.29% $0.05
-- $13.80 25.63% $125,840 0.88% (0.04)% 1.02% 93.82% $0.05
-- $12.19 25.08%++ $ 92,926 0.85%+ 0.59%+ 1.09%+ 38.89%++ --
- -------------------------------------------------------------------------------------------------
-- $15.66 25.03% $ 82,791 1.06% 1.64% -- 35.93%(26) $0.05
-- $13.70 23.79% $ 22,370 0.94% 2.16% -- 34.24% $0.04
-- $11.89 24.38% $ 17,858 0.91% 2.49% -- 45.55% --
-- $10.48 (0.60)% $ 15,730 0.91% 2.92% -- 58.62% --
-- $11.05 14.71% $ 14,098 0.86% 2.67% -- 63.90% --
-- $10.40 6.82% $ 4,729 0.85%+ 3.12%+ -- 48.52%+ --
-- $11.23 24.24% $ 3,302 1.81% 0.89% -- 35.93%(26) $0.05
-- $10.18 8.31%++ $ 182 1.81%+ 0.25%+ -- 34.24%+ $0.04
-- $15.67 25.25% $539,948 0.81% 1.89% -- 35.93%(26) $0.05
-- $13.71 23.99% $357,360 0.83% 2.27% -- 34.24% $0.04
-- $11.89 24.38% $238,027 0.91% 2.49% -- 45.55% --
-- $10.48 (0.60)% $204,298 0.91% 2.92% -- 58.62% --
-- $11.05 14.71% $178,457 0.86% 2.67% -- 63.90% --
-- $10.40 14.56% $102,532 0.84% 2.78% -- 48.52% --
-- $ 9.89 2.70%+ $ 77,450 0.84%+ 3.03%+ -- 1.80% --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
19
<PAGE> 20
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND VALUE FUND
CLASS A SHARES
YEAR ENDED
1997 $14.12 0.10 3.78 (0.11) -- (1.51) -- --
1996 $13.16 0.16 2.37 (0.16) -- (1.41) -- --
1995 $10.67 0.21 2.76 (0.22) -- (0.26) -- --
1994 $11.16 0.23 (0.17) (0.21) -- (0.30) (0.01) (0.03)
1993 $10.51 0.20 1.24 (0.20) -- (0.59) -- --
1992(8) $10.16 0.17 0.45 (0.17) -- (0.10) -- --
CLASS B SHARES
YEAR ENDED
1997 $ 9.32 0.07 2.38 (0.07) -- (1.51) -- --
1996(9) $10.00 0.01 0.62 (0.03) -- (1.28) -- --
CLASS I SHARES
YEAR ENDED
1997 $14.12 0.14 3.79 (0.15) -- (1.51) -- --
1996 $13.16 0.18 2.36 (0.17) -- (1.41) -- --
1995 $10.67 0.21 2.76 (0.22) -- (0.26) -- --
1994 $11.16 0.23 (0.17) (0.21) -- (0.30) (0.01) (0.03)
1993 $10.51 0.20 1.24 (0.20) -- (0.59) -- --
1992 $ 9.86 0.22 0.75 (0.22) -- (0.10) -- --
1991(10) $10.00 0.14 (0.14) (0.14) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
EQUITY INDEX FUND
CLASS A SHARES
YEAR ENDED
1997 $16.75 0.26 5.19 (0.26) -- (0.58) -- --
1996 $14.15 0.30 2.85 (0.29) -- (0.26) -- --
1995 $10.65 0.30 3.65 (0.31) -- (0.14) -- --
1994 $11.15 0.31 (0.20) (0.30) -- (0.23) (0.08) --
1993 $10.52 0.28 0.75 (0.27) -- (0.13) -- --
1992(11) $10.00 0.12 0.52 (0.12) -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $10.50 0.15 3.15 (0.21) -- (0.58) -- --
1996(9) $10.00 0.05 0.76 (0.06) -- (0.25) -- --
CLASS I SHARES
YEAR ENDED
1997 $16.75 0.30 5.20 (0.30) -- (0.58) -- --
1996 $14.15 0.31 2.85 (0.30) -- (0.26) -- --
1995 $10.65 0.30 3.65 (0.31) -- (0.14) -- --
1994 $11.15 0.31 (0.20) (0.30) -- (0.23) (0.08) --
1993 $10.52 0.28 0.75 (0.27) -- (0.13) -- --
1992(11) $10.00 0.12 0.52 (0.12) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
CLASS A SHARES
YEAR ENDED
1997 $11.77 0.07 0.36 (0.09) -- -- -- --
1996 $11.05 0.10 0.72 (0.10) -- -- -- --
1995 $10.01 0.10 1.05 (0.11) -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $11.08 0.01 0.34 (0.06) -- -- -- --
1996(5) $10.84 0.04 0.24 (0.04) -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $11.79 0.10 0.37 (0.12) -- -- -- --
1996 $11.05 0.11 0.74 (0.11) -- -- -- --
1995 $10.01 0.10 1.05 (0.11) -- -- -- --
1994(12) $10.00 0.01 -- -- -- -- -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
GROWTH AND VALUE FUND
CLASS A SHARES
YEAR ENDED
1997 (1.62)
1996 (1.57)
1995 (0.48)
1994 (0.55)
1993 (0.79)
1992(8) (0.27)
CLASS B SHARES
YEAR ENDED
1997 (1.58)
1996(9) (1.31)
CLASS I SHARES
YEAR ENDED
1997 (1.66)
1996 (1.58)
1995 (0.48)
1994 (0.55)
1993 (0.79)
1992 (0.32)
1991(10) (0.14)
- ---------------------------------------------------------------------------------------------------------------------
EQUITY INDEX FUND
CLASS A SHARES
YEAR ENDED
1997 (0.84)
1996 (0.55)
1995 (0.45)
1994 (0.61)
1993 (0.40)
1992(11) (0.12)
CLASS B SHARES
YEAR ENDED
1997 (0.79)
1996(9) (0.31)
CLASS I SHARES
YEAR ENDED
1997 (0.88)
1996 (0.56)
1995 (0.45)
1994 (0.61)
1993 (0.40)
1992(11) (0.12)
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
CLASS A SHARES
YEAR ENDED
1997 (0.09)
1996 (0.10)
1995 (0.11)
CLASS B SHARES
YEAR ENDED
1997 (0.06)
1996(5) (0.04)
CLASS I SHARES
YEAR ENDED
1997 (0.12)
1996 (0.11)
1995 (0.11)
1994(12) --
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
20
<PAGE> 21
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
CONVERSION ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $16.38 27.80% $162,393 1.09% 0.67% 1.10% 30.98% $0.05
-- $14.12 19.24% $ 59,027 0.91% 1.17% -- 43.21% $0.04
-- $13.16 28.04% $ 49,872 0.84% 1.73% -- 26.80% --
-- $10.67 0.55% $ 42,274 0.84% 2.07% -- 28.04% --
-- $11.16 13.79% $ 29,467 0.83% 1.84% -- 42.31% --
-- $10.51 8.19% $ 4,338 0.83%+ 2.49%+ -- 16.28%+ --
-- $10.19 26.90% $ 5,107 1.84% (0.08)% 1.85% 30.98% $0.05
-- $ 9.32 6.10%++ $ 183 1.80%+ 0.25%+ -- 43.21%+ $0.04
-- $16.39 28.15% $895,567 0.84% 0.92% 0.85% 30.98% $0.05
-- $14.12 19.35% $733,632 0.80% 1.28% -- 43.21% $0.04
-- $13.16 28.04% $687,295 0.84% 1.73% -- 26.80% --
-- $10.67 0.55% $529,097 0.84% 2.07% -- 28.04% --
-- $11.16 13.79% $400,168 0.83% 1.84% -- 42.31% --
-- $10.51 9.87% $283,007 0.83% 2.20% -- 16.28% --
-- $ 9.86 0.17%+ $238,086 0.85%+ 2.65%+ -- 0.94% --
- ----------------------------------------------------------------------------------------------------
-- $21.36 32.69% $193,663 0.57% 1.20% -- 12.80%(26) $0.03
-- $16.75 22.49% $ 35,336 0.37% 1.89% -- 12.25% $0.03
-- $14.15 37.35% $ 4,007 0.15% 2.39% -- 10.66% --
-- $10.65 1.02% $ 1,197 0.17% 2.71% -- 24.15% --
-- $11.15 9.77% $ 960 0.20% 2.59% -- 16.01% --
-- $10.52 13.61%+ $ 151 0.22%+ 2.71%+ -- 0.50%++ --
-- $13.01 31.71% $ 1,515 1.32% 0.45% -- 12.80%(26) $0.03
-- $10.50 8.09%++ $ 113 1.29%+ 0.57%+ -- 12.25%+ $0.03
-- $21.37 32.97% $639,868 0.32% 1.45% -- 12.80%(26) $0.03
-- $16.75 22.58% $834,368 0.21% 2.05% -- 12.25% $0.03
-- $14.15 37.35% $524,195 0.15% 2.39% -- 10.66% --
-- $10.65 1.02% $339,611 0.17% 2.71% -- 24.15% --
-- $11.15 9.77% $324,369 0.20% 2.59% -- 16.01% --
-- $10.52 13.61%+ $241,907 0.22%+ 2.71%+ -- 0.50%++ --
- ----------------------------------------------------------------------------------------------------
-- $12.11 3.69% $ 26,703 1.35% 0.80% -- 3.56%(27) $0.03
-- $11.77 7.50% $ 10,836 1.23% 0.88% -- 6.37% $0.07
-- $11.05 11.47% $ 988 1.16% 1.43% 1.24% 2.09% --
-- $11.37 2.90% $ 1,763 2.10% 0.05% -- 3.56%(27) $0.03
-- $11.08 2.62%++ $ 1,131 2.05%+ 0.75%+ -- 6.37%+ $0.07
-- $12.14 3.98% $487,986 1.10% 1.05% -- 3.56%(27) $0.03
-- $11.79 7.79% $389,997 1.10% 1.01% -- 6.37% $0.07
-- $11.05 11.47% $106,300 1.16% 1.43% 1.24% 2.09% --
-- $10.01 1.26%+ $ 36,545 1.15%+ 1.18%+ 1.92%+ 0.30%++ --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
21
<PAGE> 22
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTERMEDIATE BOND FUND
CLASS A SHARES
YEAR ENDED
1997 $10.29 0.62 0.18 (0.62) -- -- -- --
1996 $10.37 0.64 (0.07) (0.65) -- -- -- --
1995 $ 9.21 0.59 1.16 (0.59) -- -- -- --
1994 $10.41 0.56 (1.20) (0.55) -- (0.01) -- --
1993 $10.28 0.59 0.26 (0.59) -- (0.13) -- --
1992(8) $10.32 0.49 0.13 (0.49) -- (0.17) -- --
CLASS B SHARES
YEAR ENDED
1997 $10.20 0.55 0.17 (0.54) -- -- -- --
1996(9) $10.00 0.15 0.20 (0.15) -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $10.29 0.65 0.18 (0.64) -- -- -- --
1996 $10.37 0.64 (0.07) (0.65) -- -- -- --
1995 $ 9.21 0.59 1.16 (0.59) -- -- -- --
1994 $10.41 0.56 (1.20) (0.55) -- (0.01) -- --
1993 $10.28 0.59 0.26 (0.59) -- (0.13) -- --
1992 $10.55 0.71 (0.10) (0.71) -- (0.17) -- --
1991(10) $10.00 0.40 0.57 (0.40) -- (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------
BOND FUND
CLASS A SHARES
1997 $10.27 0.63 0.32 (0.63) -- -- -- --
1996 $10.45 0.67 (0.18) (0.67) -- -- -- --
1995 $ 9.01 0.63 1.45 (0.64) -- -- -- --
1994 $10.32 0.61 (1.31) (0.59) -- (0.02) -- --
1993 $10.25 0.76 0.38 (0.76) -- (0.31) -- --
1992(8) $10.23 0.56 0.15 (0.56) -- (0.13) -- --
CLASS B SHARES
YEAR ENDED
1997 $10.27 0.56 0.32 (0.56) -- -- -- --
1996(5) $10.00 0.21 0.27 (0.21) -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $10.27 0.66 0.32 (0.66) -- -- -- --
1996 $10.45 0.68 (0.18) (0.68) -- -- -- --
1995 $ 9.01 0.63 1.45 (0.64) -- -- -- --
1994 $10.32 0.61 (1.31) (0.59) -- (0.02) -- --
1993 $10.25 0.76 0.38 (0.76) -- (0.31) -- --
1992 $10.55 0.83 (0.17) (0.83) -- (0.13) -- --
1991(10) $10.00 0.51 0.57 (0.51) -- (0.02) -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
INTERMEDIATE BOND FUND
CLASS A SHARES
YEAR ENDED
1997 (0.62)
1996 (0.65)
1995 (0.59)
1994 (0.56)
1993 (0.72)
1992(8) (0.66)
CLASS B SHARES
YEAR ENDED
1997 (0.54)
1996(9) (0.15)
CLASS I SHARES
YEAR ENDED
1997 (0.64)
1996 (0.65)
1995 (0.59)
1994 (0.56)
1993 (0.72)
1992 (0.88)
1991(10) (0.42)
- ---------------------------------------------------------------------------------------------------------------------
BOND FUND
CLASS A SHARES
1997 (0.63)
1996 (0.67)
1995 (0.64)
1994 (0.61)
1993 (1.07)
1992(8) (0.69)
CLASS B SHARES
YEAR ENDED
1997 (0.56)
1996(5) (0.21)
CLASS I SHARES
YEAR ENDED
1997 (0.66)
1996 (0.68)
1995 (0.64)
1994 (0.61)
1993 (1.07)
1992 (0.96)
1991(10) (0.53)
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
22
<PAGE> 23
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET OF NET NET ASSETS
CONVERSION ASSET NET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ---------- ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $10.47 8.04% $ 42,343 0.86% 6.01% -- 31.66% --
-- $10.29 5.65% $ 18,324 0.79% 6.17% -- 31.62% --
-- $10.37 19.48% $ 11,654 0.73% 5.98% -- 36.47% --
-- $ 9.21 (6.31)% $ 11,983 0.74% 5.73% -- 54.60% --
-- $10.41 8.41% $ 16,491 0.74% 5.44% -- 92.80% --
-- $10.28 11.17%+ $ 4,509 0.75%+ 7.04%+ -- 56.30%+ --
-- $10.38 7.32% $ 385 1.61% 5.26% -- 31.66% --
-- $10.20 3.50%++ $ 122 1.60%+ 1.52%+ -- 31.62% --
-- $10.48 8.37% $ 482,679 0.61% 6.26% -- 31.66% --
-- $10.29 5.78% $ 395,105 0.67% 6.29% -- 31.62% --
-- $10.37 19.48% $ 393,656 0.73% 5.98% -- 36.47% --
-- $ 9.21 (6.31)% $ 381,036 0.74% 5.73% -- 54.60% --
-- $10.41 8.41% $ 413,299 0.74% 5.44% -- 92.80% --
-- $10.28 6.00% $ 215,923 0.74% 6.91% -- 56.30% --
-- $10.55 16.62%+ $ 130,367 0.75%+ 6.59%+ -- 7.38% --
- ---------------------------------------------------------------------------------------------------
-- $10.59 9.65% $ 125,515 0.86% 6.16% -- 17.60% --
-- $10.27 4.98% $ 46,977 0.78% 6.59% -- 24.92% --
-- $10.45 23.75% $ 31,714 0.74% 6.39% -- 41.91% --
-- $ 9.01 (6.99)% $ 32,053 0.74% 6.36% -- 75.67% --
-- $10.32 11.39% $ 45,410 0.73% 7.20% -- 111.52% --
-- $10.25 9.59%+ $ 9,392 0.74%+ 8.12%+ -- 90.45%+ --
-- $10.59 8.91% $ 3,394 1.61% 5.41% -- 17.60% --
-- $10.27 4.81%++ $ 280 1.59%+ 3.01%+ -- 24.92%+ --
-- $10.59 9.97% $1,101,894 0.61% 6.41% -- 17.60% --
-- $10.27 5.08% $ 757,627 0.66% 6.71% -- 24.92% --
-- $10.45 23.75% $ 485,851 0.74% 6.39% -- 41.91% --
-- $ 9.01 (6.99)% $ 395,116 0.74% 6.36% -- 75.67% --
-- $10.32 11.39% $ 455,786 0.73% 7.20% -- 111.52% --
-- $10.25 6.56% $ 312,366 0.73% 8.08% -- 90.45% --
-- $10.55 18.45%+ $ 237,673 0.75%+ 8.44%+ -- 8.19% --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
23
<PAGE> 24
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT BOND FUND
CLASS A SHARES
YEAR ENDED
1997 $10.11 0.53 0.06 (0.54) -- (0.01) -- --
1996 $10.23 0.55 (0.10) (0.55) -- (0.02) -- --
1995 $ 9.84 0.58 0.39 (0.58) -- -- -- --
1994(13) $10.00 0.17 (0.16) (0.17) -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $10.02 0.46 0.05 (0.47) -- (0.01) -- --
1996(9) $10.00 0.12 0.04 (0.12) -- (0.02) -- --
CLASS I SHARES
YEAR ENDED
1997 $10.11 0.56 0.06 (0.57) -- (0.01) -- --
1996 $10.23 0.55 (0.10) (0.55) -- (0.02) -- --
1995 $ 9.84 0.58 0.39 (0.58) -- -- -- --
1994(13) $10.00 0.17 (0.16) (0.17) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
MULTI SECTOR BOND FUND
CLASS A SHARES
YEAR ENDED
1997 $ 7.84 0.48 0.17 (0.47) -- (0.02) -- --
1996 $ 8.18 0.41 (0.25) (0.40) -- (0.10) -- --
1995(14) $ 7.68 0.44 0.72 (0.44) -- (0.22) -- --
1995 $ 8.25 0.52 (0.57) (0.52) -- -- -- --
1994(15) $ 8.36 0.47 (0.09) (0.47) -- (0.02) -- --
CLASS B SHARES
YEAR ENDED
1997 $ 7.85 0.42 0.17 (0.42) -- (0.02) -- --
1996 $ 8.18 0.45 (0.23) (0.45) -- (0.10) -- --
1995(16) $ 8.13 0.24 0.27 (0.24) -- (0.22) -- --
1994(2) $ 8.16 0.40 (0.55) (0.40) -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $ 7.85 0.50 0.17 (0.49) -- (0.02) -- --
1996 $ 8.18 0.46 (0.24) (0.45) -- (0.10) -- --
1995(14) $ 7.68 0.47 0.72 (0.47) -- (0.22) -- --
1995 $ 8.25 0.52 (0.57) (0.52) -- -- -- --
1994(15) $ 8.36 0.47 (0.09) (0.47) -- (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 $10.79 0.45 (0.93) (0.43) -- -- -- --
1996 $10.75 0.54 0.04 (0.54) -- -- -- --
1995(7) $10.00 0.98 1.10 (0.98) (0.01) (0.34) -- --
CLASS B SHARES
YEAR ENDED
1997 $10.87 0.41 (0.96) (0.36) -- -- -- --
1996 $10.81 0.47 0.06 (0.47) -- -- -- --
1995(7) $10.00 0.91 1.16 (0.91) (0.01) (0.34) -- --
CLASS I SHARES
YEAR ENDED
1997 $10.85 0.46 (0.93) (0.45) -- -- -- --
1996 $10.81 0.59 0.04 (0.59) -- -- -- --
1995(7) $10.00 1.02 1.16 (1.02) (0.01) (0.34) -- --
- ---------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND
CLASS A SHARES
YEAR ENDED (AUDITED)
1997(17) $10.00 0.19 0.23 (0.20) -- (0.01) -- --
CLASS B SHARES
YEAR ENDED (AUDITED)
1997(17) $10.00 0.15 0.25 (0.19) -- (0.01) -- --
CLASS I SHARES
YEAR ENDED (AUDITED)
1997(17) $10.00 0.32 0.29 (0.32) -- (0.01) -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
SHORT BOND FUND
CLASS A SHARES
YEAR ENDED
1997 (0.55)
1996 (0.57)
1995 (0.58)
1994(13) (0.17)
CLASS B SHARES
YEAR ENDED
1997 (0.48)
1996(9) (0.14)
CLASS I SHARES
YEAR ENDED
1997 (0.58)
1996 (0.57)
1995 (0.58)
1994(13) (0.17)
- ---------------------------------------------------------------------------------------------------------------------------
MULTI SECTOR BOND FUND
CLASS A SHARES
YEAR ENDED
1997 (0.49)
1996 (0.50)
1995(14) (0.66)
1995 (0.52)
1994(15) (0.49)
CLASS B SHARES
YEAR ENDED
1997 (0.44)
1996 (0.55)
1995(16) (0.46)
1994(2) (0.40)
CLASS I SHARES
YEAR ENDED
1997 (0.51)
1996 (0.55)
1995(14) (0.69)
1995 (0.52)
1994(15) (0.49)
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 (0.43)
1996 (0.54)
1995(7) (1.33)
CLASS B SHARES
YEAR ENDED
1997 (0.36)
1996 (0.47)
1995(7) (1.26)
CLASS I SHARES
YEAR ENDED
1997 (0.45)
1996 (0.59)
1995(7) (1.37)
- ---------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND
CLASS A SHARES
YEAR ENDED (AUDITED)
1997(17) (0.21)
CLASS B SHARES
YEAR ENDED (AUDITED)
1997(17) (0.20)
CLASS I SHARES
YEAR ENDED (AUDITED)
1997(17) (0.33)
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
24
<PAGE> 25
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
CONVERSION ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $10.15 5.92% $ 4,738 0.82% 5.36% 0.83% 68.04% --
-- $10.11 4.45% $ 1,033 0.80% 5.35% 0.82% 109.58% --
-- $10.23 10.07% $ 766 0.75% 5.74% 0.81% 30.94% --
-- $ 9.84 0.21%+ $ 308 0.75%+ 5.92%+ 0.93%+ 10.20%++ --
-- $10.05 5.19% $ 541 1.57% 4.61% 1.58% 68.04% --
-- $10.02 2.04%++ $ 56 1.57%+ 1.47%+ 1.59%+ 109.58%+ --
-- $10.15 6.20% $234,972 0.57% 5.61% 0.58% 68.04% --
-- $10.11 4.56% $171,427 0.70% 5.45% 0.72% 109.58% --
-- $10.23 10.07% $162,571 0.75% 5.74% 0.81% 30.94% --
-- $ 9.84 0.21%+ $ 63,931 0.75%+ 5.92%+ 0.93%+ 10.20%++ --
- --------------------------------------------------------------------------------------------------
-- $ 8.00 8.58% $ 7,832 0.87% 5.83% -- 38.70% --
-- $ 7.84 2.75% $ 8,798 0.84% 5.75% 0.90% 103.93% --
-- $ 8.18 15.55%++ $ 6,095 0.94%+ 5.72%+ 1.15%+ 173.26%++ --
-- $ 7.68 (0.45)% $ 69 0.04% 6.70% 2.78% 71.65% --
-- $ 8.25 5.16%+ $ 65 -- 5.96%+ 3.67%+ 26.54%++ --
-- $ 8.00 7.75% $ 533 1.62% 5.08% -- 38.70% --
-- $ 7.85 2.09% $ 502 1.58% 5.01% 1.67% 103.93% --
-- $ 8.18 6.41%++ $ 259 1.60%+ 5.00%+ 1.78%+ 173.26%++ --
(7.61)(3) -- (1.82)%++ -- 0.00% 6.48%+ 2.58%+ 71.65%++ --
-- $ 8.01 8.86% $ 94,544 0.62% 6.08% -- 38.70% --
-- $ 7.85 3.14% $187,112 0.57% 6.02% 0.66% 103.93% --
-- $ 8.18 15.90%++ $191,930 0.55%+ 6.34%+ 0.67%+ 173.26%++ --
-- $ 7.68 (0.48)% $ 7,101 0.04% 6.70% 2.78% 71.65% --
-- $ 8.25 5.16%++ $ 5,128 0.00% 6.21%+ 2.64%+ 26.54%++ --
- --------------------------------------------------------------------------------------------------
-- $ 9.88 (4.46)% $ 6,419 1.12% 4.76% 1.33% 4.51% --
-- $10.79 5.62% $ 2,006 1.15% 4.74% 1.94% 97.82% --
-- $10.75 21.10%++ $ 487 1.33%+ 4.91%+ 3.65%+ 48.03%++ --
-- $ 9.96 (5.04)% $ 117 1.87% 4.01% 2.08% 4.51% --
-- $10.87 5.01% $ 46 1.90% 3.99% 4.08% 97.82% --
-- $10.81 20.90%++ $ 4 2.03%+ 4.39%+ 8.69%+ 48.03%++ --
-- $ 9.93 (4.25)% $ 81,843 0.87% 5.01% 1.08% 4.51% --
-- $10.85 5.99% $ 53,845 0.90% 4.99% 1.40% 35.42% --
-- $10.81 22.13%++ $ 14,504 0.95%+ 5.71%+ 1.93%+ 48.03%++ --
- --------------------------------------------------------------------------------------------------
-- $10.21 8.31%+ $ 570 1.22%+ 7.42%+ 1.43%+ 11.17% --
-- $10.20 7.82%+ $ 77 1.97%+ 6.67%+ 2.18%+ 11.17% --
-- $10.28 12.64%+ $ 49,150 0.97%+ 7.67%+ 1.18%+ 11.17% --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
25
<PAGE> 26
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 $12.36 0.56 0.54 (0.59) -- -- -- --
1996 $12.64 0.59 (0.18) (0.58) (0.01) (0.10) -- --
1995(18) $12.06 0.48 0.82 (0.48) (0.24) -- -- --
1995 $12.13 0.60 (0.07) (0.60) -- -- -- --
1994 $13.25 0.63 (0.15) (0.63) (0.96) (0.01) -- --
1993 $12.49 0.70 1.01 (0.70) (0.25) -- -- --
1992 $12.10 0.76 0.47 (0.76) (0.08) -- -- --
1991 $11.77 0.81 0.33 (0.81) -- -- -- --
1990 $11.82 0.81 0.28 (0.81) (0.33) -- -- --
1989(19) $11.94 0.89 (0.12) (0.89) -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $12.36 0.46 0.54 (0.50) -- -- -- --
1996 $12.65 0.52 (0.21) (0.49) (0.01) (0.10) -- --
1995(20) $12.17 0.34 0.72 (0.34) (0.24) -- -- --
1994(21) $12.14 0.41 (0.70) (0.41) -- -- -- --
1994(22) $12.37 0.03 (0.23) (0.03) -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $12.36 0.61 0.51 (0.62) -- -- -- --
1996 $12.63 0.65 (0.20) (0.61) (0.01) (0.10) -- --
1995(18) $12.06 0.52 0.81 (0.52) (0.24) -- -- --
1995(23) $12.06 0.05 -- (0.05) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
INTERMEDIATE MUNICIPAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 $12.10 0.54 0.28 (0.54) -- (0.06) -- --
1996 $12.25 0.53 (0.09) (0.51) -- (0.08) -- --
1995(18) $11.79 0.44 0.56 (0.44) -- (0.10) -- --
1995 $12.18 0.55 (0.36) (0.55) -- (0.03) -- --
1994 $12.79 0.61 0.01 (0.61) -- (0.62) -- --
1993 $12.25 0.64 0.68 (0.64) -- (0.14) -- --
1992 $11.95 0.76 0.37 (0.76) -- (0.07) -- --
1991 $11.65 0.80 0.31 (0.80) -- (0.01) -- --
1990 $11.43 0.78 0.22 (0.78) -- -- -- --
1989(19) $11.46 0.79 (0.03) (0.79) -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $12.10 0.43 0.30 (0.45) -- (0.06) -- --
1996 $12.25 0.44 (0.09) (0.42) -- (0.08) -- --
1995(18) $11.80 0.37 0.55 (0.37) -- (0.10) -- --
1995(24) $11.57 0.04 0.23 (0.04) -- -- -- --
1994(21) $12.18 0.37 (0.72) (0.37) -- (0.03) -- --
1994(22) $12.32 0.03 (0.14) (0.03) -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $12.11 0.57 0.28 (0.57) -- (0.06) -- --
1996 $12.25 0.56 (0.08) (0.54) -- (0.08) -- --
1995(18) $11.80 0.47 0.55 (0.47) -- (0.10) -- --
1995(23) $11.57 0.04 0.23 (0.04) -- -- -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
MUNICIPAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 (0.59)
1996 (0.69)
1995(18) (0.72)
1995 (0.60)
1994 (1.60)
1993 (0.95)
1992 (0.84)
1991 (0.81)
1990 (1.14)
1989(19) (0.89)
CLASS B SHARES
YEAR ENDED
1997 (0.50)
1996 (0.60)
1995(20) (0.58)
1994(21) (0.41)
1994(22) (0.03)
CLASS I SHARES
YEAR ENDED
1997 (0.62)
1996 (0.72)
1995(18) (0.76)
1995(23) (0.05)
- ---------------------------------------------------------------------------------------------------------------------
INTERMEDIATE MUNICIPAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 (0.60)
1996 (0.59)
1995(18) (0.54)
1995 (0.58)
1994 (1.23)
1993 (0.78)
1992 (0.83)
1991 (0.81)
1990 (0.78)
1989(19) (0.79)
CLASS B SHARES
YEAR ENDED
1997 (0.51)
1996 (0.50)
1995(18) (0.47)
1995(24) (0.04)
1994(21) (0.40)
1994(22) (0.03)
CLASS I SHARES
YEAR ENDED
1997 (0.63)
1996 (0.62)
1995(18) (0.57)
1995(23) (0.04)
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
26
<PAGE> 27
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
CONVERSION ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $12.87 9.13% $ 34,729 0.85% 4.65% -- 32.08% --
-- $12.36 3.36% $ 29,352 0.83% 4.54% 0.89% 64.51% --
-- $12.64 10.95%++ $ 7,426 0.89%+ 4.57%+ 1.04%+ 69.31%++ --
-- $12.06 4.45% $ 6,840 1.98% 5.09% 3.89% 60.78% --
-- $12.13 3.70% $ 9,234 -- 4.85% 1.44% 175.06% --
-- $13.25 14.37% $ 11,290 -- 5.49% 1.59% 88.53% --
-- $12.49 10.50% $ 6,591 -- 5.99% 2.75% 66.28% --
-- $12.10 10.13% $ 2,244 -- 6.87% 2.75% 32.40% --
-- $11.77 9.39% $ 1,192 -- 6.60% 2.75% 85.07% --
-- $11.82 6.82%+ $ 673 -- 7.46%+ 2.25%+ 36.19%++ --
-- $12.86 8.26% $ 1,312 1.60% 3.90% -- 32.08% --
-- $12.36 2.56% $ 672 1.58% 3.79% 1.70% 64.51% --
-- $12.65 8.81%++ $ 238 1.66%+ 3.61%+ 2.04%+ 69.31%++ --
(11.44)(3) -- (4.30)%++ -- 3.18%+ 4.51%+ 5.85%+ 60.78%++ --
-- $12.14 (1.64)%++ $ 2 0.50%+ 4.10%+ 2.91%+ 175.06%++ --
-- $12.86 9.32% $355,814 0.60% 4.90% -- 32.08% --
-- $12.36 3.76% $338,104 0.58% 4.79% 0.68% 64.51% --
-- $12.63 11.20%++ $240,160 0.54%+ 4.95%+ 0.67%+ 69.31%++ --
-- $12.06 0.39%++ $220,143 0.65%+ 5.45%+ 0.79%+ 60.78%++ --
- ---------------------------------------------------------------------------------------------------
-- $12.32 7.05% $ 18,903 0.84% 4.41% -- 36.82% --
-- $12.10 3.69% $ 19,049 0.83% 4.37% 0.88% 52.95% --
-- $12.25 8.58%++ $ 17,777 0.83%+ 4.30%+ 0.97%+ 44.75%++ --
-- $11.79 1.64% $ 17,243 0.29% 4.73% 1.38% 128.02% --
-- $12.18 4.94% $ 28,826 0.06% 4.78% 1.27% 167.95% --
-- $12.79 11.26% $ 27,885 -- 5.16% 1.31% 63.67% --
-- $12.25 9.78% $ 18,310 -- 6.15% 1.72% 86.91% --
-- $11.95 9.94% $ 7,251 -- 6.76% 2.75% 12.22% --
-- $11.65 9.00% $ 4,582 -- 6.62% 2.75% 46.68% --
-- $11.43 6.82%+ $ 2,593 -- 6.83%+ 2.25%+ 101.17%++ --
-- $12.32 6.19% $ 709 1.59% 3.66%+ -- 36.82% --
-- $12.10 2.90% $ 611 1.58% 3.62% 1.68% 52.95% --
-- $12.25 7.75%++ $ 341 1.71%+ 3.36%+ 2.01%+ 44.75%++ --
-- $11.80 2.30%++ $ 6 1.36%+ 3.72%+ 1.64%+ 128.02%++ --
(11.43)(3) -- (2.98)%++ -- 0.76%+ 4.03%+ 2.00%+ 128.02%++ --
-- $12.18 (0.93)%++ $ 12 0.75%+ 1.68%+ 3.00%+ 167.95%++ --
-- $12.33 7.29% $377,331 0.59% 4.66% -- 36.82% --
-- $12.11 4.05% $373,970 0.58% 4.62% 0.64% 52.95% --
-- $12.25 8.76%++ $373,753 0.55%+ 4.78%+ 0.68%+ 44.75%++ --
-- $11.80 2.37%++ $365,801 0.50%+ 4.79%+ 0.60%+ 128.02%++ --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
27
<PAGE> 28
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MICHIGAN MUNICIPAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 $10.48 0.49 0.44 (0.48) -- -- -- --
1996 $10.60 0.48 (0.14) (0.46) -- -- -- --
1995 $ 9.54 0.48 1.06 (0.48) -- -- -- --
1994 $10.60 0.50 (1.06) (0.50) -- -- -- --
1993(25) $10.00 0.44 0.59 (0.43) -- -- -- --
CLASS B SHARES
YEAR ENDED
1997 $10.18 0.38 0.44 (0.41) -- -- -- --
1996(9) $10.00 0.07 0.17 (0.06) -- -- -- --
CLASS I SHARES
YEAR ENDED
1997 $10.48 0.51 0.45 (0.51) -- -- -- --
1996 $10.60 0.49 (0.14) (0.47) -- -- -- --
1995 $ 9.54 0.48 1.06 (0.48) -- -- -- --
1994 $10.60 0.50 (1.06) (0.50) -- -- -- --
1993(25) $10.00 0.44 0.59 (0.43) -- -- -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
MICHIGAN MUNICIPAL BOND FUND
CLASS A SHARES
YEAR ENDED
1997 (0.48)
1996 (0.46)
1995 (0.48)
1994 (0.50)
1993(25) (0.43)
CLASS B SHARES
YEAR ENDED
1997 (0.41)
1996(9) (0.06)
CLASS I SHARES
YEAR ENDED
1997 (0.51)
1996 (0.47)
1995 (0.48)
1994 (0.50)
1993(25) (0.43)
</TABLE>
- --------------------------------------------------------------------------------
See page 30 for Notes to Financial Highlights.
Pegasus Funds
28
<PAGE> 29
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
CONVERSION ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
TO VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
CLASS A END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
SHARES PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ---------- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $10.93 9.15% $18,687 0.92% 4.59% 0.98% 37.84% --
-- $10.48 3.32% $18,575 0.88% 4.57% 0.96% 24.49% --
-- $10.60 16.49% $21,034 0.79% 4.71% 1.04% 26.97% --
-- $ 9.54 (5.42)% $21,106 0.53% 5.01% 1.05% 25.93% --
-- $10.60 11.50%+ $26,342 0.19%+ 5.12%+ 1.21%+ 41.70%++ --
-- $10.59 8.26% $ 707 1.67% 3.84% 1.73% 37.84% --
-- $10.18 2.45%++ $ 110 1.69%+ 2.01%+ 1.77%+ 24.49%+ --
-- $10.93 9.42% $61,768 0.67% 4.84% 0.73% 37.84% --
-- $10.48 3.44% $41,909 0.77% 4.68% 0.85% 24.49% --
-- $10.60 16.49% $32,419 0.79% 4.71% 1.04% 26.97% --
-- $ 9.54 (5.42)% $24,157 0.53% 5.01% 1.05% 25.93% --
-- $10.60 11.50%+ $15,772 0.19%+ 5.12%+ 1.21%+ 41.70%++ --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
29
<PAGE> 30
NOTES TO FINANCIAL HIGHLIGHTS
(1) For the period March 3, 1995 (re-offering date of Class B Shares) through
December 31, 1995.
(2) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares and such shares converted to Class A Shares.
(3) On December 2, 1994, the Fund terminated the offering of Class B Shares
under the then-current sales load schedule and such shares converted to
Class A Shares.
(4) For the period March 3, 1995 (initial offering date of Class I Shares)
through December 31, 1995.
(5) For the period August 24, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(6) For the period December 17, 1996 (commencement of operations) through
December 31, 1996.
(7) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(8) For the period May 1, 1992 (initial offering date of Class A Shares)
through December 31, 1992.
(9) For the period September 23, 1996 (initial offering date of Class B
Shares) through December 31, 1996.
(10) For the period June 1, 1991 (commencement of operations) to December 31,
1991.
(11) For the period July 10, 1992 (inception) through December 31, 1992.
(12) For the period December 3, 1994 (commencement of operations) through
December 31, 1994.
(13) For the period September 17, 1994 (commencement of operations) through
December 31, 1994.
(14) For the period February 1, 1995 through December 31, 1995. Effective
February 1, 1995, the Fund changed its fiscal year end from January 31 to
December 31.
(15) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
(16) For the period May 31, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective February 1, 1995, the Fund changed its fiscal
year end from January 31 to December 31.
(17) For the period June 30, 1997 (commencement of operations) through December
31, 1997.
(18) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
(19) For the period March 1, 1988 (commencement of operations) to February 28,
1989.
(20) For the period April 4, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective March 1, 1995, the Fund changed its fiscal
year end from February 28 to December 31.
(21) For the period March 1, 1994 through December 2, 1994. On December 2,
1994, the Fund terminated its offering of Class B Shares and such shares
converted to Class A Shares.
(22) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
(23) For the period February 1, 1995 (initial offering date of Class I Shares)
to February 28, 1995.
(24) For the period January 30, 1995 (re-offering date of Class B Shares)
through February 28, 1995.
(25) For the period February 1, 1993 (commencement of operations) through
December 31, 1993.
(26) The Portfolio Turnover Percentage was adjusted for Redemptions In-Kind for
shareholders that took place during 1997 for the Equity Index, Mid-Cap
Opportunity and Intrinsic Value Funds. Each Fund's securities sales were
appropriately reduced by the fair market value of the Redemptions In-Kind.
The Redemptions In-Kind for the Equity Index, Mid-Cap Opportunity and
Intrinsic Value Funds were approximately $260 million, $4 million and $5
million, respectively.
(27) The Portfolio Turnover Percentage was adjusted for a conversion of assets
from First National Bank of Chicago's International Equity Common Trust
Fund, which took place during 1997. The Fund's securities purchases were
appropriately reduced by the fair market value of the asset transfer
approximating $20 million.
(a) Total returns as presented do not include any applicable sales load or
redemption charges.
+ Annualized.
++ Not annualized.
Pegasus Funds
30
<PAGE> 31
Description of the Funds
GENERAL
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
currently consists of thirty-one investment portfolios, each of which consists
of a separate pool of assets with separate investment objectives and policies.
This Prospectus, however, describes only twenty-two portfolios. Under the 1940
Act, each Fund is classified as a diversified investment portfolio (a
"Diversified Fund") except for the International Equity, International Bond,
Municipal Bond, Short Municipal Bond, Intermediate Municipal Bond and Michigan
Municipal Bond Funds, which are each classified as a non-diversified portfolio
(the "Non-Diversified Funds").
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of a Fund may not be changed without approval of the
holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities. See "General Information." Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without a
vote of shareholders. There can be no assurance that a Fund will achieve its
objective. The following sections should be read in conjunction with "Risk
Factors" below and the description of investments in which the Funds may
invest, as set forth in "Supplemental Information." A description of ratings
("Debt Ratings") is contained below and in the Statement of Additional
Information.
ASSET ALLOCATION FUNDS
In order to achieve its investment objective, each Asset Allocation Fund will
typically invest in the Underlying Funds within a predetermined target asset
allocation range, as set forth below. The target asset allocation reflects the
extent to which each Asset Allocation Fund will invest in a particular market
segment, and the varying degrees of potential investment risk and reward
represented by the Fund's investments in those market segments and their
corresponding Underlying Funds. The Investment Adviser may alter the target
asset allocation and the target asset allocation ranges when it deems
appropriate. The assets of each Fund will be allocated among the Underlying
Funds in accordance with the Fund's investment objective, the target asset
allocation, the Investment Adviser's outlook for the economy, the financial
markets and the relative market valuations of the Underlying Funds. The Asset
Allocation Funds will generally limit their investments to the Underlying
Funds.
In order to meet liquidity needs or for temporary defensive purposes, each
Asset Allocation Fund may invest its assets in shares of the Money Market Fund
and directly in short-term obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government, or its agencies or
instrumentalities ("U.S. Government Obligations"), "high quality" money market
instruments such as certificates of deposit, bankers' acceptances, time
deposits, repurchase agreements, reverse repurchase agreements, short-term
obligations issued by state and local governmental issuers which carry yields
that are competitive with those of other types of high quality money market
instruments, commercial paper, notes, other short-term obligations and variable
rate master demand notes of domestic and foreign issuers ("Cash Equivalent
Securities"). "High quality" money market instruments are money market
instruments which are rated at the time of purchase within the two highest
rating categories by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P"), Fitch IBCA, Inc. ("Fitch") or Duff & Phelps
Credit Rating Co. ("Duff") (each a "Rating Agency") or which are unrated at
such time but are deemed by the Investment Adviser to be comparable in quality
to instruments that are so rated. Such investments may include obligations of
foreign banks and foreign branches of U.S. banks.
The Managed Assets Conservative Fund seeks to provide long-term total return
with capital appreciation as a secondary consideration. The Managed Assets
Balanced Fund seeks to achieve long-term total return through a combination of
capital appreciation and current income. The Managed Assets Growth Fund seeks
to achieve long-term total return with current income a secondary
consideration. The Managed Assets Conservative Fund is deemed to be more
"conservative" than the Managed Assets Balanced and Managed Assets Growth Funds
because it has a heavier weighting in Debt Securities and in Underlying Funds
which invest primarily in Debt Securities and a lighter weighting in Equity
Securities and in Underlying Funds which invest primarily in Equity Securities
relative to the other Asset Allocation Funds. In attempting to achieve its
asset allocation objective, except as set forth above, each Asset Allocation
Fund will invest in the equity, debt and cash equivalent market sectors within
the following ranges:
Pegasus Fund31s
<PAGE> 32
TARGET ASSET ALLOCATION
<TABLE>
<CAPTION>
ASSET
ALLOCATION
FUND EQUITY DEBT CASH EQUIVALENT
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed As-
sets Con-
servative
Fund 30%-50% 50%-70% 0%-20%
- ----------------------------------------------------------------------------------
Managed As-
sets Bal-
anced Fund 50%-70% 30%-50% 0%-20%
- ----------------------------------------------------------------------------------
Managed As-
sets Growth
Fund 70%-90% 10%-30% 0%-20%
- ----------------------------------------------------------------------------------
Underlying Equity Income Fund Intermediate Bond Fund Money Market Fund
Funds by Growth Fund Bond Fund
Category Mid-Cap Opportunity Fund Short Bond Fund
Small-Cap Opportunity Fund Multi Sector Bond Fund
Intrinsic Value Fund International Bond Fund
Growth and Value Fund High Yield Bond Fund
Equity Index Fund
International Equity Fund
</TABLE>
- --------------------------------------------------------------------------------
PEGASUS MONEY MARKET FUND
The Money Market Fund seeks to provide a high level of current income
consistent with the preservation of capital and liquidity. The Money Market
Fund also seeks to maintain a constant net asset value of $1.00 per share for
purchases and redemptions, but there can be no assurance that the Fund will be
able to do so.
The Money Market Fund may invest in the following high quality money market
instruments: (1) U.S. Government Obligations; (2) U.S. dollar denominated
obligations issued or guaranteed by the government of Canada, a Province of
Canada, or an instrumentality or political subdivision thereof; (3)
certificates of deposit, bankers' acceptances and time deposits of U.S. banks
or other U.S. financial institutions (including foreign branches of such banks
and institutions) having total assets in excess of $1 billion and which are
members of the Federal Reserve System or the Federal Deposit Insurance
Corporation ("FDIC"); (4) certificates of deposit, bankers' acceptances and
time deposits of foreign banks and U.S. branches of foreign banks having assets
in excess of the equivalent of $1 billion; (5) commercial paper, other short-
term obligations and variable and floating rate master demand notes, bonds,
debentures and notes; (6) repurchase agreements relating to the above
instruments; (7) reverse repurchase agreements; (8) guaranteed investment
contracts; (9) securities of other investment companies; (10) securities
lending; and (11) illiquid securities (limited to 10% of the Fund's net
assets). The Money Market Fund is subject to Rule 2a-7 of the 1940 Act, which
sets forth requirements of, among other things, diversification, average
maturity (including a requirement that dollar-weighted average portfolio
maturity may not exceed 90 days) and credit quality. See also the Statement of
Additional Information for more information on the Money Market Fund. You may
request a Money Market Fund prospectus by calling (800) 688-3350.
EQUITY FUNDS
The Equity Income, Growth, Mid-Cap Opportunity, Small-Cap Opportunity,
Intrinsic Value, Growth and Value, Equity Index and Market Expansion Index
Funds invest primarily in publicly traded common stocks of companies
incorporated in the United States, although each such Fund may also invest up
to 25% of its total assets in the Equity Securities of foreign issuers, either
directly or through Depository Receipts. The International Equity Fund invests
primarily in Equity Securities of foreign issuers, either directly or through
Depository Receipts and similar securities which may be sponsored or
unsponsored. In addition, each Equity Fund may: (1) invest in securities
convertible into common stock, such as certain bonds and preferred stocks; (2)
invest up to 5% of its net assets in other types of securities having common
stock characteristics (such as rights and warrants to purchase equity
securities); (3) invest up to 5% of its net assets in lower-rated convertible
securities; (4) enter into futures contracts and related options; (5) utilize
options and other derivative instruments such as equity index swaps; and (6)
lend its portfolio securities. The International Equity Fund also may invest in
foreign currency and options on foreign currency transactions. Under normal
market conditions, each Fund expects to invest at least 65% of the value of its
total assets in Equity Securities. Each Equity Fund may hold up to 35% of its
total assets in Cash Equivalents and Debt Securities rated investment grade or
higher at the time of purchase (i.e., no lower than Baa by Moody's or BBB by
S&P, Fitch or Duff), or unrated investments deemed by the Investment Adviser to
be comparable in quality at the time of purchase to instruments that are so
rated, and, in the case of the International Equity Fund, Debt Securities of
foreign issuers, foreign governments and agencies.
The EQUITY INCOME FUND will invest primarily in income-producing Equity
Securities of domestic issuers. The Investment Adviser will be particularly
alert to companies which pay above-average dividends, yet offer
32
Pegasus Funds
<PAGE> 33
opportunities for capital appreciation and growth of earnings.
The GROWTH FUND will invest primarily in Equity Securities of domestic issuers
believed by the Investment Adviser to have above-average growth
characteristics. The Investment Adviser may consider some of the following
factors in making its investment decisions: the development of new or improved
products or services; a favorable outlook for growth in the industry; patterns
of increasing sales and earnings; the probability of increased operating
efficiencies; cyclical conditions; or other signs that the company is expected
to show greater than average earnings growth and capital appreciation.
The MID-CAP OPPORTUNITY FUND intends to invest under normal market conditions
at least 65% of the value of its total assets in Equity Securities of companies
with market capitalizations of $500 million to $3 billion. The Investment
Adviser believes that there are many companies in this size range that enjoy
enhanced growth prospects, operate in more stable market niches, and have
greater ability to respond to new business opportunities, all of which increase
their likelihood of attaining superior levels of profitability and investment
returns.
The SMALL-CAP OPPORTUNITY FUND intends to invest under normal market
conditions at least 65% of the value of its total assets in Equity Securities
of small domestic issuers with market capitalizations of $100 million to $1
billion. The Investment Adviser will consider some of the following factors in
making its investment decisions: high quality management; significant equity
ownership positions by management; a leading or dominant position in a major
product line; a sound financial position; and a relatively high rate of return
on invested capital. The Fund also may invest in companies that offer the
possibility of accelerating earnings growth because of management changes, new
products or structural changes in the industry or the economy.
The INTRINSIC VALUE FUND invests primarily in Equity Securities of companies
believed by the Investment Adviser to represent a value or potential worth
which is not fully recognized by prevailing market prices. In selecting
investments for the Fund, screening techniques are employed to isolate issues
believed to be attractively priced. The Investment Adviser then evaluates the
underlying earning power and dividend paying ability of these potential
investments. The Fund's holdings are usually characterized by lower
price/earnings, price/cash flow and price/book value ratios and by above
average current dividend yields relative to the equity market.
The GROWTH AND VALUE FUND invests primarily in Equity Securities of companies
believed by the Investment Adviser to represent a value or potential worth
which is not fully recognized by prevailing market prices. The Fund invests in
companies which the Investment Adviser believes have earnings growth
expectations that exceed those implied by the market's current valuation. In
addition, the Fund seeks to maintain a portfolio of companies whose earnings
will increase at a faster rate than those within the general equity market.
The EQUITY INDEX FUND uses the S&P 500 Index as a benchmark for comparison
because it represents roughly two-thirds of the market value of all publicly
traded common stocks in the United States, is well known to investors and is a
widely accepted measure of common stock investment returns. The S&P 500 Index
contains a representative sample of common stocks that trade on the New York
and American Stock Exchanges and also contains over-the-counter stocks that are
a part of the National Market System.
The MARKET EXPANSION INDEX FUND uses a combination of the S&P SmallCap and S&P
MidCap Indices as a benchmark for comparison. The two indexes (each of which is
a market value weighted index) are combined to form the benchmark with each
stock weighted according to its relative market capitalization. The indices
contain a representative sample of stocks of medium-size and small U.S.
companies (none of which is included in the S&P 500 Index) that trade on the
New York and American Stock Exchanges and also contain over-the-counter stocks
that are part of the National Market System.
The Equity Index and Market Expansion Index Funds ("Index Funds") each seek to
achieve a 95% correlation coefficient between its performance and that of its
respective benchmark index or combined indices. Therefore, each Fund's price
changes and total return are expected to closely match movements in the
underlying index or combined indices.
The Index Funds will not be managed by using traditional economic, financial
or market analysis. Instead, each Fund utilizes a sampling methodology to
determine which stocks to purchase or sell in order to closely replicate the
performance of its respective index or combined indices. Stocks are selected
for a Fund based on both capitalization weighting in the index or combined
indices and industry representation. Larger market capitalization securities in
an index or the combined indices are added to a Fund according to their
relative weight. Smaller capitalization securities are then added to a Fund in
equal weights according to an analysis of the industry diversification of such
index or combined indices. Therefore, while all industry weights in a Fund are
essentially matched to those of the respective index or combined indices, not
necessarily all of the stocks of the index or combined indices are held in the
Fund. Each Fund may invest up to 25% of its assets in the securities of foreign
issuers through Depository Receipts. Pending investment and to meet anticipated
redemption requests, each Fund may hold
Pegasus Funds
33
<PAGE> 34
up to 5% of its total assets in Cash Equivalent Securities. In addition, up to
5% of each Fund's total assets may be invested in futures contracts and related
options in an effort to maintain exposure to price movements in the respective
index or combined indices pending investment of funds or while maintaining
liquidity to meet potential shareholder redemptions.
Deviations from the performance of the respective index or combined indices
("tracking error") may result from shareholder purchases and redemptions of
shares of a Fund that occur daily, as well as from the expenses borne by a
Fund, cash reserves held by a Fund and purchases and sales of securities made
by a Fund to conform its holdings more closely with those represented in the
respective index or the combined indices. In addition, tracking error may occur
due to changes made in an index and the manner in which an index is calculated.
In the event the performance of a Fund is not comparable to the performance of
its respective index or combined indices, the Board of Trustees will examine
the reasons for the deviation and the availability of corrective measures. If
substantial deviation in a Fund's performance were to continue for extended
periods, it is expected that the Board of Trustees would consider possible
changes to a Fund's investment objective.
The INTERNATIONAL EQUITY FUND will invest primarily in Equity Securities of
foreign issuers located in but not limited to the United Kingdom and European
continent, Japan, other Far East areas and Latin America. The Fund may also
invest in other regions seeking to capitalize on investment opportunities in
other parts of the world, including developing countries.
The Investment Adviser's investment approach to managing the International
Equity Fund's assets emphasizes active country selection involving global
economic and political assessments together with valuation analysis of selected
countries' securities markets. In situations where an investment's
attractiveness outweighs prospects for currency weakness, the Investment
Adviser may take suitable hedging measures. An index approach is typically used
at the stock selection level.
The Investment Adviser employs quantitative techniques in conjunction with its
judgment and experience to determine the foreign equity markets that the Fund
will be invested in and the percentage of total assets the Fund will hold by
country. Securities of a country are selected using a quantitatively-oriented
sampling technique intending to generally replicate the performance of an
individual country's stock market index. The Morgan Stanley Capital
International Country Indexes have, for some time, been the accepted benchmarks
in the U.S. for international equity fund country comparisons. The Fund may
also use sector analysis and invest in individual Equity Securities which the
Investment Adviser believes offer opportunities for capital appreciation.
The International Equity Fund's assets will be invested at all times in the
securities of issuers located in at least three different foreign countries.
Investments in a particular country may exceed 25% of the Fund's total assets,
thus making its performance more dependent upon the political and economic
circumstances of a particular country than a more widely diversified portfolio.
BOND FUNDS
Each of the Bond Funds will invest at least 65% of the value of its total
assets under normal market conditions in Debt Securities. When the Investment
Adviser believes it advisable for temporary defensive purposes, to maintain
liquidity, or in anticipation of otherwise investing cash positions, each Bond
Fund may invest in Cash Equivalent Securities. Most obligations acquired by the
Funds with the exception of the International Bond Fund will be issued by
companies or governmental entities located within the United States. Each Bond
Fund, other than the International Bond Fund and High Yield Bond Fund, may
invest up to 15% of its total assets in dollar denominated debt obligations
(including Cash Equivalent Securities) of foreign issuers. The International
Bond Fund may invest 100% of its total assets in investments in foreign
issuers. The High Yield Bond Fund may invest 100% of its total assets in dollar
denominated debt obligations (including Cash Equivalent Securities) of foreign
issuers. In addition, each Bond Fund may lend its portfolio securities,
purchase preferred securities, purchase convertible securities and restricted
securities, and engage in futures and options transactions and other derivative
instruments, such as interest rate swaps and forward contracts.
Other than the International Bond Fund and High Yield Bond Fund, the Debt
Securities in which each Bond Fund may invest will be rated investment grade at
the time of purchase, or if unrated, will be deemed by the Investment Adviser
to be comparable in quality at the time of purchase to instruments that are so
rated. By so restricting its investments, a Fund's ability to maximize total
rate of return will be limited. Under normal market conditions, at least 65% of
the value of the International Bond Fund's total assets will consist of Debt
Securities rated A or better by a Rating Agency; and the remainder of its
assets may be invested in Debt Securities rated no lower than B by a Rating
Agency. Under normal market conditions, the High Yield Bond Fund will invest
primarily in Debt Securities which are rated BBB or lower by a Rating Agency.
There is no minimal acceptable rating for a security to be purchased or held in
the High Yield Bond Fund's portfolio and the Fund may, from time to time,
purchase or hold securities in the lowest rating category or hold securities
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in default. The International Bond Fund and High Yield Bond Fund may also
invest in Debt Securities which, while not rated, are determined by the
Investment Adviser or, in the case of the High Yield Bond Fund, the Sub-
Adviser, to be of comparable quality to those rated securities in which the
Funds may invest. See "Risk Factors--Lower-Rated Securities."
The INTERMEDIATE BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, will have maturities or average lives of up to 15 years. The Fund's
average weighted portfolio maturity is expected to be between 3 and 6 years.
The BOND FUND invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers. The Fund's average weighted
portfolio maturity is expected to be between 6 and 12 years.
The SHORT BOND FUND invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers which, under normal market
conditions, will have maturities or average lives of up to 10 years. The Fund's
average weighted portfolio maturity will be limited to a maximum of 3 years.
The MULTI SECTOR BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, will have a dollar-weighted average maturity expected to range
between 3 and 10 years.
The INTERNATIONAL BOND FUND will invest in Debt Securities of issuers located
throughout the world, except the United States. The Fund also may invest in
convertible preferred stocks, hold foreign currency, and purchase debt
securities or hold currencies in combination with forward currency exchange
contracts. The Fund will be alert to opportunities to profit from fluctuations
in currency exchange rates. The Fund will be particularly alert to favorable
arbitrage opportunities (such as those resulting from favorable interest rate
differentials) arising from the relative yields of the various types of
securities in which the Fund may invest and market conditions generally. The
Fund may invest without restriction in companies in, or governments of,
developing countries. See "Risk Factors--Foreign Securities" below.
The HIGH YIELD BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, are expected to be lower-rated corporate debt obligations or
unrated obligations of comparable quality. Lower-rated or unrated bonds are
commonly referred to as "junk bonds" and are regarded as predominantly
speculative. Certain fixed rate obligations in which the Fund invests may
involve equity characteristics. The Fund may, for example, invest in unit
offerings that combine fixed rate securities and common stock or common stock
equivalents such as warrants, rights, and options. The Fund may invest up to
10% of its total assets in Equity Securities (whether the equity securities are
purchased in a unit offering or not); however, preferred and convertible
securities are not subject to this limitation. The Fund may invest up to 10% of
its total assets in foreign securities which are not publicly traded in the
United States.
MUNICIPAL BOND FUNDS
It is a fundamental policy of each of the Municipal Bond Funds to invest
(except when maintaining a temporary defensive position) at least 80% of the
value of its net assets in Municipal Obligations. From time to time, a
Municipal Bond Fund may invest in an amount not to exceed 20% of the value of
its net assets, or without limitation for temporary defensive purposes, in
taxable Cash Equivalent Securities. Dividends paid by a Municipal Bond Fund
that are attributable to income earned by it from these securities will be
taxable to investors. See "Dividends, Distributions and Taxes."
Municipal Obligations in which the Municipal Bond Funds invest will be rated
at least Baa, MIG-2/VMIG-2 or Prime 2 (P-2) by Moody's, BBB, SP-2 or A-2 by
S&P, BBB or F-2 by Fitch or BBB or Duff-2 by Duff or, if unrated, determined by
the Investment Adviser to be comparable in quality to instruments that are so
rated. The Municipal Bond Funds also may lend their portfolio securities, and
engage in futures and options transactions and other derivative instruments
transactions, such as interest rate swaps.
The MUNICIPAL BOND FUND invests in a portfolio of investment grade Municipal
Obligations without regard to maturity.
The SHORT MUNICIPAL BOND FUND invests in a portfolio of investment grade
Municipal Obligations which, under normal market conditions, will have a
dollar-weighted average maturity generally between one and three years.
The INTERMEDIATE MUNICIPAL BOND FUND invests in a portfolio of investment
grade Municipal Obligations which, under normal market conditions, will have a
dollar-weighted average maturity expected to range between 3 and 10 years.
The MICHIGAN MUNICIPAL BOND FUND invests at least 65% of its total assets
under normal market conditions in investment grade Michigan Municipal
Obligations and the remainder may be invested in securities that are not
Michigan Municipal Obligations and therefore may be subject to Michigan income
taxes. See "Taxes." The Fund will invest in Michigan Municipal Obligations and
other securities without regard to maturity. To the extent that acceptable
Michigan Municipal Obligations are at any time unavailable for investment by
the Fund, the Fund will invest primarily in other Municipal Obligations the
interest on which is, in the opinion of bond counsel, exempt from federal, but
not Michigan income taxes.
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INVESTMENT LIMITATIONS
Each Fund and the Money Market Fund are subject to a number of investment
limitations. Except as noted, the following investment limitations are matters
of fundamental policy and may not be changed with respect to a particular Fund
or the Money Market Fund without the affirmative vote of the holders of a
majority of the outstanding shares of the Fund or the Money Market Fund. Other
investment limitations that cannot be changed without a vote of shareholders
are contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
Each of the Funds and the Money Market Fund may not:
1. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, any state, territory or possession
of the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions, domestic bank
obligations for the Money Market Fund, and repurchase agreements secured by
such instruments, (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of the parents, (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry, and
(d) personal credit and business credit businesses will be considered separate
industries.
2. Make loans, except that it may purchase and hold debt instruments and enter
into repurchase agreements in accordance with its investment objective and
policies and may lend portfolio securities in an amount not exceeding one-third
of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted under the 1940 Act.
The Diversified Funds and the Money Market Fund may not purchase securities of
any one issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, immediately after such
purchase, more than 5% of the value of its total assets would be invested in
the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by it, except that up to 25% of the value of
its total assets may be invested without regard to these limitations.
Each Asset Allocation Fund will look through to its pro rata portion of the
Underlying Funds' portfolio investments to determine consistency with its
fundamental policies on diversification and concentration.
Generally, if a percentage limitation is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in the
value of a Fund's portfolio securities will not constitute a violation of such
limitation for purposes of the 1940 Act.
RISK FACTORS
GENERAL
Before selecting a Fund in which to invest, the investor should assess the
risks associated with the types of investments made by the Fund. Investors
should consider a Fund as a supplement to an overall investment program and
should invest only if they are willing to accept the risks involved. The
following should be read in conjunction with "Supplemental Information"
beginning on page A-1 of this Prospectus and the Statement of Additional
Information.
EQUITY SECURITIES
(Asset Allocation, Equity and High Yield Bond Funds only) Securities of smaller
companies may be subject to more abrupt or erratic market movements than
larger, more established companies because they typically are traded in lower
volume and their issuers typically are subject to a greater degree to changes
in earnings and prospects.
DEBT SECURITIES
(All Funds and the Money Market Fund) Investors should be aware that even
though interest-bearing securities are investments which promise a stable
stream of income, the prices of such securities generally are inversely
affected by changes in interest rates and, therefore, are subject to the risk
of market price fluctuations. The values of Debt Securities also may be
affected by changes in the credit rating or financial condition of the issuing
entities. Many corporate debt obligations, including many lower-rated Debt
Securities, permit the issuers to call the security and thereby redeem their
obligations earlier than the stated maturity dates. Issuers are more likely to
call Debt Securities during periods of declining interest rates. In these
cases, a Fund would likely be required to reinvest the proceeds at lower
interest rates, thus reducing income to the Fund.
MUNICIPAL OBLIGATIONS
(Asset Allocation, Bond and the Municipal Bond Funds only) Investors should be
aware that when a Fund's assets are concentrated in obligations payable from
revenues of similar projects or issued by issuers located in the same state, or
in industrial development bonds, the Fund will be subject to the particular
risks relating to such securities (including legal and economic
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conditions) to a greater extent than if its assets were not so concentrated.
Payment on Municipal Obligations held by the Funds relating to certain
projects may be secured by mortgages or deeds of trust. In the event of a
default, enforcement of a mortgage or deed of trust will be subject to
statutory enforcement procedures and limitations on obtaining deficiency
judgments. Moreover, collection of proceeds from a foreclosure may be delayed
and the amount of the proceeds received may not be enough to pay the principal
or accrued interest on the defaulted Municipal Obligations.
LOWER-RATED SECURITIES
(Asset Allocation, Equity, International Bond and High Yield Bond Funds only)
Investors should carefully consider the relative risks of investing in the
higher yielding (and, therefore, higher risk) debt securities rated below
investment grade by Moody's, S&P, Fitch or Duff (commonly known as junk bonds).
Each Equity Fund is permitted to invest up to 5% of its net assets in lower-
rated convertible securities. The International Bond Fund may invest up to 35%
of its net assets in debt securities rated as low as B by Moody's, S&P, Fitch
and Duff and unrated debt securities deemed by the Investment Adviser to be
comparable in quality at the time of purchase to instruments that are so rated.
The High Yield Bond Fund will invest primarily in debt securities rated Baa or
lower by Moody's or BBB or lower by S&P, Fitch or Duff and unrated securities
deemed by the Sub-Adviser to be comparable in quality at the time of purchase
to instruments that are so rated. There is no minimal acceptable rating for a
security to be purchased or held by the High Yield Bond Fund, and the Fund may,
from time to time, purchase or hold securities rated in the lowest rating
category or hold securities in default.
Lower-rated securities will usually offer higher yields than investment grade
securities. However, there is more risk associated with these investments
because of reduced creditworthiness and increased risk of default. The market
values of certain lower-rated debt securities tend to reflect specific
developments with respect to the issuer to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level of
interest rates, and tend to be more sensitive to economic conditions than are
higher rated securities. Issuers of such debt securities often are highly
leveraged and may not have available to them more traditional methods of
financing.
Securities rated below investment grade generally are subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated Debt Securities. Securities rated below
BBB by S&P, Fitch or Duff or Baa by Moody's are regarded as predominantly
speculative; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate and may face
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. Factors adversely affecting the market price
and yield of lower-rated debt securities, including a Fund's ability to sell
such securities in a market that may be less liquid than the market for higher
rated securities, will adversely affect the Fund's net asset value. In
addition, the retail secondary market for these securities may be less liquid
than that for higher rated securities; adverse conditions could make it
difficult at times for a Fund to sell certain securities or could result in
lower prices than those used in calculating its net asset value.
The Investment Adviser or Sub-Adviser will continually evaluate lower-rated
securities and the ability of their issuers to pay interest and principal. A
Fund's ability to achieve its investment objective may be more dependent on the
Investment Adviser's and Sub-Adviser's credit analysis than might be the case
for a fund that invested in higher rated securities. See "Supplemental
Information--Risks Related to Lower-rated Securities," "Debt Ratings" and the
Appendix in the Statement of Additional Information for a general description
of securities ratings.
FOREIGN SECURITIES
(Asset Allocation, Equity and Bond Funds and the Money Market Fund) Foreign
securities markets, especially those of developing countries, generally are not
as developed or efficient as those in the United States. Investment in
securities of foreign issuers, whether made directly or indirectly, involves
inherent risks, such as political or economic instability of the issuer or the
country of issue, the difficulty of predicting international trade patterns,
changes in exchange rates of foreign currencies, the possibility of adverse
changes in investment or exchange control regulations. In addition, foreign
securities may be less liquid and more volatile than securities of comparable
U.S. issuers.
Developing countries have economic structures that are generally less diverse
and mature, and political systems that are less stable, than those of developed
countries. The markets of developing countries may be more volatile than the
markets of more mature economies.
FOREIGN CURRENCY AND FOREIGN COMMODITY TRANSACTIONS
(Asset Allocation, International Equity, International Bond and High Yield Bond
Funds only) Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange
Pegasus Funds
37
<PAGE> 38
markets and the relative merits of investments in different countries, actual
or perceived changes in interest rates and other complex factors, as seen from
an international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments
in the United States or abroad.
The foreign currency market offers less protection against defaults in the
forward trading of currencies than is available when trading currencies on an
exchange. Since a forward currency contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a fund of unrealized
profits or force it to cover its commitments for purchase or resale, if any, at
the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and may be subject to greater risks than trading on domestic exchanges.
For example, some foreign exchanges are principal markets so that no common
clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits that a Fund might realize
in trading could be eliminated by adverse changes in the exchange rate, or a
Fund could incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic exchanges
and those which are not.
MORTGAGE-RELATED SECURITIES
(Asset Allocation and Bond Funds only) No assurance can be given as to the
liquidity of the market for certain mortgage-backed securities, such as
collateralized mortgage obligations and stripped mortgage-backed securities.
Determination as to the liquidity of interest-only and principal-only fixed
mortgage-backed securities issued by the U.S. Government or its agencies and
instrumentalities will be made in accordance with guidelines established by the
Board. Mortgage-related securities may be considered a derivative instrument.
DERIVATIVE INSTRUMENTS
Each Fund and the Money Market Fund may purchase certain "derivative
instruments" in accordance with their respective investment objectives and
policies. Derivative instruments are instruments that derive value from the
performance of underlying assets, interest or currency exchange rates, or
indices, and include, but are not limited to, futures contracts, options,
forward currency contracts and structured debt obligations (including
collateralized mortgage obligations and other types of asset backed securities,
"stripped" securities and various floating rate instruments, including inverse
floaters).
Derivative instruments present, to varying degrees, market risk that the
performance of the underlying assets, exchange rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative instrument will
decline more than the assets, rates or indices on which it is based; liquidity
risk that a Fund or the Money Market Fund will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument (such as an option) will
not correlate exactly to the value of the underlying assets, rates or indices
on which it is based; and operations risk that loss will occur as a result of
inadequate systems and controls, human error or otherwise. Some derivative
instruments are more complex than others, and for those instruments that have
been developed recently, data are lacking regarding their actual performance
over complete market cycles.
SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE ASSET ALLOCATION FUNDS
An investment in a mutual fund involves risk and, although the Asset Allocation
Funds will ultimately be substantially invested in the Underlying Funds, such
investment will not eliminate investment risk. Investing in the Underlying
Funds through the Asset Allocation Funds also involves certain additional
expenses and tax considerations that would not be present in a direct
investment in the Underlying Funds. From time to time, the Underlying Funds may
experience relatively large purchases or redemptions due to asset allocation
decisions made by the Investment Adviser for its clients, including the Asset
Allocation Funds. These transactions may have a material effect on the
Underlying Funds because Underlying Funds that experience redemptions as a
result of reallocations may have to sell portfolio securities and because the
Underlying Funds that receive additional cash will have to invest it. While it
is impossible to predict the overall impact of these transactions over time,
there could be adverse effects on portfolio management to the extent that the
Underlying Funds may be required to sell securities at times when they would
not otherwise do so, or receive cash that cannot be invested in an expeditious
manner. There may be tax consequences associated with the purchase and sale of
securities and such sales may also increase transaction costs. The Investment
Adviser is committed to minimizing the impact of these transactions on the
Underlying Funds to the extent it is consistent with pursuing the investment
objectives of the Asset Allocation Funds. The Investment Adviser will monitor
the impact of asset allocation decisions on the Underlying Funds and, where
practicable, an Asset Allocation Fund will, at any
38
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one time, only redeem shares of any particular Underlying Fund to reduce its
allocation to that Underlying Fund in increments of up to 5% (e.g. from 20% to
15%), except where such redemptions are to meet Fund shareholder redemption
requests. The Investment Adviser will nevertheless face conflicts in fulfilling
its responsibilities because of the possible differences between the interests
of its asset allocation clients (including shareholders of the Asset Allocation
Funds) and the interests of the Underlying Funds. Further information on the
investment policies and objectives of the Underlying Funds can be found in
"Supplemental Information" and the Statement of Additional Information.
SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE MICHIGAN MUNICIPAL BOND FUND
The Michigan Municipal Bond Fund will under normal market conditions consist of
Michigan Municipal Obligations to the extent of 65% or more of its total
assets. This concentration in securities issued by governmental units of a
single state exposes the Fund to risk of loss greater than that of a more
diversified fund holding securities issued by governmental units of different
states and different regions of the country.
Moreover, the economy of the State of Michigan is heavily dependent upon the
automobile manufacturing industry, a highly cyclical industry. This factor
affects the revenue streams of the State of Michigan and its political
subdivisions because it impacts on tax sources, particularly sales taxes,
income taxes and Michigan single business taxes.
In 1993 and 1994, Michigan adopted complex statutory and constitutional
changes which, among several other changes in tax methods and rates, have the
effect of imposing limits on annual assessment increases and of transferring a
significant part of the operating cost of public education from locally based
property tax sources to state based sources, including increased sales tax.
These changes will affect state and local revenues of Michigan governmental
units in future years in differing ways, not all of which can be presently
known with certainty.
OTHER INVESTMENT CONSIDERATIONS
The classification of the Municipal Bond Funds and the International Equity and
International Bond Funds as "non-diversified" investment companies means that
the proportion of their assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment
company is required by the 1940 Act generally, with respect to 75% of its total
assets, to invest not more than 5% of such assets in the securities of a single
issuer and to hold not more than 10% of the voting securities of any single
issuer. Each Non-Diversified Fund, however, intends to conduct its operations
so as to qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"). The Code requires that,
at the end of each quarter of a fund's taxable year, (i) at least 50% of the
market value of its total assets be invested in cash, U.S. Government
securities, securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets be invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies). Since a relatively
high percentage of a Non-Diversified Fund's assets may be invested in the
securities of a limited number of issuers, some of which may be within the same
industry or economic sector, its portfolio securities may be more susceptible
to any single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
How to Buy Shares
GENERAL INFORMATION
DESCRIPTION OF CLASSES
This Prospectus offers investors three Classes of shares of each Fund for
investment, Class A, Class B and Class I shares, each of which represents an
identical pro rata interest in a Fund's investment portfolio. Class A shares
and Class B shares are offered to any investor. Orders for purchases of Class I
shares, however, may be placed only for certain eligible investors as described
below. An investor who is not eligible to purchase Class I shares may choose
either Class A or Class B shares based on which class best suits the investor's
needs, given the offering price, the length of time the investor expects to
hold the shares and any other relevant circumstances.
Class A shares are sold at net asset value per share plus an initial sales
charge imposed at the time of purchase. The initial sales charge may be reduced
or waived for certain purchases. The Market Expansion Index Fund also imposes a
transaction fee, as described below under "Transaction Fee Imposed on Share
Purchases." Class A shares of each Fund are subject to a shareholder servicing
fee. Class B shares are sold at net asset value per share with no initial sales
charge at the time of purchase; as a result, the entire purchase price is
immediately invested in the Fund (except for the Market Expansion Index Fund
which imposes a transaction fee). Class B shares may be subject to a CDSC, as
described under "How To Redeem Shares" below, and are subject to a distribution
fee and
Pegasus Funds
39
<PAGE> 40
shareholder servicing fee. See "Distribution and Shareholder Services Plans."
Class A and Class B shares are offered to the general public and may be
purchased through a number of institutions, including NBD, FCNIMCO, FNBC, ANB
and their affiliates, other Service Agents, and directly through the
Distributor.
Class I shares are sold at net asset value with no sales charge (although the
Market Expansion Index Fund imposes a transaction fee) and are sold exclusively
to the following investors: (1) qualified trust, custody and/or agency account
clients of FNBC, NBD or their affiliates, including defined benefit retirement
plans for FNBC, NBD or their affiliates act as investment manager, but
excluding other retirement, 401(k), employee benefit and profit sharing plans
("Fiduciary Accounts"); (2) qualified retirement, profit sharing, 401(k) or
other employee benefit plans with plan assets of at least $100 million invested
in shares of the Funds or other investment companies or accounts advised by
FNBC, NBD, ANB or FCNIMCO ("Eligible Retirement Plans"); (3) broker-dealers,
registered investment advisers and other financial institutions purchasing a
minimum of $1 million, which have entered into an agreement with a "mutual fund
supermarket" or with the Distributor, which includes the requirement that such
shares be purchased for the benefit of clients participating in a "wrap
account" or similar program under which such clients pay a fee ("Eligible
Financial Intermediaries"); and (4) the Asset Allocation Funds. Class I shares
are not subject to an annual service fee or distribution fee. Such financial
institutions may require different minimum initial charges, restrictions or
cut-off times different from those applicable to investors that invest in the
Trust directly.
Class B shares will receive lower per share dividends and at any given time
the performance of Class B should be expected to be lower than for shares of
each other Class because of the higher expenses borne by Class B. Similarly,
Class A shares will receive lower per share dividends, and the performance of
Class A should be expected to be lower, than Class I shares because of the
higher expenses borne by Class A.
An investor who is not eligible to purchase Class I shares should consider
whether, during the anticipated life of the investor's investment in a Fund,
the accumulated distribution fee and CDSC on Class B shares prior to conversion
would be less than the initial sales charge, if any, on Class A shares
purchased at the same time, and to what extent, if any, such differential would
be offset by the return of Class A. Additionally, investors qualifying for
reduced initial sales charges who expect to maintain their investment for an
extended period of time might consider purchasing Class A shares because the
accumulated continuing distribution fees on Class B shares may exceed the
initial sales charge on Class A shares during the life of the investment.
INFORMATION APPLICABLE TO ALL PURCHASERS
When purchasing Fund shares, an investor must specify the Class of shares being
purchased. If no Class of shares is specified, Class A shares will be
purchased.
The minimum initial investment for each Class is $1,000, except for Eligible
Financial Intermediaries purchasing Class I shares, for which the minimum
initial investment is $1 million. However, the $1,000 minimum initial
investment is lowered to $250 for purchases of Class A and/or Class B shares
for IRAs and other retirement plans when an investor signs up for an automatic
investment purchase plan. See "Shareholder Services--Automatic Investment Plan"
below. All subsequent investments must be at least $100. The initial investment
must be accompanied by the Account Application. The Investment Adviser and
Service Agents may impose initial or subsequent investment minimums which are
higher or lower than those specified above and may impose different minimums
for different types of accounts or purchase arrangements. The Trust reserves
the right to reject any purchase order.
If an order is received by the Transfer Agent or certain authorized broker-
dealers or designated intermediaries by the close of trading on the floor of
the New York Stock Exchange (the "Exchange"), or at the Early Closing Time (as
defined below), on any Business Day (as defined below), shares will be
purchased at the public offering price determined as of the close of trading on
the floor of the Exchange (currently 4:00 p.m., Eastern time) or as of the
Early Closing Time on that day. Otherwise, shares will be purchased at the
public offering price determined as of the close of trading on the floor of the
Exchange or as of the Early Closing Time on the next Business Day.
The Trust has authorized certain broker-dealers to accept on its behalf
purchase orders made through a "mutual fund supermarket." Such authorized
broker-dealers may designate other intermediaries to accept purchase orders on
behalf of the Trust.
Federal regulations require that an investor provide a certified Taxpayer
Identification Number ("TIN") upon opening or reopening an account. See the
Statement of Additional Information for information concerning this
requirement. Failure to furnish a certified TIN to the Trust could subject an
investor to a $50 penalty imposed by the Internal Revenue Service (the "IRS"),
and could subject the investor to backup withholding.
Shares may also be paid for by wiring federal funds to NBD Bank, ABA
072000326, for the account of Pegasus Funds, deposit to FDIS Cashbook Account
number 79512, and identifying the customer name and account number. Before
wiring payment, customers
40
Pegasus Funds
<PAGE> 41
must notify the Trust at 1-800-688-3350 of the dollar amount of the purchase.
Notification must be given before the respective closing time of the fund to be
purchased.
Share certificates will not be issued. It is not recommended that the
Municipal Bond Funds be used as vehicles for Keogh, IRA or other qualified
retirement plans.
NET ASSET VALUE
As to each Fund, net asset value per share of each Class is computed by
dividing the value of the Fund's net assets represented by such Class (i.e.,
the value of its assets less liabilities) by the total number of shares of such
Class outstanding. The assets of each Asset Allocation Fund will consist
primarily of shares of the Underlying Funds, which are valued at their
respective net asset values.
Shares for each Fund are sold on a continuous basis at the public offering
price (i.e., net asset value plus the applicable sales load and transaction
fee, if any, as set forth below). Net asset value per share of the Funds is
determined as of the close of trading on the floor of the Exchange (currently
4:00 p.m., New York time), on each day the New York Stock Exchange is open for
business (the "Business Days") except: (i) those holidays which the Exchange
observes (currently New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day); and (ii) those Business Days on which the Exchange closes
prior to the close of its regular trading hours ("Early Closing Time") in which
event the net asset value of each Fund will be determined and its shares will
be priced as of such Early Closing Time.
Shares of the Underlying Funds held by the Asset Allocation Funds are valued
by the Asset Allocation Funds at their respective net asset values. Securities
held by the Funds which are traded on a recognized U.S. stock exchange are
valued at the last sale price on the national securities market. Securities
which are primarily traded on foreign securities exchanges are generally valued
at the latest closing price on their respective exchanges, except when an
occurrence subsequent to the time a value was established is likely to have
changed such value, in which case the fair value of those securities will be
determined through consideration of other factors by the Investment Adviser
under the supervision of the Board of Trustees. Securities, whether U.S. or
foreign, traded on only over-the-counter markets and securities for which there
were no transactions are valued at the average of the current bid and asked
prices. Debt Securities are valued according to the broadest and most
representative market, which ordinarily will be the over-the-counter markets,
whether in the United States or in foreign countries. Such securities are
valued at the average of the current bid and asked prices. Securities (other
than shares of the Underlying Funds) for which accurate market quotations are
not readily available, and other assets are valued at fair value by the
Investment Adviser under the supervision of the Board of Trustees. Securities
(other than shares of the Underlying Funds) may be valued on the basis of
prices provided by independent pricing services when the Investment Adviser
believes such prices reflect the fair market value of such securities. The
prices provided by pricing services take into account institutional size
trading in similar groups of securities and any developments related to
specific securities. For valuation purposes, the value of assets and
liabilities expressed in foreign currencies will be converted to U.S. dollars
equivalent at the prevailing market rate on the day of valuation. Open futures
contracts will be "marked-to-market."
CLASS A SHARES
Class A shares of each Fund are subject to an annual service fee at the rate of
up to 0.25% of the value of the average daily net assets of Class A. See
"Distribution Plan" and "Shareholder Services Plan." Class A shares held by
investors who after purchasing Class A shares establish a Fiduciary Account
will convert to Class I shares upon depositing such shares into such Account,
based on the relative net asset values for shares of each such Class.
The public offering price for Class A shares of each Fund is the net asset
value per share plus a sales load as shown below, and in the case of the Market
Expansion Index Fund, a transaction fee on purchases of its shares. See
"Transaction Fee Imposed on Share Purchases."
ASSET ALLOCATION FUNDS AND EQUITY FUNDS
(OTHER THAN THE EQUITY INDEX AND MARKET EXPANSION INDEX FUNDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL SALES LOAD
------------------------------- DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE PER OFFERING
AMOUNT OF TRANSACTION PER SHARE SHARE PRICE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.00 5.26 4.50
$50,000 to less than $100,000 4.50 4.71 4.00
$100,000 to less than $250,000 3.50 3.63 3.00
$250,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 2.00 2.04 1.75
$1,000,000 and above none* none none
</TABLE>
BOND, INTERNATIONAL BOND, HIGH YIELD BOND, MUNICIPAL
BOND AND MICHIGAN MUNICIPAL BOND FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL SALES LOAD
------------------------------- DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE PER OFFERING
AMOUNT OF TRANSACTION PER SHARE SHARE PRICE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50 4.71 4.00
$50,000 to less than $100,000 4.00 4.17 3.50
$100,000 to less than $250,000 3.00 3.09 2.50
$250,000 to less than $500,000 2.00 2.04 1.50
$500,000 to less than $1,000,000 1.50 1.52 1.25
$1,000,000 and above none* none none
</TABLE>
Pegasus Funds
41
<PAGE> 42
EQUITY INDEX, MARKET EXPANSION INDEX, MULTI SECTOR BOND, INTERMEDIATE BOND AND
INTERMEDIATE MUNICIPAL BOND FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL SALES LOAD
------------------------------- DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE PER OFFERING
AMOUNT OF TRANSACTION PER SHARE SHARE PRICE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 3.00 3.09 2.75
$50,000 to less than $100,000 2.50 2.56 2.25
$100,000 to less than $250,000 2.00 2.04 1.75
$250,000 to less than $500,000 1.50 1.52 1.25
$500,000 to less than $1,000,000 1.00 1.01 0.75
$1,000,000 and above none* none none
</TABLE>
SHORT BOND AND SHORT MUNICIPAL BOND FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL SALES LOAD
------------------------------- DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE PER OFFERING
AMOUNT OF TRANSACTION PER SHARE SHARE PRICE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $1,000,000 1.00 1.01 0.75
$1,000,000 and above none* none none
</TABLE>
* A contingent deferred sales charge of up to 1.00% may be assessed on certain
redemptions of Class A shares purchased without an initial sales charge as
part of an investment of $1 million or more.
With respect to purchases of $1,000,000 or more of Class A shares or other
purchases of Class A shares made at net asset value (as described below) of
each Fund made through Service Agents, the Distributor may pay such Service
Agents from its own funds, with respect to the Asset Allocation and Equity
Funds (other than the Equity Index and Market Expansion Index Funds) and the
Bond, International Bond, High Yield Bond, Municipal Bond and Michigan
Municipal Bond Funds, a fee of 1.00% for each Fund for the first $2 million of
the amount invested, 0.80% of the next $1 million and 0.50% thereafter and,
with respect to the Equity Index, Market Expansion Index, Short Bond, Short
Municipal Bond, Multi Sector Bond, Intermediate Bond and Intermediate Municipal
Bond Funds, a fee of 0.75% on the first $3 million of the amount invested and
0.50% thereafter, to compensate Service Agents for their distribution
assistance in connection with such purchases. In addition, at its expense, the
Distributor may provide additional compensation and promotional incentives to
dealers in connection with the sales of shares of the Funds. Such compensation
will include financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public,
advertising campaigns regarding one or more of the Funds, and/or other special
events sponsored by dealers. In some instances, this compensation will be made
available only to certain dealers whose representatives have sold a significant
amount of Shares. Compensation may also include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will also include the following types of non-cash compensation
offered through sales contests: (1) trips, including the provision of travel
arrangements and lodging at vacation resorts, (2) tickets for entertainment
events (such as concerts, cruises, and sporting events) and (3) merchandise
(such as clothing, trophies, clocks, and pens). Dealers may not use sales of
shares to qualify for this compensation to the extent this may be prohibited by
the laws of any self-regulatory agency, such as the NASD. None of the
aforementioned will be paid for by the Funds or their shareholders.
Full-time employees of NASD member firms which have entered into an agreement
with the Distributor pertaining to the sale of Fund shares (or which otherwise
have a brokerage-related or clearing arrangement with an NASD member firm with
respect to sales of Fund shares), their spouses and minor children, and
accounts opened by a bank, trust company or thrift institution, acting as a
fiduciary or custodian, for accounts other than 401(k) and other defined
contribution or other retirement plan accounts, may purchase Class A shares for
themselves or itself, as the case may be, without a sales load, provided that
they have furnished the Distributor appropriate notification of such status at
the time of the investment and such other information as it may request from
time to time in order to verify eligibility for this privilege. In addition,
Class A shares may be purchased without a sales load for accounts registered
under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act which
are opened through FCNIS and 401(k) and other defined contribution or other
retirement plan accounts for which FNBC or its subsidiaries or affiliates have
served as custodian or trustee since at least June 1, 1995 or NBD or its
subsidiaries or affiliates, other than FNBC or ANB, have served as
administrator or trustee since January 1, 1996. Class A shares are also offered
without a sales load to directors and full-time or part-time employees of FCN,
or any of its affiliates and subsidiaries, retired employees of FCN, or any of
its affiliates and subsidiaries, Board members of a fund advised by the
Investment Adviser, including members of the Trust's Board of Trustees, or the
spouses, children, grandchildren, siblings, parents, grandparents and in-laws
of any of the foregoing individuals.
Class A shares may be purchased without a sales load through certain broker-
dealers, registered investment advisers and other financial institutions which
have entered into an agreement with a "mutual fund supermarket" or with the
Distributor, which includes a requirement that such shares be purchased for the
benefit of clients participating in a "wrap account" or a similar program under
which such clients pay a fee to such broker-dealer, registered investment
adviser or other financial institution. The Investment Adviser may pay a fee of
up to 1.5% of the amount invested by a
42
Pegasus Funds
<PAGE> 43
participant in its Investment Architect Account or any other wrap account to
FCNIS, FNBC or other parties.
Class A shares also may be purchased without a sales load with the proceeds
from the redemption of shares of an investment company sold with a sales charge
or commission or annuity contract or guaranteed investment contract subject to
a surrender charge. This also includes shares of an investment company that
were or would be subject to a contingent deferred sales charge upon redemption.
The purchase must be made within 60 days of the redemption, and the Transfer
Agent must be notified in writing by the investor at the time the purchase is
made.
Class A shares also will be offered without a sales load to employees
participating in accounts such as retirement, 401(k), profit sharing and other
employee benefit plan or program accounts where (i) the employers or affiliated
employers maintaining such plans or programs have a minimum of 200 employees
eligible for participation in such plans or programs or (ii) such plan's or
program's assets exceed $1,000,000 ("Eligible Benefit Plans").
If an individual is a participant in a qualified retirement, profit sharing,
401(k) or other employee benefit plan which is eligible to purchase Class A
shares or Class I shares without a sales load and rolls Fund shares into a
qualified IRA, then that IRA may purchase Class A shares without a sales load.
Current shareholders of the Equity Index Fund who owned shares of the Fund
prior to August 26, 1996 and have held all or a portion of such shares
thereafter, are also entitled to purchase shares of the Equity Index Fund
without a sales load.
In order to qualify for any of the sales load exemptions indicated above, at
the time of purchase an investor must notify the Transfer Agent of the sales
load exemption. The sales load exemption is subject to verification by the
Transfer Agent through a check of appropriate records. If necessary, the
Transfer Agent may request additional supporting documentation from the
investor.
If an investor purchases Class A shares without an initial sales charge as
part of an investment of at least $1,000,000 or another method described above
and redeems those shares within a certain period after purchase, a CDSC will be
imposed at the time of redemption as described below unless the investor
qualifies for a waiver of the CDSC as described below under "Class B Shares --
Waiver of CDSC." If an investor purchases Class A shares without an initial
sales charge as part of an investment of at least $1,000,000 and redeems those
shares within a certain period after purchase, the investor may also qualify
for a waiver of the CDSC if the Service Agent the investor purchased the Class
A shares through agreed to waive its fee payable by the Distributor as
described above. The terms set forth under "How to Redeem Shares -- Class B --
Contingent Deferred Sales Charge" (other than the amount of the CDSC and its
time periods) are applicable to the Class A shares subject to a CDSC. The
following table sets forth the rates of such CDSC for each Fund other than the
Short Bond and Short Municipal Bond Funds for the indicated time periods:
<TABLE>
<CAPTION>
CDSC AS A % OF
AMOUNT INVESTED OR YEAR SINCE PURCHASE
REDEMPTION PROCEEDS PAYMENT WAS MADE
- ------------------------------------------------------------------------------
<S> <C>
1.00% First
- ------------------------------------------------------------------------------
0.50% Second
- ------------------------------------------------------------------------------
</TABLE>
The following table sets forth the rates of such CDSC for the Short Bond and
Short Municipal Bonds Funds for the indicated time periods:
<TABLE>
<CAPTION>
CDSC AS A % OF
AMOUNT INVESTED OR YEAR SINCE PURCHASE
REDEMPTION PROCEEDS PAYMENT WAS MADE
- ------------------------------------------------------------------------------
<S> <C>
1.00% First
- ------------------------------------------------------------------------------
None Second
</TABLE>
- --------------------------------------------------------------------------------
RIGHT OF ACCUMULATION -- CLASS A SHARES
Reduced sales loads apply to any purchase of Class A shares where the dollar
amount of shares being purchased, plus the value of shares of such Fund, shares
of other Funds and shares of certain other investment companies advised by the
Investment Adviser purchased with a sales load or acquired by a previous
exchange of shares purchased with a sales load (hereinafter referred to as
"Eligible Funds") held by an investor and any related "purchaser" as defined in
the Statement of Additional Information, is $50,000 or more. If, for example,
an investor previously purchased and still holds Class A shares of the Equity
Income Fund, or of any other Eligible Fund or combination of Eligible Funds,
with an aggregate current market value of $40,000 and subsequently purchases
Class A shares of such Fund or an Eligible Fund having a current value of
$20,000, the sales load applicable to the subsequent purchase would be reduced
to 4.50% of the offering price (4.71% of the net asset value). All present
holdings of Eligible Funds may be combined to determine the current offering
price of the aggregate investment in ascertaining the sales load applicable to
each subsequent purchase.
To qualify for reduced sales loads, at the time of a purchase an investor must
notify the Transfer Agent. The reduced sales load is subject to confirmation of
the investor's holdings through a check of appropriate records.
CLASS B SHARES
The Distributor will compensate certain Service Agents for selling Class B
shares at the time of purchase from its own assets. Proceeds of the CDSC and
distribution fees payable to the Distributor, in part, will be used to defray
these expenses.
Pegasus Funds
43
<PAGE> 44
CLASS I SHARES
Class I shares held by investors who after purchasing Class I shares for their
Fiduciary Accounts withdraw from such Accounts will convert to Class A shares
upon such withdrawal, based on the relative net asset values for shares of each
such Class, and will be subject to the annual service fee charged to Class A
shares.
TRANSACTION FEE IMPOSED ON SHARE PURCHASES
The Market Expansion Index Fund requires the payment of a transaction fee on
purchases of shares of the Market Expansion Index Fund equal to 0.50% of the
dollar amount invested. The transaction fee is paid to the Fund, not to the
adviser, distributor or transfer agent. It is not a sales charge. The fee
applies to initial investments in the Fund and all subsequent purchases
(including purchases made by exchange from the other Funds of the Trust), but
not to in-kind contributions, reinvested dividends or capital gain
distributions. The purpose of the transaction fee is to indirectly allocate
transaction costs associated with new purchases to investors making those
purchases, thus protecting existing shareholders. These costs include: (1)
brokerage costs; (2) market impact costs--i.e., the increase or decrease in
market prices which may result when the Fund purchases certain securities; and
(3) the effect of the "bid-ask" spread in the over-the-counter market. The
0.50% amount represents the Fund's estimate of the brokerage and other
transaction costs which may be incurred by the Fund in acquiring stocks in
which the Fund may invest. Without the transaction fee, the Fund would
generally be selling its shares at a price less than the cost to the Fund of
acquiring the portfolio securities necessary to maintain its investment
characteristics, resulting in reduced investment performance for all
shareholders in the Fund. With the transaction fee, the transaction costs of
acquiring additional stocks are not borne by all existing shareholders, but the
source of funds for these costs is the transaction fee paid by those investors
making additional purchases. Currently, the Fund is not charging a transaction
fee; however, the Fund reserves the right to charge this fee at a future date.
Shareholder Services
The Exchange Privilege is available to shareholders of any Class. The Letter of
Intent is available only for Class A shareholders, and the Automatic Investment
Plan and Reinstatement Privilege are available only for Class A and Class B
shareholders. Such services and privileges may not be available to clients of
certain Service Agents and some Service Agents may impose conditions on their
clients which are different from those described in this Prospectus. Each
investor should consult his or her Service Agent in this regard.
EXCHANGE PRIVILEGE
The Exchange Privilege enables an investor in Class A and Class B shares to
purchase, in exchange for shares of a Fund which have been owned for at least
30 days, shares of the same Class of the other Funds or the other investment
portfolios of the Trust. This privilege may be expanded to permit exchanges
between a Fund and other funds that, in the future, may be advised by the
Investment Adviser. Exchanges may be made to the extent the shares being
received in the exchange are offered for sale in the shareholder's state of
residence.
Shares of the same Class of Funds and other investment portfolios of the Trust
purchased by exchange will be purchased on the basis of relative net asset
value per share as follows:
A. Shares of Funds purchased with or without a sales load may be exchanged
without a sales load for shares of other Funds and investment portfolios of the
Trust sold without a sales load.
B. Shares of Funds purchased without a sales load may be exchanged for shares
of other Funds and investment portfolios of the Trust sold with a sales load,
and the applicable sales load will be deducted.
C. Shares of Funds purchased with a sales load, shares of Funds acquired by a
previous exchange from shares purchased with a sales load and additional shares
acquired through reinvestment of dividends or distributions of any such Funds
(collectively referred to herein as "Purchased Shares") may be exchanged for
shares of other Funds sold with a sales load (referred to herein as "Offered
Shares"), provided that, if the sales load applicable to the Offered Shares
exceeds the maximum sales load that could have been imposed in connection with
the Purchased Shares (at the time the Purchased Shares were acquired), without
giving effect to any reduced loads, the difference will be deducted. To
accomplish such an exchange, shareholders must notify the Transfer Agent of
their prior ownership of Fund shares and their account number.
D. Shares of Funds subject to a CDSC that are exchanged for shares of another
Fund or of the Trust's Money Market Fund will be subject to the higher
applicable CDSC of the two funds, and for purposes of calculating CDSC rates
and conversion periods, if any, will be deemed to have been held since the date
the shares being exchanged were initially purchased.
E. A qualified or non-qualified employee benefit plan with assets of at least
$1 million or 200 eligible participants may be exchanged from Class B shares to
Class A shares on or after January 1 of the year following the year of the
plan's eligibility, provided that the sponsor of the plan has so notified the
Service Agent of its eligibility and in turn, the Service Agent has notified
the Transfer Agent of such eligibility.
No fees currently are charged shareholders directly in connection with
exchanges although the Trust reserves the right, upon not less than 60 days'
written notice, to
44
Pegasus Funds
<PAGE> 45
charge shareholders a nominal fee in accordance with rules promulgated by the
SEC. The Trust reserves the right to reject any exchange request in whole or in
part. The Exchange Privilege may be modified or terminated at any time upon
notice to shareholders. Exchanges made into the Market Expansion Index Fund
will be charged a transaction fee applicable to purchases of such Fund. See
"Transaction Fee Imposed on Share Purchases."
The exchange of shares of one Fund for shares of another is treated for
federal income tax purposes as a sale and, therefore, an exchanging shareholder
may realize a taxable gain or loss. See "Taxes--Federal."
LETTER OF INTENT -- CLASS A SHARES
By signing a Letter of Intent form, available from the Transfer Agent, the
Investment Adviser, certain of its affiliates or certain Service Agents, an
investor becomes eligible for the reduced sales load applicable to the total
number of Eligible Fund shares purchased in a 13-month period up to the amount
of the signed Letter of Intent (beginning up to 30 days before the date of
execution of the Letter of Intent), pursuant to the terms and conditions set
forth in the Letter of Intent. A minimum initial purchase of $10,000 is
required. To compute the applicable sales load, the offering price of shares the
investor holds (on the date of submission of the Letter of Intent) in any
Eligible Fund that may be used toward "Right of Accumulation" benefits described
above may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if the investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when the investor fulfills the terms of the Letter of Intent by
purchasing the specified amount. Assuming completion of the total minimum
investment specified under a Letter of Intent, an adjustment will be made to
reflect any reduced sales load applicable to shares purchased during the 30-day
period before submission of the Letter of Intent. If total purchases are less
than the amount specified, the investor will be notified that a deduction from
escrow to cover the difference between the sales load actually paid and the
sales load applicable to the aggregate purchases actually made will be
assessed. Signing a Letter of Intent does not bind the investor to purchase, or
the Trust to sell, the total amount indicated at the sales load in effect at
the time of signing, but the investor must complete the intended purchase to
obtain the reduced sales load. At the time an investor purchases Class A
shares, the investor must indicate his or her intention to do so under a Letter
of Intent.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan permits an investor in Class A and Class B Shares
to purchase shares in amounts of at least $100 at regular intervals selected by
the investor. Provided the investor's bank or other financial institution
allows automatic withdrawals, shares may be purchased by transferring funds
from the bank account designated by the investor. At the investor's option, the
account designated will be debited in the specified amount, on either the first
and/or the fifteenth day of the month. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. To establish an Automatic Investment Plan account, the investor
must check the appropriate box and supply the necessary information on the
Account Application. Investors may obtain the necessary applications from the
Transfer Agent by calling (800) 688-3350. Investors should be aware that
periodic investment plans do not guarantee a profit and will not protect an
investor against loss in a declining market. An investor may cancel his or her
participation in the Plan or change the amount of purchase at any time by
mailing written notification to the Transfer Agent and such notification will
be effective three business days following receipt. The Funds may modify or
terminate the Automatic Investment Plan at any time or charge a service fee. No
such fee currently is contemplated.
REINSTATEMENT PRIVILEGE
The Reinstatement Privilege enables investors who have redeemed Class A or
Class B shares to purchase, within 120 days of such redemption, Class A shares
without the imposition of a sales load in an amount not to exceed the
redemption proceeds received. Class A shares so reinstated or purchased will be
offered at a purchase price equal to the then-current net asset value of Class
A Shares determined after a reinstatement request and payment for Class A
shares are received by the Transfer Agent. This privilege also enables such
investors to reinstate their account for the purpose of exercising the Exchange
Privilege. To use the Reinstatement Privilege, an investor must submit a
written reinstatement request to the Transfer Agent. The reinstatement request
and payment must be received within 120 days of the trade date of the
redemption. There currently are no restrictions on the number of times an
investor may use this privilege.
OPTION TO MAKE SYSTEMATIC WITHDRAWALS
The Systematic Withdrawal Plan permits an investor who owns Class A or Class B
shares of a Fund having a minimum value of $15,000 at the time he or she elects
under the Systematic Withdrawal Plan to have a fixed sum distributed in
redemption at regular intervals. An application form and additional information
regarding this service may be obtained from an investor's
Pegasus Funds
45
<PAGE> 46
financial institution or the Transfer Agent by calling (800) 688-3350.
CROSS REINVESTMENT OF DIVIDEND PLAN
The Trust makes available to investors of Class A and Class B shares a Cross
Reinvestment of Dividend Plan pursuant to which an investor who owns shares of
any Fund with a minimum value of $10,000 at the time he or she elects may have
dividends paid by such Fund automatically reinvested into shares of another
Fund or investment portfolio of the Trust in which he or she has invested a
minimum of $1,000. A transaction fee will be charged to all investors who elect
to have dividends from other Funds reinvested in the Market Expansion Index
Fund. See "Transaction Fee Imposed on Share Purchases" below. Investors may
obtain an application and additional information from their financial
institutions or the Transfer Agent by calling (800) 688-3350.
PEGASUS FUNDS INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Class A and Class B shares may be purchased in conjunction with the Trust's
Individual Retirement Custodial Account Program ("IRA") where NBD acts as
custodian. Investors should consult their institutions or the Transfer Agent
for information as to applications and annual fees. The minimum investment for
an IRA is $250. Investors should also consult their tax advisers to determine
whether the benefits of an IRA are available or appropriate.
How to Redeem Shares
GENERAL INFORMATION
An investor may request redemption of his or her shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. An
investor who has purchased shares through his or her Fiduciary Account or as a
participant in an Eligible Retirement Plan or "mutual fund supermarket" or
similar program must redeem shares by following instructions pertaining to such
Account or Plan or program. It is the responsibility of the entity authorized
to act on behalf of such Account or Plan or program to transmit the redemption
order to the Transfer Agent and credit the investor's account with the
redemption proceeds on a timely basis. When a redemption request is received in
proper form by the Transfer Agent, certain broker-dealers authorized by the
Trust to accept on its behalf such redemption requests made through a "mutual
fund supermarket" or certain other designated intermediaries, the relevant Fund
will redeem the shares at the next determined net asset value as described
below. If an investor holds Fund shares of more than one Class, any request for
redemption must specify the Class of shares being redeemed. If an investor
fails to specify the Class of shares to be redeemed, Class A shares will be
redeemed first. If an investor owns fewer shares of the Class than specified to
be redeemed, the redemption request may be delayed until the Transfer Agent
receives further instructions from the investor or his or her Service Agent.
The Funds impose no charges when shares are redeemed. However, the Trust may
impose a CDSC as described below. Service Agents also may charge a nominal fee
for effecting redemptions of Fund shares. The value of the shares redeemed may
be more or less than their original cost, depending upon the Fund's then-
current net asset value.
A Fund ordinarily will make payment for all shares redeemed within seven days
after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the SEC. If an investor has purchased Fund
shares by Automated Clearing House ("ACH"), or by cashier's check or wire
transfer and subsequently submits a written redemption request to the Transfer
Agent, the redemption proceeds will ordinarily be transmitted to the investor
within five business days or within one business day, respectively; however,
the Fund reserves the right to make payment within seven days or as provided by
SEC rules. See "How to Buy Shares -- Information Applicable to All Purchasers"
above regarding purchasing shares by wire transfer. HOWEVER, IF AN INVESTOR HAS
PURCHASED FUND SHARES BY CHECK OR THROUGH THE AUTOMATIC INVESTMENT PLAN AND
SUBSEQUENTLY SUBMITS A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO THE INVESTOR PROMPTLY UPON BANK
CLEARANCE OF THE INVESTOR'S PURCHASE CHECK OR AUTOMATIC INVESTMENT PLAN ORDER,
WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL
NOT HONOR REDEMPTION CHECKS FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER RECEIPT
BY THE TRANSFER AGENT OF THE PURCHASE CHECK OR AUTOMATIC INVESTMENT PLAN ORDER
AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF
THE INVESTOR OTHERWISE HAS A SUFFICIENT COLLECTED BALANCE IN HIS OR HER ACCOUNT
TO COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE,
DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND THE INVESTOR WILL BE
ENTITLED TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will
not be redeemed until the Transfer Agent has received the investor's Account
Application.
Each Fund reserves the right to redeem an investor's account at the Fund's
option upon not less than 60 days' written notice if, due to share redemptions,
the account's net asset value decreases to less than $1,000 and remains so
during the notice period.
REDEMPTION PROCEDURES
An investor who has purchased shares through his or her account at FCN, its
affiliates, a Service Agent or a
46
Pegasus Funds
<PAGE> 47
financial institution must redeem shares by following instructions pertaining
to such account. If an investor has given his or her Service Agent authority to
instruct the Transfer Agent to redeem shares and to credit the proceeds of such
redemption to a designated account at the Service Agent, the investor may
redeem shares only in this manner and in accordance with a written redemption
request described below. It is the responsibility of FCN, its affiliates, the
Investment Adviser, the Service Agent, or the financial institution, as the
case may be, to transmit the redemption order and credit the investor's account
with the redemption proceeds on a timely basis.
If an investor wants his or her redemption proceeds sent to an address other
than the investor's address as it appears on the Transfer Agent's records, a
signature guarantee is required. The Transfer Agent usually requires additional
documentation for the sale of shares by a corporation, partnership, agent or
fiduciary, or a surviving joint owner. See the Transfer Agent for more
information about where to obtain a signature guarantee.
An investor may use the Transfer Agent's Telephone Redemption Privilege to
redeem shares from his or her account, unless the investor has notified the
Transfer Agent of an address change within the preceding 15 days with the
exception of redemptions to pre-authorized bank accounts. Unless an investor
indicates otherwise on the Account Application, the Transfer Agent will be
authorized to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as his or her
representative, who can provide the Transfer Agent with his or her account
registration and address as it appears on the Transfer Agent's records. With
the telephone redemption or exchange privilege, an investor authorizes the
Transfer Agent to act on telephone instructions from any person representing
himself or herself to be the investor, or a representative of the investor's
Service Agent or financial institution, and reasonably believed by the Transfer
Agent to be genuine. The Trust will require the Transfer Agent to employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine and, if it does not follow such
procedures, the Trust or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent instructions. Neither the Trust nor the Transfer
Agent will be liable for following telephone instructions reasonably believed
to be genuine.
During times of drastic economic or market conditions, an investor may
experience difficulty in contacting the Transfer Agent by telephone to request
a redemption or exchange of Fund shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the investor's redemption request
being processed at a later time than it would have been if telephone redemption
had been used. During the delay, a Fund's net asset value may fluctuate.
WRITTEN REDEMPTION REQUESTS
Investors may redeem shares by written request mailed to the Transfer Agent at
P.O. Box 5142, Westborough, Massachusetts 01581-5120. Redemption requests must
be signed by each shareholder, including each owner of a joint account, and
each signature must be guaranteed for redemptions greater than $50,000. The
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations,
as well as from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP"), and the
Stock Exchange's Medallion Program.
CLASS B SHARES
CONTINGENT DEFERRED SALES CHARGE
A CDSC payable to the Distributor may be imposed on redemptions of Class B
shares depending on the number of years such shares were held by the investor.
The following table sets forth the rates of the CDSC applied for the Funds:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INDEX, MARKET
EXPANSION INDEX,
MULTI SECTOR
BOND,
INTERMEDIATE
SHORT BOND BOND AND
AND SHORT INTERMEDIATE
MUNICIPAL MUNICIPAL
BOND FUNDS BOND FUNDS ALL OTHER FUNDS
----------- -------------------- ---------------
CDSC AS A CDSC AS A CDSC AS A
YEAR % OF % OF % OF
SINCE AMOUNT AMOUNT AMOUNT
PURCHASE INVESTED OR INVESTED OR INVESTED OR
WAS REDEMPTION REDEMPTION REDEMPTION
MADE PROCEEDS PROCEEDS PROCEEDS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
First 1.00 3.00 5.00
Second None 3.00 4.00
Third * 2.00 3.00
Fourth N/A 2.00 3.00
Fifth N/A 1.00 2.00
Sixth N/A None 1.00
Seventh N/A * None
Eighth N/A N/A *
</TABLE>
- --------------------------------------------------------------------------------
* Conversion to Class A shares.
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. Class B
shares redeemed will not be subject to a CDSC to the extent that the value of
such shares represents capital appreciation or reinvestment of dividends or
Pegasus Funds
47
<PAGE> 48
distributions. It will be assumed that the redemption is made first of Class B
shares acquired pursuant to the reinvestment of dividends and distributions or
representing any capital appreciation in the value of the Class B shares held
by the investor; then of Class B shares held for the longest period of time.
WAIVER OF CDSC
The CDSC will be waived in connection with (a) redemptions made within one year
after the death of the shareholder, (b) redemptions by shareholders after age
70 1/2 for purposes of the minimum required distribution from an IRA, Keogh
plan or custodial account pursuant to Section 403(b) of the Code, (c)
distributions from a qualified plan upon retirement or termination of
employment, (d) redemptions of shares acquired through a contribution in excess
of permitted amounts, (e) in-service withdrawals from tax qualified plans by
participants, (f) redemptions initiated by a Fund of accounts with net assets
of less than $1,000, (g) redemptions by Eligible Financial Intermediaries who
have purchased Class A shares at net asset value as part of a "wrap account" or
similar program, and (h) redemptions of up to 10% of the value of shares during
a 12 month period as part of a Systematic Withdrawal Plan.
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares (and thus become subject
to the lower expenses borne by Class A shares) at the beginning of the eighth
year (the third year in the case of the Short Bond and Short Municipal Bond
Funds and the seventh year in the case of the Equity Index, Market Expansion
Index, Multi Sector Bond, Intermediate Bond and Intermediate Municipal Bond
Funds) after the date of purchase, together with the pro rata portion of all
Class B shares representing dividends and other distributions paid in
additional Class B shares. The conversion will be effected at the relative net
asset values per share of the two Classes on the first business day of the
month following the seventh anniversary (the second anniversary in the case of
the Short Bond and Short Municipal Bond Funds and the sixth anniversary in the
case of the Equity Index, Market Expansion Index, Multi Sector Bond,
Intermediate Bond and Intermediate Municipal Bond Funds) of the original
purchase. If any exchanges of Class B shares during the third-year, eighth-year
or seventh-year, as the case may be, occurred, the holding period for the
shares exchanged will be counted toward the third-year, eighth-year or seventh-
year, as the case may be. At the time of the conversion the net asset value per
share of the Class A shares may be higher or lower than the net asset value per
share of the Class B shares; as a result, depending on the relative net asset
values per share, a shareholder may receive fewer or more Class A shares than
the number of Class B shares converted.
Upon conversion to Class A shares, such shares will no longer be subject to
the distribution fee. Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted on a pro rata
basis together with other Class B shares, in the proportion that a
shareholder's Class B shares converting to Class A shares bears to the total
Class B shares not acquired through the reinvestment of dividends and
distributions.
Each Fund reserves the right to cease offering Class B shares for sale at any
time or reject any order for the purchase of Class B shares and to cease
offering any services provided by a Service Agent.
Management of the Trust
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust is responsible for the management of the
business and affairs of the Trust. Information about the Trustees and officers
of the Trust is contained in the Statement of Additional Information.
INVESTMENT ADVISER AND CO-ADMINISTRATORS
First Chicago NBD Investment Management Company, located at Three First
National Plaza, Chicago, Illinois 60670 is each Fund's and the Money Market
Fund's Investment Adviser. FCNIMCO is a registered investment adviser and a
wholly-owned subsidiary of The First National Bank of Chicago ("FNBC"), which
in turn is a wholly-owned subsidiary of First Chicago NBD Corporation ("FCN"),
a registered bank holding company. FCNIMCO also acts as investment adviser for
other accounts and registered investment company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an Investment
Advisory Agreement dated as of April 12, 1996. Under the Investment Advisory
Agreement, FCNIMCO provides the day-to-day management of each Fund's
investments. Subject to the overall authority of the Trust's Board of Trustees
and in conformity with Massachusetts law and the stated policies of the Trust,
FCNIMCO is responsible for making investment decisions for the Trust, placing
purchase and sale orders (which may be allocated to various dealers based on
their sales of Fund shares) and providing research, statistical analysis and
continuous supervision of each Fund's investment portfolio.
Under the terms of the Investment Advisory Agreement, the Investment Adviser
is entitled to a monthly fee as a percentage of each Fund's and the Money
Market Fund's daily net assets. Each Fund's and the Money Market Fund's current
contractual fee for advisory services is set forth below.
48
Pegasus Funds
<PAGE> 49
<TABLE>
<CAPTION>
EFFECTIVE RATE FOR
CURRENT ADVISORY SERVICES
CONTRACTUAL FOR YEAR ENDED
ADVISORY FEE RATE DECEMBER 31, 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conserva- 0.65% 0.52%
tive Fund
Managed Assets Balanced 0.65% 0.52%
Fund
Managed Assets Growth 0.65% 0.35%
Fund
- ------------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund 0.50% 0.50%
Growth Fund 0.60% 0.60%
Mid-Cap Opportunity Fund 0.60% 0.60%
Small-Cap Opportunity 0.70% 0.70%
Fund
Equity Index Fund 0.10% 0.08%
Market Expansion Index 0.25% N/A
Fund
Intrinsic Value Fund 0.60% 0.60%
Growth and Value Fund 0.60% 0.59%
International Equity 0.80% 0.80%
Fund
- ------------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund 0.40% 0.40%
Bond Fund 0.40% 0.40%
Short Bond Fund 0.35% 0.33%
Multi Sector Bond Fund 0.40% 0.40%
International Bond Fund 0.70% 0.52%
High Yield Bond Fund 0.70% 0.61%
- ------------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% 0.40%
Short Municipal Bond 0.40% N/A
Fund
Intermediate Municipal 0.40% 0.40%
Bond Fund
Michigan Municipal Bond 0.40% 0.34%
Fund
- ------------------------------------------------------------------------------------
MONEY MARKET FUND:
Money Market Fund 0.30% of the first $1 billion, 0.28%
0.275% of next $1 billion,
0.25% of amount in excess of $2 billion
</TABLE>
- --------------------------------------------------------------------------------
The following persons are responsible for the day-to-day management of each of
the Funds.
CLAUDE B. ERB, First Vice President and Director of Investment Planning, is
primarily responsible for the day-to-day management of the Asset Allocation
Funds and the International Bond Fund. Mr. Erb has served as Deputy Chief
Investment Officer and Senior Vice President of Trust Services of America and
TSA Capital Management from 1986 through 1992. Mr. Erb joined FCN in 1993.
CHRIS M. GASSEN, First Vice President, and F. RICHARD NEUMANN, First Vice
President, are primarily responsible for the day-to-day management of the
Equity Income and Intrinsic Value Funds. Mr. Gassen joined FCN in 1985 and Mr.
Neumann joined FCN in 1981.
RONALD L. DOYLE, Senior Vice President, and JOSEPH R. GATZ, Vice President,
are primarily responsible for the day-to-day management of the Mid-Cap
Opportunity and Small-Cap Opportunity Funds. Mr. Doyle joined FCN in 1982 and
Mr. Gatz joined FCN in 1986.
JEFFREY C. BEARD, First Vice President, and GARY L. KONSLER, First Vice
President, are primarily responsible for the day-to-day management of the
Growth and Value and Growth Funds. Mr. Beard joined FCN in 1982 and Mr. Konsler
joined FCN in 1973.
RICARDO F. CIPICCHIO, First Vice President, and MARK M. JACKSON, Vice
President, are primarily responsible for the day-to-day management of the Multi
Sector Bond Fund. Mr. Cipicchio joined FCN in 1989. Mr. Jackson served as
portfolio manager for Alexander Hamilton Life Insurance Company, 1993-1996, and
as portfolio manager for Public Employees Retirement System of Ohio, 1988-1993.
Mr. Jackson joined FCN in 1996.
RICHARD P. KOST, First Vice President, and CLYDE L. CARTER, JR., Vice
President, are primarily responsible for
Pegasus Fund49s
<PAGE> 50
the day-to-day portfolio management of the International Equity Fund. Mr. Kost
joined FCN in 1964 and Mr. Carter joined FCN in 1987.
DOUGLAS S. SWANSON, First Vice President, and MR. CIPICCHIO are primarily
responsible for the day-to-day management of the Intermediate Bond and Bond
Funds. Mr. Swanson joined FCN in 1983.
MR. CIPICCHIO and CHRISTOPHER J. NAUSEDA, Vice President, are primarily
responsible for the day-to-day portfolio management of the Short Bond Fund. Mr.
Nauseda joined FCN in 1982.
ROBERT T. GRABOWSKI, First Vice President and manager of the municipal desk at
FCN, and REBECCA L. GERSONDE, Vice President, are primarily responsible for the
day-to-day management of the Municipal Bond and Michigan Municipal Bond Funds.
Mr. Grabowski has been the manager of the municipal desk at FCN since 1984. Ms.
Gersonde joined FCN in 1982 and has been associate manager of the municipal
desk since 1993.
J. CHRISTOPHER NICHOLL, Vice President, and Mr. Grabowski are primarily
responsible for the day-to-day management of the Intermediate Municipal Bond
Fund. Mr. Nicholl joined FCN in 1996. He served as an Investment Associate at
Prudential Securities, Inc. from 1987-1995.
Ms. Gersonde and Mr. Nicholl are primarily responsible for the day-to-day
management of the Short Municipal Bond Fund.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of a
customer. Subject to such banking laws and regulations, the Investment Adviser
believes that it and its affiliated banks may perform the advisory,
administrative and custodial services for the Trust described in this
Prospectus, and may perform the shareholder services contemplated by this
Prospectus, without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Investment Adviser from continuing to perform
investment advisory or custodial services for the Trust or require them to
alter or discontinue the services they provide to shareholders.
If the Investment Adviser and its affiliated banks were prohibited from
performing investment advisory or custodial services for the Trust, it is
expected that the Board of Trustees would recommend that shareholders approve
new agreements with another entity or entities qualified to perform such
services and selected by the Board. The Trust does not anticipate that
investors would suffer any adverse financial consequences as a result of these
occurrences.
FCNIMCO and BISYS jointly serve as the Trust's Co-Administrators pursuant to
an Administration Agreement with the Trust. Under the Administration Agreement,
FCNIMCO and BISYS generally assist in all aspects of the Trust's operations,
other than providing investment advice, subject to the overall authority of the
Trust's Board in accordance with Massachusetts law. Under the terms of the
Administration Agreement the Trust pays FCNIMCO, as agent for the Co-
Administrators, a monthly administration fee at the annual rate of .15% of each
Fund's and the Money Market Fund's average daily net assets. For the fiscal
year ended December 31, 1997, the Trust paid administration fees at the
effective annual rate of .15% of each Fund's average daily net assets.
The Asset Allocation Funds invest in shares of the Underlying Funds. The
Investment Adviser and the Co-Administrators reimburse the Asset Allocation
Funds the full amount of advisory fees and administration fees incurred by each
of the Underlying Funds. However, investors in the Asset Allocation Funds do
indirectly bear that portion of the expenses of the Underlying Funds related to
other expenses such as custody, transfer agency and professional fees. These
fees are not redundant in that distinct services are being provided at each
level. FCNIMCO and BISYS have no current intention to, but may in the future,
discontinue or modify any such reimbursements at their discretion.
THE SUB-ADVISER
Federated Investment Counseling, located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222, is the sub-adviser for the High Yield Bond
Fund. Federated is a registered investment adviser and a subsidiary of
Federated Investors. All of the Class A voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
Chairman and a trustee of Federated Investors, Mr. Donahue's wife, and Mr.
Donahue's son, J. Christopher Donahue, who is President and a trustee of
Federated Investors.
Under the terms of the Sub-Advisory Agreement, Federated provides the day-to-
day management of the High Yield Bond Fund's investments. Subject to the
oversight and supervision of FCNIMCO and the Trust's Board of Trustees,
Federated is responsible for making investment decisions for the High Yield
Bond Fund, placing purchase and sale orders (which may be allocated to various
dealers based on their sale of Fund shares) and providing research, statistical
analysis and continuous supervision of the Fund's investment portfolio.
50
Pegasus Funds
<PAGE> 51
For its services, Federated is entitled to a monthly fee at the following
annual rates (as a percentage of the High Yield Bond Fund's average daily net
assets), which vary according to the level of assets: .50% on the first $30
million of average daily net assets, .40% on the next $20 million, .30% on the
next $25 million, .25% on the next $25 million and .20% of the Fund's average
daily net assets in excess of $100 million. The Sub-Adviser's fee is paid by
FCNIMCO and not by the Fund.
MARK E. DURBIANO, Senior Vice President, and CONSTANTINE KARTSONAS are
primarily responsible for the day-to-day management of the High Yield Bond
Fund. Mr. Durbiano joined Federated in 1982 and has been a Senior Vice
President of an affiliate of the Sub-Advisor since January 1996. From 1988
through 1995, Mr. Durbiano was a Vice President of an affiliate of Federated.
Mr. Kartsonas joined Federated in 1994 as an Investment Analyst and has been an
Assistant Vice President of an affiliate of the Sub-Adviser since January 1997.
Mr. Kartsonas served as an Operations Analyst at Lehman Brothers from 1990-
1993.
DISTRIBUTOR
BISYS Fund Services, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's principal underwriter and distributor of the Funds'
shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
First Data Investor Services Group, Inc., P.O. Box 5142, Westborough,
Massachusetts 01581-5120, serves as the Trust's Transfer and Dividend
Disbursing Agent. NBD, which is a wholly-owned subsidiary of FCN, serves as the
Trust's custodian (the "Custodian"). NBD is located at 900 Tower Drive, Troy,
Michigan 48098.
EXPENSES
All expenses incurred in the operation of the Trust are borne by it, except to
the extent specifically assumed by the Trust's service providers. The expenses
borne by the Trust include: organizational costs; taxes; interest; loan
commitment fees; interest and distributions paid on securities sold short;
brokerage fees and commissions, if any; fees of Board members; SEC fees; state
Blue Sky registration fees; advisory fees; charges of custodians, transfer and
dividend disbursing agents' fees; fees pursuant to agency, sub-transfer agency
and service agreements; certain insurance premiums; industry association fees;
outside auditing and legal expenses; costs of maintaining each Fund's
existence; costs of independent pricing services; costs attributable to
investor services (including, without limitation, telephone and personnel
expenses); costs of shareholders' reports and meetings; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; and any extraordinary
expenses. Class A, Class B and Class I shares are subject to their pro rata
portion of the fees payable by a Fund to financial institutions that provide
recordkeeping and other services in connection with employee benefit plans
which hold shares or to financial institutions that establish accounts on
behalf of investors in connection with the purchase and/or sale of Class A
and/or Class I shares. In addition, Class B shares are subject to an annual
distribution fee for advertising, marketing and distributing such shares and
Class A and Class B shares are subject to an annual service fee for ongoing
personal services relating to shareholder accounts and services related to the
maintenance of shareholder accounts. See "Distribution and Shareholder Services
Plans." Expenses attributable to a particular Fund or Class are charged against
the assets of that Fund or Class, respectively; other expenses of the Trust are
allocated among such Funds on the basis determined by the Board, including, but
not limited to, proportionately in relation to the net assets of each such
Fund.
The imposition of the advisory fee, as well as other operating expenses,
including the fees paid under any Distribution Plan and Shareholder Services
Plan, will have the effect of reducing the total return to investors. From time
to time, the Investment Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering that Fund's overall expense ratio and increasing total return to
investors at the time such amounts are waived or assumed, as the case may be.
The Fund will not pay the Investment Adviser at a later time for any amounts
which may be waived, nor will the Fund reimburse the Investment Adviser for any
amounts which may be assumed.
Distribution and Shareholder Services Plans
Class B shares of each Fund are subject to an annual distribution fee pursuant
to a Distribution Plan. Class A and Class B shares of each Fund are subject to
an annual service fee pursuant to a Shareholder Services Plan.
DISTRIBUTION PLAN
(Class B only) Under a Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, the Trust has agreed to pay the Distributor for advertising,
marketing and distributing shares of a Fund at an aggregate annual rate not to
exceed .75% of the value of the average daily net assets of Class B shares. The
Pegasus Funds
51
<PAGE> 52
Distributor may pay one or more Service Agents in respect of these services.
The Investment Adviser and its subsidiaries and affiliates may act as Service
Agents and receive fees under the Distribution Plan. The Distributor determines
the amount, if any, to be paid to Service Agents under the Distribution Plan
and the basis on which such payments are made. The fees payable under the
Distribution Plan are payable without regard to actual expenses incurred.
SHAREHOLDER SERVICES PLAN
(Class A and Class B) Under a Shareholder Services Plan, the Trust pays the
Distributor for the provision of certain services to the holders of Class A and
Class B shares a fee at an annual rate of .25% of the value of the average
daily net assets of such shares. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Funds and providing reports and other information and
services related to the maintenance of shareholder accounts. Under the
Shareholder Services Plan, the Distributor may make payments to Service Agents
in respect of these services. The Investment Adviser and its subsidiaries and
affiliates may act as Service Agents and receive fees under the Shareholder
Services Plan. The Distributor determines the amounts to be paid to Service
Agents.
Dividends and Distributions
THE MANAGED ASSETS BALANCED, MANAGED ASSETS GROWTH, GROWTH, MID-CAP
OPPORTUNITY, SMALL-CAP OPPORTUNITY, INTRINSIC VALUE, GROWTH AND VALUE, EQUITY
INDEX, MARKET EXPANSION INDEX AND INTERNATIONAL EQUITY FUNDS declare and pay
dividends from net investment income on a quarterly basis. THE BOND FUNDS, THE
MUNICIPAL BOND FUNDS AND THE MANAGED ASSETS CONSERVATIVE AND EQUITY INCOME
FUNDS declare and pay dividends from net investment income on a monthly basis.
Each Fund will make distributions from net realized securities gains, if any,
once a year, but may make distributions on a more frequent basis to comply with
the distribution requirements of the Code, in all events in a manner consistent
with the provisions of the 1940 Act. Dividends are automatically reinvested in
additional Fund shares of the same Class from which they were paid at net asset
value, unless payment in cash is requested. If cash payment is requested,
checks will be mailed within five days. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
Taxes
FEDERAL
Each Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally will relieve the Funds of liability for
federal income taxes to the extent their earnings are distributed in accordance
with the Code.
Each Fund intends to distribute as dividends substantially all of its
investment company taxable income each year. With the exception of dividends
paid by the Municipal Bond Funds, such dividends will be taxable as ordinary
income to a Fund's shareholders regardless of whether a distribution is
received in cash or reinvested in additional shares. Such ordinary income
distributions will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
distributing Fund from domestic corporations for the taxable year.
Dividends derived from net capital gains will be taxable to Fund shareholders
as long-term capital gains, regardless of how long the shareholders have held
the shares and whether such gains are paid in cash or reinvested in Fund
shares. The capital gains will be 20% or 28% rate gains, depending upon the
Fund's holding period for the assets the sale of which generated the capital
gains.
Dividends paid by a Fund derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, paid by such Fund to a foreign investor who is the
beneficial owner of such Fund's shares generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign investor
claims the benefit of a lower rate specified in an applicable tax treaty.
Distributions from net realized long-term securities gains paid by the Fund to
such foreign investor generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, unless the foreign investor certifies his non-U.S. residency
status.
Federal regulations generally require the Trust to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and distributions
from net realized securities gains paid to a shareholder if such shareholder
fails to certify either that the TIN furnished in connection with opening an
account is correct, or that such shareholder has not received notice from the
IRS of being subject to backup withholding as a result of a failure to properly
report taxable dividend or interest income on a federal income tax return.
Furthermore, the IRS may notify the Trust to institute backup withholding if
the IRS determines a shareholder's TIN is incorrect or if a shareholder has
52
Pegasus Funds
<PAGE> 53
failed to properly report taxable dividend and interest income on a federal
income tax return.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them each year. Any dividends declared in
October, November or December with a record date before the end of the year
will be deemed for federal tax purposes to have been paid by the Fund and
received by the shareholders in that year if such dividends are actually paid
on or before January 31 of the following year.
Shareholders considering buying shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the dividend payment,
although in effect a return of capital, is subject to tax.
A taxable gain or loss may be realized by a shareholder upon his or her
redemption, transfer or exchange of shares of a Fund depending upon the tax
basis and their price at the time of redemption, transfer or exchange. If a
shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
It is expected that dividends and certain interest income earned by the
International Equity and International Bond Funds from foreign securities will
be subject to foreign withholding taxes or other taxes. So long as more than
50% of the value of a Fund's total assets at the close of any taxable year
consists of equity securities of foreign corporations, the Fund may elect to
treat certain foreign taxes paid by it as on behalf of its shareholders. As a
consequence, the amount of such foreign taxes paid by a Fund will be included
in its shareholders' income pro rata (in addition to taxable distributions
actually received by them), and each shareholder will be entitled (a) to credit
the shareholders proportionate amounts of such taxes against the shareholders'
U.S. federal income tax liabilities, or (b) if the shareholder itemizes his or
her deductions, to deduct such proportionate amounts from his or her U.S.
income, should the shareholder so choose.
The foregoing discussion summarizes some of the important tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own
tax situation.
MUNICIPAL BOND FUNDS
Dividends derived from tax-exempt interest income ("exempt-interest dividends")
paid by the Municipal Bond Funds may be treated by its shareholders as items of
interest excludable from their gross income unless under the circumstances
applicable to the particular shareholder the exclusion would be disallowed.
(See "Additional Information Concerning Taxes" in the Statement of Additional
Information.)
If a Municipal Bond Fund holds certain so-called "private activity bonds,"
shareholders will need to include as an item of tax preference for purposes of
the federal alternative minimum tax that portion of the dividends paid by the
Fund derived from interest received on such bonds. In addition, corporate
shareholders will need to take into account all exempt-interest dividends paid
by a Municipal Bond Fund in determining certain adjustments for the federal
alternative minimum tax.
If a shareholder has held shares for six months or less and during that time
received an exempt-interest dividend attributable to those shares, any loss
realized on the sale or exchange of those shares will be disallowed to the
extent of the exempt-interest dividend. Interest incurred to purchase or carry
shares of a Municipal Bond Fund will not be deductible for federal income tax
purposes to the extent related to exempt-interest dividends paid by the Fund.
STATE AND LOCAL
Dividends paid by the Michigan Municipal Bond Fund that are derived from
interest attributable to Michigan Municipal Obligations will be exempt from
Michigan income tax, Michigan intangibles tax and Michigan single business tax.
Conversely, to the extent that the Fund's dividends are derived from interest
on obligations other than Michigan Municipal Obligations or certain U.S.
Government Obligations (or are derived from short term or long term gains),
such dividends will be subject to Michigan income tax, Michigan intangibles tax
and Michigan single business tax, even though the dividends may be exempt for
federal income tax purposes. The Fund is unable to predict in advance the
portion of its dividends that will be derived from interest on Michigan
Municipal Obligations, but will mail to its shareholders not later than sixty
days after the close of the Fund's taxable year a written notice containing
information as to the interest derived from Michigan Municipal Obligations and
exempt from Michigan income tax, Michigan intangibles tax and Michigan single
business tax.
Except as noted above with respect to Michigan income taxation, distributions
of net income may be taxable to investors as dividend income under other state
or local laws even though a substantial portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
MISCELLANEOUS
The Trust may be subject to state or local taxes in jurisdictions in which the
Trust may be deemed to be
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doing business. In addition, in those states or localities which have income
tax laws, the treatment of the Trust and its shareholders under such laws may
differ from treatment under federal income tax laws. Shareholders are advised
to consult their tax advisers concerning the application of state and local
taxes, which may have different consequences from those of the federal income
tax law described above.
Performance Information
From time to time, in advertisements or in reports to shareholders the
performance of the Funds may be compared to the performance of other mutual
funds with similar investment objectives and to stock and other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of a Fund's shares may be compared to data prepared by
Lipper Analytical Services, Inc. In addition, the performance of the Funds may
be compared to the S&P 500 Index, the S&P Small Cap Index, the S&P Mid Cap
Index (indices of unmanaged groups of common stocks), a combination of the S&P
Small Cap and S&P Mid Cap Indices, the Consumer Price Index, or the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of thirty
industrial companies listed on the New York Stock Exchange. Performance data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature, may also be used in comparing the performance of a
Fund.
A Fund's "yield" refers to the income generated by an investment in a Fund
over a thirty-day period for the Asset Allocation, Bond and Municipal Bond
Funds identified in the advertisement. This income is then "annualized," i.e.,
the income generated by the investment during the respective period is assumed
to be earned and reinvested at a constant rate and compounded semi-annually and
is shown as a percentage of the investment. Each Municipal Bond Fund may from
time to time advertise a "tax-equivalent yield" to demonstrate the level of
taxable yield necessary to produce an after-tax yield equivalent to that
achieved by the Fund. The "tax-equivalent yield" will be computed by dividing
the tax-exempt portion of the Fund's yield by a denominator consisting of one
minus a stated federal income tax rate and adding the product to that portion,
if any, of the Fund's yield which is not tax-exempt.
The Funds calculate their total returns on an "average annual total return"
basis for various periods from the date they commenced investment operations
and for other periods as permitted under the rules of the SEC. Average annual
total return reflects the average annual percentage change in value of an
investment in the Funds over the measuring period. Total returns may also be
calculated on an "aggregate total return basis" for various periods. Aggregate
total return reflects the total percentage change in value over the measuring
period. Both methods of calculating total return also reflect changes in the
price of a Fund's shares and assume that any dividends and capital gain
distributions made by the Fund during the period are reinvested in Fund shares.
When considering average total return figures for periods longer than one year,
it is important to note that a Fund's annual total return for any one year in
the period might have been greater or less than the average for the entire
period.
The total return performance of the Equity Income, Growth, Small-Cap
Opportunity, International Bond and Short Municipal Bond Funds includes
performance of a common trust fund managed by FNBC which had substantially the
same investment objective, policies, restriction and methodologies as its
corresponding Fund for periods before such Fund's registration statement became
effective. The common trust funds were not registered under the 1940 Act and
therefore were not subject to certain investment restrictions imposed by the
1940 Act. If the common trust funds had registered under the 1940 Act,
performance may have been adversely affected.
The Market Expansion Index Fund may advertise total return data without
reflecting the 0.50% transaction fee, if, in accordance with the rules of the
SEC, it is accompanied by average annual return data reflecting this fee.
Quotations which do not reflect the fee will, of course, be higher than
quotations which do.
Performance of the Funds is based on historical earnings and will fluctuate
and is not intended to indicate future performance. The investment performance
of an investment in the Funds will fluctuate so that a shareholder's shares,
when redeemed, may be worth more or less than their original cost. A Fund's
performance data may not provide a basis for comparison with bank deposits and
other investments which provide a fixed yield for a stated period of time.
Performance data should also be considered in light of the risks associated
with a Fund's portfolio composition, quality, maturity, operating expenses and
market conditions. Any fees charged by financial institutions directly to their
customer accounts in connection with investments in Fund shares will not be
reflected in a Fund's performance calculations.
54
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General Information
The Trust was organized as a Massachusetts business trust on April 21, 1987
under a Declaration of Trust. The Trust is a series fund having thirty-one
series of shares of beneficial interest, each of which evidences an interest in
a separate investment portfolio. The Declaration of Trust permits the Board of
Trustees to issue an unlimited number of full and fractional shares and to
create an unlimited number of series of shares ("Series") representing
interests in a portfolio and an unlimited number of classes of shares within a
Series. In addition to the Funds described herein, the Trust offers the
following investment portfolios: the Money Market, Treasury Money Market,
Municipal Money Market, Michigan Municipal Money Market, Cash Management,
Treasury Cash Management, Municipal Cash Management, U.S. Government Securities
Cash Management and Treasury Prime Cash Management Funds.
Each Fund described herein and the Money Market Fund offer three classes of
shares: Class A, Class B and Class I. The Treasury Money Market, Municipal
Money Market and Michigan Money Market Funds offer two classes of shares: Class
A and Class I. The Cash Management, Treasury Cash Management, Municipal Cash
Management, U.S. Government Cash Management and Treasury Prime Cash Management
Funds offer two Classes of shares: Class S and Class I. Each share has $.10 par
value, represents an equal proportionate interest in the related Fund with
other shares of the same class outstanding, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such Fund
as are declared in the discretion of the Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees. Each Asset Allocation Fund will vote its Underlying Fund
shares in proportion to the votes of all other shareholders of each respective
Underlying Funds.
As of March 31, 1998, FCN and its affiliates held beneficially of record
approximately 1.76%, 12.20%, 7.77%, 4.22%, 42.37%, 53.59%, 30.13%, 68.34%,
60.23%, 65.32%, 54.37%, 67.39%, 64.59%, 92.74%, 34.94%, 73.35%, 82.70%, 18.51%,
6.97% and 51.56%, respectively of the outstanding shares of the Managed Assets
Conservative, Managed Assets Balanced, Managed Assets Growth, Equity Income,
Growth, Mid-Cap Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and
Value, Equity Index, International Equity, Intermediate Bond, Bond, Short Bond,
Multi Sector Bond, International Bond, High Yield Bond, Municipal Bond,
Intermediate Municipal Bond and Michigan Municipal Bond Funds, respectively.
Because NBD serves the Trust as Custodian, the Board of Trustees has
established a procedure requiring three annual verifications, two of which are
unannounced, of all investments held pursuant to the Custodian Agreement, to be
conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The Trust's By-Laws
provide that special meetings of shareholders of any Series shall be called at
the written request of shareholders entitled to cast at least 10% of the votes
of a Series entitled to be cast at such meeting. The Trust also stands ready to
assist shareholder communications in connection with any meeting of
shareholders as prescribed in Section 16(c) of the 1940 Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS' SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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Supplemental Information
RATINGS
The ratings of Rating Agencies represent their opinions as to the quality of
the obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and, although ratings may be
useful in evaluating the safety of interest and principal payments, they do
not evaluate the market value risk of such obligations. Therefore, although
these ratings may be an initial criterion for selection of portfolio
investments, the Investment Adviser or Sub-Adviser also will evaluate such
obligations and the ability of their issuers to pay interest and principal.
Each Fund will rely on the Investment Adviser's or Sub-Adviser's judgment,
analysis and experience in evaluating the assets of an issuer. Obligations
rated in the lowest of the top four investment grade rating categories (Baa by
Moody's or BBB by S&P, Fitch or Duff) are considered to have less capacity to
pay interest and repay principal and have certain speculative characteristics.
SHORT-TERM INVESTMENTS
Each Fund and the Money Market Fund may hold the types of short-term U.S.
Government obligations described under "Investment Objectives and Policies--
Asset Allocation Funds" above.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations include all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. U.S. Government obligations also include interests in
the foregoing securities, including collateralized mortgage obligations
guaranteed by a U.S. Government agency or instrumentality, and in Government-
backed trusts which hold obligations of foreign governments that are
guaranteed or backed by the full faith and credit of the United States.
Obligations of certain U.S. agencies and instrumentalities such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as the Export-Import Bank of the
United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality.
BANK OBLIGATIONS
Bank obligations in which the Funds and the Money Market Fund may invest
include certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches
of foreign banks, domestic savings and loan associations and other banking
institutions. With respect to such securities issued by foreign branches of
domestic banks, foreign subsidiaries of domestic banks, and domestic and
foreign branches of foreign banks, the Funds and the Money Market Fund may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits.
Obligations issued or guaranteed by foreign branches of U.S. banks (commonly
known as "Eurodollar" obligations) or U.S. branches of foreign banks (commonly
known as "Yankee dollar" obligations) may be general obligations of the parent
bank or obligations only of the issuing branch. Where the obligation is only
that of the issuing branch, the parent bank has no legal duty to pay such
obligation. Such obligations would thus be subject to risks comparable to
those which would be present if the issuing branch were a separate bank. The
Money Market Fund will not invest in a Eurodollar obligation if upon making
such investment the total Eurodollar obligations which are not general
obligations of domestic parent banks would thereby exceed 25% of its total
assets.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by each Fund and the Money Market Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings Association Insurance
Fund administered by the FDIC.
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Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
CERTAIN CORPORATE OBLIGATIONS
Commercial paper in which the Funds and the Money Market Fund may invest
consists of short-term, unsecured promissory notes issued by domestic or
foreign entities to finance short-term credit needs.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund and the Money Market Fund may invest in variable and floating rate
instruments, including without limitation, for each fund other than the Money
Market Fund, inverse floating rate debt instruments ("inverse floaters") some
of which may be leveraged. The interest rate of an inverse floater resets in
the opposite direction from the market rate of interest to which it is indexed.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for the Funds and the
Money Market Fund to dispose of them if the issuer defaulted on its payment
obligation or during periods that a fund is not entitled to exercise demand
rights, and the fund could, for these or other reasons, suffer a loss with
respect to such instruments. In the absence of an active secondary market,
variable and floating rate instruments (including inverse floaters) will be
subject to a fund's limitation on illiquid investments. See "Illiquid
Securities."
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
To increase their income, each Fund and the Money Market Fund may agree to
purchase portfolio securities from financial institutions subject to the
seller's agreement to repurchase them at a mutually agreed-upon date and price
("repurchase agreements"). The Funds and the Money Market Fund will not enter
into repurchase agreements with the Investment Adviser, the Sub-Adviser, the
Distributor, or any of their affiliates, except as may be permitted by the SEC.
Although the securities subject to repurchase agreements may bear maturities
exceeding 13 months provided the repurchase agreement itself matures in 13
months or less, the funds generally intend to enter into repurchase agreements
which terminate within seven days after notice by them. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a fund to possible
loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Fund and the Money Market Fund may also obtain funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, a fund will sell portfolio securities to financial institutions
such as banks and broker-dealers and agree to repurchase them at a particular
date and price. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a fund may decline below the price of the
securities it is obligated to repurchase. Whenever a fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account liquid
assets equal to the repurchase price marked to market daily (including accrued
interest) and will subsequently monitor the account to ensure such equivalent
value is maintained.
LENDING PORTFOLIO SECURITIES
To increase income or offset expenses, each of the Funds and the Money Market
Fund may lend its portfolio securities to financial institutions such as banks
and broker dealers in accordance with their investment limitations. Agreements
will require that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned plus
accrued interest. Collateral for such loans could include cash or securities of
the U.S. Government, its agencies or instrumentalities, some of which may bear
maturities exceeding 13 months. Such loans will not be made if, as a result,
the aggregate of all outstanding loans of a particular fund exceeds one-third
of the value of its total assets. Loans of securities involve risk of delay in
receiving additional collateral or in recovering the securities loaned or
possible loss of rights in the collateral should the borrower of the securities
become insolvent. Loans will be made only to borrowers that provide the
requisite collateral comprised of liquid assets and when, in the Investment
Adviser's or Sub-Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
ZERO COUPON OBLIGATIONS AND PAY-IN-KIND SECURITIES
Each Fund and the Money Market Fund may invest in zero coupon obligations which
are discount debt obligations that do not make periodic interest payments
although income is generally imputed to the holder on a current basis. The High
Yield Bond Fund may invest in pay-in-kind securities which make periodic
payments in the form of additional securities (as opposed to
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cash). Such obligations may have higher price volatility than those which
require the payment of interest periodically. The Investment Adviser and Sub-
Adviser will consider the liquidity needs of a fund when any investment in zero
coupon obligations is made.
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind securities to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its qualification
as a regulated investment company and avoid liability for federal income taxes,
each of the Funds and the Money Market Fund that invests in such securities may
be required to distribute such income accrued with respect to these securities
and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements. Such fund will not be able to purchase additional income
producing securities with cash used to make such distributions and its current
income may be reduced as a result.
WHEN ISSUED PURCHASES AND FORWARD COMMITMENTS
The Funds and the Money Market Fund may purchase securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" basis.
These transactions, which involve a commitment by a fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the fund to lock-in a price or yield
on a security it owns or intends to purchase, regardless of future changes in
interest rates. When-issued and forward commitment transactions involve the
risk, however, that the yield obtained in a transaction may be less favorable
than the yield available in the market when the securities delivery takes
place. Each fund's forward commitments and when-issued purchases are not
expected to exceed 25% of the value of its total assets absent unusual market
conditions. A fund does not earn income with respect to these transactions
until the subject securities are delivered to the fund. The Funds, and the
Money Market Fund, do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their
investment objectives.
FOREIGN SECURITIES
Investments by the Asset Allocation, Equity and Bond Funds and the Money Market
Fund in foreign securities, with respect to certain foreign countries, expose
them to the possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets or diplomatic developments that could
affect investment within those countries. Similarly, volume and liquidity in
most foreign securities markets are less than in the United States and, at
times, volatility of price can be greater than in the United States. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers generally are not subject to uniform accounting
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. issuers. Because of these and other factors,
securities of foreign companies acquired by the funds may be subject to greater
fluctuation in price than securities of domestic companies.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. Some currency exchange costs may be incurred when a fund
changes investments from one country to another.
Furthermore, some securities may be subject to brokerage taxes levied by
foreign governments, which have the effect of increasing the costs of such
investments and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by the funds from sources
within foreign countries may be reduced by withholding or other taxes imposed
by such countries. Tax conventions between certain countries and the United
States, however, may reduce or eliminate such taxes. All such taxes paid by a
fund will reduce its net income available for distribution to investors.
DEPOSITORY RECEIPTS
Each Asset Allocation and Equity Fund and the High Yield Bond Fund may invest
in securities of foreign issuers in the form of American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") and similar securities
representing securities of foreign issuers. These securities may not be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities and are denominated in U.S.
dollars. Certain such institutions issuing ADRs may not be sponsored by the
issuer. A non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its
contractual arrangements with the issuer. EDRs are receipts issued by a
European financial institution evidencing ownership of the underlying foreign
securities and are generally denominated in foreign currencies. Generally,
EDRs, in bearer form, are designed for use in the European securities markets.
SUPRANATIONAL BANK OBLIGATIONS
The Asset Allocation, Equity and Bond Funds and the Money Market Fund may
invest in obligations of supranational banks. Supranational banks are
international banking institutions designed or
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supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the World Bank). Obligations of
supranational banks may be supported by appropriated but unpaid commitments of
their member countries and there is no assurance that these commitments will be
undertaken or met in the future.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities. A convertible security is a
security that may be converted either at a stated price or rate within a
specified period of time into a specified number of shares of common stock. By
investing in convertible securities, a Fund seeks the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible, while earning higher current
income than is available from the common stock. The High Yield Bond Fund does
not limit convertible securities by rating, and there is no minimal acceptance
rating for a convertible security to be purchased or held in the Fund.
Therefore, the High Yield Bond Fund invests in convertible securities
irrespective of their ratings. This could result in the High Yield Bond Fund
purchasing and holding, without limit, convertible securities rated below
investment grade by a Rating Agency.
SECURITIES OF INVESTMENT COMPANIES
Each Fund and the Money Market Fund may invest in securities issued by open-end
(and closed-end for the Funds) investment companies which principally invest in
securities in which such fund invests. Under the 1940 Act, a fund's investment
in such securities, subject to certain exceptions, currently is limited to (i)
3% of the total voting stock of any one investment company, (ii) 5% of the
fund's net assets with respect to any one investment company and (iii) 10% of
the fund's net assets in the aggregate. Such purchases will be made in the open
market where no commission or profit to a sponsor or dealer results from the
purchase other than the customary brokers' commissions. As a shareholder of
another investment company, each of the Funds and the Money Market Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a fund bears directly in
connection with its own operations.
ASSET BACKED SECURITIES
Asset Backed Securities acquired by the Asset Allocation, Equity and Bond Funds
consist of both mortgage and non-mortgage backed securities. Asset backed
securities held by the Funds arise through the grouping by governmental,
government-related and private organizations of loans, receivables and other
assets originated by various lenders ("Asset Backed Securities"), as described
below.
The yield characteristics of Asset Backed Securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an Asset Backed
Security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an Asset Backed Security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity. In calculating the average weighted maturity of
the Funds, the maturity of Asset Backed Securities will be based on estimates
of average life.
Prepayments on Asset Backed Securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayment rates are
also influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage backed securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments.
Like other fixed income securities, when interest rates rise the value of an
Asset Backed Security with prepayment features may not increase as much as that
of other fixed income securities, and, as noted above, changes in market rates
of interest may accelerate or retard prepayments and thus affect maturities.
These characteristics may result in higher level of price volatility for these
assets under certain market conditions. In addition, while the trading market
for short-term mortgages and Asset Backed Securities is ordinarily quite
liquid, in times of financial stress the trading market for these securities
sometimes becomes restricted.
Mortgage backed securities represent an ownership interest in a pool of
mortgages, the interest on which is in most cases issued and guaranteed by an
agency or instrumentality of the U.S. Government, although not necessarily by
the U.S. Government itself. Mortgage backed securities include collateralized
mortgage obligations ("CMOs"), real estate investment trusts ("REITs") and
mortgage pass-through certificates.
CMOs provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of
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ways. The multiple class securities may be issued or guaranteed by U.S.
Government agencies or instrumentalities, including the Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by trusts
formed by private originators of, or investors in, mortgage loans. Classes in
CMOs which the Funds may hold are known as "regular" interests. CMOs also issue
"residual" interests, which in general are junior to and more volatile than
regular interests. The Funds do not intend to purchase residual interests.
Mortgage pass-through certificates provide the holder with a pro rata interest
in the underlying mortgages. One type of such certificate in which the Funds
may invest is a GNMA Certificate which is backed as to the timely payment of
principal and interest by the full faith and credit of the U.S. Government.
Another type is a FNMA Certificate, the principal and interest of which are
guaranteed only by FNMA itself, not by the full faith and credit of the U.S.
Government. Another type is a FHLMC Participation Certificate which is
guaranteed by FHLMC as to timely payment of principal and interest. However,
like a FNMA security, it is not guaranteed by the full faith and credit of the
U.S. Government. Privately issued mortgage backed securities will carry a
rating at the time of purchase of at least A by S&P or by Moody's or, if
unrated, will be in the Investment Adviser's opinion equivalent in credit
quality to such rating. Mortgage backed securities issued by private issuers,
whether or not such obligations are subject to guarantees by the private
issuer, may entail greater risk than obligations directly or indirectly
guaranteed by the U.S. Government.
The Funds may also invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
Non-mortgage backed securities involve certain risks that are not presented by
mortgage backed securities. Primarily, these securities do not have the benefit
of the same security interest in the underlying collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws. Most issuers
of motor vehicle receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the motor vehicle receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
STRIPPED GOVERNMENT OBLIGATIONS
The Asset Allocation, Bond and Municipal Bond Funds and the Money Market Fund
may purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government obligations. These participations, which may be
issued by the U.S. Government (or a U.S. Government agency or instrumentality)
or by private issuers such as banks and other institutions, are issued at a
discount to their "face value," and, for each fund other than the Money Market
Fund, may include stripped mortgage backed securities ("SMBS"), which are
derivative multi-class mortgage securities. Stripped securities, particularly
SMBS, may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of mortgage
backed obligations. A common type of SMBS will have one class receiving all of
the interest, while the other class will receive all of the principal. However,
in some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. With respect to investments in interest only
securities, should the underlying obligations experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments may be more volatile in response to
change in interest rates. The yields on a class SMBS that receives all or most
of the interest are generally higher than prevailing market yields on other
mortgage backed obligations because their cash flow patterns are more volatile.
For interest only securities, there is a greater risk that the initial
investment will not be fully recouped.
RISKS RELATED TO LOWER-RATED SECURITIES
The Asset Allocation, Equity, International Bond and High Yield Bond Funds may
purchase lower-rated securities (commonly known as junk bonds). While any
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investment carries some risk, some of the risks associated with lower-rated
securities are different from the risks associated with investment grade
securities. The risk of loss through default is greater because lower-rated
securities are usually unsecured and are often subordinate to an issuer's other
obligations. Additionally, the issuers of these securities frequently have high
debt levels and are thus more sensitive to difficult economic conditions,
individual corporate developments and rising interest rates. Consequently, the
market price of these securities, and the net asset value of a fund's shares,
may be quite volatile.
RELATIVE YOUTH OF LOWER-RATED SECURITIES' MARKET. Because the market for
lower-rated securities, at least in its present size and form, is relatively
new, there remains some uncertainty about its performance level under adverse
market and economic environments. An economic downturn or increase in interest
rates could have a negative impact on both the market for lower-rated
securities (resulting in a greater number of bond defaults) and the value of
lower-rated securities held in a fund's portfolio.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and interest
rates can affect lower-rated securities differently than other securities. For
example, the prices of lower-rated securities are more sensitive to adverse
economic changes or individual corporate developments than are the prices of
higher-rated investments. Also, during an economic downturn or a period in
which interest rates are rising significantly, highly leveraged issuers may
experience financial difficulties, which, in turn, would adversely affect their
ability to service their principal and interest payment obligations, meet
projected business goals and obtain additional financing. If the issuer of a
security defaults, a fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty would likely result in increased
volatility for the market prices of securities as well as a fund's net asset
value. In general, both the prices and yields of lower-rated securities will
fluctuate.
LIQUIDITY AND VALUATION. In certain circumstances it may be difficult to
determine a security's fair value due to a lack of reliable objective
information. Such instances occur when there is not an established secondary
market for the security or the security is thinly traded. As a result, a fund's
valuation of a security and the price it is actually able to obtain when it
sells the security could differ.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of lower-rated
securities held by a fund, especially in a thinly traded market. Illiquid or
restricted securities held by a fund may involve special registration
responsibilities, liabilities and costs, and could involve other liquidity and
valuation difficulties.
CONGRESSIONAL PROPOSALS. Current laws, as well as pending proposals, may have
a material impact on the market for lower-rated securities.
MUNICIPAL AND RELATED OBLIGATIONS
Municipal Obligations that may be acquired by the Asset Allocation, Bond and
Municipal Bond Funds may include general obligations, revenue obligations,
notes and moral obligations bonds. Each of these Funds, other than the
Municipal Bond Funds, currently intends to invest no more than 25% of its total
assets in Municipal Obligations. General obligations are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue obligations are payable only from the revenues
derived from a particular facility, class of facilities or, in some cases, from
the proceeds of a special excise or other specific revenue source such as the
user of the facility being financed. Private activity bonds (i.e. bonds issued
by industrial development authorities) are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of a private activity bond is usually directly related to the
credit standing of the private user of the facility involved. From time to
time, a Municipal Bond Fund may invest more than 25% of the value of its total
assets in industrial development bonds which, although issued by industrial
development authorities, may be backed only by the assets and revenues of the
nongovernmental users. The Municipal Bond Funds may invest without limitation
in such Municipal Obligations if the Investment Adviser determines that their
purchase is consistent with such Fund's investment objective. Although interest
paid on private activity bonds is exempt from regular federal income tax, it
may be treated as a specific tax preference item under the federal alternative
minimum tax. Where a fund receives such interest, a proportionate share of its
exempt-interest dividends also may be treated as a tax preference item to the
recipient shareholders. See "Description of the Funds--Risk Factors--Municipal
Obligations." See also "Taxes."
Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Moral obligation bonds are
normally issued by a special purpose public authority. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer. Municipal Obligations also include municipal lease/purchase
agreements which are similar to installment purchase contracts for property or
equipment issued by municipalities. The funds will only invest in rated
municipal lease/purchase agreements.
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There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
Each Municipal Bond Fund may invest more than 25% of the value of its total
assets in Municipal Obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
interest upon which is paid from revenues of similar types of projects, or
securities of issuers that are located in the same state. As a result, a
Municipal Bond Fund may be subject to greater risk as compared to a fund that
does not follow this practice.
Certain municipal lease/purchase obligations in which the Municipal Bond Funds
may invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease/purchase obligations are secured by the leased property,
disposition of the leased property in the event of foreclosure might prove
difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, the Investment Adviser will consider, on an ongoing
basis, a number of factors including the likelihood that the issuing
municipality will discontinue appropriating funding for the leased property.
Among other securities, the Municipal Bond Funds may purchase short-term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax or other funds, the proceeds of
bonds or other revenues.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issues at the time of issuance. Neither the Funds nor
the Investment Adviser will review the proceedings relating to the issuance of
Municipal Obligations or the bases for such opinions.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
The Asset Allocation, Bond and Municipal Bond Funds and the Money Market Fund
may purchase participations in trusts that hold U.S. Treasury securities (such
as TIGRs and CATS) where the trust participations evidence ownership in either
the future interest payments or the future principal payments on the U.S.
Treasury obligations. These participations are normally issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
Securities acquired by the Municipal Bond Funds may be in the form of
custodial receipts evidencing rights to receive a specific future interest
payment, principal payment or both on certain Municipal Obligations. Such
securities are held in custody by a bank on behalf of holders of the receipts.
These custodial receipts are known by various names, including "Municipal
Receipts," "Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-
CATS") and "Municipal Zero-Coupon Receipts." The Municipal Bond Funds may also
purchase from time to time certificates of participation that, in the opinion
of counsel to the issuer, are exempt from federal income tax. A certificate of
participation gives a Fund an undivided interest in a pool of Municipal
Obligations. Certificates of participation may have fixed, floating or variable
rates of interest. If a certificate of participation is unrated, the Investment
Adviser will have determined that the instrument is of comparable quality to
those instruments in which the Investment Adviser may invest pursuant to
guidelines approved by the Board of Trustees.
TENDER OPTION BONDS
The Municipal Bond Funds may hold tender option bonds, which are Municipal
Obligations (generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term tax exempt rates, that have been coupled with
the agreement of a third party, such as a bank, broker-dealer or other
financial institution, pursuant to which such institution grants the security
holders the option, at periodic intervals, to tender their securities to the
institution and receive the face value thereof. As consideration for providing
the option, the financial institution receives periodic fees equal to the
difference between the Municipal Obligation's fixed coupon rate and the rate,
as determined by a remarketing or similar agent at or near the commencement of
such period, that would cause the securities, coupled with the tender option,
to trade at par on the date of such determination. Thus, after payment of this
fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term tax exempt rate. The Investment Adviser,
on behalf of a Fund, will consider on an ongoing basis the assets of the issuer
of the underlying Municipal Obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in
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the event of a default in payment of principal or interest on the underlying
Municipal Obligations and for other reasons.
STAND-BY COMMITMENTS
The Asset Allocation, Bond and Municipal Bond Funds may acquire "stand-by
commitments" with respect to Municipal Obligations held in their portfolios.
Under a stand-by commitment, a Fund obligates a broker, dealer or bank to
repurchase, at the Fund's option, specified securities at a specified price
and, in this respect, stand-by commitments are comparable to put options. The
exercise of a stand-by commitment therefore is subject to the ability of the
seller to make payment on demand. A Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. A Fund may pay for stand-by commitments
if such action is deemed necessary, thus increasing to a degree the cost of the
underlying Municipal Obligation and similarly decreasing such securities yield
to investors.
OPTIONS TRANSACTIONS
Each Fund is permitted to invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. Options transactions are
a form of derivative security.
Each Fund is permitted to purchase call and put options in respect of specific
securities (or groups or "baskets" of specific securities) in which the Fund
may invest. A Fund may write (i.e., sell) covered call option contracts on
securities owned by the Fund not exceeding 25% of the market value of its net
assets at the time such option contracts are written. Each Fund also may
purchase call options to enter into closing purchase transactions. The Funds
also may write covered put option contracts to the extent of 25% of the value
of their net assets at the time such option contracts are written. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security at the exercise price at any time
during the option period. Conversely, a put option gives the purchaser of the
option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period. A covered
put option sold by a Fund exposes it during the term of the option to a decline
in price of the underlying security or securities. A put option sold by a Fund
is covered when, among other things, cash or liquid securities are placed in a
segregated account with the Fund's custodian to fulfill the obligation
undertaken.
The Asset Allocation Funds, the International Equity Fund and the
International Bond Fund may also purchase and sell call and put options on
foreign currency for the purpose of hedging against changes in future currency
exchange rates. Call options convey the right to buy the underlying currency at
a price which is expected to be lower than the spot price of the currency at
the time the option expires. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option expires.
Each Fund also may purchase cash-settled options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps. See
"Interest Rate and Equity Index Swaps" below. A cash-settled option on a swap
gives the purchaser the right, but not the obligation, in return for the
premium paid, to receive an amount of cash equal to the value of the underlying
swap as of the exercise date. These options typically are purchased in
privately negotiated transactions from financial institutions, including
securities brokerage firms.
Each Fund may purchase and sell call and put options on stock indexes listed
on U.S. securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included in
the index. Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether a Fund
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund may enter into futures contracts and options on future contracts. The
Equity Funds may enter into stock index futures contracts and all Funds may
enter into interest rate futures contracts and currency futures contracts, and
options with respect thereto. See "Options Transactions" above. These
transactions will be entered into as a substitute for comparable market
positions in the underlying securities or for hedging purposes. A Fund may not
engage in such transactions if the sum of the amount of initial margin deposits
and premiums paid for unexpired commodity options, other than for bona fide
hedging transactions, would exceed 5% of the liquidation value of the Fund's
assets, after taking into account unrealized profits and unrealized losses on
such contracts it has entered into; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5%. To the extent a Fund engages in the use
of futures and options on futures for other than bona fide hedging purposes,
the Fund may be subject to additional risk. Although none of these Funds would
be a commodity pool, each would be subject to rules of the CFTC limiting the
extent to which it could engage in these transactions.
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Futures and options transactions are a form of derivative security. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices which reflect
the rising market. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
FOREIGN CURRENCY TRANSACTIONS
The Asset Allocation, International Equity and International Bond Funds may
engage in currency exchange transactions either on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, or through entering into
forward contracts to purchase or sell currencies. A forward currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which must be more than two days from the date of the contract, at
a price set at the time of the contract. These contracts are entered into in
the interbank market conducted directly between currency traders (typically
commercial banks or other financial institutions) and their customers. They may
be used to reduce the level of volatility caused by changes in foreign currency
exchange rates or when such transactions are economically appropriate for the
reduction of risks in the ongoing management of the Funds. Although forward
currency exchange contracts may be used to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of such
currency increase. The Funds also may combine forward currency exchange
contracts with investments in securities denominated in other currencies.
Each of these Funds also may maintain short positions in forward currency
exchange transactions, which would involve it agreeing to exchange an amount of
a currency it did not currently own for another currency at a future date in
anticipation of a decline in the value of the currency sold relative to the
currency the Fund contracted to receive in the exchange.
OPTIONS ON FOREIGN CURRENCY
The Asset Allocation Funds, the International Equity Fund and the International
Bond Fund may purchase and sell call and put options on foreign currency for
the purpose of hedging against changes in future currency exchange rates. Call
options convey the right to buy the underlying currency at a price which is
expected to be lower than the spot price of the currency at the time the option
expires. Put options convey the right to sell the underlying currency at a
price which is anticipated to be higher than the spot price of the currency at
the time the option expires. The Funds may use foreign currency options for the
same purposes as forward currency exchange and futures transactions, as
described herein. See also "Options" and "Currency Futures and Options on
Currency Futures" below.
RISKS ASSOCIATED WITH FUTURES, OPTIONS AND FOREIGN CURRENCY TRANSACTIONS AND
OPTIONS
To the extent a Fund is engaging in a futures or option transaction as a
hedging device, due to the risk of an imperfect correlation between securities
in its portfolio that are the subject of a hedging transaction and the futures
contract or option used as a hedging device, it is possible that the hedge will
not be fully effective. In futures contracts and options based on indices, the
risk of imperfect correlation increases as the composition of the Fund varies
from the composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of contracts, the Fund may buy or sell futures contracts
and options in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract
has been less or greater than that of the securities. Such "over hedging" or
"under hedging" may adversely affect the Fund's net investment results if
market movements are not as anticipated when the hedge is established.
Successful use of futures and options by a Fund also is subject to the
Investment Adviser's or Sub-Adviser's ability to predict correctly movements in
the direction of securities prices, interest rates, currency exchange rates and
other economic factors. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may, but will not necessarily, be
at increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
Although a Fund intends to enter into futures contracts and options
transactions only if there is an active market for such contracts, no assurance
can be given that a liquid market will exist for any particular contract at any
particular time. See "Illiquid Securities" above. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit or trading may be suspended for specified periods during the trading day.
Futures contracts prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation
of futures positions and potentially subjecting the Fund to substantial losses.
If it is not possible, or the Fund determines not, to close a futures position
in anticipation of adverse price movements, the Fund will be required to make
daily cash payments of variation margin. In such circumstances, an increase in
the value of the portion of the portfolio being
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hedged, if any, may offset partially or completely losses on the futures
contract.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or
political developments in the United States or abroad. The foreign currency
market offers less protection against defaults in the forward trading of
currencies than is available when trading in currencies occurs on an exchange.
Since a forward currency contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or resale, if
any, at the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the CFTC and may be subject to greater risks than
trading on domestic exchanges. For example, some foreign exchanges are
principal markets so that no common clearing facility exists and a trader may
look only to the broker for performance on the contract. In addition, unless
the Fund hedges against fluctuations in the exchange rate between the U.S.
dollar and the currencies in which trading is done on foreign exchanges, any
profits that the Fund might realize in trading could be eliminated by adverse
changes in the exchange rate, or the Fund could incur losses as a result of
those changes. Transactions on foreign exchanges may include both commodities
which are traded on domestic exchanges and those which are not.
INTEREST RATE AND EQUITY INDEX SWAPS
Each Fund may enter into interest rate swaps and equity index swaps, to the
extent described under "Description of the Funds--Management Policies," in
pursuit of their respective investment objectives. Interest rate swaps involve
the exchange by a Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments for
fixed-rate payments). Equity index swaps involve the exchange by a Fund with
another party of cash flows based upon the performance of an index or a portion
of an index which usually includes dividends. In each case, the exchange
commitments can involve payments to be made in the same currency or in
different currencies. Swaps are a form of derivative security.
Each Fund usually will enter into swaps on a net basis. In so doing, the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. If a Fund enters into a swap,
it would maintain a segregated account in the full amount accrued on a daily
basis of the Fund's obligations with respect to the swap. The Funds will enter
into swap transactions with counterparties only if: (1) for transactions with
maturities under one year, such counterparty has outstanding short-term paper
rated at least A-1 by S&P, Prime-1 by Moody's, F-1 by Fitch or Duff-1 by Duff,
or (2) for transactions with maturities greater than one year, the counterparty
has outstanding debt securities rated at least Aa by Moody's or AA by S&P,
Fitch or Duff.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. There is no limit on the amount of swap transactions
that may be entered into by a Fund. These transactions do not involve the
delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to swaps is limited to the net amount of payments
that a Fund is contractually obligated to make. If the other party to a swap
defaults, the relevant Fund's risk of loss consists of the net amount of
payments that such Fund contractually is entitled to receive.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund and the Money Market Fund will not invest more than 15% (10% for the
Money Market Fund) of the value of their respective total net assets in
securities that are illiquid. Securities having legal or contractual
restrictions on resale and with no readily available market, and instruments
(including repurchase agreements, variable and floating rate instruments and
time deposits) that do not provide for payment to the Funds within seven days
after notice are subject to this limitation. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
deemed to be illiquid for purposes of this limitation.
The Funds and the Money Market Fund may purchase securities which are not
registered under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered to be
illiquid so long as it is determined by the Board of Trustees or the Investment
Adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that security. This investment practice
could have the effect of increasing the level of illiquidity in a Fund and the
Money Market Fund during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities. The ability to sell to
qualified
Pegasus Funds
A-
10
<PAGE> 66
institutional buyers under Rule 144A is a recent development, and it is not
possible to predict how this market will develop. The Board of Trustees will
carefully monitor any investments by a fund in these securities.
PORTFOLIO TURNOVER
Generally, the Funds will purchase securities for capital appreciation or
investment income, or both, and not for short-term trading profits. However, a
Fund may sell a portfolio investment soon after its acquisition if the
Investment Adviser or Sub-Adviser believes that such a disposition is
consistent with or in furtherance of the Fund's investment objective. Fund
investments may be sold for a variety of reasons, such as more favorable
investment opportunities or other circumstances. As a result, such Funds are
likely to have correspondingly greater brokerage commissions and other
transaction costs which are borne indirectly by shareholders. Portfolio
turnover may also result in the realization of substantial net capital gains.
Asset reallocation decisions for the Asset Allocation Funds typically will
occur on a monthly basis. However, if market conditions warrant, the Investment
Adviser may make more frequent reallocation decisions which will result in a
higher portfolio turnover rate. The Asset Allocation Funds will purchase or
sell shares of the Underlying Funds: (a) to accommodate purchases and
redemptions of each Asset Allocation Fund's shares; (b) in response to market
or other economic conditions; and (c) to maintain or modify the allocation of
each Asset Allocation Fund's assets among the Underlying Funds within its
target asset allocation ranges. See "Taxes--Federal" in the Prospectus and
"Additional Information Concerning Taxes" in the Statement of Additional
Information. While it is not possible to accurately predict portfolio turnover
rates, the annual turnover rates for the Market Expansion Index Fund and Short
Municipal Bond Fund are not expected to exceed 100% and 100%, respectively.
A-
11 Pegasus Funds
<PAGE> 67
Debt Ratings
CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa--judged to
be the best quality, carry the smallest degree of investment risk and are
generally referred to as "gilt edged"; Aa--judged to be of high quality by all
standards; A--deemed to have many favorable investment attributes and
considered as upper medium grade obligations; Baa--considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured; Ba, B,
Caa, Ca, C--protection of interest and principal payments is questionable (Ba
indicates some speculative elements, B represents bonds that generally lack
characteristics of the desirable investment, Caa represents bonds which are in
poor standing, Ca represents a high degree of speculation and C represents the
lowest rated class of bonds); Caa, Ca and C bonds may be in default. Moody's
applies numerical modifiers 1, 2 and 3 in each generic classification from Aa
to B in its bond rating systems. 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 at the lower end of its generic rating category.
An S&P corporate debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. Debt rated "AAA" has the
highest rating assigned by S&P. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong. Debt rated "AA" is considered
to have a very strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. Debt rated "A" is
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than obligations in higher rated categories. The
obligor's capacity to meet its financial commitment on the obligation is still
strong. Debt rated "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. Debt rated "BB," "B," "CCC," "CC" or "C" is 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 risk exposures to adverse conditions. Debt rated "D" is
in payment default. This rating is used when payments on an obligation are not
made on the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace period.
The "D" rating is also used upon the filing of a bankruptcy petition or the
taking of similar action if payments on an obligation are jeopardized. The
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.
Excerpts from Fitch's description of its corporate bond ratings: "AAA"--
considered to be investment grade and have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events; "AA"--judged to be investment grade and have a
very low expectation of credit risk. The obligor has a very strong capacity for
timely payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events; "A"--considered investment grade and have a
low expectation of credit risk. The obligor has a strong capacity for timely
payment of financial commitments. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions than is the
case for higher ratings; "BBB" is considered to be investment grade and
indicates that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity; "BB," "B," "CCC," "CC," "C," " DDD," "DD," and "D"--
regarded as speculative investments. The ratings "BB" to "C" represent the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" designates the highest potential for recovery of amounts
outstanding on any securities involved. The ratings from "AA" to "C" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The following summarizes the ratings used by Duff for corporate debt. Debt
rated "AAA" is of the highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt. Debt rated "AA"
is of high credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Debt rated
"A" has protection factors which are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Debt rated
"BBB" possess below average protection factors but such protection factors are
still considered sufficient for prudent investment. Considerable variability in
risk is present during economic cycles. Debt rated below "BBB" is considered to
be below investment grade. Although below investment grade, debt rated "BB" is
deemed likely to meet obligations when due. Debt rated "B" possesses the risk
that obligations will not be met
Pegasus Funds
B-
1
<PAGE> 68
when due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" represents defaulted obligations. To provide more detailed
indications of credit quality, the "AA," "A," "BBB," "BB" and "B" ratings may
be modified by the addition of a plus or minus sign to show relative standing
within these major categories.
COMMERCIAL PAPER RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
The designation "A-1" indicates the degree of safety regarding timely payment
is considered to be strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation. The
designation "A-2" indicates the capacity for timely payment is satisfactory,
however, the relative degree of safety is very strong it is not as high as for
issues designated "A-1." The designation "A-3" indicates the capacity for
timely payment; however, they are more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations. The
designation "B" indicates that the issue has only a speculative capacity for
timely payment. The designation "C" indicates that the issue has a doubtful
capacity for payment. Commercial paper rated "D" indicates that the issue is in
payment default. The "D" rating category is used when interest payments of
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes such payments will be made during
such grace period. Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The rating "Prime-1"
is the highest commercial paper rating assigned by Moody's. Issuers (or related
supporting institutions) rated "Prime-1" are considered to have a superior
ability for repayment of senior short-term debt obligations. Issuers (or
related supporting institutions) rated "Prime-2" are considered to have a
strong ability for repayment of senior short-term debt obligations. Issuers (or
related supporting institutions) rated "Prime 3" are considered to have an
acceptable ability for repayment of senior short-term debt obligations. Moody's
uses the designation "Not Prime" for issuers that do not fall within any of the
Prime rating categories.
Fitch short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years. The designation "F-1"
indicates that the securities possess the strongest capacity for timely payment
of financial commitments. Those securities determined to possess exceptionally
strong credit quality are denoted with a plus (+) sign designation. Securities
rated "F-2" are considered to possess satisfactory capacity for timely payment
of financial commitments. Securities rated "F-3" possess an adequate capacity
for timely payment of financial commitments; however, near term adverse changes
could result in a reduction to non-investment grade. Securities rated "D" are
in actual or imminent payment default.
The three highest rating categories of Duff for short-term debt are "D-1," "D-
2" and "D-3." Duff employs three designations, "D-1+," "D-1" and "D-1-," within
the highest rating category. "D-1+" indicates highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations. "D-1" indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are minor. "D-1-" indicates
high certainty of timely payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are very small. "D-2"
indicates 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" indicates satisfactory liquidity and other protection factors
qualify issues as investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected. D&P may also rate short-
term municipal debt as "D-4" or "D-5." "D-4" indicates speculative investment
characteristics. "D-5" indicates that the issuer has failed to meet scheduled
principal and/or interest payments.
UNRATED SECURITIES
Unrated securities are securities which have not been rated by a nationally
recognized statistical rating organization.
B-
2 Pegasus Funds
<PAGE> 69
Prospectus April 30, 1998 PEGASUS FUNDS
C/O NBD BANK
900 TOWER DRIVE
TROY, MICHIGAN
48098
24 HOUR YIELD AND
PERFORMANCE
INFORMATION
PURCHASE AND
REDEMPTION
ORDERS:
(800) 688-3350
Pegasus Funds (the "Trust") is offering in this Prospectus Class A shares in
the following eighteen investment portfolios (the "Funds"), divided into four
general fund types: Asset Allocation; Equity; Bond; and Money Market. The
Asset Allocation, Equity and Bond Funds are sometimes collectively referred to
as "Non-Money Market Funds."
ASSET ALLOCATION FUNDS BOND FUNDS
The Managed Assets Conservative Fund The Intermediate Bond Fund
The Managed Assets Balanced Fund The Bond Fund
The Managed Assets Growth Fund The Short Bond Fund
The Multi Sector Bond Fund
EQUITY FUNDS (formerly The Income Fund)
The International Bond Fund
The Equity Income Fund The High Yield Bond Fund
The Growth Fund
The Mid-Cap Opportunity Fund MONEY MARKET FUND
The Small-Cap Opportunity Fund
The Intrinsic Value Fund The Money Market Fund
The Growth and Value Fund
The Equity Index Fund
The International Equity Fund
By this Prospectus, Class A shares of each Fund are being offered without a
sales charge to certain qualified employee benefit plans.
This Prospectus sets forth concisely information that a prospective investor
should consider before investing. Investors should read this Prospectus and
retain it for future reference. Additional information about the Trust,
contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request
and without charge by writing to the Trust at the above address. The Statement
of Additional Information for the Money Market Fund and the Statement of
Additional Information for the Non-Money Market Funds are each dated April 30,
1998, and incorporated by reference into this Prospectus in their entirety.
Investors should recognize that the share price, yield and investment return
of each Fund fluctuate and are not guaranteed.
THE HIGH YIELD BOND FUND'S PORTFOLIO CONSISTS PRIMARILY OF LOWER-RATED
CORPORATE DEBT OBLIGATIONS, WHICH ARE COMMONLY REFERRED TO AS "JUNK BONDS."
THESE LOWER-RATED BONDS MAY BE MORE SUSCEPTIBLE TO REAL OR PERCEIVED ADVERSE
ECONOMIC CONDITIONS THAN INVESTMENT GRADE BONDS. THESE LOWER-RATED BONDS ARE
REGARDED AS PREDOMINANTLY SPECULATIVE WITH REGARD TO EACH ISSUER'S CONTINUING
ABILITY TO MAKE INTEREST AND PRINCIPAL PAYMENTS (I.E., THE BONDS ARE SUBJECT
TO THE RISK OF DEFAULT). IN ADDITION, THE SECONDARY TRADING MARKET FOR LOWER-
RATED BONDS MAY BE LESS LIQUID THAN THE MARKET FOR INVESTMENT GRADE BONDS.
PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THE HIGH YIELD BOND FUND. SEE THE SECTIONS OF THIS PROSPECTUS ENTITLED "RISK
FACTORS -- LOWER-RATED SECURITIES" AND "SUPPLEMENTAL INFORMATION." THE HIGH
YIELD BOND FUND'S SUB-ADVISER WILL ENDEAVOR TO LIMIT THESE RISKS THROUGH
DIVERSIFYING THE PORTFOLIO AND THROUGH CAREFUL CREDIT ANALYSIS OF INDIVIDUAL
ISSUERS.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE> 70
Table of Contents
<TABLE>
<C> <S>
3 Highlights
5 Fund Expenses
7 Financial Highlights
13 Description of the Funds
20 How to Buy Shares
22 How to Exchange Shares
22 How to Redeem Shares
22 Management of the Trust
25 Dividends and Distributions
25 Taxes
26 Performance Information
27 General Information
A-1 Supplemental Information
B-1 Debt Ratings
</TABLE>
<PAGE> 71
Highlights
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each Fund's investment objective is set forth on pages 3 and 4 of this
Prospectus. Each Asset Allocation Fund will invest substantially all of its
assets in Class I shares in each of the Funds (collectively, the "Underlying
Funds").
INVESTMENT ADVISER
First Chicago NBD Investment Management Company ("FCNIMCO") is the investment
adviser to each of the Funds (the "Investment Adviser"). Each Fund has agreed
to pay the Investment Adviser an annual fee as set forth under "Management of
the Funds." Federated Investment Counseling ("Federated" or the "Sub-Adviser")
serves as sub-adviser to the High Yield Bond Fund. The Sub-Adviser's fee is
paid by FCNIMCO and not by the High Yield Bond Fund.
HOW TO BUY SHARES
Class A shares are sold at net asset value with no sales charge to certain
qualified benefit plans, among others. Investors purchasing Class A shares
through their Eligible Retirement Plans (as defined under "How to Buy Shares")
should contact such plans directly for appropriate instructions, as well as for
information about conditions pertaining to the plans and any related fees.
Class A shares may be purchased for an Eligible Retirement Plan only by a
custodian, trustee, investment manager or other entity authorized to act on
behalf of such plan. Class A shares of each Fund are subject to a shareholder
servicing fee.
See "How to Buy Shares" on page 20 of this Prospectus.
HOW TO REDEEM SHARES
Generally, investors should contact their plan administrator for redemption
instructions.
See "How to Redeem Shares" on page 22 of this Prospectus.
INVESTMENT RISKS
Investments in the Funds are subject to a number of risks. Certain of the Funds
may invest in equity securities, debt securities, lower-rated securities
(commonly known as junk bonds), foreign securities, foreign currency and
foreign commodity transactions, mortgage-related securities, derivative
instruments and in other Funds. Additionally, the International Equity and
International Bond Funds are non-diversified.
See "Description of the Funds--Risk Factors" on page 18 of this Prospectus for
a description of certain risks associated with such investments and with an
investment in non-diversified funds.
Pegasus Funds
ASSET ALLOCATION FUNDS
These Funds offer investors a convenient means of investing in shares of the
Underlying Funds in order to achieve a target asset allocation in the Equity,
Debt and Cash Equivalent market sectors.
The MANAGED ASSETS CONSERVATIVE FUND seeks to provide long-term total return;
capital appreciation is a secondary consideration.
The MANAGED ASSETS BALANCED FUND seeks to achieve long-term total return
through a combination of capital appreciation and current income.
The MANAGED ASSETS GROWTH FUND seeks to achieve long-term total return;
current income is a secondary consideration.
EQUITY FUNDS
These Funds will invest principally in common stocks, preferred stocks and
convertible securities, including those in the form of depository receipts, as
well as warrants to purchase such securities (collectively, "Equity
Securities"):
The EQUITY INCOME FUND seeks to provide income; capital appreciation and
growth of earnings are secondary, but nonetheless important, goals. In seeking
to achieve its objective, this Fund will invest primarily in income-producing
Equity Securities of domestic issuers.
The GROWTH FUND seeks long-term capital appreciation. In seeking to achieve
its objective, this Fund will invest primarily in Equity Securities of domestic
issuers believed by the Investment Adviser to have above-average growth
characteristics.
The MID-CAP OPPORTUNITY FUND seeks to achieve long-term capital appreciation.
In seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of companies with intermediate market capitalizations.
The SMALL-CAP OPPORTUNITY FUND seeks long-term capital appreciation. In
seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of companies with small capitalizations.
The INTRINSIC VALUE FUND seeks to provide long-term capital appreciation. In
seeking to achieve its objective, this Fund will invest primarily in Equity
Securities believed by the Investment Adviser to represent a value or potential
worth which is not fully recognized by prevailing market prices.
Pegasus Funds
3
<PAGE> 72
The GROWTH AND VALUE FUND seeks to achieve long-term capital growth, with
income a secondary consideration. In seeking to achieve its objective, this
Fund will invest primarily in Equity Securities of larger companies that are
attractively priced relative to their growth potential.
The EQUITY INDEX FUND seeks to provide a return which substantially duplicates
the price and yield performance of domestically traded common stock in the
aggregate, as represented by the Standard & Poor's Composite Stock Price Index
(the "S&P 500 Index").
The INTERNATIONAL EQUITY FUND seeks to achieve long-term capital appreciation.
In seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of foreign issuers.
BOND FUNDS
These Funds will invest principally in a broad range of debt securities ("Debt
Securities"). Debt Securities in which the Bond Funds normally invest include:
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (ii) corporate, bank and commercial obligations; (iii)
securities issued or guaranteed by foreign governments, their agencies or
instrumentalities; (iv) securities issued by supranational banks; (v) mortgage
backed securities; (vi) securities representing interests in pools of assets;
and (vii) variable-rate bonds, zero coupon bonds, debentures, and various types
of demand instruments. Obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities may include mortgage backed securities, as
well as "stripped securities" (both interest-only and principal-only) and
custodial receipts for Treasury securities:
The INTERMEDIATE BOND FUND seeks to maximize total rate of return while
providing relative stability of principal by investing predominantly in
intermediate-term Debt Securities. While the Fund may purchase securities with
maturities or average lives of up to 15 years, during normal market conditions,
its average portfolio maturity is expected to be between 3 and 6 years.
The BOND FUND seeks to maximize total rate of return by investing
predominantly in intermediate and long-term Debt Securities. During normal
market conditions, the Fund's average weighted portfolio maturity is expected
to be between 6 and 12 years.
The SHORT BOND FUND seeks to maximize total rate of return while providing
relative stability of principal. While the Fund may purchase Debt Securities
with maturities or average lives of up to 10 years, during normal market
conditions, its average weighted portfolio maturity will be limited to a
maximum of 3 years.
The MULTI SECTOR BOND FUND seeks to provide as high a level of current income
as is consistent with relative stability of principal. In seeking to achieve
its objective, this Fund will invest primarily in a portfolio of U.S. dollar
denominated investment grade Debt Securities of domestic and foreign issuers
which, under
normal market conditions, will have a dollar-weighted average maturity expected
to range between 3 and 10 years.
The INTERNATIONAL BOND FUND seeks both long-term capital appreciation and
current income. In seeking to achieve its objective, the Fund will invest
primarily in investment grade Debt Securities of foreign issuers.
The HIGH YIELD BOND FUND seeks high current income. In seeking to achieve its
objective, the Fund will invest primarily in a diversified portfolio of fixed
income securities which, under normal market conditions, are expected to be
lower-rated corporate debt obligations or unrated obligations of comparable
quality.
MONEY MARKET FUND
This Fund seeks to maintain a net asset value of $1.00 per share for purchases
and redemptions. To do so, the Fund uses the amortized cost method of valuing
its securities pursuant to Rule 2a-7 under the 1940 Act:
The MONEY MARKET FUND seeks to provide a high level of current income
consistent with the preservation of capital and liquidity. This Fund will
invest in high quality "money market" instruments described on page 17.
4
Pegasus Funds
<PAGE> 73
Fund Expenses
The purpose of the following tables is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear, the payment of
which will reduce an investor's return on an annual basis.
Expense Table
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ALL FUNDS
- -------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offer-
ing price) None
- -------------------------------------------------------------------------------
Sales Charge on Reinvested Dividends None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge Imposed on Redemptions (as a percent-
age of the amount subject to charge) None
- -------------------------------------------------------------------------------
Redemption Fees None
- -------------------------------------------------------------------------------
Exchange Fees None
- -------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
12B- TOTAL
MANAGEMENT FEES 1 OTHER OPERATING
AFTER WAIVERS FEES EXPENSES(1) EXPENSES(1)(4)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conserva-
tive Fund 0.52%(2)(3) None 0.73%(2)(3) 1.25%(2)(3)
Managed Assets Balanced
Fund 0.52%(2)(3) None 0.73%(2)(3) 1.25%(2)(3)
Managed Assets Growth
Fund 0.23%(2)(3) None 1.02%(2)(3) 1.25%(2)(3)
- -------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund 0.50% None 0.45% 0.95%
Growth Fund 0.60% None 0.47% 1.07%
Mid-Cap Opportunity Fund 0.60% None 0.54% 1.14%
Small-Cap Opportunity
Fund 0.70% None 0.49% 1.19%
Intrinsic Value Fund 0.60% None 0.49% 1.09%
Growth and Value Fund 0.60% None 0.51% 1.11%
Equity Index Fund 0.10% None 0.55% 0.65%
International Equity Fund 0.80% None 0.52% 1.32%
- -------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund 0.40% None 0.50% 0.90%
Bond Fund 0.40% None 0.48% 0.88%
Short Bond Fund 0.35% None 0.49% 0.84%
Multi Sector Bond Fund 0.40% None 0.50% 0.90%
International Bond Fund 0.52%(3) None 0.63%(3) 1.15%(3)
High Yield Bond Fund 0.60%(3) None 0.54%(3) 1.14%(3)
- -------------------------------------------------------------------------------
MONEY MARKET FUND:
Money Market Fund 0.27%(3) None 0.48%(3) 0.75%(3)
</TABLE>
- --------------------------------------------------------------------------------
(1) Other Expenses and Total Operating Expenses for each Fund reflect current
expenses.
(2) Expenses for the Asset Allocation Funds include expenses borne indirectly
by them in connection with their investments in the Underlying Funds. There
is no layering of fees--see "Management of the Funds--Investment Adviser
and Co-Administrators" on page 22 for additional information regarding the
fees related to the "fund of funds" structure of the Asset Allocation
Funds.
(3) Absent fee waivers and/or expense reimbursements, Total Operating Expenses
applicable to Class A shares of the Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, International Bond, High Yield Bond
and Money Market Funds would have been 1.38%, 1.38%, 1.67%, 1.33%, 1.24%
and 0.77% respectively.
(4) The Investment Adviser has voluntarily agreed to limit the total operating
expenses of the Funds as stated below:
<TABLE>
<S> <C>
Managed Assets Conservative Fund 1.25%
Managed Assets Balance Fund 1.25%
Managed Assets Growth Fund 1.25%
Equity Income Fund 1.21%
Growth Fund 1.25%
Mid-Cap Opportunity Fund 1.27%
Small-Cap Opportunity Fund 1.42%
Intrinsic Value Fund 1.19%
Growth and Value Fund 1.12%
</TABLE>
<TABLE>
<S> <C>
Equity Index Fund 0.66%
International Equity Fund 1.44%
Intermediate Bond Fund 1.04%
Bond Fund 0.99%
Short Bond Fund 0.86%
Multi Sector Bond Fund 0.92%
International Bond Fund 1.15%
High Yield Bond Fund 1.14%
Money Market 0.75%
</TABLE>
Waivers and/or reimbursements may be discontinued or modified at any time
without notice.
Pegasus Funds
5
<PAGE> 74
EXAMPLE
Based upon the assumptions in the foregoing chart, an investor would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund $13 $40 $69 $152
Managed Assets Balanced Fund $13 $40 $69 $152
Managed Assets Growth Fund $13 $40 N/A N/A
- --------------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund $10 $30 $53 $117
Growth Fund $11 $34 $59 $131
Mid-Cap Opportunity Fund $12 $36 $63 $140
Small-Cap Opportunity Fund $12 $38 $66 $145
Intrinsic Value Fund $11 $35 $60 $133
Growth and Value Fund $11 $35 $61 $136
Equity Index Fund $ 7 $21 $36 $ 81
International Equity Fund $14 $42 $73 $160
- --------------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund $ 9 $29 $50 $111
Bond Fund $ 9 $28 $49 $109
Short Bond Fund $ 9 $27 $47 $104
Multi Sector Bond Fund $ 9 $29 $50 $111
International Bond Fund $12 $37 $64 $140
High Yield Bond Fund $12 $36 N/A N/A
- --------------------------------------------------------------------------------------
MONEY MARKET FUND:
Money Market Fund $ 8 $24 $42 $ 93
- --------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLES SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE EACH EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S
ACTUAL PERFORMANCE MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
THE EXAMPLES DO NOT REFLECT ANY FEES RELATED TO AN INVESTOR'S EMPLOYEE BENEFIT
PLAN.
Pegasus Funds
6
<PAGE> 75
Financial Highlights
The tables below provide supplementary information to the Funds' financial
statements, which are incorporated by reference into their Statement of
Additional Information and set forth certain information concerning the
historic investment results of Fund shares. They present a per share analysis
of how each
Fund's net asset value has changed during the periods presented. The tables for
periods prior to December 31, 1995 with respect to the Managed Assets
Conservative, Equity Income, Growth, Small-Cap Opportunity, Multi Sector Bond
and International Bond Funds have been derived from the financial statements
which have been audited by Ernst & Young LLP, such Funds' prior independent
auditors, whose report dated February 23, 1996 expressed an unqualified opinion
on such financial statements. The tables for all Funds for the fiscal years
ended December 31, 1997 and 1996, and for
periods prior to December 31, 1995 with respect to the Managed Assets Balanced,
Mid-Cap Opportunity, Intrinsic Value, Growth and Value, Equity Index,
International Equity, Intermediate Bond, Bond, Short Bond and Money Market
Funds, have been derived from such Funds' financial statements which have been
audited by Arthur Andersen LLP, the Trust's independent auditors, whose report
thereon is incorporated by reference into the Statements of Additional
Information along with the financial statements. The financial data included in
these tables should be read in conjunction with the financial statements and
related notes incorporated by reference into the Statement of Additional
Information. Further information about the performance of the Funds is
available in the annual report to shareholders. The Statements of Additional
Information and the annual reports to shareholders may be obtained from the
Trust free of charge by calling (800) 688-3350.
Pegasus Funds
7
<PAGE> 76
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED ASSETS CONSERVATIVE FUND
CLASS A SHARES
1997 $15.34 0.58 1.35 (0.58) -- 1.74 -- --
1996 $14.54 0.56 0.89 (0.56) -- (0.09) -- --
1995 $12.13 0.64 2.48 (0.68) -- (0.03) -- --
1994 $13.11 0.73 (0.98) (0.72) -- (0.01) -- --
1993 $12.68 0.72 0.61 (0.72) -- (0.18) -- --
1992 $12.56 0.79 0.26 (0.77) -- (0.16) -- --
1991 $10.79 0.83 1.77 (0.83) -- -- -- --
1990 $11.54 0.86 (0.54) (0.88) -- (0.19) -- --
1989 $10.66 0.88 1.10 (0.89) -- (0.21) -- --
1988 $ 9.73 0.78 0.92 (0.74) -- (0.03) -- --
1987 $10.75 0.70 (0.85) (0.77) -- (0.10) -- --
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED FUND
CLASS A SHARES
1997 $11.63 0.32 1.43 (0.31) -- (1.15) -- --
1996 $11.24 0.35 1.06 (0.34) -- (0.68) -- --
1995 $ 9.53 0.35 1.83 (0.35) -- (0.12) -- --
1994 $10.00 0.28 (0.48) (0.27) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH FUND
CLASS A SHARES
1997 $10.08 0.17 1.60 (0.16) -- (0.18) -- --
1996(1) $10.00 0.00 0.08 0.00 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
EQUITY INCOME FUND
CLASS A SHARES
1997 $13.29 0.41 2.37 (0.41) -- (2.60) -- --
1996 $12.22 0.39 1.90 (0.38) -- (0.84) -- --
1995(2) $10.00 0.36 2.57 (0.36) (0.01) (0.34) -- --
- ---------------------------------------------------------------------------------------------------------------------
GROWTH FUND
CLASS A SHARES
1997 $12.64 (0.01) 3.40 0.00 -- (0.96) -- --
1996 $11.97 0.05 1.04 (0.06) -- (0.36) -- --
1995(2) $10.00 0.11 2.86 (0.11) -- (0.89) -- --
- ---------------------------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY FUND
CLASS A SHARES
1997 $17.61 (0.03) 4.87 0.00 -- 1.56 -- --
1996 $15.15 0.02 3.74 (0.02) -- (1.28) -- --
1995 $13.34 0.06 2.57 (0.06) -- (0.76) -- --
1994 $14.49 0.07 (0.54) (0.07) -- (0.49) (0.02) (0.10)
1993 $12.37 0.10 2.87 (0.10) -- (0.75) -- --
1992(3) $10.95 0.08 1.88 (0.08) -- (0.46) -- --
- ---------------------------------------------------------------------------------------------------------------------
SMALL-CAP OPPORTUNITY FUND
CLASS A SHARES
1997 $13.70 (0.06) 4.16 -- -- (1.77) -- --
1996 $12.20 (0.02) 3.02 -- -- (1.50) -- --
1995(2) $10.00 0.02 2.45 (0.02) -- (0.25) -- --
- ---------------------------------------------------------------------------------------------------------------------
INTRINSIC VALUE FUND
CLASS A SHARES
1997 $13.70 0.23 3.17 (0.24) -- (1.20) -- --
1996 $11.89 0.28 2.50 (0.28) -- (0.69) -- --
1995 $10.48 0.29 2.24 (0.30) -- (0.82) -- --
1994 $11.05 0.31 (0.38) (0.30) -- (0.20) -- --
1993 $10.40 0.29 1.23 (0.28) -- (0.59) -- --
1992(3) $10.70 0.22 0.33 (0.21) -- (0.64) -- --
- ---------------------------------------------------------------------------------------------------------------------
GROWTH AND VALUE FUND
CLASS A SHARES
1997 $14.12 0.10 3.78 (0.11) -- (1.51) -- --
1996 $13.16 0.16 2.37 (0.16) -- (1.41) -- --
1995 $10.67 0.21 2.76 (0.22) -- (0.26) -- --
1994 $11.16 0.23 (0.17) (0.21) -- (0.30) (0.01) (0.03)
1993 $10.51 0.20 1.24 (0.20) -- (0.59) -- --
1992(3) $10.16 0.17 0.45 (0.17) -- (0.10) -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
MANAGED ASSETS CONSERVATIVE FUND
CLASS A SHARES
1997 (2.32)
1996 (0.65)
1995 (0.71)
1994 (0.73)
1993 (0.90)
1992 (0.93)
1991 (0.83)
1990 (1.07)
1989 (1.10)
1988 (0.77)
1987 (0.87)
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED FUND
CLASS A SHARES
1997 (1.46)
1996 (1.02)
1995 (0.47)
1994 (0.27)
- ---------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH FUND
CLASS A SHARES
1997 (0.34)
1996(1) --
- ---------------------------------------------------------------------------------------------------------------------
EQUITY INCOME FUND
CLASS A SHARES
1997 (3.01)
1996 (1.22)
1995(2) (0.71)
- ---------------------------------------------------------------------------------------------------------------------
GROWTH FUND
CLASS A SHARES
1997 (0.96)
1996 (0.42)
1995(2) (1.00)
- ---------------------------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY FUND
CLASS A SHARES
1997 (1.56)
1996 (1.30)
1995 (0.82)
1994 (0.68)
1993 (0.85)
1992(3) (0.54)
- ---------------------------------------------------------------------------------------------------------------------
SMALL-CAP OPPORTUNITY FUND
CLASS A SHARES
1997 (1.77)
1996 (1.50)
1995(2) (0.27)
- ---------------------------------------------------------------------------------------------------------------------
INTRINSIC VALUE FUND
CLASS A SHARES
1997 (1.44)
1996 (0.97)
1995 (1.12)
1994 (0.50)
1993 (0.87)
1992(3) (0.85)
- ---------------------------------------------------------------------------------------------------------------------
GROWTH AND VALUE FUND
CLASS A SHARES
1997 (1.62)
1996 (1.57)
1995 (0.48)
1994 (0.55)
1993 (0.79)
1992(3) (0.27)
</TABLE>
- --------------------------------------------------------------------------------
See page 12 for Notes to Financial Highlights.
Pegasus Funds
8
<PAGE> 77
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
- ------ --------- ------ ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$14.95 13.10% $ 90,835 1.24% 3.74% 1.33% 102.37% $0.05
$15.34 10.11% $ 69,301 1.18% 3.64% 1.33% 63.41% $0.05
$14.54 26.40% $ 51,997 1.17% 4.88% 1.54% 8.23% --
$12.13 (1.92)% $ 44,367 0.63% 5.77% 1.67% 28.69% --
$13.11 10.70% $ 51,586 0.39% 5.54% 1.65% 16.40% --
$12.68 8.68% $ 34,262 0.02% 6.24% 1.88% 22.14% --
$12.56 24.87% $ 14,038 -- 7.04% 2.16% 26.02% --
$10.79 2.94% $ 8,950 -- 7.71% 2.58% 29.97% --
$11.54 19.08% $ 7,407 -- 7.74% 2.96% 49.46% --
$10.66 17.78% $ 5,890 -- 7.38% 2.62% 15.71% --
$ 9.73 (1.73)% $ 4,989 -- 6.61% 2.69% 23.99% --
- -----------------------------------------------------------------------------------------
$11.92 15.28% $141,804 1.24% 2.71% 1.32% 116.87% $0.05
$11.63 12.99% $ 26,775 1.09% 3.13% 1.16% 50.50% $0.07
$11.24 23.18% $ 9,986 0.91% 3.40% 1.09% 31.76% --
$ 9.53 (1.95)% $ 8,168 0.85% 3.41% 1.56% 37.49% --
- -----------------------------------------------------------------------------------------
$11.51 17.75% $ 5,725 1.24% 1.69% 2.29% 39.35% --
$10.08 0.80%++ $ 75 1.20%+ (0.45)%+ (3.50)%+ -- --
- -----------------------------------------------------------------------------------------
$13.06 21.57% $ 12,583 0.95% 2.90% -- 41.31% $0.05
$13.29 19.29% $ 12,956 0.91% 3.29% 0.95% 61.41% $0.04
$12.22 29.78%++ $ 2,873 1.11%+ 3.33%+ 1.44%+ 44.07%++ --
- -----------------------------------------------------------------------------------------
$15.07 26.76% $ 62,562 1.04% (0.08)% -- 22.89% $0.05
$12.64 20.10% $ 23,273 1.04% 0.43% 1.07% 61.95% $0.02
$11.97 29.98%++ $ 4,329 1.21%+ 0.86%+ 1.39%+ 106.02%++ --
- -----------------------------------------------------------------------------------------
$20.89 27.56% $234,020 1.09% (0.20)% -- 37.54%(10) $0.05
$17.61 24.91% $ 91,516 0.93% 0.12% -- 34.87% $0.04
$15.15 19.88% $ 71,858 0.89% 0.37% -- 53.55% --
$13.34 (3.27)% $ 64,326 0.90% 0.53% -- 37.51% --
$14.49 24.01% $ 53,977 0.86% 0.71% -- 33.99% --
$12.37 27.93% $ 5,111 0.85%+ 1.05%+ -- 34.44%+ --
- -----------------------------------------------------------------------------------------
$16.03 30.16% $ 21,836 1.18% (0.68)% -- 58.29% $0.05
$13.70 24.59% $ 6,697 1.13% (0.29)% 1.24% 93.82% $0.05
$12.20 24.80%++ $ 672 1.25%+ 0.19%+ 2.56%+ 38.89%++ --
- -----------------------------------------------------------------------------------------
$15.66 25.03% $ 82,791 1.06% 1.64% -- 35.93%(10) $0.05
$13.70 23.79% $ 22,370 0.94% 2.16% -- 34.24% $0.04
$11.89 24.38% $ 17,858 0.91% 2.49% -- 45.55% --
$10.48 (0.60)% $ 15,730 0.91% 2.92% -- 58.62% --
$11.05 14.71% $ 14,098 0.86% 2.67% -- 63.90% --
$10.40 6.82% $ 4,729 0.85%+ 3.12%+ -- 48.52%+ --
- -----------------------------------------------------------------------------------------
$16.38 27.80% $162,393 1.09% 0.67% 1.10% 30.98% $0.05
$14.12 19.24% $ 59,027 0.91% 1.17% -- 43.21% $0.04
$13.16 28.04% $ 49,872 0.84% 1.73% -- 26.80% --
$10.67 0.55% $ 42,274 0.84% 2.07% -- 28.04% --
$11.16 13.79% $ 29,467 0.83% 1.84% -- 42.31% --
$10.51 8.19% $ 4,338 0.83%+ 2.49%+ -- 16.28%+ --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
9
<PAGE> 78
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET DISTRIBUTIONS DISTRIBUTIONS
NET ASSET REALIZED DISTRIBUTIONS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED FROM NET OF NET DISTRIBUTIONS OF TAX
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT FROM REALIZED REALIZED RETURN OF
OF PERIOD INCOME ON INVESTMENTS INCOME INCOME GAINS GAINS CAPITAL
--------- ---------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INDEX FUND
CLASS A SHARES
1997 $ 16.75 0.26 5.19 (0.26) -- (0.58) -- --
1996 $ 14.15 0.30 2.85 (0.29) -- (0.26) -- --
1995 $ 10.65 0.30 3.65 (0.31) -- (0.14) -- --
1994 $ 11.15 0.31 (0.20) (0.30) -- (0.23) (0.08) --
1993 $ 10.52 0.28 0.75 (0.27) -- (0.13) -- --
1992(4) $ 10.00 0.12 0.52 (0.12) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY
FUND
CLASS A SHARES
1997 $ 11.77 0.07 0.36 (0.09) -- -- -- --
1996 $ 11.05 0.10 0.72 (0.10) -- -- -- --
1995 $ 10.01 0.10 1.05 (0.11) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
CLASS A SHARES
1997 $ 10.29 0.62 0.18 (0.62) -- -- -- --
1996 $ 10.37 0.64 (0.07) (0.65) -- -- -- --
1995 $ 9.21 0.59 1.16 (0.59) -- -- -- --
1994 $ 10.41 0.56 (1.20) (0.55) -- (0.01) -- --
1993 $ 10.28 0.59 0.26 (0.59) -- (0.13) -- --
1992(3) $ 10.32 0.49 0.13 (0.49) -- (0.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------
BOND FUND
CLASS A SHARES
1997 $ 10.27 0.63 0.32 (0.63) -- -- -- --
1996 $ 10.45 0.67 (0.18) (0.67) -- -- -- --
1995 $ 9.01 0.63 1.45 (0.64) -- -- -- --
1994 $ 10.32 0.61 (1.31) (0.59) -- (0.02) -- --
1993 $ 10.25 0.76 0.38 (0.76) -- (0.31) -- --
1992(3) $ 10.23 0.56 0.15 (0.56) -- (0.13) -- --
- ------------------------------------------------------------------------------------------------------------------------------
SHORT BOND FUND
CLASS A SHARES
1997 $ 10.11 0.53 0.06 (0.54) -- (0.01) -- --
1996 $ 10.23 0.55 (0.10) (0.55) -- (0.02) -- --
1995 $ 9.84 0.58 0.39 (0.58) -- -- -- --
1994(5) $ 10.00 0.17 (0.16) (0.17) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
MULTI SECTOR BOND FUND
CLASS A SHARES
1997 $ 7.84 0.48 0.17 (0.47) -- (0.02) -- --
1996 $ 8.18 0.41 (0.25) (0.40) -- (0.10) -- --
1995(6) $ 7.68 0.44 0.72 (0.44) -- (0.22) -- --
1995 $ 8.25 0.52 (0.57) (0.52) -- -- -- --
1994(7) $ 8.36 0.47 (0.09) (0.47) -- (0.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL BOND FUND
CLASS A SHARES
1997 $ 10.79 0.45 (0.93) (0.43) -- -- -- --
1996 $ 10.75 0.54 0.04 (0.54) -- -- -- --
1995(2) $ 10.00 0.98 1.10 (0.98) (0.01) (0.34) -- --
- ------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND
CLASS A SHARES
1997(8) $ 10.00 0.19 0.23 (0.20) -- (0.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
CLASS A SHARES
1997 $1.0000 0.0491 -- (0.0491) -- -- -- --
1996 $1.0000 0.0488 -- (0.0488) -- -- -- --
1995 $1.0000 0.0549 -- (0.0549) -- -- -- --
1994 $1.0000 0.0378 -- (0.0378) -- -- -- --
1993 $1.0000 0.0281 -- (0.0281) -- -- -- --
1992 $1.0000 0.0347 -- (0.0347) -- -- -- --
1991 $1.0000 0.0579 -- (0.0579) -- -- -- --
1990 $1.0000 0.0784 -- (0.0784) -- -- -- --
1989 $1.0000 0.0877 -- (0.0877) -- -- -- --
1988(9) $1.0000 0.0730 -- (0.0730) -- -- -- --
<CAPTION>
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
EQUITY INDEX FUND
CLASS A SHARES
1997 (0.84)
1996 (0.55)
1995 (0.45)
1994 (0.61)
1993 (0.40)
1992(4) (0.12)
- ------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY
FUND
CLASS A SHARES
1997 (0.09)
1996 (0.10)
1995 (0.11)
- ------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
CLASS A SHARES
1997 (0.62)
1996 (0.65)
1995 (0.59)
1994 (0.56)
1993 (0.72)
1992(3) (0.66)
- ------------------------------------------------------------------------------------------------------------------------------
BOND FUND
CLASS A SHARES
1997 (0.63)
1996 (0.67)
1995 (0.64)
1994 (0.61)
1993 (1.07)
1992(3) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------
SHORT BOND FUND
CLASS A SHARES
1997 (0.55)
1996 (0.57)
1995 (0.58)
1994(5) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------
MULTI SECTOR BOND FUND
CLASS A SHARES
1997 (0.49)
1996 (0.50)
1995(6) (0.66)
1995 (0.52)
1994(7) (0.49)
- ------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL BOND FUND
CLASS A SHARES
1997 (0.43)
1996 (0.54)
1995(2) (1.33)
- ------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND
CLASS A SHARES
1997(8) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
CLASS A SHARES
1997 (0.0491)
1996 (0.0488)
1995 (0.0549)
1994 (0.0378)
1993 (0.0281)
1992 (0.0347)
1991 (0.0579)
1990 (0.0784)
1989 (0.0877)
1988(9) (0.0730)
</TABLE>
- --------------------------------------------------------------------------------
See page 12 for Notes to Financial Highlights.
Pegasus Funds
10
<PAGE> 79
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET OF NET NET ASSETS
ASSET NET ASSETS RATIO OF INVESTMENT (EXCLUDING
VALUE END OF EXPENSES INCOME FEE WAIVERS PORTFOLIO AVERAGE
END OF TOTAL PERIOD TO AVERAGE TO AVERAGE AND TURNOVER COMMISSION
PERIOD RETURN(A) (000) NET ASSETS NET ASSETS REIMBURSEMENTS) RATE RATE
------ --------- ---------- ---------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 21.36 32.69% $ 193,663 0.57% 1.20% -- .12.80%(/10/) $0.03
$ 16.75 22.49% $ 35,336 0.37% 1.89% -- 12.25% $0.03
$ 14.15 37.35% $ 4,007 0.15% 2.39% -- 10.66% --
$ 10.65 1.02% $ 1,197 0.17% 2.71% -- 24.15% --
$ 11.15 9.77% $ 960 0.20% 2.59% -- 16.01% --
$ 10.52 13.61% $ 151 0.22%+ 2.71%+ -- 0.50%++ --
- ----------------------------------------------------------------------------------------------
$ 12.11 3.69% $ 26,703 1.35% 0.80% -- 3.56% $0.03
$ 11.77 7.50% $ 10,836 1.23% 0.88% 1.23% 6.37% $0.07
$ 11.05 11.47% $ 988 1.16% 1.43% 1.24% 2.09% --
- ----------------------------------------------------------------------------------------------
$ 10.47 8.04% $ 42,343 0.86% 6.01% -- 31.66% --
$ 10.29 5.65% $ 18,324 0.79% 6.17% -- 31.62% --
$ 10.37 19.48% $ 11,654 0.73% 5.98% -- 36.47% --
$ 9.21 (6.31)% $ 11,983 0.74% 5.73% -- 54.60% --
$ 10.41 8.41% $ 16,491 0.74% 5.44% -- 92.80% --
$ 10.28 11.17%+ $ 4,509 0.75%+ 7.04%+ -- 56.30%+ --
- ----------------------------------------------------------------------------------------------
$ 10.59 9.65% $ 125,515 0.86% 6.16% -- 17.60% --
$ 10.27 4.98% $ 46,977 0.78% 6.59% -- 24.92% --
$ 10.45 23.75% $ 31,714 0.74% 6.39% -- 41.91% --
$ 9.01 (6.99)% $ 32,053 0.74% 6.36% -- 75.67% --
$ 10.32 11.39% $ 45,410 0.73% 7.20% -- 111.52% --
$ 10.25 9.59%+ $ 9,392 0.74%+ 8.12%+ -- 90.45%+ --
- ----------------------------------------------------------------------------------------------
$ 10.15 5.92% $ 4,738 0.82% 5.36% 0.83% 68.04% --
$ 10.11 4.45% $ 1,033 0.80% 5.35% 0.82% 109.58% --
$ 10.23 10.07% $ 766 0.75% 5.74% 0.81% 30.94% --
$ 9.84 0.21%+ $ 308 0.75%+ 5.92%+ 0.93%+ 10.20%++ --
- ----------------------------------------------------------------------------------------------
$ 8.00 8.58% $ 7,832 0.87% 5.83% -- 38.70% --
$ 7.84 2.75% $ 8,798 0.84% 5.75% 0.90% 103.93% --
$ 8.18 15.55%++ $ 6,095 0.94%+ 5.72%+ 1.15%+ 173.26%++ --
$ 7.68 (0.45)% $ 69 0.04% 6.70% 2.78% 71.65% --
$ 8.25 5.16%+ $ 65 -- 5.96%+ 3.67%+ 26.54%++ --
- ----------------------------------------------------------------------------------------------
$ 9.88 (4.46)% $ 6,419 1.12% 4.76% 1.33% 4.51% --
$ 10.79 5.62% $ 2,006 1.15% 4.74% 1.94% 97.82% --
$ 10.75 21.10%++ $ 487 1.33%+ 4.91%+ 3.65%+ 48.03%++ --
- ----------------------------------------------------------------------------------------------
$ 10.21 (8.31)%+ $ 570 1.22%+ 7.42%+ 1.43%+ 11.17% --
- ----------------------------------------------------------------------------------------------
$1.0000 5.04% $ 973,821 0.74% 4.90% 0.74% -- --
$1.0000 4.99% $ 728,397 0.63% 4.87% -- -- --
$1.0000 5.63% $1,639,695 0.51% 5.49% -- -- --
$1.0000 3.86% $1,320,040 0.47% 3.78% -- -- --
$1.0000 2.85% $1,326,693 0.49% 2.81% -- -- --
$1.0000 3.58% $1,095,354 0.52% 3.47% -- -- --
$1.0000 5.95% $ 775,521 0.50% 5.79% -- -- --
$1.0000 8.14% $ 717,516 0.50% 7.84% -- -- --
$1.0000 9.19% $ 446,466 0.51% 8.77% -- -- --
$1.0000 7.55%+ $ 250,182 0.49%+ 7.30%+ -- -- --
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
11
<PAGE> 80
NOTES TO FINANCIAL HIGHLIGHTS
(1)For the period December 17, 1996 (commencement of operations) through
December 31, 1996.
(2)For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3)For the period May 1, 1992 (initial offering date of Class A Shares)
through December 31, 1992.
(4)For the period July 10, 1992 (inception) through December 31, 1992.
(5)For the period September 17, 1994 (commencement of operations) through
December 31, 1994.
(6) For the period February 1, 1995 through December 31, 1995. Effective
February 1, 1995, the Fund changed its fiscal year end from January 31 to
December 31.
(7)For the period March 5, 1993 (commencement of operations) through January
31, 1994.
(8)For the period June 30, 1997 (commencement of operations) through December
31, 1997.
(9)For the period January 4, 1988 (commencement of operations) through
December 31, 1988.
(10) The Portfolio Turnover Percentage was adjusted for Redemptions In-Kind for
shareholders that took place during 1997 for the Equity Index, Mid-Cap
Opportunity and Intrinsic Value Funds. Each Fund's securities sales were
appropriately reduced by the fair market value of the Redemptions In-Kind.
The Redemptions In-Kind for the Equity Index, Mid-Cap Opportunity and
Intrinsic Value Funds were approximately $260 million, $4 million and $5
million, respectively. Total returns as presented do not include any
applicable sales load or redemption charges.
+Annualized.
++Not annualized.
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Description of the Funds
GENERAL
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
currently consists of thirty-one investment portfolios, each of which consists
of a separate pool of assets with separate investment objectives and policies.
This Prospectus, however, describes only eighteen portfolios. Under the 1940
Act, each Fund is classified as a diversified investment portfolio (a
"Diversified Fund") except for the International Equity and International Bond
Funds, which are each classified as a non-diversified investment portfolio (the
"Non-Diversified Funds").
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of a Fund may not be changed without approval of the
holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities. See "General Information." Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without a
vote of shareholders. There can be no assurance that a Fund will achieve its
objective. The following sections should be read in conjunction with "Risk
Factors" below and the description of investments in which the Funds may
invest, as set forth in "Supplemental Information." A description of ratings
("Debt Ratings") is contained below and in the Statements of Additional
Information.
ASSET ALLOCATION FUNDS
In order to achieve its investment objective, each Asset Allocation Fund will
typically invest in the Underlying Funds within a predetermined target asset
allocation range, as set forth below. The target asset allocation reflects the
extent to which each Asset Allocation Fund will invest in a particular market
segment, and the varying degrees of potential investment risk and reward
represented by the fund's investments in those market segments and their
corresponding Underlying Funds. The Investment Adviser may alter the target
asset allocation and the target asset allocation ranges when it deems
appropriate. The assets of each fund will be allocated among the Underlying
Funds in accordance with the fund's investment objective, the target asset
allocation, the Investment Adviser's outlook for the economy, the financial
markets and the relative market valuations of the Underlying Funds. The Asset
Allocation Funds will generally limit their investments to the Underlying
Funds.
In order to meet liquidity needs or for temporary defensive purposes, each
Asset Allocation Fund may invest its assets in shares of the Money Market Fund
and directly in the same types of underlying securities as are permissible
investments for the Money Market Fund.
The Managed Assets Conservative Fund seeks to provide long-term total return
with capital appreciation as a secondary consideration. The Managed Assets
Balanced Fund seeks to achieve long-term total return through a combination of
capital appreciation and current income. The Managed Assets Growth Fund seeks
to achieve long-term total return with current income a secondary
consideration. The Managed Assets Conservative Fund is deemed to be more
"conservative" than the Managed Assets Balanced and Managed Assets Growth Funds
because it has a heavier weighting in Debt Securities and in Underlying Funds
which invest primarily in Debt Securities and a lighter weighting in Equity
Securities and in Underlying Funds which invest primarily in Equity Securities
relative to the other Asset Allocation Funds. In attempting to achieve its
asset allocation objective, except as set forth above, each Asset Allocation
Fund will invest in the equity, debt and cash equivalent market sectors within
the following ranges:
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TARGET ASSET ALLOCATION
<TABLE>
<CAPTION>
ASSET
ALLOCATION
FUND EQUITY DEBT CASH EQUIVALENT
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed As-
sets Con-
servative
Fund 30%-50% 50%-70% 0%-20%
- ----------------------------------------------------------------------------------
Managed As-
sets Bal-
anced Fund 50%-70% 30%-50% 0%-20%
- ----------------------------------------------------------------------------------
Managed As-
sets Growth
Fund 70%-90% 10%-30% 0%-20%
- ----------------------------------------------------------------------------------
Underlying Equity Income Fund Intermediate Bond Fund Money Market Fund
Funds by Growth Fund Bond Fund
Category Mid-Cap Opportunity Fund Short Bond Fund
Small-Cap Opportunity Fund Multi Sector Bond Fund
Intrinsic Value Fund International Bond Fund
Growth and Value Fund High Yield Bond Fund
Equity Index Fund
International Equity Fund
</TABLE>
- --------------------------------------------------------------------------------
EQUITY FUNDS
The Equity Income, Growth, Mid-Cap Opportunity, Small-Cap Opportunity,
Intrinsic Value, Growth and Value and Equity Index Funds invest primarily in
publicly traded common stocks of companies incorporated in the United States,
although each such Fund may also invest up to 25% of its total assets in the
Equity Securities of foreign issuers, either directly or through Depository
Receipts. The International Equity Fund invests primarily in Equity Securities
of foreign issuers, either directly or through Depository Receipts and similar
securities which may be sponsored or unsponsored. In addition, each Equity Fund
may: (1) invest in securities convertible into common stock, such as certain
bonds and preferred stocks; (2) invest up to 5% of its net assets in other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities); (3) invest up to 5% of its net assets
in lower-rated convertible securities; (4) enter into futures contracts and
related options; (5) utilize options and other derivative instruments such as
equity index swaps; and (6) lend its portfolio securities. The International
Equity Fund also may invest in foreign currency and options on foreign currency
transactions. Under normal market conditions, each Equity Fund expects to
invest at least 65% of the value of its total assets in Equity Securities. Each
Equity Fund may hold up to 35% of its total assets in Cash Equivalents and Debt
Securities rated investment grade or higher at the time of purchase (i.e., no
lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Group ("S&P"), Fitch IBCA, Inc. ("Fitch"), Duff &
Phelps Credit Rating Co. ("Duff"), or unrated investments deemed by the
Investment Adviser to be comparable in quality at the time of purchase to
instruments that are so rated, and, in the case of the International Equity
Fund, Debt Securities of foreign issuers, foreign governments and agencies.
The EQUITY INCOME FUND will invest primarily in income-producing Equity
Securities of domestic issuers. The Investment Adviser will be particularly
alert to companies which pay above-average dividends, yet offer opportunities
for capital appreciation and growth of earnings.
The GROWTH FUND will invest primarily in Equity Securities of domestic issuers
believed by the Investment Adviser to have above-average growth
characteristics. The Investment Adviser may consider some of the following
factors in making its investment decisions: the development of new or improved
products or services; a favorable outlook for growth in the industry; patterns
of increasing sales and earnings; the probability of increased operating
efficiencies; cyclical conditions; or other signs that the company is expected
to show greater than average earnings growth and capital appreciation.
The MID-CAP OPPORTUNITY FUND intends to invest under normal market conditions
at least 65% of the value of its total assets in Equity Securities of companies
with market capitalizations of $500 million to $3 billion. The Investment
Adviser believes that there are many companies in this size range that enjoy
enhanced growth prospects, operate in more stable market niches, and have
greater ability to respond to new business opportunities, all of which increase
their likelihood of attaining superior levels of profitability and investment
returns.
The SMALL-CAP OPPORTUNITY FUND intends to invest under normal market
conditions at least 65% of the value of its total assets in Equity Securities
of small domestic issuers with market capitalizations of $100 million to $1
billion. The Investment Adviser will consider some of the following factors in
making its investment decisions: high quality management; significant equity
ownership positions by management; a leading or dominant position in a major
product line; a sound financial position; and a relatively high rate of return
on invested capital. The Fund also may invest in companies that offer the
possibility of accelerating earnings growth because of management changes, new
products or structural changes in the industry or the economy.
The INTRINSIC VALUE FUND invests primarily in Equity Securities of companies
believed by the Investment Adviser to represent a value or potential worth
which is
14
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not fully recognized by prevailing market prices. In selecting investments for
the Fund, screening techniques are employed to isolate issues believed to be
attractively priced. The Investment Adviser then evaluates the underlying
earning power and dividend paying ability of these potential investments. The
Fund's holdings are usually characterized by lower price/earnings, price/cash
flow and price/book value ratios and by above average current dividend yields
relative to the equity market.
The GROWTH AND VALUE FUND invests primarily in Equity Securities of companies
believed by the Investment adviser to represent a value or potential worth
which is not fully recognized by prevailing market prices. The Fund invests in
companies which the Investment Adviser believes have earnings growth
expectations that exceed those implied by the market's current valuation. In
addition, the Fund seeks to maintain a portfolio of companies whose earnings
will increase at a faster rate than those within the general equity market.
The EQUITY INDEX FUND uses the S&P 500 Index as a benchmark for comparison
because it represents roughly two-thirds of the market value of all publicly
traded common stocks in the United States, is well known to investors and is a
widely accepted measure of common stock investment returns. The S&P 500 Index
contains a representative sample of common stocks that trade on the New York
and American Stock Exchanges and also contains over-the-counter stocks that are
a part of the National Market System.
The Equity Index Fund seeks to achieve a 95% correlation coefficient between
its performance and that of the S&P 500 Index. Therefore, the Fund's price
changes and total return are expected to closely match movements in the
underlying Index. Deviations from the performance of the S&P 500 Index
("tracking error") may result from shareholder purchases and redemptions of
shares of the Fund that occur daily, as well as from the expenses borne by the
Fund, cash reserves held by the Fund and purchases and sales of securities made
by the Fund to conform its holdings more closely with those represented in the
S&P 500 Index. In addition, tracking error may occur due to changes made in the
S&P 500 Index and the manner in which the Index is calculated by S&P. In the
event the performance of the Fund is not comparable to the performance of the
Index, the Board of Trustees will examine the reasons for the deviation and the
availability of corrective measures. If substantial deviation in the Fund's
performance were to continue for extended periods, it is expected that the
Board of Trustees would consider possible changes to the Fund's investment
objective.
The Equity Index Fund will not be managed by using traditional economic,
financial or market analysis. Instead, the Fund utilizes a sampling methodology
to determine which stocks to purchase or sell in order to closely replicate the
performance of the S&P 500 Index. Stocks are selected for the Fund based on
both capitalization weighting in the Index and industry representation. Larger
market capitalization securities in the S&P 500 Index are added to the Fund
according to their relative weight. Smaller capitalization securities are then
added to the Fund in equal weights according to an analysis of the industry
diversification of the S&P 500 Index. Therefore, while all industry weights in
the Fund are essentially matched to those of the S&P 500 Index, not necessarily
all of its 500 stocks are held in the Fund. The Fund may invest up to 25% of
its assets in the securities of foreign issuers through Depository Receipts.
Pending investment and to meet anticipated redemption requests, the Fund may
hold up to 5% of its total assets in Cash Equivalent Securities. In addition,
up to 5% of the Fund's total assets may be invested in futures contracts and
related options in an effort to maintain exposure to price movements in the S&P
500 Index pending investment of funds or while maintaining liquidity to meet
potential shareholder redemptions.
The INTERNATIONAL EQUITY FUND intends to invest under normal market conditions
at least 65% of the value of its total assets in Equity Securities of foreign
issuers located in but not limited to the United Kingdom and European
continent, Japan, other Far East areas and Latin America. The Fund may also
invest in other regions seeking to capitalize on investment opportunities in
other parts of the world, including developing countries.
The Investment Adviser's investment approach to managing the International
Equity Fund's assets emphasizes active country selection involving global
economic and political assessments together with valuation analysis of selected
countries' securities markets. In situations where an investment's
attractiveness outweighs prospects for currency weakness, the Investment
Adviser may take suitable hedging measures. An index approach is typically used
at the stock selection level.
The Investment Adviser employs quantitative techniques in conjunction with its
judgment and experience to determine the foreign equity markets that the Fund
will be invested in and the percentage of total assets the Fund will hold by
country. Securities of a country are selected using a quantitatively-oriented
sampling technique intending to generally replicate the performance of an
individual country's stock market index. The Morgan Stanley Capital
International Country Indexes have, for some time, been the accepted benchmarks
in the U.S. for international equity fund country comparisons. The Fund may
also use sector analysis and invest in individual Equity Securities which the
Investment Adviser believes offer opportunities for capital appreciation.
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<PAGE> 84
The International Equity Fund's assets will be invested at all times in the
securities of issuers located in at least three different foreign countries.
Investments in a particular country may exceed 25% of the Fund's total assets,
thus making its performance more dependent upon the political and economic
circumstances of a particular country than a more widely diversified portfolio.
BOND FUNDS
Each of the Bond Funds will invest at least 65% of the value of its total
assets under normal market conditions in Debt Securities. When the Investment
Adviser believes it advisable for temporary defensive purposes, to maintain
liquidity, or in anticipation of otherwise investing cash positions, each Bond
Fund may invest in Cash Equivalent Securities. Most obligations acquired by the
Funds, with the exception of the International Bond Fund, will be issued by
companies or governmental entities located within the United States. Each Bond
Fund, other than the International Bond Fund and High Yield Bond Fund, may
invest up to 15% of its total assets in dollar denominated debt obligations
(including Cash Equivalent Securities) of foreign issuers. The International
Bond Fund may invest 100% of its assets in investment in foreign issuers. The
High Yield Bond Fund may invest 100% of its total assets in dollar denominated
debt obligations (including Cash Equivalents) of foreign issuers. In addition,
each Bond Fund may lend its portfolio securities, purchase preferred
securities, purchase convertible securities and restricted securities, and
engage in futures and options transactions and other derivative instruments,
such as interest rate swaps and forward contracts.
Other than the International Bond Fund and High Yield Bond Fund, the Debt
Securities in which each Bond Fund may invest will be rated investment grade at
the time of purchase, or if unrated, will be deemed by the Investment Adviser
to be comparable in quality at the time of purchase to instruments that are so
rated. By so restricting its investments, a Fund's ability to maximize total
rate of return will be limited. Under normal market conditions, at least 65% of
the value of the International Bond Fund's total assets will consist of Debt
Securities rated A or better by a Rating Agency, and the remainder of its
assets may be invested in Debt Securities rated no lower than B by a Rating
Agency. Under normal market conditions, the High Yield Bond Fund will invest
primarily in Debt Securities which are rated BBB or lower by a Rating Agency.
There is no minimal acceptable rating for a security to be purchased or held in
the High Yield Bond Fund's portfolio and the Fund may, from time to time,
purchase or hold securities rated in the lowest rating category or hold
securities in default. The International Bond Fund and High Yield Bond Fund may
also invest in Debt Securities which, while not rated, are determined by the
Investment Adviser or, in the case of the High Yield Bond Fund, the Sub-
Adviser, to be of comparable quality to those rated securities in which the
Fund may invest. See "Risk Factors--Lower-Rated Securities."
The INTERMEDIATE BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, will have maturities or average lives of up to 15 years. The Fund's
average weighted portfolio maturity is expected to be between 3 and 6 years.
The BOND FUND invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers. The Fund's average weighted
portfolio maturity is expected to be between 6 and 12 years.
The SHORT BOND FUND invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers which, under normal market
conditions, will have maturities or average lives of up to 10 years. The Fund's
average weighted portfolio maturity will be limited to a maximum of 3 years.
The MULTI SECTOR BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, will have a dollar-weighted average maturity expected to range
between 3 and 10 years.
The INTERNATIONAL BOND FUND will invest in Debt Securities of issuers located
throughout the world, except the United States. The Fund also may invest in
convertible preferred stocks, hold foreign currency, and purchase debt
securities or hold currencies in combination with forward currency exchange
contracts. The Fund will be alert to opportunities to profit from fluctuations
in currency exchange rates. The Fund will be particularly alert to favorable
arbitrage opportunities (such as those resulting from favorable interest rate
differentials) arising from the relative yields of the various types of
securities in which the Fund may invest and market conditions generally. The
Fund may invest without restriction in companies in, or governments of,
developing countries. See "Risk Factors--Foreign Securities" below.
The HIGH YIELD BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions are expected to be lower-rated corporate debt obligations or unrated
obligations of comparable quality. Lower-rated or unrated bonds are commonly
referred to as "junk bonds" and are regarded as predominantly speculative.
Certain fixed rate obligations in which the Fund invests may involve equity
characteristics. The Fund may, for example, invest in unit offerings that
combine fixed rate securities and common stock or common stock equivalents such
as warrants, rights, and options. The Fund may invest up to 10% of its total
assets in Equity Securities (whether the equity securities are purchased in a
unit offering or not); however, preferred and
16
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<PAGE> 85
convertible securities are not subject to this limitation. The Fund may invest
up to 10% of its total assets in foreign securities which are not publicly
traded in the United States.
MONEY MARKET FUND
The MONEY MARKET FUND invests in the following high quality money market
instruments: (1) issued or guaranteed as to payment of principal and interest
by the U.S. Government, its agencies or instrumentalities ("U.S. Government
Obligations"); (2) U.S. dollar denominated obligations issued or guaranteed by
the government of Canada, a Province of Canada, or an instrumentality or
political subdivision thereof; (3) certificates of deposit, bankers'
acceptances and time deposits of U.S. banks or other U.S. financial
institutions (including foreign branches of such banks and institutions) having
total assets in excess of $1 billion and which are members of the Federal
Reserve System or the Federal Deposit Insurance Corporation ("FDIC"); (4)
certificates of deposit, bankers' acceptances and time deposits of foreign
banks and U.S. branches of foreign banks having assets in excess of the
equivalent of $1 billion; (5) commercial paper, other short-term obligations
and variable and floating rate master demand notes, bonds, debentures and
notes; (6) repurchase agreements relating to the above instruments.
The Money Market Fund will only purchase "eligible securities" that present
minimal credit risks as determined by the Investment Adviser pursuant to
guidelines established by the Trust's Board of Trustees. Eligible securities
include: (i) U.S. Government Obligations; (ii) securities that are rated (or
whose issuer or, in certain cases, guarantor, is rated) (at the time of
purchase) in the two highest categories for such securities by Rating Agencies;
and (iii) certain securities including guarantees that are not so rated but are
of comparable quality to rated eligible securities as determined by the
Investment Adviser; and (iv) under certain circumstances, shares of other money
market funds. See "Investment Objectives, Policies and Risk Factors" in the
Statement of Additional Information for a more complete description of eligible
securities.
The Money Market Fund is managed so that the average maturity of all
instruments in the Fund (on a dollar-weighted basis) will not exceed 90 days.
In no event will the Fund purchase any securities which are deemed to mature
more than 397 days from the date of purchase (except for certain variable and
floating rate instruments and securities underlying repurchase agreements and
collateral underlying loans of portfolio securities).
For further information regarding the amortized cost method of valuing
securities, see "Determination of Net Asset Value" in the Statement of
Additional Information. There can be no assurance the Money Market Fund will be
able to maintain a stable net asset value of $1.00 per share.
INVESTMENT LIMITATIONS
Each Fund is subject to a number of investment limitations. Except as noted,
the following investment limitations are matters of fundamental policy and may
not be changed with respect to a particular Fund without the affirmative vote
of the holders of a majority of the outstanding shares of the Fund. Other
investment limitations that cannot be changed without a vote of shareholders
are contained in the Statements of Additional Information under "Investment
Objectives, Policies and Risk Factors."
Each of the Funds may not:
1. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, any state, territory or possession
of the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions, domestic bank
obligations for the Money Market Fund, and repurchase agreements secured by
such instruments, (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of the parents, (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry, and
(d) personal credit and business credit businesses will be considered separate
industries.
2. Make loans, except that it may purchase and hold debt instruments and enter
into repurchase agreements in accordance with its investment objective and
policies and may lend portfolio securities in an amount not exceeding one-third
of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted under the 1940 Act.
The Diversified Funds may not purchase securities of any one issuer (other
than securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, immediately after such purchase, more than 5% of the
value of its total assets would be invested in the securities of such issuer,
or more than 10% of the issuer's outstanding voting securities would be owned
by it, except that up to 25% of the value of its total assets may be invested
without regard to these limitations.
Each Asset Allocation Fund will look through to its pro rata portion of the
Underlying Funds' portfolio investments to determine consistency with its
fundamental policies on diversification and concentration.
Generally, if a percentage limitation is satisfied at the time of investment,
a later increase or decrease in such
Pegasus Funds
17
<PAGE> 86
percentage resulting from a change in the value of a Fund's portfolio
securities will not constitute a violation of such limitation for purposes of
the 1940 Act.
RISK FACTORS
GENERAL
Before selecting a Fund in which to invest, the investor should assess the
risks associated with the types of investments made by the Fund. Investors
should consider a Fund as a supplement to an overall investment program and
should invest only if they are willing to accept the risks involved. The
following should be read in conjunction with "Supplemental Information"
beginning on page A-1 of this Prospectus and the Statements of Additional
Information.
EQUITY SECURITIES
(Asset Allocation, Equity and High Yield Bond Funds only) Securities of smaller
companies may be subject to more abrupt or erratic market movements than
larger, more established companies because they typically are traded in lower
volume and their issuers typically are subject to a greater degree to changes
in earnings and prospects.
DEBT SECURITIES
(All Funds) Investors should be aware that even though interest-bearing
securities are investments which promise a stable stream of income, the prices
of such securities generally are inversely affected by changes in interest
rates and, therefore, are subject to the risk of market price fluctuations. The
values of Debt Securities also may be affected by changes in the credit rating
or financial condition of the issuing entities. Many corporate debt
obligations, including many lower-rated Debt Securities, permit the issuers to
call the security and thereby redeem their obligations earlier than the stated
maturity dates. Issuers are more likely to call Debt Securities during periods
of declining interest rates. In these cases, a Fund would likely be required to
reinvest the proceeds at lower interest rates, thus reducing income to the
Fund.
MUNICIPAL OBLIGATIONS
(Asset Allocation and Bond Funds only) These funds may invest in obligations
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their respective political
subdivisions, agencies (including multi-state agencies), instrumentalities and
authorities, the interest from which is, in the opinion of bond counsel for the
issuers, exempt from regular federal income tax ("Municipal Obligations").
Investors should be aware that when a fund's assets are concentrated in
obligations payable from revenues of similar projects or issued by issuers
located in the same state, or in industrial development bonds, the fund will be
subject to the particular risks relating to such securities (including legal
and economic conditions) to a greater extent than if its assets were not so
concentrated.
Payment on Municipal Obligations held by the funds relating to certain
projects may be secured by mortgages or deeds of trust. In the event of a
default, enforcement of a mortgage or deed of trust will be subject to
statutory enforcement procedures and limitations on obtaining deficiency
judgments. Moreover, collection of proceeds from a foreclosure may be delayed
and the amount of the proceeds received may not be enough to pay the principal
or accrued interest on the defaulted Municipal Obligations.
LOWER-RATED SECURITIES
(Asset Allocation, Equity, International Bond and High Yield Bond Funds only)
Investors should carefully consider the relative risks of investing in the
higher yielding (and, therefore, higher risk) debt securities rated below
investment grade by Moody's, S&P, Fitch or Duff (commonly known as junk bonds).
Each Equity Fund is permitted to invest up to 5% of its net assets in lower-
rated convertible securities. The International Bond Fund may invest up to 35%
of its net assets in debt securities rated as low as B by Moody's, S&P, Fitch
and Duff and unrated debt securities deemed by the Investment Adviser to be
comparable in quality at the time of purchase to instruments that are so rated.
The High Yield Bond Fund will invest primarily in debt securities rated Baa or
lower by Moody's or BBB or lower by S&P, Fitch or Duff and unrated securities
deemed by the Sub-Adviser to be comparable in quality at the time of purchase
to instruments that are so rated. There is no minimal acceptable rating for a
security to be purchased or held by the High Yield Bond Fund, and the Fund may,
from time to time, purchase or hold securities rated in the lowest rating
category or hold securities in default.
Lower-rated securities will usually offer higher yields than investment grade
securities. However, there is more risk associated with these investments
because of reduced creditworthiness and increased risk of default. The market
values of certain lower-rated debt securities tend to reflect specific
developments with respect to the issuer to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level of
interest rates, and tend to be more sensitive to economic conditions than are
higher rated securities. Issuers of such debt securities often are highly
leveraged and may not have available to them more traditional methods of
financing.
Securities rated below investment grade generally are subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated Debt Securities. Securities rated below
BBB by S&P, Fitch or Duff or Baa by Moody's
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are regarded as predominantly speculative; their future cannot be considered as
well assured and often the protection of interest and principal payments may be
very moderate and may face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. Factors adversely
affecting the market price and yield of lower-rated debt securities, including
a fund's ability to sell such securities in a market that may be less liquid
than the market for higher rated securities, will adversely affect the fund's
net asset value. In addition, the retail secondary market for these securities
may be less liquid than that for higher rated securities; adverse conditions
could make it difficult at times for a fund to sell certain securities or could
result in lower prices than those used in calculating its net asset value.
The Investment Adviser or Sub-Adviser will continually evaluate lower-rated
securities and the ability of their issuers to pay interest and principal. A
fund's ability to achieve its investment objective may be more dependent on the
Investment Adviser's and Sub-Adviser's credit analysis than might be the case
for a fund that invested in higher rated securities. See "Supplemental
Information--Risks Related to Lower-rated Securities," "Debt Ratings" and the
Appendix in the Statement of Additional Information for a general description
of securities ratings.
FOREIGN SECURITIES
(All Funds) Foreign securities markets, especially those of developing
countries, generally are not as developed or efficient as those in the United
States. Investment in securities of foreign issuers, whether made directly or
indirectly, involves inherent risks, such as political or economic instability
of the issuer or the country of issue, the difficulty of predicting
international trade patterns, changes in exchange rates of foreign currencies,
the possibility of adverse changes in investment or exchange control
regulations. In addition, foreign securities may be less liquid and more
volatile than securities of comparable U.S. issuers.
Developing countries have economic structures that are generally less diverse
and mature, and political systems that are less stable, than those of developed
countries. The markets of developing countries may be more volatile than the
markets of more mature economies.
FOREIGN CURRENCY AND FOREIGN COMMODITY TRANSACTIONS
(Asset Allocation, International Equity, International Bond and High Yield Bond
Funds only) Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad.
The foreign currency market offers less protection against defaults in the
forward trading of currencies than is available when trading currencies on an
exchange. Since a forward currency contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a fund of unrealized
profits or force it to cover its commitments for purchase or resale, if any, at
the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and may be subject to greater risks than trading on domestic exchanges.
For example, some foreign exchanges are principal markets so that no common
clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits that a fund might realize
in trading could be eliminated by adverse changes in the exchange rate, or a
fund could incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic exchanges
and those which are not.
MORTGAGE-RELATED SECURITIES
(Asset Allocation and Bond Funds only) No assurance can be given as to the
liquidity of the market for certain mortgage-backed securities, such as
collateralized mortgage obligations and stripped mortgage-backed securities.
Determination as to the liquidity of interest-only and principal-only fixed
mortgage-backed securities issued by the U.S. Government or its agencies and
instrumentalities will be made in accordance with guidelines established by the
Board. Mortgage-related securities may be considered a derivative instrument.
DERIVATIVE INSTRUMENTS
Each Fund may purchase certain "derivative instruments" in accordance with
their respective investment objectives and policies. Derivative instruments are
instruments that derive value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, futures contracts, options, forward currency contracts and
structured debt obligations (including collateralized mortgage obligations and
other types of asset backed securities, "stripped" securities and various
floating rate instruments, including inverse floaters).
Derivative instruments present, to varying degrees, market risk that the
performance of the underlying
Pegasus Fund19s
<PAGE> 88
assets, exchange rates or indices will decline; credit risk that the dealer or
other counterparty to the transaction will fail to pay its obligations;
volatility and leveraging risk that, if interest or exchange rates change
adversely, the value of the derivative instrument will decline more than the
assets, rates or indices on which it is based; liquidity risk that a Fund will
be unable to sell a derivative instrument when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
instrument (such as an option) will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative instruments are more complex than others,
and for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE ASSET ALLOCATION FUNDS
An investment in a mutual fund involves risk and, although the Asset Allocation
Funds will ultimately be substantially invested in the Underlying Funds, such
investment will not eliminate investment risk. Investing in the Underlying
Funds through the Asset Allocation Funds also involves certain additional
expenses and tax considerations that would not be present in a direct
investment in the Underlying Funds. From time to time, the Underlying Funds may
experience relatively large purchases or redemptions due to asset allocation
decisions made by the Investment Adviser for its clients, including the Asset
Allocation Funds. These transactions may have a material effect on the
Underlying Funds because Underlying Funds that experience redemptions as a
result of reallocations may have to sell portfolio securities and because the
Underlying Funds that receive additional cash will have to invest it. While it
is impossible to predict the overall impact of these transactions over time,
there could be adverse effects on portfolio management to the extent that the
Underlying Funds may be required to sell securities at times when they would
not otherwise do so, or receive cash that cannot be invested in an expeditious
manner. There may be tax consequences associated with the purchase and sale of
securities and such sales may also increase transaction costs. The Investment
Adviser is committed to minimizing the impact of these transactions on the
Underlying Funds to the extent it is consistent with pursuing the investment
objectives of the Asset Allocation Funds. The Investment Adviser will monitor
the impact of asset allocation decisions on the Underlying Funds and, where
practicable, an Asset Allocation Fund will, at any one time, only redeem shares
of any particular Underlying Fund to reduce its allocation to that Underlying
Fund in increments of up to 5% (e.g. from 20% to 15%), except where such
redemptions are to meet Fund shareholder redemption requests. The Investment
Adviser will nevertheless face conflicts in fulfilling its responsibilities
because of the possible differences between the interests of its asset
allocation clients (including shareholders of the Asset Allocation Funds) and
the interests of the Underlying Funds. Further information on the investment
policies and objectives of the Underlying Funds can be found in "Supplemental
Information" and the Statements of Additional Information.
OTHER INVESTMENT CONSIDERATIONS
The classification of the International Equity and International Bond Funds as
"non-diversified" investment companies means that the proportion of their
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer and to hold not more than
10% of the voting securities of any single issuer. Each Non-Diversified Fund,
however, intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). The Code requires that, at the end of each quarter of a
fund's taxable year, (i) at least 50% of the market value of its total assets
be invested in cash, U.S. Government securities, securities of other regulated
investment companies and other securities, with such other securities of any
one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets be invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies). Since a relatively high percentage of a Non-Diversified
Fund's assets may be invested in the securities of a limited number of issuers,
some of which may be within the same industry or economic sector, its portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company.
How to Buy Shares
GENERAL INFORMATION
ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR EMPLOYER'S QUALIFIED
BENEFIT PLAN. FOR MORE INFORMATION ON HOW TO PURCHASE SHARES OF THE FUNDS
20
Pegasus Funds
<PAGE> 89
THROUGH YOUR EMPLOYER'S PLAN OR LIMITATIONS ON THE AMOUNT THAT MAY BE
PURCHASED, PLEASE CONSULT YOUR EMPLOYER.
Class A shares are sold at net asset value to qualified retirement, profit-
sharing or other employee benefit plans ("Eligible Retirement Plans"), among
others. Class A shares are not subject to a distribution fee or sales charge,
although they are subject to a shareholder servicing fee and their pro rata
portion of the fees payable by a Fund to financial institutions that provide
recordkeeping and other services in connection with employee benefit plans
which hold shares or to financial institutions that establish accounts on
behalf of investors in connection with the purchase and/or sale of Class A
shares. The annual service fee is at the rate of up to 0.25% of the value of
the average daily net assets of Class A shares. See "Shareholder Services
Plan."
Share certificates will not be issued.
NET ASSET VALUE
As to each Fund, net asset value per Class A share is computed by dividing the
value of the Fund's net assets represented by such Class (i.e., the value of
its assets less liabilities) by the total number of shares of such Class
outstanding. The assets of each Asset Allocation Fund will eventually consist
primarily of shares of the Underlying Funds, which are valued at their
respective net asset values.
NON-MONEY MARKET FUNDS. The net asset value per Class A share of each Non-
Money Market Fund for purposes of pricing and redemption orders is determined
by the Investment Adviser as of the close of trading on the floor of the New
York Stock Exchange ("Exchange") (currently 4:00 p.m., Eastern Time) on each
day the Exchange is open for business (a "Business Day") except: (i) those
holidays which the Exchange observes (currently New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day); and (ii) those Business Days on
which the Exchange closes prior to the close of its regular trading hours
("Early Closing Time") in which event the net asset value of each Non-Money
Market Fund will be determined and its shares will be priced as of such Early
Closing Time.
Shares of the Underlying Funds held by the Asset Allocation Funds are valued
by the Asset Allocation Funds at their respective net asset values. Securities
held by the Funds which are traded on a recognized U.S. stock exchange are
valued at the last sale price on the national securities market. Securities
which are primarily traded on foreign securities exchanges are generally valued
at the latest closing price on their respective exchanges, except when an
occurrence subsequent to the time a value was established is likely to have
changed such value, in which case the fair value of those securities will be
determined through consideration of other factors by the Investment Adviser
under the supervision of the Board of Trustees. Securities, whether U.S. or
foreign, traded on only over-the-counter markets and securities for which there
were no transactions are valued at the average of the current bid and asked
prices. Debt Securities are valued according to the broadest and most
representative market, which ordinarily will be the over-the-counter markets,
whether in the United States or in foreign countries. Such securities are
valued at the average of the current bid and asked prices. Securities (other
than shares of the Underlying Funds) for which accurate market quotations are
not readily available, and other assets are valued at fair value by the
Investment Adviser under the supervision of the Board of Trustees. Securities
(other than shares of the Underlying Funds) may be valued on the basis of
prices provided by independent pricing services when the Investment Adviser
believes such prices reflect the fair market value of such securities. The
prices provided by pricing services take into account institutional size
trading in similar groups of securities and any developments related to
specific securities. For valuation purposes, the value of assets and
liabilities expressed in foreign currencies will be converted to U.S. dollars
equivalent at the prevailing market rate on the day of valuation. Open futures
contracts will be "marked-to-market."
MONEY MARKET FUND. The net asset value per Class A share for purposes of
pricing purchase and redemption orders is determined by the Investment Adviser
as of 3:00 p.m., Eastern Time, on each Business Day except: (i) those holidays
which the Exchange, the Investment Adviser or its bank affiliates observe
(currently New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day); and (ii) those Business Days on which the
Exchange closes at an Early Closing Time in which event the net asset value of
the Money Market Fund will be determined and its shares will be priced as of
such Early Closing Time.
Shares of the Money Market Fund are sold on a continuous basis at the net
asset value per share next determined after an order in proper form and Federal
Funds (monies of member banks within the Federal Reserve System which are held
in deposit at a Federal Reserve Bank) are received by First Data Investor
Services Group, Inc. (the "Transfer Agent"). If an investor does not remit
Federal Funds, his or her payment must be converted into Federal Funds. This
usually occurs within one Business Day of receipt of a bank wire and within two
Business Days of receipt of a check drawn on a member bank of the Federal
Reserve System. Checks drawn on banks which are not members of the Federal
Reserve System may take considerably longer to convert into Federal Funds.
Prior to receipt of Federal Funds, the investor's money will not be invested.
Pegasus Funds
21
<PAGE> 90
The assets of the Money Market Fund are valued based upon the amortized cost
method. Although the Trust seeks to maintain the net asset value per share of
the Fund at $1.00, there can be no assurance that the net asset value will not
vary.
How to Exchange Shares
SUBJECT TO ANY RESTRICTIONS CONTAINED IN YOUR EMPLOYER'S QUALIFIED BENEFIT
PLAN, YOU MAY EXCHANGE CLASS A SHARES OF THE FUNDS AT NET ASSET VALUE. PLEASE
CONTACT YOUR PLAN ADMINISTRATOR FOR INFORMATION ON HOW TO EXCHANGE YOUR SHARES.
No fees currently are charged shareholders directly in connection with
exchanges although the Funds reserve the right, upon not less than 60 days'
written notice, to charge shareholders a nominal fee in accordance with rules
promulgated by the SEC. The Funds reserve the right to reject any exchange
request in whole or in part. The exchange privilege may be modified or
terminated at any time upon notice to shareholders.
How to Redeem Shares
GENERAL INFORMATION
SUBJECT TO ANY RESTRICTIONS IMPOSED BY YOUR EMPLOYER'S QUALIFIED BENEFIT PLAN,
YOU MAY SELL YOUR SHARES THROUGH THE PLAN TO THE TRUST ON ANY BUSINESS DAY (AS
DESCRIBED UNDER "HOW TO BUY SHARES"). FOR MORE INFORMATION ON HOW TO REDEEM
SHARES OF THE FUNDS THROUGH YOUR EMPLOYER'S PLAN, INCLUDING ANY CHARGES THAT
MAY BE IMPOSED BY THE PLAN, PLEASE CONSULT YOUR EMPLOYER.
An investor may request redemption of his or her shares by following
instructions pertaining to his or her plan. It is the responsibility of the
entity authorized to act on behalf of the investor's plan to transmit the
redemption order to the Transfer Agent and credit the investor's account with
the redemption proceeds on a timely basis. When a request is received in proper
form, the Trust will redeem the shares at the next determined net asset value
as described above. The Trust imposes no charges when shares are redeemed. The
value of the shares redeemed may be more or less than their original cost,
depending upon the Fund's then-current net asset value.
A Fund ordinarily will make payment for all shares redeemed within seven days
after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by SEC rules. The Funds will only redeem shares for which
payment has been received.
Management of the Trust
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust is responsible for the management of the
business and affairs of the Trust. Information about the Trustees and officers
of the Trust is contained in the Statements of Additional Information.
INVESTMENT ADVISER AND CO-ADMINISTRATORS
First Chicago NBD Investment Management Company, located at Three First
National Plaza, Chicago, Illinois 60670 is each Fund's Investment Adviser.
FCNIMCO is a registered investment adviser and a wholly-owned subsidiary of The
First National Bank of Chicago ("FNBC"), which in turn is a wholly-owned
subsidiary of First Chicago NBD Corporation ("FCN"), a registered bank holding
company. FCNIMCO also acts as investment adviser for other accounts and
registered investment company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an Investment
Advisory Agreement dated as of April 12, 1996. Under the Investment Advisory
Agreement, FCNIMCO provides the day-to-day management of each Fund's
investments. Subject to the overall authority of the Trust's Board of Trustees
and in conformity with Massachusetts law and the stated policies of the Trust,
FCNIMCO is responsible for making investment decisions for the Trust, placing
purchase and sale orders (which may be allocated to various dealers based on
their sales of Fund shares) and providing research, statistical analysis and
continuous supervision of each Fund's investment portfolio.
22
Pegasus Funds
<PAGE> 91
Under the terms of the Investment Advisory Agreement, the Investment Adviser
is entitled to a monthly fee as a percentage of each Fund's daily net assets.
Each Fund's current contractual fee for advisory services is set forth below.
<TABLE>
<CAPTION>
EFFECTIVE RATE FOR
CURRENT ADVISORY SERVICES
CONTRACTUAL FOR YEAR ENDED
ADVISORY FEE RATE DECEMBER 31, 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conserva- 0.65% 0.52%
tive Fund
Managed Assets Balanced 0.65% 0.62%
Fund
Managed Assets Growth 0.65% 0.35%
Fund
- ------------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund 0.50% 0.50%
Growth Fund 0.60% 0.60%
Mid-Cap Opportunity Fund 0.60% 0.60%
Small-Cap Opportunity 0.70% 0.70%
Fund
Equity Index Fund 0.10% 0.08%
Intrinsic Value Fund 0.60% 0.60%
Growth and Value Fund 0.60% 0.59%
International Equity 0.80% 0.80%
Fund
- ------------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond Fund 0.40% 0.40%
Bond Fund 0.40% 0.40%
Short Bond Fund 0.35% 0.33%
Multi Sector Bond Fund 0.40% 0.40%
International Bond Fund 0.70% 0.52%
High Yield Bond Fund 0.70% 0.61%
- ------------------------------------------------------------------------------------
MONEY MARKET FUND:
Money Market Fund 0.30% of the first $1 billion, 0.28%
0.275% of next $1 billion,
0.25% of amount in excess of $2 billion
- ------------------------------------------------------------------------------------
</TABLE>
The following persons are responsible for the day-to-day management of each of
the Funds.
CLAUDE B. ERB, First Vice President and Director of Investment Planning, is
primarily responsible for the day-to-day management of the Asset Allocation
Funds and the International Bond Fund. Mr. Erb has served as Deputy Chief
Investment Officer and Senior Vice President of Trust Services of America and
TSA Capital Management from 1986 through 1992. Mr. Erb joined FCN in 1993.
CHRIS M. GASSEN, First Vice President, and F. RICHARD NEUMANN, First Vice
President, are primarily responsible for the day-to-day management of the
Equity Income and Intrinsic Value Funds. Mr. Gassen joined FCN in 1985 and Mr.
Neumann joined FCN in 1981.
RONALD L. DOYLE, Senior Vice President, and JOSEPH R. GATZ, Vice President,
are primarily responsible for the day-to-day management of the Mid-Cap
Opportunity and Small-Cap Opportunity Funds. Mr. Doyle joined FCN in 1982 and
Mr. Gatz joined FCN in 1986.
JEFFREY C. BEARD, First Vice President, and GARY L. KONSLER, First Vice
President, are primarily responsible for the day-to-day management of the
Growth and Value and Growth Funds. Mr. Beard joined FCN in 1982 and Mr. Konsler
joined FCN in 1973.
RICHARD P. KOST, First Vice President, and CLYDE L. CARTER, JR., Vice
President, are primarily responsible for the day-to-day portfolio management of
the International Equity Fund. Mr. Kost joined FCN in 1964 and Mr. Carter
joined FCN in 1987.
DOUGLAS S. SWANSON, First Vice President, and RICHARO F. CIPICCHIO, First Vice
President, are primarily responsible for the day-to-day management of the
Intermediate Bond and Bond Funds. Mr. Swanson joined FCN in 1983 and Mr.
Cipicchio joined FCN in 1989.
MR. CIPICCHIO And CHRISTOPHER J. NAUSEDA, Vice President, are primarily
responsible for the day-to-day portfolio management of the Short Bond Fund. Mr.
Nauseda joined FCN in 1982.
MR. CIPICCHIO AND MARK M. JACKSON, Vice President, are primarily responsible
for the day-to-day management of the Multi Sector Bond Fund. Mr. Jackson served
as portfolio manager for Alexander Hamilton Life Insurance Company, 1993-1996,
and as portfolio manager for Public Employees Retirement System of Ohio, 1988-
1993. Mr. Jackson joined FCN in 1996.
Pegasus Funds
23
<PAGE> 92
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of a
customer. Subject to such banking laws and regulations, the Investment Adviser
believes that it and its affiliated banks may perform the advisory,
administrative and custodial services for the Trust described in this
Prospectus, and may perform the shareholder services contemplated by this
Prospectus, without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Investment Adviser from continuing to perform
investment advisory or custodial services for the Trust or require them to
alter or discontinue the services they provide to shareholders.
If the Investment Adviser and its affiliated banks were prohibited from
performing investment advisory or custodial services for the Trust, it is
expected that the Board of Trustees would recommend that shareholders approve
new agreements with another entity or entities qualified to perform such
services and selected by the Board. The Trust does not anticipate that
investors would suffer any adverse financial consequences as a result of these
occurrences.
FCNIMCO and BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("Distributor" or "BISYS") jointly serve as the Trust's Co-Administrators
pursuant to an Administration Agreement with the Trust. Under the
Administration Agreement, FCNIMCO and BISYS generally assist in all aspects of
the Trust's operations, other than providing investment advice, subject to the
overall authority of the Trust's Board in accordance with Massachusetts law.
Under the terms of the Administration Agreement the Trust pays FCNIMCO, as
agent for the Co-Administrators, a monthly administration fee at the annual
rate of .15% of each Fund's average daily net assets. For the fiscal year ended
December 31, 1996, the Trust paid administration fees at the effective annual
rate of .15% of each Fund's average daily net assets.
The Asset Allocation Funds invest in shares of the Underlying Funds. The
Investment Adviser and Co-Administrators reimburse the Asset Allocation Funds
the full amount of advisory fees and administration fees incurred by each of
the Underlying Funds. However, investors in the Asset Allocation Funds do
indirectly bear that portion of the expenses of the Underlying Funds related to
other expenses such as custody, transfer agency and professional fees. These
fees are not redundant in that distinct services are being provided at each
level. FCNIMCO and BISYS have no current intention to, but may in the future,
discontinue or modify any such reimbursements at their discretion.
THE SUB-ADVISER
Federated Investment Counseling, located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222, is the sub-adviser for the High Yield Bond
Fund. Federated is a registered investment adviser and a subsidiary of
Federated Investors. All of the Class A voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
Chairman and a trustee of Federated Investors, Mr. Donahue's wife, and Mr.
Donahue's son, J. Christopher Donahue, who is President and a trustee of
Federated Investors.
Under the terms of the Sub-Advisory Agreement, Federated provides the day-to-
day management of the High Yield Bond Fund's investments. Subject to the
oversight and supervision of FCNIMCO and the Trust's Board of Trustees,
Federated is responsible for making investment decisions for the High Yield
Bond Fund, placing purchase and sale orders (which may be allocated to various
dealers based on their sale of Fund shares) and providing research, statistical
analysis and continuous supervision of the Fund's investment portfolio.
For its services, Federated is entitled to a monthly fee at the following
annual rates (as a percentage of the High Yield Bond Fund's average daily net
assets), which vary according to the level of assets: .50% on the first $30
million of average daily net assets, .40% on the next $20 million, .30% on the
next $25 million, .25% on the next $25 million and .20% of the Fund's average
daily net assets in excess of $100 million. The Sub-Adviser's fee is paid by
FCNIMCO and not by the Fund.
MARK E. DURBIANO, Senior Vice President, and CONSTANTINE KARTSONAS are
primarily responsible for the day-to-day management of the High Yield Bond
Fund. Mr. Durbiano joined Federated in 1982 and has been a Senior Vice
President of an affiliate of the Sub-Adviser since January 1996. From 1988
through 1995, Mr. Durbiano was a Vice President of an affiliate of Federated.
Mr. Kartsonas joined Federated in 1994 as an Investment Analyst and has been an
Assistant Vice President of an affiliate of the Sub-Adviser since January 1997.
Mr. Kartsonas served as an Operations Analyst at Lehman Brothers from 1990-
1993.
DISTRIBUTOR
BISYS Fund Services, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's
24 Pegasus Funds
<PAGE> 93
principal underwriter and distributor of the Funds' shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
First Data Investor Services Group, Inc., P.O. Box 5142, Westborough,
Massachusetts 01581-5120, serves as the Trust's Transfer and Dividend
Disbursing Agent. NBD Bank ("NBD"), which is a wholly-owned subsidiary of FCN,
serves as the Trust's custodian (the "Custodian"). NBD is located at 900 Tower
Drive, Troy, Michigan 48098.
SHAREHOLDER SERVICES PLAN
Under a Shareholder Services Plan, the Trust pays the Distributor for the
provision of certain services to the holders of Class A shares a fee at an
annual rate of .25% of the value of the average daily net assets of such
shares. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Funds and providing reports and other information and services related to the
maintenance of shareholder accounts. Under the Shareholder Services Plan, the
Distributor may make payments to certain banks, securities dealers, and other
industry professionals such as investment advisers, accountants and estate
planning firms (collectively, "Service Agents") in respect of these services.
The Investment Adviser and its subsidiaries and affiliates may act as Service
Agents and receive fees under the Shareholder Services Plan. The Distributor
determines the amounts to be paid to Service Agents.
EXPENSES
All expenses incurred in the operation of the Trust are borne by it, except to
the extent specifically assumed by the Trust's service providers. The expenses
borne by the Trust include: organizational costs; taxes; interest; loan
commitment fees; interest and distributions paid on securities sold short;
brokerage fees and commissions, if any; fees of Board members; SEC fees; state
Blue Sky registration fees; advisory fees; charges of custodians, transfer and
dividend disbursing agents' fees; fees pursuant to agency, sub-transfer agency
and service agreements; certain insurance premiums; industry association fees;
outside auditing and legal expenses; costs of maintaining each Fund's
existence; costs of independent pricing services; costs attributable to
investor services (including, without limitation, telephone and personnel
expenses); costs of shareholders' reports and meetings; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; and any extraordinary
expenses. Expenses attributable to a particular Fund are charged against the
assets of that Fund; other expenses of the Trust are allocated among such Funds
on the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each such Fund.
The imposition of the advisory fee, as well as other operating expenses, will
have the effect of reducing the total return to investors. From time to time,
the Investment Adviser may waive receipt of its fees and/or voluntarily assume
certain expenses of a Fund, which would have the effect of lowering that Fund's
overall expense ratio and increasing total return to investors at the time such
amounts are waived or assumed, as the case may be. The Fund will not pay the
Investment Adviser at a later time for any amounts which may be waived, nor
will the Fund reimburse the Investment Adviser for any amounts which may be
assumed.
Dividends and Distributions
THE MANAGED ASSETS BALANCED, MANAGED ASSETS GROWTH, GROWTH, MID-CAP
OPPORTUNITY, SMALL-CAP OPPORTUNITY, INTRINSIC VALUE, GROWTH AND VALUE, EQUITY
INDEX AND INTERNATIONAL EQUITY FUNDS declare and pay dividends from net
investment income on a quarterly basis. THE BOND FUNDS AND THE MANAGED ASSETS
CONSERVATIVE AND EQUITY INCOME FUNDS declare and pay dividends from net
investment income on a monthly basis.
THE MONEY MARKET FUND declares dividends from net investment income on each of
its Business Days and pays dividends on a monthly basis. Shares begin accruing
dividends on the Business Day on which the purchase order is effective. The
earnings for Saturday, Sunday and holidays are declared as dividends on the
preceding Business Day.
Each Fund will make distributions from net realized securities gains, if any,
once a year, but may make distributions on a more frequent basis to comply with
the distribution requirements of the Code, in all events in a manner consistent
with the provisions of the 1940 Act. Dividends are automatically reinvested in
additional Fund shares of the same Class from which they were paid at net asset
value.
Taxes
FEDERAL
Each Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally will relieve the Funds of liability for
federal income taxes to the extent their earnings are distributed in accordance
with the Code.
Each Fund intends to distribute as dividends substantially all of its
investment company taxable income each year. Distributions by the Funds to
employee benefit plans that qualify for tax-exempt
Pegasus Fund25s
<PAGE> 94
treatment under federal income tax laws will not be subject to current
taxation.
Performance Information
From time to time, in advertisements or in reports to shareholders the
performance of the Funds may be compared to the performance of other mutual
funds with similar investment objectives and to stock and other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of a Fund's shares may be compared to data prepared by
Lipper Analytical Services, Inc. In addition, the performance of the Funds may
be compared to Standard & Poor's 500 Index, an index of unmanaged groups of
common stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of thirty industrial companies
listed on the New York Stock Exchange. The yields of the Money Market Fund may
be compared to the Donoghue's Money Fund Average which is an average compiled
by IBC/Donoghue's Money Fund Report, a widely recognized independent
publication that monitors the performance of money market funds, or to the
average yields reported by the Bank Rate Monitor for money market deposit
accounts offered by the 50 leading banks and thrift institutions in the top
five standard metropolitan statistical areas. Performance data as reported in
national financial publications such as Money Magazine, Forbes, Barron's, The
Wall Street Journal and The New York Times, or in publications of a local or
regional nature, may also be used in comparing the performance of a Fund.
A Fund's "yield" refers to the income generated by an investment in a Fund
over a thirty-day period for the Asset Allocation and Bond Funds identified in
the advertisement. This income is then "annualized," i.e., the income generated
by the investment during the respective period is assumed to be earned and
reinvested at a constant rate and compounded semi-annually and is shown as a
percentage of the investment. In the case of the Money Market Fund, "yield"
refers to the income generated by an investment in the Fund over a seven-day
period identified in the advertisement. This income is then "annualized," i.e.,
the income generated by the investment during the respective period is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The Fund may also advertise its
"effective yield" which is calculated similarly but, when annualized, income is
assumed to be reinvested, thereby
making the "effective yield" slightly higher because of the compounding effect
of the assumed reinvestment.
The Funds calculate their total returns on an "average annual total return"
basis for various periods from the date they commenced investment operations
and for other periods as permitted under the rules of the SEC. Average annual
total return reflects the average annual percentage change in value of an
investment in the Funds over the measuring period. Total returns may also be
calculated on an "aggregate total return basis" for various periods. Aggregate
total return reflects the total percentage change in value over the measuring
period. Both methods of calculating total return also reflect changes in the
price of a Fund's shares and assume that any dividends and capital gain
distributions made by the Fund during the period are reinvested in Fund shares.
When considering average total return figures for periods longer than one year,
it is important to note that a Fund's annual total return for any one year in
the period might have been greater or less than the average for the entire
period.
The total return performance of the Equity Income, Growth, Small-Cap
Opportunity and International Bond Funds includes performance of a common trust
fund managed by FNBC which had substantially the same investment objective,
policies, restriction and methodologies as its corresponding Fund for periods
before such Fund's registration statement became effective. The common trust
funds were not registered under the 1940 Act and therefore were not subject to
certain investment restrictions imposed by the 1940 Act. If the common trust
funds had registered under the 1940 Act, performance may have been adversely
affected.
Performance of the Funds is based on historical earnings and will fluctuate
and is not intended to indicate future performance. The investment performance
of an investment in the Non-Money Market Funds will fluctuate so that a
shareholder's shares, when redeemed, may be worth more or less than their
original cost. A Fund's performance data may not provide a basis for comparison
with bank deposits and other investments which provide a fixed yield for a
stated period of time. Performance data should also be considered in light of
the risks associated with a Fund's portfolio composition, quality, maturity,
operating expenses and market conditions. Any fees charged by employee benefit
plans directly to their participants in connection with investments in Fund
shares will not be reflected in a Fund's performance calculations.
For the seven day period ended December 31, 1997, the annualized yields and
effective yields for the Class A shares of the Money Market Fund were 5.14% and
5.28%, respectively.
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General Information
The Trust was organized as a Massachusetts business trust on April 21, 1987
under a Declaration of Trust. The Trust is a series fund having thirty-one
series of shares of beneficial interest, each of which evidences an interest in
a separate investment portfolio. The Declaration of Trust permits the Board of
Trustees to issue an unlimited number of full and fractional shares and to
create an unlimited number of series of shares ("Series") representing
interests in a portfolio and an unlimited number of classes of shares within a
Series. In addition to the Funds described herein, the Trust offers the
following investment portfolios: the Treasury Money Market, Municipal Money
Market, Michigan Municipal Money Market, Cash Management, Treasury Cash
Management, U.S. Government Securities Cash Management, Treasury Prime Cash
Management, Municipal Cash Management, Municipal Bond, Intermediate Municipal
Bond and Michigan Municipal Bond Funds.
Each Fund described herein offers three classes of shares: Class A, Class B
and Class I. The Treasury Money Market, Municipal Money Market and Michigan
Money Market Funds offer two classes of shares: Class A and Class I. The Cash
Management, Treasury Cash Management, U.S. Government Securities Cash
Management, Municipal Cash Management, and Treasury Prime Cash Management Funds
offer two Classes of shares: Class S and Class I. Each share has $.10 par
value, represents an equal proportionate interest in the related Fund with
other shares of the same class outstanding, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such Fund
as are declared in the discretion of the Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees. Each Asset Allocation Fund will vote its Underlying Fund
shares in proportion to the votes of all other shareholders of each respective
Underlying Funds.
As of March 31, 1998, FCN and its affiliates held beneficially of record
approximately 1.76%, 12.20%, 7.77%, 4.22%, 42.37%, 53.59%, 30.13%, 68.34%,
60.23%, 65.32%, 54.37%, 67.39%, 64.59%, 92.74%, 34.94%, 73.35%, 82.70% and
38.47% respectively of the outstanding shares of the Managed Asset
Conservative, Managed Assets Balanced, Managed Assets Growth, Equity Income,
Growth, Mid-Cap Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and
Value, Equity Index, International Equity, Intermediate Bond, Bond, Short Bond,
Multi Sector Bond, International Bond, High Yield Bond and Money Market Funds,
respectively.
Because NBD serves the Trust as Custodian, the Board of Trustees has
established a procedure requiring three annual verifications, two of which are
unannounced, of all investments held pursuant to the Custodian Agreement, to be
conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The Trust's By-Laws
provide that special meetings of shareholders of any Series shall be called at
the written request of shareholders entitled to cast at least 10% of the votes
of a Series entitled to be cast at such meeting. The Trust also stands ready to
assist shareholder communications in connection with any meeting of
shareholders as prescribed in Section 16(c) of the 1940 Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS' SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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Supplemental Information
RATINGS
The ratings of Rating Agencies represent their opinions as to the quality of
the obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and, although ratings may be
useful in evaluating the safety of interest and principal payments, they do
not evaluate the market value risk of such obligations. Therefore, although
these ratings may be an initial criterion for selection of portfolio
investments, the Investment Adviser or Sub-Adviser also will evaluate such
obligations and the ability of their issuers to pay interest and principal.
Each Fund will rely on the Investment Adviser's or Sub-Adviser's judgment,
analysis and experience in evaluating the assets of an issuer. Obligations
rated in the lowest of the top four investment grade rating categories (Baa by
Moody's or BBB by S&P, Fitch or Duff) are considered to have less capacity to
pay interest and repay principal and have certain speculative characteristics.
SHORT-TERM INVESTMENTS
Each Fund may hold the types of short-term U.S. Government obligations
described under "Investment Objectives and Policies--Asset Allocation Funds"
above.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations include all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. U.S. Government obligations also include interests in
the foregoing securities, including collateralized mortgage obligations
guaranteed by a U.S. Government agency or instrumentality, and in Government-
backed trusts which hold obligations of foreign governments that are
guaranteed or backed by the full faith and credit of the United States.
Obligations of certain U.S. agencies and instrumentalities such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as the Export-Import Bank of the
United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality.
BANK OBLIGATIONS
Bank obligations in which the Funds may invest include certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations
of domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, the Funds may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of
principal and interest on these securities and the possible seizure or
nationalization of foreign deposits.
Obligations issued or guaranteed by foreign branches of U.S. banks (commonly
known as "Eurodollar" obligations) or U.S. branches of foreign banks (commonly
known as "Yankee dollar" obligations) may be general obligations of the parent
bank or obligations only of the issuing branch. Where the obligation is only
that of the issuing branch, the parent bank has no legal duty to pay such
obligation. Such obligations would thus be subject to risks comparable to
those which would be present if the issuing branch were a separate bank. The
Money Market Fund will not invest in a Eurodollar obligation if upon making
such investment the total Eurodollar obligations which are not general
obligations of domestic parent banks would thereby exceed 25% of its total
assets.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by each Fund will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
FDIC.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft
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drawn on it by a customer. These instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument upon maturity.
The other short-term obligations may include uninsured, direct obligations
bearing fixed, floating or variable interest rates.
CERTAIN CORPORATE OBLIGATIONS
Commercial paper in which the Funds may invest consists of short-term,
unsecured promissory notes issued by domestic or foreign entities to finance
short-term credit needs.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may invest in variable and floating rate instruments, including
without limitation, for each Fund other than the Money Market Fund, inverse
floating rate debt instruments ("inverse floaters") some of which may be
leveraged. The interest rate of an inverse floater resets in the opposite
direction from the market rate of interest to which it is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index
rate of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.
The Money Market Fund may purchase rated and unrated variable and floating
rate obligations that have stated maturities in excess of 13 months but, in any
event, permit the fund to demand payment of the principal of the instrument at
least once every 13 months on not more than thirty days' notice (unless the
instrument is a U.S. Government Obligation), provided that the demand feature
may be sold, transferred, or assigned only with the underlying instrument
involved. Such instruments may include variable rate demand notes which are
unsecured instruments that permit the indebtedness thereunder to vary in
addition to providing for periodic adjustments in the interest rate.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for the Funds to dispose
of them if the issuer defaulted on its payment obligation or during periods
that a Fund is not entitled to exercise demand rights, and the Fund could, for
these or other reasons, suffer a loss with respect to such instruments. In the
absence of an active secondary market, variable and floating rate instruments
(including inverse floaters) will be subject to a fund's limitation on illiquid
investments. See "Illiquid Securities."
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
To increase income, each Fund may agree to purchase portfolio securities from
financial institutions subject to the seller's agreement to repurchase them at
a mutually agreed-upon date and price ("repurchase agreements"). The Funds will
not enter into repurchase agreements with the Investment Adviser, the Sub-
Adviser, the Distributor, or any of their affiliates, except as may be
permitted by the SEC. Although the securities subject to repurchase agreements
may bear maturities exceeding 13 months provided the repurchase agreement
itself matures in 13 months or less, the Funds generally intend to enter into
repurchase agreements which terminate within seven days after notice by them.
The seller under a repurchase agreement will be required to maintain the value
of the securities subject to the agreement at not less than the repurchase
price, marked to market daily. Default by the seller would, however, expose a
Fund to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations.
Each Fund may also obtain funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, a fund will sell
portfolio securities to financial institutions such as banks and broker-dealers
and agree to repurchase them at a particular date and price. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price of the securities it is obligated to
repurchase. Whenever a Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account liquid assets equal to the repurchase
price marked to market daily (including accrued interest) and will subsequently
monitor the account to ensure such equivalent value is maintained.
LENDING PORTFOLIO SECURITIES
To increase income or offset expenses, each Fund may lend portfolio securities
to financial institutions such as banks and broker dealers in accordance with
its investment limitations. Agreements will require that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned plus accrued interest. Collateral for
such loans could include cash or securities of the U.S. Government, its
agencies or instrumentalities, some of which may bear maturities exceeding 13
months. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of a particular Fund exceeds one-third of the value of its
total assets. Loans of securities involve risk of delay in receiving additional
collateral or in recovering the securities loaned or possible loss of rights in
the collateral should the borrower of the securities become insolvent. Loans
will be made only to borrowers that provide the requisite collateral comprised
of liquid assets and when, in the Investment Adviser's or Sub-Adviser's
judgment, the income to be earned from the loan justifies the attendant risks.
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ZERO COUPON OBLIGATIONS AND PAY-IN-KIND SECURITIES
Each Fund may invest in zero coupon obligations which are discount debt
obligations that do not make periodic interest payments although income is
generally imputed to the holder on a current basis. The High Yield Bond Fund
may invest in pay-in-kind securities which make periodic payments in the form
of additional securities (as opposed to cash). Such obligations may have higher
price volatility than those which require the payment of interest periodically.
The Investment Adviser and Sub-Adviser will consider the liquidity needs of a
Fund when any investment in zero coupon obligations is made.
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind securities to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its qualification
as a regulated investment company and avoid liability for federal income taxes,
each Fund that invests in such securities may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements. Such Fund will not be able to
purchase additional income producing securities with cash used to make such
distributions and its current income may be reduced as a result.
WHEN ISSUED PURCHASES AND FORWARD COMMITMENTS
The Funds may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis. These transactions, which
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place at a future date (perhaps one or two months
later), permit the Fund to lock-in a price or yield on a security it owns or
intends to purchase, regardless of future changes in interest rates. When-
issued and forward commitment transactions involve the risk, however, that the
yield obtained in a transaction may be less favorable than the yield available
in the market when the securities delivery takes place. Each Fund's forward
commitments and when-issued purchases are not expected to exceed 25% of the
value of its total assets absent unusual market conditions. A Fund does not
earn income with respect to these transactions until the subject securities are
delivered to the Fund. The Funds do not intend to engage in when-issued
purchases and forward commitments for speculative purposes but only in
furtherance of their investment objectives.
FOREIGN SECURITIES
Investments by the Funds in foreign securities, with respect to certain foreign
countries, expose them to the possibility of expropriation or confiscatory
taxation, limitations on the removal of funds or other assets or diplomatic
developments that could affect investment within those countries. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. In addition, there may be less publicly available information
about a non-U.S. issuer, and non-U.S. issuers generally are not subject to
uniform accounting and financial reporting standards, practices and
requirements comparable to those applicable to U.S. issuers. Because of these
and other factors, securities of foreign companies acquired by the Funds may be
subject to greater fluctuation in price than securities of domestic companies.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. Some currency exchange costs may be incurred when a Fund
changes investments from one country to another.
Furthermore, some securities may be subject to brokerage taxes levied by
foreign governments, which have the effect of increasing the costs of such
investments and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by the Funds from sources
within foreign countries may be reduced by withholding or other taxes imposed
by such countries. Tax conventions between certain countries and the United
States, however, may reduce or eliminate such taxes. All such taxes paid by a
Fund will reduce its net income available for distribution to investors.
DEPOSITORY RECEIPTS
Each Asset Allocation and Equity Fund and the High Yield Bond Fund may invest
in securities of foreign issuers in the form of American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") and similar securities
representing securities of foreign issuers. These securities may not be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities and are denominated in U.S.
dollars. Certain such institutions issuing ADRs may not be sponsored by the
issuer. A non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its
contractual arrangements with the issuer. EDRs are receipts issued by a
European financial institution evidencing ownership of the underlying foreign
securities and are generally denominated in foreign currencies. Generally,
EDRs, in bearer form, are designed for use in the European securities markets.
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SUPRANATIONAL BANK OBLIGATIONS
The Funds may invest in obligations of supranational banks. Supranational banks
are international banking institutions designed or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the World Bank). Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that these commitments will be undertaken or met in the
future.
CONVERTIBLE SECURITIES
Each Non-Money Market Fund may invest in convertible securities. A convertible
security is a security that may be converted either at a stated price or rate
within a specified period of time into a specified number of shares of common
stock. By investing in convertible securities, a fund seeks the opportunity,
through the conversion feature, to participate in the capital appreciation of
the common stock into which the securities are convertible, while earning
higher current income than is available from the common stock. The High Yield
Bond Fund does not limit convertible securities by rating, and there is no
minimal acceptance rating for a convertible security to be purchased or held in
the Fund. Therefore, the High Yield Bond Fund invests in convertible securities
irrespective of their ratings. This could result in the High Yield Bond Fund
purchasing and holding, without limit, convertible securities rated below
investment grade by a Rating Agency.
SECURITIES OF INVESTMENT COMPANIES
Each Fund may invest in securities issued by open-end (and closed-end for Non-
Money Market Funds) investment companies which principally invest in securities
in which such Fund invests. Under the 1940 Act, a Fund's investment in such
securities, subject to certain exceptions, currently is limited to (i) 3% of
the total voting stock of any one investment company, (ii) 5% of the Fund's net
assets with respect to any one investment company and (iii) 10% of the Fund's
net assets in the aggregate. Such purchases will be made in the open market
where no commission or profit to a sponsor or dealer results from the purchase
other than the customary brokers' commissions. As a shareholder of another
investment company, each Fund would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that a Fund bears directly in connection with its own operations.
ASSET BACKED SECURITIES
Asset Backed Securities acquired by the Non-Money Market Funds consist of both
mortgage and non-mortgage backed securities. Asset backed securities held by
the funds arise through the grouping by governmental, government-related and
private organizations of loans, receivables and other assets originated by
various lenders ("Asset Backed Securities"), as described below.
The yield characteristics of Asset Backed Securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an Asset Backed
Security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an Asset Backed Security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity. In calculating the average weighted maturity of
the funds, the maturity of Asset Backed Securities will be based on estimates
of average life.
Prepayments on Asset Backed Securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayment rates are
also influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage backed securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments.
Like other fixed income securities, when interest rates rise the value of an
Asset Backed Security with prepayment features may not increase as much as that
of other fixed income securities, and, as noted above, changes in market rates
of interest may accelerate or retard prepayments and thus affect maturities.
These characteristics may result in higher level of price volatility for these
assets under certain market conditions. In addition, while the trading market
for short-term mortgages and Asset Backed Securities is ordinarily quite
liquid, in times of financial stress the trading market for these securities
sometimes becomes restricted.
Mortgage backed securities represent an ownership interest in a pool of
mortgages, the interest on which is in most cases issued and guaranteed by an
agency or instrumentality of the U.S. Government, although not necessarily by
the U.S. Government itself. Mortgage backed securities include collateralized
mortgage obligations ("CMOs"), real estate investment trusts ("REITs") and
mortgage pass-through certificates.
CMOs provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits
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("REMICs"). CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways. The
multiple class securities may be issued or guaranteed by U.S. Government
agencies or instrumentalities, including the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by trusts formed by
private originators of, or investors in, mortgage loans. Classes in CMOs which
the funds may hold are known as "regular" interests. CMOs also issue "residual"
interests, which in general are junior to and more volatile than regular
interests. The funds do not intend to purchase residual interests.
Mortgage pass-through certificates provide the holder with a pro rata interest
in the underlying mortgages. One type of such certificate in which the funds
may invest is a GNMA Certificate which is backed as to the timely payment of
principal and interest by the full faith and credit of the U.S. Government.
Another type is a FNMA Certificate, the principal and interest of which are
guaranteed only by FNMA itself, not by the full faith and credit of the U.S.
Government. Another type is a FHLMC Participation Certificate which is
guaranteed by FHLMC as to timely payment of principal and interest. However,
like a FNMA security, it is not guaranteed by the full faith and credit of the
U.S. Government. Privately issued mortgage backed securities will carry a
rating at the time of purchase of at least A by S&P or by Moody's or, if
unrated, will be in the Investment Adviser's opinion equivalent in credit
quality to such rating. Mortgage backed securities issued by private issuers,
whether or not such obligations are subject to guarantees by the private
issuer, may entail greater risk than obligations directly or indirectly
guaranteed by the U.S. Government.
The Non-Money Market Funds may also invest in non-mortgage backed securities
including interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities may also
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
Non-mortgage backed securities involve certain risks that are not presented by
mortgage backed securities. Primarily, these securities do not have the benefit
of the same security interest in the underlying collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws. Most issuers
of motor vehicle receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the motor vehicle receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
STRIPPED GOVERNMENT OBLIGATIONS
The Asset Allocation and Bond Funds and the Money Market Fund may purchase
Treasury receipts and other "stripped" securities that evidence ownership in
either the future interest payments or the future principal payments on U.S.
Government obligations. These participations, which may be issued by the U.S.
Government (or a U.S. Government agency or instrumentality) or by private
issuers such as banks and other institutions, are issued at a discount to their
"face value," and, for each fund other than the Money Market Fund, may include
stripped mortgage backed securities ("SMBS"), which are derivative multi-class
mortgage securities. Stripped securities, particularly SMBS, may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of mortgage
backed obligations. A common type of SMBS will have one class receiving all of
the interest, while the other class will receive all of the principal. However,
in some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. With respect to investments in interest only
securities, should the underlying obligations experience greater than
anticipated prepayments of principal, a fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments may be more volatile in response to
change in interest rates. The yields on a class SMBS that receives all or most
of the interest are generally higher than prevailing market yields on other
mortgage backed obligations because their cash flow patterns are more volatile.
For interest only securities, there is a greater risk that the initial
investment will not be fully recouped.
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RISKS RELATED TO LOWER-RATED SECURITIES
The Asset Allocation, Equity, International Bond and High Yield Bond Funds may
purchase lower-rated securities (commonly known as junk bonds). While any
investment carries some risk, some of the risks associated with lower-rated
securities are different from the risks associated with investment grade
securities. The risk of loss through default is greater because lower-rated
securities are usually unsecured and are often subordinate to an issuer's other
obligations. Additionally, the issuers of these securities frequently have high
debt levels and are thus more sensitive to difficult economic conditions,
individual corporate developments and rising interest rates. Consequently, the
market price of these securities, and the net asset value of those fund's
shares, may be quite volatile.
RELATIVE YOUTH OF LOWER-RATED SECURITIES' MARKET. Because the market for
lower-rated securities, at least in its present size and form, is relatively
new, there remains some uncertainty about its performance level under adverse
market and economic environments. An economic downturn or increase in interest
rates could have a negative impact on both the market for lower-rated
securities (resulting in a greater number of bond defaults) and the value of
lower-rated securities held in a fund's portfolio.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and interest
rates can affect lower-rated securities differently than other securities. For
example, the prices of lower-rated securities are more sensitive to adverse
economic changes or individual corporate developments than are the prices of
higher-rated investments. Also, during an economic downturn or a period in
which interest rates are rising significantly, highly leveraged issuers may
experience financial difficulties, which, in turn, would adversely affect their
ability to service their principal and interest payment obligations, meet
projected business goals and obtain additional financing. If the issuer of a
security defaults, a fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty would likely result in increased
volatility for the market prices of securities as well as a fund's net asset
value. In general, both the prices and yields of lower-rated securities will
fluctuate.
LIQUIDITY AND VALUATION. In certain circumstances it may be difficult to
determine a security's fair value due to a lack of reliable objective
information. Such instances occur when there is not an established secondary
market for the security or the security is thinly traded. As a result, a fund's
valuation of a security and the price it is actually able to obtain when it
sells the security could differ.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of lower-rated
securities held by a fund, especially in a thinly traded market. Illiquid or
restricted securities held by a fund may involve special registration
responsibilities, liabilities and costs, and could involve other liquidity and
valuation difficulties.
CONGRESSIONAL PROPOSALS. Current laws, as well as pending proposals, may have
a material impact on the market for lower-rated securities.
MUNICIPAL AND RELATED OBLIGATIONS
Municipal Obligations that may be acquired by the Asset Allocation and Bond
Funds may include general obligations, revenue obligations, notes and moral
obligations bonds. Each of these funds currently intends to invest no more than
25% of its total assets in Municipal Obligations. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue obligations are payable only
from the revenues derived from a particular facility, class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source such as the user of the facility being financed. Private activity bonds
(i.e. bonds issued by industrial development authorities) are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of a private activity bond is usually
directly related to the credit standing of the private user of the facility
involved.
Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Moral obligation bonds are
normally issued by a special purpose public authority. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer. Municipal Obligations also include municipal lease/purchase
agreements which are similar to installment purchase contracts for property or
equipment issued by municipalities. The funds will only invest in rated
municipal lease/purchase agreements.
There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
The Asset Allocation and Bond Funds and the Money Market Fund may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
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CATS) where the trust participations evidence ownership in either the future
interest payments or the future principal payments on the U.S. Treasury
obligations. These participations are normally issued at a discount to their
"face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
STAND-BY COMMITMENTS
The Asset Allocation and Bond Funds may acquire "stand-by commitments" with
respect to Municipal Obligations held in their portfolios. Under a stand-by
commitment, a fund obligates a broker, dealer or bank to repurchase, at the
fund's option, specified securities at a specified price and, in this respect,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment therefore is subject to the ability of the seller to make payment on
demand. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. A fund may pay for stand-by commitments if such action is
deemed necessary, thus increasing to a degree the cost of the underlying
Municipal Obligation and similarly decreasing such securities yield to
investors.
OPTIONS TRANSACTIONS
Each Non-Money Market Fund is permitted to invest up to 5% of its assets,
represented by the premium paid, in the purchase of call and put options.
Options transactions are a form of derivative security.
Each Non-Money Market Fund is permitted to purchase call and put options in
respect of specific securities (or groups or "baskets" of specific securities)
in which the fund may invest. A fund may write (i.e., sell) covered call option
contracts on securities owned by the fund not exceeding 25% of the market value
of its net assets at the time such option contracts are written. Each fund also
may purchase call options to enter into closing purchase transactions. The
funds also may write covered put option contracts to the extent of 25% of the
value of their net assets at the time such option contracts are written. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security at the exercise price at any time
during the option period. Conversely, a put option gives the purchaser of the
option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period. A covered
put option sold by a fund exposes it during the term of the option to a decline
in price of the underlying security or securities. A put option sold by a fund
is covered when, among other things, cash or liquid securities are placed in a
segregated account with the fund's custodian to fulfill the obligation
undertaken.
The Asset Allocation Funds, the International Equity Fund and the
International Bond Fund may also purchase and sell call and put options on
foreign currency for the purpose of hedging against changes in future currency
exchange rates. Call options convey the right to buy the underlying currency at
a price which is expected to be lower than the spot price of the currency at
the time the option expires. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option expires.
Each Non-Money Market Fund also may purchase cash-settled options on interest
rate swaps, interest rate swaps denominated in foreign currency and equity
index swaps. See "Interest Rate and Equity Index Swaps" below. A cash-settled
option on a swap gives the purchaser the right, but not the obligation, in
return for the premium paid, to receive an amount of cash equal to the value of
the underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial institutions,
including securities brokerage firms.
Each Non-Money Market Fund may purchase and sell call and put options on stock
indexes listed on U.S. securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market values of the
stocks included in the index. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
stock, whether a fund will realize a gain or loss from the purchase or writing
of options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indices, in an industry
or market segment, rather than movements in the price of a particular stock.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Non-Money Market Fund may enter into futures contracts and options on
future contracts. The Equity Funds may enter into stock index futures contracts
and all of the Non-Money Market Funds may enter into interest rate futures
contracts and currency futures contracts, and options with respect thereto. See
"Options Transactions" above. These transactions will be entered into as a
substitute for comparable market positions in the underlying securities or for
hedging purposes. A fund may not engage in such transactions if the sum of the
amount of initial margin deposits and premiums paid for unexpired commodity
options, other than for bona fide hedging transactions, would exceed 5% of the
liquidation value of the fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money
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amount may be excluded in calculating the 5%. To the extent a fund engages in
the use of futures and options on futures for other than bona fide hedging
purposes, the fund may be subject to additional risk. Although none of these
funds would be a commodity pool, each would be subject to rules of the CFTC
limiting the extent to which it could engage in these transactions. Futures and
options transactions are a form of derivative security. In addition, in such
situations, if the fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may, but
will not necessarily, be at increased prices which reflect the rising market. A
fund may have to sell securities at a time when it may be disadvantageous to do
so.
FOREIGN CURRENCY TRANSACTIONS
The Asset Allocation, International Equity and International Bond Funds may
engage in currency exchange transactions either on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, or through entering into
forward contracts to purchase or sell currencies. A forward currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which must be more than two days from the date of the contract, at
a price set at the time of the contract. These contracts are entered into in
the interbank market conducted directly between currency traders (typically
commercial banks or other financial institutions) and their customers. They may
be used to reduce the level of volatility caused by changes in foreign currency
exchange rates or when such transactions are economically appropriate for the
reduction of risks in the ongoing management of the funds. Although forward
currency exchange contracts may be used to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of such
currency increase. The funds also may combine forward currency exchange
contracts with investments in securities denominated in other currencies.
Each of these funds also may maintain short positions in forward currency
exchange transactions, which would involve it agreeing to exchange an amount of
a currency it did not currently own for another currency at a future date in
anticipation of a decline in the value of the currency sold relative to the
currency the fund contracted to receive in the exchange.
OPTIONS ON FOREIGN CURRENCY
The Asset Allocation Funds, the International Equity Fund and the International
Bond Fund may purchase and sell call and put options on foreign currency for
the purpose of hedging against changes in future currency exchange rates. Call
options convey the right to buy the underlying currency at a price which is
expected to be lower than the spot price of the currency at the time the option
expires. Put options convey the right to sell the underlying currency at a
price which is anticipated to be higher than the spot price of the currency at
the time the option expires. The funds may use foreign currency options for the
same purposes as forward currency exchange and futures transactions, as
described herein. See also "Options" and "Currency Futures and Options on
Currency Futures" below.
RISKS ASSOCIATED WITH FUTURES, OPTIONS AND FOREIGN CURRENCY TRANSACTIONS AND
OPTIONS
To the extent a Non-Money Market Fund is engaging in a futures or option
transaction as a hedging device, due to the risk of an imperfect correlation
between securities in its portfolio that are the subject of a hedging
transaction and the futures contract or option used as a hedging device, it is
possible that the hedge will not be fully effective. In futures contracts and
options based on indices, the risk of imperfect correlation increases as the
composition of the fund varies from the composition of the index. In an effort
to compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of contracts, the fund may
buy or sell futures contracts and options in a greater or lesser dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect the
fund's net investment results if market movements are not as anticipated when
the hedge is established.
Successful use of futures and options by a fund also is subject to the
Investment Adviser's or Sub-Adviser's ability to predict correctly movements in
the direction of securities prices, interest rates, currency exchange rates and
other economic factors. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may, but will not necessarily, be
at increased prices which reflect the rising market. The fund may have to sell
securities at a time when it may be disadvantageous to do so.
Although a fund intends to enter into futures contracts and options
transactions only if there is an active market for such contracts, no assurance
can be given that a liquid market will exist for any particular contract at any
particular time. See "Illiquid Securities" above. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit or trading may be suspended for specified periods during the trading day.
Futures contracts prices could move to the limit for several consecutive
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with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the fund to substantial losses. If it is
not possible, or the fund determines not, to close a futures position in
anticipation of adverse price movements, the fund will be required to make
daily cash payments of variation margin. In such circumstances, an increase in
the value of the portion of the portfolio being hedged, if any, may offset
partially or completely losses on the futures contract.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or
political developments in the United States or abroad. The foreign currency
market offers less protection against defaults in the forward trading of
currencies than is available when trading in currencies occurs on an exchange.
Since a forward currency contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive the fund of unrealized
profits or force the fund to cover its commitments for purchase or resale, if
any, at the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the CFTC and may be subject to greater risks than
trading on domestic exchanges. For example, some foreign exchanges are
principal markets so that no common clearing facility exists and a trader may
look only to the broker for performance on the contract. In addition, unless
the fund hedges against fluctuations in the exchange rate between the U.S.
dollar and the currencies in which trading is done on foreign exchanges, any
profits that the fund might realize in trading could be eliminated by adverse
changes in the exchange rate, or the fund could incur losses as a result of
those changes. Transactions on foreign exchanges may include both commodities
which are traded on domestic exchanges and those which are not.
INTEREST RATE AND EQUITY INDEX SWAPS
Each Non-Money Market Fund may enter into interest rate swaps and equity index
swaps, to the extent described under "Description of the Funds--Management
Policies," in pursuit of their respective investment objectives. Interest rate
swaps involve the exchange by a fund with another party of their respective
commitments to pay or receive interest (for example, an exchange of floating-
rate payments for fixed-rate payments). Equity index swaps involve the exchange
by a fund with another party of cash flows based upon the performance of an
index or a portion of an index which usually includes dividends. In each case,
the exchange commitments can involve payments to be made in the same currency
or in different currencies. Swaps are a form of derivative security.
The funds usually will enter into swaps on a net basis. In so doing, the two
payment streams are netted out, with the fund receiving or paying, as the case
may be, only the net amount of the two payments. If a fund enters into a swap,
it would maintain a segregated account in the full amount accrued on a daily
basis of the fund's obligations with respect to the swap. The funds will enter
into swap transactions with counterparties only if: (1) for transactions with
maturities under one year, such counterparty has outstanding short-term paper
rated at least A-1 by S&P, Prime-1 by Moody's, F-1 by Fitch or Duff-1 by Duff,
or (2) for transactions with maturities greater than one year, the counterparty
has outstanding debt securities rated at least Aa by Moody's or AA by S&P,
Fitch or Duff.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. There is no limit on the amount of swap transactions
that may be entered into by a Non-Money Market Fund. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net
amount of payments that a fund is contractually obligated to make. If the other
party to a swap defaults, the relevant fund's risk of loss consists of the net
amount of payments that such fund contractually is entitled to receive.
RESTRICTED AND ILLIQUID SECURITIES
The Non-Money Market Funds will not invest more than 15% (10% for the Money
Market Fund) of the value of their respective total net assets in securities
that are illiquid. Securities having legal or contractual restrictions on
resale and with no readily available market, and instruments (including
repurchase agreements, variable and floating rate instruments and time
deposits) that do not provide for payment to the Funds within seven days after
notice are subject to this limitation. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
deemed to be illiquid for purposes of this limitation.
The Non-Money Market Funds may purchase securities which are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), but which can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as it
is determined by the Board of Trustees or the
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Investment Adviser, acting under guidelines approved and monitored by the
Board, that an adequate trading market exists for that security. This
investment practice could have the effect of increasing the level of
illiquidity in a fund during any period that qualified institutional buyers
become uninterested in purchasing these restricted securities. The ability to
sell to qualified institutional buyers under Rule 144A is a recent development,
and it is not possible to predict how this market will develop. The Board of
Trustees will carefully monitor any investments by a fund in these securities.
PORTFOLIO TURNOVER
Generally, the Non-Money Market Funds will purchase securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser or Sub-Adviser believes that such a
disposition is consistent with or in furtherance of the fund's investment
objective. Fund investments may be sold for a variety of reasons, such as more
favorable investment opportunities or other circumstances. As a result, such
funds are likely to have correspondingly greater brokerage commissions and
other transaction costs which are borne indirectly by shareholders. Portfolio
turnover may also result in the realization of substantial net capital gains.
Asset reallocation decisions for the Asset Allocation Funds typically will
occur on a monthly basis. However, if market conditions warrant, the Investment
Adviser may make more frequent reallocation decisions which will result in a
higher portfolio turnover rate. The Asset Allocation Funds will purchase or
sell shares of the Underlying Funds: (a) to accommodate purchases and
redemptions of each Asset Allocation Fund's shares; (b) in response to market
or other economic conditions; and (c) to maintain or modify the allocation of
each Asset Allocation Fund's assets among the Underlying Funds within its
target asset allocation ranges. See "Taxes--Federal" in the Prospectus and
"Additional Information Concerning Taxes" in the Statement of Additional
Information.
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Debt Ratings
CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa--judged to
be the best quality, carry the smallest degree of investment risk and are
generally referred to as "gilt edged"; Aa--judged to be of high quality by all
standards; A--deemed to have many favorable investment attributes and
considered as upper medium grade obligations; Baa--considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured; Ba, B,
Caa, Ca, C--protection of interest and principal payments is questionable (Ba
indicates some speculative elements, B represents bonds that generally lack
characteristics of the desirable investment, Caa represents bonds which are in
poor standing, Ca represents a high degree of speculation and C represents the
lowest rated class of bonds); Caa, Ca and C bonds may be in default. Moody's
applies numerical modifiers 1, 2 and 3 in each generic classification from Aa
to B in its bond rating systems. 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 at the lower end of its generic rating category.
An S&P corporate debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. Debt rated "AAA" has the
highest rating assigned by S&P. Capacity to pay interest and repay principal is
considered to be extremely strong. Debt rated "AA" is considered to have a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated "A" is considered to have
a strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt of a higher rated category. Debt rated "BBB" is
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and to repay principal for debt in this category than
for higher rated categories. Debt rated "BB," "B," "CCC," "CC" or "C" is
regarded, on balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the
obligations. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. Debt rated "CI" is reserved for
income bonds on which no interest is being paid. Debt rated "D" is in default,
and payment of interest and/or repayment of principal is in arrears. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized. The 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.
Excerpts from Fitch's description of its corporate bond ratings: "AAA"--
considered to be investment grade and have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events; "AA"--judged to be investment grade and have a
very low expectation of credit risk. The obligor has a very strong capacity for
timely payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events; "A"--considered investment grade and have a
low expectation of credit risk. The obligor has a strong capacity for timely
payment of financial commitments. This capacity may, nevertheless be more
vulnerable to changes in circumstances or in economic conditions than is the
case for higher ratings; "BBB" is considered to be investment grade and
indicates that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity; "BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D"--
regarded as speculative investments. The ratings "BB" to "C" represent the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" designates the highest potential for recovery of amounts
outstanding on any securities involved. The ratings from "AA" to "C" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The following summarizes the ratings used by Duff for corporate debt. Debt
rated "AAA" is of the highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt. Debt rated "AA"
is of high credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Debt rated
"A" has protection factors which are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Debt rated
"BBB" possess below average protection factors but such protection factors are
still considered sufficient for prudent investment. Considerable variability in
risk is present during economic cycles. Debt rated below "BBB" is considered to
be below investment grade.
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Although below investment grade, debt rated "BB" is deemed likely to meet
obligations when due. Debt rated "B" possesses the risk that obligations will
not be met when due. Debt rated "CCC" is well below investment grade and has
considerable uncertainty as to timely payment of principal, interest or
preferred dividends. Debt rated "DD" represents defaulted obligations. To
provide more detailed indications of credit quality, the "AA," "A," "BBB," "BB"
and "B" ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
COMMERCIAL PAPER RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. The
designation "A-1" indicates the degree of safety regarding timely payment is
considered to be strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation. The
designation "A-2" indicates the capacity for timely payment is satisfactory,
however, the relative degree of safety is not as high as for issues designated
"A-1." The designation "B" indicates that the issue has only a speculative
capacity for timely payment. The designation "C" indicates that the issue has a
doubtful capacity for payment. Commercial paper rated "D" indicates that the
issue is in payment default. Moody's commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of 9 months. The rating "Prime-1" is the highest
commercial paper rating assigned by Moody's. Issuers rated "Prime-1" (or
related supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated "Prime-2" (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. Issuers rated "Prime 3" are
considered to have an acceptable capacity for repayment. Moody's uses the
designation "Not Prime" for issuers that do not fall within any of the Prime
rating categories.
Fitch short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years. The designation "F-1"
indicates that the securities possess the strongest capacity for timely payment
of financial commitments. Those securities determined to possess exceptionally
strong
credit quality are denoted with a plus (+) sign designation. Securities rated
"F-2" are considered to possess satisfactory capacity for timely payment of
financial commitments. Securities rated "F-3" possess adequate capacity for
timely payment of financial commitments; however, near term adverse changes
could result in a reduction to non-investment grade. Securities rated "F-5"
possess weak credit quality. Securities rated "D" are in actual or imminent
payment default.
The three highest rating categories of Duff for short-term debt are "D-1," "D-
2" and "D-3." Duff employs three designations, "D-1+," "D-1" and "D-1-," within
the highest rating category. "D-1+" indicates highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations. "D-1" indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are minor. "D-1-" indicates
high certainty of timely payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are very small. "D-2"
indicates 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" indicates satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected. D&P may also rate
short-term municipal debt as "D-4" or "D-5." "D-4" indicates speculative
investment characteristics. "D-5" indicates that the issuer has failed to meet
scheduled principal and/or interest payments. Securities rated "F-3" possess
fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near term adverse changes could cause these securities to be rated
below investment grade. Securities rated "F-5" possess weak credit quality.
Securities rated "D" are in actual or imminent payment default.
UNRATED SECURITIES
Unrated securities are securities which have not been rated by a nationally
recognized statistical rating organization.
B-
2 Pegasus Funds
<PAGE> 109
Prospectus APRIL 30, 1998 PEGASUS FUNDS
C/O NBD BANK
900 TOWER DRIVE
TROY, MICHIGAN
48098
24 HOUR YIELD AND
PERFORMANCE
INFORMATION
PURCHASE AND
REDEMPTION ORDERS:
(800) 688-3350
Pegasus Funds (the "Trust") is offering in this Prospectus Class I shares in
the following six investment portfolios (the "Funds"), divided into four
general fund types: Asset Allocation; Equity; Bond; and Money Market. The
Asset Allocation, Equity and Bond Funds are sometimes collectively referred to
as "Non-Money Market Funds."
ASSET ALLOCATION FUNDS BOND FUND
The Managed Assets Conservative Fund The Bond Fund
The Managed Assets Balanced Fund MONEY MARKET FUND
EQUITY FUNDS The Money Market Fund
The Mid-Cap Opportunity Fund
The Growth and Value Fund
By this Prospectus, Class I shares of each Fund are being offered without a
sales charge to certain qualified employee benefit plans.
This Prospectus sets forth concisely information that a prospective investor
should consider before investing. Investors should read this Prospectus and
retain it for future reference. Additional information about the Trust,
contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request
and without charge by writing to the Trust at the above address. The Statement
of Additional Information for the Money Market Fund and the Statement of
Additional Information for the Non-Money Market Funds are each dated April 30,
1998 and both are incorporated by reference into this Prospectus in their
entirety.
Investors should recognize that the share price, yield and investment return
of each Fund fluctuate and are not guaranteed.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE> 110
Table of Contents
3 Highlights
4 Fund Expenses
5 Financial Highlights
8 Description of the Funds
16 How to Buy Shares
17 How to Exchange Shares
17 How to Redeem Shares
17 Management of the Trust
20 Dividends and Distributions
20 Taxes
20 Performance Information
22 General Information
A-1 Supplemental Information
B-1 Debt Ratings
<PAGE> 111
Highlights
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each Fund's investment objective is set forth on page 3 of this Prospectus.
Each Asset Allocation Fund will invest substantially all of its assets in Class
I shares in each of the Funds described in this Prospectus and in Class I
shares of the following funds of the Trust which are also described in this
Prospectus and whose shares are offered by a separate Prospectus ("Additional
Pegasus Funds"): Equity Income Fund, Growth Fund, Small-Cap Opportunity Fund,
Intrinsic Value Fund, Equity Index Fund, International Equity Fund,
Intermediate Bond Fund, Short Bond Fund, Multi Sector Bond Fund, High Yield
Bond Fund and International Bond Fund. The Funds and the Additional Pegasus
Funds in which the Asset Allocation Funds invest are collectively referred to
as the "Underlying Funds."
INVESTMENT ADVISER
First Chicago NBD Investment Management Company ("FCNIMCO") serves as each
Fund's investment adviser ("Investment Adviser"). Each Fund has agreed to pay
the Investment Adviser an annual fee as set forth under "Management of the
Funds." Federated Investment Counseling ("Federated" or the "Sub- Adviser")
serves as sub-adviser to the High Yield Bond Fund. The Sub-Adviser's fee is
paid by FCNIMCO and not by the High Yield Bond Fund.
HOW TO BUY SHARES
Class I shares are sold at net asset value with no sales charge to certain
qualified benefit plans, among others. Investors purchasing Class I shares
through their Eligible Retirement Plans (as defined under "How to Buy Shares")
should contact such plans directly for appropriate instructions, as well as for
information about conditions pertaining to the plans and any related fees.
Class I shares may be purchased for an Eligible Retirement Plan only by a
custodian, trustee, investment manager or other entity authorized to act on
behalf of such plan.
See "How to Buy Shares" on page 16 of this Prospectus.
HOW TO REDEEM SHARES
Generally, investors should contact their plan administrator for redemption
instructions.
See "How to Redeem Shares" on page 17 of this Prospectus.
Pegasus Funds
ASSET ALLOCATION FUNDS
These Funds offer investors a convenient means of investing in shares of the
Underlying Funds in order to achieve a target asset allocation in the Equity,
Debt and Cash Equivalent market sectors:
The MANAGED ASSETS CONSERVATIVE FUND seeks to provide long-term total return;
capital appreciation is a secondary consideration.
The MANAGED ASSETS BALANCED FUND seeks to achieve long-term total return
through a combination of capital appreciation and current income.
EQUITY FUNDS
These Funds will invest principally in common stocks, preferred stocks and
convertible securities, including those in the form of depository receipts, as
well as warrants to purchase such securities (collectively, "Equity
Securities"):
The MID-CAP OPPORTUNITY FUND seeks to achieve long-term capital appreciation.
In seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of companies with intermediate market capitalizations.
The GROWTH AND VALUE FUND seeks to achieve long-term capital growth, with
income a secondary consideration. In seeking to achieve its objective, this
Fund will invest primarily in Equity Securities of larger companies that are
attractively priced relative to their growth potential.
BOND FUND
This Fund will invest principally in a broad range of debt securities ("Debt
Securities"). Debt Securities in which the Bond Fund normally invests include:
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (ii) corporate, bank and commercial obligations; (iii)
securities issued or guaranteed by foreign governments, their agencies or
instrumentalities; (iv) securities issued by supranational banks; (v) mortgage
backed securities; (vi) securities representing interests in pools of assets;
and (vii) variable-rate bonds, zero coupon bonds, debentures, and various types
of demand instruments. Obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities may include mortgage backed securities, as
well as "stripped securities" (both interest-only and principal-only) and
custodial receipts for Treasury securities:
The BOND FUND seeks to maximize total rate of return by investing
predominantly in intermediate and long-term Debt Securities. During normal
market conditions, the Fund's average weighted portfolio maturity is expected
to be between 6 and 12 years.
MONEY MARKET FUND
This Fund seeks to maintain a net asset value of $1.00 per share for purchases
and redemptions. To do so, the Fund uses the amortized cost method of valuing
its securities pursuant to Rule 2a-7 under the 1940 Act:
The MONEY MARKET FUND seeks to provide a high level of current income
consistent with the preservation of capital and liquidity. This Fund will
invest in high quality "money market" instruments described on page 10.
Pegasus Funds
3
<PAGE> 112
Fund Expenses
The purpose of the following tables is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear, the payment of
which will reduce an investor's return on an annual basis.
Expense Table
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ALL FUNDS
- -------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offer-
ing price) None
- -------------------------------------------------------------------------------
Sales Charge on Reinvested Dividends None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge Imposed On Redemptions (as a percent-
age of the amount subject to charge) None
- -------------------------------------------------------------------------------
Redemption Fees None
- -------------------------------------------------------------------------------
Exchange Fees None
- -------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
MANAGEMENT FEES TOTAL OPERATING
AFTER WAIVERS 12B-1 FEES OTHER EXPENSES(1) EXPENSES(1)(4)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund(2)(3) 0.52% None 0.48% 1.00%
Managed Assets Balanced Fund(2)(3) 0.52% None 0.48% 1.00%
- ----------------------------------------------------------------------------------------------------
EQUITY FUNDS:
Mid-Cap Opportunity Fund 0.60% None 0.29% 0.89%
Growth and Value Fund 0.60% None 0.26% 0.86%
- ----------------------------------------------------------------------------------------------------
BOND FUND:
Bond Fund 0.40% None 0.23% 0.63%
- ----------------------------------------------------------------------------------------------------
MONEY MARKET FUND:
Money Market Fund(3) 0.27% None 0.23% 0.50%
</TABLE>
- --------------------------------------------------------------------------------
(1) Other Expenses and Total Operating Expenses for each Fund reflect current
expenses.
(2) Expenses for the Asset Allocation Funds include expenses borne indirectly
by them in connection with their investments in the Underlying Funds. There
is no layering of fees--see "Management of the Funds--Investment Adviser
and Co-Administrators" on page 17 for additional information regarding the
fees related to the "fund of funds" structure of the Asset Allocation
Funds.
(3) Absent fee waivers and/or expense reimbursements, Total Operating Expenses
applicable to Class I shares of Managed Assets Conservative, Managed Assets
Balanced and Money Market Funds would have been 1.13%, 1.13% and 0.52%,
respectively.
(4) The Investment Adviser has voluntarily agreed to limit the total operating
expenses of the Funds as stated below:
<TABLE>
<S> <C> <C> <C>
Managed Assets Conservative Fund 1.00%
Managed Assets Balanced Fund 1.00%
Mid-Cap Opportunity Fund 1.02%
Growth and Value Fund 0.87%
Bond Fund 0.74%
Money Market Fund 0.50%
</TABLE>
Waivers and/or reimbursements may be discontinued or modified at any time
without notice.
Pegasus Funds
4
<PAGE> 113
EXAMPLES
Based upon the assumptions in the foregoing chart, an investor would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed Assets Conservative Fund $10 $32 $55 $123
Managed Assets Balanced Fund $10 $32 $55 $123
Mid-Cap Opportunity Fund $ 9 $29 $50 $110
Growth and Value Fund $ 9 $28 $48 $106
Bond Fund $ 6 $20 $35 $ 79
Money Market Fund $ 5 $16 $28 $ 63
- --------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLES SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE EACH EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S
ACTUAL PERFORMANCE MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%. THE
EXAMPLES DO NOT REFLECT ANY FEES RELATED TO AN INVESTOR'S EMPLOYEE BENEFIT
PLAN.
Financial Highlights
The tables below provide supplementary information to the Funds' financial
statements which are incorporated by reference in their Statements of
Additional Information and set forth certain information concerning the
historic investment results of Fund shares. They present a per share analysis
of how each Fund's net asset value has changed during the periods presented.
The tables, with respect to the Funds for the fiscal years ended December 31,
1996 and 1997, and with respect to the Managed Assets Balanced, Mid-Cap
Opportunity, Growth and Value, Bond and Money Market Funds for the periods
prior to December 31, 1995, have been derived from such Funds' financial
statements which have been audited by Arthur Andersen LLP, the Trust's
independent auditors, whose report thereon is incorporated by reference in the
Statements of Additional Information along with the financial statements. The
table, with respect to the Managed Assets Conservative Fund for the fiscal
period ended December 31, 1995, has been derived from the financial statements
which have been audited by Ernst & Young LLP, such Fund's prior independent
auditors, whose report dated February 23, 1996 expressed an unqualified opinion
on such financial statements. The financial data included in these tables
should be read in conjunction with the financial statements and related notes
incorporated by reference in the Statement of Additional Information. Further
information about the performance of the Funds is available in annual reports
to shareholders. The Statements of Additional Information and annual reports to
shareholders may be obtained from the Trust free of charge by calling (800)
688-3350.
Pegasus Funds
5
<PAGE> 114
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET
REALIZED
AND
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS
VALUE NET GAINS FROM NET DISTRIBUTIONS IN EXCESS TAX
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM REALIZED OF REALIZED RETURN OF TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS CAPITAL DISTRIBUTIONS
--------- ---------- ----------- ------------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED ASSETS CONSERVATIVE FUND
CLASS I SHARES
1997 $ 15.38 0.59 1.37 (0.60) (1.74) -- -- (2.34)
1996 $ 14.57 0.60 0.89 (0.59) (0.09) -- -- (0.68)
1995(1) $ 12.42 0.57 2.18 (0.57) (0.03) -- -- (0.60)
- ------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED FUND
CLASS I SHARES
1997 $ 11.59 0.34 1.47 (0.34) (1.15) -- -- (1.49)
1996 $ 11.24 0.39 1.02 (0.38) (0.68) -- -- (1.06)
1995 $ 9.53 0.35 1.83 (0.35) (0.12) -- -- (0.47)
1994 $ 10.00 0.28 (0.48) (0.27) -- -- -- (0.27)
- ------------------------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY FUND
CLASS I SHARES
1997 $ 17.61 0.01 4.88 (0.01) (1.56) -- -- (1.57)
1996 $ 15.15 0.04 3.74 (0.04) (1.28) -- -- (1.32)
1995 $ 13.34 0.06 2.57 (0.06) (0.76) -- -- (0.82)
1994 $ 14.49 0.07 (0.54) (0.07) (0.49) (0.02) (0.10) (0.68)
1993 $ 12.37 0.10 2.87 (0.10) (0.75) -- -- (0.85)
1992 $ 10.40 0.11 2.43 (0.11) (0.46) -- -- (0.57)
1991(2) $ 10.00 0.09 0.43 (0.09) (0.03) -- -- (0.12)
- ------------------------------------------------------------------------------------------------------------------
GROWTH AND VALUE FUND
CLASS I SHARES
1997 $ 14.12 0.14 3.79 (0.15) (1.51) -- -- (1.66)
1996 $ 13.16 0.18 2.36 (0.17) (1.41) -- -- (1.58)
1995 $ 10.67 0.21 2.76 (0.22) (0.26) -- -- (0.48)
1994 $ 11.16 0.23 (0.17) (0.21) (0.30) (0.01) (0.03) (0.55)
1993 $ 10.51 0.20 1.24 (0.20) (0.59) -- -- (0.79)
1992 $ 9.86 0.22 0.75 (0.22) (0.10) -- -- (0.32)
1991(2) $ 10.00 0.14 (0.14) (0.14) -- -- -- (0.14)
- ------------------------------------------------------------------------------------------------------------------
BOND FUND
CLASS I SHARES
1997 $ 10.27 0.66 0.32 (0.66) -- -- -- (0.66)
1996 $ 10.45 0.68 (0.18) (0.68) -- -- -- (0.68)
1995 $ 9.01 0.63 1.45 (0.64) -- -- -- (0.64)
1994 $ 10.32 0.61 (1.31) (0.59) (0.02) -- -- (0.61)
1993 $ 10.25 0.76 0.38 (0.76) (0.31) -- -- (1.07)
1992 $ 10.55 0.83 (0.17) (0.83) (0.13) -- -- (0.96)
1991(2) $ 10.00 0.51 0.57 (0.51) (0.02) -- -- (0.53)
- ------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
CLASS I SHARES
1997 $1.0000 0.0516 -- (0.0516) -- -- -- (0.0516)
1996(4) $1.0000 0.0373 -- (0.0373) -- -- -- (0.0373)
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period March 3, 1995 (initial offering date of Class I Shares)
through December 31, 1995.
(2) For the period June 1, 1991 (commencement of operations) to December 31,
1991.
(3) For the period March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
(4) The Portfolio Turnover Percentage was adjusted for Redemptions In-Kind for
shareholders that took place during 1997 for the Mid-Cap Opportunity Fund.
The Fund's securities sales were appropriately reduced by the fair market
value of the Redemptions In-Kind. The Redemptions In-Kind for the Mid-Cap
Opportunity Fund were approximately $4 million.
+ Annualized.
++ Not annualized.
- --------------------------------------------------------------------------------
Pegasus Funds
6
<PAGE> 115
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
RATIO OF RATIO OF EXPENSES TO INCOME TO
NET EXPENSES NET AVERAGE NET AVERAGE NET
ASSET NET ASSETS TO INVESTMENT ASSETS ASSETS
VALUE END OF AVERAGE INCOME TO (EXCLUDING FEE (EXCLUDING FEE PORTFOLIO AVERAGE
END OF TOTAL PERIOD NET AVERAGE WAIVERS AND WAIVERS AND TURNOVER COMMISSION
PERIOD RETURN(A) (000) ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE RATE
------ --------- ---------- -------- ---------- --------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15.00 13.34% $ 10,309 0.99% 3.99% 1.08% -- 102.37% $0.0524
$ 15.38 10.43% $ 1,501 0.93% 3.89% 1.19% 3.63% 63.41% $0.0526
$ 14.57 22.55%++ $ 1,294 0.77%+ 5.12%+ 1.22%+ 4.66%+ 8.23%++ --
- --------------------------------------------------------------------------------------------------------
$ 11.91 15.79% $ 102,042 0.99% 2.96% 1.07% -- 116.87% $0.0527
$ 11.59 13.04% $ 101,596 0.94% 3.28% 1.01% 3.21% 50.50% $0.0711
$ 11.24 23.18% $ 83,638 0.91% 3.40% 1.09% 3.22% 31.76% --
$ 9.53 (1.95)% $ 45,999 0.85% 3.41% 1.56% 2.70% 37.49% --
- --------------------------------------------------------------------------------------------------------
$ 20.93 27.91% $ 803,670 0.84% 0.05% -- -- 37.54%(4) $0.0464
$ 17.61 25.03% $ 677,608 0.81% 0.24% -- -- 34.87% $0.0354
$ 15.15 19.88% $ 579,094 0.89% 0.37% -- -- 53.55% --
$ 13.34 (3.27)% $ 460,673 0.90% 0.53% -- -- 37.51% --
$ 14.49 24.01% $ 311,688 0.86% 0.71% -- -- 33.99% --
$ 12.37 24.56% $ 161,312 0.84% 1.09% -- -- 34.44% --
$ 10.40 8.92%+ $ 108,046 0.84%+ 1.56%+ -- -- 2.92% --
- --------------------------------------------------------------------------------------------------------
$ 16.39 28.15% $ 895,567 0.84% 0.92% 0.85% -- 30.98% $0.0473
$ 14.12 19.35% $ 733,632 0.80% 1.28% -- -- 43.21% $0.0448
$ 13.16 28.04% $ 687,295 0.84% 1.73% -- -- 26.80% --
$ 10.67 0.55% $ 529,097 0.84% 2.07% -- -- 28.04% --
$ 11.16 13.79% $ 400,168 0.83% 1.84% -- -- 42.31% --
$ 10.51 9.87% $ 283,007 0.83% 2.20% -- -- 16.28% --
$ 9.86 0.17%+ $ 238,086 0.85%+ 2.65%+ -- -- 0.94% --
- --------------------------------------------------------------------------------------------------------
$ 10.59 9.97% $1,101,894 0.61% 6.41% -- -- 17.60% --
$ 10.27 5.08% $ 757,627 0.66% 6.71% -- -- 24.92% --
$ 10.45 23.75% $ 485,851 0.74% 6.39% -- -- 41.91% --
$ 9.01 (6.99)% $ 395,116 0.74% 6.36% -- -- 75.67% --
$ 10.32 11.39% $ 455,786 0.73% 7.20% -- -- 111.52% --
$ 10.25 6.56% $ 312,366 0.73% 8.08% -- -- 90.45% --
$ 10.55 18.45%+ $ 237,673 0.75%+ 8.44%+ -- -- 8.19% --
- --------------------------------------------------------------------------------------------------------
$1.0000 5.29% $1,217,873 0.49% 5.15% -- 0.49% -- --
$1.0000 5.06%+ $1,715,313 0.51%+ 4.99%+ -- -- -- --
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
7
<PAGE> 116
Description of the Funds
GENERAL
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
currently consists of thirty-one investment portfolios, each of which consists
of a separate pool of assets with separate investment objectives and policies.
This Prospectus, however, describes only six portfolios. Under the 1940 Act,
each Fund is classified as a diversified investment portfolio (each a
"Diversified Fund"). With respect to the Additional Pegasus Funds, the Equity
Income, Growth, Small-Cap Opportunity, Intrinsic Value, Equity Index,
Intermediate Bond, Short Bond, High Yield Bond and Multi Sector Bond Funds are
Diversified Funds and the International Equity and International Bond Funds are
classified as non-diversified investment portfolios (each a "Non-Diversified
Fund").
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of a Fund may not be changed without approval of the
holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities. See "General Information." Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without a
vote of shareholders. There can be no assurance that a Fund will achieve its
objective. The following sections should be read in conjunction with "Risk
Factors" below and the description of investments in which the Funds may
invest, as set forth in "Supplemental Information." A description of ratings
("Debt Ratings") is contained below and in the Statements of Additional
Information.
ASSET ALLOCATION FUNDS
In order to achieve its investment objective, each Asset Allocation Fund will
typically invest its assets in the Underlying Funds within a predetermined
target asset allocation range, as set forth below. The target asset allocation
reflects the extent to which each Asset Allocation Fund will invest in a
particular market segment, and the varying degrees of potential investment risk
and reward represented by the fund's investments in those market segments and
corresponding Underlying Funds. The Investment Adviser may alter the target
asset allocation and target asset allocation ranges when it deems appropriate.
The assets of each fund will be allocated among the Underlying Funds in
accordance with its investment objective, the target asset allocation, the
Investment Adviser's outlook for the economy, the financial markets and the
relative market valuations of the Underlying Funds.
In order to meet liquidity needs or for temporary defensive purposes, each
Asset Allocation Fund may invest its assets in shares of the Money Market Fund
and directly in short-term obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Obligations"), "high quality" money market
instruments such as certificates of deposit, bankers' acceptances, time
deposits, repurchase agreements, reverse repurchase agreements, short-term
obligations issued by the state and local governmental issuers which carry
yields that are competitive with those of other types of high quality money
market instruments, commercial paper, notes, other short-term obligations and
variable rate master demand notes of domestic and foreign issuers ("Cash
Equivalent Securities").
8
Pegasus Funds
<PAGE> 117
The Managed Assets Conservative Fund seeks to provide long-term total return
with capital appreciation as a secondary consideration. The Managed Assets
Balanced Fund seeks to achieve long-term total return through a combination of
capital appreciation and current income. The Managed Assets Conservative Fund
is deemed to be more "conservative" than the Managed Assets Balanced Fund
because it has a heavier weighting in Debt Securities and in Underlying Funds
which invest primarily in Debt Securities and a lighter weighting in Equity
Securities and in Underlying Funds which invest primarily in Equity Securities.
In attempting to achieve its asset allocation objective, except as set forth
above, each Asset Allocation Fund will invest in the Equity, Debt and Cash
Equivalent market sectors within the following ranges:
<TABLE>
<CAPTION>
TARGET ASSET ALLOCATION
ASSET
ALLOCATION
FUND EQUITY DEBT CASH EQUIVALENT
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed As-
sets Conser-
vative Fund 30%-50% 50%-70% 0%-20%
- ----------------------------------------------------------------------------------
Managed As-
sets Bal-
anced Fund 50%-70% 30%-50% 0%-20%
- ----------------------------------------------------------------------------------
Underlying Equity Income Fund Intermediate Bond Fund Money Market Fund
Funds by Growth Fund Bond Fund
Category Mid-Cap Opportunity Fund Short Bond Fund
Small-Cap Opportunity Fund Multi Sector Bond Fund
Intrinsic Value Fund International Bond Fund
Growth and Value Fund High Yield Bond Fund
Equity Index Fund
International Equity Fund
</TABLE>
- --------------------------------------------------------------------------------
For more information on the Underlying Funds, see also the Statements of
Additional Information and other sections in this Prospectus. You may request a
Prospectus for the Additional Pegasus Funds by calling (800) 688-3350.
EQUITY FUNDS
Each Equity Fund invests primarily in publicly traded common stocks of
companies incorporated in the United States, although each such Fund may also
invest up to 25% of its total assets in Equity Securities of foreign issuers,
either directly or through Depository Receipts. Each Equity Fund may: (1)
invest in securities convertible into common stock, such as certain bonds and
preferred stocks; (2) invest up to 5% of its net assets in other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities); (3) invest up to 5% of its net assets in lower-
rated convertible securities; (4) enter into futures contracts and related
options; (5) utilize options and other derivative instruments such as equity
index swaps; and (6) lend its portfolio securities. Under normal market
conditions, each Equity Fund expects to invest at least 65% of the value of its
total assets in Equity Securities. Each Equity Fund may hold up to 35% of its
total assets in Cash Equivalents and Debt Securities rated investment grade or
higher at the time of purchase (i.e., no lower than Baa by Moody's Investors
Service, Inc. ("Moody's"), or BBB by Standard and Poor's Ratings Group ("S&P"),
Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff")(each a
"Rating Agency")), or unrated investments deemed by the Investment Adviser to
be comparable in quality at the time of purchase to instruments that are so
rated.
The MID-CAP OPPORTUNITY FUND intends to invest under normal market conditions
at least 65% of the value of its total assets in Equity Securities of companies
with market capitalizations of $500 million to $3 billion. The Investment
Adviser believes that there are many companies in this size range that enjoy
enhanced growth prospects, operate in more stable market niches,
and have greater ability to respond to new business opportunities, all of which
increase their likelihood of attaining superior levels of profitability and
investment returns.
The GROWTH AND VALUE FUND invests primarily in Equity Securities of companies
believed by the Investment Adviser to represent a value or potential worth
which is not fully recognized by prevailing market prices. The Fund invests in
companies which the Investment Adviser believes have earnings growth
expectations that exceed those implied by the market's current valuation. In
addition, the Fund seeks to maintain a portfolio of companies whose earnings
will increase at a faster rate than those within the general equity market.
BOND FUND
The BOND FUND invests in a portfolio of U.S. dollar denominated Debt Securities
of domestic and foreign issuers. The Fund's average weighted portfolio maturity
is expected to be between 6 and 12 years.
The Bond Fund will invest at least 65% of the value of its total assets under
normal market conditions in Debt Securities. When the Investment Adviser
believes it advisable for temporary defensive purposes, to maintain liquidity,
or in anticipation of otherwise investing cash positions, the Bond Fund may
invest in Cash Equivalent Securities. Most obligations acquired
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by the Fund will be issued by companies or governmental entities located within
the United States. Up to 15% of the total assets of the Bond Fund may be
invested in dollar denominated debt obligations (including Cash Equivalent
Securities) of foreign issuers predominantly traded outside of the United
States. In addition, the Bond Fund may lend its portfolio securities, purchase
preferred securities, purchase convertible securities and restricted
securities, and engage in futures and options transactions and other derivative
instruments, such as interest rate swaps and forward contracts.
The Debt Securities in which the Bond Fund may invest will be rated investment
grade at the time of purchase, or if unrated, will be deemed by the Investment
Adviser to be comparable in quality at the time of purchase to instruments that
are so rated. By so restricting its investments, the Fund's ability to maximize
total rate of return will be limited.
MONEY MARKET FUND
The MONEY MARKET FUND invests in the following high quality "money market"
instruments: (1) U.S. Government Obligations; (2) U.S. dollar denominated
obligations issued or guaranteed by the government of Canada, a Province of
Canada, or an instrumentality or political subdivision thereof; (3)
certificates of deposit, bankers' acceptances and time deposits of U.S. banks
or other U.S. financial institutions (including foreign branches of such banks
and institutions) having total assets in excess of $1 billion and which are
members of the Federal Reserve System or the Federal Deposit Insurance
Corporation ("FDIC"); (4) certificates of deposit, bankers' acceptances and
time deposits of foreign banks and U.S. branches of foreign banks having assets
in excess of the equivalent of $1 billion; (5) commercial paper, other short-
term obligations and variable rate master demand notes, bonds, debentures and
notes; and (6) repurchase agreements relating to the above instruments.
The Money Market Fund seeks to maintain a net asset value of $1.00 per share
for purchases and redemptions. To do so, the Fund uses the amortized cost
method of valuing its securities pursuant to Rule 2a-7 under the 1940 Act,
certain requirements of which are summarized below.
The Money Market Fund will only purchase "eligible securities" that present
minimal credit risks as determined by the Investment Adviser pursuant to
guidelines established by the Trust's Board of Trustees. Eligible securities
include: (i) U.S. Government Obligations; (ii) securities that are rated (or
whose issuer or, in certain cases, guarantor, is rated) (at the time of
purchase) in the two highest categories for such securities by Rating Agencies;
and (iii) certain securities including guarantees that are not so rated but are
of comparable quality to rated eligible securities as determined by the
Investment Adviser; and (iv) under certain circumstances, shares of other money
market funds. See "Investment Objectives, Policies and Risk Factors" in the
Statement of Additional Information for a more complete description of eligible
securities.
The Money Market Fund is managed so that the average maturity of all
instruments in the Fund (on a dollar-weighted basis) will not exceed 90 days.
In no event will the Fund purchase any securities which are deemed to mature
more than 397 days from the date of purchase (except for certain variable and
floating rate instruments and securities underlying repurchase agreements and
collateral underlying loans of portfolio securities).
For further information regarding the amortized cost method of valuing
securities, see "Determination of Net Asset Value" in the Statement of
Additional Information. There can be no assurance that the Money Market Fund
will be able to maintain a stable net asset value of $1.00 per share.
ADDITIONAL PEGASUS FUNDS IN WHICH THE ASSET ALLOCATION FUNDS MAY INVEST
In order to achieve its target asset allocation in the Equity and Debt market
sectors, each Asset Allocation Fund will invest in the following Equity and
Bond Funds (in addition to the Mid-Cap Opportunity, Growth and Value, and Bond
Funds) which have adopted the same respective general investment policies
described above under "Equity Funds" and "Bond Fund" (except as noted).
The EQUITY INCOME FUND will invest primarily in income-producing Equity
Securities of domestic issuers. The Investment Adviser will be particularly
alert to companies which pay above-average dividends, yet offer opportunities
for capital appreciation and growth of earnings.
The GROWTH FUND will invest primarily in Equity Securities of domestic issuers
believed by the Investment Adviser to have above-average growth
characteristics. The Investment Adviser may consider some of the following
factors in making its investment decisions: the development of new or improved
products or services; a favorable outlook for growth in the industry; patterns
of increasing sales and earnings; the probability of increased operating
efficiencies; cyclical conditions; or other signs that the company is expected
to show greater than average earnings growth and capital appreciation.
The SMALL-CAP OPPORTUNITY FUND intends to invest under normal market
conditions at least 65% of the value of its total assets in Equity Securities
of small domestic issuers with market capitalizations of $100 million to $1
billion. The Investment Adviser will consider some of the following factors in
making its investment decisions: high quality management; significant equity
ownership positions by management; a leading or dominant position in a major
product line; a sound financial position; and a relatively high rate of return
on invested capital. The Fund also may invest in companies that offer the
possibility of accelerating earnings growth because of management changes, new
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products or structural changes in industry or the economy.
The INTRINSIC VALUE FUND invests primarily in Equity Securities of companies
believed by the Investment Adviser to represent a value or potential worth
which is not fully recognized by prevailing market prices. In selecting
investments for the Fund, screening techniques are employed to isolate issues
believed to be attractively priced. The Investment Adviser then
evaluates the underlying earning power and dividend paying ability of these
potential investments. The Fund's holdings are usually characterized by lower
price/earnings, price/cash flow and price/book value ratios and by above
average current dividend yields relative to the equity market.
The EQUITY INDEX FUND uses the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500 Index") as a benchmark for comparison because it represents
roughly two-thirds of the market value of all publicly traded common stocks in
the United States, is well known to investors and is a widely accepted measure
of common stock investment returns. The S&P 500 Index contains a representative
sample of common stocks that trade on the New York and American Stock Exchanges
and also contains over-the-counter stocks that are a part of the National
Market System.
The Equity Index Fund seeks to achieve a 95% correlation coefficient between
its performance and that of the S&P 500 Index. Therefore, the Fund's price
changes and total return are expected to closely match movements in the
underlying index. Deviations from the performance of the S&P 500 Index
("tracking error") may result from shareholder purchases and redemptions of
shares of the Fund that occur daily, as well as from the expenses borne by the
Fund, cash reserves held by the Fund and purchases and sales of securities made
by the Fund to conform its holdings more closely with those represented in the
S&P 500 Index. In addition, tracking error may occur due to changes made in the
S&P 500 Index and the manner in which the index is calculated by S&P. In the
event the performance of the Fund is not comparable to the performance of the
Index, the Board of Trustees will examine the reasons for the deviation and the
availability of corrective measures. If substantial deviation in the Fund's
performance were to continue for extended periods, it is expected that the
Board of Trustees would consider possible changes to the Fund's investment
objective.
The Equity Index Fund will not be managed by using traditional economic,
financial or market analysis. Instead, the Fund utilizes a sampling methodology
to determine which stocks to purchase or sell in order to closely replicate the
performance of the S&P 500 Index. Stocks are selected for the Fund based on
both capitalization weighting in the index and industry representation. Larger
market capitalization securities in the S&P 500 Index are added to the Fund
according to their relative weight. Smaller capitalization securities are then
added to the Fund in equal weights according to an analysis of the industry
diversification of the S&P 500 Index. Therefore, while all industry weights in
the Fund are essentially matched to those of the S&P 500 Index, not necessarily
all of its 500 stocks are held in the Fund. The Fund may invest up to 25% of
its assets in the securities of foreign issuers through Depository
Receipts. Pending investment and to meet anticipated redemption requests, the
Fund may hold up to 5% of its total assets in Cash Equivalent Securities. In
addition, up to 5% of the Fund's total assets may be invested in futures
contracts and related options in an effort to maintain exposure to price
movements in the S&P 500 Index pending investment of funds or while maintaining
liquidity to meet potential shareholder redemptions.
The INTERNATIONAL EQUITY FUND intends to invest under normal market conditions
at least 65% of the value of its total assets in Equity Securities of foreign
issuers located in but not limited to the United Kingdom and European
continent, Japan, other Far East areas and Latin America. The Fund may also
invest in other regions seeking to capitalize on investment opportunities in
other parts of the world, including developing countries.
The Investment Adviser's investment approach to managing the International
Equity Fund's assets emphasizes active country selection involving global
economic and political assessments together with valuation analysis of selected
countries' securities markets. In situations where an investment's
attractiveness outweighs prospects for currency weakness, the Investment
Adviser may take suitable hedging measures. An index approach is typically used
at the stock selection level.
The Investment Adviser employs quantitative techniques in conjunction with its
judgment and experience to determine the foreign equity markets that the
International Equity Fund will be invested in and the percentage of total
assets the Fund will hold by country. Securities of a country are selected
using a quantitatively-oriented sampling technique intending to generally
replicate the performance of an individual country's stock market index. The
Morgan Stanley Capital International Country Indexes have, for some time, been
the accepted benchmarks in the U.S. for international equity fund country
comparisons. The Fund may also invest in individual Equity Securities which the
Investment Adviser believes offer opportunities for capital appreciation.
The International Equity Fund's assets will be invested at all times in the
securities of issuers located in at least three different foreign countries.
Investments in a particular country may exceed 25% of the Fund's total assets,
thus making its performance more
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dependent upon the political and economic circumstances of a particular country
than a more widely diversified portfolio.
The INTERMEDIATE BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, will have maturities or average lives of up to 15 years. The Fund's
average weighted portfolio maturity is expected to be between 3 and 6 years.
The SHORT BOND FUND invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers which, under normal market
conditions, will have maturities or average lives of up to 10 years. The Fund's
average weighted portfolio maturity will be limited to a maximum of 3 years.
The MULTI SECTOR BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, will have a dollar-weighted average maturity expected to range
between 3 and 10 years.
The INTERNATIONAL BOND FUND will invest in Debt Securities of issuers located
throughout the world, except the United States. The Fund also may invest in
convertible preferred stocks, hold foreign currency, and purchase debt
securities or hold currencies in combination with forward currency exchange
contracts. The Fund will be alert to opportunities to profit from fluctuations
in currency exchange rates. The Fund will be particularly alert to favorable
arbitrage opportunities (such as those resulting from favorable interest rate
differentials) arising from the relative yields of the various types of
securities in which the Fund may invest and market conditions generally. The
Fund may invest without restriction in companies in, or governments of,
developing countries. See "Risk Factors--Foreign Securities" below.
Under normal market conditions, at least 65% of the value of the International
Bond Fund's total assets will consist of Debt Securities rated A or better by a
Rating Agency. The reminder of the International Bond Fund's assets may be
invested in Debt Securities rated no lower than B by a Rating Agency.
The HIGH YIELD BOND FUND invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, are expected to be lower-rated corporate debt obligations or
unrated obligations of comparable quality. Lower-rated or unrated bonds are
commonly referred to as "junk bonds" and are regarded as predominantly
speculative. Certain fixed rate obligations in which the Fund invests may
involve equity characteristics. The Fund may, for example, invest in unit
offerings that combine fixed rate securities and common stock or common stock
equivalents such as warrants, rights, and options. The Fund may invest up to
10% of its total assets in Equity Securities (whether the equity securities are
purchased in a unit offering or not); however, preferred and convertible
securities are not subject to this limitation. The Fund may invest up to 10% of
its total assets in foreign securities which are not publicly traded in the
United States.
Under normal market conditions, the High Yield Bond Fund will invest primarily
in Debt Securities which are rated BBB or lower by a Rating Agency. There is no
minimal acceptable rating for a security to be purchased or held in the High
Yield Bond Fund's portfolio and the Fund may, from time to time, purchase or
hold securities rated in the lowest rating category or hold securities in
default.
The International Bond Fund and High Yield Bond Fund may also invest in Debt
Securities which, while not rated, are determined by the Sub-Adviser to be of
comparable quality to those rated securities in which the Funds may invest. See
"Risk Factors--Lower-Rated Securities."
INVESTMENT LIMITATIONS
Each Fund and the Additional Pegasus Funds are subject to a number of
investment limitations. Except as noted, the following investment limitations
are matters of fundamental policy and may not be changed with respect to a
particular Fund or Additional Pegasus Fund without the affirmative vote of the
holders of a majority of the outstanding shares of the Fund or Additional
Pegasus Fund. Other investment limitations that cannot be changed without a
vote of shareholders are contained in the Statements of Additional Information
under "Investment Objectives, Policies and Risk Factors."
Each of the Funds and Additional Pegasus Funds may not:
1. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, any state, territory or possession
of the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions, domestic bank
obligations for the Money Market Fund, and repurchase agreements secured by
such instruments, (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of the parents, (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry, and
(d) personal credit and business credit businesses will be considered separate
industries.
2. Make loans, except that it may purchase and hold debt instruments and enter
into repurchase agreements
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in accordance with its investment objective and policies and may lend
portfolio securities in an amount not exceeding one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted under the 1940 Act.
The Diversified Funds may not purchase securities of any one issuer (other
than securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, immediately after such purchase, more than 5% of the
value of its total assets would be invested in the securities of such issuer,
or more than 10% of the issuer's outstanding voting securities would be owned
by it, except that up to 25% of the value of its total assets may be invested
without regard to these limitations.
Each Asset Allocation Fund will look through to its pro rata portion of the
Underlying Funds' portfolio investments to determine consistency with its
fundamental policies on diversification and concentration.
Generally, if a percentage limitation is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in the
value of a Fund's portfolio securities will not constitute a violation of such
limitation for purposes of the 1940 Act.
RISK FACTORS
GENERAL
Before selecting a Fund in which to invest, the investor should assess the
risks associated with the types of investments made by the Fund. Investors
should consider a Fund as a supplement to an overall investment program and
should invest only if they are willing to accept the risks involved. The
following should be read in conjunction with "Supplemental Information"
beginning on page A-1 of this Prospectus, and the Statements of Additional
Information.
EQUITY SECURITIES
(Asset Allocation, High Yield Bond and All Equity Funds only) Securities of
smaller companies may be subject to more abrupt or erratic market movements
than larger, more established companies, because they typically are traded in
lower volume and their issuers typically are subject to a greater degree to
changes in earnings and prospects.
DEBT SECURITIES
(All Funds and All Additional Pegasus Funds) Investors should be aware that
even though interest-bearing securities are investments which promise a stable
stream of income, the prices of such securities generally are inversely
affected by changes in interest rates and, therefore, are subject to the risk
of market price fluctuations. The values of Debt Securities also may be
affected by changes in the credit rating or financial condition of the issuing
entities. Many corporate debt obligations, including many lower-rated Debt
Securities, permit the issuers to call the security and
thereby redeem their obligations earlier than the stated maturity dates.
Issuers are more likely to call Debt Securities during periods of declining
interest rates. In these cases, a fund would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the fund.
MUNICIPAL OBLIGATIONS
(Asset Allocation and All Bond Funds only) These funds may invest in
obligations issued by or on behalf of states, territories and possessions of
the United States and the District of Columbia and their respective political
subdivisions, agencies (including multi-state agencies), instrumentalities and
authorities, the interest from which is, in the opinion of bond counsel for
the issuers, exempt from regular federal income tax ("Municipal Obligations").
Investors should be aware that when a fund's assets are concentrated in
obligations payable from revenues of similar projects or issued by issuers
located in the same state, or in industrial development bonds, the fund will
be subject to the particular risks (including legal and economic conditions)
relating to such securities to a greater extent than if its assets were not so
concentrated.
Payment on Municipal Obligations held by the funds relating to certain
projects may be secured by mortgages or deeds of trust. In the event of a
default, enforcement of a mortgage or deed of trust will be subject to
statutory enforcement procedures and limitations on obtaining deficiency
judgments. Moreover, collection of proceeds from a foreclosure may be delayed
and the amount of the proceeds received may not be enough to pay the principal
or accrued interest on the defaulted Municipal Obligations.
LOWER-RATED SECURITIES
(Asset Allocation, All Equity, High Yield Bond and International Bond Funds
only) Investors should carefully consider the relative risks of investing in
the higher yielding (and, therefore, higher risk) debt securities rated below
investment grade by Moody's, S&P, Fitch or Duff (commonly known as junk
bonds). Each Equity Fund is permitted to invest up to 5% of its respective net
assets in lower-rated convertible securities. The International Bond Fund may
invest up to 35% of its net assets in debt securities rated as low as B by
Moody's, S&P, Fitch and Duff and unrated debt securities deemed by the
Investment Adviser to be comparable in quality at the time of purchase to
instruments that are so rated. The High Yield Bond Fund will invest primarily
in debt securities rated Baa or lower by Moody's or BBB or lower by S&P, Fitch
or Duff and unrated securities deemed by the Sub-Adviser
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to be comparable in quality at the time of purchase to instruments that are so
rated. There is no minimal acceptable rating for a security to be purchased or
held
by the High Yield Bond Fund, and the Fund may, from time to time, purchase or
hold securities rated in the lowest rating category or hold securities in
default.
Lower-rated securities will usually offer higher yields than investment grade
securities. However, there is more risk associated with these investments
because of reduced creditworthiness and increased risk of default. The market
values of certain lower-rated debt securities tend to reflect specific
developments with respect to the issuer to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level of
interest rates, and tend to be more sensitive to economic conditions than are
higher rated securities. Issuers of such debt securities often are highly
leveraged and may not have available to them more traditional methods of
financing.
Securities rated below investment grade generally are subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated Debt Securities. Securities rated below
BBB or Baa by a Rating Agency are regarded as predominantly speculative; their
future cannot be considered as well assured and often the protection of
interest and principal payments may be very moderate and may face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. Factors adversely affecting the market price and yield of lower-rated
securities, including a fund's ability to sell securities in a market that may
be less liquid than the market for higher rated securities, will adversely
affect a fund's net asset value. In addition, the retail secondary market for
these securities may be less liquid than that for higher rated securities;
adverse conditions could make it difficult at times for a fund to sell certain
securities or could result in lower prices than those used in calculating its
net asset value.
The Investment Adviser or Sub-Adviser will continually evaluate lower-rated
securities and the ability of their issuers to pay interest and principal. A
fund's ability to achieve its investment objective may be more dependent on the
Investment Adviser's and Sub-Adviser's credit analysis than might be the case
for a fund that invested in higher rated securities. See "Supplemental
Information -- Risks Related to Lower-Rated Securities," "Debt Ratings" and the
Appendix in the Statement of Additional Information for a general description
of securities ratings.
FOREIGN SECURITIES
(All Funds and All Additional Pegasus Funds) Foreign securities markets,
especially those of developing countries, generally are not as developed or
efficient as those in the United States. Investment in securities of foreign
issuers, whether made directly or indirectly,
involves inherent risks, such as political or economic
instability of the issuer or the country of issue, the difficulty of predicting
international trade patterns, changes in exchange rates of foreign currencies,
the possibility of adverse changes in investment or exchange control
regulations. In addition, foreign securities may also be less liquid and more
volatile than securities of comparable U.S. issuers.
Developing countries have economic structures that are generally less diverse
and mature, and political systems that are less stable, than those of developed
countries. The markets of developing countries may be more volatile than the
markets of more mature economies.
FOREIGN CURRENCY AND FOREIGN COMMODITY TRANSACTIONS
(Asset Allocation, International Equity, High Yield Bond and International Bond
Funds only) Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad.
The foreign currency market offers less protection against defaults in the
forward trading of currencies than is available when trading currencies on an
exchange. Since a forward currency contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a fund of unrealized
profits or force it to cover its commitments for purchase or resale, if any, at
the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and may be subject to greater risks than trading on domestic exchanges.
For example, some foreign exchanges are principal markets so that no common
clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits that a fund might realize
in trading could be eliminated by adverse changes in the exchange rate, or a
fund could incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic exchanges
and those which are not.
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MORTGAGE-RELATED SECURITIES
(Asset Allocation and All Bond Funds only) No assurance can be given as to the
liquidity of the market
for certain mortgage-backed securities, such as
collateralized mortgage obligations and stripped mortgage-backed securities.
Determination as to the liquidity of interest-only and principal-only fixed
mortgage-backed securities issued by the U.S. Government or its agencies and
instrumentalities will be made in accordance with guidelines established by the
Board. Mortgage-related securities may be considered a derivative instrument.
DERIVATIVE INSTRUMENTS
Each of the Funds and Additional Pegasus Funds may purchase certain "derivative
instruments" in accordance with its respective investment objective and
policies. Derivative instruments are instruments that derive value from the
performance of underlying assets, interest or currency exchange rates, or
indices, and include, but are not limited to, futures contracts, options,
forward currency contracts and structured debt obligations (including
collateralized mortgage obligations and other types of asset backed securities,
"stripped" securities and various floating rate instruments, including inverse
floaters).
Derivative instruments present, to varying degrees, market risk that the
performance of the underlying assets, exchange rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative instrument will
decline more than the assets, rates or indices on which it is based; liquidity
risk that a fund will be unable to sell a derivative instrument when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative instrument (such as an option) will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative instruments are more
complex than others, and for those instruments that have been developed
recently, data are lacking regarding their actual performance over complete
market cycles.
SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE ASSET ALLOCATION FUNDS
An investment in a mutual fund involves risk and, although the Asset Allocation
Funds will ultimately be substantially invested in the Underlying Funds, such
investment will not eliminate investment risk. Investing in the Underlying
Funds through the Asset Allocation Funds also involves certain additional
expenses and tax considerations that would not be present in a direct
investment in the Underlying Funds. From time to time, the Underlying Funds may
experience relatively large purchases or redemptions due to asset allocation
decisions made by the Investment Adviser for its clients,
including the Asset Allocation Funds. These transactions may have a material
effect on the Underlying Funds because Underlying Funds that experience
redemptions as a result of reallocations may have to sell portfolio securities
and because the Underlying Funds that receive additional cash will have to
invest it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Underlying Funds may be required to sell securities at
times when they would not otherwise do so, or receive cash that cannot be
invested in an expeditious manner. There may be tax consequences associated
with the purchase and sale of securities and such sales may also increase
transaction costs. The Investment Adviser is committed to minimizing the impact
of these transactions on the Underlying Funds to the extent it is consistent
with pursuing the investment objectives of the Asset Allocation Funds. The
Investment Adviser will monitor the impact of asset allocation decisions on the
Underlying Funds and, where practicable, an Asset Allocation Fund will, at any
one time, only redeem shares of any particular Underlying Funds to reduce its
allocation to that particular Underlying Fund in increments of up to 5% (e.g.
from 20% to 15%), except where such redemptions are to meet fund shareholder
redemption requests. The Investment Adviser will nevertheless face conflicts in
fulfilling its responsibilities because of the possible differences between the
interests of its asset allocation clients (including shareholders of the Asset
Allocation Funds) and the interests of the Underlying Funds. Further
information on the investment policies and objectives of the Underlying Funds
can be found in "Supplemental Information" and the Statements of Additional
Information.
OTHER INVESTMENT CONSIDERATIONS
The classification of the International Equity and International Bond Funds as
"non-diversified" investment companies means that the proportion of their
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer and to hold not more than
10% of the voting securities of any single issuer. Each Non-Diversified Fund,
however, intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). The Code requires that, at the end of each quarter of its
taxable year, (i) at
Pegasus Funds
15
<PAGE> 124
least 50% of the market value of its total assets be invested in cash, U.S.
Government securities, securities of other regulated investment companies and
other
securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5%
of the value of the fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of a Non-Diversified Fund's
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry or economic sector, its portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company.
How to Buy Shares
GENERAL INFORMATION
ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR EMPLOYER'S QUALIFIED
BENEFIT PLAN. FOR MORE INFORMATION ON HOW TO PURCHASE SHARES OF THE FUNDS
THROUGH YOUR EMPLOYER'S PLAN OR LIMITATIONS ON THE AMOUNT THAT MAY BE
PURCHASED, PLEASE CONSULT YOUR EMPLOYER.
Class I shares are sold at net asset value to qualified retirement, profit-
sharing or other employee benefit plans with plan assets of at least $100
million invested in shares of the Funds or other investment companies or
accounts advised by NBD Bank ("NBD") or FCNIMCO ("Eligible Retirement Plans"),
among others. Class I shares are not subject to an annual service fee,
distribution fee or sales charge, although they are subject to their pro rata
portion of the fees payable by a Fund to financial institutions that provide
recordkeeping and other services in connection with employee benefit plans
which hold shares or to financial institutions that establish accounts on
behalf of investors in connection with the purchase and/or sale of Class I
shares.
Share certificates will not be issued.
NET ASSET VALUE
As to each Fund, net asset value per Class I share is computed by dividing the
value of the Fund's net assets represented by such Class (i.e., the value of
its assets less liabilities) by the total number of shares of such Class
outstanding.
NON-MONEY MARKET FUNDS. The net asset value per Class I share of each Non-
Money Market Fund for purposes of pricing and redemption orders is determined
by the Investment Adviser as of the close of trading on the floor of the New
York Stock Exchange ("Exchange") (currently 4:00 p.m., Eastern Time) on each
day the Exchange is open for business (a "Business
Day") except: (i) those holidays which the Exchange
observes (currently New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day); and (ii) those Business Days on which the
Exchange closes prior to the close of its regular trading hours ("Early Closing
Time") in which event the net asset value of each Non-Money Market Fund will be
determined and its shares will be priced as of such Early Closing Time.
Shares of the Underlying Funds held by the Asset Allocation Funds are valued
by the Asset Allocation Funds at their respective net asset values. Securities
held by the Non-Money Market Funds which are traded on a recognized U.S. stock
exchange are valued at the last sale price on the national securities market.
Securities which are primarily traded on foreign securities exchanges are
generally valued at the latest closing price on their respective exchanges,
except when an occurrence subsequent to the time a value was established is
likely to have changed such value, in which case the fair value of those
securities will be determined through consideration of other factors by the
Investment Adviser under the supervision of the Board of Trustees. Securities,
whether U.S. or foreign, traded on only over-the-counter markets and securities
for which there were no transactions are valued at the average of the current
bid and asked prices. Debt Securities are valued according to the broadest and
most representative market, which ordinarily will be the over-the-counter
markets, whether in the United States or in foreign countries. Such securities
are valued at the average of the current bid and asked prices. Securities
(other than shares of the Underlying Funds) for which accurate market
quotations are not readily available, and other assets are valued at fair value
by the Investment Adviser under the supervision of the Board of Trustees.
Securities (other than shares of the Underlying Funds) may be valued on the
basis of prices provided by independent pricing services when the Investment
Adviser believes such prices reflect the fair market value of such securities.
The prices provided by pricing services take into account institutional size
trading in similar groups of securities and any developments related to
specific securities. For valuation purposes, the value of assets and
liabilities expressed in foreign currencies will be converted to U.S. dollars
equivalent at the prevailing market rate on the day of valuation. Open futures
contracts will be "marked-to-market."
MONEY MARKET FUND. The net asset value per Class I share for purposes of
pricing purchase and redemption
16
Pegasus Funds
<PAGE> 125
orders is determined by the Investment Adviser as of 3:00 p.m., Eastern Time,
on each Business Day except: (i) those holidays which the Exchange, the
Investment Adviser or its bank affiliates observe (currently New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day,
Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day); and (ii) those Business Days on which the
Exchange closes at an Early Closing Time in which event the net asset value of
the Money Market Fund will be determined and its shares will be priced as of
such Early Closing Time.
Shares of the Money Market Fund are sold on a continuous basis at the net
asset value per share next determined after an order in proper form and Federal
Funds (monies of member banks within the Federal Reserve System which are held
in deposit at a Federal Reserve Bank) are received by the Transfer Agent. If an
investor does not remit Federal Funds, his or her payment must be converted
into Federal Funds. This usually occurs within one Business Day of receipt of a
bank wire and within two Business Days of receipt of a check drawn on a member
bank of the Federal Reserve System. Checks drawn on banks which are not members
of the Federal Reserve System may take considerably longer to convert into
Federal Funds. Prior to receipt of Federal Funds, the investor's money will not
be invested.
The assets of the Money Market Fund are valued based upon the amortized cost
method. Although the Trust seeks to maintain the net asset value per share of
the Fund at $1.00, there can be no assurance that the net asset value will not
vary.
How to Exchange Shares
SUBJECT TO ANY RESTRICTIONS CONTAINED IN YOUR EMPLOYER'S QUALIFIED BENEFIT
PLAN, YOU MAY EXCHANGE CLASS I SHARES OF THE FUNDS AT NET ASSET VALUE. PLEASE
CONTACT YOUR PLAN ADMINISTRATOR FOR INFORMATION ON HOW TO EXCHANGE YOUR SHARES.
No fees currently are charged shareholders directly in connection with
exchanges although the Funds reserve the right, upon not less than 60 days'
written notice, to charge shareholders a nominal fee in accordance with rules
promulgated by the SEC. The Funds reserve the right to reject any exchange
request in whole or in part. The exchange privilege may be modified or
terminated at any time upon notice to shareholders.
How to Redeem Shares
GENERAL INFORMATION
SUBJECT TO ANY RESTRICTIONS IMPOSED BY YOUR EMPLOYER'S QUALIFIED BENEFIT PLAN,
YOU MAY SELL YOUR SHARES THROUGH THE PLAN TO THE TRUST ON ANY BUSINESS DAY (AS
DESCRIBED UNDER "HOW TO BUY SHARES"). FOR MORE INFORMATION ON HOW TO REDEEM
SHARES OF THE FUNDS THROUGH YOUR EMPLOYER'S PLAN, INCLUDING ANY CHARGES THAT
MAY BE IMPOSED BY THE PLAN, PLEASE CONSULT YOUR EMPLOYER.
An investor may request redemption of his or her shares by following
instructions pertaining to his or her
plan. It is the responsibility of the entity authorized to act on behalf of the
investor's plan to transmit the redemption order to the Transfer Agent and
credit the investor's account with the redemption proceeds on a timely basis.
When a request is received in proper form, the Trust will redeem the shares at
the next determined net asset value as described above. The Trust imposes no
charges when shares are redeemed. The value of the shares redeemed may be more
or less than their original cost, depending upon the Fund's then-current net
asset value.
A Fund ordinarily will make payment for all shares redeemed within seven days
after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by SEC rules. The Funds will only redeem shares for which
payment has been received.
Management of the Trust
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust is responsible for the management of the
business and affairs of the Trust. Information about the Trustees and officers
of the Trust is contained in the Statements of Additional Information.
INVESTMENT ADVISER AND CO-ADMINISTRATORS
First Chicago NBD Investment Management Company ("FCNIMCO"), located at Three
First National Plaza, Chicago, Illinois 60670 is each Fund's and Additional
Pegasus Fund's Investment Adviser. FCNIMCO is a registered investment adviser
and a wholly-owned subsidiary of The First National Bank of Chicago ("FNBC"),
which in turn is a wholly-owned subsidiary of First Chicago NBD Corporation
("FCN"), a registered bank holding company. FCNIMCO also acts as investment
adviser for other accounts and registered investment company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an Investment
Advisory Agreement dated as of April 12, 1996. Under the Investment Advisory
Agreement, FCNIMCO provides the day-to-day management of each Fund's and
Additional Pegasus Fund's investments, subject to the overall authority of the
Trust's Board of Trustees and in conformity with Massachusetts law and the
stated policies of the Trust. FCNIMCO is responsible for making investment
decisions for the Trust, placing
Pegasus Funds
17
<PAGE> 126
purchase and sale orders (which may be allocated to various dealers based on
their sales of Fund and Additional Pegasus Fund shares) and providing research,
statistical analysis and continuous supervision of each Fund's and Additional
Pegasus Fund's investment portfolio.
Under the terms of the Investment Advisory Agreement, the Investment Adviser
is entitled to a monthly fee as a percentage of each Fund's and Additional
Pegasus Fund's daily net assets. The Funds' and the Additional Pegasus Funds'
current contractual fees for advisory services are set forth below.
<TABLE>
<CAPTION>
EFFECTIVE RATE FOR
CURRENT ADVISORY SERVICES
CONTRACTUAL FOR YEAR ENDED
ADVISORY FEE RATE DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSET ALLOCATION
FUNDS:
Managed Assets Con-
servative Fund 0.65% 0.57%
Managed Assets Bal-
anced Fund 0.65% 0.61%
- -------------------------------------------------------------------------------
EQUITY FUNDS:
Equity Income Fund 0.50% 0.50%
Growth Fund 0.60% 0.60%
Mid-Cap Opportunity
Fund 0.60% 0.60%
Small-Cap Opportu-
nity Fund 0.70% 0.70%
Equity Index Fund 0.10% 0.10%
Intrinsic Value
Fund 0.60% 0.60%
Growth and Value
Fund 0.60% 0.60%
International Eq-
uity Fund 0.80% 0.80%
- -------------------------------------------------------------------------------
BOND FUNDS:
Intermediate Bond
Fund 0.40% 0.40%
Bond Fund 0.40% 0.40%
Short Bond Fund 0.35% 0.35%
Multi Sector Fund 0.40% 0.40%
International Bond
Fund 0.70% 0.13%
High Yield Bond
Fund 0.70% 0.61%
- -------------------------------------------------------------------------------
MONEY MARKET FUND:
Money Market Fund 0.30% of the first $1 billion, 0.29%
0.275% of next $1 billion,
0.25% of amount in excess of $2 billion
</TABLE>
- --------------------------------------------------------------------------------
In addition to the fees listed above, the Investment Adviser is entitled to
4/10ths of the gross income earned by a Fund on each loan of securities
(excluding capital gains and losses, if any). To date the Funds have not made
any such payment and have no current intention to do so.
Although the fee payable by the International Equity Fund is higher than the
fee payable by other funds, the Investment Adviser believes that it is within
the range of fees payable by funds with comparable investment objectives and
policies.
The following persons are responsible for the day-to-day management of each of
the Funds and Underlying Funds.
CLAUDE B. ERB, First Vice President and Director of Investment Planning, is
primarily responsible for the day-to-day management of the Asset Allocation
Funds and the International Bond Fund. Mr. Erb has served as Deputy Chief
Investment Officer and Senior Vice President of Trust Services of America and
TSA Capital Management from 1986 through 1992. Mr. Erb joined FCN in 1993.
CHRIS M. GASSEN, First Vice President, and F. RICHARD NEUMANN, First Vice
President, are primarily responsible for the day-to-day management of the
Equity Income and Intrinsic Value Funds. Mr. Gassen joined FCN in 1985 and Mr.
Neumann joined FCN in 1981.
RONALD L. DOYLE, Senior Vice President, and JOSEPH R. GATZ, Vice President,
are primarily responsible for the day-to-day management of the Mid-Cap
Opportunity and Small-Cap Opportunity Funds. Mr. Doyle joined FCN in 1982 and
Mr. Gatz joined FCN in 1986.
JEFFREY C. BEARD, First Vice President, and GARY L. KONSLER, First Vice
President, are primarily responsible for the day-to-day management of the
Growth and Value and Growth Funds. Mr. Beard joined FCN in 1982 and Mr. Konsler
joined FCN in 1973.
RICHARD P. KOST, First Vice President, and CLYDE L. CARTER, JR., Vice
President, are primarily responsible for the day-to-day portfolio management of
the International Equity Fund. Mr. Kost joined FCN in 1964 and Mr. Carter
joined FCN in 1987.
DOUGLAS S. SWANSON, First Vice President, and RICARDO F. CIPICCHIO, First Vice
President, are primarily responsible for the day-to-day management of the
Intermediate Bond and Bond Funds. Mr. Swanson joined FCN in 1983. Mr. Cipicchio
joined FCN in 1989.
18 Pegasus Funds
<PAGE> 127
MR. CIPICCHIO and CHRISTOPHER J. NAUSEDA, Vice President, are primarily
responsible for the day-to-day portfolio management of the Short Bond Fund. Mr.
Nauseda joined FCN in 1982.
MR. CIPICCHIO AND MARK M. JACKSON, Vice President, are primarily responsible
for the day-to-day management of the Multi Sector Bond Fund. Mr. Jackson served
as portfolio manager for Alexander Hamilton Life Insurance Company, 1993-1996,
and as portfolio manager for Public Employees Retirement System of Ohio, 1988-
1993. Mr. Jackson joined FCN in 1996.
FCNIMCO and BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS") jointly serve as the Trust's Co-Administrators pursuant to an
Administration Agreement with the Trust. Under the Administration Agreement,
FCNIMCO and BISYS generally assist in all aspects of the Trust's operations,
other than providing investment advice, subject to the overall authority of the
Trust's Board in accordance with Massachusetts law. Under the terms of the
Administration Agreement the Trust pays FCNIMCO, as agent for the Co-
Administrators, a monthly administration fee at the annual rate of .15% of each
Fund's and each Additional Pegasus Fund's average daily net assets. For the
fiscal year ended December 31, 1997, the Trust paid administration fees at the
effective annual rate of .15% of each Fund's and each Additional Pegasus Fund's
average daily net assets.
The Asset Allocation Funds invest in shares of the Underlying Funds. The
Investment Adviser and Co-Administrators reimburse the Asset Allocation Funds
the full amount of advisory fees and administration fees incurred by each of
the Underlying Funds. However, investors in the Asset Allocation Funds do
indirectly bear that portion of the expenses of the Underlying Funds related to
other expenses such as custody, transfer agency and professional fees. These
fees are not redundant in that distinct services are being provided at each
level. FCNIMCO and BISYS have no current intention to, but may in the future,
discontinue or modify any such reimbursements at their discretion.
THE SUB-ADVISER
Federated Investment Counseling, located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222, is the sub-adviser for the High Yield Bond
Fund. Federated is a registered investment adviser and a subsidiary of
Federated Investors. All of the Class A voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
Chairman and a trustee of Federated Investors, Mr. Donahue's wife, and Mr.
Donahue's son, J. Christopher Donahue, who is President and a trustee of
Federated Investors.
Under the terms of the Sub-Advisory Agreement, Federated provides the day-to-
day management of the High Yield Bond Fund's investments. Subject to the
oversight and supervision of FCNIMCO and the Trust's Board of Trustees,
Federated is responsible for making investment decisions for the High Yield
Bond Fund, placing purchase and sale orders (which may be allocated to various
dealers based on their sale of Fund shares) and providing research, statistical
analysis and continuous supervision of the Fund's investment portfolio.
For its services, Federated is entitled to a monthly fee at the following
annual rates (as a percentage of the High Yield Bond Fund's average daily net
assets), which vary according to the level of assets: .50% on the first $30
million of average daily net assets, .40% on the next $20 million, .30% on the
next $25 million, .25% on the next $25 million and .20% of the Fund's average
daily net assets in excess of $100 million. The Sub-Adviser's fee is paid by
FCNIMCO and not by the Fund.
MARK E. DURBIANO, Senior Vice President, and CONSTANTINE KARTSONAS are
primarily responsible for the day-to-day management of the High Yield Bond
Fund. Mr. Durbiano joined Federated in 1982 and has been a Senior Vice
President of an affiliate of Federated since January 1996. From 1988 through
1995, Mr. Durbiano was a Vice President of an affiliate of Federated. Mr.
Kartsonas joined Federated in 1994 as an Investment Analyst and has been an
Assistant Vice President of an affiliate of Federated since January 1997. Mr.
Kartsonas served as an Operations Analyst at Lehman Brothers from 1990-1993.
DISTRIBUTOR
BISYS, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as the
Trust's principal underwriter and distributor of its shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
First Data Investor Services Group, Inc., P.O. Box 5142, Westborough,
Massachusetts 01581-5120, serves as the Trust's Transfer and Dividend
Disbursing Agent. NBD, which is a wholly-owned subsidiary of FCN, serves as the
Trust's custodian (the "Custodian"). NBD conducts its custody services on
behalf of the Trust at 900 Tower Drive, Troy, Michigan 48098.
EXPENSES
All expenses incurred in the operation of the Trust are borne by it, except to
the extent specifically assumed by the Trust's service providers. The expenses
borne by the Trust include organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on
Pegasus Funds
19
<PAGE> 128
securities sold short, brokerage fees and commissions, if any, fees of Board
members, SEC fees, state Blue Sky registration fees, advisory fees, charges of
custodians, transfer and dividend disbursing agents' fees, fees pursuant to
agency, sub-transfer agency and service agreements, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
maintaining each Fund's existence, costs of independent pricing services, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of shareholders' reports and meetings, costs of
preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders, and any
extraordinary expenses. Expenses attributable to a particular Fund are charged
against the assets of that Fund; other expenses of the Trust are allocated
among the Funds on the basis determined by the Board, including, but not
limited to, proportionately in relation to the net assets of the Funds.
The imposition of the advisory fee, as well as other operating expenses, will
have the effect of reducing the total return to investors. From time to time,
the Investment Adviser may waive receipt of its fees and/or voluntarily assume
certain expenses of a Fund, which would have the effect of lowering that Fund's
overall expense ratio and increasing total return to investors at the time such
amounts are waived or assumed, as the case may be. The Fund will not pay the
Investment
Adviser at a later time for any amounts which may be waived, nor will the Fund
reimburse the Investment Adviser for any amounts which may be assumed.
Dividends and Distributions
THE MANAGED ASSETS BALANCED, MID-CAP OPPORTUNITY, AND GROWTH AND VALUE FUNDS
declare and pay dividends from net investment income on a quarterly basis. THE
MANAGED ASSETS CONSERVATIVE AND BOND FUNDS declare and pay dividends from net
investment income on a monthly basis.
THE MONEY MARKET FUND declares dividends from net investment income on each of
its Business Days and pays dividends on a monthly basis. Shares begin accruing
dividends on the Business Day on which the purchase order is effective. The
earnings for Saturday, Sunday and holidays are declared as dividends on the
preceding Business Day.
Each Fund will make distributions from net realized securities gains, if any,
once a year, but may make distributions on a more frequent basis to comply with
the distribution requirements of the Code, in all events in a manner consistent
with the provisions of the 1940 Act. Dividends are automatically reinvested in
additional Fund shares of the same Class from which they were paid at net asset
value.
Taxes
Each Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally will relieve the Funds of liability for
federal income taxes to the extent their earnings are distributed in accordance
with the Code.
Each Fund intends to distribute as dividends substantially all of its
investment company taxable income each year. Distributions by the Funds to
employee benefit plans that qualify for tax-exempt treatment under federal
income tax laws will not be subject to current taxation. Accordingly, potential
investors in the Funds should consult their tax advisers with specific
reference to their own tax situation.
Performance Information
From time to time, in advertisements or in reports to shareholders the
performance of the Funds may be compared to the performance of other mutual
funds with similar investment objectives and to stock and other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of a Fund's shares may be compared to data prepared by
Lipper Analytical Services, Inc. In addition, the performance of the Funds may
be compared to Standard & Poor's 500 Index, an index of unmanaged groups of
common stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of thirty industrial companies
listed on the New York Stock Exchange. The yields of the Money Market Fund may
be compared to the Donoghue's Money Fund Average which is an average compiled
by IBC/Donoghue's Money Fund Report, a widely recognized independent
publication that monitors the performance of money market funds, or to the
average yields reported by the Bank Rate Monitor for money market deposit
accounts offered by the 50 leading banks and thrift institutions in the top
five standard metropolitan statistical areas. Performance data as reported in
national financial publications such as Money Magazine, Forbes, Barron's, The
Wall Street Journal and The New York Times, or in publications of a local or
regional nature, may also be used in comparing the performance of a Fund.
In the case of the Asset Allocation Funds and the Bond Fund, "yield" refers to
the income generated by an investment in the Fund over a thirty-day period
identified in the advertisement. This income is then "annualized," i.e., the
income generated by the investment during the respective period is assumed to
be earned and reinvested at a constant rate and
20
Pegasus Funds
<PAGE> 129
compounded semi-annually and is shown as a percentage of the investment.
In the case of the Money Market Fund, "yield" refers to the income generated
by an investment in the Fund over a seven-day period identified in the
advertisement. This income is then "annualized," i.e., the income generated by
the investment during the respective period is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
Fund may also advertise its "effective yield" which is calculated similarly
but, when annualized, income is assumed to be reinvested, thereby making the
"effective yield" slightly higher because of the compounding effect of the
assumed reinvestment.
The Non-Money Market Funds calculate their total returns on an "average annual
total return" basis for
various periods from the date they commenced investment operations and for
other periods as permitted under the rules of the SEC. Average annual total
return reflects the average annual percentage change in value of an investment
in a Fund over the measuring period. Total returns may also be calculated on an
"aggregate total return basis" for various periods. Aggregate total return
reflects the total percentage change in value over the measuring period. Both
methods of calculating total return also reflect changes in the price of a
Fund's shares and assume that any dividends and capital gain distributions made
by the Fund during the period are reinvested in Fund shares. When considering
average total return figures for periods longer than one year, it is important
to note that a Fund's annual total return for any one year in the period might
have been greater or less than the average for the entire period.
Performance of the Funds is based on historical earnings and will fluctuate
and is not intended to indicate future performance. The investment performance
of an investment in the Non-Money Market Funds will fluctuate so that a
shareholder's shares, when redeemed, may be worth more or less than their
original cost. A Fund's performance data may not provide a basis for comparison
with bank deposits and other investments which provide a fixed yield for a
stated period of time. Performance data should also be considered in light of
the risks associated with a Fund's portfolio composition, quality, maturity,
operating expenses and market conditions. Any fees charged by employee benefit
plans directly to their participants in connection with investments in Fund
shares will not be reflected in a Fund's performance calculations.
HISTORICAL PERFORMANCE INFORMATION
Composite performance is set forth below for the Class I shares of the Funds or
predecessor funds, as the case may be, for various periods ended December 31,
1997, except as noted (unaudited).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------
5 SINCE INCEPTION
1 YEAR YEARS 10 YEARS (INCEPTION DATE)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS*:
Managed Assets Conservative Fund*(1) 13.34% N/A N/A 16.30% (3/3/95)
Managed Assets Balanced Fund* 15.79% N/A N/A 12.11% (1/1/94)
- ------------------------------------------------------------------------------
EQUITY FUNDS:
Mid-Cap Opportunity Fund 27.91% 18.10% 17.88% 15.34% (12/31/83)
Growth and Value Fund 28.15% 17.50% 15.25% 14.47% (12/31/83)
- ------------------------------------------------------------------------------
BOND FUND:
Bond Fund 9.97% 8.18% 9.33% 10.13% (12/31/83)
</TABLE>
- --------------------------------------------------------------------------------
* Prior to November 20, 1996, the Asset Allocation Funds invested substantially
all of their assets directly in portfolio securities rather than mutual fund
shares. Investing in the Underlying Funds through the Asset Allocation Funds
involves certain additional expenses and tax results that would not be
present in a direct investment in the Underlying Funds. Had these additional
expenses and tax results been reflected, performance would be reduced.
(1) Prior to September 21, 1996, the Managed Assets Conservative Fund had no
prior operating history. Except as noted below, performance for periods
prior to such date is represented by the performance of the Prairie Managed
Assets Income Fund. On September 21, 1996, the assets and liabilities of
this Prairie Fund were transferred to the Managed Assets Conservative Fund
of the Trust. Performance of the Managed Assets Conservative Fund for
periods prior to March 3, 1995 is represented by the performance of the
First Prairie Diversified Assets Fund. The Prairie Managed Assets Income
Fund commenced operations through a transfer of assets from the First
Prairie Diversified Assets Fund.
For the seven day period ended December 31, 1997, the annualized yields and
effective yields for the Class I shares of the Money Market Fund were 5.40% and
5.54%, respectively.
Pegasus Funds
21
<PAGE> 130
General Information
The Trust was organized as a Massachusetts business trust on April 21, 1987
under a Declaration of Trust. The Trust is a series fund having thirty-one
series of shares of beneficial interest, each of which evidences an interest in
a separate investment portfolio. The Declaration of Trust permits the Board of
Trustees to issue an unlimited number of full and fractional shares and to
create an unlimited number of series of shares ("Series") representing
interests in a portfolio and an unlimited number of classes of shares within a
Series. In addition to the Funds described herein, the Trust offers the
following investment portfolios or Series:
The Managed Assets Growth Fund
The Equity Income Fund
The Growth Fund
The Small-Cap Opportunity Fund
The Intrinsic Value Fund
The Equity Index Fund
The Market Expansion Index Fund
The International Equity Fund
The Intermediate Bond Fund
The Short Bond Fund
The Multi Sector Bond Fund
The International Bond Fund
The High Yield Bond Fund
The Municipal Bond Fund
The Short Municipal Bond Fund
The Intermediate Municipal Bond Fund
The Michigan Municipal Bond Fund
The Treasury Money Market Fund
The Municipal Money Market Fund
The Michigan Municipal Money Market Fund
The Cash Management Fund
The Treasury Cash Management Fund
The U.S. Government Securities Cash Management Fund
The Treasury Prime Cash Management Fund
The Municipal Cash Management Fund
Each Fund described herein and the Managed Assets Growth, Equity Income,
Growth, Small-Cap Opportunity, Intrinsic Value, Equity Index, Market Expansion
Index, International Equity, Intermediate Bond, Short Bond, Multi Sector Bond,
International Bond, High Yield Bond, Municipal Bond, Short Municipal Bond,
Intermediate Municipal Bond and Michigan Municipal Bond Funds offer three
classes of shares: Class A, Class B and Class I. The Treasury Money Market,
Municipal Money Market and Michigan Money Market Funds offer two classes of
shares: Class A and Class I. The Cash Management, Treasury Cash Management,
U.S. Government Securities Cash Management, Municipal Cash Management and
Treasury Prime Cash Management Funds offer two Classes of shares: Class S and
Class I. A sales person and any other person or institution entitled to receive
compensation for selling or servicing shares may receive different compensation
with respect to different classes of shares in the Series. Each share has $.10
par value, represents an equal proportionate interest in the related fund with
other shares of the same class outstanding, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such fund
as are declared in the discretion of the Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees. Each Asset Allocation Fund will vote its Underlying Fund
shares in proportion to the votes of all other shareholders of each respective
Underlying Fund.
As of March 31, 1998, FCN and its affiliates held of record approximately
1.76%, 12.20%, 53.59%, 60.23%, 64.59% and 25.90% of the outstanding shares of
the Managed Assets Conservative, Managed Assets Balanced, Mid-Cap Opportunity,
Growth and Value, Bond and Money Market Funds, respectively.
Because NBD serves the Trust as Custodian, the Board of Trustees has
established a procedure requiring three annual verifications, two of which are
unannounced, of all investments held pursuant to the Custodian Agreement, to be
conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The Trust's By-Laws
provide that special meetings of shareholders of any Series shall be called at
the written request of shareholders entitled to cast at least 10% of the votes
of a Series entitled to be cast at such meeting. The Trust also stands ready to
assist shareholder communications in connection with any meeting of
shareholders as prescribed in Section 16(c) of the 1940 Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS' SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
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PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON
TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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Supplemental Information
RATINGS
The ratings of Moody's, S&P, Fitch and Duff represent their opinions as to the
quality of the obligations which they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and, although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of such obligations.
Therefore, although these ratings may be an initial criterion for selection of
portfolio investments, the Investment Adviser or Sub-Adviser also will
evaluate such obligations and the ability of their issuers to pay interest and
principal. Each Fund and Additional Pegasus Fund will rely on the Investment
Adviser's or Sub-Adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. Obligations rated in the lowest of the top four
rating categories (Baa by Moody's or BBB by S&P, Fitch or Duff) are considered
to have less capacity to pay interest and repay principal and have certain
speculative characteristics.
SHORT-TERM INVESTMENTS
Each Fund and each Additional Pegasus Fund may hold the types of Cash
Equivalent Securities described under Asset Allocation Funds above.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations include all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. U.S. Government obligations also include interests in
the foregoing securities, including collateralized mortgage obligations
guaranteed by a U.S. Government agency or instrumentality, and in Government-
backed trusts which hold obligations of foreign governments that are
guaranteed or backed by the full faith and credit of the United States.
Obligations of certain U.S. agencies and instrumentalities such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as the Export-Import Bank of the
United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality.
BANK OBLIGATIONS
Bank obligations in which the Funds and the Additional Pegasus Funds may
invest include certificates of deposit, time deposits, bankers' acceptances,
fixed time deposits and other short-term obligations of domestic banks,
foreign subsidiaries of domestic banks, foreign branches of domestic banks,
and domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign branches of domestic banks, foreign subsidiaries of domestic
banks, and domestic and foreign branches of foreign banks, the funds may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits.
Obligations issued or guaranteed by foreign branches of U.S. banks (commonly
known as "Eurodollar" obligations) or U.S. branches of foreign banks (commonly
known as "Yankee dollar" obligations) may be general obligations of the parent
bank or obligations only of the issuing branch. Where the obligation is only
that of the issuing branch, the parent bank has no legal duty to pay such
obligation. Such obligations would thus be subject to risks comparable to
those which would be present if the issuing branch were a separate bank. The
Money Market Fund will not invest in a Eurodollar obligation if upon making
such investment the total Eurodollar obligations which are not general
obligations of domestic parent banks would thereby exceed 25% of its total
assets.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the funds and Additional Pegasus Funds will not benefit from
insurance from the Bank Insurance Fund or the Savings Association Insurance
Fund administered by the FDIC.
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Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
CERTAIN CORPORATE OBLIGATIONS
Commercial paper in which the Funds and the Additional Pegasus Funds may invest
consists of short-term, unsecured promissory notes issued by domestic or
foreign entities to finance short-term credit needs.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund and Additional Pegasus Fund may invest in variable and floating
instruments, including without limitation for each Fund and Additional Pegasus
Fund other than the Money Market Fund, inverse floating rate debt instruments
("inverse floaters") some of which may be leveraged. The interest rate of an
inverse floater resets in the opposite direction from the market rate of
interest to which it is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values.
The Money Market Fund may purchase rated and unrated variable and floating
rate obligations that have stated maturities in excess of 13 months but, in any
event, permit the fund to demand payment of the principal of the instrument at
least once every 13 months on not more than thirty days' notice (unless the
instrument is a U.S. Government Obligation), provided that the demand feature
may be sold, transferred, or assigned only with the underlying instrument
involved. Such instruments may include variable rate demand notes which are
unsecured instruments that permit the indebtedness thereunder to vary in
addition to providing for periodic adjustments in the interest rate.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for a fund to dispose of
them if the issuer defaulted on its payment obligation or during periods that
the fund is not entitled to exercise demand rights, and the fund could, for
these or other reasons, suffer a loss with respect to such instruments. In the
absence of an active secondary market, variable and floating rate instruments
held by a fund will be subject to its limitation on illiquid investments. See
"Illiquid Securities."
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
To increase their income, each Fund and Additional Pegasus Fund may agree to
purchase portfolio securities from financial institutions subject to the
seller's agreement to repurchase them at a mutually agreed-upon date and price
("repurchase agreements"). None of the funds will enter into repurchase
agreements with the Investment Adviser, the Sub-Adviser, the Distributor, or
any of their affiliates, except as may be permitted by the SEC. Although the
securities subject to repurchase agreements may bear maturities exceeding 13
months provided the repurchase agreement itself matures in 13 months or less,
the funds generally intend to enter into repurchase agreements which terminate
within seven days after notice by them. The seller under a repurchase agreement
will be required to maintain the value of the securities subject to the
agreement at not less than the repurchase price, marked to market daily.
Default by the seller would, however, expose a fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations.
Each Fund and Additional Pegasus Fund may also obtain funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, a fund will sell portfolio securities to financial institutions
such as banks and broker-dealers and agree to repurchase them at a particular
date and price. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a fund may decline below the price of the
securities it is obligated to repurchase. Whenever a fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account liquid
assets equal to the repurchase price marked to market daily (including accrued
interest) and will subsequently monitor the account to ensure such equivalent
value is maintained.
LENDING PORTFOLIO SECURITIES
To increase income or offset expenses, each of the Funds and Additional Pegasus
Funds may lend its portfolio securities to financial institutions such as banks
and broker-dealers in accordance with their investment limitations described
herein. Agreements will require that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may include
cash or securities of the U.S. Government, its agencies or instrumentalities,
some which may bear maturities exceeding 13 months. Such loans will not be made
if, as a result, the aggregate of all outstanding loans of a particular fund
exceeds one-third of the value of its total assets. Loans of securities involve
risk of delay in
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receiving additional collateral or in recovering the securities loaned or
possible loss of rights in the collateral should the borrower of the securities
become insolvent. In the event a fund is unable to recover the securities
loaned in a particular transaction, it will promptly sell any collateral which
bears a maturity exceeding 13 months. Loans will be made only to borrowers that
provide the requisite collateral comprised of liquid assets and when, in the
Investment Adviser's or Sub-Adviser's judgment, the income to be earned from
the loan justifies the attendant risks.
ZERO COUPON OBLIGATIONS AND PAY-IN-KIND SECURITIES
Each Fund and Additional Pegasus Fund may invest in zero coupon obligations
which are discount debt obligations that do not make periodic interest payments
although income is generally imputed to the holder on a current basis. The High
Yield Bond Fund may invest in pay-in-kind securities which make periodic
payments in the form of additional securities (as opposed to cash). Such
obligations may have higher price volatility than those which require the
payment of interest periodically. The Investment Adviser and Sub-Adviser will
consider the liquidity needs of a fund when any investment in zero coupon
obligations is made.
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind securities to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its qualification
as a regulated investment company and avoid liability for federal income taxes,
each fund that invests in such securities may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements. Such fund will not be able to
purchase additional income producing securities with cash used to make such
distributions and its current income may be reduced as a result.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
Each Fund and Additional Pegasus Fund may purchase securities on a "when-
issued" basis and may purchase or sell such securities on a "forward
commitment" basis. These transactions, which involve a commitment by a fund to
purchase or sell particular securities with payment and delivery taking place
in the future, beyond the normal settlement date, at a stated price and yield.
Securities purchased on a when-issued basis or forward commitment basis involve
a risk of loss if the value of the security to be purchased declines prior to
the settlement date, or if the value of the security to be sold increases prior
to the settlement date. When a fund enters into such transactions, the
Custodian will maintain in a segregated account cash or liquid portfolio
securities equal to the amount of the commitment. The funds do not earn income
with respect to these transactions until the subject securities are delivered
to them. The funds do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only for the purposes of acquiring
portfolio securities. Each fund's when-issued purchases and forward commitments
are not expected to exceed 25% of the value of its total assets absent unusual
market conditions. The funds do not earn income with respect to these
transactions until the subject securities are delivered to them. They do not
intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of their investment objectives.
FOREIGN SECURITIES
Investments by the Funds and the Additional Pegasus Funds in foreign
securities, with respect to certain foreign countries, expose them to the
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets or diplomatic developments that could affect
investment within those countries. Similarly, volume and liquidity in most
foreign securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States. In addition,
there may be less publicly available information about a non-U.S. issuer, and
non-U.S. issuers generally are not subject to uniform accounting and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. issuers. Because of these and other factors, securities of foreign
companies acquired by the funds may be subject to greater fluctuation in price
than securities of domestic companies.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. Some currency exchange costs may be incurred when a fund
changes investments from one country to another.
Furthermore, some securities may be subject to brokerage taxes levied by
foreign governments, which have the effect of increasing the costs of such
investments and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by a fund from sources
within foreign countries may be reduced by withholding or other taxes imposed
by such countries. Tax conventions between certain countries and the United
States, however, may reduce or eliminate such taxes. All such taxes paid by the
funds will reduce their net income available for distribution to investors.
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DEPOSITORY RECEIPTS
Each Asset Allocation and Equity Fund and the High Yield Bond Fund may invest
in securities of foreign issuers in the form of American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") and similar securities
representing securities of foreign issuers. These securities may not be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities and are denominated in U.S.
dollars. Certain such institutions issuing ADRs may not be sponsored by the
issuer. A non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its
contractual arrangements with the issuer. EDRs are receipts issued by a
European financial institution evidencing ownership of the underlying foreign
securities and are generally denominated in foreign currencies. Generally,
EDRs, in bearer form, are designed for use in the European securities markets.
SUPRANATIONAL BANK OBLIGATIONS
The Funds and the Additional Pegasus Funds may invest in obligations of
supranational banks. Supranational banks are international banking institutions
designed or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the World Bank).
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that these
commitments will be undertaken or met in the future.
CONVERTIBLE SECURITIES
Each of the Funds and Additional Pegasus Funds other than the Money Market Fund
may invest in convertible securities. A convertible security is a security that
may be converted either at a stated price or rate within a specified period of
time into a specified number of shares of common stock. By investing in
convertible securities, a fund seeks the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the securities are convertible, while earning higher current income than
is available from the common stock. The High Yield Bond Fund does not limit
convertible securities by rating, and there is no minimal acceptance rating for
a convertible security to be purchased or held in the Fund. Therefore, the High
Yield Bond Fund invests in convertible securities irrespective of their
ratings. This could result in the High Yield Bond Fund purchasing and holding,
without limit, convertible securities rated below investment grade by a Rating
Agency.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each of the Funds and Additional Pegasus Funds may invest in securities issued
by open-end (and closed-end for all funds other than the Money Market Fund)
investment companies which principally invest in securities in which such fund
invests. Under the 1940 Act, a fund's investment in such securities, subject to
certain exceptions, currently is limited to (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the fund's net assets with respect to
any one investment company and (iii) 10% of the fund's net assets in the
aggregate. Such purchases will be made in the open market where no commission
or profit to a sponsor or dealer results from the purchase other than the
customary brokers' commissions, if any. As a shareholder of another investment
company, a fund would bear, along with other shareholders, its pro rata portion
of the other investment company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the fund
bears directly in connection with its own operations.
ASSET BACKED SECURITIES
Asset Backed Securities acquired by the Funds and Additional Pegasus Funds
other than the Money Market Fund consist of both mortgage and non-mortgage
backed securities. Asset backed securities arise through the grouping by
governmental, government-related and private organizations of loans,
receivables and other assets originated by various lenders ("Asset Backed
Securities"), as described below.
The yield characteristics of Asset Backed Securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an Asset Backed
Security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an Asset Backed Security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity. In calculating the average weighted maturity of
the funds, the maturity of Asset Backed Securities will be based on estimates
of average life.
Prepayments on Asset Backed Securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayment rates are
also influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage backed securities is of shorter maturity
than mortgage loans and is less likely to experience substantial
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prepayments. Like other fixed income securities, when interest rates rise the
value of an Asset Backed Security with prepayment features may not increase as
much as that of other fixed income securities, and, as noted above, changes in
market rates of interest may accelerate or retard prepayments and thus affect
maturities.
These characteristics may result in higher level of price volatility for these
assets under certain market conditions. In addition, while the trading market
for short-term mortgages and Asset Backed Securities is ordinarily quite
liquid, in times of financial stress the trading market for these securities
sometimes becomes restricted.
Mortgage backed securities represent an ownership interest in a pool of
mortgages, the interest on which is in most cases issued and guaranteed by an
agency or instrumentality of the U.S. Government, although not necessarily by
the U.S. Government itself. Mortgage backed securities include collateralized
mortgage obligations ("CMOs"), real estate investment trusts ("REITs") and
mortgage pass-through certificates.
CMOs provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways. The multiple class securities may be issued or guaranteed
by U.S. Government agencies or instrumentalities, including the Government
National Mortgage Association ("GNMA"), Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by
trusts formed by private originators of, or investors in, mortgage loans.
Classes in CMOs which the funds may hold are known as "regular" interests. CMOs
also issue "residual" interests, which in general are junior to and more
volatile than regular interests. The funds do not intend to purchase residual
interests.
Mortgage pass-through certificates provide the holder with a pro rata interest
in the underlying mortgages. One type of such certificate in which the funds
may invest is a GNMA Certificate which is backed as to the timely payment of
principal and interest by the full faith and credit of the U.S. Government.
Another type is a FNMA Certificate, the principal and interest of which are
guaranteed only by FNMA itself, not by the full faith and credit of the U.S.
Government. Another type is a FHLMC Participation Certificate which is
guaranteed by FHLMC as to timely payment of principal and interest. However,
like a FNMA security, it is not guaranteed by the full faith and credit of the
U.S. Government. Privately issued mortgage backed securities will carry a
rating at the time of purchase of at least A by S&P or by Moody's or, if
unrated, will be in the Investment Adviser's opinion equivalent in credit
quality to such rating. Mortgage backed securities issued by private issuers,
whether or not such obligations are subject to guarantees by the private
issuer, may entail greater risk than obligations directly or indirectly
guaranteed by the U.S. Government.
The above-mentioned funds may also invest in non-mortgage backed securities
including interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities may also
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
Non-mortgage backed securities involve certain risks that are not presented by
mortgage backed securities. Primarily, these securities do not have the benefit
of the same security interest in the underlying collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws. Most issuers
of motor vehicle receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the motor vehicle receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
STRIPPED GOVERNMENT OBLIGATIONS
All of the Asset Allocation and Bond Funds, and the Money Market Fund may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government obligations. These participations, which may be
issued by the U.S. Government (or a U.S. Government agency or instrumentality)
or by private issuers such as banks and other institutions, are issued at a
discount to their "face value," and may include stripped mortgage backed
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securities ("SMBS"), which are derivative multi-class mortgage securities.
Stripped securities, particularly SMBS, may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal
and interest are returned to investors.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of mortgage
backed obligations. A common type of SMBS will have one class receiving all of
the interest, while the other class will receive all of the principal. However,
in some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. With respect to investments in interest only
securities, should the underlying obligations experience greater than
anticipated prepayments of principal, a fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments may be more volatile in response to
changes in interest rates. The yields on a class SMBS that receives all or most
of the interest are generally higher than prevailing market yields on other
mortgage backed obligations because their cash flow patterns are more volatile.
For interest only securities, there is a greater risk that the initial
investment will not be fully recouped.
RISKS RELATED TO LOWER-RATED SECURITIES
The Asset Allocation, Equity, International Bond and High Yield Bond Funds may
purchase lower-rated securities (commonly known as junk bonds). While any
investment carries some risk, some of the risks associated with lower-rated
securities are different from the risks associated with investment grade
securities. The risk of loss through default is greater because lower-rated
securities are usually unsecured and are often subordinate to an issuer's other
obligations. Additionally, the issuers of these securities frequently have high
debt levels and are thus more sensitive to difficult economic conditions,
individual corporate developments and rising interest rates. Consequently, the
market price of these securities, and the net asset value of a fund's shares,
may be quite volatile.
RELATIVE YOUTH OF LOWER-RATED SECURITIES' MARKET. Because the market for
lower-rated securities, at least in its present size and form, is relatively
new, there remains some uncertainty about its performance level under adverse
market and economic environments. An economic downturn or increase in interest
rates could have a negative impact on both the market for lower-rated
securities (resulting in a greater number of bond defaults) and the value of
lower-rated securities held in a fund's portfolio.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and interest
rates can affect lower-rated securities differently than other securities. For
example, the prices of lower-rated securities are more sensitive to adverse
economic changes or individual corporate developments than are the prices of
higher-rated investments. Also, during an economic downturn or a period in
which interest rates are rising significantly, highly leveraged issuers may
experience financial difficulties, which, in turn, would adversely affect their
ability to service their principal and interest payment obligations, meet
projected business goals and obtain additional financing. If the issuer of a
security defaults, a fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty would likely result in increased
volatility for the market prices of securities as well as a fund's net asset
value. In general, both the prices and yields of lower-rated securities will
fluctuate.
LIQUIDITY AND VALUATION. In certain circumstances it may be difficult to
determine a security's fair value due to a lack of reliable objective
information. Such instances occur when there is not an established secondary
market for the security or the security is thinly traded. As a result, a fund's
valuation of a security and the price it is actually able to obtain when it
sells the security could differ.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of lower-rated
securities held by a fund, especially in a thinly traded market. Illiquid or
restricted securities held by a fund may involve special registration
responsibilities, liabilities and costs, and could involve other liquidity and
valuation difficulties.
CONGRESSIONAL PROPOSALS. Current laws, as well as pending proposals, may have
a material impact on the market for lower-rated securities.
MUNICIPAL AND RELATED OBLIGATIONS
Municipal Obligations that may be acquired by each Asset Allocation and Bond
Fund may include general obligations, revenue obligations, notes and moral
obligations bonds. Each of these funds currently intends to invest no more than
25% of its total assets in Municipal Obligations. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue obligations are payable only
from the revenues derived from a particular facility, class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source such as the user of the facility being financed. Private activity bonds
(i.e. bonds issued by industrial development authorities) are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of a private activity bond is usually
directly related to the credit standing of the private user of the facility
involved.
Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and
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are sold in anticipation of a bond sale, collection of taxes or receipt of
other revenues. Moral obligation bonds are normally issued by a special purpose
public authority. If the issuer of a moral obligation bond is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer. Municipal Obligations
also include municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment issued by
municipalities. The Funds will only invest in rated municipal lease/purchase
agreements.
There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
STAND-BY COMMITMENTS
Each of the Asset Allocation and Bond Funds may acquire "stand-by commitments"
with respect to Municipal Obligations held in their portfolios. Under a stand-
by commitment, a fund obligates a broker, dealer or bank to repurchase, at the
fund's option, specified securities at a specified price and, in this respect,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment therefore is subject to the ability of the seller to make payment on
demand. A fund other than the Money Market Fund will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes. A fund may pay for stand-
by commitments if such action is deemed necessary, thus increasing to a degree
the cost of the underlying Municipal Obligation and similarly decreasing such
securities yield to investors.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Each of the Asset Allocation, Bond and Money Market Funds may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATS) where the trust participations evidence ownership in either the future
interest payments or the future principal payments on the U.S. Treasury
obligations. These participations are normally issued at a discount to their
"face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
OPTIONS TRANSACTIONS
Each Non-Money Market Fund and Additional Pegasus Fund is permitted to invest
up to 5% of its assets, represented by the premium paid, in the purchase of
call and put options. Options transactions are a form of derivative security.
Each of the above-mentioned funds is permitted to purchase call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) in which it may invest. Each may write (i.e., sell) covered call
option contracts on securities owned by it not exceeding 25% of the market
value of its net assets at the time such option contracts are written. Each of
these funds also may purchase call options to enter into closing purchase
transactions. Each also may write covered put option contracts to the extent of
25% of the value of its net assets at the time such option contracts are
written. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, the
underlying security at the exercise price at any time during the option period.
A covered put option sold by a fund exposes it during the term of the option to
a decline in price of the underlying security or securities. A put option sold
by a fund is covered when, among other things, cash or liquid securities are
placed in a segregated account with its custodian to fulfill the obligation
undertaken.
The Asset Allocation Funds, the International Equity Fund and the
International Bond Fund may also purchase and sell call and put options on
foreign currency for the purpose of hedging against changes in future currency
exchange rates. Call options convey the right to buy the underlying currency at
a price which is expected to be lower than the spot price of the currency at
the time the option expires. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option expires.
In addition, the Funds and Additional Pegasus Funds other than the Money
Market Fund may purchase cash-settled options on interest rate swaps, interest
rate swaps denominated in foreign currency and equity index swaps. See
"Interest Rate and Equity Index Swaps" below. A cash-settled option on a swap
gives the purchaser the right, but not the obligation, in return for the
premium paid, to receive an amount of cash equal to the value of the underlying
swap as of the exercise date. These options typically are purchased in
privately negotiated transactions from financial institutions, including
securities brokerage firms.
Each of the above-mentioned funds may purchase and sell call and put options
on stock indices listed on
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U.S. securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included in
the index. Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether a fund
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices in an industry or market segment,
rather than movements in the price of a particular stock.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Non-Money Market Fund and each Additional Pegasus Fund may enter into
futures contracts and options on futures contracts. All of the Equity Funds may
enter into stock index futures contracts and all of the Non-Money Market Funds
may enter into interest rate futures contracts and currency futures contracts,
and options with respect thereto. See "Options Transactions" above. These
transactions will be entered into as a substitute for comparable market
positions in the underlying securities or for hedging purposes. A fund may not
engage in such transactions if the sum of the amount of initial margin deposits
and premiums paid for unexpired commodity options, other than for bona fide
hedging transactions, would exceed 5% of the liquidation value of its assets,
after taking into account unrealized profits and unrealized losses on such
contracts it has entered into; provided, however, that in the case of an option
that is in-the-money at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. To the extent a fund engages in the use of
futures and options on futures for other than bona fide hedging purposes, it
may be subject to additional risk. Although none of these funds would be a
commodity pool, each would be subject to rules of the CFTC limiting the extent
to which it could engage in these transactions. Futures and options
transactions are a form of derivative security. In addition, in such
situations, if a fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may, but
will not necessarily, be at increased prices which reflect the rising market. A
fund may have to sell securities at a time when it may be disadvantageous to do
so.
FOREIGN CURRENCY TRANSACTIONS
The Asset Allocation Funds, International Equity and International Bond Funds
may engage in currency exchange transactions either on a spot (i.e., cash)
basis at the rate prevailing in the currency exchange market, or through
entering into forward contracts to purchase or sell currencies. A forward
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. These
contracts are entered into in the interbank market conducted directly between
currency traders (typically commercial banks or other financial institutions)
and their customers. They may be used to reduce the level of volatility caused
by changes in foreign currency exchange rates or when such transactions are
economically appropriate for the reduction of risks in the ongoing management
of the funds. Although forward currency exchange contracts may be used to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of such currency increase. The funds also may combine forward
currency exchange contracts with investments in securities denominated in other
currencies.
Each of the above-mentioned funds also may maintain short positions in forward
currency exchange transactions, which would involve an agreement to exchange an
amount of a currency the fund did not currently own for another currency at a
future date in anticipation of a decline in the value of the currency sold
relative to the currency the fund contracted to receive in the exchange.
OPTIONS ON FOREIGN CURRENCY
The Asset Allocation, International Equity and International Bond Funds may
purchase and sell call and put options on foreign currency for the purpose of
hedging against changes in future currency exchange rates. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option expires. Put
options convey the right to sell the underlying currency at a price which is
anticipated to be higher than the spot price of the currency at the time the
option expires. The funds may use foreign currency options for the same
purposes as forward currency exchange and futures transactions, as described
herein. See also "Options Transactions" above and "Risks Associated with
Futures, Options and Foreign Currency Transactions and Options," below.
RISKS ASSOCIATED WITH FUTURES, OPTIONS AND FOREIGN CURRENCY TRANSACTIONS AND
OPTIONS
To the extent a Non-Money Market Fund or an Additional Pegasus Fund is engaging
in a futures or options transaction as a hedging device, due to the risk of an
imperfect correlation between securities in its portfolio that are the subject
of a hedging transaction and the futures contract or options used as a hedging
device, it is possible that the hedge will not be fully effective. In futures
contracts and options based on indices, the risk of imperfect correlation
increases as the composition of the fund involved varies from the composition
of the index. In an effort to compensate
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for the imperfect correlation of movements in the price of the securities being
hedged and movements in the price of contracts, the fund may buy or sell
futures contracts and options in a greater or lesser dollar amount than the
dollar amount of the securities being hedged if the historical volatility of
the futures contract has been less or greater than that of the securities. Such
"over hedging" or "under hedging" may adversely affect the fund's net
investment results if market movements are not as anticipated when the hedge is
established.
Successful use of futures and options also is subject to the Investment
Adviser's or Sub-Adviser's ability to predict correctly movements in the
direction of securities prices, interest rates, currency exchange rates and
other economic factors. In addition, in such situations, if the fund involved
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may, but will not necessarily, be
at increased prices which reflect the rising market. The fund may have to sell
securities at a time when it may be disadvantageous to do so.
Although a fund intends to enter into futures contracts and options
transactions only if there is an active market for such contracts, no assurance
can be given that a liquid market will exist for any particular contract at any
particular time. See "Illiquid Securities" below. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit or trading may be suspended for specified periods during the trading day.
Futures contracts prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation
of futures positions and potentially subjecting the fund to substantial losses.
If it is not possible, or the fund determines not, to close a futures position
in anticipation of adverse price movements, the fund will be required to make
daily cash payments of variation margin. In such circumstances, an increase in
the value of the portion of the portfolio being hedged, if any, may offset
partially or completely losses on the futures contract.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or
political developments in the United States or abroad. The foreign currency
market offers less protection against defaults in the forward trading of
currencies than is available when trading in currencies occurs on an exchange.
Since a forward currency contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a fund of unrealized
profits or force the fund to cover its commitments for purchase or resale, if
any, at the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the CFTC and may be subject to greater risks than
trading on domestic exchanges. For example, some foreign exchanges are
principal markets so that no common clearing facility exists and a trader may
look only to the broker for performance on the contract. In addition, unless
the fund hedges against fluctuations in the exchange rate between the U.S.
dollar and the currencies in which trading is done on foreign exchanges, any
profits that the fund might realize in trading could be eliminated by adverse
changes in the exchange rate, or the fund could incur losses as a result of
those changes. Transactions on foreign exchanges may include both commodities
which are traded on domestic exchanges and those which are not.
INTEREST RATE AND EQUITY INDEX SWAPS
Each of the Non-Money Market and Additional Pegasus Funds may enter into
interest rate swaps and equity index swaps, to the extent described under
"Description of the Funds-Management Policies," in pursuit of its investment
objective. Interest rate swaps involve the exchange by a fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments for fixed-rate payments). Equity index
swaps involve the exchange by a fund with another party of cash flows based
upon the performance of an index or a portion of an index which usually
includes dividends. In each case, the exchange commitments may involve payments
to be made in the same currency or in different currencies. Swaps are a form of
derivative security.
The funds usually will enter into swaps on a net basis. In so doing, the two
payment streams are netted out, with the fund receiving or paying, as the case
may be, only the net amount of the two payments. If a fund enters into a swap,
it would maintain a segregated account in the full amount accrued on a daily
basis of the fund's obligations with respect to the swap. Each of these funds
will enter into swap transactions with counterparties only if: (1) for
transactions with maturities under one year, such counterparty has outstanding
short-term paper rated at least A-1 by S&P, Prime-1 by Moody's, F-1 by Fitch or
Duff-1 by Duff, or (2) for transactions with maturities greater than one year,
the counterparty has outstanding debt securities rated at least Aa by Moody's
or AA by S&P, Fitch or Duff.
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The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. There is no limit on the amount of swap transactions
that may be entered into by a Non-Money Market Fund or an Additional Pegasus
Fund. These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that a fund is contractually
obligated to make. If the other party to a swap defaults, the relevant fund's
risk of loss consists of the net amount of payments that such fund
contractually is entitled to receive.
RESTRICTED AND ILLIQUID SECURITIES
The Non-Money Market Funds and the Additional Pegasus Funds will not invest
more than 15% of the value of their respective net assets in securities that
are illiquid and the Money Market Fund will not invest more than 10% of the
value of its net assets in securities that are illiquid. Securities having
legal or contractual restrictions on resale and with no readily available
market, and instruments (including repurchase agreements, variable and floating
rate instruments, GICs and time deposits) that do not provide for payment to
the funds within seven days after notice are subject to this limitation.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed to be illiquid for purposes of this
limitation.
The Non-Money Market Funds and the Additional Pegasus Funds may purchase
securities which are not registered under the Securities Act of 1933, as
amended (the "1933 Act"), but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered to be illiquid so long as it is determined by the Board of
Trustees or the Investment Adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that
security. This investment practice could have the effect of increasing the
level of illiquidity in a fund during any period that qualified institutional
buyers become uninterested in purchasing these restricted securities. The
ability to sell to qualified institutional buyers under Rule 144A is a recent
development, and it is not possible to predict how this market will develop.
The Board of Trustees will carefully monitor any investments by a fund in these
securities.
PORTFOLIO TURNOVER
Generally, the Non-Money Market Funds and the Additional Pegasus Funds will
purchase securities for capital appreciation or investment income, or both, and
not for short-term trading profits. However, a fund may sell a portfolio
investment soon after its acquisition if the Investment Adviser or Sub-Adviser
believes that such a disposition is consistent with or in furtherance of the
fund's investment objective. Fund investments may be sold for a variety of
reasons, such as more favorable investment opportunities or other
circumstances. As a result, such funds are likely to have correspondingly
greater brokerage commissions and other transaction costs which are borne
indirectly by shareholders. Fund turnover may also result in the realization of
substantial net capital gains.
Asset reallocation decisions for the Asset Allocation Funds typically will
occur on a monthly basis. However, if market conditions warrant, the Investment
Adviser may make more frequent reallocation decisions which will result in a
higher portfolio turnover rate. The Asset Allocation Funds will purchase or
sell shares of the Underlying Funds: (a) to accommodate purchases and
redemptions of each Asset Allocation Fund's shares; (b) in response to market
or other economic conditions; and (c) to maintain or modify the allocation of
each Asset Allocation Fund's assets among the Underlying Funds within its
target asset allocation ranges. See "Taxes--Federal" in the Prospectus and
"Additional Information Concerning Taxes" in the Statement of Additional
Information.
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Debt Ratings
CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa--judged to
be the best quality, carry the smallest degree of investment risk and are
generally referred to as "gilt edged"; Aa--judged to be of high quality by all
standards; A--deemed to have many favorable investment attributes and
considered as upper medium grade obligations; Baa--considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured; Ba, B,
Caa, Ca, C--protection of interest and principal payments is questionable (Ba
indicates some speculative elements, B represents bonds that generally lack
characteristics of the desirable investment, Caa represents bonds which are in
poor standing, Ca represents a high degree of speculation and C represents the
lowest rated class of bonds); Caa, Ca and C bonds may be in default. Moody's
applies numerical modifiers 1, 2 and 3 in each generic classification from Aa
to B in its bond rating systems. 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 at the lower end of its generic rating category.
An S&P corporate debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. Debt rated "AAA" has the
highest rating assigned by S&P. Capacity to pay interest and repay principal is
considered to be extremely strong. Debt rated "AA" is considered to have a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated "A" is considered to have
a strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt of a higher rated category. Debt rated "BBB" is
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and to repay principal for debt in this category than
for higher rated categories. Debt rated "BB," "B," "CCC," "CC" or "C" is
regarded, on balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the
obligations. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. Debt rated "CI" is reserved for
income bonds on which no interest is being paid. Debt rated "D" is in default,
and payment of interest and/or repayment of principal is in arrears. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized. The 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.
Excerpts from Fitch's description of its corporate bond ratings: "AAA"--
considered to be investment grade and of the highest credit quality. Capacity
to pay interest and repay principal is considered to be exceptionally strong;
"AA"--judged to be investment grade and of very high credit quality, although
the capacity to pay interest and repay principal is not quite as strong as
bonds rated "AAA"; "A"--deemed investment grade and of high credit quality,
although the capacity to pay interest and repay principal may be somewhat more
susceptible to the adverse changes in economic conditions and circumstances
than bonds with higher ratings; "BBB" is regarded as having satisfactory credit
quality with an adequate capacity to pay interest and repay principal although
adverse changes in economic conditions and circumstances are more likely to
impair timely payment than for higher rated categories; "BB," "B," "CCC," "CC,"
"C," "DDD," "DD," and "D"--regarded as speculative investments. The ratings
"BB" to "C" represent the likelihood of timely payment of principal and
interest in accordance with the terms of obligation for bond issues not in
default. For defaulted bonds, the rating "DDD" to "D" is an assessment of the
ultimate recovery value through reorganization or liquidation. The ratings from
"AA" to "C" may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
The following summarizes the ratings used by Duff for corporate debt. Debt
rated "AAA" is of the highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt. Debt rated "AA"
is of high credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Debt rated
"A" has protection factors which are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Debt rated
"BBB" possesses below average protection factors but such protection factors
are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles. Debt rated below "BBB"
is considered to be below investment grade. Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends.
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Debt rated "DD" represents defaulted obligations. To provide more detailed
indications of credit quality, the "AA," "A," "BBB," "BB" and "B" ratings may
be modified by the addition of a plus or minus sign to show relative standing
within these major categories.
COMMERCIAL PAPER RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. The
designation "A-1" indicates the degree of safety regarding timely payment is
considered to be strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation. The
designation "A-2" indicates the capacity for timely payment is satisfactory,
however, the relative degree of safety is not as high as for issues designated
"A-1." The designation "B" indicates that the issue has only a speculative
capacity for timely payment. The designation "C" indicates that the issue has a
doubtful capacity for payment. Commercial paper rated "D" indicates that the
issue is in payment default. Moody's commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of 9 months. The rating "Prime-1" is the highest
commercial paper rating assigned by Moody's. Issuers rated "Prime-1" (or
related supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated "Prime-2" (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. Issuers rated "Prime 3" are
considered to have an acceptable capacity for repayment. Moody's uses the
designation "Not Prime" for issuers that do not fall within any of the Prime
rating categories.
Fitch short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years. The designation "F-1"
indicates that the securities possess very strong credit quality. Those
securities determined to possess exceptionally strong credit quality are
denoted with a plus (+) sign designation. Securities rated "F-2" are considered
to possess good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment. Securities rated "F-3" possess fair
credit quality. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate; however, near term
adverse changes could cause these securities to be rated below investment
grade. Securities rated "F-5" possess weak credit quality. Securities rated "D"
are in actual or imminent payment default.
The three highest rating categories of Duff for short-term debt are "D-1," "D-
2" and "D-3." Duff employs three designations, "D-1+," "D-1" and "D-1-," within
the highest rating category. "D-1+" indicates highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations. "D-1" indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are minor. "D-1-" indicates
high certainty of timely payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are very small. "D-2"
indicates 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" indicates satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected. D&P may also rate
short-term municipal debt as "D-4" or "D-5." "D-4" indicates speculative
investment characteristics. "D-5" indicates that the issuer has failed to meet
scheduled principal and/or interest payments. Securities rated "F-3" possess
fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near term adverse changes could cause these securities to be rated
below investment grade. Securities rated "F-5" possess weak credit quality.
Securities rated "D" are in actual or imminent payment default.
UNRATED SECURITIES
Unrated securities are securities which have not been rated by a nationally
recognized statistical rating organization.
B2- Pegasus Funds
<PAGE> 144
Prospectus
APRIL 30, 1998 PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH,
MASSACHUSETTS 01581
24 HOUR YIELD AND
PERFORMANCE INFORMATION
PURCHASE AND REDEMPTION
ORDERS:
(800) 688-3350
Pegasus Funds (the "Trust") is an open-end, management investment company.
Through this Prospectus, investors may invest in any of the following four
separate money market funds (the "Funds"):
THE MONEY MARKET FUND THE MUNICIPAL MONEY THE MICHIGAN MUNICIPAL
seeks to provide a MARKET FUND seeks to MONEY MARKET FUND seeks
high level of current provide a high level to provide a high level
income consistent with of current interest of current interest
the preservation of income that is exempt income that is exempt
capital and liquidity. from federal income from federal and State of
This Fund will invest taxes consistent with Michigan income taxes,
in high quality "money the preservation of consistent with the
market" instruments. capital and liquidity. preservation of capital
THE TREASURY MONEY This Fund will invest and liquidity. This Fund
MARKET FUND seeks to in high quality debt will invest in high
provide a high level obligations issued by quality debt obligations
of current income or on behalf of issued by the State of
consistent with the states, territories Michigan, its political
preservation of and possessions of the subdivisions,
capital and liquidity. United States and the municipalities,
This Fund will invest District of Columbia corporations and
in U.S. Treasury and their respective authorities, the interest
bills, notes and political subdivisions on which, in the opinion
direct U.S. Treasury and authorities, the of bond counsel to the
obligations having interest from which issuers, is exempt from
remaining maturities is, in the opinion of federal and State of
of 397 days or less bond counsel for the Michigan income taxes
and repurchase issuers, exempt from ("Michigan Municipal
agreements relating to regular federal income Obligations").
direct U.S. Treasury tax ("Municipal
obligations. Obligations").
The Municipal Money Market Fund and Michigan Municipal Money Market Fund are
sometimes referred to as the "Municipal Funds."
This Prospectus sets forth concisely information that a prospective investor
should consider before investing. Investors should read this Prospectus and
retain it for future reference. Additional information about the Trust,
contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request
and without charge by writing to the Trust at the above address. The Statement
of Additional Information bears the same date as this Prospectus and is
incorporated by reference into this Prospectus in its entirety.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY. INVESTMENT
IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A CONSTANT NET
ASSET VALUE OF $1.00 PER SHARE. THE MICHIGAN MUNICIPAL MONEY MARKET FUND IS
CONCENTRATED IN SECURITIES ISSUED BY THE STATE OF MICHIGAN AND ENTITIES WITHIN
THE STATE OF MICHIGAN AND THEREFORE INVESTMENT IN THE FUND MAY BE RISKIER THAN
AN INVESTMENT IN OTHER TYPES OF MONEY MARKETS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE> 145
Table of Contents
<TABLE>
<C> <S>
3 Highlights
3 Expense Table
5 Background
5 Financial Highlights
8 Description of the Funds
10 How to Buy Shares
12 Shareholder Services
13 How to Redeem Shares
15 Management of the Trust
16 Distribution and Shareholder Services Plans
16 Dividends and Distributions
17 Taxes
18 Performance Information
19 General Information
A-1 Supplemental Information
</TABLE>
<PAGE> 146
Highlights
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each Fund's investment objective is set forth on the cover page of this
Prospectus.
Each Fund seeks to maintain its net asset value per share of $1.00, and values
its portfolio securities on the basis of amortized cost. The dollar weighted
average maturity of each Fund is 90 days or less.
INVESTMENT ADVISER
First Chicago NBD Investment Management Company ("FCNIMCO") is the Investment
Adviser to each of the Funds. Each Fund has agreed to pay the Investment
Adviser an annual fee as set forth under "Management of the Funds."
DESCRIPTION OF CLASSES
Each Fund offers Class A shares and Class I shares. The Money Market Fund
offers Class B shares only through an exchange of Class B shares from one of
the Trust's non-money market investment portfolios. Each share represents an
identical pro rata interest in a Fund's investment portfolio.
Class A shares are sold at net asset value with no sales charge and are
subject to a shareholder servicing fee.
Class B shares are sold at net asset value per share with no front-end sales
charge. Class B shares may be subject to a contingent deferred sales charge
("CDSC") and are subject to a distribution fee and shareholder servicing fee.
Class I shares are sold at net asset value with no sales charge to
institutional investors, including banks, such as The First National Bank of
Chicago ("FNBC"), NBD Bank ("NBD"), American National Bank and Trust Company
("ANB") or their affiliates, acting for themselves or in a fiduciary, advisory,
agency, custodial or similar capacity, and to public agencies and
municipalities. Class I shares of the Money Market Fund may be sold to the
Asset Allocation Funds, three diversified portfolios of the Trust whose shares
are offered by a separate Prospectus.
HOW TO BUY SHARES
Class A shares and Class B shares may be purchased through a number of
institutions including the Investment Adviser, FNBC, ANB and their affiliates,
including First NBD Investment Services, Inc. ("FCNIS"), a registered broker-
dealer, BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services (the
"Distributor" or "BISYS") which serves the Trust as its Distributor and certain
banks, securities dealers and other industry professionals such as investment
advisers, accountants and estate planning firms (collectively, "Service
Agents").
Investors purchasing Class I shares should contact their institutions directly
for appropriate instructions, as well as for information about conditions
pertaining to the account and any related fees.
The minimum initial investment for Class A and Class B shares is $2,500. All
subsequent investments must be at least $100. The minimum initial investment
for Class I shares is $1,000,000 or any lesser amount if, in the Distributor's
opinion, the investor has adequate intent and availability of funds to reach a
future level of investment of $1,000,000.
See "How to Buy Shares" on page 10 of this Prospectus.
SHAREHOLDER SERVICES
The Funds offer shareholders certain services and privileges including:
Exchange Privilege and Automatic Investment Plans. Certain services and
privileges may not be available through all Service Agents.
See "Shareholder Services" on page 12 of this Prospectus.
HOW TO REDEEM SHARES
Generally, investors should contact their representatives at the Investment
Adviser, FNBC, ANB, their affiliates or the appropriate Service Agent for
redemption instructions. Investors who are not clients of the Investment
Adviser, FNBC, NBD, ANB, their affiliates or a Service Agent may redeem Fund
shares by written request to First Data Investor Services Group, Inc. (the
"Transfer Agent").
See "How to Redeem Shares" on page 13 of this Prospectus.
Expense Table
The purpose of the following tables is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear, directly or
indirectly, the payment of which will reduce investors' return on an annual
basis.
Pegasus Funds
3
<PAGE> 147
<TABLE>
<CAPTION>
ALL MONEY MARKET
FUNDS FUND ONLY
- -----------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES Class A and I Class B
- -----------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A PERCENTAGE OF OFFERING
PRICE) None None
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge on Reinvested Dividends None None
- -----------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge Imposed On Redemptions (as a percentage of
the amount subject to charge) None None*
- -----------------------------------------------------------------------------------------------------
Redemption Fees None None
- -----------------------------------------------------------------------------------------------------
Exchange Fees None None
- --------------------------------------------------------------------------------
</TABLE>
* No contingent deferred sales load is charged, except that shares of the Money
Market Fund acquired through an exchange of shares offered with a CDSC will be
subject to a CDSC of up to a maximum of 5% upon redemption in accordance with
the Prospectus for the particular B Shares. See "How to Redeem Shares."
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES EXPENSES EXPENSES(1)(3)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET FUND
Class A Shares .27% N/A .48% .75%(2)
Class B Shares .27% 0.75% .48% 1.50%(2)
Class I Shares .27% N/A .23% .50%(2)
- ------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
Class A Shares .30% N/A .43% .73%
Class I Shares .30% N/A .18% .48%
- ------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
Class A Shares .30% N/A .43% .73%
Class I Shares .30% N/A .18% .48%
- ------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
Class A Shares .27% N/A .48% .75%(2)
Class I Shares .27% N/A .23% .50%(2)
</TABLE>
- --------------------------------------------------------------------------------
(1) See "How to Buy Shares," "Management of the Funds" and "Distribution and
Shareholder Services Plans." Other Expenses and Total Operating Expenses
for each Fund have been restated to reflect current expenses.
(2) Absent fee waivers, Total Operating Expenses for the Class A and Class I
shares of the Michigan Municipal Money Market Fund would have been 0.76%
and 0.51%, respectively; and for the Class A, Class B and Class I shares of
the Money Market Fund would have been 0.77%, 1.52% and 0.52%, respectively.
(3) The Investment Adviser has voluntarily agreed to limit the total operating
expenses of the Funds as stated below:
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B I
--------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 0.75% 1.50% 0.50%
Treasury Money Market Fund 0.75% N/A 0.50%
Municipal Money Market Fund 0.75% N/A 0.50%
Michigan Municipal Money Market Fund 0.75% N/A 0.50%
</TABLE>
Waivers and/or reimbursements may be discontinued or modified at any time
without notice.
Pegasus Funds
4
<PAGE> 148
EXAMPLE
An investor will pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return (2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET FUND*
Class A Shares $ 8 $ 24 $ 42 $ 93
Class B Shares $65/$15** $78/$48** $102/$82** $150
Class I Shares $ 5 $ 16 $ 28 $ 63
- ----------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
Class A Shares $ 7 $ 23 $ 41 $ 91
Class I Shares $ 5 $ 15 $ 27 $ 60
- ----------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
Class A Shares $ 7 $ 23 $ 41 $ 91
Class I Shares $ 5 $ 15 $ 27 $ 60
- ----------------------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND*
Class A Shares $ 8 $ 24 $ 42 $ 93
Class I Shares $ 5 $ 16 $ 28 $ 63
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* After expense reimbursements or fee waivers.
** Assuming no redemption of Class B shares.
THE AMOUNTS LISTED IN THE EXAMPLES SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE EACH EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S
ACTUAL PERFORMANCE MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
The Investment Adviser, FNBC, ANB and their affiliates and certain Service
Agents may charge their clients fees in connection with an investment in the
Funds which are not reflected in the foregoing tables.
BACKGROUND
Shares of each Fund, other than the Money Market Fund, have been classified into
two separate classes of shares--Class A shares and Class I shares. Shares of the
Money Market Fund have been classified into three separate classes of
shares--Class A shares, Class B shares and Class I shares. Each share represents
an equal proportionate interest in the related Fund.
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Funds' financial
Statements, which are incorporated by reference in their Statement of
Additional Information and set forth certain information concerning the
historic investment results of Fund shares. They present a per share analysis
of net investment income and distributions from net investment income for each
of the Funds. The tables have been derived from the Funds' financial statements
which have been audited by Arthur Anderson LLP, the Trust's independent public
accountants, whose report thereon is also incorporated by reference in the
Statement of Additional Information along with the financial statements. The
financial data included in these tables should be read in conjunction with the
financial statements and related notes incorporated by reference in the
Statement of Additional Information. Further information about the performance
of the Funds is available in annual reports to shareholders. The Statement of
Additional Information and annual reports to shareholders may be obtained from
the Trust free of charge by calling (800) 688-3350.
Pegasus Funds 5
<PAGE> 149
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET
NET ASSET REALIZED DISTRIBUTIONS
VALUE NET AND UNREALIZED TOTAL FROM FROM NET
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT TOTAL
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME DISTRIBUTIONS
--------- ---------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
CLASS A
SHARES
1997 $1.0000 0.0491 -- 0.0491 (0.0491) (0.0491)
1996 $1.0000 0.0488 -- 0.0488 (0.0488) (0.0488)
1995 $1.0000 0.0549 -- 0.0549 (0.0549) (0.0549)
1994 $1.0000 0.0378 -- 0.0378 (0.0378) (0.0378)
1993 $1.0000 0.0281 -- 0.0281 (0.0281) (0.0281)
1992 $1.0000 0.0347 -- 0.0347 (0.0347) (0.0347)
1991 $1.0000 0.0579 -- 0.0579 (0.0579) (0.0579)
1990 $1.0000 0.0784 -- 0.0784 (0.0784) (0.0784)
1989 $1.0000 0.0877 -- 0.0877 (0.0877) (0.0877)
1988(1) $1.0000 0.0730 -- 0.0730 (0.0730) (0.0730)
CLASS B
SHARES
1997 $1.0000 0.0421 -- 0.0421 (0.0421) (0.0421)
1996(2) $1.0000 0.0117 -- 0.0117 (0.0117) (0.0117)
CLASS I
SHARES
1997 $1.0000 0.0516 -- 0.0516 (0.0516) (0.0516)
1996(3) $1.0000 0.0373 -- 0.0373 (0.0373) (0.0373)
- -----------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
CLASS A
SHARES
1997 $0.9999 0.0481 -- 0.0481 (0.0481) (0.0481)
1996 $1.0000 0.0474 (0.0001) 0.0473 (0.0474) (0.0474)
1995 $1.0000 0.0539 -- 0.0539 (0.0539) (0.0539)
1994 $1.0000 0.0370 -- 0.0370 (0.0370) (0.0370)
1993 $1.0000 0.0273 -- 0.0273 (0.0273) (0.0273)
CLASS I
SHARES
1997 $1.0000 0.0507 -- 0.0507 (0.0507) (0.0507)
1996(3) $1.0000 0.0361 -- 0.0361 (0.0361) (0.0361)
- -----------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
CLASS A
SHARES
1997 $0.9997 0.0296 -- 0.0296 (0.0296) (0.0296)
1996 $1.0000 0.0295 (0.0003) 0.0292 (0.0295) (0.0295)
1995 $1.0000 0.0335 -- 0.0335 (0.0335) (0.0335)
1994 $1.0000 0.0242 -- 0.0242 (0.0242) (0.0242)
1993 $1.0000 0.0196 -- 0.0196 (0.0196) (0.0196)
1992 $1.0000 0.0264 -- 0.0264 (0.0264) (0.0264)
1991 $1.0000 0.0422 -- 0.0422 (0.0422) (0.0422)
1990 $1.0000 0.0553 -- 0.0553 (0.0553) (0.0553)
1989 $1.0000 0.0595 -- 0.0595 (0.0595) (0.0595)
1988(1) $1.0000 0.0498 -- 0.0498 (0.0498) (0.0498)
CLASS I
SHARES
1997 $1.0000 0.0322 (0.0001) 0.0321 (0.0322) (0.0322)
1996(3) $1.0000 0.0232 -- 0.0232 (0.0232) (0.0232)
- -----------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET
CLASS A
SHARES
1997 $1.0000 0.0296 -- 0.0296 (0.0296) (0.0296)
1996 $1.0000 0.0289 -- 0.0289 (0.0289) (0.0289)
1995 $1.0000 0.0329 -- 0.0329 (0.0329) (0.0329)
1994 $1.0000 0.0235 -- 0.0235 (0.0235) (0.0235)
1993 $1.0000 0.0181 -- 0.0181 (0.0181) (0.0181)
1992 $1.0000 0.0237 -- 0.0237 (0.0237) (0.0237)
1991(4) $1.0000 0.0353 -- 0.0353 (0.0353) (0.0353)
CLASS I
SHARES
1997 $1.0000 0.0321 -- 0.0321 (0.0321) (0.0321)
1996(3) $1.0000 0.0225 -- 0.0225 (0.0225) (0.0225)
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period January 4, 1988 (commencement of operations) through
December 31, 1988.
(2) For the period September 14, 1996 (initial offering of Class B Shares)
through December 31, 1996.
(3) For the period March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
(4) For the period January 23, 1991 (commencement of operations) through
December 31, 1991.
+ Annualized.
Pegasus Funds
6
<PAGE> 150
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
RATIO EXPENSES
NET NET OF NET TO AVERAGE
ASSET ASSETS RATIO OF INVESTMENT NET ASSETS
VALUE END OF EXPENSES INCOME (EXCLUDING FEE
END OF TOTAL PERIOD TO AVERAGE TO AVERAGE WAIVERS AND
PERIOD RETURN (000) NET ASSETS NET ASSETS REIMBURSEMENTS)
------ ------ ------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
$1.0000 5.04% $ 973,821 0.74% 4.90% 0.74%
$1.0000 4.99% $ 728,397 0.63% 4.87% --
$1.0000 5.63% $1,639,695 0.51% 5.49% --
$1.0000 3.86% $1,320,040 0.47% 3.78% --
$1.0000 2.85% $1,326,693 0.49% 2.81% --
$1.0000 3.58% $1,095,354 0.52% 3.47% --
$1.0000 5.95% $ 775,521 0.50% 5.79% --
$1.0000 8.14% $ 717,516 0.50% 7.84% --
$1.0000 9.19% $ 446,466 0.51% 8.77% --
$1.0000 7.55%+ $ 250,182 0.49%+ 7.30%+ --
$1.0000 4.29% $ 338 1.49% 4.15% 1.49%
$1.0000 4.70%+ $ 143 1.48%+ 3.99%+ --
$1.0000 5.29% $1,217,873 0.49% 5.15% 0.49%
$1.0000 5.06%+ $1,715,313 0.51%+ 4.99%+ --
- -----------------------------------------------------------------------------------
$0.9999 4.92% $ 234,050 0.70% 4.80% --
$0.9999 4.83% $ 214,398 0.56% 4.82% --
$1.0000 5.53% $ 927,696 0.53% 5.39% --
$1.0000 3.77% $ 785,694 0.50% 3.70% --
$1.0000 2.77% $ 854,873 0.50% 2.73% --
$1.0000 5.18% $ 745,673 0.45% 5.05% --
$1.0000 4.89%+ $1,055,804 0.53%+ 4.85%+ --
- -----------------------------------------------------------------------------------
$0.9997 3.01% $ 204,527 0.73% 2.96% --
$0.9997 2.96% $ 182,226 0.60% 2.97% --
$1.0000 3.41% $ 564,413 0.53% 3.35% --
$1.0000 2.45% $ 550,736 0.51% 2.42% --
$1.0000 1.98% $ 498,706 0.51% 1.96% --
$1.0000 2.70% $ 379,431 0.53% 2.64% --
$1.0000 4.30% $ 227,808 0.52% 4.22% --
$1.0000 5.67% $ 235,451 0.52% 5.53% --
$1.0000 6.11% $ 210,028 0.51% 5.95% --
$1.0000 5.10%+ $ 177,645 0.49%+ 4.98%+ --
$0.9999 3.26% $ 524,793 0.48% 3.21% --
$1.0000 3.13%+ $ 631,938 0.51%+ 3.06%+ --
- -----------------------------------------------------------------------------------
$1.0000 3.00% $ 29,202 0.75% 2.95% 0.79%
$1.0000 2.93% $ 72,089 0.74% 2.87% 0.77%
$1.0000 3.32% $ 122,057 0.69% 3.30% 0.76%
$1.0000 2.38% $ 78,640 0.67% 2.35% 0.75%
$1.0000 1.83% $ 52,557 0.65% 1.81% --
$1.0000 2.40% $ 52,960 0.64% 2.37% --
$1.0000 3.83%+ $ 38,885 0.65%+ 3.77%+ --
$1.0000 3.26% $ 74,888 0.50% 3.20% 0.54%
$1.0000 3.03%+ $ 49,521 0.59%+ 3.02%+ 0.62%+
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds
7
<PAGE> 151
Description of the Funds
GENERAL
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
currently consists of thirty-one investment portfolios, each of which consists
of a separate pool of assets with separate investment objectives and policies.
This Prospectus, however, describes only four portfolios. Under the 1940 Act,
each Fund is classified as a diversified investment portfolio, except for the
Michigan Municipal Money Market Fund which is classified as a non-diversified
portfolio.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of a Fund may not be changed without approval of the
holders of a majority (as defined in the 1940 Act) of such Fund's outstanding
voting securities. See "General Information." Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without a
vote of shareholders. There can be no assurance that a Fund will achieve its
objective. The following sections should be read in conjunction with the
description of investments in which the Funds may invest, as set forth in
"Supplemental Information."
Each Fund seeks to maintain a net asset value of $1.00 per share for purchases
and redemptions. To do so, each Fund uses the amortized cost method of valuing
its securities pursuant to Rule 2a-7 under the 1940 Act, certain requirements
of which are summarized below.
Each Fund will only purchase "eligible securities" that present minimal credit
risks as determined by the Investment Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities include (i)
obligations issued or guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalities ("U.S. Government
Obligations"); (ii) securities that are rated (or whose issuer or, in certain
cases, guarantor is rated) (at the time of purchase) by nationally recognized
statistical rating organizations ("Rating Agencies") in the two highest
categories for such securities; and (iii) certain securities including
guarantees that are not so rated but are of comparable quality to rated
eligible securities as determined by the Investment Adviser; and (iv) under
certain circumstances, shares of other money market funds. See "Investment
Objectives, Policies and Risk Factors" in the Statement of Additional
Information for a more complete description of eligible securities. A
description of ratings is contained in the Statement of Additional Information.
Each Fund is managed so that the average maturity of all instruments in the
Fund (on a dollar-weighted basis) will not exceed 90 days. In no event will a
Fund purchase any securities which are deemed to mature more than 397 days from
the date of purchase (except for certain variable and floating rate instruments
and securities underlying repurchase agreements and collateral underlying loans
of portfolio securities).
For further information regarding the amortized cost method of valuing
securities, see "Determination of Net Asset Value" in the Statement of
Additional Information. There can be no assurance that a Fund will be able to
maintain a stable net asset value of $1.00 per share.
The MONEY MARKET FUND invests in the following high quality "money market"
instruments: (1) U.S. Government Obligations; (2) U.S. dollar denominated
obligations issued or guaranteed by the government of Canada, a Province of
Canada, or an instrumentality or political subdivision thereof; (3)
certificates of deposit, bankers' acceptances and time deposits of U.S. banks
or other U.S. financial institutions (including foreign branches of such banks
and institutions) having total assets in excess of $1 billion and which are
members of the Federal Reserve System or the Federal Deposit Insurance
Corporation ("FDIC"); (4) certificates of deposit, bankers' acceptances and
time deposits of foreign banks and U.S. branches of foreign banks having assets
in excess of the equivalent of $1 billion; (5) commercial paper, other short-
term obligations and variable rate master demand notes, bonds, debentures and
notes; and (6) repurchase agreements relating to the above instruments.
The TREASURY MONEY MARKET FUND will invest in: U.S. Treasury bills, notes, and
direct U.S. Treasury obligations having remaining maturities of 397 days or
less; and repurchase agreements relating to direct U.S. Treasury obligations.
The MUNICIPAL MONEY MARKET FUND will invest in high quality Municipal
Obligations and the MICHIGAN MUNICIPAL MONEY MARKET FUND will invest in high
quality Michigan Municipal Obligations. Each Fund may also invest in related
repurchase agreements. Income earned by the Fund with respect to repurchase
agreements and securities lending transactions is not exempt from federal
income tax. To the extent acceptable Michigan Municipal Obligations are at any
time unavailable for investment by the Michigan Municipal Money Market Fund,
the Fund will invest primarily in other Municipal Obligations, the interest on
which is, in the opinion of bond counsel, exempt from federal, but not State of
Michigan, income tax.
Municipal Obligations acquired by the Municipal Funds include: (1) Municipal
bonds; (2) Municipal notes; (3) Variable rate demand notes; (4) Tax-exempt
commercial paper and floating rate instruments; and (5) Unrated notes, paper or
other instruments that are of comparable quality as determined by the
Investment Adviser under guidelines established by the Trust's
8
Pegasus Funds
<PAGE> 152
Board of Trustees. Where necessary to assure that an instrument is of high
quality, the Funds may only purchase the instrument if the issuer's obligation
to pay the principal is backed by an unconditional bank letter of credit, line
of credit, guaranty or commitment to lend.
At least 80% of a Municipal Fund's net assets will be invested in Municipal
Obligations, except in extraordinary circumstances, such as when the Investment
Adviser believes that market conditions indicate that a Fund should adopt a
temporary defensive position by holding uninvested cash or investing in taxable
short term securities ("Taxable Investments"), such as those in which the Money
Market Fund may invest. This policy is fundamental with respect to each of the
Municipal Funds and may not be changed without the approval of the holders of a
majority of a Fund's outstanding shares. In addition, with respect to the
Michigan Municipal Money Market Fund, at least 65% of its total assets will be
invested under normal market conditions in Michigan Municipal Obligations and
the remainder may be invested in securities that are not Michigan Municipal
Obligations and therefore may be subject to Michigan income taxes. There is no
investment limitation on investments in Municipal Obligations subject to the
federal alternative minimum tax. See "Taxes."
ELIGIBLE SECURITIES
In accordance with current SEC regulations, the Money Market, Treasury Money
Market and Municipal Money Market Funds will limit their respective purchases
of the securities (other than securities with certain types of guarantees) of
any one issuer (other than U.S. Government Obligations and repurchase
agreements fully collateralized by such obligations) to 5% of their respective
total assets, except that each Fund may invest more than 5% but no more than
25% of its total assets in "First Tier Securities" of one issuer for a period
of up to three business days. First Tier Securities include under certain
circumstances, shares of other money market funds and, generally, "eligible
securities" that (i) if rated by more than one Rating Agency, are rated (or are
guaranteed by a person which has been rated) (at the time of purchase) by two
or more Rating Agencies in the highest rating category for such securities,
(ii) if rated by only one Rating Agency, are rated by such Rating Agency in its
highest rating category for such securities, (iii) have no short term rating
but have been issued by an issuer that has other outstanding short term
obligations that have been rated in accordance with (i) or (ii) above and are
comparable in priority and security to such securities (or have a guarantee
which satisfies this standard), and (iv) are certain unrated securities that
have been determined by the Investment Adviser to be of comparable quality to
such securities pursuant to guidelines established by the Trust's Board of
Trustees. In addition, the Money Market Fund will limit its investments in
"Second Tier Securities" (which are eligible securities other than First Tier
Securities) to 5% of their respective total assets, with investments in any one
issuer of such securities being limited to no more than 1% of their respective
total assets or $1 million, whichever is greater. Because of these limitations,
the Money Market, Treasury Money Market and Municipal Money Market Funds will
not be able to purchase lower rated or longer term securities from which a
higher income, although a greater degree of risk, might be derived.
SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE MICHIGAN MUNICIPAL MONEY MARKET
FUND
The Michigan Municipal Money Market Fund will under normal market conditions
consist of Michigan Municipal Obligations to the extent of 65% or more of its
total assets. This concentration in securities issued by governmental units of
a single state exposes the Fund to risk of loss greater than that of a more
diversified fund holding securities issued by governmental units of different
states and different regions of the country.
Moreover, the economy of the State of Michigan is heavily dependent upon the
automobile manufacturing industry, a highly cyclical industry. This factor
affects the revenue streams of the State of Michigan and its political
subdivisions because it impacts tax sources, particularly sales taxes, income
taxes, and Michigan single business taxes.
In 1993 and 1994, Michigan adopted complex statutory and constitutional
changes which, among several other changes in tax methods and rates, have the
effect of imposing limits on annual assessment increases and of transferring a
significant part of the operating cost of public education from locally based
property tax sources to state based sources, including increased sales tax.
These changes will affect state and local revenues of Michigan governmental
units in future years in differing ways, not all of which can be presently
known with certainty.
In addition, the classification of the Fund as a "non-diversified" investment
company means that the proportion of the Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. Since a
relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, some of which may be within the same
industry or economic sector, its portfolio securities may be more susceptible
to any single economic, political or regulatory occurrence than the portfolio
securities of a diversified fund.
INVESTMENT LIMITATIONS
Each Fund is subject to a number of investment limitations. The following
investment limitations are matters of fundamental policy and may not be changed
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with respect to a particular Fund without the affirmative vote of the holders
of a majority of the Fund's outstanding shares. Other investment limitations
that cannot be changed without a vote of shareholders are contained in the
Statement of Additional Information under "Investment Objectives, Policies and
Risk Factors."
No Fund may:
1. Purchase any securities which would cause 25% or more of the value of a
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, any state, territory or possession
of the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions, domestic bank
obligations, and repurchase agreements secured by such instruments, (b) wholly-
owned finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the activities
of the parents, (c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry, and (d) personal credit and business
credit businesses will be considered separate industries.
2. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted under the 1940 Act.
3. Make loans, except (i) through the purchase of debt obligations in
accordance with its investment objective and policies, (ii) through repurchase
agreements and (iii) through the lending of investment securities.
The Money Market, Treasury Money Market and Municipal Money Market Funds may
not purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of a Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by a Fund, except
that up to 25% of the value of a Fund's total assets may be invested without
regard to these limitations.
The Municipal Money Market Fund and Michigan Municipal Money Market Fund may
not invest less than 80% of their respective net assets in securities the
interest on which is exempt from federal income tax, except during temporary
defensive periods or periods of unusual market conditions.
Generally, if a percentage limitation is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in
value of a Fund's securities will not constitute a violation of the limitation
for purposes of the 1940 Act.
As a matter of non-fundamental policy, the Michigan Municipal Money Market
Fund conducts its operations so as to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). The Code which requires that, at the end of each quarter of a fund's
taxable year, (i) at least 50% of the market value of its total assets be
invested in cash, U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of any
one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets be invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies).
How to Buy Shares
GENERAL INFORMATION
DESCRIPTION OF CLASSES
This Prospectus offers investors Class A and Class I shares in the Treasury
Money Market, Municipal Money Market and Michigan Municipal Money Market Funds
and Class A, Class B and Class I shares in the Money Market Fund. Each share of
each Class in a Fund represents an identical pro rata interest in the Fund's
investment portfolio. Class A shares are offered to any investor. The Money
Market Fund offers Class B shares only through an exchange from Class B shares
of one of this Trust's non-money market investment portfolios. Orders for
purchases of Class I shares may be placed only for certain eligible investors
as described below.
Class A shares are sold at net asset value per share and are subject to a
shareholder servicing fee. Class B shares, which are also sold at net asset
value per share, may be subject to a CDSC and are subject to a distribution fee
and shareholder servicing fee. See "Distribution and Shareholder Services
Plan."
Class A and Class B shares are offered to the general public and may be
purchased through a number of institutions, including the Investment Adviser,
FNBC, NBD, ANB and their affiliates, other Service Agents, and directly through
the Distributor.
Class I shares are sold at net asset value with no sales charge and are sold
primarily to institutional investors, including banks (such as FNBC and NBD),
acting for themselves or in a fiduciary, advisory, agency, custodial or similar
capacity, and to public agencies and municipalities. Institutions may purchase
shares for accounts maintained by individuals, in which case each
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investor will be required to open a single master account with the Fund for all
purposes. In certain cases, the Trust may request investors to maintain
separate master accounts for shares held by the investor (i) for its own
account, for the account of other institutions and for the accounts for which
the institution acts as a fiduciary, and (ii) for accounts for which the
investor acts in some other capacity. An institution may arrange with the
Transfer Agent for sub-accounting services and will be charged directly for the
cost of such services. Class I shares are not subject to a shareholder
servicing fee or distribution fee.
Class A, Class B and Class I shares are subject to their pro rata portion of
the fees payable by a Fund to financial institutions that provide recordkeeping
and other services in connection with employee benefit plans which hold shares.
Class A shares held by investors who, after purchasing Class A shares
establish an account that would be eligible to purchase Class I shares and
place such shares in such account, will convert to Class I shares upon request
after the establishment of such account, based on their relative net asset
values. Class I shares held by investors who, after purchasing Class I shares
for their accounts withdraw such shares from such accounts, will convert to
Class A shares upon such withdrawal, based on their relative net asset values,
and will be subject to the shareholder servicing fee charged by Class A.
Class B shares will receive lower per share dividends and at any given time
the performance of Class B shares should be expected to be lower than for
shares of each other Class because of the higher expenses borne by Class B
shares. Similarly, Class A shares will receive lower per share dividends and
the performance of Class A shares should be expected to be lower than Class I
shares because of the higher expenses borne by Class A shares.
INFORMATION APPLICABLE TO ALL PURCHASERS
When purchasing Fund shares, an investor must specify the Class of shares being
purchased. If no Class of shares is specified, Class A shares will be
purchased.
The minimum initial investment for Class A and B shares is $2,500. All
subsequent investments must be at least $100. The initial investment must be
accompanied by the Account Application. The Investment Adviser and Service
Agents may impose initial or subsequent investment minimums which are higher or
lower than those specified above and may impose different minimums for
different types of accounts or purchase arrangements. The Trust reserves the
right to reject any purchase order. The Trust may charge a fee of $2 per month
for accounts with balances of less than $2,500. The Trust will notify
shareholders prior to the assessment of such fees.
The minimum initial investment for Class I shares is $1,000,000 or any lesser
amount if, in the Distributor's opinion, the investor has adequate intent and
availability of funds to reach a future level of investment of $1,000,000.
There is no minimum for subsequent purchases. The initial investment must be
accompanied by the Account Application. The Trust reserves the right to offer
Class I shares without regard to the minimum purchase requirements to qualified
or non-qualified employee benefit plans. Institutions may charge their clients
fees in connection with purchases for the accounts of their clients.
Federal regulations require that an investor provide a certified Taxpayer
Identification Number ("TIN") upon opening or reopening an account. See the
Statement of Additional Information for information concerning this
requirement. Failure to furnish a certified TIN to the Trust could subject an
investor to a $50 penalty imposed by the Internal Revenue Service (the "IRS"),
and could subject the investor to backup withholding.
Shares may also be paid for by wiring federal funds to NBD Bank, ABA
072000326, for the account of Pegasus Funds, deposit to FDIS Cashbook Account
number 79512, and identifying the customer's name and account number. Before
wiring payment, customers must notify the Trust at 1-800-688-3350 of the dollar
amount of the purchase. Notification must be given before the respective
closing time of the fund to be purchased.
Share certificates will not be issued. It is not recommended that the
Municipal Money Market or the Michigan Municipal Money Market Funds be used as
a vehicle for Keogh, IRA or other qualified retirement plans.
NET ASSET VALUE
As to each Fund, net asset value per share of each Class is computed by
dividing the value of the Fund's net assets represented by such Class (i.e.,
the value of its assets less liabilities) by the total number of shares of such
Class outstanding. See "Net Asset Value" in the Statement of Additional
Information.
The net asset value of each Fund for purposes of pricing purchase and
redemption orders is determined by the Investment Adviser as of 12:00 noon,
Eastern Time (with respect to the Municipal Money Market and Michigan Municipal
Money Market Funds) and 3:00 p.m., Eastern Time (with respect to the Money
Market and Treasury Money Market Funds), on each business day ("Business Day")
except: (i) those holidays which the New York Stock Exchange ("Exchange"), the
Investment Adviser or its bank affiliates observe (currently New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day (observed), Veterans'
Day, Thanksgiving Day and Christmas Day); and (ii) those Business Days on which
the Exchange closes prior to the close of its regular trading hours ("Early
Closing Time") in which event
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the net asset value of each Fund will be determined and its shares will be
priced at the earlier of the times listed above or as of such Early Closing
Time.
Shares of each Fund are sold on a continuous basis at the net asset value per
share next determined after an order in proper form and Federal Funds (monies
of member banks within the Federal Reserve System which are held on deposit at
a Federal Reserve Bank) are received by the Transfer Agent. If an investor does
not remit Federal Funds, his payment must be converted into Federal Funds. This
usually occurs within one business day of receipt of a bank wire and within two
business days of receipt of a check drawn on a member bank of the Federal
Reserve System. Checks drawn on banks which are not members of the Federal
Reserve System may take considerably longer to convert into Federal Funds.
Prior to receipt of Federal Funds, the investor's money will not be invested.
The assets of each Fund are valued based upon the amortized cost method.
Although the Trust seeks to maintain the net asset value per share of the Funds
at $1.00, there can be no assurance that the net asset value will not vary.
CLASS B SHARES
Class B shares of the Money Market Fund are available only to the holders of
Class B shares in the Trust's non-money market funds who wish to exchange their
shares in such funds for shares in the Money Market Fund. Class B shares of the
Money Market Fund will automatically convert to Class A shares at the time the
exchanged shares would have converted. The purpose of the conversion is to
relieve the holders of the Class B shares of the higher operating expenses
charged to Class B shares. The conversion from Class B shares to Class A shares
will take place, based on their relative net asset values at the time of the
conversion. After such conversion, a shareholder would hold Class A shares
subject to the operating expenses for Class A shares discussed above. Upon each
conversion of Class B shares that were not acquired through reinvestment of
dividends or distributions, a proportionate amount of Class B shares that were
acquired through reinvestment of dividends or distributions will likewise
automatically convert to Class A shares.
Shareholder Services
The Exchange Privilege is available to shareholders of any Class. The Automatic
Investment Plan is available to investors in Class A and Class B shares.
However, such services and privileges may not be available to clients of
certain Service Agents, and some Service Agents may impose conditions on their
clients which are different from those described in this Prospectus. Each
investor should consult his or her Service Agent in this regard.
EXCHANGE PRIVILEGE
The Exchange Privilege enables an investor to purchase, in exchange for shares
of a Fund, shares of the same Class of the other Funds or the other investment
portfolios of the Trust. This privilege may be expanded to permit exchanges
between a Fund and other funds that, in the future, may be advised by the
Investment Adviser. Exchanges may be made to the extent the shares being
received in the exchange are offered for sale in the shareholder's state of
residence.
Shares of the same Class of Funds purchased by exchange will be purchased on
the basis of relative net asset value per share as follows:
A. Shares of Funds may be exchanged without a sales load for shares of other
Funds and investment portfolios of the Trust sold without a sales load.
B. Shares of Funds may be exchanged for shares of other investment portfolios
of the Trust sold with a sales load, and the applicable sales load will be
deducted.
C. Shares of Funds acquired by a previous exchange from shares of other
investment portfolios of the Trust purchased with a sales load and additional
shares acquired through reinvestment of dividends or distributions of any such
Funds (collectively referred to herein as "Purchased Shares") may be exchanged
for shares of other investment portfolios of the Trust sold with a sales load
(referred to herein as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load that could have
been imposed in connection with the Purchased Shares (at the time the Purchased
Shares were acquired), without giving effect to any reduced loads, the
difference will be deducted. Shareholders must notify the Transfer Agent of
their prior ownership of Fund shares and their account number.
D. Shares of the Money Market Fund acquired through exchange of Class B shares
of the Trust's non-money market funds are subject to a CDSC upon redemption of
the shares in accordance with the Prospectus of the exchanged shares. Shares of
Class B shares, for purposes of calculating CDSC rates and conversion periods,
if any, will be deemed to have been held since the date the shares being
exchanged were initially purchased.
E. A qualified or non-qualified employee benefit plan with assets of at least
$1 million or 200 eligible lives may be exchanged from Class B shares to Class
A shares on or after January 1 of the year following the year of the plan's
eligibility, provided that the sponsor of the plan has so notified the Service
Agent of its eligibility and in turn, the Service Agent has notified the
Transfer Agent of such eligibility.
No fees currently are charged shareholders directly in connection with
exchanges although the Trust reserves the right, upon not less than 60 days'
written notice, to charge shareholders a nominal fee in accordance with
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Pegasus Funds
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rules promulgated by the SEC. The Trust reserves the right to reject any
exchange request in whole or in part. The Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
The exchange of shares of one Fund for shares of another is treated for
federal income tax purposes as a sale by the shareholder and, therefore, an
exchanging shareholder may realize a taxable gain or loss. See "Taxes--
Federal."
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan permits an investor in Class A and Class B shares
to purchase shares in amounts of at least $100 at regular intervals selected by
the investor. Provided the investor's bank or other financial institution
allows automatic withdrawals, shares may be purchased by transferring funds
from the bank account designated by the investor. At the investor's option, the
account designated will be debited in the specified amount, and shares will be
purchased, once a month, on the first or the fifteenth day of the month. Only
an account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. To establish an Automatic
Investment Plan account, the investor must check the appropriate box and supply
the necessary information on the Account Application. Investors may obtain the
necessary applications from their financial institutions or the Transfer Agent.
Investors should be aware that periodic investment plans do not guarantee a
profit and will not protect an investor against loss in a declining market. An
investor may cancel his or her participation in the Plan or change the amount
of purchase at any time by mailing written notification to the Transfer Agent
and such notification will be effective three business days following receipt.
The Funds may modify or terminate the Automatic Investment Plan at any time or
charge a service fee. No such fee currently is contemplated.
OPTION TO MAKE SYSTEMATIC WITHDRAWALS
The Systematic Withdrawal Plan permits an investor who owns Class A or Class B
shares of a Fund having a minimum value of $10,000 at the time he or she elects
under the Systematic Withdrawal Plan to have a fixed sum distributed in
redemption at regular intervals. An application form and additional information
regarding this service may be obtained from an investor's financial institution
or the Transfer Agent by calling 800-688-3350.
CROSS REINVESTMENT OF DIVIDEND PLAN
The Trust makes available to investors in Class A and Class B shares a Cross
Reinvestment of Dividend Plan pursuant to which an investor who owns shares of
any Fund with a minimum value of $10,000 at the time he or she elects may have
dividends paid by such Fund automatically reinvested into shares of another
Fund in which he or she has invested a minimum of $1,000. Investors may obtain
an application and additional information from their financial institutions or
the Transfer Agent by calling 800-688-3350.
PEGASUS FUNDS INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Class A and Class B shares may be purchased in conjunction with the Trust's
Individual Retirement Custodial Account Program ("IRA") where NBD acts as
custodian. Investors should consult their financial institutions or the
Transfer Agent for information as to applications and annual fees. The $2,500
minimum initial investment is lowered to $250 for purchases of Class A and/or
Class B shares for an IRA when an investor signs up for an automatic investment
purchase plan. All subsequent investments must be at least $100. Investors
should also consult their tax advisers to determine whether the benefits of an
IRA are available or appropriate.
How to Redeem Shares
GENERAL INFORMATION
An investor may request redemption of his or her shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. An
investor who has purchased Class I shares must redeem shares by following
instructions pertaining to such account. It is the responsibility of the entity
authorized to act on behalf of such account to transmit the redemption order to
the Transfer Agent and credit the investor's account with the redemption
proceeds on a timely basis. When a request is received in proper form, the
relevant Fund will redeem the shares at the next determined net asset value as
described below. If an investor holds Fund shares of more than one Class, any
request for redemption must specify the Class of shares being redeemed. If an
investor fails to specify the Class of shares to be redeemed, Class A shares
will be redeemed first. If an investor owns fewer shares of the Class than
specified to be redeemed, the redemption request may be delayed until the
Transfer Agent receives further instructions from the investor or his or her
Service Agent.
The Trust imposes no charges when shares are redeemed. However, the Trust may
impose a CDSC on redemptions of Class B shares of the Money Market Fund as
described below. Service Agents may also charge a nominal fee for effecting
redemptions of Fund shares.
A Fund ordinarily will make payment for all shares redeemed within seven days
after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the SEC. If an investor has purchased Fund
shares by Automated
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Clearing House ("ACH"), or by cashier's check or wire transfer and subsequently
submits a written redemption request to the Transfer Agent, the redemption
proceeds will ordinarily be transmitted to the investor within five business
days or within one business day, respectively; however, the Funds reserve the
right to make payment within seven days or as provided by SEC rules. See "How
to Buy Shares -- Information Applicable to All Purchasers" above regarding
purchasing shares by wire transfer. HOWEVER, IF AN INVESTOR HAS PURCHASED FUND
SHARES BY CHECK OR THROUGH THE AUTOMATIC INVESTMENT PLAN AND SUBSEQUENTLY
SUBMITS A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE REDEMPTION
PROCEEDS WILL BE TRANSMITTED TO THE INVESTOR PROMPTLY UPON BANK CLEARANCE OF
THE INVESTOR'S PURCHASE CHECK OR AUTOMATIC INVESTMENT PLAN ORDER, WHICH MAY
TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL NOT HONOR
REDEMPTION CHECKS FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER RECEIPT BY THE
TRANSFER AGENT OF THE PURCHASE CHECK OR AUTOMATIC INVESTMENT PLAN ORDER AGAINST
WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF THE
INVESTOR HAS A SUFFICIENT BALANCE IN HIS OR HER ACCOUNT TO COVER THE REDEMPTION
REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH
SHARES WILL ACCRUE AND BE PAYABLE, AND THE INVESTOR WILL BE ENTITLED TO
EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received the investor's Account
Application.
Each Fund reserves the right to redeem an investor's account at the Fund's
option upon not less than 60 days' written notice if, due to share redemptions,
the account's net asset value decreases to $2,500 or less in the case of Class
A or Class B shares, or to $1,000,000 or less in the case of Class I shares,
and remains so during the notice period.
REDEMPTION PROCEDURES
An investor who has purchased shares through his or her account at the
Investment Adviser, any of its bank affiliates or a Service Agent must redeem
shares by following instructions pertaining to such account. If an investor has
given his or her Service Agent authority to instruct the Transfer Agent to
redeem shares and to credit the proceeds of such redemption to a designated
account at the Service Agent, the investor may redeem shares only in this
manner and in accordance with a written redemption request described below. It
is the responsibility of the Investment Adviser, bank affiliate or the Service
Agent, as the case may be, to transmit the redemption order and credit the
investor's account with the redemption proceeds on a timely basis.
If an investor wants his or her redemption proceeds sent to an address other
than the address appearing on the Transfer Agent's records, a signature
guarantee is required. The Transfer Agent usually requires additional
documentation for the sale of shares by a corporation, partnership, agent or
fiduciary, or a surviving joint owner. Contact the Transfer Agent for more
information about where to obtain a signature guarantee.
An investor may use the Transfer Agent's Telephone Redemption Privilege to
redeem shares from his or her account, unless the investor has notified the
Transfer Agent of an address change within the preceding 15 days with the
exception of redemptions to pre-authorized bank accounts. Unless an investor
indicates otherwise on the Account Application, the Transfer Agent will be
authorized to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as his or her
representative, who can provide the Transfer Agent with his or her account
registration and address as it appears on the Transfer Agent's records. With
the telephone redemption or exchange privilege, an investor authorizes the
Transfer Agent to act on telephone instructions from any person representing
himself or herself to be the investor, or a representative of the investor's
Service Agent, and reasonably believed by the Transfer Agent to be genuine. The
Funds will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Fund or the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Fund nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, an investor may
experience difficulty in contacting the Transfer Agent by telephone to request
a redemption or exchange of Fund shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the investor's redemption request
being processed at a later time than it would have been if telephone redemption
had been used.
WRITTEN REDEMPTION REQUESTS
Investors may redeem shares by written request mailed to the Transfer Agent at
P.O. Box 5142, Westborough, MA 01581-5120. Redemption requests must be signed
by each shareholder, including each owner of a joint account, and each
signature must be guaranteed for redemptions greater than $50,000. The Transfer
Agent has adopted standards and procedures pursuant to which signature
guarantees in proper form generally will be accepted from domestic banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, as well as
from participants in the New York Stock Exchange Medallion Signature Program,
the Securities Transfer Agents Medallion Program ("STAMP"), and the Stock
Exchanges Medallion Program.
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CHECK REDEMPTION PRIVILEGE
Investors in Class A shares may request on the Account Application or by later
written request to the Fund that the Fund provide Redemption Checks drawn on
the shareholder's account. Redemption Checks may be made payable to the order
of any person in the amount of $500 or more. Redemption Checks cannot be used
to close an account. Redemption Checks are free, but the Transfer Agent will
impose a fee for stopping payment ($10) of a Redemption Check at the investor's
request or if the Transfer Agent cannot honor the Redemption Check due to
insufficient funds ($15) or other valid reason. The Transfer Agent may also
impose a $2 fee for each request for photocopy of a draft. An investor should
date his or her Redemption Checks with the current date when the investor
writes them. Please do not postdate Redemption Checks. If an investor does, the
Transfer Agent will honor, upon presentment, even if presented before the date
of the check, all postdated Redemption Checks which are dated within six months
of presentment of payment, if they are otherwise in good order. This Privilege
may be modified or terminated at any time by the Fund or the Transfer Agent
upon notice to shareholders.
CLASS B SHARES--MONEY MARKET FUND
Class B shares of the Money Market Fund acquired through exchange of Class B
shares of the Trust's non-money market funds are subject to a CDSC upon
redemption of the shares at the rate the exchanged shares would have been
charged. For purposes of computing the CDSC and conversion periods, if any, the
length of ownership will be measured from the date of the original purchase of
Class B shares and will include any period of ownership of the Money Market
Fund.
The Fund reserves the right to cease offering Class B shares for sale at any
time or reject any order for the purchase of Class B shares and to cease
offering any services provided by a Service Agent.
Management of the Trust
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust is responsible for the management of the
business and affairs of the Trust. Information about the Trustees and officers
of the Trust is contained in the Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATORS
FCNIMCO, located at Three First National Plaza, Chicago, Illinois 60670, is
each Fund's Investment Adviser. FCNIMCO is a registered investment adviser and
a wholly-owned subsidiary of FNBC, which in turn is a wholly-owned subsidiary
of First Chicago NBD Corporation ("FCN"), a registered bank holding company.
Included among FCNIMCO's accounts are pension and profit sharing funds for
major corporations and state and local governments, commingled trust funds and
a variety of institutional and personal advisory accounts, estates and trusts.
FCNIMCO also acts as investment adviser for other registered investment company
portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an Investment
Advisory Agreement dated as of April 12, 1996. Under the Investment Advisory
Agreement, FCNIMCO provides the day-to-day management of each Fund's
investments. Subject to the overall authority of the Trust's Board of Trustees
and in conformity with Massachusetts law and the stated policies of the Trust,
FCNIMCO is responsible for making investment decisions for the Trust, placing
purchase and sale orders (which may be allocated to various dealers based on
their sales of Fund shares) and providing research, statistical analysis and
continuous supervision of each Fund's investment portfolio.
Under the terms of the Investment Advisory Agreement, the Investment Adviser
is entitled to a monthly fee computed daily and payable monthly, expressed as a
percentage of each Fund's average daily net assets, of 0.30% of the first $1.0
billion, 0.275% of the next $1 billion and 0.25% of each such Fund's average
daily net assets in excess of $2 billion. For the fiscal year ended December
31, 1997, the Money Market, Treasury Money Market, Municipal Money Market and
Michigan Municipal Money Market Funds paid FCNIMCO advisory fees at the
effective annual rates of .28%, .29%, .30% and .27%, respectively.
FCNIMCO and BISYS jointly serve as the Trust's Co-Administrators pursuant to
an Administration Agreement with the Trust. Under the Administration Agreement,
FCNIMCO and BISYS generally assist in all aspects of the Trust's operations,
other than providing investment advice, subject to the overall authority of the
Trust's Board in accordance with Massachusetts law. Under the terms of the
Administration Agreement the Trust pays FCNIMCO, as agent for the Co-
Administrators, a monthly administration fee at the annual rate of .15% of each
Fund's average daily net assets. For the fiscal year ended December 31, 1997,
the Trust paid administration fees at the effective annual rate of .15% of each
Fund's average daily net assets.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of a
customer. Subject
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<PAGE> 159
to such banking laws and regulations, the Investment Adviser believes that it
and its affiliated banks may perform the advisory, administrative and custodial
services for the Trust described in this Prospectus, and may perform the
shareholder services contemplated by this Prospectus, without violation of such
banking laws or regulations. However, future changes in legal requirements
relating to the permissible activities of banks and their affiliates, as well
as future interpretations of present requirements, could prevent the Investment
Adviser and its affiliated banks from continuing to perform investment advisory
or custodial services for the Trust or require to alter or discontinue the
services they provide to shareholders.
If the Investment Adviser were prohibited from performing investment advisory
services for the Trust, it is expected that the Board of Trustees would
recommend that shareholders approve a new agreement with another entity or
entities qualified to perform such services and selected by the Board. If the
Investment Adviser or its affiliates were required to discontinue all or part
of their shareholder servicing activities, their customers would be permitted
to remain the beneficial owners of Fund shares and alternative means for
continuing the servicing of such customers would be sought. The Trust does not
anticipate that investors would suffer any adverse financial consequences as a
result of these occurrences.
DISTRIBUTOR
The Distributor, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's principal underwriter and distributor of the Funds'
shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
First Data Investor Services Group, Inc., located at P.O. Box 5142,
Westborough, MA 01581-5120 serves as the Trust's Transfer and Dividend
Disbursing Agent. NBD, which is a wholly-owned subsidiary of First Chicago NBD
Corporation, serves as the Trust's custodian (the "Custodian"). NBD is located
at 900 Tower Drive, Troy, Michigan 48098.
Distribution and Shareholder
Services Plans
Class B shares of the Money Market Fund are subject to an annual distribution
fee pursuant to a Distribution Plan. Class A shares of each Fund (and Class B
shares of the Money Market Fund) are subject to an annual service fee pursuant
to a Shareholder Services Plan.
DISTRIBUTION PLAN
(Class B only) Under a Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, the Trust has agreed to pay the Distributor for advertising,
marketing and distributing shares of the Money Market Fund at an aggregate
annual rate not to exceed .75% of the value of the average daily net assets of
Class B shares. The Distributor may pay one or more Service Agents in respect
of these services. The Investment Adviser and its subsidiaries and affiliates
may act as Service Agents and receive fees under the Distribution Plan, subject
to applicable law. The Distributor determines the amount, if any, to be paid to
Service Agents under the Distribution Plan and the basis on which such payments
are made. The fees payable under the Distribution Plan are payable without
regard to actual expenses incurred.
SHAREHOLDER SERVICES PLAN
(Class A and Class B) Under a Shareholder Services Plan, the Trust pays the
Distributor for the provision of certain services to the holders of Class A and
Class B shares a fee at an annual rate not to exceed .25% of the value of the
average daily net assets of such shares. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information and services related to the maintenance of shareholder accounts.
Under the Shareholder Services Plan, the Distributor may make payments to
Service Agents in respect of these services. The Investment Adviser and their
subsidiaries and affiliates may act as Service Agents and receive fees under
the Shareholder Services Plan. The Distributor determines the amounts to be
paid to Service Agents.
Dividends and Distributions
The Funds declare dividends from net investment income on each Business Day and
pay dividends on a monthly basis. Shares begin accruing dividends on the
Business Day on which the purchase order is effective. The earnings for
Saturdays, Sundays and holidays are declared as dividends on the preceding
Business Day.
Each Fund will make distributions from net realized securities gains, if any,
once a year, but may make distributions on a more frequent basis to comply with
the distribution requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), in all events in a manner consistent with the provisions of the
1940 Act. Dividends are automatically reinvested in additional Fund shares, or
fractional shares thereof of the same Class from which they were paid at net
asset value, unless payment in cash is requested. If cash
16
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<PAGE> 160
payment is requested, checks will be mailed within five Business Days after the
last day of each month. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Taxes
FEDERAL
Each Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally will relieve the Funds of liability for
federal income taxes to the extent their earnings are distributed in accordance
with the Code.
Each Fund intends to distribute as dividends substantially all of its
investment company taxable income each year. With the exception of dividends
paid by the Municipal Funds, such dividends will be taxable as ordinary income
to each Fund's shareholders regardless of whether a distribution is received in
cash or reinvested in additional shares. It is anticipated that no part of any
distribution by any of the Funds will be eligible for the dividend received
deduction for corporations. In addition, none of the Funds expects to pay
capital gain dividends within the meaning of the Code.
Any dividends declared in October, November or December with a record date
before the end of the year will be deemed for federal tax purposes to have been
paid by the Fund and received by the shareholders in that year, if such
dividends are paid on or before January 31 of the following year.
In the case of the Municipal Funds, dividends derived from tax-exempt interest
income ("exempt-interest dividends") paid by them may be treated by their
shareholders as items of interest excludable from their gross income unless
under the circumstances applicable to the particular shareholder the exclusion
would be disallowed. (See Statement of Additional Information under "Additional
Information Concerning Taxes.")
If the Municipal Funds should hold certain so-called "private activity bonds,"
shareholders will need to include as an item of tax preference for the purposes
of the federal alternative minimum tax, that portion of the dividends paid by a
Fund derived from interest received on such bonds. In addition, corporate
shareholders will need to take all exempt-interest dividends into account in
determining certain adjustments for the federal alternative minimum tax.
Dividends paid by a Fund derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, paid by such Fund to a foreign investor who is the
beneficial owner of such Fund's shares generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign investor
claims the benefit of a lower rate specified in an applicable tax treaty.
Distributions from net realized long-term securities gains paid by the Fund to
such foreign investor generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his non-
U.S. residency status.
Federal regulations generally require the Trust to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and distributions
from net realized securities gains paid to a shareholder if such shareholder
fails to certify either that the TIN furnished in connection with opening an
account is correct, or that such shareholder has not received notice from the
IRS of being subject to backup withholding as a result of a failure to properly
report taxable dividend or interest income on a federal income tax return.
Furthermore, the IRS may notify the Trust to institute backup withholding if
the IRS determines a shareholder's TIN is incorrect or if a shareholder has
failed to properly report taxable dividend and interest income on a federal
income tax return.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own
tax situation.
STATE AND LOCAL
Dividends paid by the Municipal Funds that are derived from interest
attributable to tax-exempt Michigan Municipal Obligations will be exempt from
Michigan income tax, Michigan intangibles tax and Michigan single business tax.
Conversely, to the extent that the Funds' dividends are derived from interest
on obligations other than Michigan Municipal Obligations or certain U.S.
Government Obligations (or are derived from short term or long term gains),
such dividends will be subject to Michigan income tax, Michigan intangibles tax
and Michigan single business tax, even though the dividends may be exempt for
federal income tax purposes. The Funds are unable to predict in advance the
portion of its dividends that will be derived from interest on Michigan
Municipal Obligations, but will mail to its shareholders not later than sixty
days after the close of the Funds' taxable year a written notice containing
information as to the interest derived from Michigan Municipal Obligations and
exempt from
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<PAGE> 161
Michigan income tax, Michigan intangibles tax and Michigan single business tax.
Except as noted above with respect to Michigan income taxation, distributions
of net income may be taxable to investors as dividend income under other state
or local laws even though a substantial portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
MISCELLANEOUS
The Trust may be subject to state or local taxes in jurisdictions in which the
Trust may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of the Trust and its
shareholders under such laws may differ from treatment under federal income tax
laws. Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
Performance Information
From time to time, in advertisements or in reports to shareholders the
performance of the Funds may be compared to the performance of other mutual
funds with similar investment objectives and to stock and other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of a Fund's shares may be compared to data prepared by
Lipper Analytical Services, Inc. The yields of the Money Market and Treasury
Money Market Funds may be compared to the Donoghue's Money Fund Average,
Donoghue's Government Money Fund Average and Donoghue's Treasury Money Fund
Average, respectively, which are averages compiled by IBC/Donoghue's Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the
Bank Rate Monitor(TM) for money market deposit accounts offered by the 50
leading banks and thrift institutions in the top five standard metropolitan
statistical areas. The yields of the Municipal Funds may be compared to the
Donoghue's Tax-Free Money Fund Average. Performance data as reported in
national financial publications such as Money Magazine, Forbes, Barron's, The
Wall Street Journal and The New York Times, or in publications of a local or
regional nature, may also be used in comparing the performance of the Funds.
A Fund's "yield" refers to the income generated by an investment in the Fund
over a seven-day period identified in the advertisement. This income is then
"annualized," i.e., the income generated by the investment during the
respective period is assumed to be generated each week over a 52-week period
and is shown as a percentage of the investment. The Funds may also advertise
their "effective yields" which are calculated similarly but, when annualized,
income is assumed to be reinvested, thereby making the "effective yield"
slightly higher because of the compounding effect of the assumed reinvestment.
The Municipal Funds may from time to time advertise a "tax-equivalent yield"
to demonstrate the level of taxable yield necessary to produce an after-tax
yield equivalent to that achieved by the Funds. The "tax-equivalent yield" will
be computed by dividing the tax-exempt portion of a Fund's yield by a
denominator consisting of one minus a stated federal (and/or Michigan) income
tax rate and adding the product to that portion, if any, of the Fund's yield
which is not tax-exempt.
Performance of the Funds is based on historical earnings and will fluctuate
and is not intended to indicate future performance. A Fund's performance data
may not provide a basis for comparison with bank deposits and other investments
which provide a fixed yield for a stated period of time. Performance data
should also be considered in light of the risks associated with a Fund's
portfolio composition, quality, maturity, operating expenses and market
conditions. Any fees charged by financial institutions directly to their
customer accounts in connection with investments in Fund shares will not be
reflected in a Fund's performance calculations.
HISTORICAL PERFORMANCE INFORMATION
For the seven day period ended December 31, 1997, the annualized yields and
effective yields for shares of the Money Market, Treasury Money Market,
Municipal Money Market and Michigan Municipal Money Market Funds were as
follows:
<TABLE>
<CAPTION>
7-DAY 7-DAY
ANNUALIZED EFFECTIVE
YIELD YIELD
- -------------------------------------------------
<S> <C> <C>
MONEY MARKET FUND
Class A Shares 5.14% 5.28%
Class B Shares 4.40% 4.49%
Class I Shares 5.40% 5.54%
- -------------------------------------------------
TREASURY MONEY MARKET FUND
Class A Shares 5.04% 5.16%
Class I Shares 5.29% 5.43%
- -------------------------------------------------
MUNICIPAL MONEY MARKET FUND
Class A Shares 3.31% 3.36%
Class I Shares 3.56% 3.62%
- -------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
Class A Shares 3.13% 3.17%
Class I Shares 3.38% 3.43%
- -------------------------------------------------
</TABLE>
The tax-equivalent yields of the shares of the Municipal Money Market and
Michigan Municipal Money Market Funds (assuming a 39.6% federal income tax rate
for both Funds and a 4.4% Michigan
18
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income tax rate for the Michigan Fund) for the seven-day period ended December
31, 1997 were as follows:
<TABLE>
<CAPTION>
7-DAY ANNUALIZED 7-DAY EFFECTIVE
TAX-EQUIVALENT TAX-EQUIVALENT
YIELD YIELD
- ----------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL MONEY MARKET FUND
Class A Shares 5.48% 5.56%
Class I Shares 5.89% 5.99%
- ----------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
Class A Shares 5.59% 5.66%
Class I Shares 6.04% 6.13%
- ----------------------------------------------------------------------
</TABLE>
General Information
The Trust was organized as a Massachusetts business trust on April 21, 1987
under a Declaration of Trust. The Trust is a series fund having thirty-one
series of shares of beneficial interest, each of which evidences an interest in
a separate investment portfolio. The Declaration of Trust permits the Board of
Trustees to issue an unlimited number of full and fractional shares and to
create an unlimited number of series of shares ("Series") representing
interests in a portfolio and an unlimited number of classes of shares within a
Series. In addition to the Funds described herein, the Trust offers the
following investment portfolios:
The Managed Assets Conservative Fund
The Managed Assets Balanced Fund
The Managed Assets Growth Fund
The Equity Income Fund
The Growth Fund
The Small-Cap Opportunity Fund
The Mid-Cap Opportunity Fund
The Intrinsic Value Fund
The Growth and Value Fund
The Equity Index Fund
The Market Expansion Index Fund
The International Equity Fund
The Intermediate Bond Fund
The Bond Fund
The Short Bond Fund
The Multi Sector Bond Fund
The International Bond Fund
The High Yield Bond Fund
The Municipal Bond Fund
The Short Municipal Bond Fund
The Intermediate Municipal Bond Fund
The Michigan Municipal Bond Fund
The Cash Management Fund
The Treasury Cash Management Fund
The U.S. Government Securities Cash Management Fund
The Treasury Prime Cash Management Fund
The Municipal Cash Management Fund
Each of the above Funds, other than the Cash Management, Treasury Cash
Management, U.S. Government Securities Cash Management, Municipal Cash
Management and Treasury Prime Cash Management Funds, offers three Classes of
shares: Class A, Class B and Class I shares. The Cash Management, Treasury Cash
Management, U.S. Government Securities Cash Management, Municipal Cash
Management and Treasury Prime Cash Management Funds offer two Classes of
shares: Class S and Class I shares. A sales person and any other person or
institution entitled to receive compensation for selling or servicing shares
may receive different compensation with respect to different classes of shares
in the Series. Each share has $.10 par value, represents an equal proportionate
interest in the related Fund with other shares of the same class outstanding,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such Fund as are declared in the discretion of the
Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of March 31, 1998, FCN and its affiliates held of record approximately
25.90%, 10.28%, 41.24% and 25.19% of the outstanding shares of the Money Market
Fund, Treasury Money Market Fund, Municipal Money Market Fund and Michigan
Municipal Money Market Fund.
Because NBD serves the Trust as Custodian, the Board of Trustees has
established a procedure requiring three annual verifications, two of which are
unannounced, of all investments held pursuant to the Custodian Agreement, to be
conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The Trust's By-Laws
provide that special meetings of shareholders of any Series shall be called at
the written request of shareholders entitled to cast at least 10% of the votes
of a Series entitled to be cast at such meeting. The Trust also stands ready to
assist shareholder communications in connection with any meeting of
shareholders as prescribed in Section 16(c) of the 1940 Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER
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19
<PAGE> 163
THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS' OFFICIAL SALES
LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS' SHARES, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
20
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Supplemental Information
RATINGS
The ratings of Rating Agencies such as Moody's, S&P, Fitch and Duff represent
their opinions as to the quality of the obligations which they undertake to
rate. It should be emphasized, however, that ratings are relative and
subjective and, although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk of
such obligations. Therefore, although these ratings may be an initial criterion
for selection of portfolio investments, the Investment Adviser also will
evaluate such obligations and the ability of their issuers to pay interest and
principal. Each Fund will rely on the Investment Adviser's judgment, analysis
and experience in evaluating the creditworthiness of an issuer.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities that differ in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one
to ten years; and Treasury Bonds generally have initial maturities of greater
than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury, others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the U.S. Treasury; others,
such as those issued by the Federal National Mortgage Association, by
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, such as those issued by the
Student Loan Marketing Association, only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. Principal and interest may fluctuate based on generally recognized
reference rates or the relationship of rates. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, because
it is not so obligated by law. Some of these investments may be variable or
floating rate instruments.
BANK OBLIGATIONS
Bank obligations include certificates of deposit, time deposits, bankers'
acceptances, fixed time deposits and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. Because the Funds may invest
in securities backed by banks and other financial institutions, changes in the
credit quality of these institutions could cause losses to a Fund and affect
its share price.
Obligations issued or guaranteed by foreign branches of U.S. banks (commonly
known as "Eurodollar" obligations) or U.S. branches of foreign banks (commonly
known as "Yankee dollar" obligations) may be general obligations of the parent
bank or obligations only of the issuing branch. Where the obligation is only
that of the issuing branch, the parent bank has no legal duty to pay such
obligation. Such obligations would thus be subject to risks comparable to those
which would be present if the issuing branch were a separate bank. The Money
Market Fund will not invest in a Eurodollar obligation if upon making such
investment the total Eurodollar obligations which are not general obligations
of domestic parent banks would thereby exceed 25% of the total assets of the
Money Market Fund.
Obligations of foreign issuers may involve risks that are different than those
of obligations of domestic issuers. These risks include unfavorable political
and economic developments, possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, possible
establishment of exchange controls, or adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. In addition, foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks and, generally, there may be less
publicly available information regarding such issuers. The Trust could also
encounter difficulties in obtaining or enforcing a judgment against a foreign
issuer (including a foreign branch of a U.S. bank).
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
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COMMERCIAL PAPER
Commercial paper issued by corporations and other institutions, including
variable rate notes and other short-term corporate obligations, must be rated
in one of the two highest categories by at least two Rating Agencies, or if not
rated, must have been independently determined by the Investment Adviser to be
of comparable quality.
VARIABLE AND FLOATING RATE OBLIGATIONS
Each Fund may purchase rated and unrated variable and floating rate obligations
which may have stated maturities in excess of 397 days but will, in any event,
permit a Fund to demand payment of the principal of the instrument at least
once every 397 days on not more than thirty days' notice (unless the instrument
is a U.S. Government Obligation), provided that the demand feature may be sold,
transferred, or assigned only with the underlying instrument involved. Such
instruments may include variable rate demand notes which are unsecured
instruments that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. The absence of an
active secondary market with respect to particular variable and floating rate
instruments could make it difficult for a Fund to dispose of them if the issuer
defaulted on its payment obligation or during periods that the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss with respect to such instruments. Variable and floating
rate instruments held by a Fund will be subject to the Fund's 10% limitation on
illiquid investments when the Fund may not demand payment of the principal
amount within seven days and a reliable trading market is absent.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
To increase their income, each Fund may agree to purchase portfolio securities
which it may otherwise purchase from financial institutions subject to the
seller's agreement to repurchase them at a mutually agreed-upon date and price
("repurchase agreements"). No Fund will enter into repurchase agreements with
the Investment Adviser, Distributor, or any of their affiliates. Although the
securities subject to repurchase agreements may bear maturities exceeding
thirteen months provided the repurchase agreement itself matures in thirteen
months or less, the Funds generally intend to enter into repurchase agreements
which terminate within seven days after notice by the Funds. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Fund to possible
loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Fund may also obtain funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, the Funds will sell
portfolio securities to financial institutions such as banks and broker-dealers
and agree to repurchase them at a particular date and price. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price of the securities it is obligated to
repurchase. Whenever a Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account liquid assets equal to the repurchase
price marked to market daily (including accrued interest) and will subsequently
monitor the account to ensure such equivalent value is maintained.
LENDING PORTFOLIO SECURITIES
To increase income or offset expenses, each of the Funds, except for the
Treasury Money Market Fund, may lend its portfolio securities to financial
institutions such as banks and broker-dealers in accordance with their
investment limitations. Agreements will require that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned plus accrued interest. Collateral for such loans may
include cash or securities of the U.S. Government, its agencies or
instrumentalities, some of which may bear maturities exceeding 397 days. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of a particular Fund exceeds one-third of the value of its total assets. Loans
of securities involve risks of delay in receiving additional collateral or in
recovering the securities loaned or possibly loss of rights in the collateral
should the borrower of the securities become insolvent. In the event a Fund is
unable to recover the securities loaned in a particular transaction, it will
promptly sell any collateral which bears a maturity exceeding 13 months. Loans
will be made only to borrowers that provide the requisite collateral comprised
of liquid assets and when, in the Investment Adviser's judgment, the income to
be earned from the loan justifies the attendant risks.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
Each Fund, except for the Treasury Money Market Fund, may purchase portfolio
securities on a "when-issued" basis. Each Fund, except for the Treasury Money
Market Fund, may purchase or sell such securities on a "forward commitment"
basis. These transactions involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place in the future,
beyond the normal settlement date, at a stated price and yield. Securities
purchased on a when-issued basis or forward
A-2 Pegasus Funds
<PAGE> 166
commitment basis involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, or if the value of the
security to be sold increases prior to the settlement date. When a Fund enters
into such transactions, the Custodian will maintain in a segregated account
cash or liquid portfolio securities equal to the amount of the commitment. The
Funds do not earn income with respect to these transactions until the subject
securities are delivered to the Funds. The Funds do not intend to purchase
when-issued securities for speculative purposes but only for the purposes of
acquiring portfolio securities. Each Fund's when-issued purchases and forward
commitments are not expected to exceed 25% of the value of its total assets
absent unusual market conditions.
MUNICIPAL AND RELATED OBLIGATIONS
Municipal Obligations that may be acquired by the Municipal Funds may include
general obligations, revenue obligations, notes, and moral obligation bonds.
General obligations are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
obligations are payable only from the revenues derived from a particular
facility, class of facilities or, in some cases, from the proceeds of a special
excise or other specific revenue source such as the user of the facility being
financed. Private activity bonds (i.e. bonds issued by industrial development
authorities) are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of a
private activity bond is usually directly related to the credit standing of the
private user of the facility involved. Although interest paid on private
activity bonds is exempt from regular federal income tax, it may be treated as
a specific tax preference item under the federal alternative minimum tax. From
time to time, each Municipal Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the nongovernmental users. Where a regulated investment company
receives such interest, a proportionate share of any exempt-interest dividend
paid by the investment company may be treated as such a preference item to the
shareholder. The Funds may invest without limitation in such Municipal
Obligations if the Investment Adviser determines that their purchase is
consistent with such Fund's investment objective. (See also "Taxes").
Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Moral obligation bonds are
normally issued by a special purpose public authority. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer. Municipal Obligations also include municipal lease/purchase
agreements which are similar to installment purchase contracts for property or
equipment issued by municipalities. Municipal lease/purchase agreements may be
considered illiquid investments. See "Restricted Securities."
There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
Each Municipal Fund may invest more than 25% of the value of its total assets
in Municipal Obligations which are related in such a way that an economic,
business or political development or change affecting one such security also
would affect the other securities; for example, securities the interest upon
which is paid from revenues of similar types of projects, or securities of
issuers that are located in the same state. As a result, the Funds may be
subject to greater risk as compared to a fund that does not follow this
practice.
Certain municipal lease/purchase obligations in which the Funds may invest may
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease/purchase
obligations are secured by the leased property, disposition of the leased
property in the event of foreclosure might prove difficult. In evaluating the
credit quality of a municipal lease/purchase obligation that is unrated, the
Investment Adviser may consider, on an ongoing basis, a number of factors
including the likelihood that the issuing municipality will discontinue
appropriating funding for the leased property.
Among other securities, the Funds may purchase short-term Tax Anticipation
Notes, Bond Anticipation Notes, Revenue Anticipation Notes and other forms of
short-term loans. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax or other funds, the proceeds of bonds or
other revenues.
The Municipal Funds may purchase from financial institutions participation
interests in Municipal Obligations. A participation interest gives a Fund an
undivided interest in the Municipal Obligation in the proportion that the
Fund's participation interest bears to the total principal amount of the
Municipal Obligation. These instruments may have fixed, floating
Pegasus Funds A-3
<PAGE> 167
or variable rates of interest, with remaining maturities of 13 months or less
as determined in accordance with SEC regulations (although the securities held
by the financial institution may have longer maturities). If the participation
interest is unrated, or has been given a rating below that which otherwise is
permissible for purchase by a Fund, the security will have an unconditional
demand feature that satisfies the requirements of Rule 2a-7 of the 1940 Act.
For certain participation interests, the Fund will have the right to demand
payment, on not more than seven days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation plus accrued interest. As to
these instruments, the Fund intends to exercise its right to demand payment
only upon a default under the terms of the Municipal Obligation as needed to
provide liquidity to meet redemptions, or to maintain or improve the quality of
its investment portfolio. Participation interests that do not have this demand
feature will be considered illiquid investments. See "Restricted Securities"
below.
The Municipal Money Market Fund has no policy of seeking particularly to
invest in Municipal Obligations issued by or within any single state or select
group of states. However, certain states traditionally are sources of large
amounts of Municipal Obligations, e.g., California, Colorado, Florida,
Michigan, New York and Texas. To the extent that the Fund's assets are invested
in Municipal Obligations issued by or from a single state or a few states, the
Fund will be subject to the peculiar risks presented by the laws and economic
conditions relating to such state or states to a greater extent than would be
the case if its assets were not so concentrated. If any state or political
subdivision thereof were to suffer serious financial difficulties jeopardizing
its ability to pay its obligations, the marketability of such obligations held
by the Fund, and consequently its net asset value, could be adversely affected.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax and, with respect to
Michigan Municipal Obligations, Michigan income taxes, are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust
nor the Investment Adviser will review the proceedings relating to the issuance
of Municipal Obligations or the bases for such opinions.
TENDER OPTION BONDS
The Municipal Funds may invest in tender option bonds. A tender option bond is
a Municipal Obligation (generally held pursuant to a custodial arrangement)
having a relatively long maturity and bearing interest at a fixed rate
substantially higher than prevailing short-term tax exempt rates, that have
been coupled with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal to
the difference between the Municipal Obligation's fixed coupon rate and the
rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax exempt rate. The
Investment Adviser, on behalf of a Fund, may consider on an ongoing basis the
creditworthiness of the issuer of the underlying Municipal Obligation, of any
custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligations and for other reasons.
STAND-BY COMMITMENTS
The Municipal Funds may acquire "stand-by commitments" with respect to
Municipal Obligations held in their portfolios. Under a stand-by commitment, a
Fund obligates a broker, dealer or bank to repurchase, at the Fund's option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by
commitment therefore is subject to the ability of the seller to make payment on
demand. A Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. A Fund may pay for stand-by commitments if such action is deemed
necessary, thus increasing to a degree the cost of the underlying Municipal
Obligation and similarly decreasing such securities yield to investors.
GUARANTEED INVESTMENT CONTRACTS
The Money Market Fund may make limited investments in guaranteed investment
contracts ("GICs") issued by highly rated U.S. insurance companies. Pursuant to
such contracts, the Fund makes cash contributions to a deposit fund of the
insurance company's general account. The insurance company then credits to the
Fund on a monthly basis guaranteed interest which is based on an index. The
GICs provide that this guaranteed interest will not be less than a certain
minimum rate. Generally, a GIC allows a purchaser to buy an annuity with the
monies accumulated under contract; however, the Fund will not purchase any such
annuity. A GIC is a general obligation of the issuing insurance company and not
a
A-4 Pegasus Funds
<PAGE> 168
separate account. The purchase price paid for a GIC becomes a part of the
general assets of the issuer, and the contract is paid from the general assets
of the issuer. The Fund will only purchase GICs from issuers which meet quality
and credit standards established by the Investment Adviser. Generally, GICs are
not assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Therefore, GICs are considered by the Fund to be illiquid investments and
subject to the limitation on illiquid investments set forth below.
RESTRICTED SECURITIES
Each Fund will not invest more than 10% of the value of its net assets in
securities that are illiquid. Illiquid investments may include securities
having legal or contractual restrictions on resale or no readily available
market, GICs (in the case of the Money Market Fund), municipal lease/purchase
agreements (in the case of the Municipal Funds) and instruments (including
repurchase agreements, variable and floating rate instruments and time
deposits) that do not provide for payment to a Fund within seven days after
notice and do not have a readily available market. Securities that have legal
or contractual restrictions on resale but have a readily available market are
not deemed to be illiquid for purposes of this limitation.
Each Fund may purchase securities which are not registered under the
Securities Act of 1933, as amended (the "1933 Act"), but which can be sold to
"qualified institutional buyers" in accordance with Rule 144A under the 1933
Act. Any such security will not be considered to be illiquid so long as it is
determined by the Board of Trustees or the Investment Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading market
exists for that security. This investment practice could have the effect of
increasing the level of illiquidity in a Fund during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities. The ability to sell to qualified institutional buyers under Rule
144A is a recent development, and it is not possible to predict how this market
will develop. The Board of Trustees will carefully monitor any investments by a
Fund in these securities.
SECURITIES OF OTHER INVESTMENT COMPANIES
Within the limits prescribed by the 1940 Act, each Fund may invest in
securities issued by other investment companies which invest in high quality,
short-term debt securities and which determine their net asset value per share
based on the amortized cost or penny-rounding method. As a shareholder of
another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Pegasus Funds A-5
<PAGE> 169
PEGASUS FUNDS
CASH MANAGEMENT FUND
TREASURY CASH MANAGEMENT FUND
TREASURY PRIME CASH MANAGEMENT FUND
U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
MUNICIPAL CASH MANAGEMENT FUND
PROSPECTUS
April 30, 1998
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. THERE CAN BE NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
First Chicago NBD Investment Management Company
INVESTMENT ADVISER AND CO-ADMINISTRATOR
BISYS Fund Services
DISTRIBUTOR AND CO-ADMINISTRATOR
PROSPECTUS BEGINS ON PAGE ONE
<PAGE> 170
PEGASUS FUNDS
PROSPECTUS
April 30, 1998
Pegasus Funds (the "Trust") is an open-end, management investment company,
known as a series fund. By this Prospectus, the Trust is offering
Institutional Shares and Service Shares of five separate diversified, money
market series (each, a "Fund"): Cash Management Fund, Treasury Cash Management
Fund, Treasury Prime Cash Management Fund, U.S. Government Securities Cash
Management Fund and Municipal Cash Management Fund (collectively, the
"Funds"). Each Fund's goal is to provide investors with as high a level of
current income as is consistent with the preservation of capital and the
maintenance of liquidity, and, in the case of the Municipal Cash Management
Fund, exempt from federal income tax.
Each Fund is designed for institutional investors, including banks, acting
for themselves or in a fiduciary, advisory, agency, custodial or similar
capacity, public agencies and municipalities. Fund shares may not be purchased
directly by individuals, although institutions may purchase shares for
accounts maintained by individuals.
Each Fund's shares are sold without a sales charge. Investors can invest or
reinvest in or redeem shares at any time without charge or penalty imposed by
the Fund.
Institutional Shares and Service Shares are identical, except as to the
services offered to and expenses borne by each Class. Service Shares bear
certain costs pursuant to a Distribution and Services Plan adopted by the
Board of Trustees.
First Chicago NBD Investment Management Company ("FCNIMCO") serves as each
Fund's investment adviser (the "Investment Adviser") and FCNIMCO and BISYS
Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS") serve as
co-administrators (collectively, the "Co-Administrators").
BISYS serves as each Fund's distributor.
--------------
This Prospectus sets forth concisely information about the Trust and Funds
that an investor should know before investing. It should be read and retained
for future reference.
The Statement of Additional Information, dated April 30, 1998, which may be
revised from time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors.
It has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by reference. For a free copy, write to the Trust at
900 Tower Drive, Mail Suite 8412, Troy, Michigan 48098, or call 1-800-688-
3350.
<PAGE> 171
TABLE OF CONTENTS
<TABLE>
<S> <C>
Annual Fund Operating Expenses......................................... 3
Condensed Financial Information........................................ 4
Performance Information................................................ 9
Description of the Funds............................................... 9
Management of the Trust................................................ 13
How to Buy Fund Shares................................................. 15
How to Redeem Fund Shares.............................................. 16
Distribution and Services Plan......................................... 17
Dividends, Distributions and Taxes..................................... 18
General Information.................................................... 20
Supplemental Information............................................... A-1
</TABLE>
2
<PAGE> 172
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
The following table is provided to assist investors in understanding the
various estimated costs and expenses that an investor will indirectly incur as
a beneficial owner of shares in the Funds.
<TABLE>
<CAPTION>
U.S. GOVERNMENT
TREASURY CASH TREASURY PRIME CASH SECURITIES CASH MUNICIPAL CASH
CASH MANAGEMENT FUND MANAGEMENT FUND MANAGEMENT FUND MANAGEMENT FUND MANAGEMENT FUND
--------------------- --------------------- --------------------- --------------------- ---------------------
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------------- ------- ------------- ------- ------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(after fee
waivers)....... .16% .16% .17% .17% .15% .15% .18% .18% .17% .17%
12b-1
(distribution
and servicing)
Fees........... None .25% None .25% None .25% None .25% None .25%
Other Fund
Operating
Expenses (after
fee waivers and
reimbursements). .19% .19% .18% .18% .20% .20% .17% .17% .18% .18%
Total Fund
Operating
Expenses (after
fee waivers and
expense
reimbursements). .35% .60% .35% .60% .35% .60% .35% .60% .35% .60%
</TABLE>
- --------------
EXAMPLE:
An investor would pay the following estimated expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------------- ------- ------------- ------- ------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.......... $ 4 $ 6 $ 4 $ 6 $ 4 $ 6 $ 4 $ 6 $ 4 $ 6
3 Years......... $11 $19 $11 $19 $11 $19 $11 $19 $11 $19
5 Years......... $20 $33 N/A N/A $20 $33 $20 $33 N/A N/A
10 Years........ $44 $75 N/A N/A $44 $75 $44 $75 N/A N/A
</TABLE>
- -------------------------------------------------------------------------------
The amounts listed in the examples should not be considered as representative
of past or future expenses and actual expenses may be greater or less than
those indicated. Moreover, while the example assumes a 5% annual return, each
Fund's actual performance will vary and may result in an actual return greater
or less than 5%.
- -------------------------------------------------------------------------------
3
<PAGE> 173
The purpose of the foregoing table is to assist investors in understanding
the various estimated costs and expenses borne by the Funds, and therefore
indirectly by investors, the payment of which will reduce investors' return on
an annual basis. The Investment Adviser has undertaken, as to each Fund, until
such time as it gives investors at least 90 days' notice to the contrary, that
if, in any fiscal year, aggregate expenses exclusive of taxes, brokerage,
interest on borrowings and (with the prior consent of the necessary state
securities commissions) extraordinary expenses, but including the investment
advisory and administration fees, exceed .35% and .60% of the value of the
average net assets of the Institutional Shares and the Service Shares,
respectively, for the fiscal year, the Trust may deduct from the payment to be
made to the Investment Adviser under the Investment Advisory or Administration
Agreements, or the Investment Adviser will bear, such excess expense. The
expenses noted above, without fee waivers or expense reimbursement
arrangements, would have been: Management Fees, .20% for each Fund; Other Fund
Operating Expenses, .19% for the Institutional Shares and Service Shares of
the Cash Management Fund, .18% for the Institutional Shares and Service Shares
of the Treasury Cash Management Fund (based on estimated amounts for the
current fiscal year), .20% for the Institutional Shares and Service Shares of
the Treasury Prime Cash Management Fund, .17% for the Institutional Shares and
Service Shares of the U.S. Government Securities Cash Management Fund, and
.18% for the Institutional Shares and Service Shares of the Municipal Cash
Management Fund (based on estimated amounts for the current fiscal year); and
Total Fund Operating Expenses, .39% for the Institutional Shares and .64% for
the Service Shares of the Cash Management Fund, .38% for the Institutional
Shares and .63% for the Service Shares of the Treasury Cash Management Fund
(based on estimated amounts for the current fiscal year), .40% for the
Institutional Shares and .65% for the Service Shares of the Treasury Prime
Cash Management Fund, .37% for the Institutional Shares and .62% for the
Service Shares of the U.S. Government Securities Cash Management Fund, and
.38% for the Institutional Shares and .63% for the Service Shares of the
Municipal Cash Management Fund (based on estimated amounts for the current
fiscal year) . See "Management of the Trust," "How to Buy Fund Shares" and
"Distribution and Services Plan."
CONDENSED FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Cash Management Fund commenced operations on July 30, 1992 as the First
Prairie Cash Management Fund and the U.S. Government Securities Cash
Management Fund commenced operations on June 2, 1992 as the First Prairie U.S.
Treasury Securities Cash Management Fund (collectively, the "First Prairie
Funds"). On January 17, 1995, all of the assets and liabilities of each First
Prairie Fund were transferred to the Cash Management Fund and U.S. Government
Securities Cash Management Fund, respectively, of the Prairie Institutional
Funds. On July 13, 1996, all of the assets and liabilities of the Cash
Management Fund, Treasury Prime Cash Management Fund and U.S. Government
Securities Cash Management Fund (the "Predecessor Funds") of Prairie
Institutional Funds were transferred to the Cash Management Fund, Treasury
Prime Cash Management Fund and U.S. Government Securities Cash Management
Fund, respectively. The Treasury Cash Management Fund and Municipal Cash
Management Fund commenced operations on September 12, 1997 and August 18,
1997, respectively.
The tables below set forth certain information concerning the investment
results of the Funds, the Predecessor Funds and the First Prairie Funds. The
information about the Funds for the periods ended December 31, 1997 and 1996
has been audited by Arthur Andersen LLP, the Trust's independent accountants,
whose report thereon
4
<PAGE> 174
is incorporated by reference in the Statement of Additional Information. The
information about the Predecessor Funds and the First Prairie Funds for the
periods ending and prior to December 31, 1995 has been derived from the
financial statements which have been audited by Ernst & Young LLP, such Funds'
prior independent auditors, whose report thereon dated February 22, 1996
expressed an unqualified opinion on such financial statements. The Financial
Highlights should be read in conjunction with the financial statements and
notes thereto and the reports of the independent accountants which are
incorporated by reference in the Statement of Additional Information. Further
information about the performance of the Funds is available in the Funds'
Annual Report to Shareholders. The Statement of Additional Information and the
Annual Report to Shareholders may be obtained from the Trust free of charge by
calling (800) 688-3350.
5
<PAGE> 175
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
INCREASE DUE
TO CAPITAL
CONTRIBUTION
FROM AN
NET ASSET NET DISTRIBUTIONS AFFILIATE
VALUE NET REALIZED TOTAL FROM FROM NET OF THE
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT INVESTMENT
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ADVISER
--------- ---------- -------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND
INSTITUTIONAL
SHARES
Year ended
1997 $0.9998 0.0528 (0.0001) 0.0527 (0.0528) --
1996 $0.9996 0.0508 0.0002 0.0510 (0.0508) --
1995(1) $0.9994 0.0277 0.0002 0.0279 (0.0277) --
1995(2)(3) $0.9993 0.0507 (0.0059) 0.0448 (0.0507) 0.0060
1994(3) $0.9999 0.0333 (0.0006) 0.0327 (0.0333) --
1993(4) $1.0000 0.0297 (0.0001) 0.0296 (0.0297) --
SERVICE
SHARES
Year ended
1997 $0.9998 0.0503 0.0001 0.0504 (0.0503) --
1996 $0.9996 0.0484 0.0002 0.0486 (0.0484) --
1995(1) $0.9994 0.0264 0.0002 0.0266 (0.0264) --
1995(5) $1.0000 0.0245 (0.0006) 0.0239 (0.0245) --
- ----------------------------------------------------------------------------------------
TREASURY CASH MANAGEMENT FUND
INSTITUTIONAL
SHARES
1997(6) $1.0000 0.0159 -- 0.0159 (0.0159) --
SERVICE
SHARES
1997(6) $1.0000 0.0152 -- 0.0152 (0.0152) --
- ----------------------------------------------------------------------------------------
TREASURY PRIME CASH MANAGEMENT FUND
INSTITUTIONAL
SHARES
Year ended
1997 $0.9999 0.0479 -- 0.0479 (0.0479) --
1996 $1.0000 0.0474 (0.0001) 0.0473 (0.0474) --
1995(7) $1.0000 0.0399 -- 0.0399 (0.0399) --
SERVICE
SHARES
Year ended
1997 $1.0000 0.0454 -- 0.0454 (0.0454) --
1996 $1.0000 0.0449 -- 0.0449 (0.0449) --
1995(7) $1.0000 0.0380 -- 0.0380 (0.0380) --
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
INSTITUTIONAL
SHARES
Year ended
1997 $0.9988 0.0521 0.0004 0.0525 (0.0521) --
1996 $0.9990 0.0502 (0.0002) 0.0500 (0.0502) --
1995(8) $0.9989 0.0320 0.0001 0.0321 (0.0320) --
1995(9) $0.9999 0.0492 (0.0010) 0.0482 (0.0492) --
1994(9) $1.0000 0.0302 (0.0001) 0.0301 (0.0302) --
1993(10) $1.0000 0.0319 -- 0.0319 (0.0319) --
SERVICE
SHARES
Year ended
1997 $0.9995 0.0496 0.0002 0.0498 (0.0496) --
1996 $0.9990 0.0478 0.0005 0.0483 (0.0478) --
1995(8) $0.9989 0.0305 0.0001 0.0306 (0.0305) --
1995(11) $1.0000 0.0199 (0.0011) 0.0188 (0.0199) --
- ----------------------------------------------------------------------------------------
MUNICIPAL CASH MANAGEMENT FUND
INSTITUTIONAL
SHARES
1997(12) $1.0000 0.0125 -- 0.0125 (0.0125) --
SERVICE
SHARES
1997(12) $1.0000 0.0116 -- 0.0116 (0.0116) --
</TABLE>
- --------------------------------------------------------------------------------
See page 8 for Notes to Financial Highlights.
6
<PAGE> 176
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO TO AVERAGE
NET NET OF NET NET ASSETS
ASSET ASSETS RATIO OF INVESTMENT (EXCLUDING
VALUE END OF EXPENSES INCOME TO FEE WAIVERS
END OF TOTAL PERIOD TO AVERAGE AVERAGE AND
PERIOD RETURN (000) NET ASSETS NET ASSETS REIMBURSEMENTS)
------ ------ ------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
$0.9997 5.41% $ 705,270 0.35% 5.36% 0.38%
$0.9998 5.23% $ 885,946 0.35% 5.19% 0.42%
$0.9996 2.80%++ $ 389,127 0.35%+ 5.51%+ 0.43%+
$0.9994 5.19%(2) $ 319,214 0.35% 5.11% 0.44%
$0.9993 3.38% $ 143,820 0.31% 3.33% 0.43%
$0.9999 3.25%+ $ 175,713 0.05%+ 3.19%+ 0.56%+
$0.9999 5.15% $ 992,763 0.60% 5.11% 0.63%
$0.9998 4.98% $ 232,249 0.60% 4.94% 0.67%
$0.9996 2.68%++ $ 121,750 0.60%+ 5.25%+ 0.69%+
$0.9994 2.47%++ $ 11,372 0.60%+ 5.46%+ 0.71%+
- ----------------------------------------------------------------------------
$1.0000 5.29%+ $ 850 0.35%+ 5.28%+ 0.41%+
$1.0000 5.04%+ $ 205,722 0.60%+ 5.03%+ 0.66%+
- ----------------------------------------------------------------------------
$0.9999 4.90% $ 90,813 0.35% 4.79% 0.40%
$0.9999 4.86% $ 70,120 0.35% 4.84% 0.46%
$1.0000 4.06%++ $ 14,008 0.35%+ 5.16%+ 1.23%+
$1.0000 4.64% $ 233,590 0.60% 4.54% 0.65%
$1.0000 4.60% $ 215,040 0.60% 4.59% 0.71%
$1.0000 3.86%++ $ 130,559 0.60%+ 4.72%+ 0.74%+
- ----------------------------------------------------------------------------
$0.9992 5.34% $ 534,364 0.35% 5.27% 0.36%
$0.9988 5.15% $ 369,163 0.35% 5.09% 0.43%
$0.9990 3.24%++ $ 489,395 0.35%+ 5.46%+ 0.42%+
$0.9989 5.03% $ 475,248 0.34% 4.94% 0.41%
$0.9999 3.06% $ 413,634 0.30% 3.02% 0.41%
$1.0000 3.25%+ $ 264,527 0.02%+ 3.10%+ 0.49%+
$0.9997 5.08% $ 357,663 0.60% 5.02% 0.61%
$0.9995 4.89% $ 207,046 0.60% 4.84% 0.68%
$0.9990 3.09%++ $ 56,000 0.60%+ 5.17%+ 0.69%+
$0.9989 2.01%++ $ 16,702 0.57%+ 5.48%+ 0.66%+
- ----------------------------------------------------------------------------
$1.0000 3.39%+ $ 201,705 0.35%+ 3.37%+ 0.41%+
$1.0000 3.14%+ $ 56,534 0.60%+ 3.12%+ 0.66%+
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE> 177
NOTES TO FINANCIAL HIGHLIGHTS
(1) For the period July 1, 1995 through December 31, 1995. Effective July 1,
1995, the Fund changed its fiscal year end from June 30 to December 31.
(2) If the Fund had not had a capital contribution by an affiliate of the
Investment Adviser during the period, the total return would have been
4.51%.
(3) For the year ended June 30.
(4) For the period July 30, 1992 (commencement of operations) through June
30, 1993.
(5) For the period January 17, 1995 (initial offering date of Service Shares)
through June 30, 1995.
(6) For the period September 12, 1997 (commencement of operations) through
December 31, 1997.
(7) For the period March 22, 1995 (commencement of operations) through
December 31, 1995.
(8) For the period June 1, 1995 through December 31, 1995. Effective June 1,
1995, the Fund changed its fiscal year end from May 31 to December 31.
(9) For the year ended May 31.
(10) For the period January 17, 1993 (commencement of operations) through May
31, 1993.
(11) For the period January 17, 1995 (initial offering date of Service Shares)
through May 31, 1995.
(12) For the period August 18, 1997 (commencement of operations) through
December 31, 1997.
+ Annualized.
++ Not Annualized.
8
<PAGE> 178
PERFORMANCE INFORMATION
From time to time, each Fund may advertise its total return, yield and
effective yield. Both yield figures are based on historical earnings and are
not intended to indicate future performance. It can be expected that these
yields will fluctuate substantially. The yield of a Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is then annualized. That is,
the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage
of the investment. The effective yield is calculated similarly, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment. Each Fund's yield and
effective yield may reflect absorbed expenses pursuant to any undertaking that
may be in effect. See "Management of the Trust." Both yield figures also take
into account any applicable distribution and service fees. See "Distribution
and Services Plan."
The Municipal Cash Management Fund may from time to time advertise a "tax-
equivalent yield" to demonstrate the level of taxable yield necessary to
produce an after-tax yield equivalent to that achieved by the Fund. The "tax-
equivalent yield" will be computed by dividing the tax-exempt portion of the
Fund's yield by a denominator consisting of one minus a stated federal income
tax rate and adding the product to that portion, if any, of the Fund's yield
which is not tax-exempt.
Yield information is useful in reviewing a Fund's performance, but because
yields will fluctuate, under certain conditions such information may not
provide a basis for comparison with domestic bank deposits, other investments
which pay a fixed yield for a stated period of time, or other investment
companies which may use a different method of computing yield.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Bank Rate Monitor(TM), IBC/Donoghue's Money Fund Report(R) and
other industry publications.
DESCRIPTION OF THE FUNDS
GENERAL
The Trust is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As described below, for certain matters
Trust shareholders vote together as a group; as to others they vote separately
by Fund.
By this Prospectus, two classes of shares of each Fund are being offered --
Institutional Shares and Service Shares (each such class being referred to as
a "Class"). Unlike Institutional Shares, Service Shares are subject to an
annual distribution and service fee at the rate of up to .25% of the value of
the average daily net assets of the Service Class. The fee is payable to the
Distributor for advertising, marketing and distributing Service Shares and for
ongoing personal services to the holders of Service Shares relating to
shareholder accounts and services related to the maintenance of such
shareholder accounts pursuant to a Distribution and Services Plan adopted in
accordance with Rule 12b-1 under the 1940 Act. The Distributor may make
payments to certain financial
9
<PAGE> 179
institutions, securities dealers and other industry professionals
(collectively, "Service Agents") in respect of these services. See
"Distribution and Services Plan."
WHEN USED IN THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION,
THE TERMS "INVESTOR" AND "SHAREHOLDER" REFER TO THE INSTITUTION PURCHASING
FUND SHARES AND DO NOT REFER TO ANY INDIVIDUAL OR ENTITY FOR WHOSE ACCOUNT THE
INSTITUTION MAY PURCHASE FUND SHARES.
INVESTMENT OBJECTIVE
Each Fund's investment objective is to provide investors with as high a
level of current income as is consistent with the preservation of capital and
the maintenance of liquidity, and, in the case of the Municipal Cash
Management Fund, exempt from federal income tax. Each Fund's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of such Fund's outstanding voting shares. There can
be no assurance that a Fund's investment objective will be achieved.
Securities in which the Funds invest may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation of market value.
MANAGEMENT POLICIES
Each Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Trust uses the amortized cost method
of valuing each Fund's securities pursuant to Rule 2a-7 under the 1940 Act,
certain requirements of which are summarized below.
In accordance with Rule 2a-7, each Fund is required to maintain a dollar-
weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Board of Trustees to present minimal credit risks and, in
the case of the Cash Management Fund and Municipal Cash Management Fund, which
are rated (or whose issuer or, in certain cases, guarantor, is rated) in one
of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Trustees (or have a guarantee which satisfies this
standard). The nationally recognized statistical rating organizations
currently rating instruments of the type the Cash Management Fund and
Municipal Cash Management Fund may purchase are Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group, Division of McGraw-Hill
("S&P"), Duff & Phelps Credit Rating Co., Fitch IBCA, Inc. ("Fitch") and
Thomson BankWatch, Inc. and their rating criteria are described in the
Appendix to the Statement of Additional Information. For further information
regarding the amortized cost method of valuing securities, see "Determination
of Net Asset Value" in the Statement of Additional Information. There can be
no assurance that each Fund will be able to maintain a stable net asset value
of $1.00 per share.
. CASH MANAGEMENT FUND invests in short-term money market obligations,
including securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, certificates of deposit, time deposits,
bankers' acceptances and other short-term obligations issued by domestic
banks, foreign branches of domestic banks, foreign subsidiaries of domestic
banks, domestic and foreign branches of foreign banks and thrift institutions,
guaranteed investment contracts, repurchase agreements, and high quality
domestic and foreign commercial paper and other eligible short-term
obligations, including those with floating or variable rates of interest. See
"Supplemental Information -- Portfolio Securities and Investment Practices."
During normal
10
<PAGE> 180
market conditions, at least 25% of the Fund's total assets will be invested in
bank obligations or instruments secured by such obligations.
. TREASURY CASH MANAGEMENT FUND invests in U.S. Treasury bills, notes, and
direct U.S. Treasury obligations having remaining maturities of 397 days or
less; and repurchase agreements relating to U.S. Treasury obligations. See
"Supplemental Information -- Portfolio Securities."
. TREASURY PRIME CASH MANAGEMENT FUND invests in U.S. Treasury bills, notes,
and direct U.S. Treasury obligations having remaining maturities of 397 days
or less. See "Supplemental Information -- Portfolio Securities." The Fund does
not invest in repurchase agreements.
. U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND invests in short-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and repurchase agreements relating to such securities. See
"Supplemental Information -- Portfolio Securities and Investment Practices."
. MUNICIPAL CASH MANAGEMENT FUND invests in high quality debt obligations
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their respective political
subdivisions and authorities, the interest from which is, in the opinion of
bond counsel for the issuers, exempt from regular federal income tax
("Municipal Obligations"). Municipal Obligations include: (1) municipal bonds;
(2) municipal notes; (3) variable rate demand notes; (4) tax-exempt commercial
paper and floating rate instruments; and (5) unrated notes, paper or other
instruments that are of comparable quality as determined by the Investment
Adviser under guidelines established by the Trust's Board of Trustees. Where
necessary to ensure that an instrument is of high quality, the Fund may only
purchase the instrument if the issuer's obligation to pay the principal is
backed by an unconditional bank letter of credit, line of credit, guaranty or
commitment to lend. The Municipal Cash Management Fund may also engage in
repurchase agreements and may lend its securities. Income earned by the Fund
with respect to repurchase agreements and securities lending transactions will
be taxable. At least 80% of the Municipal Cash Management Fund's net assets
will be invested in Municipal Obligations, except in extraordinary
circumstances, such as when the Investment Adviser believes that market
conditions indicate that the Fund should adopt a temporary defensive position
by holding uninvested cash or investing in taxable short term securities such
as those in which the Cash Management Fund invests. This policy is fundamental
and may not be changed without the approval of the holders of a majority of
the Municipal Cash Management Fund's outstanding shares. There is no
investment limitation on investments in Municipal Obligations subject to the
federal alternative minimum tax. See "Dividends, Distributions and Taxes" and
"Supplemental Information -- Portfolio Securities and Investment Practices."
CERTAIN FUNDAMENTAL POLICIES
Each Fund may not:
(1) Borrow money, issue senior securities, or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act;
(2) Act as an underwriter of securities of other issuers, except to extent
the Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities;
(3) Purchase or sell (a) real estate or (b) commodities, except to the
extent permitted under the 1940 Act;
11
<PAGE> 181
(4) Make loans to others (other than through investment in debt obligations
or other instruments referred to in the Fund's Prospectus), except that the
Fund may lend its portfolio securities in an amount not to exceed 33 1/3% of
the value of its total assets;
(5) Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to (i) instruments issued or guaranteed by the U.S. Government, any
state, territory or possession of the United States, the District of Columbia
or any of their authorities, agencies, instrumentalities or political
subdivisions, (ii) instruments issued by domestic branches of U.S. banks and
(iii) repurchase agreements secured by instruments described in clauses (i)
and (ii), (b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry and
(d) personal credit and business credit businesses will be considered separate
industries, and further provided that the Cash Management Fund will invest at
least 25% of its total assets in obligations of issuers in the banking
industry or instruments secured by such obligations except during temporary
defensive periods; and
(6) Purchase securities of any one issuer (except U.S. Government securities
and related repurchase agreements, and with respect to the Municipal Cash
Management Fund, other than as permitted by Rule 2a-7 under the 1940 Act) if
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the obligations of any one issuer, except that up
to 25% of the value of the Fund's total assets may be invested without regard
to this 5% limitation.
See, also "Investment Objective and Management Policies -- Investment
Restrictions" in the Statement of Additional Information.
ADDITIONAL NON-FUNDAMENTAL POLICY
Each Fund may invest up to 10% of the value of its net assets in illiquid
securities. See "Supplemental Information -- Investment Practices --
Restricted Securities" and "Investment Objective and Management Policies --
Investment Restrictions" in the Statement of Additional Information.
RISK FACTORS
See also "Supplemental Information" beginning on page A-1.
FOREIGN SECURITIES -- (CASH MANAGEMENT FUND) -- Since the Cash Management
Fund's portfolio may contain securities issued by foreign branches of domestic
banks and foreign banks, domestic and foreign branches of foreign banks and
thrift institutions, and commercial paper issued by foreign issuers, the Fund
may be subject to additional investment risks with respect to such securities
that are different in some respects from those incurred by a fund which
invests only in debt obligations of U.S. domestic issuers, although such
obligations may be higher yielding when compared to the securities of U.S.
domestic issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding, taxes on
interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits.
12
<PAGE> 182
OTHER INVESTMENT CONSIDERATIONS -- Each Fund, except the Treasury Cash
Management and Treasury Prime Cash Management Funds, may purchase securities
on a "when-issued" basis. These transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the
Fund to lock-in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. When-issued transactions
involve the risk, however, that the yield obtained in a transaction may be
less favorable than the yield available in the market when the securities
delivery takes place. The Funds do not earn income with respect to these
transactions until the subject securities are delivered to the Funds. The
Funds do not intend to engage in when-issued purchases for speculative
purposes but only in furtherance of their investment objectives.
Investment decisions for each Fund are made independently from those of
other investment companies or investment advisory accounts that may be advised
by the Investment Adviser. However, if such other investment companies or
managed accounts are prepared to invest in, or desire to dispose of,
securities of the type in which a Fund may invest at the same time as such
Fund, available investments or opportunities for sales will be allocated
equitably to each of them. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust is responsible for the management of the
business and affairs of the Trust. The Statement of Additional Information
contains information about the Board of Trustees.
INVESTMENT ADVISER AND CO-ADMINISTRATORS
First Chicago NBD Investment Management Company ("FCNIMCO"), located at
Three First National Plaza, Chicago, Illinois 60670, is each Fund's Investment
Adviser. FCNIMCO is a registered investment adviser and a wholly-owned
subsidiary of The First National Bank of Chicago ("FNBC"), which in turn is a
wholly-owned subsidiary of First Chicago NBD Corporation ("FCN"), a registered
bank holding company. Included among FCNIMCO's accounts are pension and profit
sharing funds for major corporations and state and local governments,
commingled trust funds and a variety of institutional and personal advisory
accounts, estates and trusts. FCNIMCO also acts as investment adviser for
other registered investment company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an Investment
Advisory Agreement dated as of April 12, 1996. Under the Investment Advisory
Agreement, FCNIMCO provides the day-to-day management of each Fund's
investments, subject to the overall authority of the Trust's Board of Trustees
and in conformity with Massachusetts law and the stated policies of the Trust.
FCNIMCO is responsible for making investment decisions for the Trust, placing
purchase and sale orders (which may be allocated to various dealers based on
their sales of Fund shares) and providing research, statistical analysis and
continuous supervision of each Fund's investment portfolio. Under the
Investment Advisory Agreement, FCNIMCO is entitled to a monthly advisory fee
at the annual rate of .20% of each Fund's average daily net assets. For the
period or year ended December 31, 1997, the Trust paid FCNIMCO an investment
advisory fee under the Investment Advisory Agreement at the effective annual
rates of .17%, .17%, .16%, .17% and .17% of the respective average daily net
assets of the Cash Management Fund, Treasury Cash Management Fund, Treasury
Prime Cash Management Fund, U.S. Government Securities Cash Management Fund
and Municipal Cash Management Fund.
13
<PAGE> 183
FCNIMCO and BISYS jointly serve as the Trust's Co-Administrators pursuant to
an Administration Agreement with the Trust. Under the Administration
Agreement, FCNIMCO and BISYS generally assist in all aspects of the Trust's
operations, other than providing investment advice, subject to the overall
authority of the Trust's Board in accordance with Massachusetts law. Under the
terms of the Administration Agreement the Trust pays FCNIMCO, as agent for the
Co-Administrators, a monthly administration fee at the annual rate of .15% of
each Fund's average daily net assets. For the fiscal year ended December 31,
1997, the Trust paid administration fees at the effective annual rate of .15%
of each Fund's average daily net assets.
DISTRIBUTOR
BISYS Fund Services (the "Distributor"), located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as the Trust's principal underwriter and
distributor of the Funds' shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
First Data Investor Services Group, Inc., P.O. Box 5142, Westborough,
Massachusetts 01581-5120, serves as the Trust's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). NBD Bank, which is a wholly-owned
subsidiary of First Chicago NBD Corporation, serves as the Trust's custodian
(the "Custodian"). NBD Bank is located at 900 Tower Drive, Troy, Michigan
48098.
EXPENSES
All expenses incurred in the operation of the Trust are borne by the Trust,
except to the extent specifically assumed by the Investment Adviser and Co-
Administrators. The expenses borne by the Trust include organizational costs,
taxes, interest, brokerage fees and commissions, if any, fees and expenses of
Trustees, SEC fees, state Blue Sky qualification fees, advisory fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining the Trust's existence, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders' reports
and meetings, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders, and any extraordinary expenses. In addition, Service
Shares are subject to an annual distribution and service fee pursuant to a
plan adopted by the Board of Trustees. See "Distribution and Services Plan."
Expenses attributable to a particular Fund or Class are generally charged
against the assets of that Fund or Class, respectively, and other expenses of
the Trust are allocated among the Funds on the basis determined by the Board
of Trustees, including, but not limited to, proportionately in relation to the
net assets of each Fund.
The Investment Adviser has undertaken, as to each Fund, until such time as
it gives investors at least 90 days' notice to the contrary, that if, in any
fiscal year the aggregate expenses of the Fund, exclusive of taxes, brokerage,
interest on borrowings and (with the prior written consent of the necessary
state securities commissions) extraordinary expenses, but including the
investment advisory and administration fees, exceed .35% and .60% of the value
of the average net assets of the Institutional Class and the Service Class,
respectively, for the fiscal year, the Trust may deduct from the payment to be
made to the Investment Adviser under the Investment Advisory or Administration
Agreements, or the Investment Adviser will bear such excess expense.
14
<PAGE> 184
HOW TO BUY FUND SHARES
Each Fund is designed primarily for institutional investors, including banks
(such as FNBC and NBD), acting for themselves or in a fiduciary, advisory,
agency, custodial or similar capacity, public agencies and municipalities.
Fund shares may not be purchased directly by individuals, although
institutions may purchase shares for accounts maintained by individuals.
Generally, each investor will be required to open a single master account with
the Fund for all purposes. In certain cases, the Trust may request investors
to maintain separate master accounts for shares held by the investor (1) for
its own account, for the account of other institutions and for accounts for
which the institution acts as a fiduciary, and (ii) for accounts for which the
investor acts in some other capacity. An institution may arrange with the
Transfer Agent for sub-accounting services and will be charged directly for
the cost of such services. Certain accounts may be eligible for an automatic
investment privilege, commonly called a "sweep," under which amounts in excess
of a certain minimum held in those accounts will be invested automatically in
shares at pre-determined intervals. Each investor desiring to use this
privilege should consult its bank for details.
The minimum initial investment is $1,000,000 or any lesser amount if, in the
Distributor's opinion, the investor has adequate intent and availability of
funds to reach a future level of investment of $1,000,000. There is no minimum
for subsequent purchases. The initial investment must be accompanied by the
Account Application. The Trust reserves the right to offer Fund shares without
regard to the minimum purchase requirements to qualified or non-qualified
employee benefit plans. The Trust does not impose any sales charges in
connection with purchases of Fund shares, although Service Agents and other
institutions may charge their clients fees in connection with purchases for
the accounts of their clients. These fees would be in addition to any amounts
which might be received under the Distribution and Services Plan. Service
Agents may receive different levels of compensation for selling different
classes of shares. The Fund does not issue share certificates. The Trust
reserves the right to reject any purchase order.
Fund shares may be purchased by wire, by telephone or through compatible
computer facilities. All payments should be made in U.S. dollars and, to avoid
fees and delays, should be drawn only on U.S. banks. Investors may telephone
orders for purchases of Fund shares by calling 1-800-688-3350. For
instructions concerning purchases and to determine whether their computer
facilities are compatible with the Trust's, investors should call 1-800-688-
3350.
When purchasing shares by wire customers should send federal funds to NBD
Bank, ABA 072000326, for the account of Pegasus Funds, deposit to FDIS
Cashbook Account number 79512, and identify the customer name and account
number. Before wiring payment, customers must notify the Trust at 1-800-688-
3350 of the dollar amount of the purchase. Notification must be given before
the respective closing time of the Fund to be purchased.
Fund shares are sold on a continuous basis at the net asset value per share
next determined after an order in proper form and Federal Funds (monies of
member banks in the Federal Reserve System which are held on deposit at a
Federal Reserve Bank) are received by the Transfer Agent. If an investor does
not remit Federal Funds, its payment must be converted into Federal Funds.
This usually occurs within one business day of receipt of a bank wire and
within two business days of receipt of a check drawn on a member bank of the
Federal Reserve System. Checks drawn on banks which are not members of the
Federal Reserve System may take considerably longer to convert into Federal
Funds. Prior to receipt of Federal Funds, the investor's money will not be
invested.
15
<PAGE> 185
Net asset value per share is determined as of 11:00 a.m., Central time, for
the Municipal Cash Management Fund, 12:00 noon, Central time, for the Treasury
Prime Cash Management Fund and 2:00 p.m., Central time, for the Cash
Management Fund, Treasury Cash Management Fund and U.S. Government Securities
Cash Management Fund, on each Fund business day (which, as used herein, shall
include each day that the New York Stock Exchange is open for business, except
Columbus Day and Veterans Day). Net asset value per share of each Class is
computed by dividing the value of the Fund's net assets represented by such
Class (i.e., the value of its assets less liabilities) by the total number of
shares of such Class outstanding. See "Determination of Net Asset Value" in
the Statement of Additional Information.
Investors whose payments are received in or converted into Federal Funds by
11:00 a.m., Central time, for the Municipal Cash Management Fund, 12:00 noon,
Central time, for the Treasury Prime Cash Management Fund or 2:00 p.m.,
Central time, for the Cash Management Fund, Treasury Cash Management Fund and
U.S. Government Securities Cash Management Fund, by the Transfer Agent will
receive the dividend declared that day. Investors whose payments are received
in or converted into Federal Funds by the Transfer Agent after 11:00 a.m.,
Central time, for the Municipal Cash Management Fund, 12:00 noon, Central
time, for the Treasury Prime Cash Management Fund or 2:00 p.m., Central time,
for the Cash Management Fund, Treasury Cash Management Fund and U.S.
Government Securities Cash Management Fund, will begin to accrue dividends on
the following business day.
Federal Regulations require that an investor provide a certified Taxpayer
Identification Number ("TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes" for further information concerning this
requirement. Failure to furnish a certified TIN to the Trust could subject an
investor to a $50 penalty imposed by the Internal Revenue Service (the "IRS"),
and could subject the investor to backup withholding.
HOW TO REDEEM FUND SHARES
An investor may redeem all or any portion of the shares in the investor's
account on any Fund business day at the net asset value next determined after
a redemption request in proper form is received by the Transfer Agent.
Therefore, redemptions will be effected on the same day the redemption order
is received only if such order is received prior to 11:00 a.m., Central time,
for the Municipal Cash Management Fund, 12:00 noon, Central time, for the
Treasury Prime Cash Management Fund or 2:00 p.m., Central time, for the Cash
Management Fund, Treasury Cash Management Fund and U.S. Government Securities
Cash Management Fund, on any Fund business day. Shares that are redeemed earn
dividends up to and including the day prior to the day the redemption is
effected. The proceeds of a redemption will be paid in Federal Funds
ordinarily on the Fund business day the redemption is effected. Payment for
redemption requests received before 11:00 a.m., Central time, for the
Municipal Cash Management Fund, 12:00 noon, Central time, for the Treasury
Prime Cash Management Fund or 2:00 p.m., Central time, for the Cash Management
Fund, Treasury Cash Management Fund and U.S. Government Securities Cash
Management Fund, ordinarily is made in Federal Funds wired to the redeeming
shareholder on the same Fund business day. Payment for redeemed shares for
which a redemption order is received after such time on a Fund business day is
made in Federal Funds wired to the redeeming shareholder on the next Fund
business day following redemption. To allow the Investment Adviser to manage
the Funds' portfolios more effectively, investors are urged to make redemption
requests as early in the day as possible. In making redemption requests, the
names of the registered shareholders and their account numbers
16
<PAGE> 186
must be supplied. Although each Fund generally retains the right to pay the
redemption price of its shares in kind with securities (instead of cash), the
Trust has filed an election under Rule 18f-1 under the 1940 Act committing to
pay in cash all redemptions by a shareholder of record up to the amounts
specified in such rule (in most cases approximately $250,000).
For redemptions by telephone or wire, please call 1-800-688-3350.
An investor may redeem shares by telephone if the investor has checked the
appropriate box on the Account Application. By selecting a telephone
redemption privilege, an investor authorizes the Transfer Agent to act on
telephone instructions from any person representing himself or herself to be
an authorized representative of the investor and reasonably believed by the
Transfer Agent to be genuine. The Trust will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of identification, to
confirm that instructions are genuine and, if it does not follow such
procedures, the Trust or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent instructions. Neither the Trust nor the Transfer
Agent will be liable for following telephone instructions reasonably believed
to be genuine.
The Trust makes available to institutions the ability to redeem shares
through compatible computer facilities. Investors desiring to redeem shares in
this manner should call 1-800-688-3350 to determine whether their computer
facilities are compatible and to receive instructions for redeeming shares in
this manner.
The Trust reserves the right to redeem an investor's account at the Trust's
option upon not less than 60 days' written notice if, due to share
redemptions, the account's net asset value decreases to $1,000,000 or less,
and remains so during the notice period.
The right of any investor to receive payments with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during
any period in which the New York Stock Exchange is closed (other than weekends
or holidays) or trading on such Exchange is restricted or, to the extent
otherwise permitted by the 1940 Act, if an emergency exists.
DISTRIBUTION AND SERVICES PLAN
(Service Shares Only)
Service Shares are subject to a Distribution and Services Plan adopted by
the Board of Trustees pursuant to Rule 12b-1 under the 1940 Act. Under the
Distribution and Services Plan, each Fund pays the Distributor for
advertising, marketing and distributing such shares and/or for the provision
of shareholder and administrative services for the beneficial owners of such
shares, a fee at the annual rate of up to .25% of the average daily net asset
value of the Service Class. The support services provided may include personal
services relating to shareholder accounts, providing reports and other
information, and services related to the maintenance of such shareholder
accounts. Under the Distribution and Services Plan, BISYS may make payments to
Service Agents in respect of these services. FCNIMCO, FNBC, NBD and their
affiliates may act as Service Agents and receive fees under the Distribution
and Services Plan. BISYS determines the amounts to be paid to Service Agents.
The distribution services provided are activities primarily intended to result
in the sale of Service Shares.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund ordinarily declares dividends from net investment income on each
Fund business day. Fund shares begin earning income dividends on the day the
purchase order is effective. Dividends usually are paid on the first calendar
day of each month, and are automatically reinvested at net asset value in
additional shares of the Fund from which they were paid or, at the investor's
option, paid in cash. Each Fund's earnings for Saturdays, Sundays and holidays
are declared as dividends on the preceding business day. If an investor
redeems all shares in its account at any time during the month, all proceeds
and dividends to which the investor is entitled will be paid. Distributions
from net realized securities gains, if any, generally are declared and paid
once a year, but a Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code of
1986, as amended (the "Code"), in all events in a manner consistent with the
provisions of the 1940 Act. No Fund will make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized or
have expired. Investors may choose whether to receive distributions in cash or
to reinvest in additional shares at net asset value of the Fund from which
they were paid. All expenses are accrued daily and deducted before declaration
of dividends to investors. Dividends paid by each Class will be calculated at
the same time and in the same manner and will be of the same amount, except
that the expenses attributable solely to the Institutional Class or the
Service Class will generally be borne exclusively by such Class. Service
Shares will receive lower per share dividends than Institutional Shares
because of the higher expenses borne by the Service Class. See "Annual Fund
Operating Expenses." No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Dividends paid by the Cash Management Fund, Treasury Cash Management Fund,
Treasury Prime Cash Management Fund and U.S. Government Securities Cash
Management Fund derived from net investment income and dividends paid by the
Municipal Cash Management Fund derived from taxable investments, together with
distributions from any net realized short-term securities gains and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, will be taxable to U.S. investors as ordinary income
whether or not reinvested in additional Fund shares. Distributions from net
realized long-term securities gains, if any, will be taxable as long-term
capital gains for federal income tax purposes if the beneficial holder of Fund
shares is a citizen or resident of the United States, regardless of how long
investors have held shares and whether such distributions are received in cash
or reinvested in additional shares. The capital gains will be 20% or 28% rate
gains depending upon the Fund's holding period for the assets the sale of
which generated the capital gains.
In the case of the Municipal Cash Management Fund, dividends derived from
tax-exempt interest income ("exempt-interest dividends") may be treated by the
Fund's shareholders as items of interest excludable from their gross income
unless under the circumstances applicable to the particular shareholder the
exclusion would be disallowed.
If the Municipal Cash Management Fund should hold certain so-called "private
activity bonds," shareholders will need to include as an item of tax
preference for purposes of the federal alternative minimum tax that portion of
the dividend paid by the Fund derived from interest received on such bonds. In
addition, corporate shareholders will need to take all exempt-interest
dividends into account in determining certain adjustments for the federal
alternative minimum tax.
Dividends and distributions attributable to interest from direct obligations
of the United States and paid by the Treasury Cash Management Fund and
Treasury Prime Cash Management Fund generally are not subject to
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state personal income tax. The Trust intends to provide shareholders of the
Treasury Cash Management Fund and Treasury Prime Cash Management Fund with a
statement which sets forth the percentage of dividends and distributions paid
by each such Fund that is attributable to interest income from direct
obligations of the United States.
Dividends paid by a Fund derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, paid by such Fund to a foreign investor who is the
beneficial owner of such Fund's shares generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign investor
claims the benefit of a lower rate specified in a tax treaty. Distributions
from net realized long-term securities gains paid by the Fund to such foreign
investor generally will not be subject to U.S. nonresident withholding tax.
However, such distributions may be subject to backup withholding, as described
below, unless the foreign investor certifies his non-U.S. residency status.
Federal regulations generally require the Trust to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and
distributions from net realized securities gains paid to a shareholder if such
shareholder fails to certify either that the TIN furnished in connection with
opening an account is correct, or that such shareholder has not received
notice from the IRS of being subject to backup withholding as a result of a
failure to properly report taxable dividend or interest income on a federal
income tax return. Furthermore, the IRS may notify the Trust to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or
if a shareholder has failed to properly report taxable dividend and interest
income on a federal income tax return.
A TIN is either the Social Security number or employer identification number
of the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner
of the account, and may be used to offset the record owner's tax liability on
his/her federal income tax return.
Notice as to the tax status of dividends and distributions will be mailed to
investors annually. Each investor also will receive periodic summaries of its
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
Each Fund intends to qualify as a "regulated investment company" under the
Code. Qualification as a regulated investment company generally relieves the
Fund of any liability for federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the Code. Each Fund is
subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable income and capital gains, if any.
Each investor and beneficial shareholder should consult its tax adviser
regarding questions as to federal, state or local taxes.
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GENERAL INFORMATION
The Trust was organized as a business trust on April 21, 1987 under a
Declaration of Trust. As of the date hereof, the Trust is a series fund having
thirty-one series of shares of beneficial interest, each of which evidences an
interest in a separate investment portfolio. The Declaration of Trust permits
the Board of Trustees to issue an unlimited number of full and fractional
shares and to create an unlimited number of series of shares ("Series")
representing interests in a portfolio and an unlimited number of classes of
shares within a Series. In addition to the Funds described herein, the Trust
currently offers the following investment portfolios by means of separate
prospectuses: the Pegasus Intermediate Bond Fund, Bond Fund, Short Bond Fund,
Multi Sector Bond Fund, High Yield Bond Fund, International Bond Fund,
Municipal Bond Fund, Short Municipal Bond, Intermediate Municipal Bond Fund,
Michigan Municipal Bond Fund, Equity Income Fund, Growth Fund, Mid-Cap
Opportunity Fund, Small-Cap Opportunity Fund, Intrinsic Value Fund, Growth and
Value Fund, Equity Index Fund, Market Expansion Index Fund, International
Equity Fund, Managed Assets Conservative Fund, Managed Assets Balanced Fund,
Managed Assets Growth Fund, Money Market Fund, Treasury Money Market Fund,
Municipal Money Market Fund and Michigan Municipal Money Market Fund.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of March 31, 1998, FCN and its affiliates held of record approximately
8.52% and 13.00% of the outstanding shares of the Municipal Cash Management
Fund and Cash Management Fund, respectively.
Because NBD Bank serves as the Custodian, the Board of Trustees has
established a procedure requiring three annual verifications, two of which are
unannounced, of all investments held pursuant to the Custodian Agreement, to
be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The Trust's By-
laws provide that special meetings of shareholders of any Series shall be
called at the written request of shareholders entitled to cast at least 10% of
the votes of a Series entitled to be cast at such meeting. The Trust also
stands ready to assist shareholder communications in connection with any
meeting of shareholders as prescribed in Section 16(c) of the 1940 Act.
Investor inquiries may be made by writing to the Trust at the address shown
on the front cover or by calling the telephone number shown on the front
cover.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
TRUST'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS'
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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SUPPLEMENTAL INFORMATION
PORTFOLIO SECURITIES
To the extent set forth in this Prospectus and except as noted below, each
Fund may invest in the following securities:
U.S. TREASURY SECURITIES -- Each Fund may invest in U.S Treasury securities
which include Treasury Bills, Treasury Notes and Treasury Bonds that differ in
their interest rates, maturities and times of issuance. Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
greater than ten years.
U.S. GOVERNMENT SECURITIES -- In addition to U.S. Treasury securities, each
Fund, except the Treasury Cash Management Fund and Treasury Prime Cash
Management Fund, may invest in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, by the right of the issuer to borrow
from the Treasury; others, such as those issued by the Federal National
Mortgage Association, by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others,
such as those issued by the Student Loan Marketing Association, only by the
credit of the agency or instrumentality. These securities bear fixed, floating
or variable rates of interest. Interest may fluctuate based on generally
recognized reference rates or the relationship of rates. While the U.S.
Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always
do so, since it is not so obligated by law. Each Fund will invest in such
securities only when the Trust is satisfied that the credit risk with respect
to the issuer is minimal.
STRIPPED U.S. TREASURY SECURITIES AND U.S. GOVERNMENT SECURITIES -- Each
Fund may invest in stripped U.S. Treasury Securities and the Cash Management,
U.S. Government Securities Cash Management Fund, and to a limited extent the
Municipal Cash Management Fund may invest in stripped U.S. Government
Securities, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. These obligations are usually issued at a
discount to their "face value," and because of the manner in which principal
and interest are returned, may exhibit greater volatility than more
conventional debt securities.
REPURCHASE AGREEMENTS -- Each Fund, except the Treasury Prime Cash
Management Fund, may enter into repurchase agreements, which involve the
acquisition by a Fund of an underlying debt instrument, subject to an
obligation of the seller to repurchase, and such Fund to resell, the
instrument at a fixed price usually not more than one week after its purchase.
Certain costs may be incurred by a Fund in connection with the sale of the
securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by
the Fund may be delayed or limited. Pursuant to an order obtained from the
Securities and Exchange Commission, each Fund also is permitted to enter into
overnight repurchase agreements with FNBC or an affiliate of FNBC subject to
the terms and conditions of such order.
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BANK OBLIGATIONS -- The Cash Management Fund will, and to a limited extent,
the Municipal Cash Management Fund may, invest in bank obligations, including
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations of domestic banks, foreign subsidiaries of domestic banks,
foreign branches of domestic banks, and domestic and foreign branches of
foreign banks and thrift institutions. Certificates of deposit are negotiable
certificates evidencing the obligation of a bank to repay funds deposited with
it for a specified period of time. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. The other short-term
obligations may include uninsured, direct obligations, bearing fixed, floating
or variable interest rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS -- The Cash
Management Fund, and to a limited extent, the Municipal Cash Management Fund
may invest in commercial paper, which consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by a Fund will consist only of direct obligations issued by
domestic and foreign entities. The other corporate obligations in which a Fund
may invest consist of high quality, U.S. dollar denominated short-term bonds
and notes (including variable amount master demand notes) issued by domestic
and foreign corporations bearing fixed, floating or variable interest rates.
FLOATING AND VARIABLE RATE OBLIGATIONS -- The Cash Management Fund and the
Municipal Cash Management Fund may purchase floating and variable rate demand
notes and bonds, which are obligations ordinarily having stated maturities in
excess of 13 months, but which permit the holder to demand payment of
principal at any time, or at specified intervals not exceeding 13 months, in
each case upon not more than 30 days' notice. Variable rate demand notes
include master demand notes which are obligations that permit a Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these notes fluctuate from time to time. The issuer of such
obligations normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders
of such obligations. The interest rate on a floating rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable
rate demand obligation is adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, a Fund's right to
redeem is dependent on the ability of the borrower to pay principal and
interest on demand. Such obligations frequently are not rated by credit rating
agencies and, if not so rated, each of these Funds may invest in them only if
the Investment Adviser determines that at the time of investment the
obligations are of comparable quality to the other obligations in which such
Fund may invest. The Investment Adviser, on behalf of such Fund, will consider
on an ongoing basis the creditworthiness of the issuers of the floating and
variable rate demand obligations held by the Fund. Neither of these Funds will
invest more than 10% of the value of its net assets in floating or variable
rate demand obligations as to which it cannot exercise the demand feature on
not more than seven days' notice if there is no secondary market available for
these obligations, and in other securities that are illiquid.
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MUNICIPAL AND RELATED OBLIGATIONS -- Municipal Obligations that may be
acquired by the Municipal Cash Management Fund may include general
obligations, revenue obligations, notes, and moral obligation bonds. General
obligations are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue obligations
are payable only from the revenues derived from a particular facility, class
of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source such as the user of the facility being financed.
Private activity bonds (i.e. bonds issued by industrial development
authorities) are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of a
private activity bond is usually directly related to the credit standing of
the private user of the facility involved. Although interest paid on private
activity bonds is exempt from regular federal income tax, it may be treated as
a specific tax preference item under the federal alternative minimum tax. From
time to time, the Municipal Cash Management Fund may invest more than 25% of
the value of its total assets in industrial development bonds which, although
issued by industrial development authorities, may be backed only by the assets
and revenues of the nongovernmental users. Where a regulated investment
company receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company may be treated as such a preference
item to the shareholder. The Fund may invest without limitation in such
Municipal Obligations if the Investment Adviser determines that their purchase
is consistent with the Fund's investment objective. (See also "Dividends,
Distributions and Taxes.")
Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Moral obligation bonds are
normally issued by a special purpose public authority. If the issuer of a
moral obligation bond is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Municipal Obligations also include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Municipal lease/purchase
agreements may be considered illiquid investments. (See also "Restricted
Securities.")
There are, of course, variations in the quality of Municipal Obligations
both within a particular classification and between classifications, and the
yields on Municipal Obligations depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer,
general conditions of the municipal bond market, the size of a particular
offering, the maturity of the obligation and the rating of the issue.
The Municipal Cash Management Fund may invest more than 25% of the value of
its total assets in Municipal Obligations which are related in such a way that
an economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
interest upon which is paid from revenues of similar types of projects, or
securities of issuers that are located in the same state. As a result, the
Fund may be subject to greater risk as compared to a fund that does not follow
this practice.
Certain municipal lease/purchase obligations in which the Fund may invest
may contain "non-appropriation" clauses which provide that the municipality
has no obligation to make lease payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease/purchase obligations are secured by the leased property, disposition of
the leased property in the event of foreclosure might prove difficult. In
evaluating the credit quality of a municipal lease/purchase obligation that is
unrated, the Investment Adviser may consider, on an ongoing basis, a number of
factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
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Among other securities, the Fund may purchase short-term Tax Anticipation
Notes, Bond Anticipation Notes, Revenue Anticipation Notes and other forms of
short-term loans. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax or other funds, the proceeds of bonds or
other revenues.
The Municipal Cash Management Fund may purchase from financial institutions
participation interests in Municipal Obligations. A participation interest
gives the Fund an undivided interest in the Municipal Obligation in the
proportion that the Fund's participation interest bears to the total principal
amount of the Municipal Obligation. These instruments may have fixed, floating
or variable rates of interest, with remaining maturities of 13 months or less
as determined in accordance with SEC regulations (although the securities held
by the financial institution may have longer maturities). If the participation
interest is unrated, or has been given a rating below that which otherwise is
permissible for purchase by the Fund, the security will have an unconditional
demand feature that satisfies the requirements of Rule 2a-7 of the 1940 Act.
For certain participation interests, the Fund will have the right to demand
payment, on not more than seven days' notice, for all or any part of the
Fund's participation interest in the Municipal Obligation plus accrued
interest. As to these instruments, the Fund intends to exercise its right to
demand payment only upon a default under the terms of the Municipal Obligation
as needed to provide liquidity to meet redemptions, or to maintain or improve
the quality of its investment portfolio. Participation interests that do not
have this demand feature will be considered illiquid investments. (See also
"Restricted Securities.")
The Municipal Cash Management Fund has no policy of seeking particularly to
invest in Municipal Obligations issued by or within any single state or select
group of states. However, certain states traditionally are sources of large
amounts of Municipal Obligations, e.g., California, Colorado, Florida,
Michigan, New York and Texas. To the extent that the Fund's assets are
invested in Municipal Obligations issued by or from a single state or a few
states, the Fund will be subject to the peculiar risks presented by the laws
and economic conditions relating to such state or states to a greater extent
than would be the case if its assets were not so concentrated. If any state or
political subdivision thereof were to suffer serious financial difficulties
jeopardizing its ability to pay its obligations, the marketability of such
obligations held by the Fund, and consequently its net asset value, could be
adversely affected.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust
nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
TENDER OPTION BONDS -- The Municipal Cash Management Fund may invest in
tender option bonds. A tender option bond is a Municipal Obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing
short-term tax exempt rates, that have been coupled with the agreement of a
third party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the option, at
periodic intervals, to tender their securities to the institution and receive
the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between
the Municipal Obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. The Investment Adviser, on behalf of
the Fund, may
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consider on an ongoing basis the creditworthiness of the issuer of the
underlying Municipal Obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in
payment of principal or interest on the underlying Municipal Obligations and
for other reasons.
STAND-BY COMMITMENTS -- The Municipal Cash Management Fund may acquire
"stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a stand-by commitment, the Fund obligates a broker, dealer or
bank to repurchase, at the Fund's option, specified securities at a specified
price and, in this respect, stand-by commitments are comparable to put
options. The exercise of a stand-by commitment therefore is subject to the
ability of the seller to make payment on demand. The Municipal Cash Management
Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The Municipal Cash Management Fund may pay for stand-by commitments
if such action is deemed necessary, thus increasing to a degree the cost of
the underlying Municipal Obligation and similarly decreasing the yield to
investors on such securities.
GUARANTEED INVESTMENT CONTRACTS -- The Cash Management Fund may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund on a monthly basis guaranteed
interest which is based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. Generally, a GIC allows
a purchaser to buy an annuity with the monies accumulated under contract;
however, the Fund will not purchase any such annuity. A GIC is a general
obligation of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes a part of the general assets of the
issuer, and the contract is paid from the general assets of the issuer. The
Cash Management Fund will only purchase GICs from issuers which meet quality
and credit standards established by the Investment Adviser. Generally, GICs
are not assignable or transferrable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Therefore, GICs are considered by the Cash Management Fund to be
illiquid investments and subject to the limitation on illiquid investments set
forth below.
INVESTMENT COMPANY SECURITIES -- Each Fund may invest in securities issued
by other investment companies which principally invest in securities of the
type in which the Fund invests. Under the 1940 Act, a Fund's investments in
such securities, subject to certain exceptions, currently are limited to (i)
3% of the total voting stock of any one investment company, (ii) 5% of the
Fund's total assets with respect to any one investment company, and (iii) 10%
of the Fund's total assets in the aggregate. Investments in the securities of
other investment companies may involve duplication of advisory fees and
certain other expenses.
INVESTMENT PRACTICES
LENDING PORTFOLIO SECURITIES -- From time to time, each of the Cash
Management, U.S. Government Securities Cash Management and Municipal Cash
Management Funds may lend securities from its portfolio to brokers, dealers
and other financial institutions needing to borrow securities to complete
certain transactions. Such loans may not exceed 33 1/3% of the value of the
relevant Fund's total assets. In connection with such loans, each of these
Funds will receive collateral consisting of cash or U.S. Government securities
or, with respect to the Cash Management and Municipal Cash Management Funds,
irrevocable letters of credit issued by financial institutions. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current
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market value of the loaned securities. Each of these Funds can increase its
income through the investment of such collateral. Each of these Funds
continues to be entitled to payments in amounts equal to the interest and
other distributions payable on the loaned security and receives interest on
the amount of the loan. Such loans will be terminable at any time upon
specified notice. A Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with such Fund.
RESTRICTED SECURITIES -- Each Fund may invest up to 10% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with its investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, GICs, municipal lease/purchase agreements, participation interests
that are not subject to the demand feature described above, floating and
variable rate demand obligations as to which the Fund cannot exercise the
related demand feature described above on not more than seven days' notice or
as to which there is no secondary market and repurchase agreements providing
for settlement in more than seven days after notice. As to these securities, a
Fund is subject to a risk that should such Fund desire to sell them when a
ready buyer is not available at a price the Fund deems representative of their
value, the value of such Fund's net assets could be adversely affected.
BORROWING MONEY -- As a fundamental policy each of the Funds is permitted to
borrow money to the extent permitted under the 1940 Act. However, each Fund
currently intends to borrow money from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Fund's total assets, each Fund will
not make any additional investments.
A-6
<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
THE ONE GROUP(R)
THE ONE GROUP U.S. TREASURY SECURITIES MONEY MARKET FUND
(THE "U.S. TREASURY SECURITIES MONEY MARKET FUND")
THE ONE GROUP PRIME MONEY MARKET FUND (THE "PRIME MONEY MARKET FUND")
THE ONE GROUP MUNICIPAL MONEY MARKET FUND (THE "MUNICIPAL MONEY MARKET FUND")
THE ONE GROUP OHIO MUNICIPAL MONEY MARKET FUND (THE "OHIO MUNICIPAL MONEY MARKET
FUND")
THE ONE GROUP ASSET ALLOCATION FUND (THE "ASSET ALLOCATION FUND")
THE ONE GROUP LARGE COMPANY GROWTH FUND (THE "LARGE COMPANY GROWTH FUND")
THE ONE GROUP LARGE COMPANY VALUE FUND (THE "LARGE COMPANY VALUE FUND")
THE ONE GROUP GROWTH OPPORTUNITIES FUND (THE "GROWTH OPPORTUNITIES FUND")
THE ONE GROUP INTERNATIONAL EQUITY INDEX FUND (THE "INTERNATIONAL EQUITY INDEX
FUND")
THE ONE GROUP DISCIPLINED VALUE FUND (THE "DISCIPLINED VALUE FUND")
THE ONE GROUP EQUITY INDEX FUND (THE "EQUITY INDEX FUND")
THE ONE GROUP INCOME EQUITY FUND (THE "INCOME EQUITY FUND")
THE ONE GROUP VALUE GROWTH FUND (THE "VALUE GROWTH FUND")
THE ONE GROUP SMALL CAPITALIZATION FUND (THE "SMALL CAPITALIZATION FUND")
THE ONE GROUP INTERMEDIATE BOND FUND (THE "INTERMEDIATE BOND FUND")
THE ONE GROUP INCOME BOND FUND (THE "INCOME BOND FUND")
THE ONE GROUP GOVERNMENT BOND FUND (THE "GOVERNMENT BOND FUND")
THE ONE GROUP ULTRA SHORT-TERM INCOME FUND (THE "ULTRA SHORT-TERM
INCOME FUND")
THE ONE GROUP LIMITED VOLATILITY BOND FUND (THE "LIMITED VOLATILITY BOND FUND")
THE ONE GROUP TREASURY & AGENCY FUND (THE "TREASURY & AGENCY FUND")
THE ONE GROUP HIGH YIELD BOND FUND (THE "HIGH YIELD BOND FUND")
THE ONE GROUP INTERMEDIATE TAX-FREE BOND FUND (THE "INTERMEDIATE TAX-FREE BOND
FUND")
THE ONE GROUP MUNICIPAL INCOME FUND (THE "MUNICIPAL INCOME FUND")
THE ONE GROUP ARIZONA MUNICIPAL BOND FUND
(THE "ARIZONA MUNICIPAL BOND FUND") THE ONE GROUP WEST
VIRGINIA MUNICIPAL BOND FUND (THE "WEST VIRGINIA MUNICIPAL BOND FUND")
THE ONE GROUP LOUISIANA MUNICIPAL BOND FUND (THE "LOUISIANA MUNICIPAL
BOND FUND")
THE ONE GROUP OHIO MUNICIPAL BOND FUND (THE "OHIO MUNICIPAL BOND FUND")
THE ONE GROUP KENTUCKY MUNICIPAL BOND FUND (THE "KENTUCKY MUNICIPAL BOND FUND")
THE ONE GROUP TEXAS MUNICIPAL BOND FUND (THE "TEXAS MUNICIPAL BOND FUND")
THE ONE GROUP TREASURY MONEY MARKET FUND (THE "TREASURY MONEY MARKET FUND")
THE ONE GROUP TREASURY ONLY MONEY MARKET FUND (THE "TREASURY ONLY MONEY MARKET
FUND")
THE ONE GROUP GOVERNMENT MONEY MARKET FUND (THE "GOVERNMENT MONEY MARKET FUND")
THE ONE GROUP TAX-EXEMPT MONEY MARKET FUND (THE "TAX-EXEMPT MONEY MARKET FUND")
THE ONE GROUP INSTITUTIONAL PRIME MONEY MARKET FUND (THE "INSTITUTIONAL PRIME
MONEY MARKET FUND")
THE ONE GROUP INVESTOR GROWTH FUND (THE "INVESTOR GROWTH FUND")
THE ONE GROUP INVESTOR GROWTH & INCOME FUND (THE "INVESTOR GROWTH &
INCOME FUND")
THE ONE GROUP INVESTOR BALANCED FUND (THE "INVESTOR BALANCED FUND")
THE ONE GROUP INVESTOR CONSERVATIVE GROWTH FUND (THE "INVESTOR CONSERVATIVE
GROWTH FUND")
THE ONE GROUP INVESTOR AGGRESSIVE GROWTH FUND (THE "INVESTOR
AGGRESSIVE GROWTH")
THE ONE GROUP INVESTOR FIXED INCOME FUND (THE "INVESTOR FIXED INCOME FUND")
(EACH A "FUND," AND COLLECTIVELY THE "FUNDS")
NOVEMBER 1, 1998
This Statement of Additional Information is not a Prospectus, but supplements
and should be read in conjunction with the Prospectuses dated November 1, 1998.
This Statement of Additional Information is incorporated in its entirety into
each Fund's Prospectus. A copy of each 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> 2
TABLE OF CONTENTS
PAGE
THE TRUST 1
INVESTMENT OBJECTIVES AND POLICIES 2
Additional Information on Fund Instruments 2
Asset-Backed Securities 2
Bank Obligations 2
Commercial Paper 2
Common Stock 3
Convertible Securities 3
Demand Features 3
Foreign Investments 4
Limitations on the Use of Foreign Investments 4
Foreign Currency Transactions 4
Forward Foreign Currency Exchange Contracts 6
Foreign Currency Futures Contracts 6
Foreign Currency Options 7
Foreign Currency Conversion 8
Other Foreign Currency Hedging Strategies 8
Risk Factors in Hedging Transactions 9
Futures and Options Trading 9
Futures Contracts 9
Limitations on the Use of Futures Contracts 10
Risk Factors in Futures Transactions 11
Options Contracts 12
Writing (Selling) Covered Calls 13
Purchasing Call Options 14
Purchasing Put Options 14
Secured Puts 14
Straddles and Spreads 14
Risk Factors in Options Transactions 15
Limitations on the Use of Options 15
Government Securities 15
High Quality Investments With Regard to the Money Market and
Institutional Money Market Funds 16
High Yield/High Risk Securities/Junk Bonds 17
Index Investing by the Equity Index and International
Equity Index Funds 18
Investment Company Securities 19
Loan Participations and Assignments 20
Mortgage-Related Securities 20
Mortgage-Backed Securities (CMOs and REMICs) 20
Limitations on the Use of Mortgage Backed Securities 22
Mortgage Dollar Rolls 22
Stripped Mortgage Backed Securities 23
Adjustable Rate Mortgage Loans 23
Risk Factors of Mortgage-Related Securities 24
Municipal Securities 25
Risk Factors in Municipal Securities 27
Limitations on the Use of Municipal Securities 27
Arizona Municipal Securities 28
Kentucky Municipal Securities 29
Louisiana Municipal Securities 29
Ohio Municipal Securities 30
Texas Municipal Securities 30
West Virginia Municipal Securities 31
New Financial Products 31
PERCs 31
Preferred Stock 31
ii
<PAGE> 3
Real Estate Investment Trusts ("REITs") 32
Repurchase Agreements 32
Reverse Repurchase Agreements 33
Restricted Securities 33
Securities Lending 34
Short-term Funding Agreements 34
SPDRs 35
Structured Instruments 35
Swaps, Caps and Floors 36
Treasury Receipts 37
U.S. Treasury Obligations 37
Variable and Floating Rate Instruments 37
Warrants 39
When-Issued Securities and Forward Commitments 39
Investment Restrictions 40
Portfolio Turnover 45
Additional Tax Information Concerning All Funds 46
Additional Tax Information Concerning the Tax-Advantaged Funds 48
Additional Tax Information Concerning the International
Equity Index Fund 50
Foreign Tax Credit 50
VALUATION 50
Valuation of the Money Market and Institutional Money
Market Funds 50
Valuation of the Equity Funds, the Bond Funds and the
Municipal Bond Funds 51
ADDITIONAL INFORMATION REGARDING THE
CALCULATION OF PER SHARE NET ASSET VALUE 51
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 52
MANAGEMENT OF THE TRUST 55
Trustees & Officers 55
Investment Advisor and Sub-Advisors 58
Glass-Steagall Act 60
Portfolio Transactions 61
Administrator 63
Distributor 67
Distribution Plan 67
Custodian and Transfer Agent 69
Experts 70
ADDITIONAL INFORMATION 71
Description of Shares 71
Shareholder and Trustee Liability 72
Performance 72
Calculation of Performance Data 73
Miscellaneous 83
iii
<PAGE> 4
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 the following forty separate investment
portfolios ("Funds"):
Money Market Funds. 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) and the Ohio Municipal Money Market Fund (these
four Funds being collectively referred to as the "MONEY MARKET FUNDS"),
Equity Funds. The Income Equity Fund, the Disciplined Value Fund, the
Growth Opportunities Fund (formerly the Small Company Growth Fund), 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),(these ten Funds being collectively
referred to as the "EQUITY FUNDS"),
Bond Funds. The Intermediate Bond Fund, the Income Bond Fund (formerly
the Income Portfolio), the Government Bond Fund, the Ultra Short-Term
Income Fund (formerly the Government ARM Fund), the Limited Volatility
Bond Fund, the Treasury & Agency Fund, and the High Yield Bond Fund
(formerly the Income Fund)(these seven Funds being collectively referred
to as the "BOND FUNDS"),
Municipal Bond Funds. The Intermediate Tax-Free Bond Fund, the Municipal
Income Fund (formerly the Tax-Free Bond Fund), the Ohio Municipal Bond
Fund, the Texas Municipal Bond Fund, the West Virginia Municipal Bond
Fund, the Kentucky Municipal Bond Fund, the Arizona Municipal Bond Fund,
and the Louisiana Municipal Bond Fund (these eight Funds being
collectively referred to as the "MUNICIPAL BOND FUNDS"),
Institutional Money Market Funds. The Treasury Money Market Fund, the
Treasury Only Money Market Fund, the Government Money Market Fund, the
Tax-Exempt Money Market Fund, and the Institutional Prime Money Market
Fund (these five Funds being collectively referred to as the
"INSTITUTIONAL MONEY MARKET FUNDS"),
Funds of Funds. 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 (these six Funds being collectively referred to as the "FUNDS OF
FUNDS").
Tax-Advantaged Funds. The Municipal Money Market Fund, the Ohio Municipal Money
Market Fund, the Municipal Bond Funds, and the Tax-Exempt Money Market Fund are
also referred to as the "TAX-ADVANTAGED FUNDS."
Diversification. All of the Trust's Funds are diversified, as defined under the
Investment Company Act of 1940, as amended (the "1940 Act"), except the Ohio
Municipal Bond Fund, the Kentucky Municipal Bond Fund, the West Virginia
Municipal Bond Fund, the Texas Municipal Bond Fund, the Arizona Municipal Bond
Fund, the Ohio Municipal Money Market Fund, and the Louisiana Municipal Bond
Fund, which are non-diversified.
Share Classes. Shares in the Funds of the Trust (other than the Institutional
Money Market Funds, and the Money Market Funds) are offered in four separate
classes: Class I Shares, Class A Shares, Class B Shares and Class C Shares. The
U.S. Treasury Securities Money Market Fund and the Prime Money Market Fund offer
Class A Shares, Class B Shares, Class C Shares, Class I Shares and
Service Class Shares. The Institutional Money Market Funds offer only a single
class of shares. The Ohio Municipal Money Market Fund and the Municipal Money
Market Fund offer Class A, Class C and Class I Shares. Much of the
information contained herein expands upon subjects discussed in the Prospectuses
for the respective Funds. No investment in a particular class of Shares of a
Fund should be made without first reading that Fund's Prospectus.
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<PAGE> 5
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement each Fund's investment objective and
policies as set forth in the respective Prospectus for that Fund.
ADDITIONAL INFORMATION ON FUND INSTRUMENTS
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 Fund 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, a Fund may fail to recoup any premium paid on
asset-backed 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
invested in by the Funds 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 in certificates of deposit 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
Funds 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. Certain Funds
may also invest in obligations (including banker's acceptances and certificates
of deposit) denominated in foreign currencies (see "Foreign Investments"
herein).
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 a Fund could purchase
certificates of deposit. 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.
COMMERCIAL PAPER
Commercial paper consists of promissory notes issued by corporations.
Although such notes are generally unsecured, the Funds may also purchase secured
commercial paper. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return. The Funds only purchase commercial paper
that meets the following criteria.
2
<PAGE> 6
Bond Funds. The Limited Volatility Bond Fund, the Intermediate Bond Fund
and the Ultra Short-Term Income Fund may purchase commercial paper
consisting of issues rated at the time of purchase in the highest or
second highest rating category by at least one Nationally Recognized
Statistical Rating Organization ("NRSRO") (such as A-2 or better by
Standard & Poor's Corporation ("S&P"), Aa or better by Moody's Investors
Service, Inc. ("MOODY'S") or A2 or better by Fitch IBCA ("FITCH")) or if
unrated, determined by Banc One Investment Advisors Corporation ("Banc
One Investment Advisors") to be of comparable quality. The High Yield
Bond Fund and the Income Bond Fund may purchase commercial paper in any
rating category by at least one NRSRO, or, if unrated, determined by Banc
One Investment Advisors or with respect to the High Yield Bond Fund, Banc
One High Yield Partners, LLC (the "HIGH YIELD SUB-ADVISOR" or a
"SUB-ADVISOR") to be of comparable quality.
Municipal Bond Funds. The Municipal Bond Funds may purchase commercial
paper consisting of issues rated at the time of purchase in the highest
or second highest rating category by at least one NRSRO (such as A-2 or
better by S&P, P-2 or better by Moody's or F-2 or better by Fitch) or if
unrated, determined by Banc One Investment Advisors to be of comparable
quality.
Money Market Funds. The Money Market Funds (other than the U.S. Treasury
Securities Money Market Fund), may purchase commercial paper consisting
of issues rated at the time of purchase in the highest or second highest
rating category by at least one NRSRO (such as A-2 or better by S&P, P-2
or better by Moody's or F-2 or better by Fitch) or if unrated, determined
by Banc One Investment Advisors to be of comparable quality.
Equity Funds. The Equity Funds may purchase commercial paper consisting
of issues rated at the time of purchase in the highest or second highest
rating category by at least one NRSRO (such as A-2 or better by S&P, P-2
or better by Moody's or F-2 or better by Fitch) or if unrated, determined
by Banc One Investment Advisors to be of comparable quality.
COMMON STOCK
Common stock represents a share of ownership in a company and usually
carries voting rights and earns dividends. Unlike preferred stock, dividends on
common stock are not fixed but are declared at the discretion of the issuer's
board of directors. (Equity securities such as common stock will generally
comprise no more than 10% of the High Yield Bond Fund's total assets).
CONVERTIBLE SECURITIES
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 Funds' 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.
DEMAND FEATURES
Some of the Funds 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 Funds expect 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 a
Fund's option, specified municipal securities at a specified price. A 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
3
<PAGE> 7
may also be referred to as put options. A 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.
FOREIGN INVESTMENTS
Some of the Funds may invest in certain obligations or securities of
foreign issuers. Possible investments include equity securities of foreign
entities, obligations of foreign branches of U.S. banks and of foreign banks,
including, without limitation, Eurodollar Certificates of Deposit, Eurodollar
Time Deposits, Eurodollar Banker's Acceptances, Canadian Time Deposits and
Yankee Certificates of Deposits, and investments in Canadian Commercial Paper,
foreign securities and Europaper (as those terms are defined in the relevant
Prospectuses of the Trust). 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.
Foreign investments 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. 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.
By investing in foreign securities, the International Equity Index Fund
attempts to take advantage of differences between both economic trends and the
performance of securities markets in the various countries, regions and
geographic areas as prescribed by the Fund's investment objective and policies.
During certain periods the investment return on securities in some or all
countries may exceed the return on similar investments in the United States,
while at other times the investment return may be less than that on similar U.S.
securities. Shares of the International Equity Index Fund, when included in
appropriate amounts in a portfolio otherwise consisting of domestic equity and
debt securities, will provide a source of increased diversification. The
International Equity Index Fund seeks increased diversification by combining
securities from various countries and geographic areas that offer different
investment opportunities and are affected by different economic trends. The
international investments of the International Equity Index Fund may reduce the
effect that events in any one country or geographic area will have on its
investment holdings. Of course, negative movement by one of the Fund's
investments in one foreign market represented in its portfolio may offset
potential gains from the Fund's investments in another country's markets.
LIMITATIONS ON THE USE OF FOREIGN INVESTMENTS. Investments in all types
of foreign obligations or securities will not exceed 25% of the net assets of
the Equity Funds (with the exception of the International Equity Index Fund) and
the Income Bond, the High Yield Bond and Limited Volatility Bond Funds.
FOREIGN CURRENCY TRANSACTIONS
The International Equity Index Fund may engage in various strategies to
hedge against interest rate and currency risks. These strategies may consist of
use of any of the following, some of which also have been described above:
options on Fund positions or currencies, financial and currency futures, options
on such futures, forward foreign currency transactions, forward rate agreements
and interest rate and currency swaps, caps and floors. The International Equity
Index Fund may engage in such transactions in both U.S. and non-U.S. markets. To
the extent the Fund enters into such transactions in markets other than in the
United States, the Fund may be subject to certain currency, settlement,
liquidity, trading and other risks similar to those described above with respect
to the Fund's investments in foreign securities. The International Equity Index
Fund may enter into such transactions only in connection with hedging
strategies.
4
<PAGE> 8
While the Fund's use of hedging strategies is intended to reduce the volatility
of the net asset value of Fund shares, the net asset value of the Fund will
fluctuate. There can be no assurance that the Fund's hedging transactions will
be effective. Furthermore, the Fund may only engage in hedging activities from
time to time and may not necessarily be engaging in hedging activities when
movements in interest rates or currency exchange rates occur. Tax requirements
may limit the Fund's ability to engage in the hedging transactions and
strategies described below.
A substantial portion of the securities of the International Equity Index
Fund will be denominated in foreign currencies. In addition, the International
Equity Index Fund may hold funds in foreign currencies. Thus, the value of the
International Equity Index Fund's shares will be affected by changes in currency
exchange rates. The value of the Fund's investments denominated in foreign
currencies and any funds held in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund's may be affected
favorably or unfavorably by exchange control regulations or changes in exchange
rates between foreign currencies and the U.S. dollar. Changes in the foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to Shareholders by a Fund. The
exchange rates between the U.S. dollar and other currencies are determined by
the forces of supply and demand in foreign exchange markets. Accordingly, the
ability of the Fund to achieve its investment objective may depend, to a certain
extent, on exchange rate movements.
The International Equity Index Fund is authorized to deal in forward
foreign exchange between currencies of the different countries in which the Fund
will invest and multi-national currency units as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements entered into in the interbank market
to purchase or sell one specified currency for another currency at a specified
future date (up to one year) and price at the time of the contract. The
International Equity Index Fund's dealings in forward foreign exchange will be
limited to hedging involving either specific transactions or portfolio
positions.
Transaction Hedging. When the Fund engages in transaction hedging, it
enters into foreign currency transactions with respect to specific receivables
or payables of the Fund generally arising in connection with the purchase or
sale of its portfolio securities. The Fund will engage in transaction hedging
when it desires to "lock in" the U.S. dollar price of a security it has agreed
to purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging, the International Equity
Index Fund will attempt to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the applicable
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
The International Equity Index Fund may purchase or sell a foreign
currency on a spot (or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities denominated in that
foreign currency. The International Equity Index Fund may also enter into
contracts to purchase or sell foreign currencies at a future date ("FORWARD
CONTRACTS"). Although there is no current intention to do so, the International
Equity Index Fund reserves the right to purchase and sell foreign currency
futures contracts traded in the United States and subject to regulation by the
CFTC.
For transaction hedging purposes the International Equity Index Fund may
also purchase U.S. exchange-listed call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Fund the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Fund the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Fund the right to assume a
long position in the futures contract until the expiration of the option. A call
option on currency gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option.
POSITION HEDGING. When engaging in position hedging, the International
Equity Index Fund will enter into foreign currency exchange transactions to
protect against a decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an increase in the value of currency
for securities which Banc One Investment Advisors or Independence International
Associates, Inc. (the "INTERNATIONAL SUB-ADVISOR" or a "SUB-ADVISOR") expects to
purchase, when the Fund holds cash or short-term investments). In connection
with the position hedging, the Fund may purchase or sell foreign currency
forward contracts or foreign currency on a spot basis. The International Equity
Index Fund may purchase U.S. exchange-listed put or call options on foreign
currency and foreign currency futures contracts
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and buy or sell foreign currency futures contracts traded in the United States
and subject to regulation by the CFTC, although the International Equity Index
Fund has no current intention to do so.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward contract or futures
contract. Accordingly, the International Equity Index Fund may have to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currency the Fund is obligated to deliver.
Although the Fund has no current intention to do so, the International
Equity Index Fund may write covered call options on up to 100% of the currencies
in its portfolio to offset some of the costs of hedging against fluctuations in
currency exchange rates.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the International Equity Index Fund
owns or expects to purchase or sell. They simply seek to maintain an investment
portfolio that is relatively neutral to fluctuations in the value of the U.S.
dollar relative to major foreign currencies and establish a rate of exchange
which one can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they tend to limit any potential gain which might result
from the increase in the value of such currency. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the anticipated devaluation level.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The International Equity
Index Fund, for hedging purposes only, may purchase forward foreign currency
exchange contracts, which involve an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancellable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.
The maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
foreign exchange contracts are entered into directly between currency traders so
that no intermediary is required.
A forward contract generally requires no margin or other deposit.
At the maturity of a forward contract, the Fund may either accept or make
delivery of the currency specified in the contract, or at or prior to maturity
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
FOREIGN CURRENCY FUTURES CONTRACTS. The International Equity Index Fund
may purchase foreign currency futures contracts. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange. The Fund will
enter into foreign currency futures contracts solely for bona fide hedging or
other appropriate risk management purposes as defined in CFTC regulations.
When a Fund purchases or sells a futures contract, it is required to
deposit with its custodian an amount of cash or U.S. Treasury bills known as
"initial margin." The nature of initial margin is different from that of margin
in security transactions in that it does not involve borrowing money to finance
transactions.
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Rather, initial margin is similar to a performance bond or good faith deposit
that is returned to the Fund upon termination of the contract, assuming the Fund
satisfies its contractual obligation.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Fund sells a futures contract and the price of the
underlying currency rises above the delivery price, the Fund's position declines
in value. The Fund then pays a broker a variation margin payment equal to the
difference between the delivery price of the futures contract and the market
price of the currency underlying the futures contract. Conversely, if the price
of the underlying currency falls below the delivery price of the contract, the
Fund's futures position increases in value. The broker then must make a
variation margin payment equal to the difference between the delivery price of
the futures contract and the market price of the currency underlying the futures
contract.
When a Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or gain. Such closing transactions involve
additional commission costs.
In addition to the margin requirements discussed above, transactions in
currency futures contracts may involve the segregation of funds pursuant to
requirements imposed by the Securities and Exchange Commission (the "SEC").
Under those requirements, where a Fund has a long position in a futures or
forward 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 a 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,
when added to the amounts deposited as margin, equal the market value of the
instruments or currency underlying the futures or forward 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, a Fund, when holding a long position in
a futures or forward contract, could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held by the Fund. In addition, where a Fund takes short positions, or
engages in sales of call options, it need not segregate assets if it "covers"
these positions. For example, where a Fund holds a short position in a futures
or forward contract, it may cover by owning the instruments or currency
underlying the contract. A Fund may also cover such a position by holding a call
option permitting it to purchase the same futures or forward contract at a price
no higher than the price at which the short position was established. Where a
Fund sells a call option on a futures or forward 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 or currency
underlying the futures or forward contract. The Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures or forward contract at a price no higher than the strike price of the
call option sold by the Fund.
At the maturity of a futures contract, the Fund may either accept or make
delivery of the currency specified in the contract, or at or prior to maturity
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market in such
contracts. Although the International Equity Index Fund intends to purchase or
sell foreign currency futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance that
a secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin.
FOREIGN CURRENCY OPTIONS. The International Equity Index Fund may
purchase U.S. exchange-listed call and put options on foreign currencies. Such
options on foreign currencies operate similarly to options on securities.
Options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
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The Fund is authorized to purchase or sell listed foreign currency
options, and currency swap contracts as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. dollar denominated securities (including
securities denominated in the ECU) owned by the Fund, sold by the Fund but not
yet delivered, committed or anticipated to be purchased by the Fund, or in
transaction or cross-hedging strategies. As an illustration, a Fund may use such
techniques to hedge the stated value in U.S. dollars of an investment in a
Japanese yen-dominated security. In such circumstances, for example, the Fund
may purchase a foreign currency put option enabling it to sell a specified
amount of yen for dollars at a specified price by a future date. To the extent
the hedge is successful, a loss in the value of the dollar relative to the yen
will tend to be offset by an increase in the value of the put option. To offset,
in whole or in part, the cost of acquiring such a put option, the Fund also may
sell a call option which, if exercised, requires it to sell a specified amount
of yen for dollars at a specified price by a future date (a technique called a
"straddle"). By selling such call option in this illustration, the Fund gives up
on the opportunity to profit without limit from increases in the relative value
of the yen to the dollar.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or to sell a currency at a fixed price on a future date. Listed options are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which are issued by a
clearing corporation, traded on an exchange and have standardized strike prices
and expiration dates. OTC options are two-party contracts and have negotiated
strike prices and expiration dates. Options on futures contracts are traded on
boards of trade or futures exchanges. Currency swap contacts are negotiated two
party agreements entered into in the interbank market whereby the parties
exchange two foreign currencies at the inception of the contract and agree to
reverse the exchange at a specified future time and at a specified exchange
rate. The International Equity Index Fund will not speculate in foreign currency
options, futures or related options or currency swap contracts. Accordingly, the
International Equity Index Fund will not hedge a currency substantially in
excess (as determined by Banc One Investment Advisors or the International
Sub-Advisor) of the market value of the securities denominated in such currency
which it owns, the expected acquisition price of securities which it has
committed or anticipates to purchase which are denominated in such currency,
and, in the cases of securities which have been sold by the Fund but not yet
delivered, the proceeds thereof in its denominated currency. Further, the
International Equity Index Fund will segregate, at its Custodians, U.S.
government or other high quality securities having a market value representing
any subsequent net decrease in the market value of such hedged positions
including net positions with respect to cross-currency hedges. The International
Equity Index Fund may not incur potential net liabilities with respect to
currency and securities positions, including net liabilities with respect to
cross-currency hedges, of more than 33 1/3% of its total assets from foreign
currency options, futures, related options and forward currency transactions.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options market.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
OTHER FOREIGN CURRENCY HEDGING STRATEGIES. New options and futures
contracts and other financial products, and various combinations thereof,
continue to be developed, and the International Equity Index Fund may invest in
any such options, contracts and products as may be developed to the extent
consistent
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with the Fund's investment objective and the regulatory requirements applicable
to investment companies, and subject to the supervision of the Trust's Board of
Trustees.
RISK FACTORS IN HEDGING TRANSACTIONS
Imperfect Correlation. Foreign currency hedging transactions present
certain risks. In particular, the variable degree of correlation between
price movements of the instruments used in hedging strategies and price
movements in the security being hedged creates the possibility that
losses on the hedge may be greater than gains in the value of the Fund's
securities.
Liquidity. In addition, these instruments may not be liquid in all
circumstances. As a result, in volatile markets, the Fund may not be able
to dispose of or offset a transaction without incurring losses. Although
the contemplated use of hedging instruments should tend to reduce the
risk of loss due to a decline in the value of the hedged security, at the
same time the use of these instruments could tend to limit any potential
gain which might result from an increase in the value of such security.
Judgement of the Advisor and the International Sub-Advisor. Successful
use of hedging instruments by the International Equity Index Fund is
subject to the ability of the Banc One Investment Advisors and/or the
International Sub-Adviser to predict correctly movements in the direction
of interest and currency rates and other factors affecting markets for
securities. If the expectations of Banc One Investment Advisors or the
International Sub-Advisor are not met, the Fund would be in a worse
position than if a hedging strategy had not been pursued. For example, if
the Fund has hedged against the possibility of an increase in interest
rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Fund
will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its hedging
positions. In addition, when hedging with instruments that require
variation margin payments, if the Fund has insufficient cash to meet
daily variation margin requirements, it may have to sell securities to
meet such requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market.
Thus, the Fund may have to sell securities at a time when it is
disadvantageous to do so.
FUTURES AND OPTIONS TRADING
Some of the Funds 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 a 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 Funds are 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
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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.
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 Funds
expect to earn interest income on their 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 Funds intend 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. A 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.
A 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, a 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, a 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 Funds' exposure to market fluctuations, the use of
futures contracts may be a more effective means of managing this exposure. While
the Funds 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.
A 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 a Fund could lose more than the original
margin deposit required to initiate a futures transaction.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS
None of the Funds will 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 respective Fund's total assets.
The Funds of Funds will not enter into futures contract transactions, however,
the One Group mutual funds in which they invest may do so as described herein.
In addition, none of the Equity Funds will enter into futures contracts to the
extent that the value of the futures contracts held would exceed 25% of the
respective Fund's total assets.
The Funds have undertaken to restrict their futures contract trading as
follows: first, the Funds will not engage in transactions in futures contracts
for speculative purposes; second, the Funds will not market themselves to the
public as commodity pools or otherwise as vehicles for trading in the
commodities futures or commodity options markets; third, the Funds will disclose
to all prospective Shareholders the purpose of and limitations on their
commodity futures trading; fourth, the Funds will submit to the CFTC special
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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 SEC. Under those requirements, where a 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 a 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,
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 a Fund "covers" a long position. For example, instead of
segregating assets, a 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 a Fund takes short positions, or engages in sales of call options, it need
not segregate assets if it "covers" these positions. For example, where a Fund
holds a short position in a futures contract, it may cover by owning the
instruments underlying the contract. The Funds 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 a 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. A 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. In addition,
the extent to which a Fund may enter into transactions involving futures
contracts may be limited by the Internal Revenue Code of 1986 (the "CODE")
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
Funds.
RISK FACTORS IN FUTURES TRANSACTIONS
LIQUIDITY. 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, a Fund would continue
to be required to make daily cash payments to maintain the required margin. In
such situations, if a 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, a 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 Funds will minimize the risk that they
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.
RISK OF LOSS. 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 participation 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 Funds are only for risk
management purposes, Banc One Investment Advisors and, with respect to the
International Equity Index Fund, the International Sub-Advisor, and, with
respect to the High Yield Bond, the High Yield Sub-Advisor do not believe that
the Funds are subject to the risks of loss frequently associated with futures
transactions. Each 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.
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CORRELATION RISK. Utilization of futures transactions by a Fund involves
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 a Fund could lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or related option.
PRICE FLUCTUATIONS. 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 a 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. A 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 a Fund anticipates purchasing at a later date, or for other
risk management strategies.
OPTIONS CONTRACTS
Some of the Funds may use options on securities or futures contracts as a
hedging device. An option gives the buyer of the option the right (but not the
obligation) to purchase a futures contract or security at a specified price
(also called the STRIKE price). A CALL OPTION gives the 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.
A PUT OPTION gives the buyer the right to sell the underlying futures
contract or security. The purchase price of an option is referred to as its
"premium." The seller (or "writer") of a put option must purchase futures
contracts or securities at a strike price if the option is exercised. In the
case of a call option, the seller must sell the futures contract or security in
the underlying futures contract or security at the strike price if the option is
exercised.
A NAKED OPTION is an option written by a party who does not own the
underlying futures contract or security. A COVERED OPTION is an option written
by a party who does own 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 and
"out-of-the-money" if the strike price is above current market levels. 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
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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.
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.
WRITING (SELLING) COVERED CALLS
Some of the Funds may write (sell) covered call options and purchase
options to close out options previously written by the Fund. The Funds' purpose
in writing covered call options is to generate additional premium income. This
premium income will serve to enhance a Fund's total return and will reduce the
effect of any price decline of the security involved in the option. Generally,
the Funds will write covered call options on securities which, in the opinion of
Banc One Investment Advisors or the applicable 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. The Funds will write only
covered call options. This means that a Fund will only write a call option on a
security which a Fund already owns.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with each 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 a Fund will not do), but capable of
enhancing the Fund's total return. When writing a covered call option, a 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, a 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 a Fund has written
expires, a 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, a 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
Funds do not consider a security covered by a call to be "pledged" as that term
is used in each Fund's policy which limits the pledging or mortgaging of its
assets.
The premium received is the market value of an option. The premium each
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, the Fund's Advisor or 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 a 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, a 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 a Fund's best interest. A closing purchase
transaction consists of a Fund purchasing an option having the same terms as the
option sold by a Fund, and has the effect of cancelling a Fund's position as a
seller. The premium which a Fund will pay in executing a closing purchase
transaction may be higher (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 a Fund
are exercised and a Fund delivers securities to the holder of a call option, a
Fund's turnover rate will increase, which would cause a 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.
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<PAGE> 17
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security with either a different exercise price or
expiration date or both. If a Fund desires to sell a particular security from
its portfolio on which it has written a call options 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 a Fund will be able to effect such
closing transactions at a favorable price. If a 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. A 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 a 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, a 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.
A 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
Certain Funds 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
Certain Funds may also purchase put options to protect their 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
Certain Funds 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.
STRADDLES AND SPREADS
Certain Funds also may engage in straddles and spreads. In a straddle
transaction, a 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
applicable 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
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RISK FACTORS IN OPTIONS TRANSACTIONS
Risk of Loss. When it purchases an option, a 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, a Fund will lose part or all of its investment in the option.
This contrasts with an investment by a 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. In addition, there may be
imperfect or no correlation between the changes in market value of the
securities held by the Funds and the prices of the options.
Judgement of Advisor and Sub-Advisors. The successful use of the options
strategies depends on the ability of Banc One Investment Advisors or the
applicable Sub-Advisor to assess interest rate and market movements correctly
and to accurately calculate the fair price of the option. The effective use of
options also depends on a Fund's ability to terminate option positions at times
when Banc One Investment Advisors or the applicable Sub-Advisor, deems it
desirable to do so. A Fund will take an option position only if Banc One
Investment Advisors or the applicable Sub-Advisor believes there is a liquid
secondary market for the option, however, there is no assurance that a Fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
Liquidity. If a secondary trading market in options were to become
unavailable, a 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 a Fund's ability to realize its
profits or limit its losses.
Market Restrictions. Disruptions in the markets for the securities
underlying options purchased or sold by a 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, a 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, a 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
a Fund has expired, the Fund could lose the entire value of its option.
Foreign Investment Risks. 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.
LIMITATIONS ON THE USE OF OPTIONS.
Each Fund will limit the writing of put and call options to 25% of its
net assets. Some Funds 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.
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
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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. A Fund will invest in the obligations of such agencies or
instrumentalities only when Banc One Advisors or the applicable 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.
HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET AND INSTITUTIONAL MONEY
MARKET FUNDS
The Money Market and Institutional Money Market Funds, may invest only in
obligations determined by the Fund's investment Advisor, Banc One Investment
Advisors to present minimal credit risks under guidelines adopted by the Trust's
Board of Trustees.
The Treasury Money Market Fund and the Treasury Only Money Market Fund
may only invest in U.S. Treasury bills, notes and other U.S. Treasury
obligations issued or guaranteed by the U.S. government. Some of the securities
held by the Treasury Money Market Fund may be subject to repurchase agreements.
The Government Money Market Fund invests exclusively in securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities, some
of which may be subject to repurchase agreements.
The Tax-Exempt Money Market Fund may invest only in obligations which, at
the time of purchase, (i) possess the highest short-term ratings from a NRSRO or
(ii) possess, in the case of multiple-rated securities, the highest short-term
ratings by at least two NRSROs; or (iii) do not possess a rating (i.e., are
unrated) but are determined by Banc One Investment Advisors to be of comparable
quality to the rated instruments eligible for purchase by the Fund under
guidelines adopted by the Board of Trustees (collectively, "FIRST TIER
SECURITIES"). Some of the securities of the Tax-Exempt Money Market Fund may be
subject to repurchase agreements.
With regard to the Money Market Funds and the Institutional Money Market
Funds (other than the Tax-Exempt Money Market Fund), investments will be limited
to those obligations which, at the time of purchase, (i) possess one of the two
highest short-term ratings from an NRSRO in the case of single-rated securities;
or (ii) possess, in the case of multiple-rated securities, one of the two
highest short-term ratings by at least two NRSROs or (iii) do not possess a
rating (i.e., are unrated) but are determined by Banc One Investment Advisors to
be of comparable quality to the rated instruments eligible for purchase by the
Trust under guidelines adopted by the Board of Trustees (collectively, "ELIGIBLE
SECURITIES"). A security that has not received a rating will be deemed to
possess the rating assigned to an outstanding class of the issuer's short-term
debt obligations if determined by Banc One Investment Advisors to be comparable
in priority and security to the obligation selected for purchase by the Trust.
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, are
determined by Banc One Investment Advisors to be of comparable quality;
provided, however, that where the demand feature would be readily exercisable in
the event of a default in payment of principal or interest on the underlying
security, the obligation may be acquired based on the rating possessed by the
demand feature or, if the demand feature does not possess a rating, a
determination of comparable quality by Banc One Investment Advisors. A security
which at the time of issuance had a maturity exceeding 397 days but, at the time
of purchase, has a remaining maturity of 397 days or less, is not considered an
Eligible Security if it does not possess a high quality rating and the long-term
rating, if any, is not within the two highest rating categories.
Eligible Securities include First-Tier Securities and Second-Tier
Securities. First-Tier Securities include those that possess a rating in the
highest category, in the case of a single-rated security, or at least two
ratings in the highest rating category, in the case of multiple-rated
securities, or, if the securities do not possess a rating, are determined to be
of comparable quality by Banc One Investment Advisors pursuant to the guidelines
adopted by the Board of Trustees. Second-Tier Securities are all other Eligible
Securities.
Each Money Market Fund (other than the Ohio Municipal Money Market Fund
and the Municipal Money Market Fund) and Institutional Money Market Fund (other
than the Tax-Exempt Money Market Fund) will not invest more than 5% of its total
assets in the First Tier Securities of any one issuer. In addition, each Fund
(other than the Municipal Money Market Fund, the Ohio Municipal Money Market
Fund and the Tax-Exempt Money Market Fund) may not invest more than 5% of its
total assets in Second
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Tier Securities, with investment in the Second Tier Securities of any one issuer
further limited to the greater of 1% of the Fund's total assets or $1 million.
If a percentage limitation is satisfied at the time of purchase, a later
increase in such percentage resulting from a change in the Fund's net asset
value or a subsequent change in a security's qualification as a First Tier or
Second Tier Security will not constitute a violation of the limitation. In
addition, there is no limit on the percentage of a Fund's assets that may be
invested in obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities and, with respect to each Money Market Fund and
each Institutional Money Market Fund (other than the Treasury Only Money Market
Fund), repurchase agreements fully collateralized by such obligations.
Under the guidelines adopted by the Trust's Board of Trustees and in
accordance with Rule 2a-7 under the 1940 Act, Banc One Investment Advisors may
be required to promptly dispose of an obligation held in a Fund's portfolio in
the event of certain developments that indicate a diminishment of the
instrument's credit quality, such as where an NRSRO downgrades an obligation
below the second highest rating category, or in the event of a default relating
to the financial condition of the issuer.
A rating by an NRSRO may be utilized only where the NRSRO is neither
controlling, controlled by, or under common control with the issuer of, or any
issuer, guarantor, or provider of credit support for, the instrument.
HIGH YIELD/HIGH RISK SECURITIES/JUNK BONDS
The High Yield Bond Fund and the Income Bond Fund may invest in high
yield securities. High yield, high risk bonds are securities that are generally
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 Funds more difficult, at least in the
absence of price concessions. Reduced liquidity also could adversely affect the
Funds' 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 Funds 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.
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The high yield, high risk investments 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.
-- 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 definitive. The prospectus and this Statement of
Additional Information list additional types of permissible investments. Such
investments may be purchased by some of the Funds even if they are classified as
non-investment grade securities.
INDEX INVESTING BY THE EQUITY INDEX AND INTERNATIONAL EQUITY INDEX FUNDS
Equity Index Fund. It is anticipated that the indexing approach that will
be employed by the Equity Index Fund will be an effective method of
substantially tracking percentage changes in the S&P 500 Index (the "INDEX"). It
is a reasonable expectation that there will be a close correlation between the
Fund's performance and that of the Index in both rising and falling markets. The
Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the Index of at least 0.95, without taking into account
expenses. A correlation of 1.00 would indicate perfect correlation, which would
be achieved when the Fund's net asset value, including the value of its dividend
and capital gains distributions, increases or decreases in exact proportion to
changes in the Index. The Fund's ability to correlate its performance with the
Index, however, may be affected by, among other things, changes in securities
markets, the manner in which the Index is calculated by Standard & Poor's
Corporation ("S&P") and the timing of purchases and redemptions. In the future,
the Trustees of the Trust, subject to the approval of Shareholders, may select
another index if such a standard of comparison is deemed to be more
representative of the performance of common stocks.
S&P chooses the stocks to be included in the Index largely on a
statistical basis. Inclusion of a stock in the Index in no way implies an
opinion by S&P as to its attractiveness as an investment. The Index is
determined, composed and calculated by S&P without regard to the Equity Index
Fund. S&P is neither a sponsor of, nor in any way affiliated with the Equity
Index Fund, and S&P makes no representation or warranty, expressed or implied on
the advisability of investing in the Equity Index Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. "Standard and Poor's 500" is
a service mark of S&P.
The weights of stocks in the Index are based on each stock's relative
total market value, i.e., market price per share times the number of Shares
outstanding. Because of this weighting, approximately 50% of the Index is
currently composed of the 50 largest companies in the Index, and the Index
currently represents
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over 65% of the market value of all U.S. common stocks listed on the New York
Stock Exchange. Typically, companies included in the Index are the largest and
most dominant firms in their respective industries.
Banc One Investment Advisors generally selects stocks for the Equity
Index Fund in the order of their weights in the Index beginning with the
heaviest weighted stocks. The percentage of the Equity Index Fund's assets to be
invested in each stock is approximately the same as the percentage it represents
in the Index. No attempt is made to manage the Equity Index Fund in the
traditional sense using economic, financial and market analysis. The Equity
Index Fund is managed using a computer program to determine which stocks are to
be purchased and sold to replicate the Index to the extent feasible. From time
to time, administrative adjustments may be made in the Fund because of changes
in the composition of the Index, but such changes should be infrequent.
International Equity Index Fund. It is anticipated that the indexing
approach that will be employed by the International Equity Index Fund will be an
effective method of substantially tracking percentage changes in the GDP
weighted MSCI EAFE Index (the "INTERNATIONAL INDEX"). The Fund will attempt to
achieve a correlation between the performance of its portfolio and that of the
International Index of at least 0.95, without taking into account expenses. It
is a reasonable expectation that there will be a close correlation between the
Fund's performance and that of the International Index in both rising and
falling markets. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the Fund's net asset value, including the value of its
dividend and capital gains distributions, increases or decreases in exact
proportion to changes in the International Index. The Fund's ability to
correlate its performance with the International Index, however, may be affected
by, among other things, changes in securities markets, the manner in which the
International Index is calculated by Morgan Stanley International ("MSCI") and
the timing of purchases and redemptions. In the future, the Trustees of the
Trust, subject to the approval of Shareholders, may select another index if such
a standard of comparison is deemed to be more representative of the performance
of common stocks.
MSCI computes and publishes the International Index. MSCI also computes
the country weights which are established based on annual GDP data. Gross
Domestic Product is defined as a country's Gross National Product, or total
output of goods and services, adjusted by the following two factors: net labor
income (labor income of domestic residents working abroad less labor income of
foreigners working domestically) plus net interest income (interest income
earned from foreign investments less interest income earned from domestic
investments by foreigners). Country weights are thus established in proportion
to the size of their economies as measured by Gross Domestic Product, which
results in a more uniform distribution of capital across the EAFE markets than
if capitalization weights were used as the basis. The country weights within the
International Index are systematically rebalanced annually to the most recent
GDP weights.
MSCI chooses the stocks to be included in the International Index largely
on a statistical basis. Inclusion of a stock in the International Index in no
way implies an opinion by MSCI as to its attractiveness as an investment. The
International Index is determined, composed and calculated by MSCI without
regard to the International Equity Index Fund. MSCI is neither a sponsor of, nor
in any way affiliated with the International Equity Index Fund, and MSCI makes
no representation or warranty, expressed or implied on the advisability of
investing in the International Equity Index Fund or as to the ability of the
International Index to track general stock market performance, and MSCI
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the International Index or any data included therein.
"MSCI EAFE Index" is a service mark of MSCI.
INVESTMENT COMPANY SECURITIES
Some of the Funds may invest up to 5% of their total assets in the
securities of any one investment company (another mutual fund), but may not own
more than 3% of the outstanding securities of any one investment company or
invest more than 10% of their total assets in the securities of other investment
companies. These limits do not apply to the Funds of Funds. 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 duplicate 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 any Fund invested in any investment company.
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LOAN PARTICIPATIONS AND ASSIGNMENTS
Some of the Funds 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 ("LENDERS"). Investments in loans are expected in most instances 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, a Fund will invest no more than
15% (10% for the Money Market Funds) 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 Funds
investment in Participations typically will result in the Fund having a
contractual relationship only with the Lender and not with the borrower.
When a 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 Participations and not an Assignment. A 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 Funds anticipate 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 a Fund's
ability to dispose of particular Assignments or Participations when necessary to
meet a 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 a Fund to assign a value to those securities for purposes of
valuing a Fund's portfolio and calculating its net asset value.
MORTGAGE-RELATED SECURITIES
MORTGAGE-BACKED SECURITIES (CMOS AND REMICS). Certain of the Funds may
invest in mortgage-backed securities including collateralized mortgage
obligations ("CMOS") and Real Estate Mortgage Investment Conduits ("REMICS").
Mortgage-backed securities represent pools of mortgage loans assembled for sale
to investors by various governmental agencies such as Ginnie Mae and
government-related organizations such as Fannie Mae and 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. 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.
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.
Ginnie Mae Securities. 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.
Fannie Mae Securities. Mortgage-related securities issued by Fannie Mae
include Fannie Mae Guaranteed Mortgage Pass-Through 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.
Freddie Mac Securities. 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.
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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.
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 Funds do 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
known as "Z-BONDS"), which only accrue interest at a
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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 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 Funds 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.
LIMITATIONS ON THE USE OF MORTGAGE-BACKED SECURITIES
Equity Funds. The Asset Allocation Fund may invest in mortgage-backed
securities issued by private issuers including Guaranteed CMOs and REMIC
pass through Securities that are rated in one of the four highest rating
categories by at least one NRSRO at the time of investment or, if
unrated, determined by Banc One Investment Advisors to be of comparable
quality.
Bond Funds. The Government Bond Fund and the Treasury & Agency Fund may
only invest in mortgage-backed securities issued or guaranteed by the
U.S. government, or its agencies or instrumentalities. The other Bond
Funds that invest in mortgage-backed securities may invest in
mortgage-backed securities issued by private issuers including Guaranteed
CMOs and REMIC pass-through securities. The Government Bond Fund and the
Treasury & Agency Fund may invest in mortgage-backed securities that are
rated in one of the three highest rating categories by at least one NRSRO
at the time of investment or, if unrated, determined by Banc One
Investment Advisors to be of comparable quality. The Limited Volatility
Bond Fund, the Ultra Short-Term Income Fund and the Intermediate Bond
Fund may invest in mortgage-backed securities that are rated in one of
the four highest rating categories by at least one NRSRO at the time of
investment or, if unrated, determined by Banc One Investment Advisor to
be of comparable quality. The Income Bond Fund and the High Yield Bond
Fund can invest in mortgage-backed securities in ANY rating category.
Money Market Funds. The Government Money Market Fund may only invest in
mortgage-backed securities issued or guaranteed by the U.S. government,
or its agencies or instrumentalities. The other Money Market Funds that
invest in mortgage-backed securities may invest in mortgage-backed
securities issued by private issuers including Guaranteed CMOs and REMIC
pass-through securities. The Prime Money Market Fund, the Municipal Money
Market Fund, and the Ohio Municipal Money Market Fund may invest in
mortgage-backed securities that are rated in one of the two highest
rating categories by at least one NRSRO at the time of investment or, if
unrated, determined by Banc One Investment Advisors to be of comparable
quality.
MORTGAGE DOLLAR ROLLS. Some of the Funds may enter into Mortgage Dollar
Rolls in which the Funds sell securities for delivery in the current month and
simultaneously contract with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. When a Fund enters into mortgage dollar rolls, the Fund will hold and
maintain a segregated account until the settlement date, cash or liquid, high
grade debt securities in an amount equal to the forward purchase price. The
Funds benefit 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 Funds 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' ability to predict correctly mortgage prepayments and
interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed. The Funds currently intend 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.
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STRIPPED MORTGAGE BACKED SECURITIES. Stripped Mortgage Backed Securities
("SMBS") are derivative multi-class mortgage securities. 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.
In addition to the risks applicable to Mortgage-Related Securities in
general, SMBS 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 Funds may fail to fully recover their investment
in such securities. 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 are bought at a discount to the
ultimate principal repayment value. The rate of return on a PO will vary with
prepayments, rising as prepayment increase and falling as prepayments decrease.
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 will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and by using certain
analytical and hedging.
The Bond Funds (other than the Limited Volatility Bond Fund and the
Treasury & Agency Fund), and the Asset Allocation Fund may invest in SMBS to
enhance revenues or hedge against interest rate risk. The Funds may only invest
in SMBS issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Although the market for SMBS is increasingly liquid, certain
SMBS may not be readily marketable and will be considered illiquid for purposes
of the Funds' limitations on investments in illiquid securities.
ADJUSTABLE RATE MORTGAGE LOANS. The Bond Funds and the Asset Allocation
Fund, may invest in adjustable rate mortgage loans ("ARMS"). The Treasury &
Agency Fund may buy only government 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.
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
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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.
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 funds 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 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.
RISKS FACTORS OF MORTGAGE-RELATED SECURITIES.
Guarantor Risk. 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.
Interest Rate Sensitivity. If a Fund purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates or
prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment. 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 Funds. In addition, regular
payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return the Funds of
the Trust will receive when these amounts are reinvested.
Market Value. 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.
Prepayments. 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
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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.
Yield Characteristics. 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 Funds invest 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.
MUNICIPAL SECURITIES
Municipal Securities are issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, roads, schools, water and sewer works, and other
utilities. Other public purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities. In addition, certain debt obligations known as "PRIVATE ACTIVITY
BONDS" may be issued by or on behalf of municipalities and public authorities to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, high-speed
intercity rail facilities, governmentally-owned airports, docks and wharves and
mass commuting facilities, certain qualified mortgages, student loan and
redevelopment bonds and bonds used for certain organizations exempt from federal
income taxation.
Private Activity Bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included
within the term "Municipal Securities" as used in the Prospectuses of the
Tax-Advantaged Funds (other than the Municipal Money Market Fund) and in
this Statement of Additional Information with respect to such Funds only
if the interest paid thereon is both exempt from federal income tax and
not treated as a preference item for individuals for purposes of the
federal alternative minimum tax.
As used in the Prospectuses of the Ohio Municipal Money Market Fund, the
Ohio Municipal Bond Fund, and the Municipal Money Market Fund and in this
Statement of Additional Information with respect to such Funds, the term
"Municipal Securities" includes private activity bonds that are issued by
or on behalf of public authorities to finance privately operated
facilities only if the interest paid thereon is exempt from federal
income tax (other than the Federal alternative minimum tax).
Private activity bonds that are subject to federal income tax and are
treated as a preference item for individuals for purposes of the federal
alternative minimum tax are included within the term "Taxable
Obligations" as used in the Prospectuses of the Tax-Advantaged Funds
(other than the Ohio Municipal Money Market Fund, the Ohio Municipal Bond
Fund and Municipal Money Market Fund).
Private activity bonds that are subject to federal income tax are
included within the term Taxable Obligations as used in the Prospectuses
of the Ohio Municipal Money Market Fund, the Ohio Municipal Bond Fund,
and the Municipal Money Market Fund. The payment of principal and
interest on private activity bonds generally is dependent solely on the
ability of the facility users to meet its financial obligations and the
pledge, if any, of real and personal property as security for said
payment.
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Certain debt obligations known as "INDUSTRIAL DEVELOPMENT BONDS" under
prior federal tax law may have been issued by or on behalf of public authorities
to obtain funds to provide certain privately operated housing facilities, sports
facilities, industrial parks, convention or trade show facilities, airport, mass
transit, port or parking facilities, air or water pollution control facilities,
sewage or solid waste disposal facilities, and certain facilities for water
supply. Other private activity bonds and industrial development bonds issued to
fund the construction, improvement, equipment or repair of privately-operated
industrial, distribution, research, or commercial facilities may also be
Municipal Securities, but the size of such issues is limited under current and
prior federal tax law. The aggregate amount of most private activity bonds and
industrial development bonds is limited (except in the case of certain types of
facilities) under federal tax law by an annual "volume cap." The volume cap
limits the annual aggregate principal amount of such obligations issued by or on
behalf of all governmental instrumentalities in the state.
The two principal classifications of Municipal Securities consist of
"general obligation" and "limited" (or revenue) issues. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or source. The characteristics and method of enforcement of
general obligation bonds vary according to the law applicable to the particular
issuer, and payment may be dependent upon appropriation by the issuer's
legislative body. Limited obligation bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Private
activity bonds and industrial development bonds generally are revenue bonds and
thus not payable from the unrestricted revenues of the issuer. The credit and
quality of such bonds is generally related to the credit of the bank selected to
provide the letter of credit underlying the bond. Payment of principal of and
interest on industrial development revenue bonds is the responsibility of the
corporate user (and any guarantor).
The Funds may also acquire "moral obligation" issues, which are normally
issued by special purpose authorities, and in other tax-exempt investments
including pollution control bonds and tax-exempt commercial paper. Each Fund may
purchase short-term tax-exempt General Obligations Notes, Tax Anticipation
Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project Notes, and
other forms of short-term tax-exempt loans. Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements, or other revenues. Project Notes are issued by a state or local
housing agency and are sold by the Department of Housing and Urban Development.
While the issuing agency has the primary obligation with respect to its Project
Notes, they are also secured by the full faith and credit of the United States
through agreements with the issuing authority which provide that, if required,
the federal government will lend the issuer an amount equal to the principal of
and interest on the Project Notes.
There are, of course, variations in the quality of Municipal Securities,
both within a particular classification and between classifications, and the
yields on Municipal Securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligations, and the rating of the issue. The ratings of Moody's
and S&P represent their opinions as to the quality of Municipal Securities. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality, and Municipal Securities with the same maturity, interest
rate and rating may have different yields while Municipal Securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. Banc One Investment Advisors or the applicable Sub-Advisor
will consider such an event in determining whether the Fund should continue to
hold the obligations.
Municipal securities may include OBLIGATIONS OF MUNICIPAL HOUSING
AUTHORITIES and SINGLE-FAMILY MORTGAGE REVENUE BONDS. Weaknesses in Federal
housing subsidy programs and their administration may result in a decrease of
subsidies available for payment of principal and interest on housing authority
bonds. Economic developments, including fluctuations in interest rates and
increasing construction and operating costs, may also adversely impact revenues
of housing authorities. In the case of some housing authorities, inability to
obtain additional financing could also reduce revenues available to pay existing
obligations. Single-family mortgage revenue bonds are subject to extraordinary
mandatory redemption at par in whole or in part from the proceeds derived from
prepayments of underlying mortgage loans and also from the unused proceeds of
the issue within a stated period which may be within a year from the date of
issue.
MUNICIPAL LEASES are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities and may be
considered to be illiquid. They may take the form of a
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lease, an installment purchase contract, a conditional sales contract, or a
participation interest in any of the above. The Board of Trustees is responsible
for determining the credit quality of unrated municipal leases, on an ongoing
basis, including an assessment of the likelihood that the lease will not be
canceled.
RISK FACTORS IN MUNICIPAL SECURITIES
Tax Risk. The Code imposes certain continuing requirements on issuers of
tax-exempt bonds regarding the use, expenditure and investment of bond
proceeds and the payment of rebates to the United States of America.
Failure by the issuer to comply subsequent to the issuance of tax-exempt
bonds with certain of these requirements could cause interest on the
bonds to become includable in gross income retroactive to the date of
issuance.
Housing Authority Tax Risk. The exclusion from gross income for Federal
income tax purposes for certain housing authority bonds depends on
qualification under relevant provisions of the Code and on other
provisions of Federal law. These provisions of Federal law contain
certain ongoing requirements relating to the cost and location of the
residences financed with the proceeds of the single-family mortgage bonds
and the income levels of tenants of the rental projects financed with the
proceeds of the multi-family housing bonds. While the issuers of the
bonds, and other parties, including the originators and servicers of the
single-family mortgages and the owners of the rental projects financed
with the multi-family housing bonds, covenant to meet these ongoing
requirements and generally agree to institute procedures designed to
insure that these requirements will be consistently met, there is no
assurance that the requirements will be consistently met. The failure to
meet these requirements could cause the interest on the bonds to become
taxable, possibly retroactively from the date of issuance, thereby
reducing the value of the bonds and subjecting Shareholders to
unanticipated tax liabilities and possibly requiring a Fund to sell the
bonds at the reduced value. Furthermore, any failure to meet these
ongoing requirements might constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the
bond or require the issuer to redeem the bond. In any event, where the
mortgage is insured by the Federal Housing Administration ("FHA"), the
consent of the FHA may be required before insurance proceeds would become
payable to redeem the mortgage subsidy
Information Risk. Information about the financial condition of issuers of
Municipal Securities may be less available than about corporations having
a class of securities registered under the Securities Exchange Act of
1934.
State and Federal Laws. An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and
other laws affecting the rights and remedies of creditors, such as the
federal bankruptcy code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon the
enforcement of such obligations. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Securities may be materially adversely affected by litigation
or other conditions.
Litigation and Current Developments. Such litigation or conditions may
from time to time have the effect of introducing uncertainties in the
market for tax-exempt obligations or certain segments thereof, or may
materially affect the credit risk with respect to particular bonds or
notes. Adverse economic, business, legal or political developments might
affect all or a substantial portion of a Fund's Municipal Securities in
the same manner.
New Legislation. From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income
tax exemption for interest on tax exempt bonds, and similar proposals may
be introduced in the future. The Supreme Court has held that Congress has
the constitutional authority to enact such legislation. It is not
possible to determine what effect the adoption of such proposals could
have on (i) the availability of Municipal Securities for investment by
the Funds, and (ii) the value of the investment portfolios of the Funds.
LIMITATIONS ON THE USE OF MUNICIPAL SECURITIES.
As a matter of fundamental policy, under normal market conditions, at
least 80% of the total assets (net assets in the case of the Louisiana Municipal
Bond Fund) of each of the Municipal Money Market Fund, the Ohio Municipal Money
Market Fund, the Municipal Income Fund, the Intermediate Tax-Free Bond Fund, the
Ohio Municipal Bond Fund, the Texas Municipal Bond Fund, the Kentucky Municipal
Bond Fund,
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the Louisiana Municipal Bond Fund, the West Virginia Municipal Bond Fund, the
Arizona Municipal Bond Fund, and the Tax- Exempt Money Market Fund will be
invested in Municipal Securities. Other Funds may also invest in Municipal
Securities if Banc One Investment Advisors or the applicable Sub-Advisor
determines that such Municipal Securities offer attractive yields. The Funds may
invest in Municipal Securities either by purchasing them directly or by
purchasing certificates of accrual or similar instruments evidencing direct
ownership of interest payments or principal payments, or both, on Municipal
Securities, provided that, in the opinion of counsel to the initial seller of
each such certificate or instrument, any discount accruing on such certificate
or instrument that is purchased at a yield not greater than the coupon rate of
interest on the related Municipal Securities will to the same extent as interest
on such Municipal Securities be exempt from federal income tax and state income
tax (where applicable) and not treated as a preference item for individuals for
purposes of the federal alternative minimum tax.
The Funds may also invest in Municipal Securities by purchasing from
banks participation interests in all or part of specific holdings of Municipal
Securities. Such participation may be backed in whole or in part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from a Fund in connection with the arrangement. A Fund will
not purchase participation interests unless it receives an opinion of counsel or
a ruling of the Internal Revenue Service that interest earned by it on Municipal
Securities in which it holds such participation interest is exempt from federal
income tax and state income tax (where applicable) and not treated as a
preference item for individuals for purposes of the federal alternative minimum
tax.
The Tax-Free Funds may not be a desirable investment for "substantial
users" of facilities financed by private activity bonds or industrial
development bonds or for "related persons" of substantial users. Each Fund will
limit its investment in municipal leases to no more than 5% of its total assets.
ARIZONA MUNICIPAL SECURITIES
As used in the Prospectus and this Statement of Additional Information,
the term "Arizona Municipal Securities" refers to debt securities which are
issued by or on behalf of Arizona or its respective authorities, agencies,
instrumentalities and political subdivisions and which produce interest which,
in the opinion of counsel for the issuer, is exempt from both federal income tax
and Arizona personal income tax .
Risk Factors Regarding Investments in Arizona Municipal Securities. Over
the past several decades, Arizona's economy has grown faster than most other
regions of the country. Arizona's population experienced an increase of 2.9% in
1996 and a substantially similar percentage increase in 1997. Arizona's
employment rate increased 6.7% in 1994, 6.1% in 1995, 5.6% in 1996 and 4.4% in
1997. For 1997, Arizona ranked second in the country for job growth, and the
Phoenix-Mesa metropolitan area ranked first among all United States metropolitan
areas for job growth. Recent lay offs by Motorola and Intel, two large Phoenix
area employers, may lead to more modest job growth in 1998. The 1996
unemployment rate was 5.5%, and the 1997 unemployment rate was 4.7%.
Arizona's per capita personal income has generally varied between 5% and
15% below the national average due to such factors as the chronic poverty on the
state's Indian reservations, the states relatively high number of retirees and
children, and the state's below-average wage scale. However, Arizona's aggregate
personal income grew nearly 5.3% during 1996 to approximately $84.5 billion and
is estimated to have reached $100.8 billion in 1997.
Despite an increase in population, employment and aggregate personal
income, retail sales growth rates have declined over the last few years. The
growth rate was 12.0% in 1994, 8.8% in 1995, 5.9% in 1996 and an estimated 5.1%
in 1997.
After experiencing several years of budget shortfalls requiring mid-year
adjustments, the State of Arizona has had significant budget surpluses each year
since 1993, including a $593.3 million surplus for the fiscal year ended June
30, 1997. An amendment to the Arizona Constitution requiring a 2/3 majority vote
in both houses of the Legislature to enact any tax or fee increase limits
Arizona's ability to raise additional revenue when needed, but Arizona has
placed some of its surplus revenues in a rainy-day fund to address this risk.
The State of Arizona, as such, has no general obligation debt. The
Arizona Department of Transportation, the Arizona Board of Regents, the Arizona
Power Authority and the Water Infrastructure Authority of Arizona have each
issued revenue bonds. The State of Arizona has financed certain capital
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improvements and equipment through certificates of participation, which
represent undivided interests in lease payments to be made by the state that are
subject to annual appropriations by the Arizona legislature.
The Arizona Constitution limits the amount of debt that can be issued by
the state's counties, cities, towns, school districts and other municipal
corporations in the form of indebtedness payable from property taxes or other
general fund sources. In general, those political subdivisions may not become
indebted in an amount exceeding six percent of the value of the taxable property
in the political subdivision without the approval of a majority of the qualified
electors voting at an election. No county or school district may become indebted
in an amount exceeding 15% (30% for unified school districts) of the value of
taxable property, even with voter approval. Incorporated cities or towns with
voter approval may become indebted in an amount up to 20% of the value of
taxable property, for purposes of supplying water, light, sewers, open space
preserves, parks, playgrounds and recreational facilities. These constitutional
debt limits generally do not apply to revenue bonds payable from a special fund
revenue source.
In July 1994, the Arizona Supreme Court ruled that Arizona's system for
financing public education created substantial disparities in facilities among
school districts and violated the provisions of the Arizona Constitution which
require the Legislature to establish and maintain "a general and uniform public
school system." After several attempts, each of which were held unconstitutional
by the Arizona Supreme Court, the Legislature enacted legislation in July 1998,
which establishes a centralized state school capital finance system and, among
other things, limits the ability of school districts to issue bonds. There are
currently no challenges pending with respect to the legislation.
KENTUCKY MUNICIPAL SECURITIES
As used in the Prospectus and this Statement of Additional Information,
the term "Kentucky Municipal Securities" refers to debt securities which are
issued by or on behalf of Kentucky or its respective authorities, agencies,
instrumentalities and political subdivisions and which produce interest which,
in the opinion of counsel for the issuer, is exempt from both federal income tax
and Kentucky personal income tax.
Risk Factors Regarding Investments in Kentucky Municipal Securities. As
of June 30, 1998, Kentucky had an unemployment rate of 4.5%, slightly less than
the 4.7% national average. For calendar year 1997, Kentucky's per capita income
ranked 41st in the nation and was 81% of the national average. The most current
audited financial statements for Kentucky indicate a surplus of funds in the
General Fund of $538,075,000 as of June 30, 1997, which was $411,185,000 above
the budgeted balance.
Unlike the municipal securities of most states, nearly all Kentucky
Municipal Securities are not general obligations of the issuer; rather, payment
depends on revenues generated by the property financed by the securities.
LOUISIANA MUNICIPAL SECURITIES
As used in the Prospectus and this Statement of Additional Information,
the term "Louisiana Municipal Securities" refers to debt securities which are
issued by or on behalf of Louisiana or its respective authorities, agencies,
instrumentalities and political subdivisions and which produce interest which,
in the opinion of counsel for the issuer, is exempt from both federal income tax
and Louisiana personal income tax.
Risk Factors Regarding Investments in Louisiana Municipal Securities. The
State of Louisiana continues to consolidate its economic and financial gains
after a period of difficulty. In the mid-1980's, abrupt declines in the price of
oil disrupted both the economy and financial operations of the State. Recent
years have generally produced operating surpluses and major financial issues,
such as Medicaid and risk management, have been addressed. Also, debt has been
reduced to a moderate level, at $574 per capita and 2.9% of personal income.
Louisiana's economy is resource based, led by oil and gas, but
agribusiness and tourism are also significant components. Growth in the service
employment sector is providing more diversity, but the State is still very
dependent on oil and gas for direct or indirect employment and income. The price
of oil is estimated at $17 per barrel in 1998 and $17.50 in 1999.
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Personal income gains were in excess of the national rates in 1990 -
1994, both in total and on a per capita basis, but the gains were lower in 1995
and 1996. Louisiana's per capita personal income is currently equal to 81% of
the national average, but this is still well below the 90% figure recorded in
1981 when the oil and gas industry was extremely active. The State projects
employment to increase 4.8% in 1998 and 4.5% in 1999.
OHIO MUNICIPAL SECURITIES
As used in the Prospectuses and this Statement of Additional Information,
the term "Ohio Municipal Securities" refers to debt securities which are issued
by or on behalf of Ohio or its respective authorities, agencies,
instrumentalities and political subdivisions which produce interest which, in
the opinion of counsel for the issuer are exempt from both federal income tax,
and Ohio personal income tax.
Risk Factors Regarding Investments in Ohio Municipal Securities
The economy of Ohio, while becoming increasingly diversified and
increasingly reliant on the service sector, continues to rely in significant
part on durable goods manufacturing, which is largely concentrated in motor
vehicles and equipment, steel, rubber products and household appliances. As a
result, general economic activity in Ohio, as in many other industrial states,
tends to be more cyclical than in some other states and in the nation as a
whole. Agriculture also is an important segment of the Ohio economy, and the
state has instituted several programs to provide financial assistance to
farmers. Although revenue obligations of the state or its political subdivisions
may be payable from a specific source or project, and general obligation debt
may be payable from a specific tax, there can be no assurance that future
economic difficulties and the resulting impact on state and local government
finances will not adversely affect the market value of the Ohio Municipal
Securities in the Funds of the Trust or the ability of the respective obligors
to make timely payment of interest and principal on such obligations.
Since the Ohio Municipal Bond Fund and Ohio Municipal Money Market Fund
invest primarily in Ohio Municipal Securities, the value of each Fund's Shares
may be especially affected by factors pertaining to the economy of Ohio and
other factors specifically affecting the ability of issuers of Ohio Municipal
Securities to meet their obligations. As a result, the value of the Shares of
the Ohio Municipal Bond Fund and the Ohio Municipal Money Market Fund may
fluctuate more widely than the value of Shares of a portfolio investing in
securities relating to a number of different states. The ability of Ohio state,
county, or local governments to meet their obligations will depend primarily on
the availability of tax and other revenues to those governments and on their
fiscal conditions generally. The amounts of tax and other revenues available to
issuers of Ohio Municipal Securities may be affected from time to time by
economic, political and demographic conditions within the state. In addition,
constitutional or statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of federal, state, and local aid to
issuers of Ohio Municipal Securities may also affect their ability to meet their
obligations. Payments of principal and interest on limited obligation securities
will depend on the economic condition of the facility or specific revenue source
from which revenues the payments will be made, which in turn could be affected
by economic, political, and demographic conditions in the state. Any reduction
in the actual or perceived ability to meet obligations on the part of either an
issuer of an Ohio Municipal Security or a provider of credit enhancement for
such Ohio Municipal Security (including a reduction in the rating of its
outstanding securities) would likely affect adversely the market value and
marketability of that Ohio Municipal Security and could adversely affect the
values of other Ohio Municipal Securities as well.
TEXAS MUNICIPAL SECURITIES
As used in the Prospectus and this Statement of Additional Information,
the term "Texas Municipal Securities" refers to debt securities which are issued
by or on behalf of Texas or its respective authorities, agencies,
instrumentalities and political subdivisions and which produce interest which,
in the opinion of counsel for the issuer, is exempt from federal income tax.
Risk Factors Regarding Investments in Texas Municipal Securities. Because
the Fund invests primarily in obligations issued by Texas entities, the Fund's
performance is partially dependent upon economic conditions within the State of
Texas generally and upon the economic condition of issuing governments and their
instrumentalities in particular. In the late 1980's, weakness in the oil and gas
related and agricultural sectors of the Texas economy adversely affected
consumer spending, financial institutions, utility demand, and real estate
values within the state. Consequently, the state and many of its local
governments had to increase sales, utilities, and ad valorem tax rates in order
to maintain revenue yields. In the past two years, however, in contrast to the
national economy, business activity in Texas has
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strengthened, with employment growth occurring in most sectors. In addition,
Texas' major financial institutions have been recapitalized and bank failures
have generally ceased.
WEST VIRGINIA MUNICIPAL SECURITIES
As used in the Prospectus and this Statement of Additional Information,
the term "West Virginia Municipal Securities" refers to debt securities which
are issued by or on behalf of West Virginia or its authorities, agencies,
instrumentalities and political subdivisions and which produce interest which,
in the opinion of counsel for the issuer, is exempt from both federal income tax
and is generally exempt from West Virginia income tax.
Risk Factors Regarding Investments in West Virginia Municipal Securities.
Being invested primarily in West Virginia securities, the West Virginia
Municipal Bond Fund is subject to the risks of West Virginia's economy and of
the financial condition of its state and local governments and their agencies.
West Virginia's economy is relatively stable. While coal mining,
chemicals and manufacturing make up an important part of that economy, state and
local governments have made and continue to make concentrated efforts to
encourage diversification of the state's economy with some success. However,
unemployment for the State continues to exceed the national average.
The financial resources for state and local governments in recent years
have been adequate. But, with little or no population growth, an aging
population, unemployment remaining above the national average, continuing
decline in school enrollment, the government and school boards continue to
struggle to produce sufficient revenues to fund operations to support public
education.
NEW FINANCIAL PRODUCTS
New options and futures contracts and other financial products, and
various combinations thereof, continue to be developed and certain of the Funds
may invest in any such options, contracts and products as may be developed to
the extent consistent with each 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 each 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 each 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.
PERCS*
The Equity Funds may invest in Preferred Equity Redemption Cumulative
Stock ("PERCS") which is a form of convertible preferred stock that actually has
more of an equity component than it does fixed income characteristics. These
instruments permit companies to raise capital via a surrogate for common equity.
PERCS are preferred stock which convert to common stock after a specified period
of time, usually three years, and are considered the equivalent of equity by the
ratings agencies. Issuers pay holders a substantially higher dividend yield than
that on the underlying common, and in exchange, the holder's appreciation is
capped, usually at about 30 percent. PERCS are callable at any time. The PERC is
mandatorily convertible into common stock, but is callable at any time at an
initial call price that reflects a substantial premium to the stock's issue
price. PERCS offer a higher dividend than that available on the common stock,
but in exchange the investors agree to the company placing a cap on the
potential price appreciation. The call price declines daily in an amount that
reflects the incremental dividend that holders enjoy. PERCS are listed on an
exchange where the common stock is listed.
*PERCS is a registered trademark of Morgan Stanley, which does not
sponsor and is in no way affiliated with The One Group.
PREFERRED STOCK
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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.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Certain of the Funds 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 has 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 Code. A Fund will
indirectly bear its proportionate share of expenses incurred by REITs in which a
Fund invests in addition to the expenses incurred directly by a 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, 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 investment 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.
REPURCHASE AGREEMENTS
Under the terms of a repurchase agreement, a Fund would acquire
securities from a seller, 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 holding such obligation would suffer a loss to the extent
that the proceeds from a sale of the underlying portfolio securities were less
than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent under U.S. law and there
may be no controlling legal precedents under the laws of certain foreign
jurisdictions confirming that a Fund would be entitled, as against a claim by
such seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although (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 a 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 SEC to be loans by a Fund under the 1940 Act.
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Repurchase Agreement Counterparties. For Funds other than the
International Equity Index Fund, repurchase counterparties include
Federal Reserve member banks with assets in excess of $1 billion and
registered broker dealers which Banc One Investment Advisors or, in the
case of the High Yield Bond Fund, High Yield Sub-Advisor deems
creditworthy under guidelines approved by the Board of Trustees. In the
case of the International Equity Index Fund, repurchase counterparties
include banks or foreign banks with total assets in excess of $1 billion
or broker-dealers which may or may not be registered, which the
International Sub-Advisor, deems creditworthy under guidelines approved
by the Board of Trustees.
REVERSE REPURCHASE AGREEMENTS
Funds may borrow money for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a 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. A Fund would enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. At the time a 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 a Fund may
decline below the price at which the Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered by the SEC to be
borrowings by a Fund under the 1940 Act.
RESTRICTED SECURITIES
Some of the Funds 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 Funds, 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 Funds 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 Funds believe 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 Funds intend,
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, 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 SEC Staff position set forth in the
adopting release for Rule 144A under the Securities Act of 1933 ("RULE 144A").
Rule 144A is a nonexclusive safe-harbor for certain secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. Rule 144A provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional buyers.
Rule 144A was expected to further enhance the liquidity of the secondary market
for securities eligible for resale. The Funds believe that the Staff of the SEC
has left the question of determining the liquidity of all restricted securities
to the Trustees. The Trustees have directed Banc One Investment Advisors to
consider the following criteria 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
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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 NRSROS, or if only one NRSRO rates the security, by
that NRSRO, or if unrated, is determined by Banc One Investment Advisors or the
applicable Sub-Advisor to be of equivalent quality; and
- Banc One Investment Advisors or the applicable 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 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 applicable 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 a Fund to hold more than 15% (10% for
Money Market Funds) 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 applicable 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% (10% for Money
Market Funds) of its net assets; and
- Banc One Investment Advisors or the applicable 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.
SECURITIES LENDING
In order to generate additional income, each of the Funds, except the
Funds of Funds, may lend up to 33 1/3% of the securities in which they are
invested 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 Funds will continue to receive 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
commercial paper, repurchase agreements, variable and floating rate instruments,
restricted securities, asset-backed securities, and the other types of
investments permitted by the applicable Fund's prospectus. 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 Funds or the borrower at any time, and are therefore, not
considered to be illiquid investments.
SHORT-TERM FUNDING AGREEMENTS
Some Funds 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 Funds make cash contributions to a deposit account at a
bank or insurance company. The bank or insurance company then credits to the
Funds 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 Funds 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
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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 (10% of the Money Market Fund's net assets) will be invested in
short-term funding agreements and other illiquid securities.
SPDRS
Certain Funds may invest in Standard & Poor's Depository Receipts
("SPDRS"). SPDRs are interests in unit investment trusts. Such investment trusts
invest in a securities portfolio that includes substantially all of the common
stocks (in substantially the same weights) as the common stocks included in a
particular Standard Poor's Index such as the S&P 500. SPDRs are traded on the
American Stock Exchange, but may not be redeemed. The results of SPDRs will not
match the performance of the designated S&P Index due to reductions in the
SPDRs' performance attributable to transaction and other expenses, including
fees paid by the SPDR to service providers. SPDRs distribute dividends on a
quarterly basis.
SPDRs are not actively managed. Rather, a SPDR's objective is to track
the performance of a specified index. Therefore, securities may be purchased,
retained and sold by SPDRs at times when an actively managed trust would not do
so. As a result, you can expect greater risk of loss (and a correspondingly
greater prospect of gain) from changes in the value of securities that are
heavily weighted in the index than would be the case if SPDR was not fully
invested in such securities. Because of this, a SPDRs price can be volatile, a
Fund may sustain sudden, and sometimes substantial, fluctuations in the value of
its investment in SPDRs.
A Fund will limit its investments in SPDRs to 5% of the Fund's total
assets and 3% of the outstanding voting securities of the SPDRs issuer.
Moreover, a Fund's investments in SPDRs will not exceed 10% of the Fund's total
assets, when aggregated with all other investments in investment companies.
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 applicable Sub-Advisor, principal and/or interest payments on the structured
instrument may be substantially less than expected. 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."
The Funds will invest only in structured securities that are consistent
with each Fund's investment objective, policies and restrictions and Banc One
Investment Advisors' or the applicable 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 Funds will not invest in structured
instruments if the terms of the structured instrument provide that the Funds may
be obligated to pay more than their initial investment in the structured
instrument, or to repay any interest or principal that has already been
collected or paid back.
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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, a Fund's ability
to resell such a structured instrument may be more limited than its ability to
resell other Fund securities. The Funds will treat such instruments as illiquid,
and will limit their investments in such instruments to no more than 15% of each
Fund's net assets, when combined with all other illiquid investments of each
Fund.
SWAPS, CAPS AND FLOORS
Certain of the Funds 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 Funds 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 Funds 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 Funds may enter into these transactions to manage their exposure to
changing interest rates and other market factors. Some transactions may reduce
each 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 a Fund, the Fund
may suffer a loss. To address this risk, each 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 a 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 Funds 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 a 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
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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 applicable Sub-Advisor has determined that it would
be prudent to close out or offset the first swap contract.
The Funds (other than the High Yield Bond Fund) will not enter into any
mortgage swap, interest rate swap, cap or floor transaction unless the unsecured
commercial paper, senior debt, or the claims paying ability of the other party
thereto is rated in one of the top two rating categories by at least one NRSRO,
or if unrated, determined by Banc One Investment Advisors to be of comparable
quality.
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 applicable Sub-Advisor is
incorrect in its expectations of market values, interest rates, or currency
exchange rates, the 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 SEC is presently considering its position with respect
to swaps, caps and floors as senior securities. Pending a determination by the
Staff, the Funds 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 Funds intend 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 Funds and Banc One Investment
Advisors 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 Funds'
Custodian. Each of the Bond Funds generally will limit their investments in
swaps, caps and floors to 25% of its total assets.
TREASURY RECEIPTS
Certain of the Funds 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").
U.S. TREASURY OBLIGATIONS
The Funds 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"). The Funds may also invest in
Inflation Indexed Treasury Obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations purchased by some of the Funds may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes.
VARIABLE AMOUNT MASTER DEMAND NOTES are demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
may demand payment of
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principal and accrued interest. While the notes are not typically rated by
credit rating agencies, issuers of variable amount master demand notes (which
are normally manufacturing, retail, financial, brokerage, investment banking and
other business concerns) must satisfy the same criteria as set forth above for
commercial paper. Banc One Advisers 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.
Some of the Funds subject to their investment objective policies and
restrictions, may acquire VARIABLE AND FLOATING RATE INSTRUMENTS. A variable
rate instrument 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 instrument
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 instrument
are frequently not rated by credit rating agencies; however, unrated variable
and floating rate instruments purchased by a Fund will be determined by Banc One
Investment Advisors or the applicable Sub-Advisor under guidelines established
by the Trust's Board of Trustees to be of comparable quality at the time of
purchase to rated instruments eligible for purchase under the Fund's investment
policies. In making such determinations, Banc One Investment Advisors or the
applicable Sub-Advisor will consider the earning power, cash flow and other
liquidity ratios of the issuers of such instruments (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. There may be no active secondary
market with respect to a particular variable or floating rate instrument
purchased by a Fund. The absence of such an active secondary market, could make
it difficult for the Fund to dispose of the variable or floating rate instrument
involved in the event the issuer of the instrument 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 instruments may be secured by
bank letters of credit or other assets. A 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.
With respect to the Money Market Funds and the Institutional Money
Market Funds, variable or floating rate instruments with stated maturities of
more than 397 days may, under the Securities and Exchange Commission's amortized
cost rule, Rule 2a-7 under the 1940 Act, be deemed to have shorter maturities as
follows:
(1) Adjustable Rate Government Securities. A Government Security which
is a Variable Rate Security where the variable rate of interest is readjusted no
less frequently than every 762 days shall be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate. A
Government Security which is a Floating Rate Security shall be deemed to have a
remaining maturity of one day.
(2) Short-Term Variable Rate Securities. A Variable Rate Security, the
principal amount of which, in accordance with the terms of the security, must
unconditionally be paid in 397 calendar days or less shall be deemed to have
maturity equal to the earlier of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand.
(3) Long-Term Variable Rate Securities. A Variable Rate Security, the
principal amount of which is scheduled to be paid in more than 397 days, that is
subject to a Demand Feature shall be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
(4) Short-Term Floating Rate Securities. A Floating Rate Security, the
principal amount of which, in accordance with the terms of the security, must
unconditionally be paid in 397 calendar days or less shall be deemed to have a
maturity of one day.
(5) Long-Term Floating Rate Securities. A Floating Rate Security, the
principal amount of which is scheduled to be paid in more than 397 days, that is
subject to a demand feature, shall be deemed to have a maturity equal to the
period remaining until the principal amount can be recovered through demand.
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As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on no
more than thirty days' notice or at specified intervals not exceeding 397
calendar days and upon no more than 30 days notice.
LIMITATIONS ON THE USE OF VARIABLE AND FLOATING RATE NOTES. Variable
and floating rate instruments 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 10% (with respect to the Money Market and
Institutional Money Market Funds) or 15% (with respect to all Funds, other than
the Money Market and Institutional Money Market Funds, which can purchase such
notes) of the Fund's net assets only if such instruments 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 instruments that are not illiquid. If not rated, such
instruments must be found by Banc One Investment Advisors or the Sub-Advisor,
under guidelines established by the Trust's Board of Trustees, to be of
comparable quality to instruments that are rated high quality. A rating may be
relied upon only if it is provided by a nationally recognized statistical rating
organization that is not affiliated with the issuer or guarantor of the
instruments. For a description of the rating symbols of S&P, Moody's, and Fitch
used in this paragraph, see the Appendix. 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.
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.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Some Funds may purchase securities on a "when-issued" and forward
commitment basis. When a 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 Funds may purchase securities on a
when-issued basis when deemed by Banc One Investment Advisors or the applicable
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 Funds 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 Banc One Investment Advisors
or the applicable Sub- Advisor purchases a when-issued security, the Custodian
will set aside cash or liquid securities to satisfy the purchase commitment. In
such a case, a 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. The Fund's net assets may
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. In addition, when a Fund
engages in "when-issued" transactions, it relies on the seller to consummate the
trade. Failure of the seller to do so may result in the Fund's incurring a loss
or missing the opportunity to obtain a price considered to be advantageous.
In a forward commitment transaction, the Funds contract to purchase
securities for a fixed price at a future date beyond customary settlement time.
The Funds are 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 Funds 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.
Limitations on the Use of When Issued Securities and Forward
Commitments. No Fund intends to purchase "when-issued" securities for
speculative purposes but only for the purpose of acquiring portfolio securities.
Because a 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 Prospectuses, be affected in the event
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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. A Fund may dispose of a when-issued security
or forward commitment prior to settlement if Banc One Investment Advisors or the
applicable Sub- Advisor deems it appropriate to do so.
INVESTMENT RESTRICTIONS
The following investment restrictions are FUNDAMENTAL and may be
changed with respect to a particular Fund only by a vote of a majority of the
outstanding Shares of that Fund. See "ADDITIONAL INFORMATION-- Miscellaneous" in
this Statement of Additional Information.
Each of the Equity Funds 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 a Fund's investment objective and policies, repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of a Fund would be invested in the securities of such issuer or a Fund
would own more than 10% of the outstanding voting securities of such issuer.
This restriction applies to 75% of a Fund's assets. With respect to The One
Group Equity Index Fund, no more than 10% of the Fund's assets may be invested
in securities issued or guaranteed by the United States, its agencies or
instrumentalities. 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.
2. Purchase any securities that would cause more than 25% of the total
assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this information 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 a 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.
Each of the Bond Funds 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 a Fund's investment objective and policies, repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of a Fund would be invested in the securities of such issuer or a Fund
would own more than 10% of the outstanding voting securities of such issuer.
This restriction applies to 75% of a 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.
2. Purchase any securities that would cause more than 25% of the total
assets of a 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.
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3. Make loans, except that a 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.
Each of the Fund of Funds may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities, securities
of regulated investment companies, and, if consistent with a Fund's investment
objective and policies, repurchase agreements involving such securities) if as a
result more than 5% of the total assets of a Fund would be invested in the
securities of such issuer or a Fund would own more than 10% of the outstanding
voting securities of such issuer. This restriction applies to 75% of a 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.
2. Purchase any securities that would cause more than 25% of the total
assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, except for
investments in funds of the One Group, provided that this limitation does not
apply to investments in obligations issued or guaranteed by the U.S. government
or its agencies and instrumentalities and repurchase agreements involving such
services. 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 a 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.
Each of the Money Market Funds 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 a Fund would be invested in the securities of such issuer or a Fund
would own more than 10% of the outstanding voting securities of such issuer,
provided, however, that a Fund may invest up to 25% of its total assets without
regard to this restriction as permitted by applicable law and also provided that
with respect to the Ohio Municipal Money Market Fund, as to 50% of such Fund's
assets, the Fund may invest up to 25% of its assets in the securities of a
single issuer. With respect to remaining 50% of its total assets, the Ohio
Municipal Money Market Fund may not purchase the securities of any issuer if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. 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
nongovernmental user, such user would be considered the issuer.
2. Purchase any securities that would cause more than 25% of the total
assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry. With
respect to the Prime Money Market Fund, (i) that this limitation does not apply
to investments in the obligations issued or guaranteed by the U.S. government or
its agencies and instrumentalities, domestic bank certificates of deposit or
bankers' acceptance and repurchase agreements involving such securities; (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; and (iii) utilities will be divided according to
their services (for example, gas, gas transmission, electric and telephone will
each be considered a separate industry.) With respect to the Prime Money Market
Fund and the Ohio Municipal Money Market Fund, the Municipal Money Market Fund,
this limitation shall not apply to Municipal Securities or governmental
guarantees of Municipal Securities; and further provided, that for the purposes
of this limitation only, private activity bonds that are backed only by the
assets and revenues of a non-governmental user shall not be deemed to be Ohio
Municipal Securities for purposes of the Ohio Municipal Money Market Fund nor
Municipal Securities for purposes of the Prime Money Market Fund and the
Municipal Money Market Fund.
41
<PAGE> 45
3. Make loans, except that a 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.
With respect to the Institutional Money Market Funds:
The Treasury Only Money Market Fund may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
U.S. obligations issued or guaranteed by the U.S. Treasury.
2. Invest in any securities subject to repurchase agreements.
The Government Money Market Fund may not:
1. Purchase securities other than those issued or guaranteed by the
U.S. government or its agencies or instrumentalities, some of which may be
subject to repurchase agreements.
Each of the Institutional Money Market Funds may not:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks for temporary purposes in amounts up to 10% of the value of
the Fund's 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 respective Fund's total assets at the time of its borrowing.
2. Purchase securities while borrowings (including reverse repurchase
agreements) exceed 5% of the respective Fund's net assets.
3. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and, if
consistent with such 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; provided, however, that a Fund may invest up to 25% of its total assets
without regard to this restriction as permitted by applicable law. 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.
With respect to the Municipal Bond Funds:
The Intermediate Tax-Free Bond Fund and the Municipal Income 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 a Fund's investment objective and policies, repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of a Fund would be invested in the securities of such issuer or a Fund
would own more than 10% of the outstanding voting securities of such issuer.
This restriction applies to 75% of a 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.
2. Purchase any securities that would cause more than 25% of the total
assets of a 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 Municipal Securities or governmental
guarantees of Municipal Securities, and with respect to the Municipal Income
Fund, housing authority obligations. 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.
42
<PAGE> 46
The Arizona Municipal Bond Fund, the West Virginia Municipal Bond, the
Louisiana Municipal Bond Fund, The Ohio Municipal Bond Fund, and the Kentucky
Municipal Bond 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 a Fund's investment objective and policies, repurchase
agreements involving such securities) if as a result more than 25% of the total
assets of a Fund would be invested in the securities of such issuer. This
restriction applies to 50% of a Fund's assets. With respect to the remaining 50%
of its total assets, a Fund may not purchase the securities of any issuer if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such Issuer. 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.
2. Purchase any securities (i) that would cause more than 25% of the
total assets of a 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 obligations issued or
guaranteed by the U.S. government or its agencies and instrumentalities and
repurchase agreements involving such securities; and (ii) this limitation does
not apply to Municipal Securities or Ohio Municipal Securities, Kentucky
Municipal Securities, Arizona Municipal Securities, West Virginia Municipal
Securities, and Louisiana Municipal 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. In addition, with respect to the
Arizona Municipal Bond Fund and the West Virginia Municipal Bond Fund, for
purposes of this limitation only, private activity bonds that are backed only by
the assets and revenues of a non-governmental issued shall not be deemed to be
Municipal Securities or Arizona Municipal Securities (for the Arizona Municipal
Bond Fund) or West Virginia Securities (for the West Virginia Municipal Bond
Fund).
None of the Municipal Bond Funds may:
1. Make loans, except that a 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 this Prospectus and in the Statement of Additional Information.
None of the Funds may:
1. Purchase securities on margin, sell securities short, or
participate in a joint or joint and several basis in any securities trading
account, except, in the case of the Municipal Bond Funds, for use of short-term
credit necessary for clearance of purchases of portfolio securities.
2. Underwrite the securities of other issuers except to the extent
that a Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities."
3. Purchase or sell commodities or commodity contracts (including
futures contracts), except that for bona fide hedging and other permissible
purposes: (i) the Equity, Bond and International Equity Index Fund may purchase
or sell financial futures contracts and (except for the Treasury & Agency Fund)
may purchase call or put options on financial futures contracts, and (ii) the
International Equity Index Fund may purchase or sell foreign currency futures
contracts and foreign currency forward contracts, and may purchase put or call
options on foreign currency futures contracts and on foreign currencies on
appropriate U.S. exchanges, and may purchase or sell foreign currency on a spot
basis.
4. Except for the Treasury & Agency Fund, purchase participation or
other direct interests in oil, gas or mineral exploration or development
programs (although investments by all Funds other than the U.S. Treasury
Securities Money Market, Treasury Money Market, Treasury Only Money Market and
Government Money Market Fund in marketable securities of companies engaged in
such activities are not hereby precluded).
5. Invest in any issuer for purposes of exercising control or
management.
6. Purchase securities of other investment companies except as
permitted by the 1940 Act and rules, regulations and applicable exemptive relief
thereunder.
43
<PAGE> 47
7. Purchase or sell real estate (however, each Fund except the Money
Market Funds 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).
8. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of its borrowing. A Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
In addition, the U.S. Treasury Securities Money Market, the Prime Money
Market and the Institutional Money Market Funds may not:
1. Buy common stocks or voting securities.
In addition, the U.S. Treasury Securities Money Market Fund, the Prime
Money Market Fund and the Government Money Market Fund may not
1. Buy state, municipal, or private activity bonds.
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.
No Fund may:
1. Invest in illiquid securities in an amount exceeding, in the
aggregate 15% of the Fund's net assets (10% of net assets for a Fund that is a
Money Market Fund). 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. (This restriction is fundamental with respect to the
Ohio Municipal Money Market Fund.)
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, other than the Investor Growth Fund, the Investor
Growth & Income Fund, the Investor Conservative Growth Fund, the Investor
Balanced Fund, the Investor Aggressive Growth Fund, and the Investor Fixed
Income Fund.
The foregoing percentages apply at the time of purchase of a security.
Banc One Investment Advisors or the applicable Sub-Advisor shall report to the
Board of Trustees promptly if any of a Fund's investments are no longer
determined to be liquid or if the market value of Fund assets has changed if
such determination or change causes a Fund to hold more than 15% (10% in the
case of a Fund that is a Money Market Fund) 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 Trust, unless Banc One Investment Advisors or
the applicable 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% (or 10% in the case of a Fund that is a Money Market Fund) of its net
assets.
Additionally, although not a matter controlled by their fundamental
investment restrictions, so long as their shares are registered under the
securities laws of the State of Texas, the Prime Money Market Fund and the Ohio
Municipal Money Market Fund will: (i) limit their investments in other
investment companies to no more than 10% of each Funds total asset; (ii) invest
only in other investment companies with substantially similar investment
objectives; and (iii) invest only in other investment companies with charges and
fees substantially similar to those set forth in paragraph (3) and (4) of
Section 123.3 of the Texas State Statute, not to exceed .25% in 12b-1 and no
other commission or other remuneration is paid or given directly or indirectly
for soliciting any security holder in Texas.
In addition, the Intermediate Tax-Free Bond Fund will not invest more
than 25% of its assets in municipal securities that are related in such a way
that a political, economic or business development affecting one security will
also affect other municipal securities.
44
<PAGE> 48
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is 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.
Thus, for regulatory purposes, the portfolio turnovers with respect to the Money
Market Funds were zero for the period from the commencement of their respective
operations to June 30, 1998 and are expected to remain zero, and the portfolio
turnover rate with respect to the Institutional Money Market Funds is expected
to be zero.
The portfolio turnover rates of the Funds for the fiscal years ended
June 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
THE ONE GROUP PORTFOLIO TURNOVER
FISCAL YEAR ENDED
JUNE 30,
--------
FUND 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Securities Money Market 0%** 0%**
Prime Money Market 0%** 0%**
Municipal Money Market 0%** 0%**
Ohio Municipal Money Market 0%** 0%**
Income Equity 14.68% 28.18%
Disciplined Value 106.41% 92.66%
Growth Opportunities 158.43% 301.35%
Equity Index 4.32% 5.81%
Large Company Value 47.35% 77.05%
Asset Allocation 46.04% 80.96%
International Equity Index 9.90% 9.61%
Large Company Growth 117.34% 57.17%
Income Bond 30.83% 55.18%
Limited Volatility Bond 56.99% 66.61%
Intermediate Tax-Free Bond 109.03% 86.89%
Municipal Income 69.76% 62.83%
Ohio Municipal Bond 10.49% 7.45%
Government Bond 91.49% 60.53%
Ultra Short-Term Income 41.15% 70.36%
Intermediate Bond 60.08% 55.91%
Treasury Only Money Market 0%** 0%**
Government Money Market 0%** 0%**
Kentucky Municipal Bond NA* 13.30%
Institutional Prime Money Market NA* NA+
Treasury Money Market NA* NA+
Tax-Exempt Money Market NA* NA+
Arizona Municipal Bond 20.89% 5.66%***
Texas Tax-Free Bond NA* NA+
W. Virginia Municipal Bond 16.69% 6.21%***
Louisiana Municipal Bond 12.03% 17.39%
Value Growth 62.37% 113.17%
Small Capitalization 83.77% 92.01%
Investor Growth 4.05% 18.49%++
Investor Growth & Income 11.38% 18.07%++
Investor Aggressive Growth NA* NA+
Investor Conservative Growth 3.22% 28.46%++
Investor Balanced 9.71% 12.20%++
Investor Fixed Income NA* NA+
High Yield Bond NA* NA+
Treasury & Agency 41.60% 54.44%***
<FN>
* As of June 30, 1998, the Fund had not commenced operations.
</TABLE>
45
<PAGE> 49
** Turnover rate is not applicable to money market funds.
*** Portfolio turnover rate for the period January 20, 1997 through June
30, 1997.
+ As of June 30, 1997, the Fund had not commenced operations.
++ Portfolio turnover rate for the period December 10, 1996 through June
30, 1997.
Some of the Funds listed above had portfolio turnover rates in excess
of 100%. This means that these Funds sold and replaced over 100% of their
investments. The high portfolio turnover rates for the fiscal year ended June
30, 1997 and June 30, 1998 for these Funds resulted from various factors,
including some or all of the following: investment strategies, unusually high
market volatility and significant growth of the Funds. Higher portfolio turnover
rates will likely result in higher transaction costs to the Funds and may result
in additional tax consequences to Shareholders. To the extent portfolio turnover
results in short-term capital gains, such gains will generally be taxed at
ordinary income tax rates. 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. Portfolio turnover will not be a
limiting factor in making portfolio decisions.
ADDITIONAL TAX INFORMATION CONCERNING ALL FUNDS
Each 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 each Fund of the Trust to meet the requirements necessary to qualify as a
"regulated investment company" under Subchapter M of the Code. By following such
policy, each 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, each 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, and (2)
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, U.S. 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 U.S. 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 limit the range of the Fund's investments. If a 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. Each Fund of the Trust
intends to make sufficient distributions to Shareholders to qualify for this
special tax treatment.
If a Fund failed 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, a 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. Each Fund of the Trust
intends to make sufficient distributions to avoid liability for the excise tax.
46
<PAGE> 50
Shareholders of the Funds will generally be subject to federal income
tax on distributions received from the Funds. 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 a Fund as capital gain
dividends will generally be taxable to a Shareholder receiving such
distributions as long-term capital gain (generally taxed at a 20% tax rate for
non-corporate shareholders) regardless of how long the Shareholder has held its
shares. Some 1998 distributions of gains realized in 1997 may be subject to tax
at a 28% tax rate. Distributions in excess of a 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 (generally taxed at a 20% tax rate for non-corporate
shareholders), 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. Dividends and distributions
on a Fund's shares are generally subject to federal income tax as described
herein to the extent they do not exceed the Fund's realized income and gains,
even though such dividends and distributions may economically represent a return
of a particular shareholder's investment. Such distributions are likely to occur
in respect of shares purchased at a time when the Fund's net asset value
reflects gains that are either unrealized, or realized but not distributed.
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 Funds, including
transactions in options, futures contracts, hedging transactions, forward
contracts, straddles, swaps, short sales, foreign currencies, and foreign
securities will be subject to special tax rules (including mark-to-market,
constructive sale, straddle, wash sale and short sale 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 long-term
capital gains into short-term capital gains, 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 Funds (such as STRIPS, CUBES, TRS,
TIGRS, and CATS), as defined in "Details About the Funds' Investment Practices
and Policies" in the Funds' Prospectuses, 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. 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 Banc One Investment Advisors would not otherwise have chosen to sell
such securities and may result in a taxable gain or loss.
A 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.
47
<PAGE> 51
The Internal Revenue Service recently revised its regulations affecting
the application to foreign investors of the back-up withholding and withholding
tax rules described above. The new regulations will generally be effective for
payments made after December 31, 1999 (although transition rules will apply). In
some circumstances, the new rules will increase the certification and filing
requirements imposed on foreign investors in order to qualify for exemption from
the 31% back-up withholding tax and for reduced withholding tax rates under
income tax treaties. Foreign investors in a Fund should consult their tax
advisors with respect to the potential application of these new regulations. 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. Further tax
information regarding the Tax-Advantaged Funds and the International Equity
Index Fund is included in following sections of this Statement of Additional
Information. No attempt is made to present herein a complete explanation of the
federal income tax treatment of each Fund or its Shareholders, and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, prospective purchasers of Shares of a Fund 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.
The foregoing discussion and the discussion below regarding the
Tax-Advantaged Funds and the International Funds are based on tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, and such changes may be retroactive.
ADDITIONAL TAX INFORMATION CONCERNING THE TAX-ADVANTAGED FUNDS
The Code permits a regulated investment company which has invested, at
the close of each quarter of its taxable year, at least 50% of its total assets
in tax-free Municipal Securities and other securities the interest on which is
exempt from the regular federal income tax to pay exempt-interest dividends to
its Shareholders.
The policy of each Tax-Advantaged Fund is to distribute each year as
exempt-interest dividends substantially all the Fund's net exempt interest
income. An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by a Tax-Advantaged Fund and designated as an
exempt-interest dividend in a written notice mailed to Shareholders after the
close of the Fund's taxable year, which does not exceed, in the aggregate, the
net interest income from Municipal Securities and other securities the interest
on which is exempt from the regular federal income tax received by the Fund
during the taxable year. The percentage of the total dividends paid for any
taxable year which qualifies as federal exempt-interest dividends will be the
same for all Shareholders receiving dividends from a Tax-Advantaged Fund during
such year, regardless of the period for which the Shares were held.
Exempt-interest dividends may generally be treated by a Tax-Advantaged
Fund's Shareholders as items of interest excludable from their gross income
under Section 103(a) of the Code. However, each Shareholder of a Tax-Free Fund
is advised to consult his or her tax advisor with respect to whether such
Shareholder may be treated as a "SUBSTANTIAL USER" or a "RELATED PERSON" to such
user under Section 147(a) of the Code with respect to facilities financed
through any of the tax-exempt obligations held by the Fund. "Substantial user"
is defined under U.S. Treasury Regulations to include a non-exempt person who
regularly uses a part of such facilities in his trade or business and (a)(i)
whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities or (ii) who occupies more than 5% of the usable area of the
facility or (b) for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired.
"RELATED PERSONS" includes certain related natural persons, affiliated
corporations, partners and partnerships.
Dividends attributable to interest on certain private activity bonds
issued after August 7, 1986 must be taken into account in determining
alternative minimum taxable income for purposes of determining liability (if
any) for the alternative minimum tax applicable to individuals and the
alternative minimum tax applicable to corporations. In the case of corporations,
all tax-exempt interest dividends will be taken into account in determining
adjusted current earnings for the purpose of computing the alternative minimum
tax imposed on corporations (as defined for federal income tax purposes).
Current Federal law limits the types and volume of bonds qualifying for
Federal income tax exemption of interest, which may have an effect on the
ability of the Funds to purchase sufficient amounts of tax exempt securities to
satisfy the Code's requirements for the payment of "exempt-interest" dividends.
48
<PAGE> 52
Each Tax-Advantaged Fund may at times purchase Municipal Securities (or
other securities the interest on which is exempt from the regular federal income
tax) at a discount from the price at which they were originally issued. For
federal income tax purposes, some or all of the market discount will be included
in the Fund's ordinary income and will be taxable to shareholders as such when
it is distributed to them.
Each Tax-Advantaged Fund may acquire rights regarding specified
portfolio securities under puts. See "Futures and Options Trading." The policy
of each Tax-Free Fund is to limit its acquisition of puts to those under which
the Fund will be treated for federal income tax purposes as the owner of the
Municipal Securities acquired subject to the put and the interest on the
Municipal Securities will be tax-exempt to the Fund. Although the Internal
Revenue Service has issued a published ruling that provides some guidance
regarding the tax consequences of the purchase of puts, there is currently no
guidance available from the Internal Revenue Service that definitively
establishes the tax consequences of many of the types of puts that the Funds
could acquire under the 1940 Act. Therefore, although a Tax-Advantaged Fund will
only acquire a put after concluding that it will have the tax consequences
described above, the Internal Revenue Service could reach a different conclusion
from that of the Fund.
Following is a brief discussion of treatment of exempt-interest
dividends by certain states.
Arizona Taxes. Shareholders of the Arizona Municipal Bond Fund will not
be subject to Arizona income tax on exempt-interest dividends received from the
Fund to the extent that such dividends are attributable to interest on
tax-exempt obligations of the state of Arizona and its political subdivisions
("Local Obligations"). Interest from Local Obligations however, may be
includable in Federal gross income.
Kentucky Taxes. Fund shares are currently exempt from the Kentucky tax
on intangible property. The Kentucky Supreme Court recently held that corporate
shares are not subject to the Kentucky intangible property tax because of an
exemption for shares of certain corporations with in-state activities which the
Court held to violate the Commerce Clause of the U.S. Constitution. The Kentucky
Revenue Cabinet has announced that, in light of the ruling, it will not, as a
matter of policy, require that the Kentucky intangible property tax be paid on
any portion of the value of shares of any mutual fund. Previously the Cabinet
had required owners of shares of mutual funds to pay tax on the portion of their
share value representing underlying fund assets not exempt from the tax. The
Cabinet could change this policy in the future. The Kentucky General Assembly
could re-enact the intangible tax on corporate shares and other similar
securities without the exemption found objectionable by the Court. There is no
assurance that the Fund shares will remain free from the Kentucky intangible
property tax.
West Virginia Taxes. Shareholders may reduce their West Virginia
adjusted gross income ("AGI") for that portion of the interest or dividends they
receive which represents interest or dividends of the Fund on obligations or
securities of any authority, commission or instrumentality of West Virginia that
is exempt from the West Virginia personal income tax by Federal or West Virginia
law. Shareholders may also reduce their West Virginia AGI for that portion of
interest or dividends received from the Fund derived from obligations of the
United States and from obligations or securities of some authorities,
commissions or instrumentalities of the United States.
However, shareholders cannot reduce their West Virginia AGI for any
portion of interest or dividends received from the Fund derived from income on
obligations of any state, or political subdivision thereof, other than West
Virginia, regardless of any Federal law exemption, such as that accorded
"exempt-interest dividends;" and they must increase their West Virginia AGI by
the amount of such interest or dividend income. Also, a shareholder must
increase his West Virginia AGI by interest on indebtedness incurred (directly or
indirectly) to purchase or hold shares of the Fund to the extent such interest
was deductible in determining Federal AGI. The sale, exchange, or redemption of
Fund shares is subject to the West Virginia income tax to the extent the gain or
loss therefrom affects the determination of the shareholder's Federal AGI.
The foregoing is only a summary of some of the important tax
considerations generally affecting purchasers of Shares of a Tax-Advantaged
Fund. Additional tax information concerning all Funds of the Trust is contained
in the immediately preceding section of this Statement of Additional
Information. No attempt is made to present a complete explanation of the state
income tax treatment of each Tax-Advantaged Fund or its Shareholders, and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, prospective purchasers of Shares of a Tax-Advantaged Fund are urged
to consult their tax advisors with specific reference to their own tax
situation, including the potential application of state, local and foreign
taxes.
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<PAGE> 53
ADDITIONAL TAX INFORMATION CONCERNING THE INTERNATIONAL EQUITY INDEX FUND
Transactions of the International Equity Index Fund in foreign
currencies, foreign currency denominated debt securities and certain foreign
currency options, future contracts and forward contracts (and similar
instruments) may result in ordinary income or loss to the Fund for federal
income tax purposes which will be taxable to the Shareholders as such when it is
distributed to them.
Gains from foreign currencies (including foreign currency options,
foreign currency futures and foreign currency forward contracts) will (under
regulations to be issued) constitute qualifying income for purposes of the 90%
test only to the extent that they are directly related to the trust's business
of investing in stock or securities.
Investment by the International Equity Index Fund in certain "passive
foreign investment companies" could subject the Fund to a U.S. federal income
tax or other charge on proceeds from the sale of its investment in such a
company or other distributions from such a company, which tax cannot be
eliminated by making distributions to Shareholders of the International Equity
Index Fund. If the International Equity Index Fund elects to treat a passive
foreign investment company as a "qualified electing fund," different rules would
apply, although the International Equity Index Fund does not expect to make such
an election. Rather, the Fund intends to avoid such tax or other charge by
making an election to mark gains (and to a limited extent, losses) from such
investments to market annually.
FOREIGN TAX CREDIT
If more than 50% of the International Equity Index Fund's total assets
at year end consist of the debt and equity securities of foreign corporations,
the Fund may elect to permit its Shareholders who are U.S. citizens to claim a
foreign tax credit or deduction on their U.S. income tax returns for their pro
rata share of foreign taxes paid by the Fund. In that case, Shareholders will be
required to include in gross income their pro rata share of foreign taxes paid
by the Fund. Each Shareholder may then claim a foreign tax credit or a tax
deduction that would offset some or all of the increased tax liability.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the Shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, the source of the income to the
International Equity Index Fund flows through to the Fund's Shareholders. In
addition, no credit will be allowed for foreign taxes paid in respect of any
dividend on stock paid or accrued after September 4, 1997 unless the stock was
held (without protection from risk of loss) for at least 16 days during the
30-day period beginning 15 days before the ex-dividend date. For certain
preferred stock the holding period is 46 days during the 90-day period beginning
45 days before the ex-dividend date. This means that (i) Shareholders not
satisfying this holding period requirement may not claim foreign tax credits in
respect of their shares, and (ii) the Fund may not "flow through" tax credits to
Shareholders in respect of dividends on stock that the Fund has not held for the
requisite period. If the Fund makes this election with respect to foreign tax
credits it will notify Shareholders of their proportionate share of foreign
taxes paid, the portion of the distribution that represents foreign source
income, and any amount of such foreign taxes paid which are not creditable
because the Fund did not meet the holding period requirement. Gains to the
International Equity Index Fund from the sale of securities generally will be
treated as derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated debt securities,
receivables and payables, will be treated as ordinary income derived from U.S.
sources. With limited exceptions, the foreign tax credit is allowed to offset
only up to 90% of the alternative minimum tax imposed on corporations and
individuals. Because of these limitations, Shareholders may be unable to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by the International Equity Index Fund.
The foregoing is only a general description of the treatment of foreign
source income or foreign taxes under the United States federal income tax laws.
Because the availability of a credit or deduction depends on the particular
circumstances of each Shareholder, Shareholders are advised to consult their own
tax advisors.
VALUATION
VALUATION OF THE MONEY MARKET AND INSTITUTIONAL MONEY MARKET FUNDS
The Money Market and Institutional Money Market Funds have elected to
use the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940
Act. This involves valuing an instrument at its cost initially and thereafter
assuming a constant amortization to maturity of any discounts or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. This method may
50
<PAGE> 54
result in periods during which value, as determined by amortized cost, is higher
or lower than the price each Fund would receive if it sold the instrument. The
value of securities in the Funds can be expected to vary inversely with changes
in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market and Institutional Money Market
Funds will maintain a dollar-weighted average portfolio maturity appropriate to
their objective of maintaining a stable net asset value per Share, provided that
no Fund will purchase any security with a remaining maturity of more than 397
days (securities subject to repurchase agreements and certain variable or
floating rate instruments may bear longer maturities) nor maintain a
dollar-weighted, average portfolio maturity which exceeds 90 days. The Trust's
Board of Trustees has also undertaken to establish procedures reasonably
designed, taking into account current market conditions and a Fund's investment
objective, to stabilize the net asset value per Share of the Money Market Funds
for purposes of sales and redemptions at $1.00. These procedures include review
by the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per Share of each Fund calculated
by using available market quotations deviates from $1.00 per Share. In the event
such deviation exceeds one half of one percent, the Rule requires that the Board
promptly consider what action, if any, should be initiated. If the Trustees
believe that the extent of any deviation from a Fund's $1.00 amortized cost
price per Share may result in material dilution or other unfair results to new
or existing investors, they will take such steps as they consider appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity, shortening the average portfolio maturity, withholding or reducing
dividends, reducing the number of a Fund's outstanding Shares without monetary
consideration, or utilizing a net asset value per Share determined by using
available market quotations.
VALUATION OF THE EQUITY FUNDS, THE BOND FUNDS AND THE MUNICIPAL BOND FUNDS
Except as noted below, investments of the Equity Funds, Bond Funds, and
Municipal Bond Funds of the Trust 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. Except as noted below, investments of the International
Equity Index Fund in securities the principal market for which is a securities
exchange are valued at the closing mid-market price on that exchange on the day
of computation.
With regard to each of the above-mentioned Funds, 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 either (1) are not readily available or (2) in
the case of the International Equity Index Fund and the High Yield Bond Fund are
determined by Banc One Investment Advisors or the applicable Sub-Advisor to not
accurately reflect their value 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. Mutual fund investments of the Funds of Funds will
be valued at the most recently calculated net asset 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 the Investment 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 each Fund is determined and its Class I, Class A,
Class B, Class C and Service Class Shares are priced as of the times specified
in each Fund's Prospectus. The net asset value per Share of each Fund's Class I,
Class A, Class B, Class C and Service Class Shares is calculated
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<PAGE> 55
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 Class I, Class A, Class B, Class C
and Service Class Shares may differ from each other due to the expense of the
Distribution and Shareholders Services Plan fee applicable to a Fund's Class A,
Class B, Class C and Service Class Shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
All of the classes of Shares in each Fund (other than Service Class
shares in the U.S. Treasury Securities Money Market Fund and the Institutional
Prime Money Market 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.
Class I Shares in a Fund may be purchased, through procedures
established by the Distributor, by institutional investors, including affiliates
of BANK 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. Class I Shares are not available to
Individual Retirement Accounts.
Class A, 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 Class I 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 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.
Service Class Shares are available only in the Prime Money Market and
U.S. Treasury Securities Money Market Funds. This class of shares is available
to broker-dealers, other financial intermediaries, banks and other depository
institutions requiring special administrative and accounting services (e.g.,
sweep processing).
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<PAGE> 56
Exchanges.
The exchange privileges described herein 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.
Class I. Class I Shareholders of a Fund may exchange their Shares for
Class A Shares of the same Fund or for Class A Shares or Class I Shares of
another Fund of the Trust. Class A Shareholders may exchange their Shares for
Class I Shares of a Fund or for Class I or Class A Shares of another Fund or the
Trust, if the Shareholder is eligible to purchase such Shares. If a Class A
Shareholder of the High Yield Bond Fund exchanges his or her Shares within one
year of receipt of the Shares, the Shareholder will be assessed a 2% redemption
fee.
Class A Shares. If a Shareholder seeks to exchange Class A Shares of a
Fund that does not impose a sales charge for Class A Shares of a Fund 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 Class I 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 Class I Shares) purchases Class A
Shares of a Fund, the Shareholder will be subject to Distribution and
Shareholder Services Plan Fees.
Class B Shares. 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
53
<PAGE> 57
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 Shares. 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.
Service Class Shares. Service Class Shareholders may not exchange their
Service Class Shares for Shares of any other class, nor may Shares of any other
class be exchanged for Service Class Shares.
Institutional Money Market Funds. Shares of the Institutional Money
Market Funds may be purchased by commercial and retail institutional investors,
including affiliates of BANK ONE CORPORATION, that have opened an account with
the Transfer Agent either directly or through a Shareholder Servicing Agent, by
persons whose individual net worth, or joint net worth with that person's
spouse, at the time of his or her purchase exceeds $1,000,000, or by persons
whose individual annual income, or joint annual income with that person's
spouse, at the time of his or her purchase exceeds $200,000.
Redemptions
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 SEC has by order permitted such suspension, or
(d) an emergency exists as determined by the SEC.
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<PAGE> 58
MANAGEMENT OF THE TRUST
TRUSTEES & OFFICERS
Overall responsibility for management of the Trust rests with the Board
of Trustees 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, their ages, and principal
occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE WITH THE TRUST DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Peter C. Marshall 56 Trustee From November, 1993 to present,
DCI Marketing, Inc. President, DCI Marketing, Inc.;
2727 W. Good Hope Road from August, 1992 to November, 1993, Vice
Milwaukee, WI 53209 President-Finance and Treasurer,
DCI Marketing, Inc.
Charles I. Post 70 Trustee From July, 1986 to present, has
7615 4th Avenue West been self-employed as a consultant.
Bradenton, FL 34209
John S. Randall 85 Trustee Since 1972, has been self-employed
1840 North Prospect Ave. as a management consultant.
Apt. 419
Milwaukee, WI 53202
Frederick W. Ruebeck 58 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
Robert A. Oden, Jr. 51 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
John F. Finn 51 Trustee Since 1975, President of Garner, Inc.,
President (Wholesale Distributor to the outdoor
Garner, Inc. power equipment industry)
1150 Chesepeake Avenue
Columbus, Ohio 43212
</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 estimated 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, 1998.
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<PAGE> 59
<TABLE>
<CAPTION>
COMPENSATION TABLE(1)
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(2) RETIREMENT COMPLEX(3)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter C. Marshall, $47,500 N/A N/A $50,500
Chairman
Charles I. Post, $45,500 N/A N/A $48,500
Trustee
John S. Randall, $45,500 N/A N/A $48,500
Trustee
Frederick W. Ruebeck, $45,500 N/A N/A $48,500
Trustee
Robert A. Oden, Jr. $46,260 N/A N/A $49,250
Trustee
John F. Finn $ 0 N/A N/A $ 0
Trustee
<FN>
1 Figures are for the Trust's fiscal year ended June 30, 1998.
2 The Trustees may defer all or a part of their compensation payable by
the Trust pursuant to the Deferred Compensation Plan for Trustees of
The One Group (the "PLAN"). Under the Plan, the Trustees may specify
one or more fiduciary class shares of one or more Funds of the Trust
that will be used to measure the performance of a Trustee's deferred
compensation account. A Trustee's deferred compensation account will be
paid at such times as elected by the Trustee subject to certain
mandatory payment provisions in the Plan (e.g., death of a Trustee.)
3 "Fund Complex" comprises the 33 operational funds of The One Group as
well as the 5 funds of The One Group(R) Investment Trust at June 30,
1998.
</TABLE>
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<PAGE> 60
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 and From November, 1997 to present,
The One Group Services Assistant Secretary President, The One Group Services
Company Company; From June, 1995 to
3435 Stelzer Road November, 1997, Officer, The One
Columbus, Ohio 43219 Group Services Company; From
February, 1989 to present, employee
of BISYS Fund Services, Inc. (FKA
Winsbury Company)
William J. Tomko Treasurer From April, 1997 to present, Chief
BISYS Fund Services, Inc. Operating Officer, BISYS Fund
3435 Stelzer Road Services, Inc.; From April, 1987, to
Columbus, Ohio 432191997, April, 1997, employee, BISYS Fund
. Services, Inc.
Charles L. Booth Secretary From February, 1998, to present,
BISYS Fund Services, Inc. Chief Compliance Officer and
3435 Stelzer Road Vice President Fund Administration,
BISYS Fund Services, Inc.; From April,
1988, to February, 1998, employee, 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 to June 1995,
Supervisor, Mutual Fund Legal Department,
Alliance Capital Management.
</TABLE>
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<PAGE> 61
INVESTMENT ADVISOR AND SUB-ADVISORS
Banc One Investment Advisors Corporation
Investment advisory services to each of the Trust's Funds are provided
by Banc One Investment Advisors. Banc One Investment Advisors makes the
investment decisions for the assets of the Funds (except for the International
Equity Index Fund and the High Yield Bond Fund which are sub-advised by Sub-
Advisors). In addition, Banc One Investment Advisors continuously reviews,
supervises and administers the Funds' 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
BANK ONE CORPORATION, a bank holding company incorporated in the state of
Delaware. BANK ONE CORPORATION has affiliate banking organizations in Arizona,
Colorado, Illinois, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma,
Texas, Utah, West Virginia and Wisconsin. In addition, BANK 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.
Banc One Investment Advisors represents a consolidation of the
investment advisory staffs of a number of bank affiliates of BANK 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.
Prior to January 11, 1993, investment advisory services were provided
to the Income Equity, Disciplined Value, Growth Opportunities, and Large Company
Value Funds by Bank One, Milwaukee, NA ("Bank One, Milwaukee"). Prior to January
11, 1993, investment advisory services were provided to the Money Market Funds,
the Institutional Money Market Funds, the Bond Funds, and the Intermediate
Tax-Free Bond Fund by Bank One, Indianapolis, NA ("Bank One, Indianapolis").
Prior to January 11, 1993, investment advisory services were provided to the
International Equity Index, Equity Index, and the Ohio Municipal Bond Funds by
Bank One, Columbus, NA ("Bank One, Columbus"). Prior to January 11, 1993,
investment sub-advisory services were also provided to the Large Company Value
Fund by Bank One, Columbus. Prior to January, 1994, investment advisory services
were provided to the predecessor funds of Intermediate Bond Fund and Large
Company Growth Fund, Sun Eagle Intermediate Fixed Income Fund and Sun Eagle
Equity Growth Fund, respectively, by Bank One, Arizona, NA. Prior to January 20,
1995, investment advisory services were provided to the predecessor Fund of the
Kentucky Municipal Bond Fund, the Trademark Kentucky Municipal Bond Fund, by
Liberty National Bank and Trust Company of Kentucky. Prior to January 2, 1996,
investment advisory services were provided to the predecessor Funds of the
Louisiana Municipal Bond Fund, the Value Growth Fund, and the Small
Capitalization Fund (formerly the Gulf South Growth Fund), formerly Paragon
Louisiana Tax-Free Fund, Paragon Value Growth Fund and Paragon Gulf South Growth
Fund, respectively, by Premier Investment Advisors, LLP.
During the fiscal years ended June 30, 1998, 1997, and 1996, the Funds
of the Trust paid the following investment advisory fees to Banc One Investment
Advisors (except as noted above) and Banc One Investment Advisors voluntarily
waived investment advisory fees as follows:
58
<PAGE> 62
THE ONE GROUP ADVISORY--NET
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
FUND NET WAIVED NET WAIVED NET WAIVED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Money Market $9,337,795 $2,237,340 $5,992,323 $2,742,727 $3,335,123 $2,120,534
Prime Money Market $9,806,764 $1,675,435 $7,824,731 $1,899,772 $5,939,373 $2,662,726
Municipal Money Market $1,491,141 $596,454 $1,241,937 $ 593,593 $1,111,463 $ 930,328
Ohio Municipal Money
Market $252,818 $60,211 $ 231,786 $ 36,034 $ 171,609 $ 114,565
Income Equity $6,571,128 -0- $4,104,562 $ 0 $1,809,128 $ 70,594
Disciplined Value $4,758,742 -0- $4,129,523 $ 0 $3,934,183 $ 61,237
Growth Opportunities $6,492,467 -0- $4,511,169 $ 0 $3,688,445 $ 54,262
Equity Index $992,672 $1,985,360 $ 547,238 $1,094,476 $ 238,008 $ 638,315
Large Company Value $5,638,325 -0- $4,726,413 $ 0 $3,763,553 $ 0
Asset Allocation $1,178,256 $191,626 $ 684,481 $ 142,861 $ 306,083 $ 92,023
International Equity Index $2,373,749 -0- $2,201,616 $ 837 $1,279,277 $ 91,958
Large Company Growth $12,023,999 -0- $7,948,260 $ 0 $5,235,736 $ 245,284
Income Bond $3,382,474 $1,691,244 $2,581,863 $1,290,933 $1,918,010 $1,135,461
Limited Volatility Bond $1,879,523 $1,700,459 $1,830,204 $1,830.204 $1,330,873 $1,450,516
Intermediate Tax-Free Bond $1,904,783 $1,025,646 $1,235,203 $ 776,825 $ 629,789 $ 769,809
Municipal Income $2,184,870 $624,243 $1,314,694 $ 387,974 $ 714,573 $ 387,167
Ohio Municipal Bond $544,952 $517,943 $ 389,001 $ 391,781 $ 257,158 $ 328,794
Government Bond $3,714,960 $80,216 $3,098,420 $ 194,800 $2,182,543 $ 70,159
Ultra Short-Term Income $424,770 $699,133 $ 117,314 $ 342,966 $ 29,293 $ 227,497
Intermediate Bond $2,224,150 $1,726,329 $1,273,126 $1,092,194 $ 612,348 $ 747,012
Treasury Only Money Market $518,513 -0- $ 385,087 $ 0 $ 287,729 $ 0
Government Money Market $1,735,256 -0- $ 848,690 $ 0 $ 612,362 $ 5,166
Kentucky Municipal Bond $469,392 $117,349 $ 270,459 $ 78,137 $ 108,684 $ 132,964
Institutional Prime
Money Market NA ## NA ## NA # NA # NA* NA*
Treasury Money Market NA ## NA ## NA # NA # NA* NA*
Tax-Exempt Money Market NA ## NA ## NA # NA # NA* NA*
Arizona Municipal Bond $1,007,240 $154,639 $390,737+++ $126,415+++ NA* NA*
Texas Tax-Free Bond NA ## NA # NA # NA* NA*
W. Virginia Municipal
Bond $365,585 $103,485 $121,278+++ $66,525+++ NA* NA*
Louisiana Municipal Bond $572,161 $355,668 $ 683,535 $ 394,121$ 207,766++ $ 103,883++
Value Growth $4,485,408 -0- $2,309,475 $ 69,333$ 400,112++ $ 51,948++
Small Capitalization $902,099 -0- $ 699,896 $ 30,410$ 184,391++ $ 25,531++
High Yield Bond NA ## NA ## NA # NA # NA* NA*
Investor Growth $35,565 $21,362 $1,552 $6,244++++ NA* NA*
Investor Growth
& Income $49,435 $17,732 $ 2,046 $8,237++++ NA* NA*
Investor Aggressive Growth NA ## NA ## NA # NA # NA* NA*
Investor Conservative
Growth $4,622 $18,489 $ 683 $2,750++++ NA* NA*
Investor Balanced $53,241 $11,387 $ 3,107 $ 12,503++++ NA* NA*
Investor Fixed Income NA ## NA ## NA # NA # NA* NA*
Treasury & Agency Fund $232,442 $232,443 $ 99,224 $ 99,225+++ NA* NA*
<FN>
## As of June 30, 1998, the Fund had not commenced operations.
# As of June 30, 1997, the Fund had not commenced operations.
* As of June 30, 1996, the Fund had not commenced operations.
++ Fees for the period from December 31, 1995 to June 30, 1996.
+++ Fees for the period from January 20, 1997 to June 30, 1997.
++++ Fees for the period from December 10, 1996 to June 30, 1997.
</TABLE>
59
<PAGE> 63
All investment advisory services are provided to the Funds 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 International Sub-Investment Advisory Agreement and the High
Yield Sub-Investment Advisory Agreement described immediately following,
collectively, the "ADVISORY AND SUB-ADVISORY AGREEMENTS") will continue in
effect as to a particular Fund 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 and International Sub-Advisory Agreements were renewed by the Trust's
Board of Trustees at their quarterly meeting on August 20, 1998. The Advisory
and Sub-Advisory Agreements are terminable as to a particular Fund 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.
Goldman Sachs Asset Management, formerly the investment Sub-Advisor to
the Ultra Short-Term Income Fund, $26,251 in sub-advisory fees from Banc One
Advisors for the fiscal year ended June 30, 1996.
Independence International Associates, Inc.
Independence International Associates, Inc. ("Independence
International") serves as investment Sub-Advisor to the International Equity
Index Fund pursuant to an agreement (the "INTERNATIONAL SUB-INVESTMENT ADVISORY
AGREEMENT") with Banc One Investment Advisors dated January 11, 1993.
Independence International is a wholly-owned subsidiary of John Hancock Asset
Management, Inc. and an indirect, wholly-owned subsidiary of John Hancock Mutual
Life Insurance Company. Boston International Advisors, Inc., the predecessor of
Independence International, received $212,352 in sub-advisory fees from Banc One
Investment Advisors for the fiscal year ended June 30, 1996; $315,098 in
sub-advisory fees from Banc One Investment Advisors for the fiscal year ended
June 30, 1997; and $416,939 in sub-advisory fees from Banc One Investment
Advisors for the fiscal year ended June 30, 1998.
Banc One High Yield Partners, LLC
Banc One High Yield Partners, LLC serves as investment Sub-Advisor to
the High Yield Bond Fund pursuant to an agreement with Banc One Investment
Advisors (the "HIGH YIELD INVESTMENT ADVISORY AGREEMENT"). 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. 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
60
<PAGE> 64
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 BANK 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 applicable Sub-Advisor determine, subject to the
general supervision of the Board of Trustees of the Trust and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by each such Fund and which brokers are to be eligible to
execute its portfolio transactions. Purchases and sales of portfolio securities
with respect to the Money Market Funds, the Bond Funds, the Funds of Funds and
(to a varying degree) the Asset Allocation Fund 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 (but not in the case of
mutual fund shares purchased by the Funds of Funds) 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 Banc One Investment Advisors or the applicable Sub-Advisor 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 applicable
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 applicable
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,
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<PAGE> 65
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 applicable Sub-Advisor and does not reduce the
advisory fees payable to Banc One Investment Advisors or the applicable
Sub-Advisor. Such information may be useful to Banc One Investment Advisors or
the applicable 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 applicable
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 $14,566,893.79.
The Trust 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 BANK ONE CORPORATION subsidiary banks with
respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.
During the Trust's fiscal year ended June 30, 1996, the Trust paid
brokerage commissions to Goldman for brokerage services provided as follows:
<TABLE>
<CAPTION>
FUND COMMISSIONS PAID
<S> <C>
Income Equity $ 5,750
Disciplined Value $ 1,810
Growth Opportunities $11,714
Equity Index $42,243
Large Company Value $10,650
Asset Allocation $ 9,602
Small Capitalization $ 2,265
Value Growth $ 1,647
</TABLE>
During the Trust's fiscal year ended June 30, 1996, the percentage of
the Trust's aggregate brokerage commissions paid to Goldman was 1.26% and the
percentage of the Trust's aggregate dollar amount of transactions involving the
payment of commissions effected through Goldman was 1.47%.
In the fiscal years ended June 30, 1998, 1997, and 1996, each of the
Funds of the Trust that paid brokerage commissions and the amounts paid for each
year were as follows:
THE ONE GROUP BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
- --------------------------------------------------------------------------------
FUND 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Equity $ 331,556 $ 395,450 $ 96,204
Disciplined Value $1,541,217 $1,570,859 $ 613,774
Growth Opportunities $2,455,346 $3,199,337 $2,798,442
Equity Index $ 72,702 $ 162,178 $ 56,155
Large Company Value $ 722,191 $1,378,450 $2,126,632
Asset Allocation $ 154,837 $ 194,187 $ 61,678
International Equity Index $ 514,660 $ 349,010 $ 176,140
Large Company Growth $2,935,851 $1,285,883 $ 596,397
Small Capitalization $ 180,460 $ 194,127 $ 43,039
Value Growth $ 763,394 $1,005,409 $ 224,373
</TABLE>
Investment decisions for each Fund of the Trust are made independently
from those for the other Funds or any other investment company or account
managed by Banc One Investment Advisors or the applicable Sub-Advisor. Any such
other investment company or account may also invest in the same securities as
the Trust. When a purchase or sale of the same security is made at substantially
the same time on behalf of a given Fund and another Fund, investment company or
account (or, in the case of the International Equity Index Fund, another
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 applicable
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<PAGE> 66
Sub-Advisor of the given Fund believes to be equitable to the Fund(s) and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained by a Fund. To the extent permitted by law, Banc One
Investment Advisors and the applicable Sub-Advisor may aggregate the securities
to be sold or purchased by it for a Fund with those to be sold or purchased by
it for other Funds 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 applicable 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 applicable
Sub-Advisor or their parents or subsidiaries or affiliates and, in dealing with
its commercial customers, Banc One Investment Advisors and the applicable
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 each Fund of the Trust 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 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 each Fund it serves and to compute the net
asset value and net income of such Funds on a daily basis, to maintain office
facilities for the Trust, to maintain each such 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 with respect to each such Fund. The Administrator
prepares annual and semi-annual reports to the SEC, prepares federal and State
tax returns, prepares filings with State 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.
Banc One Investment Advisors also serves as Sub-Administrator to each
Fund of the Trust, 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.
The Trust paid fees for administrative services to The One Group
Services Company as Administrator; and to 440 Financial Management, as previous
Administrator of the Trust, for the fiscal years ended June 30, 1998, 1997, and
1996 as follows:
THE ONE GROUP ADMINISTRATOR--NET
<TABLE>
<CAPTION>
THE ONE GROUP FISCAL YEAR ENDED JUNE 30, 1998
SERVICES COMPANY BANC ONE INVESTMENT ADVISORS**
FUND NET WAIVED NET WAIVED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities Money Market $2,892,564 $ 570,303 $1,953,193 $ 0
Prime Money Market $2,909,462 $ 499,662 $1,964,556 $ 0
Municipal Money Market $ 545,873 $ 67,499 $ 363,608 $ 0
Ohio Municipal Money Market $ 57,990 $ 71,908 $ 39,212 $ 0
Income Equity $ 866,925 $ 0 $ 585,415 $ 0
Disciplined Value $ 627,733 $ 0 $ 424,072 $ 0
Growth Opportunities $ 856,657 $ 0 $ 578,193 $ 0
Equity Index $ 593,918 $ 631,314 $ 398,167 $ 0
Large Company Value $ 743,765 $ 0 $ 502,444 $ 0
Asset Allocation $ 93,135 $ 188,687 $ 62,825 $ 0
International Equity Index $ 495,338 $ 0 $ 334,504 $ 0
Large Company Growth $1,589,738 $ 0 $1,070,862 $ 0
Income Bond $ 825,562 $ 0 $ 557,511 $ 0
Limited Volatility Bond $ 582,384 $ 0 $ 393,556 $ 0
Intermediate Tax-Free Bond $ 476,747 $ 0 $ 322,115 $ 0
</TABLE>
63
<PAGE> 67
<TABLE>
<S> <C> <C> <C> <C>
Municipal Income $ 609,675 $ 0 $ 411,186 $ 0
Ohio Municipal Bond $ 172,939 $ 0 $ 116,807 $ 0
Government Bond $ 628,220 $ 326,624 $ 424,114 $ 0
Ultra Short-Term Income $ 0 $ 334,196 $ 0 $ 0
Intermediate Bond $ 642,930 $ 0 $ 433,882 $ 0
Treasury Only Money Market $ 0 $ 0 $ 321,862 $ 0
Government Money Market $ 0 $ 0 $1,084,467 $ 0
Institutional Prime Money Market NA* NA* NA* NA*
Treasury Money Market NA* NA* NA* NA*
Tax-Exempt Money Market NA* NA* NA* NA*
Arizona Municipal Bond $ 235,850 $ 27,440 $ 159,048 $ 0
Kentucky Municipal Bond $ 127,280 $ 0 $ 85,987 $ 0
Texas Tax-Free Bond NA* NA* NA* NA*
W. Virginia Municipal Bond $ 87,100 $ 24,557 $ 58,836 $ 0
Louisiana Municipal Bond $ 150,915 $ 0 $ 102,041 $ 0
Value Growth $ 591,870 $ 0 $ 399,405 $ 0
Small Capitalization $ 96,910 $ 37,328 $ 65,129 $ 0
High Yield Bond NA* NA* NA* NA*
Investor Growth $ 0 $ 113,852 $ 0 $ 0
Investor Growth & Income $ 0 $ 134,333 $ 0 $ 0
Investor Aggressive Growth NA* NA* NA* NA*
Investor Conservative Growth $ 0 $ 46,223 $ 0 $ 0
Investor Balanced $ 0 $ 129,257 $ 0 $ 0
Investor Fixed Income NA* NA* NA* NA*
Treasury & Agency $ 41,644 $ 120,468 $ 27,972 $ 0
</TABLE>
* As of June 30, 1998, the Fund had not commenced operations.
** These fees were paid by The One Group Services Company to Banc One Investment
Advisors pursuant to the Sub-Administration Agreement.
THE ONE GROUP ADMINISTRATOR--NET
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1997
THE ONE GROUP BANC ONE INVESTMENT ADVISORS**
SERVICES -------------------------------
FUND COMPANY NET WAIVED NET WAIVED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $4,041,160 $ 52,457 $ $ 0
Money Market
Prime Money Market $4,325,620 $268,513 $1,666,976 $ 0
Municipal Money Market $ 821,921 $ 45,236 $ 314,733 $ 0
Ohio Municipal Money Market $ 168,236 $ 79,377 $ 107,188 $ 0
Income Equity $ 916,621 $ 0 $ 332,802 $ 0
Disciplined Value $ 922,753 $ 0 $ 334,826 $ 0
Growth Opportunities $1,007,999 $ 0 $ 365,770 $ 0
Equity Index $ 329,854 $574,004 $ 328,342 $ 0
Large Company Value $1,056,104 $ 0 $ 383,222 $ 0
Asset Allocation $ 94,269 $116,194 $ 76,370 $ 0
International Equity Index $ 662,008 $ 0 $ 240,084 $ 0
Large Company Growth $1,775,503 $ 0 $ 644,453 $ 0
Income Bond $1,067,153 $ 0 $ 387,285 $ 0
Limited Volatility Bond $1,008,923 $ 0 $ 366,010 $ 0
Intermediate Tax-Free Bond $ 554,163 $ 0 $ 201,205 $ 0
Municipal Income $ 609,095 $ 16,541 $ 227,031 $ 0
Ohio Municipal Bond $ 213,314 $ 1,857 $ 78,076 $ 0
Government Bond $ 990,039 $220,036 $ 439,098 $ 0
Ultra Short-Term Income $ 60,695 $ 95,720 $ 50,007 $ 0
Intermediate Bond $ 651,480 $ 0 $ 236,534 $ 0
Treasury Only Money Market $ 240,680 $ 0 $ 240,061 $ 0
</TABLE>
64
<PAGE> 68
<TABLE>
<S> <C> <C> <C> <C>
Government Money Market $ 530,431 $ 0 $ 530,415 $ 0
Institutional Prime NA* NA* NA* NA*
Money Market
Treasury Money Market NA* NA* NA* NA*
Tax-Exempt Money Market NA* NA* NA* NA*
Arizona Municipal Bond $ 140,206 $ 49,819 $ 69,221 $ 0
Kentucky Municipal Bond $ 127,957 $ 0 $ 46,478 $ 0
Texas Tax-Free Bond NA* NA* NA* NA*
W. Virginia Municipal Bond $ 58,427 $ 10,580 $ 25,040 $ 0
Louisiana Municipal Bond $ 297,050 $ 0 $ 107,762 $ 0
Value Growth $ 531,250 $ 0 $ 192,876 $ 0
Small Capitalization $ 92,752 $ 70,432 $ 59,214 $ 0
High Yield Bond NA* NA* NA* NA*
Investor Growth $ 15,583 $ 0 $ 0 $ 0
Investor Growth & Income $ 0 $ 20,566 $ 0 $ 0
Investor Aggressive Growth NA* NA* NA* NA*
Investor Conservative Growth $ 0 $ 6,866 $ 0 $ 0
Investor Balanced $ 0 $ 31,220 $ 0 $ 0
Investor Fixed Income NA* NA* NA* NA*
Treasury & Agency $ 13,891 $ 68,143 $ 29,765 $ 0
</TABLE>
* As of June 30, 1997, the Fund had not commenced operations.
** These fees were paid by The One Group Services Company to Banc One
Investment Advisors pursuant to the Sub-Administration Agreement.
65
<PAGE> 69
THE ONE GROUP ADMINISTRATOR--NET
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1996
THE ONE GROUP BANC ONE INVESTMENT ADVISORS**
SERVICES --------------------------------- 440***
FUND COMPANY NET WAIVED NET WAIVED NET WAIVED
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Money Market $1,675,933 $ 23,824 $ 928,127 $ 0 $ 881,386 $ 19,060
Prime Money Market $2,490,499 $ 0 $1,463,271 $ 0 $1,611,838 $ 0
Municipal Money Market $ 504,611 $ 58,625 $ 340,160 $ 0 $ 328,817 $ 82,052
Ohio Municipal Money Market $ 9,933 $ 87,195 $ 53,819 $ 0 $ 22,276 $ 39,800
Income Equity $ 286,663 $ 0 $ 151,456 $ 0 $ 136,804 $ 0
Disciplined Value $ 543,544 $ 0 $ 321,420 $ 0 $ 357,658 $ 0
Growth Opportunities $ 511,634 $ 0 $ 301,050 $ 0 $ 332,353 $ 0
Equity Index $ 219,301 $ 96,276 $ 165,797 $ 0 $ 52,623 $ 119,116
Large Company Value $ 532,314 $ 0 $ 300,440 $ 0 $ 283,851 $ 32,509
Asset Allocation $ 19,184 $ 48,482 $ 33,779 $ 0 $ 22,718 $ 11,794
International Equity Index $ 307,633 $ 0 $ 171,529 $ 0 $ 172,763 $ 0
Large Company Growth $ 778,543 $ 0 $ 441,303 $ 0 $ 457,430 $ 0
Income Bond $ 505,703 $ 0 $ 302,920 $ 0 $ 343,646 $ 186
Limited Volatility Bond $ 471,594 $ 0 $ 275,961 $ 0 $ 301,887 $ 0
Intermediate Tax-Free Bond $ 222,203 $ 0 $ 138,734 $ 0 $ 167,244 $ 0
Municipal Income $ 210,905 $ 43,781 $ 142,512 $ 0 $ 110,442 $ 43,233
Ohio Municipal Bond $ 81,876 $ 15,630 $ 57,825 $ 0 $ 55,179 $ 11,740
Government Bond $ 544,937 $ 6,947 $ 297,480 $ 0 $ 270,620 $ 12,171
Ultra Short-Term Income $ 0 $ 50,706 $ 28,274 $ 0$35,162
Intermediate Bond $ 229,988 $ 0 $ 134,912 $ 0 $ 148,161 $ 0
Treasury Only Money Market $ 113,945 $ 0 $ 179,830 $ 0 $ 65,888 $ 0
Government Money Market $ 232,688 $ 0 $ 385,955 $ 0 $ 153,141 $ 131
Institutional Prime
Money Market NA* NA* NA* NA* NA* NA*
Treasury Money Market NA* NA* NA* NA* NA* NA*
Tax-Exempt Money Market NA* NA* NA* NA* NA* NA*
Arizona Municipal Bond NA* NA* NA* NA* NA* NA*
Kentucky Municipal Bond $ 38,104 $ 1,196 $ 23,883 $ 0 $ 26,310 $ 2,256
Texas Tax-Free Bond NA* NA* NA* NA* NA* NA*
W. Virginia Municipal Bond NA* NA* NA* NA* NA* NA*
Louisiana Municipal Bond $ 86,078 $ 0 $ 31,165+ $ 0 $ 0 $ 0
Value Growth $ 101,245 $ 0 $ 36,656+ $ 0 $ 0 $ 0
Small Capitalization $ 47,011 $ 0 $ 17,021+ $ 0 $ 0 $ 0
High Yield Bond NA* NA* NA* NA* NA* NA*
Investor Growth NA* NA* NA* NA* NA* NA*
Investor Growth & Income NA* NA* NA* NA* NA* NA*
Investor Aggressive Growth NA* NA* NA* NA* NA* NA*
Investor Conservative Growth NA* NA* NA* NA* NA* NA*
Investor Balanced NA* NA* NA* NA* NA* NA*
Investor Fixed Income NA* NA* NA* NA* NA* NA*
Treasury & Agency NA* NA* NA* NA* NA* NA*
</TABLE>
* As of June 30, 1996, the Fund had not commenced operations.
** These were fees paid by The One Group Services Company to Banc One
Investment Advisors pursuant to the Sub-Administration Agreement for
the period from December 1, 1995 through June 30, 1996, and by 440 for
the period June 30, 1995 to December 1, 1995.
*** These were fees paid from July 1, 1995 through early November 30, 1995.
+ These fees were paid from March 26, 1996 through June 30, 1996.
66
<PAGE> 70
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 a particular Trust 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 each Fund of
the Trust 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 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.
During the fiscal year ending June 30, 1998, the distribution fees paid
by the Class A, Class B, Class C and Service Class Shares (formerly Retirement
Class Shares) of the Trust to The One Group Services Company were as follows:
67
<PAGE> 71
THE ONE GROUP DISTRIBUTION FEES PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SERVICE
FUND DISTRIBUTOR CLASS A CLASS B CLASS C CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities
Money Market One Group Ser. $ 1,870,320 $ 1,370 $ 4 -
Prime Money Market One Group Ser. $ 1,336,837 $ 9,530 - -
Municipal Money Market One Group Ser. $ 243,989 - - -
Ohio Municipal Money Market One Group Ser. $ 91,966 - - -
Income Equity One Group Ser. $ 247,834 $ 1,218,721 $ 3,516 -
Disciplined Value One Group Ser. $ 71,119 $ 253,701 - -
Growth Opportunities One Group Ser. $ 168,985 $ 638,750 $ 1,384 -
Equity Index One Group Ser. $ 389,725 $ 2,521,768 $ 5,666 -
Large Company Value One Group Ser. $ 41,564 $ 131,570 - -
Asset Allocation One Group Ser. $ 100,049 $ 738,989 - -
International Equity Index One Group Ser. $ 41,768 $ 113,966 $ 154 -
Large Company Growth One Group Ser. $ 395,550 $ 1,952,771 $ 1,498 -
Income Bond One Group Ser. $ 36,635 $ 123,951 - -
Limited Volatility Bond One Group Ser. $ 44,939 $ 36,337 - -
Intermediate Tax-Free Bond One Group Ser. $ 27,396 $ 40,944 - -
Municipal Income One Group Ser. $ 176,867 $ 413,746 $ 6,903 -
Ohio Municipal Bond One Group Ser. $ 41,056 $ 170,689 - -
Government Bond One Group Ser. $ 82,779 $ 136,972 - -
Ultra Short-Term Income One Group Ser. $ 91,457 $ 25,723 - -
Intermediate Bond One Group Ser. $ 79,016 $ 131,932 $ 2,254 -
Treasury Only Money Market One Group Ser. - - - -
Government Money Market One Group Ser. - - - -
Institutional Prime Money Market* One Group Ser. - - - -
Kentucky Municipal Bond One Group Ser. $ 15,661 $ 32,901 - -
Treasury Money Market* One Group Ser.
Tax-Exempt Money Market* One Group Ser.
Arizona Municipal Bond One Group Ser. $ 3,070 $ 364 - -
Texas Tax-Free Bond* One Group Ser.
W. Virginia Municipal Bond One Group Ser. $ 3,233 $ 13,282 - -
Louisiana Municipal Bond One Group Ser. $ 121,555 $ 38,855 - -
Value Growth One Group Ser. $ 154,965 $ 160,647 $ 1,566 -
Small Capitalization One Group Ser. $ 48,572 $ 55,214 $ 191 -
High Yield Bond* One Group Ser.
Investor Growth One Group Ser. $ 56,780 $ 326,605 $40,419 -
Investor Growth & Income One Group Ser. $ 45,993 $ 391,056 $24,289 -
Investor Aggressive Growth* One Group Ser.
Investor Conservative Growth One Group Ser. $ 12,778 $ 162,370 $19,234 -
Investor Balanced One Group Ser. $ 32,762 $ 296,604 $26,669 -
Investor Fixed Income* One Group Ser.
Treasury & Agency One Group Ser. $ 26,930 $ 29,440 - -
</TABLE>
*These Funds had not commenced operations as of June 30, 1998.
68
<PAGE> 72
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 Funds of the Trust are held by State
Street Bank and Trust Company ("STATE STREET") as Custodian. State Street serves
the respective Funds 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; (ii)
makes receipts and disbursements of money on behalf of each Fund; (iii) collects
and receives all income and other payments and distributions on account of the
Funds' 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 agreements between the
Trust, 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. The Trust intends to select foreign custodians or sub-custodians
to maintain foreign securities of the International Equity Index Fund pursuant
to such rules, following a consideration of a number of factors, including, but
not limited to, the reliability and financial stability of the institution; the
ability of the institution to perform custodial services for the Trust; the
reputation of the institution in its national market; the political and economic
stability of the country in which the institution is located; and the risks of
potential nationalization or expropriation of Trust assets. In addition, the
1940 Act requires that foreign bank sub-custodians, among other things have
Shareholder equity in excess of $200 million, have no lien on the Trust's assets
and maintain adequate and accessible records.
State Street serves as Transfer Agent and Dividend Disbursing Agent for
each 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.
69
<PAGE> 73
EXPERTS
The financial statements of the Trust for the fiscal year ended June
30, 1998 are incorporated by reference into this Statement of Additional
Information, have been audited by PricewaterhouseCoopers LLP, independent
accountants as indicated in their reports with respect thereto, and are
incorporated by reference in reliance upon such reports and on the authority of
such firm as experts in auditing and accounting.
The financial statements for the predecessor funds of the Intermediate
Bond Fund and Large Company Growth Fund, Sun Eagle Intermediate Fixed Income
Fund and Sun Eagle Equity Growth Fund, respectively, for the fiscal year ended
June 30, 1993 and for the period from February 28, 1992 (commencement of
operations of each Fund) to June 30, 1992, were audited by the predecessor
auditors for such Funds.
The financial statements for the predecessor Fund of the Kentucky
Municipal Bond Fund, the Trademark Kentucky Municipal Bond Fund, for the period
from February 1, 1994 to January 19, 1995, and for the period from March 12,
1993 (commencement of operations) to January 31, 1994, were audited by the
predecessor auditors for such Funds.
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 BANK ONE CORPORATION and its
subsidiary banks.
70
<PAGE> 74
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 following:
1. The Prime Money Market Fund;
2. The U.S. Treasury Securities Money Market Fund;
3. The Municipal Money Market Fund;
4. The Ohio Municipal Money Market Fund;
5. The Income Equity Fund;
6. The Disciplined Value Fund;
7. The Growth Opportunities Fund;
8. The Value Growth Fund;
9. The Small Capitalization Fund;
10. The Large Company Value Fund;
11. The Large Company Growth Fund;
12. The International Equity Index Fund;
13. The Equity Index Fund;
14. The Asset Allocation Fund;
15. The Income Bond Fund;
16. The Limited Volatility Bond Fund;
17. The Intermediate Bond Fund;
18. The Government Bond Fund;
19. The Ultra Short-Term Income Fund;
20. The High Yield Bond Fund;
21. The Investor Growth Fund;
22. The Investor Growth & Income Fund;
23. The Investor Aggressive Growth Fund;
24. The Investor Fixed Income Fund;
25. The Investor Conservative Growth Fund;
26. The Investor Balanced Fund;
27. The Municipal Income Fund;
28. The Intermediate Tax-Free Bond Fund;
29. The Ohio Municipal Bond Fund;
30. The Texas Municipal Bond Fund;
31. The West Virginia Municipal Bond Fund;
32. The Kentucky Municipal Bond Fund;
33. The Louisiana Municipal Bond Fund;
34. The Arizona Municipal Bond Fund;
35. The Treasury Money Market Fund;
36. The Treasury Only Money Market Fund;
37. The Government Money Market Fund;
38. The Tax-Exempt Money Market Fund;
39. The Institutional Prime Money Market Fund; and
40. The Treasury & Agency Fund
The Funds of the Trust (other than the Institutional Money Market Funds, and the
Money Market Funds offer shares in four separate classes: Class I 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 Class I Shares, Class A Shares, Class
B Shares, Class C Shares, Class I Shares and Service Class Shares. The
Institutional Money Market Funds
71
<PAGE> 75
offer only a single class of shares. The Municipal Money Market Fund and the
Ohio Municipal Money Market Fund offer Class I, 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 a 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 any general assets not belonging to any
particular Fund 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 affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a Fund will be required in
connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a Fund only if approved
by a majority of the outstanding Shares of such Fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by Shareholders of the Trust voting without regard to
series.
Class A Shares, Class B Shares, Class C Shares and Service Class 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 Funds 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 a 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 a 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 a Fund. This figure
is then "annualized" (multiplied by 365 days and divided by the applicable
number of days in the period).
72
<PAGE> 76
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.
Further information about the performance of each class of the Funds is
contained in the Trust's Annual Report to Shareholders for The One Group, which
may be obtained without charge by calling 1-800-480-4111.
CALCULATION OF PERFORMANCE DATA
The yield for each Money Market Funds, and the Institutional Money
Market Funds was computed with respect to each class of Shares by determining
the percentage net change, excluding capital changes, in the value of an
investment in one Share of the particular class of the Fund over the base
period, and multiplying the net change by 365/7 (or approximately 52 weeks). The
effective yield of each class of each Fund represents a compounding of the yield
by adding 1 to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power equal to 365/7,
and subtracting 1 from the result. No performance data is available with respect
to the Tax-Exempt Money Market, Treasury Money Market, and Institutional Prime
Money Market Fund because those Funds had not commenced operations as of June
30, 1998.
MONEY MARKET FUNDS
<TABLE>
<CAPTION>
CLASS I SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
- ------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Securities 09/09/85 5.12%
Prime 08/01/85 5.22%
Municipal 06/04/87 3.15%
Ohio Municipal(1) 06/09/93 3.21%
CLASS A SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
- ------------------------------------------------------------------------------
U.S. Treasury Securities 02/18/92 4.87%
Prime 02/18/92 4.97%
Municipal 02/18/92 2.90%
Ohio Municipal(1) 01/26/93 2.96%
INSTITUTIONAL SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
- ------------------------------------------------------------------------------
Treasury Only Money 04/16/93
Market 5.04%
Government Money Market 06/14/93 5.56%
CLASS B SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
- ------------------------------------------------------------------------------
U.S. Treasury Securities 11/01/96 4.12%
Prime 11/01/96 4.22%
</TABLE>
(1) A portion of the income may be subject to alternative minimum tax.
73
<PAGE> 77
The tax equivalent yields for the classes of the Municipal Money
Market, Ohio Municipal Money Market, and Tax-Exempt Money Market Funds are
computed by dividing that portion of the Fund's yield (with respect to a
particular class) which is tax-exempt by 1 minus a stated income tax rate and
adding the product to that portion, if any, of the yield of the Fund (with
respect to a particular class) that is not tax-exempt. The tax equivalent yields
for the classes of the Municipal Money Market Funds contained in the following
paragraph were computed based on an assumed effective federal income tax rate of
39.6%. No such data was provided for the Tax-Exempt Money Market Fund because it
had not commenced operations as of June 30, 1997. The tax equivalent effective
yield for the classes of the Municipal Money Market Fund, Ohio Municipal Money
Market Fund, and Tax-Exempt Money Market Funds are computed by dividing that
portion of the effective yield of the Fund (with respect to a particular class)
which is tax-exempt by 1 minus a stated income tax rate and adding the product
to that portion, if any, of the effective yield of the Fund (with respect to a
particular class) that is not tax-exempt.
TAX-EQUIVALENT YIELD
<TABLE>
<CAPTION>
CLASS I 7 DAY
YIELD 28% TAX 39.6% TAX
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Money Market 3.15% 4.38% 5.22%
Ohio Municipal
Money Market 3.21% 4.46% 5.31%
CLASS A SHARES 7 DAY
YIELD 28% TAX 39.6% TAX
- ------------------------------------------------------------------------------
Municipal Money Market 2.49% 4.03% 4.80%
Ohio Municipal
Money Market 2.96% 4.11% 4.90%
</TABLE>
The performance of the funds may be compared in publications to the
performance of various indices and investments (such as other mutual funds) for
which reliable performance data is available, as well as averages, performance
rankings or other information prepared by recognized mutual fund statistical
services, as set forth below.
Performance information showing a 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 regarding the Equity Funds, the Bond Funds, the
Funds of Funds, and the Municipal Bond Funds. 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:
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.
From time to time the tax equivalent 30-day yield of a particular class
of a Municipal Bond Fund may be presented in advertising and sales literature.
The tax equivalent 30-day yield will be computed by dividing that portion of a
Fund's yield (respecting a particular class) which is tax-exempt by 1 minus a
stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund (respecting a particular class) that is not tax-exempt. The
tax equivalent 30-day yields for a Municipal Bond Fund (respecting a particular
class) will, unless otherwise noted, be computed based on an assumed effective
federal income tax rate of 31%. No tax equivalent 30-day yield information is
available for the Texas Municipal Bond Fund.
74
<PAGE> 78
A 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 a 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
a 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.
75
<PAGE> 79
CLASS I SHARES
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Bond(2) 07/02/87 7.97% 6.89% 5.85% 7.63% 7.30% 6.13%
Limited Volatility Bond 09/04/90 6.59% 6.16% 5.41% - 7.03% 5.75%
Intermediate Tax-Free(2) 09/04/90 7.74% 6.96% 5.46% - 6.95% 4.15%
Ohio Municipal Bond(2) 07/02/91 7.13% 6.68% 5.20% - 6.84% 4.19%
Municipal Income(2) 02/09/93 8.09% 7.03% 5.76% - 5.92% 4.76%
Government Bond 02/08/93 10.81% 7.54% 6.27% - 6.48% 5.88%
Ultra Short-Term Income 02/02/93 6.00% 6.25% 5.20% - 5.18% 5.85%
Intermediate Bond 02/28/92 8.71% 7.10% 6.08% - 6.96% 5.90%
Kentucky Municipal Bond(2) 03/12/93 7.11% 6.73% 5.40% - 5.52% 3.91%
Louisiana Municipal Bond(2) 12/29/89 6.62% 6.27% 5.26% - 6.81% 3.90%
West Virginia Municipal
Bond(1),(2) 01/21/97 7.36% 6.43% 5.62% 6.69% 7.39% 4.13%
Arizona Municipal
Bond(2) 01/21/97 6.58% 5.95% 5.28% 7.01% 7.34% 3.82%
Treasury & Agency(1) 01/21/97 7.91% 6.28% 6.30% 7.42% 7.39% 5.37%
</TABLE>
EQUITY FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Disciplined Value 03/02/89 28.27% 22.92% 17.52% - 14.11% 0.77%
Income Equity 07/02/87 23.18% 26.16% 20.21% 16.29% 13.99% 1.27%
Equity Index 07/02/91 29.73% 29.79% 22.58% - 19.64% 1.17%
Large Company Value 03/01/91 21.46% 20.28% 16.88% - 14.68% 1.08%
Growth Opportunities 03/02/89 31.11% 26.11% 19.12% - 18.35% -0.38%
International Equity
Index(3) 10/28/92 9.54% 11.78% 10.93% - 12.84% NA
Asset Allocation 04/05/93 22.12% 18.97% 14.11% - 13.71% 2.70%
Large Company Growth 02/28/92 35.75% 28.48% 22.79% - 19.88% 0.09%
Small Capitalization 07/01/91 23.58% 19.36% 14.55% - 17.10% 0.10%
Value Growth 12/29/89 32.26% 28.33% 19.63% - 17.91% 0.48%
THE ONE GROUP INVESTOR FUNDS
Investor Conservative
Growth 12/10/96 12.73% - - - 12.15% NA
Investor Balanced 12/10/96 17.02% - - - 16.60% NA
Investor Growth & Income 12/10/96 20.34% - - - 20.40% NA
Investor Growth 12/10/96 23.81% - - - 24.49% NA
</TABLE>
76
<PAGE> 80
CLASS A SHARES
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Bond(2) 02/18/92 7.82% 6.63% 5.60% - 6.64% 5.88%
With Sales Charge 3.00% 5.00% 4.63% - 5.87%
Limited Volatility Bond 02/18/92 6.32% 5.88% 5.13% - 5.86% 5.49%
With Sales Charge 3.16% 4.80% 4.49% - 5.35%
Intermediate Tax-Free(2) 02/18/92 7.50% 6.71% 5.22% - 6.08% 3.73%
With Sales Charge 2.70% 5.09% 4.26% - 5.32%
Ohio Municipal Bond(2) 02/18/92 6.87% 6.42% 4.97% - 6.30% 3.94%
With Sales Charge 2.10% 4.80% 4.01% - 5.53%
Municipal Income(2) 02/23/93 7.84% 6.80% 5.57% - 5.67% 4.51%
With Sales Charge 2.94% 5.17% 4.59% - 4.77%
Government Bond 03/05/93 10.54% 7.28% 5.98% - 5.95% 5.63%
With Sales Charge 5.53% 5.65% 5.01% - 5.03%
Ultra Short-Term Income 03/10/93 5.75% 6.05% 4.98% - 4.97% 5.56%
With Sales Charge 2.52% 5.00% 4.34% - 4.37%
Intermediate Bond 11/30/94 8.47% 6.87% - - 8.66% 5.65%
With Sales Charge 3.58% 5.25% - - 7.26%
Kentucky Municipal Bond(2) 01/20/95 6.86% 6.34% 5.17% - 5.30% 3.49%
With Sales Charge 2.06% 4.72% 4.20% - 4.39%
Louisiana Municipal Bond(2) 12/29/89 6.35% 6.07% 5.14% - 6.74% 3.65%
With Sales Charge 1.53% 4.47% 4.18% - 6.17%
West Virginia
Municipal Bond(1,2) 01/21/97 6.98% 6.27% 5.42% 6.45% 7.15% 3.88%
With Sales Charge 2.16% 4.66% 4.45% 5.96% 6.82%
Arizona Municipal
Bond(1,2) 01/21/97 6.30% 5.23% 4.72% 6.60% 6.99% 3.41%
With Sales Charge 1.52% 3.61% 3.76% 6.10% 6.73%
Treasury & Agency(1) 01/21/97 8.10% 6.22% 6.16% 7.21% 7.18% 4.96%
With Sales Charge 4.85% 5.14% 5.53% 6.89% 6.86%
</TABLE>
EQUITY FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Disciplined Value 02/18/92 27.90% 22.58% 17.27% - 15.79% .53%
With Sales Charge 22.13% 20.72% 16.19% - 14.96%
Income Equity 02/18/92 22.91% 25.82% 19.89% - 17.43% .99%
With Sales Charge 17.39% 23.91% 18.79% - 16.59%
Equity Index 02/18/92 29.33% 29.42% 22.29% - 19.44% .93%
With Sales Charge 23.49% 27.45% 21.17% - 18.58%
Large Company Value 02/18/92 21.14% 20.00% 16.66% - 14.00% .82%
With Sales Charge 15.69% 18.16% 15.59% - 13.17%
Growth Opportunities 02/18/92 30.95% 25.88% 18.85% - 15.87% NA
With Sales Charge 25.07% 23.95% 17.76% - 15.03%
International Equity
Index(3) 04/23/93 9.34% 11.60% 10.70% - 10.21% NA
With Sales Charge 4.40% 9.89% 9.68% - 9.23%
Asset Allocation 04/02/93 21.71% 18.64% 13.82% - 13.40% 2.47%
With Sales Charge 16.25% 16.82% 12.78% - 12.41%
Large Company Growth 02/22/94 35.43% 28.01% - - 23.70% NA
</TABLE>
77
<PAGE> 81
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
With Sales Charge 29.33% 26.07% - - 22.39%
Small Capitalization 07/01/91 23.28% 19.14% 14.42% - 17.01% NA
With Sales Charge 17.69% 17.32% 13.37% - 16.25%
Value Growth 12/29/89 31.96% 31.96% 19.48% - 17.82% 0.24%
With Sales Charge 26.04% 26.11% 18.38% - 17.19%
</TABLE>
THE ONE GROUP INVESTOR FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investor Conservative
Growth 12/10/96 12.38% - - - 11.56% NA
With Sales Charge 7.29% - - - 8.31% NA
Investor Balanced 12/10/96 16.62% - - - 16.29% NA
With Sales Charge 11.39% - - - 12.90% NA
Investor Growth & Income 12/10/96 20.18% - - - 20.73% NA
With Sales Charge 14.76% - - - 17.21% NA
Investor Growth 12/10/96 23.44% - - - 23.78% NA
With Sales Charge 17.87% - - - 20.17% NA
</TABLE>
CLASS B SHARES
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Bond(2) 01/14/94 7.13% 5.96% - - 5.07% 5.22%
With Sales Charge 3.13% 5.07% - - 4.70%
Limited Volatility Bond 01/14/94 5.98% 5.33% - - 4.75% 4.99%
With Sales Charge 2.98% 5.03% - - 4.75%
Intermediate Tax-Free(2) 01/14/94 6.81% 6.03% - - 4.28% 3.25%
With Sales Charge 2.81% 5.13% - - 3.89%
Ohio Municipal Bond(2) 01/14/94 6.20% 5.75% - - 4.05% 3.29%
With Sales Charge 2.20% 4.85% - - 3.66%
Municipal Income(2) 01/14/94 7.04% 6.08% - - 4.85% 3.86%
With Sales Charge 3.04% 5.18% - - 4.47%
Government Bond 01/14/94 9.86% 6.61% - - 5.70% 4.98%
With Sales Charge 5.86% 5.72% - - 5.33%
Ultra Short-Term Income 01/14/94 5.32% 5.39% - - 4.66% 5.09%
With Sales Charge 2.32% 5.09% - - 4.66%
Intermediate Bond 11/30/94 7.78% 6.23% - - 7.59% 5.00%
With Sales Charge 3.78% 5.33% - - 6.90%
Kentucky Municipal Bond(2) 03/16/95 6.20% 5.72% - - 6.04% 3.01%
With Sales Charge 2.20% 4.82% - - 5.23%
Louisiana Municipal Bond(2) 09/16/94 5.69% 5.39% - - 5.57% 3.00%
With Sales Charge 1.69% 4.48% - - 4.88%
West Virginia Municipal
Bond(1,2) 01/21/97 6.57% 5.63% 4.76% 5.79 6.47 3.23
With Sales Charge 2.57% 4.73% 4.59% 5.79 6.47
Arizona Municipal Bond(1,2) 01/21/97 2.67% 3.48% 3.41% 5.60 6.13 2.93
With Sales Charge (1.33)% 2.53% 3.24% 5.60 6.13
Treasury & Agency(1) 01/21/97 7.33% 5.60% 5.59% 6.66 6.63 4.62
With Sales Charge 4.33% 5.30% 5.59% 6.66 6.63
</TABLE>
78
<PAGE> 82
EQUITY FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Disciplined Value 01/14/94 26.97% 21.67% - - 16.38% NA
With Sales Charge 22.97% 20.99% - - 16.12%
Income Equity 01/14/94 21.97% 24.92% - - 20.06% .30%
With Sales Charge 17.97% 24.28% - - 19.82%
Equity Index 01/14/94 28.47% 28.43% - - 22.74% .21%
With Sales Charge 24.47% 27.82% - - 22.51%
Large Company Value 01/14/94 20.18% 19.19% - - 16.80% .10%
With Sales Charge 16.18% 18.48% - - 16.54%
Growth Opportunities 01/14/94 29.79% 24.89% - - 18.09% NA
With Sales Charge 25.79% 24.25% - - 17.84%
International Equity
Index(3) 01/14/94 8.48% 10.59% - - 8.53% NA
With Sales Charge 4.48% 9.76% - - 8.19%
Asset Allocation 01/14/94 20.95% 17.84% - - 13.63% 1.73%
With Sales Charge 16.95% 17.12% - - 13.34%
Large Company Growth 01/14/94 34.39% 27.25% - - 22.49% NA
With Sales Charge 30.39% 26.63% - - 22.26%
Small Capitalization 09/09/94 22.24% 18.23% - - 15.88% NA
With Sales Charge 18.24% 17.51% - - 15.35%
Value Growth 09/09/94 30.89% 27.05% - - 23.28% NA
With Sales Charge 26.89% 26.43% - - 22.84%
</TABLE>
THE ONE GROUP INVESTOR FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investor Conservative Growth 12/10/96 11.53% 10.90%
With Sales Charge 7.53% NA NA NA 8.46% NA
Investor Balanced 12/10/96 15.85% 15.67%
With Sales Charge 11.85% NA NA NA 13.28% NA
Investor Growth & Income 12/10/96 19.13% 19.72%
With Sales Charge 15.13% NA NA NA 17.38% NA
Investor Growth 12/10/96 22.52% NA NA NA 23.91% NA
With Sales Charge 18.52% 21.61%
</TABLE>
CLASS C SHARES
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Municipal Income(2)) 11/04/97 - - - - 8.28% 3.86%
With Sales Charge 7.28%
Intermediate Bond 11/04/97 - - - - 8.20% 5.01%
With Sales Charge 7.20%
</TABLE>
79
<PAGE> 83
EQUITY FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Equity 11/04/97 - - - - 16.57% 0.31%
With Sales Charge 15.57%
Equity Index 11/04/97 - - - - 21.07% 0.20%
With Sales Charge 20.07%
Growth Opportunities 11/04/97 - - - - 14.27% NA
With Sales Charge 13.27%
International Equity
Index(3) 11/04/97 - - - - 16.34% NA
With Sales Charge 15.34%
Large Company Growth 11/04/97 - - - - 27.63% NA
With Sales Charge 26.63%
Small Capitalization 11/04/97 - - - - 3.08% NA
With Sales Charge 2.16%
Value Growth 11/04/97 - - - - 20.87% NA
With Sales Charge 19.87%
</TABLE>
80
<PAGE> 84
THE ONE GROUP INVESTOR FUNDS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
- -------------------------------------------------------------
30-DAY
INCEPTION LIFE OF SEC
DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND YIELD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investor Conservative Growth 07/01/97 NA NA NA NA 11.48 NA
With Sales Charge 10.48
Investor Balanced 07/01/97 NA NA NA NA 15.66 NA
With Sales Charge 14.66
Investor Growth & Income 07/01/97 NA NA NA NA 19.08 NA
With Sales Charge 18.08
Investor Growth 07/01/97 NA NA NA NA 22.42 NA
With Sales Charge 21.42
</TABLE>
(1) The quoted performance of these funds ("Mutual Funds") advised by Banc
One Investment Advisors Corporation includes performance of certain
collective trust fund ("Commingled") accounts for periods dating back
to 12/31/83 for the West Virginia Municipal Bond Fund, 11/30/79 the
Arizona Municipal Bond Fund and 4/30/88 for the Treasury & Agency Fund.
Prior to the Mutual Funds commencement of for operations on 1/21/97,
the Commingled accounts were adjusted to reflect the expenses
associated with the Mutual Funds. The Commingled accounts were not
registered with the Securities and Exchange Commission and, therefore,
were not subject to the investment restrictions imposed by law on
registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been
adversely affected.
(2) A portion of the income may be subject to the federal alternative
minimum tax.
(3) Foreign investing involves a greater degree of risk and volatility.
Performance information showing a Fund's and/or particular Class's
distribution rate may be presented from time to time in advertising and sales
literature regarding the Bond Funds and Equity Funds. 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, a 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 a 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 Class I Shares and
Service Class Shares, or a Participating Organization, with regard to Class A
and Class B Shares, will reduce a Fund's effective yield to customers.
Performance data for the Funds through June 30, 1998 (calculated as described
above) is as follows:
The above quoted performance for the Arizona Municipal Bond Fund, the
West Virginia Municipal Bond Fund, and the Treasury & Agency Fund, respectively,
includes the performance for the Arizona Municipal Bond Investment Fund, the
West Virginia Municipal Bond Investment Fund and the Treasury Only Government
Based Investment Trust, common trust funds managed by Banc One Advisors
(collectively the "CIFs"). The quoted performance of these Funds include
performance of the corresponding CIFs for periods dating back to December 31,
1983 for the West Virginia Municipal Bond Fund, November 30, 1979 for the
Arizona Municipal Bond Fund and April 30, 1988 for the Treasury & Agency Fund.
Because the management of the Funds is substantially the same as the CIFs, the
quoted performance of the Funds will include the performance of the CIFs for the
periods prior to January 20, 1997, the effectiveness of the Trust's registration
statement as it relates to the Funds. The quoted performance will be adjusted to
reflect the deduction of estimated current fees of the Funds on a class by class
basis absent any waivers. The CIFs were not registered under the Investment
Company Act of 1940, as amended (the "1940 ACT"), and therefore were not subject
to certain investment restrictions, limitations, and diversification
81
<PAGE> 85
requirements that are imposed by the 1940 Act and the Code. If the CIFs had been
so registered, their performance might have been adversely affected.
In addition, the performance of each class of a 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 a Fund may be compared to other funds or to relevant indices that
may calculate total return without reflecting sales charges; in which case, a
Fund may advertise its total return in the same manner. If reflected, sales
charges would reduce these total return calculations.
The Money Market and Institutional Money Market Funds may quote actual
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 the BANK RATE
MONITOR, and those of corporate and government security price indices of various
durations prepared by Shearson Lehman Brothers, Solomon Brothers, Inc. and the
IBC/Donoghue organization. These indices are not managed for any investment
goals.
The Money Market and Institutional Money Market Funds may also use
comparative performance information computed by and available from certain
industry and general market research and publications, such as Lipper Analytical
Services, Inc.
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 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 EQUITY, BOND AND MUNICIPAL BOND FUNDS AND THE FUNDS OF FUNDS 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 Equity Funds, the Bond Funds, the Municipal Bond Funds and the
Funds of Funds 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.; they 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 BOND FUNDS, THE FUNDS OF FUNDS AND THE ASSET ALLOCATION 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.
82
<PAGE> 86
The Bond Funds, the Funds of Funds and the Asset Allocation 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 Bond Funds, the Funds of Funds and the Asset Allocation 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 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 by
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.
83
<PAGE> 87
As of July 30, 1998, BANK ONE CORPORATION, 100 East Broad Street,
Columbus, Ohio 43271-0152 (an Ohio Corporation) through Bank Subsidiaries,
acting on behalf of their underlying accounts, held of record substantially all
of the Class I Shares of the Trust, and possessed voting or investment
power as follows:
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL
FUND OWNERSHIP
<S> <C>
Large Company Growth Fund 89.34%
Disciplined Value Fund 85.05%
Growth Opportunities Fund 82.72%
Income Bond Fund 87.82%
Intermediate Tax-Free Bond Fund 97.89%
Prime Money Market Fund 49.80%
U.S. Treasury Securities Money Market Fund 18.95%
Municipal Money Market Fund 77.03%
Income Equity Fund 90.92%
Equity Index Fund 81.48%
Large Company Value Fund 88.05%
Ohio Municipal Bond Fund 93.05%
Limited Volatility Bond Fund 89.09%
International Equity Index Fund 88.00%
Asset Allocation Fund 75.60%
Ohio Municipal Money Market Fund 62.73%
Municipal Income 97.25%
Kentucky Municipal Bond Fund 93.13%
Government Bond Fund 87.38%
Ultra Short-Term Income Fund 77.69%
Louisiana Municipal Bond Fund 95.68%
Value Growth Fund 82.83%
Small Capitalization Fund 81.99%
Intermediate Bond Fund 89.78%
Arizona Municipal Bond Fund 94.72%
West Virginia Municipal Bond Fund 98.29%
Investor Growth Fund 65.79%
Investor Growth & Income Fund 76.04%
Investor Balanced Fund 85.31%
Investor Conservative Growth Fund 77.33%
Treasury Only Money Market Fund 18.42%
Government Money Market Fund 10.64%
Treasury & Agency Fund 99.17%
</TABLE>
As a result, BANK ONE CORPORATION may be deemed to be a "controlling
person" of Class I Shares of each of the aforementioned Funds other than
the Treasury Only Money Market Fund and the U.S. Treasury Securities Money
Market Fund, under the Investment Company Act of 1940.
In addition, as of July 30, 1998, the following persons were the
beneficial owners of more than 25% of the outstanding Shares of the following
class of Shares of the following Funds:
84
<PAGE> 88
25% SHAREHOLDERS
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Northern Trust Bank of AZ Ttee Arizona Municipal 33.72% Record
For Thomas A Brand & Rev Trust Bond Fund
PO Box 92956 Class A
Chicago, IL 60675-2956
Carolyn S Ward Arizona Municipal 25.81% Beneficial
James D Ward JT TEN Bond Fund
825 W Annadale Class B
Tucson, AZ 85737-6923
Strafe & Co Arizona Municipal 100.00% Record
Attn Mutual Funds 0393 Bond Fund
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Large Company 30.88% Record
Selma J Berry & Growth Fund
Colin G Berry JTTEN Class C
Church St Station B PO Box 250
New York, NY 10008-0250
Strafe & Co Large Company 90.89% Record
Attn Mutual Funds 0393 Growth Fund
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co Disciplined Value 86.48% Record
Attn Mutual Funds 0393 Fund
100 E Broad Street Class I
Columbus, OH 43215-3607
Banc One Securities Corp FBO Growth 78.53% Record
The One Investment Solution Opportunities Fund
733 Greencrest Dr Class C
Westerville, OH 43081-4903
Strafe & Co Cash Div Cash Growth 84.32% Record
C/O Bank One Trust Co Opportunities Fund
Attn Mutual Fund 0393 Class I
100 E Broad Street
Columbus, OH 43215
Strafe & Co Income Bond Fund 88.91% Record
C/O Bank One Trust Co Class I
Attn Mutual Funds
100 E Broad St
Columbus, OH 43215-3607
</TABLE>
85
<PAGE> 89
<TABLE>
<S> <C> <C> <C>
Strafe & Co Intermediate Tax- 99.52% Record
Attn Mutual Funds Free Fund
100 E Broad St
Columbus, OH 43215-3607 Class I
Dean Witter FBO Prime Money Market Fund 55.38% Record
Banc One Securities Class A
PO Box 250
Church Street Station
New York, NY 10013-0250
BISYS Fund Services Inc Prime Money Market Fund 34.99% Record
Fbo Bank One Corporate Sweep Class A
Attn Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Strafe & Co Prime Money Market Fund 90.15% Record
Bank One Trust Co., NA Class I
Department 0393 S.T.I.F.
Columbus OH 43271-0001
BISYS Fund Services Inc US Treasury Securities 38.66% Record
Fbo Bank One Corporate Sweep Money Market Fund
Attn Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Dean Witter FBO US Treasury Securities 29.27% Record
Banc One Securities Money Market Fund
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
BISYS Fund Services Inc US Treasury Securities 26.40% Record
Fbo Bank One Texas Sweep Money Market Fund
Attn Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
The One Group Services Company US Treasury Securities 86.96% Beneficial
C/O Fund Administration Money Market Fund
3435 Stelzer Road Class C
Columbus OH 43219-6004
Strafe & Co (N) US Treasury Securities 80.94% Record
Bank One Ohio Trust Co., NA Money Market Fund
Department 0393 S.T.I.F. Class I
Columbus OH 43271-0001
Dean Witter FBO Municipal Money Market 58.27% Record
Banc One Securities Fund
</TABLE>
86
<PAGE> 90
<TABLE>
<S> <C> <C> <C>
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
BISYS Fund Services Inc Municipal Money Market 38.79% Record
FBO Bank One Corporate Sweep Fund
Attn Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Strafe & Co (D) Municipal Money Market 96.77% Record
Bank One Ohio Trust Co., NA Fund
Department 0393 S.T.I.F. Class I
Columbus OH 43271-0001
Dean Witter For The Benefit Of Income Equity Fund 71.70% Record
McKee Char TR/Lynn A Hammond & Class C
Clare W White Co-TTEES
Church St Station B PO Box 250
New York NY 10013-0250
Strafe & Co Income Equity Fund 92.64% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Banc One Securities Corp Fbo Equity Index Fund 32.30% Beneficial
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Equity Index Fund 62.48% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Equity Index Fund 88.78% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Banc One Sec Svgs Plan -Equity Fund Equity Index Fund 30.56% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co. Large Company Value Fund 89.11% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co. Ohio Municipal Bond Fund 98.98% Record
Attn Mutual Funds 0393
100 E Broad Street
</TABLE>
87
<PAGE> 91
<TABLE>
<S> <C> <C> <C>
Columbus OH 43215-3607 Class I
Banc One Securities Corp Fbo International Equity 49.22% Beneficial
The One Investment Solution Index Fund
733 Greencrest Dr Class C
Westerville OH 43081-4903
Dean Witter For The Benefit Of International Equity 26.58% Record
Robert M Lynch & Index Fund
PO Box 250 Church Street Station Class C
New York, NY 1008-0250
Strafe & Co International Equity 87.62% Record
Attn Mutual Funds 0393 Index Fund
100 E Broad Street Class I
Columbus OH 43215-3607
Strafe & Co Louisiana Municipal Bond 98.38% Record
Attn Mutual Funds 0393 Fund
100 E Broad Street Class I
Columbus OH 43215-3607
Banc One Securities Corp Fbo Value Growth Fund 66.95% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Value Growth Fund 83.80% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Small Company Growth Fund 77.52% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Asset Allocation Fund 79.54% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Dean Witter FBO Ohio Municipal Money 99.10% Record
Banc One Securities Market Fund
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
Strafe & Co Ohio Municipal Money 97.33% Record
C/O Bank One Trust Co Market Fund
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
</TABLE>
88
<PAGE> 92
<TABLE>
<S> <C> <C> <C>
Banc One Securities Corp FBO Municipal Income Fund 44.14% Beneficial
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Municipal Income Fund 39.48% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Dean Witter For The Benefit Of Municipal Income Fund 25.64% Record
Gale R Hershberger & Class C
Linda L Hershberger JTTEN
Church St Station B PO Box 250
New York, NY 10013-0250
Strafe & Co Municipal Income Fund 99.15% Record
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
Dean Witter For The Benefit Of West Virginia Municipal 26.33% Record
Stephen A Lewis Bond Fund Class A
3720 Noyles Avenue
5 World Trade Center 6th Floor
New York NY 10048-0205
Strafe & Co West Virginia Municipal 98.52% Record
Attn Mutual Funds 0393 Bond Fund Class I
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co Government Bond Fund 88.55% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co. Ultra Short Term Income 89.12% Record
Attn: Mutual Funds 0393 Fund
100 E. Broad Street Class I
Columbus, OH 43215-3607
Banc One Securities Corp FBO Intermediate Bond Fund 55.94% Beneficial
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Intermediate Bond Fund 53.34% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
</TABLE>
89
<PAGE> 93
<TABLE>
<S> <C> <C> <C>
Strafe & Co
Attn Mutual Funds 0393 Intermediate Bond Fund 91.33% Record
100 E Broad Street Class I
Columbus OH 43215-3607
Strafe & Co. Investor Growth Fund 69.73% Record
C/O Bank One Trust Co Class I
Attn Mutual Funds
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co Investor Growth & Income 81.94% Record
C/O Bank One Trust Co Fund
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co Investor Balanced Fund 88.52% Record
C/O Bank One Trust Co Class I
Attn Mutual Funds
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co Investor Conservative 85.27% Record
C/O Bank One Trust Co Growth Fund
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co. Treasury & Agency Fund 99.87% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Treasury Only Money 66.86% Record
C/O Bank One Trust Co Market Fund
Attn: Mutual Funds
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. US Government Money 82.20% Record
C/O Bank One Trust Co Market Fund
Attn: Mutual Funds
100 E. Broad Street
Columbus, OH 43215-3607
</TABLE>
90
<PAGE> 94
As a result, the aforementioned persons may be deemed to be "controlling
persons" of the class of Shares of the fund in which they own such Shares under
the Investment Company Act of 1940.
The table below indicates record and beneficial owners of over 5% of any class
of Shares of any Fund of the Trust.
5% SHAREHOLDERS
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For Thomas A Brand & Rev Trust Arizona Municipal Bond Fund 33.72% Record
PO Box 92956 Class A
Chicago, IL 60675-2956
American Express Trust Company Arizona Municipal Bond Fund 15.73% Record
Trustee of the Danielle D'Ottavio Class A
IRR Trust U/A/D 4-24-91
PO Box 534 N10/789
Minneapolis, MN 55440-0534
Dean Witter for the Benefit of Arizona Municipal Bond Fund 14.52% Record
Elizabeth Ryan Miller Class A
4140 N 49th Way
Church St Station - P.O. Box 250
New York, NY 10013-0250
Gust Trust Under Agreement 1/17 Arizona Municipal Bond Fund 11.91% Record
Devens Gust & Mary Elizabeth Gust Class A
Co-Trustees KY 40207-2626
P.O. Box 25
Mule Creek, NM 88051-0025
Dean Witter For The Benefit Of Arizona Municipal Bond Fund 7.66% Record
William J Lofy Trust Class A
PO Box 250 Church Street Station
New York, NY 10008-0250
Carolyn S Ward Arizona Municipal Bond Fund 25.81% Beneficial
James D Ward JT TEN Class B
825 W Annadale
Tucson, AZ 85737-6923
Dean Witter For The Benefit Of Arizona Municipal Bond Fund 20.65% Record
Eugene B Debuck Class B
4550 North Flowing Wells #90
Church St Station - P.O. Box 250
New York, NY 10008-0250
</TABLE>
91
<PAGE> 95
<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Arizona Municipal Bond Fund 16.86% Record
Charles Stoddard & Class B
P.O. Box 250 -Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of Arizona Municipal Bond Fund 13.31% Record
Marshall L Silverstein Trust Class B
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Scottsdale, AZ 85258-1618
Dean Witter For The Benefit Of Arizona Municipal Bond Fund 9.99% Record
Pete R Samorano & Class B
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Strafe & Co Arizona Municipal Bond Fund 100.00% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Large Company Growth Fund 30.88% Record
Selma J Berry & Class C
Colin G Berry JTTEN
Church St Station - PO Box 250
New York, NY 10008-0250
Dean Witter For The Benefit Of Large Company Growth Fund 9.77% Record
Linda Sue Trizila & Class C
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Cust For Large Company Growth Fund 7.75% Record
Cecil Jewell Class C
IRA Rollover Dated 10/15/97
Church St Station - P.O. Box 250
New York, NY 10013-0250
Dean Witter For The Benefit Of Large Company Growth Fund 5.78% Record
Rosa L Peattie Class C
374 Venus Drive
Church St Station - P.O. Box 250
New York, NY 10013-0250
Champion Windows MFG Co Inc Large Company Growth Fund 5.68% Beneficial
11750 Commons Dr Class C
Cincinnati, OH 45246-2550
Strafe & Co Large Company Growth Fund 90.89% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus, OH 43215-3607
Bank One Corporation Large Company Growth Fund 11.44% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
</TABLE>
92
<PAGE> 96
<TABLE>
<S> <C> <C> <C>
Banc One Sec Svgs Plan Large Company Growth Fund 10.39% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co
Attn Mutual Funds 0393 Disciplined Value Fund 86.48% Record
100 E Broad Street Class I
Columbus, OH 43215-3607
Bank One Corporation
100 E Broad Street Disciplined Value Fund 15.09% Beneficial
Columbus, OH 43215-3607 Class I
The One Group Investor Growth Fund Disciplined Value Fund 5.32% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus, OH 43219-6004
Banc One Securities Corp FBO
The One Investment Solution Growth Opportunities Fund 14.81% Record
733 Greencrest Dr Class A
Westerville, OH 43081-4903
Northern Trust Company TTEE Growth Opportunities Fund 8.09% Record
Ohio Masanic Home Benevolent Endowment Class A
PO Box 92956
Chicago, IL 60675-2956
Invesco Trust Co TTEE Growth Opportunities Fund 6.00% Record
T D Williamson, Inc Thrift Plan Class A
PO Box 77405
Atlanta, GA 30357-1405
Banc One Securities Corp FBO Growth Opportunities Fund 78.53% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville, OH 43081-4903
Strafe & Co Cash Div Cash Growth Opportunities Fund 84.32% Record
C/O Bank One Trust Co Class I
Attn Mutual Fund 0393
100 E Broad Street
Columbus, OH 43215
Bank One Corporation Growth Opportunities Fund 10.18% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Income Bond Fund 10.21% Record
Alpert Corp Money Purchase Plan Class A
Steven Kurtz TTEE
5 World Trade Center 6th Floor
New York, NY 10048-0205
</TABLE>
93
<PAGE> 97
<TABLE>
<S> <C> <C> <C>
Gila River Health Care Corporation Income Bond Fund 6.05% Beneficial
Attn Finance Class A
PO Box 38
Sacaton AZ 85247-0038
Strafe & Co Income Bond Fund 88.91% Record
C/O Bank One Trust Co Class I
Attn Mutual Funds
100 E Broad St
Columbus, OH 43215-3607
Dean Witter For the Benefit of Intermediate Tax-Free Fund 10.96% Record
Estate of Emma Lou Lancaster Class A
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Intermediate Tax-Free Fund 6.89% Record
Jerome Kearns & Class A
PO Box 250 Church Street Station
New York, NY 10008-0250
J Noland Singletary Intermediate Tax-Free Fund 6.40% Beneficial
7350 Bocage Blvd Class A
Baton Rouge LA 70809-1138
Norwest Bank Co NA TTEE Intermediate Tax-Free Fund 5.31% Record
FBO Eliot S Wolff Class A
1740 Broadway MS #8751
Denver CO 80274-0002
Strafe & Co Intermediate Tax-Free Fund 99.52% Record
Attn Mutual Funds Class I
100 E Broad St
Columbus, OH 43215-3607
Dean Witter FBO Prime Money Market Fund 55.38% Record
Banc One Securities Class A
PO Box 250
Church Street Station
New York, NY 10013-0250
BISYS Fund Services Inc Prime Money Market Fund 34.99% Record
Fbo Bank One Corporate Sweep Class A
Attn Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Strafe & Co Prime Money Market Fund 90.15% Record
Bank One Trust Co., NA Class I
Department 0393 S.T.I.F.
Columbus OH 43271-0001
Bank One Trust Company NA Prime Money Market Fund 8.49% Record
Omnibus-Corporate Cash Sweep AC Class I
Attn Cash Management DB3
235 W Schrock Rd
Westerville OH 43081-2874
</TABLE>
94
<PAGE> 98
<TABLE>
<S> <C> <C> <C>
BISYS Fund Services Inc US Treasury Securities 38.66% Record
Fbo Bank One Corporate Sweep Money Market Fund
Attn Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
</TABLE>
95
<PAGE> 99
<TABLE>
<S> <C> <C> <C>
Dean Witter FBO US Treasury Securities 29.27% Record
Banc One Securities Money Market Fund
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
BISYS Fund Services Inc US Treasury Securities 26.40% Record
Fbo Bank One Texas Sweep Money Market Fund
Attn Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
State Street Bank & Trust Co US Treasury Securities 20.19% Record
Cust For the IRA of Money Market Fund
Edward Hillman III Class B
121 S Walnut St
Troy OH 45373-3530
State Street Bank & Trust Co US Treasury Securities 15.55% Record
Cust For the IRA of Money Market Fund
Roland J Bourgeois Class B
692C W Wickenburg Way
Wickenburg AZ 85390-2268
State Street Bank & Trust Co US Treasury Securities 11.02% Record
Cust For the IRA of Money Market Fund
John N Crew Class B
4313 Edmondson Ave
Dallas TX 75205-2601
Dean Witter For The Benefit Of US Treasury Securities 7.54% Record
Yo Suzuki Money Market Fund
2031 Grandview Ave Apt B Class B
Boulder CO 80302-6552
State Street Bank & Trust Co US Treasury Securities 6.85% Record
Cust For the IRA of Money Market Fund
Charles E Faris Class B
110 Flint Dr
Chillicothe OH 45601-7600
State Street Bank & Trust Co US Treasury Securities 6.50% Record
Cust For the IRA of Money Market Fund
Joe D Bolding Class B
803 Holly Cir
Allen TX 75002-5216
Jeffery J Hutchinson US Treasury Securities 5.72% Beneficial
489 Highway 665 Money Market Fund
Montegut LA 70377-2207 Class B
State Street Bank & Tr US Treasury Securities 5.71% Record
SEP IRA Jeffrey S Lux Money Market Fund
2220 Justice St Class B
Monroe LA 71201-3620
</TABLE>
96
<PAGE> 100
<TABLE>
<S> <C> <C> <C>
State Street Bank & Trust Co US Treasury Securities 5.64% Record
Cust For the IRA Rollover of Money Market Fund
Pamela A Bell Class B
1692 Leighton Dr
Reynoldsburg OH 43068-8111
</TABLE>
97
<PAGE> 101
<TABLE>
<S> <C> <C> <C>
The One Group Services Company US Treasury Securities 86.96% Beneficial
C/O Fund Administration Money Market Fund
3435 Stelzer Road Class C
Columbus OH 43219-6004
Strafe & Co (N) US Treasury Securities 80.94% Record
Bank One Ohio Trust Co., NA Money Market Fund
Department 0393 S.T.I.F. Class I
Columbus OH 43271-0001
Bank one Trust Company NA US Treasury Securities 17.95% Record
Omnibus-Corporate Cash Sweep AC Money Market Fund
Attn: Cash Management DB3 Class I
235 W Schrock Rd
Westerville OH 43081-2874
Dean Witter FBO Municipal Money Market Fund 58.27% Record
Banc One Securities Class A
PO Box 250
Church Street Station
New York NY 10013-0250
BISYS Fund Services Inc Municipal Money Market Fund 38.79% Record
FBO Bank One Corporate Sweep Class A
Attn Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Strafe & Co (D) Municipal Money Market Fund 96.77% Record
Bank One Ohio Trust Co., NA Class I
Department 0393 S.T.I.F.
Columbus OH 43271-0001
DC Livestock Co Ltd Part Yea Municipal Money Market Fund 7.66% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Income Equity Fund 71.70% Record
McKee Char TR/Lynn A Hammond & Class C
Clare W White Co-TTEES
Church St Station - PO Box 250
New York NY 10013-0250
UMB Bank Cust Fbo Income Equity Fund 7.16% Record
Bruce W Young IRA Class C
718 Sycamore Ave SPC 200
Vista CA 92083-7952
Strafe & Co Income Equity Fund 92.64% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
</TABLE>
98
<PAGE> 102
<TABLE>
<S> <C> <C> <C>
Banc One Securities Corp Fbo Equity Index Fund 32.30% Beneficial
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Equity Index Fund 62.48% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Equity Index Fund 88.78% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Banc One Sec Svgs Plan -Equity Fund Equity Index Fund 30.56% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Indpls Power & Light Co - Equity Fund Equity Index Fund 6.27% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co. Large Company Value Fund 89.11% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Bank One Corporation Large Company Value Fund 23.71% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Ohio Municipal Bond Fund 7.10% Record
Vivian R Sauls Class A
519 Chapel Rd
Church St Station - PO Box 250
New York NY 10013-0250
Strafe & Co. Ohio Municipal Bond Fund 98.98% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
NES Group Inc Corp Investmt Act Ohio Municipal Bond Fund 7.21% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Northern Trust Company TTEE International Equity Index 21.00% Record
Ohio Masanic Home Benevolent Fund
Endowment Class A
P.O. Box 92956
Chicago, IL 60675-2956
Firstar Trust Co TTEE International Equity Index 18.15% Record
FBO Milwaukee Foundation - Equit Fund
P.O. Box 1787 Class A
Milwaukee WI 53201-1787
</TABLE>
99
<PAGE> 103
<TABLE>
<S> <C> <C> <C>
Banc One Securities Corp Fbo International Equity Index 49.22% Beneficial
The One Investment Solution Fund
733 Greencrest Dr Class C
Westerville OH 43081-4903
Dean Witter For The Benefit Of International Equity Index 26.58% Record
Robert M Lynch & Fund
PO Box 250 Church Street Station Class C
New York, NY 1008-0250
Dean Witter For The Benefit Of International Equity Index 10.02% Record
John S Wagner & Fund
PO Box 250 Church Street Station Class C
New York, NY 1008-0250
UMB Bank Cust FBO International Equity Index 5.46% Record
Darlene Y Young IRA Fund
718 Sycamore Ave SPC 200 Class C
Vista CA 92083-7952
Strafe & Co International Equity Index 87.62% Record
Attn Mutual Funds 0393 Fund
100 E Broad Street Class I
Columbus OH 43215-3607
Bank One Corporation International Equity Index 14.62% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Wallace & Co Limited Volatility Bond Fund 7.08% Record
PO Box 21119 Class A
Shreveport LA 71152-0001
Strafe & Co Louisiana Municipal Bond 98.38% Record
Attn Mutual Funds 0393 Fund
100 E Broad Street Class I
Columbus OH 43215-3607
Banc One Securities Corp Fbo Value Growth Fund 18.36% Beneficial
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Value Growth Fund 66.95% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Dean Witter For The Benefit Of Value Growth Fund 7.14% Record
Martin Homes Inc Profit Sharing Class C
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of Value Growth Fund 5.13% Record
John S Wagner & Class C
PO Box 250 Church Street Station
New York, NY 10008-0250
</TABLE>
100
<PAGE> 104
<TABLE>
<S> <C> <C> <C>
Strafe & Co. Value Growth Fund 83.80% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Small Capitalization Fund 16.06% Record
Robert Kennedy and Class C
Annemarie Kennedy Reisinger JTT
Church St Station - PO Box 250
New York, NY 10013-0250
State Street Bank & Trust Co Small Capitalization Fund 13.66% Record
Cust for the IRA Rollover of Class C
Donald E Hammond
1000 Fairway Blvd
Columbus OH 43213-2521
State Street Bank & Trust Co Small Capitalization Fund 12.26% Record
Cust for the IRA of Class C
Linda L Cole
14 Penguin Ct
Woodlands TX 77380-1827
Dean Witter For The Benefit Of Small Capitalization Fund 8.08% Record
Wells Pickney & McHugh Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of Small Capitalization Fund 8.02% Record
Laurence R Simon Class C
IRA STD/Rollover DTD 06/10/97
Church St Station - PO Box 250
New York, NY 10013-0250
State Street Bank & Trust Co Small Capitalization Fund 6.00% Record
Cust for the IRA of Class C
Linda Stephens
9057 E State Rd 46
Bloomington IN 47401-9241
State Street Bank & Trust Co Small Capitalization Fund 5.94% Record
Cust for the IRA Rollover Of Class C
Kevin Blair
701 E Whipp Rd
Centerville OH 45459-2205
Strafe & Co. Small Capitalization Fund 77.52% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
The One Group Investor Growth Fund Small Capitalization Fund 7.87% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
101
<PAGE> 105
<TABLE>
<S> <C> <C> <C>
Firstar Trust Company Small Capitalization Fund 5.97% Beneficial
FBO Milwaukee Foundation Class I
PO Box 1787
Milwaukee WI 53201-1787
Strafe & Co. Asset Allocation Fund 79.54% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
OFDA (MT 2) Asset Allocation Fund Asset Allocation Fund 8.22% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter FBO Ohio Municipal Money Market 99.10% Record
Banc One Securities Fund
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
Strafe & Co Ohio Municipal Money Market 97.33% Record
C/O Bank One Trust Co Fund
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
Bell City HFD Cook '98 Project Fund Ohio Municipal Money Market 11.91% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Torley John TR U/A 2/23/90 Ohio Municipal Money Market 9.17% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Henny Penny Corp Money Mkt Acct Ohio Municipal Money Market 5.91% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Wallick Construction Company Ohio Municipal Money Market 5.76% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Banc One Securities Corp FBO Municipal Income Fund 44.14% Beneficial
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Municipal Income Fund 39.48% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Dean Witter For The Benefit Of Municipal Income Fund 25.64% Record
Gale R Hershberger & Class C
Linda L Hershberger JTTEN
Church St Station - PO Box 250
New York, NY 10013-0250
</TABLE>
102
<PAGE> 106
<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Municipal Income Fund 5.76% Record
Roberta A Silberstein 1984 Class C
Irrevocable Support Trust
Church St Station - PO Box 250
New York, NY 10013-0250
Strafe & Co Municipal Income Fund 99.15% Record
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
Dean Witter For The Benefit Of Kentucky Municipal Bond Fund 12.36% Record
Gary Osswald Class A
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of Kentucky Municipal Bond Fund 6.69% Record
Karrick Scott Collins Trust Class A
Karrick Scott Collins TTEE
Church St Station - PO Box 250
New York, NY 10013-0250
Strafe & Co Kentucky Municipal Bond Fund 94.40% Record
Attn Mutal Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Dean Witter For The Benefit Of West Virginia Municipal 26.33% Record
Stephen A Lewis Bond Fund Class A
3720 Noyles Avenue
5 World Trade Center 6th Floor
New York NY 10048-0205
Dean Witter For The Benefit Of West Virginia Municipal 19.59% Record
James F Duncan Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 12.68% Record
James Henry Dean & Bond Fund Class A
Anna K Dean JTTEN
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of West Virginia Municipal 12.36% Record
R Clark Morton Bond Fund Class A
129 Elm Street
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of West Virginia Municipal 10.78% Record
C Carl Tully Bond Fund Class A
4530 Spring Hill
5 World Trade Center 6th Floor
New York NY 10048-0205
</TABLE>
103
<PAGE> 107
<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of West Virginia Municipal 6.43% Record
Ruth A Harper Bond Fund Class A
PO Box 196
5 World Trade Center 6th Floor
New York NY 10048-0205
Dean Witter For The Benefit Of West Virginia Municipal 5.73% Record
Thomas D Jarrett & Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 5.02% Record
Patricia H Morton Bond Fund Class A
129 Elm Street
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of West Virginia Municipal 17.52% Record
Katherine Poe Bond Fund Class B
606 River Lane
5 World Trade Center 6th Floor
New York NY 10048-0205
Dean Witter For The Benefit Of West Virginia Municipal 6.69% Record
Evelyn Fox Bond Fund Class B
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 5.29% Record
Clara R Mahoney and Bond Fund Class B
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co West Virginia Municipal 98.52% Record
Attn Mutual Funds 0393 Bond Fund Class I
100 E Broad Street
Columbus OH 43215-3607
Strafe & Co Government Bond Fund 88.55% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Dean Witter For The Benefit Of Ultra Short Term Income Fund 19.13% Record
Samaritan Health Plan Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of Ultra Short Term Income Fund 14.74% Record
Bank One Collateral Acct Class A
FBO Thermex Energy Corporation
Church St Station - PO Box 250
New York NY 10013-0250
</TABLE>
104
<PAGE> 108
<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Ultra Short Term Income Fund 8.88% Record
Genesis Health Care System Class A
800 Forest Avenue
Church St Station - PO Box 250
New York NY 10013-0250
Investment Company Institute Ultra Short Term Income Fund 7.76% Record
1401 H St NW Class A
Washington DC 20005-2110
Gila River Health Care Corporation Ultra Short Term Income Fund 5.57% Record
Attn Finance Class A
PO Box 38
Sacaton AZ 85247-0038
Dean Witter For The Benefit Of Ultra Short Term Income Fund 9.35% Record
Jeanette P Reilly Revocable Trust Class B
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of Ultra Short Term Income Fund 9.11% Record
Samuel D Goldberg Class B
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Ultra Short Term Income Fund 89.12% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Banc One Securities Corp FBO Intermediate Bond Fund 55.94% Beneficial
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Intermediate Bond Fund 53.34% Beneficial
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
State Street Bank & Trust Co Intermediate Bond Fund 14.61% Record
Cust For the IRA Rollover Of Class C
George L Allison
768 E Indiana Ave
Spencer IN 47460-1538
Dean Witter For The Benefit Of Intermediate Bond Fund 9.51% Record
Anna Marie Berry Class C
1145 Linden Drive
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of Intermediate Bond Fund 7.48% Record
Sharon Kaye Miller Class C
PO Box 250 Church Street Station
New York NY 10008-0250
</TABLE>
105
<PAGE> 109
<TABLE>
<S> <C> <C> <C>
Strafe & Co Intermediate Bond Fund 91.33% Record
Attn Mutual Funds 0393 Class I
100 E Broad Street
Columbus OH 43215-3607
Bank One TTEE Investor Growth Fund 5.68% Record
Harrison Holding Corp 401K Class A
C/O Banc One Investment Mgmt
Retirement Services - Daily R K
190 Heatherdown Drive
Westerville OH 43081-2868
Strafe & Co. Investor Growth Fund 69.73% Record
C/O Bank One Trust Co Class I
Attn Mutual Funds
100 E Broad Street
Columbus OH 43215-3607
Banc One Sec Svgs Plan Investor Growth Fund 19.14% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Bank One TTEE Investor Growth Fund 12.12% Record
Brillion Iron Works P/S Class I
C/O Banc One Investment Mgmt
Retirement Services - Daily R K
190 Heatherdown Drive
Westerville OH 43081-2868
Virginia R Corrin Investor Growth Fund 9.68% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Investor Growth & Income 10.36% Record
St Mary's Educational Endowment Foundation Fund
Church St Station PO Box 250 Class C
New York NY 10013-0250
Dean Witter For The Benefit Of Investor Growth & Income 5.79% Record
Charles R Snyder TRSTEE Fund
PO Box 250 Church Street Station Class C
New York NY 10008-0250
Strafe & Co Investor Growth & Income 81.94% Record
C/O Bank One Trust Co Fund
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
Revco D.S., Inc. Serp - Trust A Investor Growth & Income 14.49% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Banc One Sec Svgs Plan Investor Growth & Income 12.91% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
</TABLE>
106
<PAGE> 110
<TABLE>
<S> <C> <C> <C>
Bank One TTEE Investor Growth & Income 5.14% Record
Brillion Iron Works P/S Fund
C/O Banc One Investment Mgmt Class I
Retirement Services - Daily R K
190 Heatherdown Drive
Westerville OH 43081-2868
Dean Witter For The Benefit Of Investor Balanced Fund 6.23% Record
Rockford Police Relief Assoc Class A
420 West State St
Church St Station - PO Box 250
New York NY 10013-0250
Frontier Trust TTEE Investor Balanced Fund 5.18% Record
A/C Investment C/O Higginbotham Class A
Bartlers Co Of New Mexico
214 N Main Ave
Lovington NM 88260-4017
Dean Witter For The Benefit Of Investor Balanced Fund 8.29% Record
James B White & Class C
Norma J White JTTEN
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of Investor Balanced Fund 8.13% Record
Joseph A Hess Class C
IRA Standard Dated 11/18/97
Church St Station - PO Box 250
New York NY 10013-0250
State Street Bank & Trust Co Investor Balanced Fund 7.19% Record
Cust For The IRA Rollover Of Class C
George L Allison
768 E Indiana Ave
Spencer IN 47460-1538
Strafe & Co Investor Balanced Fund 88.52% Record
C/O Bank One Trust Co Class I
Attn Mutual Funds
100 E Broad Street
Columbus OH 43215-3607
Black Clawson Co Member Pension Plan Investor Balanced Fund 16.31% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Centennial Liquor Retirement Plan Investor Balanced Fund 6.44% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Kenosha Carpenters #161 Pens-Mgd Investor Balanced Fund 6.14% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Affiliated MPP Investor Balanced Fund 5.31% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
</TABLE>
107
<PAGE> 111
<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of
Paavo Ensio & Investor Conservative 15.52% Record
PO Box 250 Church Street Station Growth Fund
New York NY 10008-0250 Class A
Dean Witter Reynolds Cust For Investor Conservative 8.20% Record
Peter Layefsky Growth Fund
PO Box 250 Church Street Station Class C
New York NY 10008-0250
DWR Cust For Central Blueprint Co Investor Conservative 6.00% Record
FBO Plan Administrator Growth Fund
VIP Plus PFT Sharing DTD 09/26/97 Class C
Church Street Station - PO Box 250
New York NY 10013-0250
Strafe & Co Investor Conservative 85.27% Record
C/O Bank One Trust Co Growth Fund
Attn Mutual Funds Class I
100 E Broad Street
Columbus OH 43215-3607
Kenosha Carpenters #161 Pens-Mgd Investor Conservative 16.49% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Banc One Sec Svgs Plan Investor Conservative 15.20% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Shelly & Sands MPP Investor Conservative 5.43% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Dean Witter For The Benefit Of Treasury & Agency Fund 15.31% Record
Billy J Eisenhour Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of Treasury & Agency Fund 8.36% Record
Tonto Apache Tribe Class A
30 E Apache Reservation
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of Treasury & Agency Fund 7.66% Record
Maricopa County Municipal Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of Treasury & Agency Fund 6.38% Record
Lloyd D Eisenhour & Class A
PO Box 250 Church Street Station
New York NY 10008-0250
</TABLE>
108
<PAGE> 112
<TABLE>
<S> <C> <C> <C>
State Street Bank & Trust Co Treasury & Agency Fund 5.88% Record
Cust For The IRA Of Class B
Thomas W Moore
5901 Bay Club Dr
Arlington TX 76013-5213
State Street Bank & Trust Co Treasury & Agency Fund 5.07% Record
Cust For The IRA Of Class B
Betty Moore
5901 Bay Club Dr
Arlington TX 76013-5213
Strafe & Co. Treasury & Agency Fund 99.87% Record
Attn: Mutual Funds 0393 Class I
100 E. Broad Street
Columbus, OH 43215-3607
Strafe & Co. Treasury Only Money Market 66.86% Record
C/O Bank One Trust Co Fund
Attn: Mutual Funds
100 E. Broad Street
Columbus, OH 43215-3607
BISYS Fund Services Inc Treasury Only Money Market 14.47% Record
FBO Bank One Corporate Sweep Fund
Attn Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Enbecee Company Treasury Only Money Market 11.22% Beneficial
PO Box 61837 Fund
New Orleans LA 70161-1837
Strafe & Co. US Government Money Market 82.20% Record
C/O Bank One Trust Co Fund
Attn: Mutual Funds
100 E. Broad Street
Columbus, OH 43215-3607
BWC - John Hancock US Government Money Market 8.57% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607
BWC - Miller Anderson US Government Money Market 8.53% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607
Bank One Texas NA US Government Money Market 7.27% Beneficial
1717 Main St Fund
Dallas TX 75201-4605
BISYS Fund Services Inc US Government Money Market 6.25% Record
FBO Bank One Corporate Sweep Fund
Attn Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
</TABLE>
109
<PAGE> 113
As a group, the Trustee and Officers of the Trust owned less than 1% of the
Shares of each class of the Trust.
The financial statements of the Trust are incorporated by reference
into this Statement of Additional Information. The financial statements have
been audited by PricewaterhouseCoopers LLP, independent public accountants to
the Trust, as indicated in their reports with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports. A copy of the annual
reports to shareholders must accompany the delivery of this Statement of
Additional Information.
110
<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1998
for
CLASS A, CLASS B AND CLASS I SHARES
OF THE
MANAGED ASSETS CONSERVATIVE FUND
MANAGED ASSETS BALANCED FUND
MANAGED ASSETS GROWTH FUND
EQUITY INCOME FUND
GROWTH FUND
MID-CAP OPPORTUNITY FUND
SMALL-CAP OPPORTUNITY FUND
INTRINSIC VALUE FUND
GROWTH AND VALUE FUND
EQUITY INDEX FUND
MARKET EXPANSION INDEX FUND
INTERNATIONAL EQUITY FUND
INTERMEDIATE BOND FUND
BOND FUND
SHORT BOND FUND
MULTI SECTOR BOND FUND
INTERNATIONAL BOND FUND
HIGH YIELD BOND FUND
MUNICIPAL BOND FUND
SHORT MUNICIPAL BOND FUND
INTERMEDIATE MUNICIPAL BOND FUND
MICHIGAN MUNICIPAL BOND FUND
of
PEGASUS FUNDS
P.O. Box 5142
Westborough, Massachusetts 01581
(800) 688-3350
This Statement of Additional Information ("Additional Statement") is
meant to be read in conjunction with Pegasus Funds' Prospectus dated April 30,
1998 pertaining to all or some of the classes of shares of the Funds listed
above (each, a "Prospectus" and together, the "Prospectuses") (each, a "Fund"
and collectively, the "Funds"), as it may be revised from time to time, and is
incorporated by reference in its entirety into such Prospectuses. Because this
Additional Statement is not itself a prospectus, no investment in shares of the
Fund should be made solely upon the information contained herein. Copies of the
Funds' Prospectuses may be obtained from any office of the Distributor by
writing or calling the Distributor or the Trust at the address or telephone
number listed above. Capitalized terms used but not defined herein have the same
meanings as in the Prospectuses.
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Trust............................................................... 1
Investment Objectives, Policies and Risk Factors........................ 1
Additional Purchase and Redemption Information.......................... 25
Description of Shares................................................... 30
Additional Information Concerning Taxes................................. 39
Management.............................................................. 43
Independent Auditors.................................................... 58
Counsel................................................................. 58
Additional Information on Performance................................... 58
Appendix A.............................................................. A-1
Appendix B.............................................................. B-1
</TABLE>
-i-
<PAGE> 3
THE TRUST
The Pegasus Funds (the "Trust"), formerly "The Woodward Funds," was
organized as a Massachusetts business trust on April 21, 1987. As of the date of
this Additional Statement, the Trust consisted of thirty-one separate funds, of
which twenty-two Funds are covered by this Additional Statement.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following policies supplement the Funds' respective investment
objectives and policies as set forth in the Prospectus.
Additional Information on Fund Instruments
- ------------------------------------------
Ratings Information
- -------------------
Attached to this Additional Statement is Appendix A which contains
descriptions of the rating symbols used by Rating Agencies for securities in
which the Funds and the Money Market Fund may invest.
Portfolio Transactions
- ----------------------
Subject to the general supervision of the Trust's Board of Trustees,
the Investment Adviser is responsible for, making decisions with respect to, and
placing orders for all purchases and sales of portfolio securities for each Fund
and the Money Market Fund. Federated Investment Counseling ("Federated" or the
"Sub-Adviser") is the sub-adviser to the High Yield Bond Fund and, subject to
the general supervision of the Investment Adviser, is
<PAGE> 4
responsible for, making decisions with respect to, and placing orders for all
purchases and sales of portfolio securities for this Fund.
The annualized portfolio turnover rate for each Fund and the Money
Market Fund is calculated by dividing the lesser of purchases or sales of
portfolio securities for the reporting period by the monthly average value of
the portfolio securities owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration dates
at the time of acquisition are one year or less. Portfolio turnover may vary
greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements which
enable the Funds and the Money Market Fund to receive favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions,
and the Funds and the Money Market Fund may engage in short term trading to
achieve their respective investment objectives.
For the fiscal years or periods indicated, the portfolio turnover
rates for the Funds were as follows:
<TABLE>
<CAPTION>
Year or Period Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Managed Assets Conservative Fund 102.37% 63.41%
Managed Assets Balanced Fund 116.87% 50.50%
Managed Assets Growth Fund 39.35% 0.00%
Equity Income Fund 41.31% 61.41%
Growth Fund 22.89% 61.95%
Mid-Cap Opportunity Fund 37.54% 34.87%
Small-Cap Opportunity Fund 58.29% 93.82%
Intrinsic Value Fund 35.93%+ 34.24%
Growth and Value Fund 30.98% 43.21%
Equity Index Fund 12.80%+ 12.25%
International Equity Fund 3.56%++ 6.37%
Intermediate Bond Fund 31.66% 31.62%
Bond Fund 17.60% 24.92%
Short Bond Fund 68.04% 109.58%
Multi Sector Bond Fund 38.70% 103.93%
International Bond Fund 4.51% 97.82%
High Yield Bond Fund 11.17% --
Municipal Bond Fund 32.08% 64.51%
Intermediate Municipal Bond Fund 36.82% 52.95%
Michigan Municipal Bond Fund 37.84% 24.49%
</TABLE>
___________________________________
+ The Portfolio Turnover Percentage was adjusted for Redemptions In-Kind for
shareholders that took place during 1997 for the Equity Index, Mid-Cap
Opportunity and Intrinsic Value Funds. Each Fund's securities sales were
appropriately reduced by the fair market value of the Redemptions In-Kind.
The Redemptions In-Kind for the Equity Index, Mid-Cap Opportunity and
Intrinsic Value Funds were approximately $260 million, $4 million and $5
million, respectively.
++ The Portfolio Turnover Percentage was adjusted for a conversion of assets
from First National Bank of Chicago's International Equity Common Trust
Fund, which took place during 1997. The Fund's securities purchases were
appropriately reduced by the fair market value of the asset transfer
approximating $20 million.
Purchases of money market instruments are made from dealers,
underwriters and issuers. The Funds and the Money Market Fund currently do not
expect to incur any brokerage commission expense on such transactions because
money market instruments are
-2-
<PAGE> 5
generally traded on a "net" basis acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Securities purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased
directly from or sold directly to an issuer, no commissions or discounts are
paid.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions in the over-
the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument.
The Funds and the Money Market Fund may participate, if and when
practicable, in bidding for the purchase of portfolio securities directly from
an issuer in order to take advantage of the lower purchase price available to
members of a bidding group. A Fund and the Money Market Fund will engage in this
practice, however, only when the Investment Adviser or Sub-Adviser, in its sole
discretion, believes such practice to be otherwise in the fund's interests.
Total brokerage commissions paid by the Funds for the fiscal years or
periods ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Managed Assets Conservative Fund $ 7,890 $ 19,830 $ 13,601
Managed Assets Balanced Fund $ 53,162 $126,292 $ 81,178
Managed Assets Growth Fund $ 0 $ 0 N/A
Equity Income Fund $266,039 $ 93,874 $379,012
Growth Fund $343,838 $113,467 $929,747
Mid-Cap Opportunity Fund $698,038 $621,056 $866,286
Small-Cap Opportunity Fund $280,426 $114,320 $178,632
Intrinsic Value Fund $378,331 $214,355 $209,816
Growth and Value Fund $662,252 $729,368 $504,214
Equity Index Fund $131,990 $282,069 $137,443
International Equity Fund $225,448 $358,776 $ 72,856
</TABLE>
The Bond Funds and Municipal Bond Funds as well as the Money Market Fund
incurred no brokerage commissions for the fiscal years or periods ended December
31, 1997, 1996 and 1995.
-3-
<PAGE> 6
The Advisory and Sub-Advisory Agreements provide that, in executing
portfolio transactions and selecting brokers or dealers, the Investment Adviser
or Sub-Adviser will seek to obtain the best overall terms available for each
Fund and the Money Market Fund. In assessing the best overall terms available
for any transaction, the Investment Adviser or Sub-Adviser shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In addition, the Agreement
authorizes the Investment Adviser or Sub-Adviser to cause a Fund and the Money
Market Fund to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another broker-
dealer for effecting the same transaction, provided that the Investment Adviser
or Sub-Adviser determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Investment Adviser or Sub-Adviser to the Funds
and the Money Market Fund. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
For the fiscal year or period ended December 31, 1997, the Investment
Adviser, on behalf of the Funds and the Money Market Fund, directed brokerage
transactions to broker-dealers in return for the provision of investment
information or services as stated above as follows:
<TABLE>
<CAPTION>
Aggregate
Fund Commissions
---- -----------
<S> <C>
Managed Assets Conservative Fund/(1)/ $ --
Managed Assets Balanced Fund $ --
Managed Assets Growth Fund --
Equity Income Fund/(1)/ $262,141
Growth Fund/(1)/ $343,269
Mid-Cap Opportunity Fund $697,675
Small-Cap Opportunity Fund/(1)/ $279,959
Intrinsic Value Fund $375,178
Growth and Value Fund $669,014
Equity Index Fund $131,990
International Equity Fund $226,919
</TABLE>
-4-
<PAGE> 7
<TABLE>
<S> <C>
Bond Fund --
Short Bond Fund --
Multi Sector Bond Fund --
International Bond Fund --
Municipal Bond Fund --
Intermediate Municipal Bond Fund --
Michigan Municipal Bond Fund --
Money Market Fund --
</TABLE>
- ---------------------------
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Investment Adviser or Sub-
Adviser and does not reduce the advisory fees payable by the Funds and the Money
Market Fund. The Trustees will periodically review any commissions paid to
consider whether the commissions paid over representative periods of time appear
to be reasonable in relation to the benefits. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised by the Investment Adviser or Sub-Adviser. Conversely, a
Fund, or the Money Market Fund, may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.
The Trust will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase agreements with the Investment Adviser, the
Sub-Adviser, the Distributor or an affiliated person of any of them (as such
term is defined in the 1940 Act) acting as principal, except to the extent
permitted under the 1940 Act by the SEC or its staff. In addition, a Fund or the
Money Market Fund, will not purchase securities during the existence of any
underwriting or selling group relating thereto of which the Distributor, the
Investment Adviser or the Sub-Adviser, or an affiliated person of any of them,
is a member, except to the extent permitted under the 1940 Act. Under certain
circumstances, the Funds and the Money Market Fund may be at a disadvantage
because of these limitations in comparison with other investment companies which
have similar investment objectives but are not subject to such limitations.
Investment decisions for each Fund and the Money Market Fund are made
independently from those for the other Funds and for any other investment
companies and accounts advised or managed by the Investment Adviser or Sub-
Adviser. Such other investment companies and accounts may also invest in the
same securities as the Funds and the Money Market Fund. To the extent permitted
by law, the Investment Adviser or Sub-Adviser
-5-
<PAGE> 8
may aggregate the securities to be sold or purchased for the Funds and the Money
Market Fund with those to be sold or purchased for other investment companies or
accounts in executing transactions. When a purchase or sale of the same security
is made at substantially the same time on behalf of one or more of the Funds and
another investment company or account, the transaction will be averaged as to
price and available investments allocated as to amount, in a manner which the
Investment Adviser or Sub-Adviser believes to be equitable to each Fund, the
Money Market Fund and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received or the size of the position obtained or sold.
Investment Techniques
- ---------------------
Asset Allocation Funds
- ----------------------
In order to achieve its investment objective, each Asset Allocation Fund
will typically invest its assets in the Underlying Funds, within a predetermined
target asset allocation range, as set forth in the Prospectus under "Description
of the Fund - Investment Objectives and Policies - Asset Allocation Funds."
Equity Securities
- -----------------
Equity Securities are generally selected by the Equity Funds in a "bottom-
up" manner. "Bottom-up" refers to an analytical approach to securities selection
which first focuses on the company and company-related matters as contrasted to
a "top-down" analysis which first focuses on the industry or the economy. In the
Investment Adviser's opinion, this procedure may generally be expected to result
in a portfolio characterized by lower price/earnings ratios, above average
growth prospects and average market risk.
Index Funds
- -----------
The Investment Adviser believes that a sampling methodology allows the
Index Funds to maintain a close correlation to the performance of their
respective index or combined indices while at the same time controlling the
portfolio turnover and transaction costs of the Funds.
Under normal market conditions, each Fund invests substantially all of its
total assets in the common stocks that comprise its respective index or conbined
indices in accordance with its relative capitalization and sector weightings as
described in the Prospectus. It is possible, that if an issuer drops
-6-
<PAGE> 9
in ranking, or is eliminated entirely from an index, the Investment Adviser may
be required to sell some or all of the common stock of such issuer then held by
the affected Fund. Sales of portfolio securities may be made at times when, if
the Investment Adviser is not required to effect purchases and sales of
portfolio securities in accordance with the indices, such securities might not
be sold. Such sales may result in lower prices for such securities than may have
been realized or in losses that may not have been incurred if the Investment
Adviser is not required to effect the purchases and sales. The failure of an
issuer to declare or pay dividends, the institution against an issuer of
materially adverse legal proceedings, the existence or threat of defaults
materially and adversely affecting an issuer's future declaration and payment of
dividends, or the existence of other materially adverse credit factors will not
necessarily be the basis for the disposition of portfolio securities, unless
such event causes the issuer to be eliminated entirely from such index. The
Funds may receive from time to time as part of a "spin-off" or corporate
restructuring of an issuer included in the indices, securities that are
themselves outside of the indices. Such securities will be disposed of by the
affected Fund in due course consistent with such Fund's investment
objective.
Debt Securities
- ---------------
The Investment Adviser selects Debt Securities based on anticipated
interest rate changes and the use of active management strategies which may
include sector rotation, intra-sector adjustments and yield curve and convexity
considerations. Sector rotation involves the Investment Adviser selecting among
different economic or industry sectors based upon apparent or relative
attractiveness. Thus at times a sector offers yield advantages relative to other
sectors. An intra-sector adjustment occurs when the Investment Adviser
determines to select a particular issue within a sector. Yield curve
considerations involve the Investment Adviser attempting to compare the
relationship between time to maturity and yield to maturity in order to identify
the relative value in the relationship. Convexity considerations consist of the
Investment Adviser seeking securities that rise in price more quickly, or
decline in price less quickly, than the typical security of that price risk
level and therefore enable the Investment Adviser to obtain an additional return
when interest rates change dramatically.
In acquiring particular Debt Securities, the Investment Adviser may
consider, among other things, historical yield relationships between private and
governmental debt securities, intermarket yield relationships among various
industry sectors, current economic cycles and the attractiveness and
creditworthiness of particular issuers. Depending upon the Investment Adviser's
analysis of these and other factors, a Fund's or the Money Market Fund's
holdings of issues in particular industry sectors may be overweighted or
underweighted when compared to the relative industry weightings in recognized
indices. The value of the portfolio holdings can be expected to vary inversely
with changes in prevailing interest rates.
-7-
<PAGE> 10
In selecting Debt Securities for the High Yield Bond Fund, the
professional portfolio management techniques used by the Sub-Adviser includes:
Credit Research. The High Yield Bond Fund's Sub-Adviser will perform
its own credit analysis in addition to using Rating Agencies and other
sources, including discussions with the issuer's management, the
judgment of other investment analysis, and its own informed judgment.
The Sub-Adviser's credit analysis will consider the issuer's financial
soundness, its responsiveness to changes in interest rates and
business conditions, and its anticipated cash flow, interest or
dividend coverage and earnings. In evaluating an issuer, the Sub-
Adviser places special emphasis on the estimated current value of the
issuer's assets rather than historical costs.
Diversification. The High Yield Bond Fund invests in securities of
many different issuers, industries, and economic sectors.
Economic Analysis. The Sub-Adviser will analyze current developments
and trends in the economy and in the financial markets. When investing
in lower-rated securities, timing and selection are critical, and
analysis of the business cycle can be important.
Money Market Fund
- -----------------
The net asset value of the Money Market Fund is determined as of 3:00
P.M., Eastern Time, on each of its Business Days. The Money Market Fund intends
to value its portfolio securities based upon their amortized cost in accordance
with Rule 2a-7 under the 1940 Act. Where it is not appropriate to value a
security by the amortized cost method, the security will be valued either by
market quotations, or by fair value as determined by the Board of Trustees.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the securities.
Pursuant to Rule 2a-7, the Money Market Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, to purchase
securities having remaining deemed maturities of 397 days or less, and to invest
only in securities determined by the Board of Trustees to be of high quality
with minimal credit risks. The Board of Trustees has established procedures
designed to stabilize, to the extent reasonably possible, the Money Market
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. These procedures include review of the investment holdings by the Board
of Trustees, at such intervals as it may deem appropriate, to determine whether
the Money Market Fund's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The extent of
any deviation will be examined by the Board of Trustees. If the deviation
exceeds 1/2 of 1%, the Board of Trustees will promptly consider what action, if
any,
-8-
<PAGE> 11
will be initiated. In the event the Board of Trustees determines that a
deviation exists which may result in material dilution or other unfair results
to investors or existing shareholders, it may take such corrective actions as it
deems necessary and appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These actions may include
selling portfolio securities prior to maturity to realize capital gains or
losses or to shorten a Fund's average maturity, withholding or reducing
dividends, redeeming shares in kind, splitting, combining or otherwise
recapitalizing outstanding shares or establishing a net asset value per share by
using available market quotations.
The Money Market Fund calculates its dividends based on daily net
investment income. Expenses of the Money Market Fund are accrued daily. As the
Money Market Fund's portfolio securities are normally valued at amortized cost,
unrealized gains or losses on such securities based on their market values will
not normally be recognized. However, should the net asset value deviate
significantly from market value, the Trustees could decide to value the
securities at market value and then unrealized gains and losses would be
included in net investment income.
The Money Market Fund will purchase only "eligible securities" that
present minimal credit risks as determined by the Investment Adviser pursuant to
guidelines established by the Trust's Board of Trustees. Eligible securities
generally include under certain circumstances, shares of other money market
funds and, generally,: (1) securities that are rated by two (or, in certain
cases, whose guarantor is rated) or more Rating Agencies (or the only Rating
Agency which has issued a rating) in one of the two highest rating categories
for short term debt securities; (2) securities that have no short term rating,
(or securities with a guarantee with no such ratings) if the issuer has other
outstanding short term obligations that are (or a guarantee that's comparable
in priority and security as determined by the Investment Adviser ("Comparable
Obligations") and that have been rated in accordance with (1) above; (3)
securities (including guarantees) that have no short term rating, but are
determined to be of comparable quality to a security satisfying (1) or (2)
above, and the issuer does not have Comparable Obligations rated by a Rating
Agency; and (4) obligations that carry certain types of guarantees. Obligations
that carry certain types of conditional demand features also may be purchased
pursuant to similar standards.
Other Investments
- -----------------
Stripped U.S. Government Obligations
- ------------------------------------
Within the past several years, the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately for
the beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." To the extent consistent with their respective investment
objectives, the Bond and Municipal Bond Funds and the Money Market Fund may
purchase securities registered in the STRIPS program. Under the STRIPS program,
these Funds will be
-9-
<PAGE> 12
able to have their beneficial ownership of zero coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities.
In addition, the Bond and Municipal Bond Funds may acquire U.S.
Government obligations and their unmatured interest coupons that have been
separated ("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are ostensibly owned by the
bearer or holder), in trust on behalf of the owners. Counsel to the underwriters
of these certificates or other evidences of ownership of U.S. Treasury
securities have stated that, in their opinion, purchasers of the stripped
securities most likely will be deemed the beneficial holders of the underlying
U.S. Government obligations for federal tax purposes. The Trust is not aware of
any binding legislative, judicial or administrative authority on this issue.
As described in the Prospectus, such Funds may also purchase stripped
mortgage-backed securities ("SMBS"). SMBS that are interest only or principal
only and not issued by the U.S. Government may be considered illiquid securities
if they can not be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of net asset value per
share.
Custodial Receipts and Certificates of Participation
- ----------------------------------------------------
For certain certificates of participation, the Funds and the Money
Market Fund will have the right to demand payment, on not more than 30 days'
notice, for all or any part of such Fund's or the Money Market Fund's
participation interest, plus accrued interest. As to these instruments, the
Funds and the Money Market Fund intend to exercise their rights to demand
payment as needed to provide liquidity, to maintain or improve the quality of
their investment portfolio or upon a default (if permitted under the terms of
the instrument).
Bank Obligations
- ----------------
In accordance with their respective investment objectives, each Fund
and the Money Market Fund may purchase bank obligations, which include bankers'
acceptances, negotiable certificates of deposit and non-negotiable time
deposits, including U.S. dollar-denominated instruments issued or supported by
the credit of U.S. or foreign banks or savings
-10-
<PAGE> 13
institutions. Although the Funds invest in obligations of foreign banks or
foreign branches of U.S. banks only where the Investment Adviser or Sub-Adviser
deems the instrument to present minimal credit risks, such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1.0
billion in total assets at the time of purchase.
Commercial Paper
- ----------------
Except for the High Yield Bond Fund, commercial paper, including
variable and floating rate notes and other short term corporate obligations,
must be rated in one of the two highest categories by at least two Rating
Agencies, or if not rated, for the Money Market Fund must have been
independently determined by the Investment Adviser to be of comparable quality,
and for the other Funds must have been issued by a corporation having an
outstanding bond issue rated A or higher by a Rating Agency. The High Yield Bond
Fund may invest in lower-rated commercial paper. Except as provided in the
Prospectus for the International Bond and High Yield Bond Funds, bonds and other
short term obligations (if not rated as commercial paper) purchased by the Funds
must be rated BBB or Baa, or higher, by a Rating Agency, respectively, or if
unrated, be of comparable investment quality in the judgment of the Investment
Adviser.
Lower-Rated Securities
- ----------------------
The Asset Allocation, Equity, International Bond and High Yield Bond
Funds may each invest in lower-rated securities. There is no minimal acceptable
rating for a security to be purchased or held in the High Yield Bond Fund's
portfolio and the Fund may, from time to time, purchase or hold securities rated
in the lowest rating category or securities in default. In general, investments
in lower-rated fixed-income securities are subject to a significant risk of a
change in the credit rating or financial condition of the issuing entity.
Investments in lower-rated fixed-income securities of medium or lower quality
are also likely to be subject to greater market fluctuation and to greater risk
of loss of income and principal due to default than investments of higher-rated
fixed-income securities. Such lower-rated securities generally tend to reflect
short-term corporate and market developments to a greater extent than higher-
rated securities, which react more to fluctuations in the general level of
interest rates. Each Equity Fund is permitted to invest up to 5% of its net
assets in lower-rated convertible securities.
In seeking to attain the investment objective of the Funds, the
Investment Adviser or Sub-Adviser may consider both the relative risks and
potential returns of higher-rated and lower-rated securities. As a result, a
Fund may hold higher-rated fixed-income securities when the differential in
return between lower-rated and higher-rated securities narrows and the
Investment Adviser or Sub-Adviser believes that the risk of loss of income
-11-
<PAGE> 14
and principal may be substantially reduced with only a relatively small
reduction in potential capital appreciation and yield. The relative proportions
of the types of securities in a Fund may vary from time to time according to the
prevailing and projected market and economic conditions and other factors.
Variable and Floating Rate Instruments
- --------------------------------------
With respect to variable and floating rate obligations that may be
acquired by each Fund and the Money Market Fund, the Investment Adviser or Sub-
Adviser will consider the earning power, cash flows and other liquidity ratios
of the issuers and guarantors of such notes and will continuously monitor their
financial status to meet payment on demand. The absence of an active secondary
market with respect to particular variable and floating rate instruments could
make it difficult to dispose of instruments if the issuer defaulted on its
payment obligation or during periods that the Fund or the Money Market Fund is
not entitled to exercise its demand rights, and the Fund or the Money Market
Fund could, for these or other reasons, suffer a loss with respect to such
instruments.
Lending Securities
- ------------------
When a Fund or the Money Market Fund lends its securities, it
continues to receive interest or dividends on the securities loaned and may
simultaneously earn interest on the investment of the cash collateral. Although
voting rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans will be called so that the securities may be voted by a
Fund or the Money Market Fund if a material event affecting the investment is to
occur.
Repurchase Agreements and Reverse Repurchase Agreements
- -------------------------------------------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund or the Money Market Fund
plus interest negotiated on the basis of current short term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements are held by the Trust's
Custodian, in the Federal Reserve/Treasury book-entry system or by another
authorized securities depository. Repurchase agreements are considered to be
loans under the 1940 Act.
Reverse repurchase agreements are considered to be borrowings by a
Fund and by the Money Market Fund under the 1940 Act. At the time a Fund or the
Money Market Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account liquid assets such as U.S. Government securities or
other liquid high-grade debt securities having a value equal to or greater than
the repurchase price (including accrued interest) and will subsequently monitor
the account to ensure that such value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund
-12-
<PAGE> 15
or the Money Market Fund may decline below the price of the securities it is
obligated to repurchase.
American Depository Receipts ("ADRs")
- -------------------------------------
The Asset Allocation Funds, Equity Funds and High Yield Bond Fund may
invest in ADRs, which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs
may be listed on a national securities exchange or may trade in the over-the-
counter market. Although ADR prices are denominated in U.S. dollars, the
underlying security may be denominated in a foreign currency. The underlying
security may be subject to foreign government taxes which would reduce the yield
on such securities.
When-Issued Purchases and Forward Commitments
- ---------------------------------------------
A Fund or the Money Market Fund will purchase securities on a when-
issued basis or purchase or sell securities on a forward commitment basis only
with the intention of completing the transaction and actually purchasing or
selling the securities. If deemed advisable as a matter of investment strategy,
however, a Fund or the Money Market Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered on the settlement date. In these
cases the Fund or the Money Market Fund may realize a capital gain or loss.
When a Fund or the Money Market Fund engages in when-issued and
forward commitment transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Fund or the Money Market
Fund incurring a loss or missing an opportunity to obtain a price considered to
be advantageous.
Mortgage Backed Securities
- --------------------------
Mortgage Backed Securities Generally. Mortgage backed securities held
by the Asset Allocation, Equity and Bond Funds represent an ownership interest
in a pool of residential mortgage loans. These securities are designed to
provide monthly payments of interest and principal to the investor. The
mortgagor's monthly payments to his lending institution are "passed-through" to
an investor such as the Funds. Most issuers or poolers provide guarantees of
payments, regardless of whether or not the mortgagor actually makes the payment.
The guarantees made by issuers or poolers are supported by various forms of
credit, collateral, guarantees or insurance, including individual loan, title,
pool and hazard insurance purchased by the issuers or poolers so that they can
meet their obligations under the policies. Mortgage backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
-13-
<PAGE> 16
Interests in pools of mortgage backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage backed securities are described as "modified pass-through". These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the U.S.
Government and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("Pcs"), which represent interests in mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal.
The Federal National Mortgage Association ("FNMA") is a U.S.
Government sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA.
The principal guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government guarantees of payments in the former pools. Timely
payment of interest and principal of some of these pools is supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance purchased by the issuer. The insurance and guarantees are
issued by governmental entities,
-14-
<PAGE> 17
private insurers and the mortgage poolers. There can be no assurance that the
private insurers or mortgage poolers can meet their obligations under the
policies.
The Trust expects that governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage backed securities are developed and offered
in the market, the Trust may consider making investments in such new types of
securities.
Underlying Mortgages. Pools consist of whole mortgage loans or
participations in loans. The majority of these loans are made to purchasers of
one to four family homes. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Bond Funds may
purchase pools of variable rate mortgages ("VRM"), growing equity mortgages
("GEM"), graduated payment mortgages ("GPM") and other types where the principal
and interest payment procedures vary. VRMs are mortgages which reset their
interest rate periodically with changes in open market interest rates. To the
extent that a Fund is actually invested in VRMs, its interest income will vary
with changes in the applicable interest rate on pools of VRMs. GPM and GEM pools
maintain constant interest rates, with varying levels of principal repayment
over the life of the mortgage.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
Average Life. The average life of pass-through pools varies with the
maturities of the underlying mortgage instruments. In addition, a pool's term
may be shortened by unscheduled or early payments of principal and interest on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Returns on Mortgage Backed Securities. Yields on mortgage backed pass-
through securities are typically quoted based on the maturity of the underlying
instruments and the associated average life assumption.
Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yields of a Fund. The
compounding effect from reinvestments of monthly payments received by a Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
-15-
<PAGE> 18
Foreign Currency Transactions
- -----------------------------
When the Asset Allocation Funds, the International Equity,
International Bond and High Yield Bond Funds enter into a currency transaction,
it will deposit, if so required by applicable regulations, with its custodian
cash or readily marketable securities in a segregated account of a Fund in an
amount at least equal to the value of the Fund's total assets committed to the
consummation of the forward contract.
At or before the maturity of a forward contract, a Fund either may
sell a security and make delivery of the currency, or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency which it is obligated to deliver. If the Fund
retains the security and engages in an offsetting transaction, at the time of
execution of the offsetting transaction, the Fund will incur a gain or loss to
the extent movement has occurred in forward contract prices. Should forward
prices decline during the period between the Fund entering into a forward
contract for the sale of a currency and the date it enters into an offsetting
contract for the purchase of the currency, it will realize a gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The cost of currency transactions varies with factors such as the
currency involved, the length of the contract period and the market conditions
then prevailing. Because transactions in currency exchange usually are conducted
on a principal basis, no fees or commissions are involved. The use of forward
currency exchange contracts does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. If a devaluation generally is anticipated, a Fund may
not be able to contract to sell the currency at a price above the devaluation
level it anticipates. The requirements for qualification as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), may cause the Fund to restrict the degree to which it engages in
currency transactions. See "Additional Information Concerning Taxes."
Futures Contracts and Related Options
- -------------------------------------
See Appendix B to this Additional Statement for a discussion of
futures contracts and related options.
Options Trading
- ---------------
As stated in the Prospectus, each Fund may purchase and sell put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation. Such transactions may be effected on a principal basis
with primary reporting
-16-
<PAGE> 19
dealers in U.S. Government securities in an amount not exceeding 5% of a Fund's
net assets. This is a highly specialized activity which entails greater than
ordinary investment risks. Regardless of how much the market price of the
underlying security increases or decreases, the option buyer's risk is limited
to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying securities, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities. A listed
call option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. Put and call options purchased
by a Fund will be valued at the last sale price or, in the absence of such a
price, at the mean between bid and asked prices.
A Fund's obligation to sell a security subject to a covered call
option written by it, or to purchase a security subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
option containing different terms on such underlying security. The cost of such
a liquidation purchase plus transaction costs may be greater than the premium
received upon the original option, in which event the Fund will have incurred a
loss in the transaction. An option position may be closed out only on an
exchange which provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered call option writer, unable to effect a
closing purchase transaction, will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise
with the result that the writer in such circumstances will be subject to the
risk of market decline in the underlying security during such period. A Fund
will write an option on a particular security only if the Investment Adviser or
Sub-Adviser believes that a liquid secondary market will exist on an exchange
for options of the same series which will permit the Fund to make a closing
purchase transaction in order to close out its position.
When a Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently marked-
to-market to reflect the current value of the option written.
-17-
<PAGE> 20
The current value of the traded option is the last sale price or, in the absence
of a sale, the average of the closing bid and asked prices. If an option expires
on the stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss. If a secured put option is exercised, the amount paid by the Fund
involved for the underlying security will be partially offset by the amount of
the premium previously paid to the Fund. Premiums from expired options written
by a Fund and net gains from closing purchase transactions are treated as short-
term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
Stock Index Options
- -------------------
The Asset Allocation and Equity Funds may purchase and write put and
call options on stock indices listed on U.S. securities exchanges or traded in
the over-the-counter market. The International Equity Fund may also purchase and
write put and call options on stock indices listed on a foreign securities
exchange. A stock index fluctuates with changes in the market values of the
stocks included in the index.
Options on stock indices are similar to options on stock except that
(a) the expiration cycles of stock index options are generally monthly, while
those of stock options are currently quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or make delivery
of a stock at a specified price, an option on a stock index gives the holder the
right to receive a cash "exercise settlement amount" equal to (i) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option. The amount
of cash received will be equal to such difference between the closing price of
the index and the exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
Convertible Securities
- ----------------------
In general, the market value of a convertible security is the higher
of its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e.,
-18-
<PAGE> 21
the value of the underlying shares of common stock if the security is
converted). As a fixed-income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. However, the price of a convertible security also is
influenced by the market value of the security's underlying common stock. Thus,
the price of a convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the market value of
the underlying stock declines.
Warrants
- --------
Each Asset Allocation and Equity Fund may invest up to 5% of their
respective assets at the time of purchase in warrants and similar rights (other
than those that have been acquired in units or attached to other securities).
Certain fixed rate obligations in which the High Yield Bond Fund invests may
involve equity characteristics. The High Yield Bond Fund may, for example,
invest in unit offerings that combine fixed rate securities and common stock or
common stock equivalents such as warrants, rights, and options. Warrants
represent rights to purchase securities at a specified price valid for a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of underlying securities.
Municipal and Related Obligations
- ---------------------------------
To the extent consistent with its investment objective, the Asset
Allocation, Bond and Municipal Bond Funds may invest in Municipal Obligations.
There are, of course, variations in the quality of Municipal Obligations, both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend in part on a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Municipal
Obligations by Rating Agencies represent their opinions as to the quality of
Municipal Obligations. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields while
Municipal Obligations with the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, a
Municipal Obligation may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Investment Adviser or
Sub-Adviser may consider such an event in determining whether the Fund should
continue to hold the obligation.
The payment of principal and interest on most Municipal Obligations
purchased by a Fund will depend upon the ability of the issuers to meet their
obligations. For the purpose of diversification under the 1940 Act, the
identification of the issuer of Municipal Obligations depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and
-19-
<PAGE> 22
revenues of the subdivision, such subdivision would be deemed to be the sole
issuer. Similarly, in the case of an industrial development bond, if that bond
is backed only by the assets and revenues of the non-governmental user, then
such non-governmental user would be deemed to be the sole issuer. If, however,
in either case, the creating government or some other entity guarantees a
security, such a guaranty would be considered a separate security and will be
treated as an issue of such government or other entity.
An issuer's obligations under its Municipal Obligations are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights or
remedies of creditors, such as the Federal Bankruptcy Code, and any laws, that
may be enacted by federal or state legislatures extending the time for payment
of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest or principal of its Municipal Obligations may be materially
adversely affected by litigation or other conditions.
Certain Municipal Obligations are subject to redemption at a date
earlier than their stated maturity pursuant to call options, which may be
separated from the related Municipal Obligation and purchased and sold
separately.
Certain of the Municipal Obligations held by the Funds may be insured
at the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Obligations at the time of original issuance. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such insurance will not
protect against market fluctuations caused by changes in interest rates and
other factors.
The Municipal Bond Funds will purchase tender option bonds only when
the Investment Adviser is satisfied that the custodial and tender option
arrangements, including the fee payment arrangements, will not adversely affect
the tax exempt status of the underlying Municipal Obligations and that payment
of any tender fees will not have the effect of creating taxable income for the
Fund. Based on the tender option bond agreement, that Fund expects to be able to
value the tender option bond at par; however, the value of the instrument will
be monitored by the Investment Adviser to assure that it is valued at fair
value.
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, pursuant to federal tax
legislation passed in 1986 interest on certain private activity bonds must be
included in an investor's federal alternative minimum taxable income, and
corporate investors must include all tax-exempt interest in their federal
alternative minimum taxable income. The Trust cannot predict what legislation,
if any, may be proposed in Congress in the future as regards the federal income
tax status of interest on Municipal Obligations in general, or which proposals,
if any, might be enacted. Such
-20-
<PAGE> 23
proposals, if enacted, might materially adversely affect the availability of
Municipal Obligations for investments by the Funds and their liquidity and
value. In such event, the Board of Trustees would re-evaluate the Funds'
investment objectives and policies and consider changes in their structure or
possible dissolution.
Stand-By Commitments
- --------------------
The Asset Allocation, Bond, Municipal Bond and Money Market Funds may
acquire "stand-by commitments" with respect to Municipal Obligations they hold.
Under a stand-by commitment, a dealer agrees to purchase at such Fund's option
specified Municipal Obligations at a specified price. Stand-by commitments may
be exercisable at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
Such Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, they may pay for a stand-by commitment either
separately in cash or by paying a higher price for Municipal Obligations which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Such Funds may acquire a stand-by
commitment unless immediately after the acquisition, with respect to 75% of its
assets not more than 5% of its total assets will be invested in instruments
subject to a demand feature, including stand-by commitments, with the same
institution.
Such Funds intend to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Investment Adviser's or Sub-
Adviser's opinion, present minimal credit risks. The credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. Thus, the risk of loss
in connection with a "stand-by commitment" will not be qualitatively different
from the risk of loss faced by a person that is holding securities pending
settlement after having agreed to sell the securities in the ordinary course of
business.
Stand-by commitments will be acquired solely to facilitate portfolio
liquidity and not to exercise their rights thereunder for trading purposes. The
acquisition of a stand-by commitment will not affect the valuation or assumed
maturity of the underlying Municipal Obligations which will continue to be
valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Where a stated
Fund pays directly or indirectly for a stand-by commitment, its cost will be
reflected as an unrealized loss for the period during which the commitment is
held by the Fund and will be reflected in realized gain or loss when the
commitment is exercised or expires.
-21-
<PAGE> 24
Special Investment Considerations Relating To Investing In The Michigan
- -----------------------------------------------------------------------
Municipal Bond Fund
- -------------------
The following information is drawn from various Michigan governmental
publications and from official statements relating to securities offerings of
the State and its political subdivisions. While the Trust has not
independently verified such information, it has no reason to believe that it is
not correct in all material respects.
The State of Michigan's economy is principally dependent on
manufacturing (particularly automobiles, office equipment and other durable
goods), tourism and agriculture, and historically has been highly cyclical.
Total State wage and salary employment is estimated to have grown by
1.5% in 1997. The rate of unemployment is estimated to have been 4.1% in 1997,
below the national average for the fourth consecutive year. Personal income
grew at an estimated 4.7% annual rate in 1997, up from the 4.2% growth reported
for 1996.
During the past five years, improvements in the Michigan economy have
resulted in increased revenue collections which, together with restraints on the
expenditure side of the budget, have resulted in State General Fund budget
surpluses, most of which were transferred to the State's Counter-Cyclical Budget
and Economic Stabilization Fund. The balance of that Fund as of September 30,
1997 is estimated to have been in excess of $1.1 billion.
The Michigan Constitution limits the amount of total State revenues
that can be raised from taxes and certain other sources. State revenues
(excluding federal aid and revenues for payment of principal and interest on
general obligation bonds) in any fiscal year are limited to a fixed percentage
of State personal income in the prior calendar year or the average of the prior
three calendar years, whichever is greater, and this fixed percentage equals the
percentage of the 1978-79 fiscal year state government revenues to total
calendar 1977 State personal income (which was 9.49%).
The Michigan Constitution also provides that the proportion of State
spending paid to all units of local government to total State spending may not
be reduced below the proportion in effect in the 1978-79 fiscal year. The State
originally determined that portion to be 41.6%. If such spending does not meet
the required level in a given year, an additional appropriation for local
governmental units is required by the following fiscal year; which means the
year following the determinations of the shortfall, according to an opinion
issued by
-22-
<PAGE> 25
the State's Attorney General. Spending for local units met this requirement for
fiscal years 1986-87 through 1991-92. As the result of litigation, the State
agreed to reclassify certain expenditures, beginning with fiscal year 1992-93,
and has recalculated the required percentage of spending paid to local
government units to be 48.97%.
The State has issued and has outstanding general obligation full faith
and credit bonds for Water Resources, Environmental Protection Program,
Recreation Program and School Loan purposes. As of September 30, 1997, the State
had approximately $677 million of general obligation bonds outstanding.
The State may issue notes or bonds without voter approval for the
purposes of making loans to school districts. The proceeds of such notes or
bonds are deposited in the School Bond Loan Fund maintained by the State
Treasurer and used to make loans to school districts for payment of debt on
qualified general obligations bonds issued by local school districts.
The State is a party to various legal proceedings seeking damages or
injunctive or other relief. In addition to routine litigation, certain of these
proceedings could, if unfavorably resolved from the point of view of the State,
substantially affect State programs or finances. As of early 1998, these
lawsuits involved programs generally in the areas of corrections, tax
collection, commerce, and proceedings involving budgetary reductions to school
districts and governmental units, and court funding.
The State Constitution limits the extent to which municipalities or
political subdivisions may levy taxes upon real and personal property through a
process that regulates assessments.
On March 15, 1994, Michigan voters approved a property tax and school
finance reform measure commonly known as Proposal A. Under Proposal A, as
approved, effective May 1, 1994, the State sales and use tax increased from 4%
to 6%, the State income tax decreased from 4.6% to 4.4%, the cigarette tax
increased from $.25 to $.75 per pack and an additional tax of 16% of the
wholesale price began to be imposed on certain other tobacco products. A .75%
real estate transfer tax became effective January 1, 1995. Beginning in 1994, a
state property tax of 6 mills began to be imposed on all real and personal
property currently subject to the general property tax. All local school boards
are authorized, with voter approval, to levy up to the lesser of 18 mills or the
number of mills levied in 1993 for school operating purposes on nonhomestead
property and nonqualified agricultural property. Proposal A contains additional
provisions regarding the ability of local school districts to levy taxes, as
well as a limit on assessment increases for each parcel of property, beginning
in 1995. Such increases for each parcel of property are limited to the lesser
of 5% or the rate of inflation. When property is subsequently sold, its
assessed value will revert to the current
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<PAGE> 26
assessment level of 50% of true cash value. Under Proposal A, much of the
additional revenue generated by the new taxes will be dedicated to the State
School Aid Fund.
Proposal A and its implementing legislation shifted significant
portions of the cost of local school operations from local school districts to
the State and raised additional State revenues to fund these additional State
expenses. These additional revenues will be included within the State's
constitutional revenue limitations and may impact the State's ability to raise
additional revenues in the future.
A state economy during a recessionary cycle would also, as a separate
matter, adversely affect the capacity of users of facilities constructed or
acquired through the proceeds of private activity bonds or other "revenue"
securities to make periodic payments for the use of those facilities.
Derivative Securities
- ---------------------
The Investment Adviser or Sub-Adviser will evaluate the risks
presented by the derivative instruments purchased by the Funds and the Money
Market Fund, and will determine, in connection with its day-to-day management of
the Funds and the Money Market Fund, how they will be used in furtherance of the
Funds' and the Money Market Fund's investment objectives. It is possible,
however, that the Investment Adviser's or Sub-Adviser's evaluations will prove
to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds and the Money Market Fund will, because of the risks
discussed above, incur loss as a result of their investments in derivative
instruments.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the Prospectus,
the Funds and the Money Market Fund are subject to the following investment
limitations which may not be changed without approval of the holders of the
majority of the outstanding shares of the affected Fund or the Money Market Fund
(as defined under "Description of Shares" below).
Each Fund and the Money Market Fund may not:
1. Purchase or sell real estate, except that each may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Invest in commodities, except that as consistent with a Fund's
investment objective and policies: (a) each Fund and the Money Market Fund,
other than the Intermediate Bond Fund, may purchase and sell options, forward
contracts, futures contracts, including without limitation those relating to
indices, and options on futures contracts or indices; (b) each Fund and the
Money Market Fund may purchase publicly traded securities of companies engaging
in whole or in part in such activities; and (c) the Intermediate Bond Fund will
not purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that it may, to the extent
appropriate to its investment objective, purchase publicly traded securities of
companies engaging in whole or in part in such activities and may enter into
futures contracts and related options.
-24-
<PAGE> 27
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as it might be deemed to be an underwriter
upon the disposition of portfolio securities acquired within the limitation on
purchases of restricted securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with its investment
objective, policies and limitations may be deemed to be underwriting.
In addition to the above fundamental limitations, the Funds and the
Money Market Fund are subject to the following non-fundamental limitations,
which may be changed without a shareholder vote:
Each Fund and the Money Market Fund may not:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except as consistent with a Fund's investment objective
and policies, for transactions in options on securities or indices of
securities, futures contracts and options on futures contracts and in similar
investments.
3. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to its transactions in futures contracts and related options and in
options on securities or indices of securities and similar instruments, and (b)
it may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of exercising
control.
5. Invest more than 15% (10% for the Money Market Fund) of its net
assets in illiquid securities.
No Fund intends to purchase securities while its outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of its
assets. Securities held in escrow or separate accounts in connection with its
investment practices are not deemed to be pledging for purposes of this
limitation.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered and sold on a continuous basis by the
Trust's distributor, BISYS Fund Services ("BISYS"), acting as agent.
-25-
<PAGE> 28
As of the date of this Statement of Additional Information, no shares
of the Short Muncipal Bond Fund or Market Expansion Index Fund were issued or
outstanding. An illustration of the computation of the public offering price per
share of the Funds, based on the value of each class of the Fund's total net
assets and total number of shares of each class outstanding on December 31, 1997
is as follows:
<TABLE>
<CAPTION>
Net Asset Offering
Outstanding Value Per Sales Price to
Fund Net Assets Shares Share Charge Public
- ---- ------------ ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Managed Assets Conservative Fund
Class A Shares $ 90,835,386 6,076,825 $14.95 $0.79/(1)/ $15.74
Class B Shares $ 13,377,680 893,858 $14.97 -- $14.97
Class I Shares $ 10,309,436 687,315 $15.00 -- $15.00
Managed Assets Balanced Fund
Class A Shares $141,803,809 11,894,951 $11.92 $0.63/(1)/ $12.55
Class B Shares $ 10,025,684 755,293 $13.27 -- $13.27
Class I Shares $102,042,343 8,569,472 $11.91 -- $11.91
Managed Assets Growth Fund
Class A Shares $ 5,724,639 497,204 $11.51 $0.61/(1)/ $12.12
Class B Shares $ 5,936,435 522,850 $11.35 -- $11.35
Class I Shares $ 1,429,969 123,628 $11.57 -- $11.57
Equity Income Fund
Class A Shares $ 12,583,119 963,796 $13.06 $0.69/(1)/ $13.75
Class B Shares $ 3,156,636 241,897 $13.05 -- $13.05
Class I Shares $304,259,934 23,375,587 $13.02 -- $13.02
Growth Fund
Class A Shares $ 62,561,833 4,152,571 $15.07 $0.79/(1)/ $15.86
Class B Shares $ 2,160,866 145,391 $14.86 -- $14.86
Class I Shares $578,489,684 38,373,830 $15.08 -- $15.08
Mid-Cap Opportunity Fund
Class A Shares $234,019,581 11,203,992 $20.89 $1.10/(1)/ $21.99
Class B Shares $ 3,965,140 374,706 $10.58 -- $10.58
</TABLE>
-26-
<PAGE> 29
<TABLE>
<CAPTION>
Net Asset Offering
Outstanding Value Per Sales Price to
Fund Net Assets Shares Share Charge Public
- ---- ------------ ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Class I Shares $803,669,676 38,391,879 $20.93 -- $20.93
Small-Cap Opportunity Fund
Class A Shares $ 21,835,548 1,361,809 $16.03 $0.84/(1)/ $16.87
Class B Shares $ 1,799,023 114,264 $15.74 -- $15.74
Class I Shares $217,907,666 13,431,245 $16.22 -- $16.22
Intrinsic Value Fund
Class A Shares $ 82,790,941 5,285,120 $15.66 $0.82/(1)/ $16.48
Class B Shares $ 3,301,574 294,018 $11.23 -- $11.23
Class I Shares $539,948,432 34,455,448 $15.67 -- $15.67
Growth and Value Fund
Class A Shares $162,393,347 9,916,334 $16.38 $0.86/(1)/ $17.24
Class B Shares $ 5,107,031 501,229 $10.19 -- $10.19
Class I Shares $895,567,436 54,653,280 $16.39 -- $16.39
Equity Index Fund
Class A Shares $193,663,013 9,066,009 $21.36 $0.66/(3)/ $22.02
Class B Shares $ 1,514,644 116,395 $13.01 -- $13.01
Class I Shares $639,868,430 29,949,195 $21.37 -- $21.37
International Equity Fund
Class A Shares $ 26,703,310 2,204,629 $12.11 $0.64/(1)/ $12.75
Class B Shares $ 1,763,332 155,070 $11.37 -- $11.37
Class I Shares $487,986,225 40,193,776 $12.14 -- $12.14
International Bond Fund
Class A Shares $ 42,343,077 4,043,105 $10.47 $0.32/(3)/ $10.79
Class B Shares $ 384,727 37,057 $10.38 -- $10.38
Class I Shares $482,678,999 46,067,858 $10.48 -- $10.48
Bond Fund
Class A Shares $125,515,486 11,849,709 $10.59 $0.50/(2)/ $11.09
Class B Shares $ 3,393,507 320,343 $10.59 -- $10.59
</TABLE>
-27-
<PAGE> 30
<TABLE>
<CAPTION>
Net Asset Offering
Outstanding Value Per Sales Price to
Fund Net Assets Shares Share Charge Public
- ---- -------------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Class I Shares $1,101,893,572 104,010,884 $10.59 -- $10.59
Short Bond Fund
Class A Shares $ 4,738,270 466,906 $10.15 $0.10/(4)/ $10.25
Class B Shares $ 540,515 53,756 $10.05 -- $10.05
Class I Shares $ 234,971,752 23,159,164 $10.15 -- $10.15
Multi Sector Bond Fund
Class A Shares $ 7,832,393 979,458 $ 8.00 $0.25/(3)/ $ 8.25
Class B Shares $ 532,835 66,574 $ 8.00 -- $ 8.00
Class I Shares $ 94,543,563 11,806,548 $ 8.01 -- $ 8.01
International Bond Fund
Class A Shares $ 6,419,244 649,764 $ 9.88 $0.47/(2)/ $10.35
Class B Shares $ 117,382 11,790 $ 9.96 -- $ 9.96
Class I Shares $ 81,843,055 8,239,376 $ 9.93 -- $ 9.93
High Yield Bond Fund
Class A Shares $ 569,747 55,794 $10.21 $0.48/(2)/ $10.69
Class B Shares $ 76,927 7,542 $10.20 -- $10.20
Class I Shares $ 49,150,340 4,780,481 $10.28 -- $10.28
Municipal Bond Fund
Class A Shares $ 34,728,537 2,699,210 $12.87 $0.61/(2)/ $13.48
Class B Shares $ 1,312,385 102,087 $12.86 -- $12.86
Class I Shares $ 355,814,079 27,674,363 $12.86 -- $12.86
Intermediate Municipal Bond Fund
Class A Shares $ 18,902,884 1,533,724 $12.32 $0.38/(3)/ $12.70
Class B Shares $ 708,808 57,554 $12.32 -- $12.32
Class I Shares $ 377,330,810 30,602,829 $12.33 -- $12.33
Michigan Municipal Bond Fund
Class A Shares $ 18,687,389 1,709,611 $10.93 $0.52/(2)/ $11.45
Class B Shares $ 707,359 66,813 $10.59 -- $10.59
Class I Shares $ 61,768,202 5,651,477 $10.93 -- $10.93
</TABLE>
- -------------------------
1. The applicable sales charge for this Fund is 5.00% of offering price (5.26%
of net asset value per share).
-28-
<PAGE> 31
2. The applicable sales charge for this Fund is 4.50% of offering price (4.69%
of net asset value per share).
3. The applicable sales charge for this Fund is 3.00% of offering price (3.01%
of net asset value per share).
4. The applicable sales charge for this Fund is 1.00% of offering price (1.01%
of net asset value per share).
Reduced sales loads apply to purchases of Class A shares made by any
"purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children, or a trustee or other fiduciary purchasing securities for a single
trust estate or a single fiduciary account (including a pension, profit-sharing
or other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code) although more than one beneficiary is involved; or a
group of accounts established by or on behalf of the employees of an employer or
affiliated employers pursuant to an employee benefit plan or other program
(including accounts established pursuant to Sections 403(b), 408(k), and 457 of
the Code).
Investors who set up a Systematic Withdrawal Plan ("SWP") for Class B
shares (see "Shareholder Services -- Option to Make Systematic Withdrawals" in
the Prospectus) may withdraw through the SWP up to 10% of the net asset value of
the account each year without incurring any CDSC. Shares not subject to a CDSC
(such as shares representing reinvestment of distributions or representing any
capital appreciation in the value of the account held) will be redeemed first
and will count toward the 10% limitation. If there are insufficient shares not
subject to a CDSC, shares subject to the lowest CDSC liability will be redeemed
next until the 10% limit is reached. The 10% figure is calculated on a pro rata
basis at the time of the first payment made pursuant to a SWP and recalculated
thereafter on a pro rata basis at the time of each SWP payment. Therefore,
shareholders who have chosen an SWP based on a percentage of the net asset value
of their account of up to 10% will be able to receive SWP payments without
incurring a CDSC. However, shareholders who have chosen a specific dollar amount
(for example, $100 per month from a fund that pays income distributions monthly)
for their periodic SWP payment should be aware that the amount of that payment
not subject to a CDSC may vary over time depending on the net asset value of
their account. For example, if the net asset value of the account is $12,000 at
the time of payment, the shareholder will receive $100 free of the CDSC (10% of
$12,000 divided by 12 monthly payments). However, if at the time of the next
payment the net asset value of the account has fallen to $9,000, the shareholder
will receive $75 free of any CDSC (10% of $9,000 divided by 12 monthly payments)
and $25 subject to the lowest applicable CDSC. This SWP privilege may be revised
or terminated at any time.
Under the 1940 Act, 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 is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. (The Trust may also suspend or
postpone the recordation of the transfer of shares upon the occurrence of any of
the foregoing conditions.)
In addition to the situations described in the Prospectus under
"Redemption of Shares," the Trust may redeem shares involuntarily to reimburse
the Funds for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to a transaction effected for the benefit of a shareholder which
is applicable to Fund shares as provided in the Prospectus from time to time.
The Trust normally redeems shares for cash. However, the Board of
Trustees can determine that conditions exist making cash payments undesirable.
If they should so determine, redemption payments could be made in securities
valued at the value used in determining net asset value. There may be brokerage
and other costs incurred by the redeeming shareholder in selling such
securities. The Trust has elected to be covered by Rule 18f-1 under the 1940
Act, pursuant to which the Trust is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of net asset value during any 90-day period for
any one shareholder.
Total sales charges paid by shareholders of the Funds for the fiscal
years or periods ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997/(1)/ 1996/(1)/ 1995
------------ ------------ ------------
<S> <C> <C> <C>
Managed Assets Conservative Fund $60,203 $13,529 $ 79,374
Managed Assets Balanced Fund $42,622 $ 7,750 $ 37,984
Managed Assets Growth Fund $17,108 $ 1,156 N/A
Equity Income Fund $ 6,487 $ 1,355 $ 11,393
Growth Fund $ 8,696 $ 6,351 $ 5,937
Mid-Cap Opportunity Fund $18,106 $ 8,203 $122,061
</TABLE>
-29-
<PAGE> 32
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997(1) 1996(1) 1995
<S> <C> <C> <C>
Small-Cap Opportunity Fund $ 8,477 $ 2,068 $ 1,857
Intrinsic Value Fund $12,815 $ 3,337 $ 17,964
Growth and Value Fund $19,798 $ 9,325 $ 92,788
Equity Index Fund $ 6,868 $ 1,042 N/A
International Equity Fund $ 5,000 $ 5,354 $ 13,659
Intermediate Bond Fund $ 1,280 $ 2,389 $ 7,877
Bond Fund $16,351 $ 5,548 $ 30,433
Short Bond Fund $ 344 $ 1,247 $ 2,848
Multi Sector Bond Fund $ 148 $ 2,411 $ 7,948
International Bond Fund $ 1,084 $ 1,053 $ 1,551
Municipal Bond Fund $ 6,711 $ 3,698 $ 8,055
Intermediate Municipal Bond Fund $ 1,864 $ 1,561 $ 15,797
Michigan Municipal Bond Fund $ 5,191 $ 3,358 $105,322
</TABLE>
(1) Includes the Contingent Deferred Sales Charge imposed on Class B Shares and
certain redemptions of Class A Shares.
*Not available
Payment for shares of a Fund may, in the discretion of FCNIMCO, be
made in the form of securities that are permissible investments for the Fund as
described in the Prospectus. For further information about this form of payment,
contact FCNIMCO. In connection with an in-kind securities payment, a Fund will
require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receive satisfactory assurances that it will have good and marketable title
to the securities received by it; that the securities be in proper form for
transfer to the Fund; and that adequate information be provided concerning the
basis and other tax matters relating to the securities.
The transaction fee described in the Prospectus with respect to the
Market Expansion Index Fund does not apply to in-kind purchases of shares that
are structured to minimize the related brokerage, market impact costs and other
transaction costs as described in the Prospectus.
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust authorizes
the Board of Trustees to divide shares into two or more series, each series
relating to a separate portfolio of investments, and divide the shares of any
series into two or more classes. The number of shares of each series and/or of a
class within each series shall be unlimited. The Trust does not intend to issue
share certificates.
In the event of a liquidation or dissolution of the Trust or an
individual fund, shareholders of a particular fund would be entitled to receive
the assets available for distribution belonging to such fund. If there are any
assets, income, earnings, proceeds, or payments, which are not readily
identifiable as belonging to any particular Fund, the Trustees shall allocate
them among any one or more of the Funds as they, in their sole discretion, deem
fair and equitable.
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 affected by the matter. A fund is affected by a matter unless it is
clear that the interests of each fund in the matter are substantially identical
or that the matter does not affect any interest of the fund. Under the Rule, the
approval of an
-30-
<PAGE> 33
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a fund only if approved by a
majority of the outstanding shares of such fund. However, the Rule also provides
that the ratification of the appointment of independent accountants, the
approval of principal underwriting contracts and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting together in the
aggregate without regard to particular funds.
When used in the Prospectus or in this Additional Statement, a
"majority" of shareholders means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the vote of the lesser of (1) 67% of the shares of the Trust, or the
applicable fund, present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable fund.
As of March 31, 1998, the name and address, number and percentage
of class ownership of each person who owned of record 5% or more of any class of
shares is set forth below.
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ---------------- --------- -------------
<S> <C> <C> <C>
Managed Assets Corelink Financial, Inc. 462,470.019 7.35%
Conservative Fund- P.O. Box 4054
Class A Concord, CA 94524-4054
Managed Assets First Chicago NBD TTEE 648,838.085 91.87%
Conservative Fund- First Chicago NBD Svgs & Invsmt
Class I Plan
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Managed Assets Corelink Financial, Inc. 5,602,964.273 45.31%
Balanced Fund- P.O. Box 4054
Class A Concord, CA 94524-4054
First Chicago NBD TTEE 1,558,557.094 12.61%
Clarian Health Partners Inc.
Defined Contribution Plan c/o
Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ---------------- --------------- -------------
<S> <C> <C> <C>
Managed Assets Corelink Financial Inc. 83,497.708 8.40%
Balanced Fund- P.O. Box 4054
Class B Concord, CA 94524-4054
Managed Assets First Chicago NBD TTEE 5,106,323.851 65.94%
Balanced Fund- First Chicago NBD Svgs & Invsmt
Class I P1n
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Managed Assets Corelink Financial Inc. 55,181.001 8.96%
Growth Fund- P.O. Box 4054
Class A Concord, CA 94524-4054
Managed Assets R. Hugh Elliot 59,799.296 49.29%
Growth Fund 4888 Sider Hill Drive
Class I Rochester, MI 46306
Growth Fund- Corelink Financial, Inc. 874,534.594 14.99%
Class A FBO 26052652
P.O. Box 4054
Concord, CA 94524-4054
Growth Fund- Corelink Financial Inc. 20,268.413 11.01%
Class B P.O. Box 4054
Concord, CA 94524-4054
Mid-Cap Corelink Financial Services 2,347,388.171 18.16%
Opportunity Fund- P.O. Box 4054
Class A Concord, CA 94524-4054
</TABLE>
-32-
<PAGE> 35
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ---------------- --------------- --------------
<S> <C> <C> <C>
Mac and Company 853,636.386 6.60%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230
NBD Bank TTEE 922,435.577 7.14%
American Axle and Mfg., Inc.
Personal S/P Hourly Rate
Associates
900 Tower DR
Troy, MI 48098
Mid-Cap Corelink Financial, Inc. 51,587.495 10.93%
Opportunity Fund- P.O. Box 4054
Class B Concord, CA 94524-4054
Mid-Cap First Chicago NBD TTEE 5,347,943.347 14.68%
Opportunity Fund- First Chicago NBD Svgs & Invsmt
Class I Pln
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Small-Cap Corelink Financial, Inc. 135,978.536 8.30%
Opportunity Fund- P.O. Box 4054
Class A Concord, CA 94524-4054
NBD As Trustee 277,981.628 16.97%
Bankers Systems, Inc.
Employess Profits Sharing Plan
107 N. Cross St., Ste. 2092
Wheaton, IL 60187
Small-Cap Corelink Financial, Inc. 11,356.770 7.05%
Opportunity Fund- P.O. Box 4054
Class B Concord, CA 94524-4054
Intrinsic Value Corelink Financial, Inc. 794,283.574 11.44%
Fund-Class A P.O. Box 4054
Concord, CA 94524-4054
Intrinsic Value Corelink Financial, Inc. 22,196.805 6.24%
Fund-Class B P.O. Box 4054
Concord, CA 94524-4054
Growth and Value Corelink Financial, Inc. 2,015,083.967 13.89%
Fund - Class A P.O. Box 4054
Concord, CA 94524-4054
</TABLE>
-33-
<PAGE> 36
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ---------------- --------- -------------
<S> <C> <C> <C>
Growth and Value Corelink Financial Inc. 43,230.462 6.30%
Fund-Class B P.O. Box 4054
Concord, CA 94524-4054
Growth and Value First Chicago NBD TTEE 6,935,003.518 13.39%
Fund-Class I First Chicago NBD Svgs & Invsmt
Plan
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Equity Income Fund- Corelink Financial, Inc 111,101.351 11.16%
Class A P.O. Box 4054
Concord, CA 94524-4054
Equity Index Fund- NBD Bank TTEE 591,054.465 5.81%
Class A Reilly Industries, Inc. 401(k)
Deferred Savings Plan U/A DTD
07/24/87
107 N. Cross, Suite 2092
Wheaton, IL 60187
NBD TTEE 866,846.819 8.52%
American Axle & Mfg., Inc.
Personal S/P Hourly Rate
Associates
900 Tower Drive
Troy, MI 46098
First Chicago NBD TTEE 569,841.540 5.60%
Honigman Miller Shwartz & Cohn
Income Deferral Plan and
Profit Sharing Plan
C/P Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Corelink Financial, Inc. 3,013,301.729 29.63%
P.O. Box 4054
Concord, CA 94524-9740
International Corelink Financial, Inc. 170,470.343 6.03%
Equity Fund- P.O. Box 4054
Class A Concord, CA 94524-4054
</TABLE>
-34-
<PAGE> 37
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ---------------- -------- -----------
<S> <C> <C> <C>
International Equity Corelink Financial Services 16,511.556 9.66%
Fund-Class B FBD 28052652
P.O. Box 4054
Concord, CA 945424-4054
Intermediate Bond Canandaiqua Brands Inc. 610,140.266 7.69%
Fund-Class A 401 (k) and
Profit Sharing Plan
300 Willowbrook
Office Park
Fairport, NY 14450
Corelink Financial Service 646,604.360 8.15%
P.O. Box 4054
Concord, CA 94524-4054
Intermediate Bond Donaldson, Lufkin & Jenrette 11,651.475 19.57%
Fund-Class B Securities Corp. Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Corelink Financial Services 16,222.253 27.25%
P.O. Box 4054
Concord, CA 94524-4054
Bond Fund-Class A Putnam Fiduciary Trust Co, TTEE 1,365,372.602 7.97%
Elco Textron, Inc.
859 Willard St.
MSE2C
Quincy, MA 02269-9110
Corelink Financial Services 1,467,038.203 8.56%
P.O. Box 4054
Concord, CA 94524-4054
</TABLE>
-35-
<PAGE> 38
<TABLE>
<CAPTION> Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ----------------- ----------- -------------
<S> <C> <C> <C>
Short Bond Fund- Donaldson, Lufkin & Jenrette 19,499.298 68.95%
Class B Securities Corp. Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
BA Investment Services, Inc. 4,240.192 14.99%
185 Berry St.
3rd Floor, #12640
San Francisco, CA 94107
Multi Sector Bond First Chicago As Trustee 85,301.146 5.45%
Fund- Class A FBO Soft Sheen Products Inc.
Retirement and Incentive Savings
Trust
U/A DTD 8/1/96
107 N. Cross
Suite 2092
Wheaton, IL 60187
First Chicago As TTEE 95,146.252 6.08%
McDonough Assoc.
218 E. Wesley Street
Suite 2030
Wheaton, IL 60187-5323
Corelink Financial, Inc. 169,553.877 10.83%
P.O. Box 4054
Concord, CA 94524-4054
</TABLE>
-36-
<PAGE> 39
<TABLE>
<CAPTION> Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ---------------- ---------- -------------
<S> <C> <C> <C>
First Chicago 87,599.094 5.59%
Brambles USA Inc. Pro & Sal Plan
DTD 7/1/96
107 N. Cross
Suite 2092
Wheaton, IL 60187
Multi Sector Bond Donaldson, Lufkin & Jenrette 14,808.895 20.49%
Fund-Class B Securities Corp. Inc.
P.O. Box 2052
Jersey City, NJ 07399
International Bond Employees Retirement Plan of 3,694,187.581 45.27%
Fund-Class I NBD BanCorp
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
International Bond Donaldson, Lufkin & Jenrette 3,547.965 24.18%
Fund-Class B Securities Corp. Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
High Yield Bond Donaldson, Lufkin & Jenrette 37,006.591 49.50%
Fund - Class A Securities Corp. Inc.
P.O. Box 2052
Jersey City, NJ 07303
High Yield Bond Donaldson, Lufkin & Jenrette 16,526.820 78.49%
Fund - Class B P.O. Box 2052
Jersey City, NJ 07303-9998
High Yield Bond Employees Retirement Plan of 1,631,439.269 29.45%
Fund - Class I NBD Bancorp
Trust Administration
611 Woodward Ave.
Detroit, MI 48232
Pegasus Managed Assets Balanced 1,523,055.867 27.50%
Fund
NBD Bank
Trust Administration
611 Woodward Ave.
Detroit, MI 48232
Municipal Bond Donaldson, Lufkin & Jenrette 614,914.120 22.01%
Fund-Class A Securities Corp. Inc.
P.O. Box 2052
Jersey City, NJ 07399
Municipal Bond Donaldson, Lufkin & Jenrette 39,422.804 37.26%
Fund-Class B Securities Corp. Inc.
One Pershing Plaza
Jersey City, NJ 07303-9998
Intermediate Donaldson, Lufkin & Jenrette 191,050.778 12.25%
Municipal Bond Securities Corp., Inc.
Fund-Class P.O. Box 2052
Jersey City, NJ 07399
</TABLE>
-37-
<PAGE> 40
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
- ---- ---------------- --------------- -------------
<S> <C> <C> <C>
Intermediate Donaldson, Lufkin & Jenrette 27,483.619 46.23%
Municipal Bond Securities Corp. Inc.
Fund-Class B P.O. Box 2052
Jersey City, NJ 07303
Michigan James J. Donahey 109,080.242 6.27%
Municipal Bond Pat J. Donahey JT Ten
Fund-Class A 421 Highland
Ann Arbor, MI 48104
Michigan Donaldson, Lufkin & Jenrette 57,218.657 62.81%
Municipal Bond Securities Corp. Inc.
Fund-Class B P.O. Box 2052
Jersey City, NJ 07303-9998
Money Market Corelink Financial Services 363,324,870 79.65%
Fund- P.O. Box 4054
Class B Concord, CA 94524-4054
Donaldson, Lufkin & Jenrette 52,857.460 11.59%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Money Market First National Bank of Chicago 79,386,048.790 5.30%
Fund- Corporate Trust Administration
Class I 1 F&B Playa
Suite 0216
Chicago, Il. 60670-0001
First Chicago NBD TTEE 160,826,963.830 10.74%
First Chicago NBD Svgs & Invsmt
Plan
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
</TABLE>
As of March 31, 1998, Trussal & Co., a nominee of NBD's Trust
Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of record
14.24%, 10.76%, 5.02%, 46.92%, 60.07%, 35.08%, 74.47%, 67.71%, 73.48%, 58.32%,
74.27%, 69.60%, 35.98%, 96.50%, 73.36%, 83.83%, 28.19%, 8.56%, 72.72% and
38.47%, respectively, of the outstanding shares of the Managed Assets Balanced,
Managed Assets Growth, Equity Income, Growth, Mid-Cap Opportunity, Small-Cap
Opportunity,
-38-
<PAGE> 41
Intrinsic Value, Growth and Value, Equity Index, International Equity,
Intermediate Bond, Bond, Short Bond, Multi Section Bond, International Bond,
High Yield Bond, Municipal Bond, Intermediate Municipal Bond, Michigan Municipal
Bond and Money Market Funds, respectively. As of March 31, 1998, Eagle & Co., a
nominee of American National Bank and Trust Company, 1 North LaSalle Street, 3rd
Floor, Chicago, Illinois 60602, held of record 88.55%, 42.21%, 5.09%, 52.52%,
34.17%, 8.28%, 57.18% 15.19%, 17.04%, 14.19%, 14.00%, 62.31% and 85.72%,
respectively, of the outstanding shares of the Equity Income, Growth, Mid-Cap
Opportunity, Small-Cap Opportunity, International Equity, Intrinsic Value, Multi
Sector Bond, Bond, Intermediate Bond, International Bond, High Yield Bond,
Municipal Bond and Intermediate Municipal Bond Funds, respectively.
When issued for payment as described in the Funds' Prospectus and this
Additional Statement, shares of the Funds will be fully paid and non-assessable
by the Trust.
The Declaration of Trust provides that the Trustees, officers,
employees and agents of the Trust will not be liable to the Trust or to a
shareholder, nor will any such person be liable to any third party in connection
with the affairs of the Trust, except as such liability may arise from his or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of duties. It also provides that all third parties shall look solely to the
Trust property for satisfaction of claims arising in connection with the affairs
of the Trust. With the exceptions stated, the Declaration of Trust provides that
a Trustee, officer, employee or agent is entitled to be indemnified against all
liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
- ----------------
The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations which are in effect on the date hereof; such laws
and regulations may be changed by legislative or administrative action.
Investors are advised to consult their tax advisers with specific reference to
their own tax situations.
Each Fund is treated as a separate corporate entity under the Code and
intends to qualify as a regulated investment company. As a regulated investment
company, each Fund is exempt from Federal income tax on its net investment
income and realized capital gains which it distributes to shareholders, provided
that it distributes an amount equal to at least the sum of (a) 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gain over net long-term capital loss, if any, for the year)
and (b) 90% of its net tax-exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income and
net tax-exempt interest income, if any, made
-39-
<PAGE> 42
during taxable year or, under specified circumstances, within twelve months
after the close of the taxable year, will satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, each Fund
must satisfy certain requirements with respect to the source of its income for a
taxable year. At least 90% of the gross income of each Fund must be derived from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stocks, securities or foreign currencies, and other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to the Fund's business of investing in such
stock, securities or currencies. The Treasury Department may by regulation
exclude from qualifying income foreign currency gains which are not directly
related to the Fund's principal business of investing in stock or securities, or
options and futures with respect to stock or securities. Any income derived by a
Fund from a partnership or trust is treated as derived with respect to the
Fund's business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
Each Fund will designate the tax status of distributions in a written
notice mailed to shareholders within 60 days after the close of the Fund's
taxable year. Upon the sale or exchange of Fund shares, if a shareholder has not
held such shares for at least six months, any loss on the sale or exchange of
those shares will be treated as long term capital loss to the extent of the
capital gain dividends received with respect to the shares.
-40-
<PAGE> 43
A 4% nondeductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
If for any taxable year a Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions (whether or not derived from interest on Municipal
Obligations) would be taxable as ordinary income to shareholders to the extent
of the Fund's current and accumulated earnings and profits and the dividends
received deduction would be available for corporations.
Each Fund may be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to backup withholding due to
prior failure to properly include on their return payments of taxable interest
or dividends, or who have failed to certify to the Fund that they are not
subject to backup withholding when required to do so or that they are "exempt
recipients."
As of December 31, 1997, the following Funds had capital loss
carryforwards and related expiration dates as follows:
<TABLE>
<CAPTION>
Fund 2002 2003 2004 2005 Total
- -------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
International Equity Fund $ -- $ 97,147 $1,083,369 $6,436,160 $ 7,616,676
Intermediate Bond Fund 3,896,190 2,190,497 168,406 -- 6,255,093
Bond Fund 15,197,602 1,041,792 -- -- 16,239,394
Municipal Bond Fund -- 333,098 1,928,844 -- 307,645
Michigan Municipal Bond Fund 29,400 -- 94,571 144,655 286,628
</TABLE>
Depending upon the extent of the Funds' activities in states and
localities in which their offices are maintained, in which their agents or
independent contractors are located or in which they are otherwise deemed to be
conducting business, the Funds may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income tax
laws, the treatment of the Funds and their shareholders under such laws may
differ from their treatment under federal income tax laws.
-41-
<PAGE> 44
As described above and in the Prospectus, the Municipal Bond Funds are
designed to provide investors with current tax-exempt interest income. The
Funds are not intended to constitute a balanced investment program and are not
designed for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of the Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and IRAs since such
plans and accounts are generally tax-exempt and, therefore, would not only fail
to gain any additional benefit from the Fund's dividends being tax-exempt, but
such dividends would be ultimately taxable to the beneficiaries when distributed
to them. In addition, the Funds may not be appropriate investments for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, (b) who occupies
more than 5% of the usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
Each Municipal Bond Fund's policy is to pay each year as federal
exempt-interest dividends substantially all of its Municipal Obligations
interest income net of certain deductions. In order for the Fund to pay exempt-
interest dividends with respect to any taxable year, at the close of each
quarter of its taxable year at least 50% of the aggregate value of the Fund's
assets must consist of exempt-interest obligations. After the close of its
taxable year, the Fund will notify its shareholders of the portion of the
dividends paid by it which constitutes an exempt-interest dividend with respect
to such taxable year. However, the aggregate amount of dividends so designated
by the Fund cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code received by the Fund during the taxable year over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the
Code. The percentage of total dividends paid by the Fund with respect to any
taxable year which qualify as federal exempt-interest dividends will be the same
for all shareholders receiving dividends for such year.
A percentage of the interest on indebtedness incurred by a shareholder
to purchase or carry a Municipal Bond Fund's shares, equal to the percentage of
the total non-capital gain dividends distributed during the shareholder's
taxable year that are exempt-interest dividends, is not deductible for federal
income tax purposes.
Michigan Taxes
- --------------
As stated in the Prospectuses, dividends paid by a Fund that are
derived from interest attributable to tax-exempt Michigan Municipal Obligations
will be exempt from
-42-
<PAGE> 45
Michigan income tax, Michigan intangibles tax and Michigan single business tax.
Conversely, to the extent that a Fund's dividends are derived from interest on
obligations other than Michigan Municipal Obligations or certain U.S. Government
obligations (or are derived from short-term or long-term gains), such dividends
will be subject to Michigan income tax, Michigan intangibles tax and Michigan
single business tax, even though the dividends may be exempt for federal income
tax purposes.
In particular, gross interest income and dividends derived from
obligations or securities of the State of Michigan and its political
subdivisions, exempt from federal income tax, are exempt from Michigan income
tax under Act No. 281, Public Acts of Michigan, 1967, as amended ("Michigan
Income Tax Act"), from Michigan intangibles tax under Act No. 301, Public Acts
of Michigan, 1939, as amended ("Michigan Intangibles Tax Act") and from Michigan
single business tax under Act. No. 228, Public Acts of Michigan, 1975, as
amended ("Michigan Single Business Tax Act"). The Michigan Income Tax Act
levies a flat rate income tax on individuals, estates and trusts. The Michigan
Intangibles Tax Act levies a tax on the ownership of intangible personal
property of individuals, estates, trusts and certain corporations. The Single
Business Tax Act levies a tax of 2.30% upon the "adjusted tax base" of most
individuals, financial institutions, partnerships, joint ventures, corporations,
estates and trusts engaged in "business activity" as defined in the Act.
The transfer of Fund shares by a shareholder is subject to Michigan
taxes measured by gain on the sale, payment or other disposition thereof. In
addition, the transfer of Fund shares by a shareholder may be subject to
Michigan estate or inheritance tax under Act No. 188, Public Acts of Michigan,
1899, as amended ("Michigan Estate Tax").
The foregoing is only a summary of some of the important Michigan
state tax considerations generally affecting the Michigan Municipal Bond Fund
and its shareholders. No attempt has been made to present a detailed
explanation of the Michigan state tax treatment of the Fund or its shareholders,
and this discussion is not intended as a substitute for careful planning.
Accordingly, potential investors in this Fund should consult their tax advisers
with respect to the application of such taxes to the receipt of Fund dividends
and as to their own Michigan state tax situation, in general.
MANAGEMENT
Trustees and Officers of the Trust
- ----------------------------------
The Trustees and executive officers of the Trust, their ages and their
principal occupations for the last five years are set forth below. Each Trustee
has an address at Pegasus Funds, c/o NBD Bank, 900 Tower Drive, Troy, Michigan
48098. Each Trustee also serves as a trustee of Pegasus Variable Funds, a
registered investment Company advised by the Investment Adviser.
-43-
<PAGE> 46
Nicholas J. De Grazia, Trustee
Business Consultant (1997); Consultant, Lionel L.L.C. (1995-1996); President,
Chief Operating Officer and Director, Lionel Trains, Inc. (1990-1995); Vice
President-Finance and Treasurer, University of Detroit (1981-1990); President
(1981-1990) and Director (1986-1995), Polymer Technologies, Inc.; President,
Florence Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities Authority (since 1991); Trustee, Pegasus Variable
Funds. He is 55 years old.
John P. Gould, Trustee, Chairman of the Board
Executive Vice President of Lexecon Inc. (since 1995); Steven G. Rothmeier
Professor (since January, 1996); Distinguished Service Professor of Economics of
the University of Chicago Graduate School of Business (since 1984); Dean of the
University of Chicago Graduate School of Business (1983-1993); Member of
Economic Club of Chicago and Commercial Club of Chicago; Director of Harbor
Capital Advisors and Dimensional Fund Advisors; Trustee, Pegasus Variable
Funds. He is 59 years old.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern University (since
1985); Director of Planning and Policy Development for the University of
Colorado (1981-1985); Member of the Board of Directors of Evanston Hospital,
Mather Foundation and Metropolitan Family Services; Member of Economic Club of
Chicago and Chicago Network; Trustee, Pegasus Variable Funds. She is 50 years
old.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman of the
Board (1974-1993), Maccabees Life Insurance Company; President and Chief
Executive Officer, Royal Financial Services (1991-1993); Director, American
Council of Life Insurance of Washington, D.C. (life insurance industry
association) (1988-1993); Director, Crowley, Milner and Company (department
store) (since 1988); Trustee, Lawrence Technological University (since
-44-
<PAGE> 47
1982); Director, Oakland Commerce Bank (since 1984) and Michigan Opera Theater
(since 1981); Trustee, Pegasus Variable Funds. He is 67 years old.
*Donald G. Sutherland, Trustee and President
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis, Indiana;
Trustee, Pegasus Variable Funds. He is 69 years old.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995), Association for
Investment Management and Research; Professor of Finance, Indiana University
(1970-1991); Vice President, Trust & Investment Advisers, Inc. (1990-1991);
Director, Federal Home Loan Bank of Indianapolis (1981-1985); Trustee, Pegasus
Variable Funds. He is 63 years old.
Alaina Metz, Vice President
An employee of the Distributor since June 1995. Prior to joining the
Distributor Ms. Metz was a supervisor at Alliance Capital Management L.P. in New
York. She is 31 years old and her address is 3435 Stelzer Road, Columbus, Ohio
43219-3035.
D'Ray Moore, Treasurer
An employee of the Distributor. She is 39 years old and her address is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania.
He is 55 years old, and his address is 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107
* Denotes Interested Trustee
____________________________
-45-
<PAGE> 48
For so long as the plan described in the section captioned
"Distribution and Shareholder Services Plans" remains in effect, the Trustees of
the Trust who are not "interested persons" of the Trust, as defined in the 1940
Act, will be selected and nominated by the Trustees who are not "interested
persons" of the Trust.
Each Trustee receives from the Trust and Pegasus Variable Funds a
total annual fee of $17,000 and a fee of $2,000 for each Board of Trustees
meeting attended. The Chairman is entitled to additional compensation of $4,250
per year for his services to the Trusts in that capacity. These fees are
allocated among the investment portfolios of the Trust and Pegasus Variable
Funds based on their relative net assets. All Trustees are reimbursed for out of
pocket expenses incurred in connection with attendance at meetings. Drinker
Biddle & Reath LLP, of which Mr. McConnel is a partner, receives legal fees as
counsel to the Trust.
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ended December 31, 1997:
-46-
<PAGE> 49
<TABLE>
<CAPTION>
(3)
Total
Compensation
(2) From Trust and
Aggregate Fund Complex**
(1) Compensation Paid to Board
Name of Board Member from Trust* Member
-------------------- ----------- ------
<S> <C> <C>
Will M. Caldwell, Trustee + $27,000 $27,000
Nicholas J. DeGrazia, Trustee $27,000 $27,000
John P. Gould, Trustee and $31,250 $27,000
Chairman of the Board
Marilyn McCoy, Trustee $27,000 $27,000
Julius L. Pallone, Trustee ++ $27,000 $27,000
Donald G. Sutherland, ++ $27,000 $27,000
Trustee and President
Donald L. Tuttle, Trustee ++ $27,000 $27,000
</TABLE>
______________________
* Amount does not include reimbursed expenses for attending Board meetings.
** The Fund Complex for the fiscal year ended December 31, 1997, consisted of
the Trust and Pegasus Variable Funds.
+ Mr. Caldwell resigned as Trustee of the Trust and Pegasus Variable Funds as of
December 31, 1997.
++ Deferred compensation in the amounts of $27,000, $13,500 and $27,000 accrued
during Pegasus Funds' fiscal year ended December 31, 1997 for Messrs. Pallone
and Tuttle and Ms. McCoy, respectively.
______________________
The Trustees and Officers of the Trust, as a group, owned less than
1% of the outstanding shares of each Fund as of December 31, 1997.
Investment Adviser
- ------------------
Information about the Investment Adviser and its duties and
compensation as investment adviser is contained in the Prospectus. In addition,
the Investment Adviser is entitled to 4/10ths of the gross income earned by a
Fund on each loan of securities (excluding capital gains and losses, if any).
The Investment Adviser has informed the Trust's Board of
-47-
<PAGE> 50
Trustees that since the inception of the Trust neither it nor any of its
affiliates has engaged in and received compensation for any transactions
involving lending of portfolio securities. Furthermore, neither the Investment
Adviser nor any of its affiliates will do so unless permitted by the SEC or SEC
staff.
The Investment Adviser's own investment portfolios may include bank
certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments any of which may also be purchased by
the Trust. Joint purchase of investments for the Trust and for the Investment
Adviser's own investment portfolios will not be made. The Investment Adviser's
and its affiliates' respective commercial banking departments may have deposit,
loan and other commercial banking relationships with issuers of securities
purchased by the Trust, including outstanding loans to such issuers which may be
repaid in whole or in part with the proceeds of securities purchased by the
Trust.
For the fiscal year or period ended December 31, 1997, the Trust paid
the Investment Adviser fees for advisory services on behalf of each Fund and the
Money Market Fund, and the Investment Adviser reimbursed each Fund for certain
operating expenses, as follows:
<TABLE>
<CAPTION>
Advisory Fees Paid Expenses Reimbursed
------------------ -------------------
<S> <C> <C>
Managed Assets Conservative Fund $ 608,622 $ 85,184
Managed Assets Balanced Fund $1,384,326 $172,146
Managed Assets Growth Fund $ 35,036 $ 56,116
Equity Income Fund $1,594,129 --
Growth Fund $3,641,754 --
Mid-Cap Opportunity Fund $5,355,678 --
Small-Cap Opportunity Fund $1,283,658 --
Intrinsic Value Fund $2,987,206 --
Growth and Value Fund $5,632,896 $ 67,597
Equity Index Fund $ 760,869 --
International Equity Fund $3,752,409 --
Intermediate Bond Fund $1,890,923 --
Bond Fund $4,089,788 --
Short Bond Fund $ 712,555 $ 23,532
Multi Sector Bond Fund $ 562,165 --
International Bond Fund $ 534,521 $159,849
High Yield Bond Fund $ 114,085 $ 35,717
Municipal Bond Fund $1,524,196 --
Intermediate Municipal Bond Fund $1,585,083 --
Michigan Municipal Bond Fund $ 271,734 $ 43,158
Money Market Fund $6,818,663 $ 46,475
</TABLE>
From the date of the Reorganization of each Fund and the Money Market
Fund, or September 23, 1996 if the Fund was not involved in a Reorganization, or
December 17, 1996 (commencement of investment operations) in the case of the
Managed Assets Growth Fund, through December 31, 1996, the Trust paid the
Investment Adviser fees for advisory services on behalf of each Fund and the
Money Market Fund, and the Investment Adviser reimbursed each Fund for certain
operating expenses, as follows:
<TABLE>
<CAPTION>
Advisory Fees Paid Expenses Reimbursed
------------------ -------------------
<S> <C> <C>
Managed Assets Conservative Fund $ 189,293 $ 38,616
Managed Assets Balanced Fund $ 294,755 $ 56,597
Managed Assets Growth Fund $ 357 $ 280
Equity Income Fund $ 794,924 $ 66,325
Growth Fund $1,423,281 $ 67,208
Mid-Cap Opportunity Fund $1,467,224 --
Small-Cap Opportunity Fund $ 405,651 $ 56,427
Intrinsic Value Fund $ 691,537 --
Growth and Value Fund $1,531,967 --
Equity Index Fund $ 280,393 $ 26,973
International Equity Fund $1,206,664 $ 26,973
Intermediate Bond Fund $ 675,868 $ 49,186
Bond Fund $1,142,259 $ 49,503
Short Bond Fund $ 200,474 $ 29,453
Multi Sector Bond Fund $ 282,194 $ 16,303
International Bond Fund $ 160,317 $121,072
Municipal Bond Fund $ 640,639 $108,706
Intermediate Municipal Bond Fund $ 784,244 $ 69,264
Michigan Municipal Bond Fund $ 77,238 $ 11,150
Money Market Fund $2,613,801 $180,817
</TABLE>
For the period from January 1, 1996 through the date of each Fund's
Reorganization, or September 23, 1996 in the case of those Funds not involved in
a Reorganization, and for the fiscal year or period ended December 31, 1995, the
Trust paid NBD fees for advisory and administrative services under the previous
investment advisory agreement with NBD on behalf of the following funds:
-48-
<PAGE> 51
<TABLE>
<CAPTION>
January 1, 1996
through the
Reorganization/ December 31,
September 23, 1996 1995
------------------ ------------
<S> <C> <C>
Managed Assets Balanced Fund $ 521,060 $ 570,525
Mid-Cap Opportunity Fund $3,397,900 $4,490,930
Intrinsic Value Fund $1,382,039 $1,817,833
Growth and Value Fund $3,718,231 $4,951,664
Equity Index Fund $ 444,727 $ 411,792
International Equity Fund $ 594,989 $ 529,312
Intermediate Bond Fund $1,539,059 $2,650,418
Bond Fund $2,021,339 $3,121,267
Short Bond Fund $ 708,692 $ 650,298
Michigan Municipal Bond Fund $ 231,258 $ 327,020
Money Market Fund $5,373,325 $7,225,557
</TABLE>
For the period from January 1, 1996 through September 23, 1996, and
for the fiscal year ended December 31, 1995, NBD reimbursed the Trust for
certain expenses on behalf of the Michigan Municipal Bond Fund as follows:
<TABLE>
<CAPTION>
January 1, 1996
through the
Reorganization/ December 31,
September 23, 1996 1995
------------------ ------------
<S> <C> <C>
Michigan Municipal Bond Fund $34,535 $119,481
</TABLE>
Prior to the Managed Assets Conservative, Equity Income, Growth,
Small-Cap Opportunity, Multi Sector Bond, International Bond, Municipal Bond and
Intermediate Municipal Bond Funds' current advisory agreement, FCNIMCO provided
advisory services to such Funds. For the period from January 1, 1996 through the
date of each Fund's Reorganization, and for the fiscal period from January 17,
1995 (effective date of the following Funds' investment advisory agreement with
FCNIMCO) through December 31, 1995, the Funds paid FCNIMCO fees for advisory
services and FCNIMCO voluntarily waived advisory fees as follows:
-49-
<PAGE> 52
<TABLE>
<CAPTION>
Advisory Advisory
Fees Paid Fees Paid
Annual Fee January 1, January 17,
Payable As a % 1996 Advisory Fees 1995 through Advisory Fees
of Average through the Waived December 31, Waived
Daily Net Assets Reorganization 1996 1995 1995
---------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Managed Assets Conservative Fund .65% $ 222,625 $ 95,432 $ 142,517 $178,658
Equity Income Fund .50% $ 748,110 $233,127 $ 829,039 $277,716
Growth Fund .65% $1,001,270 $245,346 $1,399,749 $314,740
Small-Cap Opportunity Fund .70% $ 346,745 $147,469 $ 318,920 $168,733
Multi Sector Bond Fund .40% $ 538,380 $183,139 $ 426,638 $185,678
International Bond Fund .70% $ 58,049 $160,438 $ 10,617 $ 68,517
Municipal Bond Fund .40% $ 460,817 $273,829 $ 565,821 $304,953
Intermediate Municipal Bond Fund .40% $ 776,919 $267,210 $ 938,654 $429,888
</TABLE>
Prior to January 17, 1995, FNBC provided management services to the
Managed Assets Conservative, Multi Sector Bond, Municipal Bond and Intermediate
Municipal Bond Funds pursuant to a management agreement (the "Prior Management
Agreement"). Under the terms of the Prior Management Agreement, the Funds agreed
to pay FNBC a monthly fee at the annual rate of .65%, .60%, .40% and .40% of the
value of each respective Fund's average daily net assets.
Investment decisions for the Trust and other fiduciary accounts are
made by FCNIMCO solely from the standpoint of the independent interest of the
Trust and such other fiduciary accounts. FCNIMCO performs independent analyses
of publicly available information, the results of which are not made publicly
available. In making investment decisions for the Trust, FCNIMCO does not obtain
information from any other division or department of the Investment Adviser or
otherwise, which is not publicly available. FCNIMCO executes transactions for
the Trust only with unaffiliated dealers but such dealers may be customers of
the Investment Adviser's affiliates. The Investment Adviser may make bulk
purchases of securities for the Trust and for other customer accounts (but not
for its own investment portfolio), in which case the Trust will be charged a pro
rata share of the transaction costs incurred in making the bulk purchase. See
"Investment Objectives, Policies and Risk Factors - Portfolio Transactions"
above.
FCNIMCO has agreed as Investment Adviser that it will reimburse the
Trust such portions of its fees as may be required to satisfy any expense
limitations imposed by state securities laws or other applicable laws.
Under the terms of the Advisory Agreement, the Investment Adviser is
obligated to manage the investment of each Fund's and the Money Market Fund's
assets in accordance with applicable laws and regulations, including, to the
extent applicable, the regulations and rulings of the various regulatory
governmental bank agencies.
-50-
<PAGE> 53
The Investment Adviser will not accept Trust shares as collateral for
a loan which is for the purpose of purchasing Trust shares, and will not make
loans to the Trust. Inadvertent overdrafts of the Trust's account with the
Custodian occasioned by clerical error or by failure of a shareholder to provide
available funds in connection with the purchase of shares will not be deemed to
be the making of a loan to the Trust by the Investment Adviser.
Under the Advisory Agreement, the Investment Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from its reckless disregard of its duties and obligations under the
Agreement.
FCNIMCO is authorized by the Advisory Agreement to employ a sub-
adviser(s) to assist it in the performance of its duties under the Advisory
Agreement. Any such sub-adviser(s) are to be paid by FCNIMCO, not by the Funds,
and FCNIMCO shall be fully responsible to the Trust for the acts and omissions
of any such sub-advisers. FCNIMCO has entered into a sub-advisory agreement with
Federated on behalf of the High Yield Bond Fund.
The Sub-Adviser
- ---------------
Information about the Sub-Adviser and its duties and compensation is
contained in the Prospectus. Federated, under the supervision of FCNIMCO, is
obligated to manage the investment of the High Yield Bond Fund's assets in
accordance with applicable laws and regulations, including, to the extent
applicable, the regulations and rulings of the various regulatory governmental
bank agencies.
Under the Sub-Advisory Agreement, the Sub-Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the High
Yield Bond Fund in connection with the performance of the Sub-Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser in the
performance of its duties or from its reckless disregard of its duties and
obligations under the Sub-Advisory Agreement.
Administrators
- --------------
Pursuant to an Administration Agreement dated as of April 12, 1996
with the Trust, FCNIMCO and BISYS assist in all aspects of the Trust's
operations, other than providing investment advice, subject to the overall
authority of the Trust's Board in accordance with Massachusetts law. Under the
terms of the Administration Agreement,
-51-
<PAGE> 54
FCNIMCO and BISYS are entitled jointly to a monthly administration fee at the
annual rate of .15% of each Fund's and the Money Market Funds average daily net
assets.
For the fiscal year or period ended December 31, 1997 and from the
date of the Reorganization of each Fund and the Money Market Fund, or September
23, 1996 if the Fund was not involved in a Reorganization, or December 17, 1996
(commencement of investment operations) in the case of the Managed Assets Growth
Fund, through December 31, 1996, FCNIMCO received from the Trust, as agent for
the co-administrators, administration fees as follows:
<TABLE>
<CAPTION>
1997 1996
Administration Administration
Fund Fee Fee
- ---- -------------- --------------
<S> <C> <C>
Managed Assets Conservative Fund $ 140,451 $ 43,683
Managed Assets Balanced Fund $ 319,460 $ 68,020
Managed Assets Growth Fund $ 8,085 $ 82
Equity Income Fund $ 478,239 $ 238,477
Growth Fund $ 910,438 $ 382,992
Mid-Cap Opportunity Fund $1,338,920 $ 366,806
Small-Cap Opportunity Fund $ 275,070 $ 86,925
Intrinsic Value Fund $ 746,802 $ 172,884
Growth and Value Fund $1,408,224 $ 382,992
Equity Index Fund $1,141,303 $ 420,590
International Equity Fund $ 703,577 $ 226,250
Intermediate Bond Fund $ 709,096 $ 34,354
Bond Fund $1,533,671 $ 416,965
Short Bond Fund $ 305,381 $ 85,917
Multi Sector Bond Fund $ 210,812 $ 105,823
International Bond Fund $ 114,545 $ 34,354
High Yield Bond Fund $ 24,447 $ N/A
Municipal Bond Fund $ 571,573 $ 233,974
Intermediate Municipal Bond Fund $ 594,406 $ 294,091
Michigan Municipal Bond Fund $ 101,900 $ 28,964
Money Market Fund $3,641,198 $1,161,735
</TABLE>
Prior to January 17, 1995, the Dreyfus Corporation ("Dreyfus")
provided administrative services to the Managed Assets Conservative, Equity
Income, Growth, Small-Cap Opportunity, Multi Sector Bond, International Bond,
Municipal Bond and Intermediate Municipal Bond Funds pursuant to an
administration agreement between FNBC and Dreyfus. FNBC and not the Funds paid
Dreyfus for Dreyfus' services. On January 17, 1995, FCNIMCO began providing
administrative services to the Managed Assets Conservative, Equity Income,
Growth, Small-Cap Opportunity, Multi Sector Bond, International Bond, Municipal
Bond and Intermediate Municipal Bond Funds. Under the terms of this prior
administration agreement, FCNIMCO was entitled to a fee, paid monthly, at an
annual rate of .15% of each Fund's average daily net assets. For the period
January 17, 1995 through December 31, 1995, each of the Managed Assets
Conservative, Equity Income, Growth, Small-Cap Opportunity, Multi Sector Bond,
International Bond, Municipal Bond and Intermediate Municipal Bond Funds paid
FCNIMCO fees for administrative services, under the Funds' prior administration
agreement, as follows:
-52-
<PAGE> 55
<TABLE>
<CAPTION>
Administration Administration
Fees Paid Fees Waived
-------------- --------------
<S> <C> <C>
Managed Assets Conservative Fund $ 70,857 $ 0
Equity Income Fund $332,027 $ 0
Growth Fund $395,652 $ 0
Small-Cap Opportunity Fund $104,497 $ 0
Multi Sector Bond Fund $229,619 $ 0
International Bond Fund $ 12,551 $4,407
Municipal Bond Fund $310,972 $ 0
Intermediate Municipal Bond Fund $475,635 $ 0
</TABLE>
The Trust has agreed that neither FCNIMCO nor BISYS will be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the agreement with FCNIMCO or BISYS
relates, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of FCNIMCO, or BISYS in the performance of their
obligations or from reckless disregard by any of them of their obligations and
duties under the Administration Agreement.
In addition, the Administration Agreement provides that if, in any
fiscal year, the aggregate expenses of a Fund exceed the expense limitation of
any state having jurisdiction over the Fund, FCNIMCO and BISYS will bear such
excess expense to the extent required by state law.
The aggregate of the fees payable to FCNIMCO and BISYS is not subject
to reduction as the value of the Fund's net assets increases.
Distribution and Shareholder Servicing Plans
- --------------------------------------------
As stated in the Prospectus, the Trust may enter into Servicing
Agreements with Service Agents which may include the Investment Adviser and its
affiliates. The Servicing Agreements provide that the Service Agents will render
shareholder administrative support services to their customers who are the
beneficial owners of Fund shares in consideration for the Funds' payment of up
to .25% (on an annualized basis) of the average daily net asset value of the
shares beneficially owned by such customers and held by the Service Agents and,
at the Trust's option, it may reimburse the Service Agents' out-of-pocket
expenses. Such services may include: (i) processing dividend and distribution
payments from a Fund; (ii) providing information periodically to customers
showing their share positions; (iii) arranging for bank wires; (iv) responding
to customer inquiries; (v) providing subaccounting with respect to shares
beneficially owned by customers or the information necessary for such
subaccounting; (vi) forwarding shareholder communications; (vii) processing
share exchange and redemption requests from customers; (viii) assisting
customers in changing dividend options, account designations and addresses; and
(ix) other similar services requested by the Trust. Banks acting as Service
Agents are prohibited from engaging in any activity primarily intended to
-53-
<PAGE> 56
result in the sale of Fund shares. However, Service Agents other than banks may
be requested to provide marketing assistance (e.g., forwarding sales literature
and advertising to their customers) in connection with the distribution of Fund
shares.
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange
Commission under the 1940 Act provides, among other things, that an investment
company may bear expenses of distributing its shares only pursuant to a plan
adopted in accordance with the Rule. The Trust's Board of Trustees has adopted
such a plan (the "Plan") with respect to each Fund's Class B Shares, pursuant to
which each Fund pays the Distributor a fee of up to 0.75% of the average daily
net asset value attributable to such Shares for advertising, marketing and
distributing such Shares and for the provision of certain services to the
holders of such Shares. Under the Plan, the Distributor may make payments to
certain financial institutions, securities dealers and other financial industry
professionals (collectively, "Service Agents") in respect of these services. The
Board of Trustees believes that there is a reasonable likelihood that the Plan
will benefit each Fund and the holders of such Shares.
The Board of Trustees reviews, at least quarterly, a written report of
the amounts expended under the Plan and in connection with the Trust's
arrangements with Service Agents and the purposes for which the expenditures
were made. In addition, such arrangements are approved annually by a majority of
the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust as defined in the 1940 Act and have no direct or indirect
financial interest in such arrangements (the "Disinterested Trustees").
Any material amendment to the Plan and the Trust's arrangements with
Service Agents under the Shareholder Servicing Agreements must be approved by a
majority of the Board of Trustees (including a majority of the Disinterested
Trustees).
As stated in the Prospectus for the Funds, the Trust has implemented
the Servicing Plan described above with respect to Class A and Class B shares of
the Funds only and the Plan with respect to Class B shares of the Funds only.
The Trust will enter into shareholder servicing agreements with Service Agents
pursuant to which services to their customers who beneficially own Class A and
Class B shares of the Funds in consideration for the payment of up to .25% (on
an annualized basis) of the average daily net asset value of such shares. The
Trust has allocated the Servicing Fees which are attributable to the Class A and
Class B shares exclusively to such shares and the Distribution Fees which are
attributable to the Class B shares exclusively to such shares.
Distributor
- -----------
The shares of the Funds are offered on a continuous basis through
BISYS, which acts under the Distribution Agreement as Distributor for the Trust.
As stated in the Prospectus, the Trust will allocate distribution fees which are
attributable to the Class B shares in a Fund exclusively to such shares.
-54-
<PAGE> 57
The following table shows all sales loads, commissions and other
compensation received by BISYS directly or indirectly from each of the Funds,
and the Money Market Fund, during each Fund's fiscal year or period ended
December 31, 1997.
<TABLE>
<CAPTION>
Brokerage
Commis-
Net Under- sions in
writing Dis- Compensation connection Other
counts and on Redemption with Fund Compen-
Commissions/(1)/ and Repurchase/(2)/ Transactions sation/(3)/
----------- -------------- ------------ ------
<S> <C> <C> <C> <C>
Managed Assets Conservative Fund $60,202 $17,704 $0 $
Managed Assets Balanced Fund $42,622 $ 8,652 $0 $
Managed Assets Growth Fund $17,108 $ 2,481 $0 $
Equity Income Fund $ 6,487 $ 4,356 $0 $
Growth Fund $ 8,695 $ 4,042 $0 $
Mid-Cap Opportunity Fund $18,106 $ 2,417 $0 $
Small-Cap Opportunity Fund $ 8,477 $ 437 $0 $
Intrinsic Value Fund $12,815 $ 5,337 $0 $
Growth and Value Fund $19,799 $ 5,370 $0 $
Equity Index Fund $ 6,868 $ 591 $0 $
International Equity Fund $ 5,001 $ 345 $0 $
Intermediate Bond Fund $ 1,280 $ 426 $0 $
Bond Fund $16,351 $ 5,482 $0 $
Short Bond Fund $ 344 $ 596 $0 $
Multi Sector Bond Fund $ 149 $ 1,830 $0 $
International Bond Fund $ 1,084 $ 74 $0 $
High Yield Bond Fund $ 444 $ 36 $0 $
Municipal Bond Fund $ 6,711 $ 2,648 $0 $
Intermediate Municipal Bond Fund $ 1,864 $ 740 $0 $
Michigan Municipal Bond Fund $ 5,192 $ 1,119 $0 $
Money Market Fund $ 0 $ -- $0 $
</TABLE>
- ---------------------
(1) Represents amounts received from front-end sales charge on A Shares.
(2) Represents amounts received from contingent deferred sales charges on B
Shares and certain redemptions of A Shares. The basis on which such sales
charges are paid is described in the Prospectus.
(3) Represents the payments made under the Shareholder Servicing Plans and the
Plan (see "Management -- Distribution and Shareholder Servicing Plans") and
retained by BISYS. In addition, BISYS received $1,825,233 in administration
fees.
The following table shows all sales loads, commissions and other
compensation received by BISYS directly or indirectly from each of the Funds,
and the Money Market Fund, during each Fund's fiscal year or period ended
December 31, 1996.
<TABLE>
<CAPTION>
Brokerage
Commis-
Net Under- sions in
writing Dis- Compensation connection Other
counts and on Redemption with Fund Compen-
Commissions/(1)/ and Repurchase/(2)/ Transactions sation/(3)/
----------- -------------- ------------ ------
<S> <C> <C> <C> <C>
Managed Assets Conservative Fund $17,318 $ 6,913 $0 $31,043
Managed Assets Balanced Fund $ 3,351 $11,950 $0 $ 3,720
Managed Assets Growth Fund $ 1 $ -- $0 $ 4
Equity Income Fund $ 5,450 $ 2,246 $0 $ 9,855
Growth Fund $ 2,921 $ 21 $0 $ 5,631
Mid-Cap Opportunity Fund $ 3,191 $ 59 $0 $ 129
Small-Cap Opportunity Fund $ 1,566 $ -- $0 $ 363
Intrinsic Value Fund $ 1,184 $ 1 $0 $ 147
Growth and Value Fund $ 1,981 $ 39 $0 $ 160
Equity Index Fund $ 535 $ -- $0 $ 102
International Equity Fund $ 4,109 $ 491 $0 $ 4,944
Intermediate Bond Fund $ 610 $ -- $0 $ 1,542
Bond Fund $ 1,349 $ 1,561 $0 $ 756
Short Bond Fund $ 52 $ -- $0 $ 51
Multi Sector Bond Fund $ 294 $ 1,405 $0 $ 1,811
International Bond Fund $ 29 $ -- $0 $ 82
Municipal Bond Fund $ 2,307 $ -- $0 $ 3,531
Intermediate Municipal Bond Fund $ 499 $ -- $0 $ 4,204
Michigan Municipal Bond Fund $ 721 $ -- $0 $ 118
Money Market Fund $ 0 $ -- $0 $ 1,274
</TABLE>
______________________
(1) Represents amounts received from front-end sales charge on A Shares.
(2) Represents amounts received from contingent deferred sales charges on B
Shares and certain redemptions of A Shares. The basis on which such sales
charges are paid is described in the Prospectus.
(3) Represents the payments made under the Shareholder Servicing Plans and the
Plan (see "Management -- Distribution and Shareholder Servicing Plans") and
retained by BISYS. In addition, BISYS received $1,825,233 in administration
fees.
Includes front end sales charges, contingent deferred sales charges,
Shareholder Servicing fees and Distribution fees received by Concord
Financial Group, Inc. an indirect affiliate of BISYS and the distributor of
Prairie Funds, Prairie Intermediate Bond Fund and Prairie Municipal Bond
Fund, Inc.
Prior to August 26, 1996 (September 16, 1996 for the Money Market
Fund), the Funds' shares were offered on a continuous basis through First of
Michigan Corporation ("FoM") and Essex National Securities, Inc. ("Essex") as
co-distributors of the Trust. For the period January 1, 1996 through August 25,
1996 (September 15, 1996 for the Money Market Fund), the Managed Assets
Balanced, Mid-Cap Opportunity, Intrinsic Value, Growth and Value, Equity Index,
International Equity, Intermediate Bond, Bond, Short Bond, Michigan Municipal
Bond and Money Market Funds paid FoM and Essex for their services the following
fees:
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<PAGE> 58
<TABLE>
<CAPTION>
Fees to FoM Fees to Essex
----------- -------------
<S> <C> <C>
Managed Assets Balanced Fund $ 2,762 $ 6,489
Mid-Cap Opportunity Fund $18,360 $41,964
Intrinsic Value Fund $ 8,248 $11,101
Growth and Value Fund $21,865 $31,051
Equity Index Fund $22,759 $ 2,561
International Equity Fund $ 4,800 $ 935
Intermediate Bond Fund $12,528 $ 7,070
Bond Fund $18,850 $19,632
Short Bond Fund $ 5,632 $ 487
Michigan Municipal Bond Fund $ 160 $12,967
Money Market Fund $76,683 $60,486
</TABLE>
_________________
For the period January 1, 1996 through August 26, 1996 (September 16,
1996 for the Money Market Fund) and for the fiscal years ended December 31, 1995
and 1994, neither FoM nor Essex incurred any expenses with respect to each of
the Funds for the printing and mailing of prospectuses to other than current
shareholders.
Prior to the date of the Reorganization of each of the Managed Assets
Conservative, Equity Income, Growth, Small-Cap Opportunity, Multi Sector Bond,
International Bond, Intermediate Municipal Bond, Growth and Municipal Bond
Funds, were distributed by Concord Financial Group, Inc., an indirect affiliate
of BISYS.
For the fiscal year or period ended December 31, 1997, the Funds made
the following payments under the Plan with respect to Class B shares of the
indicated Fund, all of which was retained by BISYS:
<TABLE>
<CAPTION>
Amount of
12b-1 Fees
Paid to
BISYS
----------
<S> <C>
Managed Assets Conservative Fund $65,931
Managed Assets Balanced Fund $36,033
Managed Assets Growth Fund $17,451
Equity Income Fund $16,641
Growth Fund $ 9,894
Mid-Cap Opportunity Fund $11,805
Small-Cap Opportunity Fund $ 5,247
Intrinsic Value Fund $10,205
Growth and Value Fund $15,857
Equity Index Fund $ 5,793
International Equity Fund $10,134
Intermediate Bond Fund $ 1,750
Bond Fund $ 9,794
Short Bond Fund $ 856
Multi Sector Bond Fund $ 3,141
International Bond Fund $ 536
High Yield Bond Fund $ 536
Municipal Bond Fund $ 6,553
Intermediate Municipal Bond Fund $ 4,878
Michigan Municipal Bond Fund $ 2,218
Money Market Fund $ 2,984
</TABLE>
-56-
<PAGE> 59
These amounts were used by BISYS and Concord to finance sales
commissions to brokers selling Class B Shares.
For the fiscal year or period ended December 31, 1997, the fee paid
under the Shareholder Services Plan with respect to Class A and Class B Shares
of the indicated Fund was as follows:
<TABLE>
<CAPTION>
Amount of Fee Paid
------------------
Class A Class B
------- -------
<S> <C> <C>
Managed Assets Conservative Fund $ 190,392 $21,977
Managed Assets Balanced Fund $ 215,488 $12,011
Managed Assets Growth Fund $ 5,385 $ 5,817
Equity Income Fund $ 33,570 $ 5,547
Growth Fund $ 99,549 $ 2,917
Mid-Cap Opportunity Fund $ 373,129 $ 3,935
Small-Cap Opportunity Fund $ 30,251 $ 1,543
Intrinsic Value Fund $ 120,837 $ 3,402
Growth and Value Fund $ 252,785 $ 5,286
Equity Index Fund $ 253,701 $ 1,931
International Equity Fund $ 46,711 $ 3,378
Intermediate Bond Fund $ 62,545 $ 583
Bond Fund $ 181,257 $ 3,265
Short Bond Fund $ 4,929 $ 285
Multi Sector Bond Fund $ 20,201 $ 1,047
International Bond Fund $ 10,170 $ 179
High Yield Bond Fund $ 38 $ 19
Municipal Bond Fund $ 77,567 $ 2,184
Intermediate Municipal Bond Fund $ 47,300 $ 1,626
Michigan Municipal Bond Fund $ 44,780 $ 739
Money Market Fund $2,074,770 $ 994
</TABLE>
Custodian
- ---------
As Custodian for the Trust, NBD (i) maintains a separate account or
accounts in the name of each Fund, (ii) collects and makes disbursements of
money on behalf of each Fund, (iii) collects and receives all income and other
payments and distributions on account of the portfolio securities of each Fund,
and (iv) makes periodic reports to the Trust's Board of Trustees concerning the
Trust's operations.
For its services as Custodian, NBD is entitled to receive from the
Funds at the following annual rates based on the aggregate market value of such
Funds' portfolio securities, held as Custodian: .03% of the first $20 million;
.025% of the next $20 million; .02% of the next $20 million; .015% of the next
$40 million; .0125% of the next $200 million; and .01% of the balance over
$300,000,000. NBD will receive an annual account fee of $1,000 and $1.54 per
month per asset held in each of these Funds. In addition, NBD, as Custodian, is
entitled to receive $50 for each cash statement and inventory statement and $13
for each pass-through certificate payment, $35 for each option transaction
requiring escrow receipts and $20 for all other security transactions.
-57-
<PAGE> 60
INDEPENDENT AUDITORS
Arthur Andersen LLP, independent public accountants, 500 Woodward
Avenue, Detroit, Michigan 48226-3424, serves as auditors for the Trust. Ernst &
Young LLP served as independent auditors for the Prairie Funds, Prairie
Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc. and such statements
and notes are incorporated by reference into this Statement of Additional
Information. The December 31, 1997 and 1996 financial statements and notes
thereto have been audited by Arthur Andersen LLP, whose report thereon also
appears in such Annual Report and is also incorporated herein by reference. The
financial statements for periods or years ended December 31, 1995 and prior with
respect to the Managed Assets Conservative, Equity Income, Growth, Small-Cap
Opportunity, Multi Sector Bond, International Bond, Municipal Bond and
Intermediate Municipal Bond Funds were audited by Ernst & Young LLP, such Funds'
prior independent auditors, whose report dated February 23, 1996 expressed an
unqualified opinion on such financial statements. The financial statements for
periods or years prior to December 31, 1995 with respect to the Managed Assets
Balanced, Mid-Cap Opportunity, Intrinsic Value, Growth and Value, Equity Index,
International Equity, Intermediate Bond, Bond, Short Bond and Michigan Municipal
Bond Funds were audited by Arthur Andersen LLP. No other parts of the Annual
Report are incorporated by reference herein. Such financial statements have been
incorporated herein in reliance on the reports of Arthur Andersen LLP and Ernst
& Young LLP, independent auditors, given on the authority of said firms as
experts in auditing and accounting.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania 19107-
3496, is counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each class of shares of each
Fund and the yield of each class of shares of the Asset Allocation, Bond and
Municipal Bond Funds for various periods may be quoted in advertisements,
shareholder reports or other communications to shareholders. Performance
information is generally available by calling (800) 688-3350.
Yield Calculations. A Fund's yield is calculated by dividing the
Fund's net investment income per share (as described below) earned during a 30-
day period by the maximum offering price per share on the last day of the period
and annualizing the result on a
-58-
<PAGE> 61
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. A Fund's
net investment income per share earned during the period is based on the average
daily number of shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
a-b
Yield = 2 [(----- + 1)/6/ - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. Each Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest), and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Undeclared earned income may be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter.
-59-
<PAGE> 62
For the 30-day period ended December 31, 1997, the yields, calculated
as set forth above, for the Funds were as follows:
<TABLE>
<CAPTION>
Class A
-------
With Sales Load Class B Class I
--------------- ------- -------
<S> <C> <C> <C>
Intermediate Bond Fund 5.77% 5.25% 6.20%
Bond Fund 5.86% 5.35% 6.39%
Short Bond Fund 5.29% 4.68% 5.59%
Multi Sector Bond Fund 5.38% 4.85% 5.79%
High Yield Bond Fund 7.81% 7.58% 7.91%
Municipal Bond Fund 4.06% 3.53% 4.49%
Intermediate Municipal Bond Fund 3.75% 3.12% 4.12%
Michigan Municipal Bond Fund 4.08% 3.62% 4.52%
</TABLE>
In addition, the Municipal Bond Funds may advertise their standardized
"tax-equivalent yield," which is computed by: (a) dividing the portion of the
yield (as calculated above) that is exempt from income tax by one minus a stated
income tax rate; and (b) adding the figure resulting from (a) above to that
portion, if any, of the yield that is not tax-exempt.
The tax-equivalent yields for the Municipal Bond Funds for the 30-day
period ended December 31, 1997 (assuming a 39.6% federal tax rate for each Fund
and a 4.4% Michigan income tax rate for the Michigan Municipal Bond Fund) were
as follows:
<TABLE>
<CAPTION>
Class A
-------
With Sales Load Class B Class I
--------------- ------- -------
<S> <C> <C> <C>
Municipal Bond Fund 6.72% 5.84% 7.43%
Intermediate Municipal Bond Fund 6.21% 5.17% 6.82%
Michigan Municipal Bond Fund 7.29% 6.46% 8.07%
</TABLE>
Total Return Calculations. Each Fund computes its "average annual
total return" for a class by determining the average annual compounded rates of
return during specified periods that equate the initial amount invested to the
ending redeemable value of such investment. This is done by dividing the ending
redeemable value of a hypothetical $1,000 initial payment by $1,000 and raising
the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
T = [(ERV 1/N) - 1]
-------
P
Where: T = average annual total return.
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<PAGE> 63
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of
years.
The Funds compute their aggregate total returns for each class by
determining the aggregate rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
ERV
T = [(------) - 1]
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period, and include all recurring fees
charged to all shareholder accounts, assuming an account size equal to a Fund's
mean (or median) account size for any fees that vary with the size of the
account. The ending redeemable value (variable "ERV" in each formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the period covered by
the computation. Each Fund's average annual total return may reflect the
deduction of the maximum sales load imposed on purchases.
The aggregate total returns for the Funds or predecessor funds, as the
case may be, for the period since commencement of operations through the period
ended December 31, 1997 are shown below:
-61-
<PAGE> 64
<TABLE>
<CAPTION>
Aggregate Total Aggregate Total
Return From Return From
Inception Inception
Through Through
12/31/97 (with 12/31/97 (with-
Deduction of out Deduction
Maximum Sales for Any Sales
Charge) Charge) Inception Date
------------- --------------- --------------
<S> <C> <C> <C>
Managed Assets Conservative Fund*/(1)/
Class A 271.16% 252.61% 01/23/86
Class B 49.21% 46.21% 03/03/95
Class I 53.39% 03/03/95
Managed Assets Balanced Fund*
Class A 57.22% 49.36% 01/01/94
Class B 49.58% 46.58% 01/01/94
Class I 57.98% 01/01/94
Managed Assets Growth Fund
Class A 18.34% 12.42% 12/18/96
Class B 16.23% 12.23% 12/18/96
Class I 19.05% 12/18/96
Equity Income Fund/(1)/
Class A 1998.18% 1893.33% 03/31/67
Class B 1953.11% 1953.11% 03/31/67
Class I 2352.34% 03/31/67
Growth Fund/(2)/
Class A 1029.03% 972.61% 05/31/68
Class B 1004.40% 1004.40% 05/31/68
Class I 1210.08% 05/31/68
Mid-Cap Opportunity Fund
Class A 634.92% 598.20% 12/31/83
Class B 632.08% 632.08% 12/31/83
Class I 637.67% 12/31/83
Small-Cap Opportunity Fund/(1)/
Class A 1078.38% 1019.49% 06/30/72
Class B 1058.05% 1058.05% 06/30/72
Class I 1246.28% 06/30/72
Intrinsic Value Fund
Class A 466.21% 437.92% 12/31/85
Class B 460.13% 460.13% 12/31/85
Class I 468.12% 12/31/85
Growth and Value Fund
Class A 561.65% 528.59% 12/31/83
Class B 548.71% 548.71% 12/31/83
Class I 564.02% 12/31/83
Equity Index Fund
Class A 606.93% 585.74% 06/30/85
Class B 598.10% 589.10% 06/30/85
Class I 608.82% 06/30/85
International Equity Fund
Class A 165.53% 152.27% 04/30/86
Class B 161.12% 161.12% 04/30/86
Class I 166.99% 04/30/86
Intermediate Bond Fund
Class A 227.70% 217.87% 12/31/83
Class B 225.28% 225.28% 12/31/83
Class I 229.10% 12/31/83
Bond Fund
Class A 284.58% 267.28% 12/31/83
Class B 282.10% 282.10% 12/31/83
Class I 286.08% 12/31/83
Short Bond Fund
Class A 186.31% 183.45% 12/31/83
Class B 183.13% 183.13% 12/31/83
Class I 187.37% 12/31/83
</TABLE>
-62-
<PAGE> 65
<TABLE>
<CAPTION>
Aggregate Total Aggregate Total
Return From Return From
Inception Inception
Through Through
12/31/97 (with 12/31/97 (with-
Deduction of out Deduction
Maximum Sales for Any Sales
Charge) Charge) Inception Date
-------------- --------------- --------------
<S> <C> <C> <C>
Multi Sector Bond Fund/(1)/
Class A 34.38% 30.36% 03/05/93
Class B 17.04% 15.04% 05/31/95
Class I 35.62% 03/05/93
International Bond Fund/(1)/
Class A 105.19% 95.96% 09/30/89
Class B 99.38% 99.38% 09/30/89
Class I 114.41% 09/30/89
High Yield Bond Fund
Class A 4.19% -0.49% 07/01/97
Class B 3.94% -1.06% 07/01/97
Class I 6.37% 07/01/97
Municipal Bond Fund/(3)/
Class A 120.73% 110.80% 03/01/88
Class B 20.62% 17.62% 04/04/95
Class I 126.35% 03/01/88
Short Municipal Bond Fund
Class A 120.34% 118.14% 12/31/83
Class B 120.34% 120.34% 12/31/83
Class I 128.15% 12/31/83
Intermediate Municipal Bond Fund/(1)/
Class A 101.16% 95.13% 03/01/88
Class B 96.57% 96.57% 03/01/88
Class I 106.91% 03/01/88
Michigan Municipal Bond Fund
Class A 37.35% 31.17% 02/01/93
Class B 35.70% 32.70% 02/01/93
Class I 37.84% 02/01/93
</TABLE>
* Prior to November 20, 1996, these Asset Allocation Funds invested
substantially all of their assets directly in portfolio securities rather
than mutual fund shares. Investing in the Underlying Funds through the
Asset Allocation Funds involves certain additional expenses and tax results
that would not be present in a direct investment in the Underlying Funds.
Had these additional expenses and tax results been reflected, performance
would be reduced.
/1/ Prior to September 21, 1996, the Managed Assets Conservative, Equity
Income, Small-Cap Opportunity, Multi Sector Bond, International Bond and
Intermediate Municipal Bond Funds had no prior operating history. Except as
noted below, performance for periods prior to such date is represented by
the performance of the Prairie Managed Assets Income, Prairie Equity
Income, Prairie Special Opportunity, Prairie Intermediate Bond, Prairie
International Bond and Prairie Intermediate Municipal Bond Funds,
respectively. On September 21, 1996, the assets and liabilities of these
Prairie Funds were transferred to the above stated respective Funds of the
Trust. Performance of the Managed Assets Conservative Fund and Intermediate
Municipal Bond Fund for periods prior to March 3, 1995 and March 1, 1988,
respectively, is represented by the performance of the First Prairie
Diversified Assets Fund and the Intermediate Series of the First Prairie
Municipal Bond Fund, respectively. The Prairie Managed Assets Income Fund
and Prairie Intermediate Municipal Bond Fund commenced operations through a
transfer of assets from the First Prairie Diversified Assets Fund and the
Intermediate Series of the First Prairie Municipal Bond Fund, respectively.
/2/ Performance for periods from January 27, 1995 to August 24, 1996 is
represented by the performance of the Prairie Growth Fund. On such date,
the assets and liabilities of the Prairie Growth Fund were transferred to
the Growth Fund.
/3/ Performance for periods prior to September 14, 1996 is represented by the
performance of the Prairie Municipal Bond Fund. On such date, the assets
and liabilities of the Prairie Municipal Bond Fund were transferred to the
Municipal Bond Fund.
The Funds may also from time to time include in advertisements, sales
literature, communications to shareholders and other materials ("Literature")
total return figures that are not calculated according to the formulas set forth
above in order to compare more accurately a Fund's performance with other
measures of investment return. For example, in comparing the Funds' total
returns with data published by Lipper Analytical Services, Inc., Morningstar,
CDA Investment Technologies, Inc. or Weisenberger Investment Company Service, or
with the performance of an index, the Funds may calculate their returns for the
period of time specified in the advertisement or communication by assuming the
-63-
<PAGE> 66
investment of $10,000 in shares and assuming the reinvestment date. Percentage
increases are determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the beginning value. The Funds
do not, for these purposes, deduct from the initial value invested any amount
representing sales charges. The Funds will, however, disclose the maximum sales
charge and will also disclose that the performance data does not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
Composite performance is set forth below for the Funds or predecessor
funds, as the case may be, for various periods ended December 31, 1997, except
as noted. The inception date for those Funds including common trust fund and
collective investment trust (together the "common trust funds") performance is
the inception date of the common trust funds and for the other Funds the date of
inception under the 1940 Act. Total returns for Class A and Class B shares are
set forth at net asset value ("NAV") and the Fund's public offering price or
maximum CDSC, as applicable. Past performance is not indicative of future
results.
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Since Inception
---------------
1 Year 5 Years 10 Years (Inception Date)
------ ------- -------- ----------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
- -----------------------
Managed Assets Conservative Fund/*(1)/
- --------------------------------------
Class A shares (NAV/public offering price) 13.10%/ 7.45% 11.15%/10.02% 12.69%/12.11% 11.61%/11.13% (1/23/86)
Class B shares (NAV/CDSC) 12.29%/ 8.39% N/A N/A 15.17%/14.34% (3/3/95)
Class I shares 13.34% N/A N/A 16.30% (3/3/95)
- ----------------------------------------------------------------------------------------------------------------------------
Managed Assets Balanced Fund/*/
- -------------------------------
Class A shares (NAV/public offering price) 15.28%/ 9.52% N/A N/A 11.98%/10.55% (1/1/94)
Class B shares (NAV/CDSC) 14.59%/10.59% N/A N/A 10.59%/10.03% (1/1/94)
Class I shares 15.79% N/A N/A 12.11% (1/1/94)
- ----------------------------------------------------------------------------------------------------------------------------
Managed Assets Growth Fund
- --------------------------
Class A shares (NAV/public offering price) 17.75%/11.87% N/A N/A 17.62%/11.95% (12/18/96)
Class B shares (NAV/CDSC) 16.69%/12.69% N/A N/A 15.60%/11.76% (12/18/96)
Class I shares 17.87% N/A N/A 18.30% (12/18/96)
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY FUNDS:
- -------------
Equity Income Fund/(1)(2)/
- -------------------------
Class A shares (NAV/public offering price) 21.57%/15.49% 15.84%/14.65% 14.51%/13.92% 10.40%/10.22% (3/31/67)
Class B shares (NAV/CDSC) 20.73%/16.80% 15.33%/15.22% 14.26%/14.26% 10.32%/10.32% (3/31/67)
Class I shares 21.95% 16.31% 15.05% 10.96% (3/31/67)
- ----------------------------------------------------------------------------------------------------------------------------
Growth Fund/(2)(3)/
- -----------------
Class A shares (NAV/public offering price) 26.76%/20.42% 17.08%/15.89% 16.82%/16.23% 8.54%/8.35% (5/31/68)
Class B shares (NAV/CDSC) 25.90%/21.90% 16.57%/16.46% 16.57%/16.57% 8.46%/8.46% (5/31/68)
Class I shares 27.10% 17.53% 17.35% 9.09% (5/31/68)
- ----------------------------------------------------------------------------------------------------------------------------
Mid-Cap Opportunity Fund/(2)/
- ----------------------------
Class A shares (NAV/public offering price) 27.56%/21.19% 18.01%/16.81% 17.83%/17.23% 15.31%/14.89% (12/31/83)
Class B shares (NAV/CDSC) 27.10%/23.10% 17.92%/17.82% 17.79%/17.79% 15.28%/15.28% (12/31/83)
Class I shares 27.91% 18.10% 17.88% 15.34% (12/31/83)
- ----------------------------------------------------------------------------------------------------------------------------
Small-Cap Opportunity Fund/(1)(2)/
- --------------------------------
Class A shares (NAV/public offering price) 30.16%/23.66% 16.42%/15.24% 18.25%/17.65% 10.16%/ 9.93% (6/30/72)
Class B shares (NAV/CDSC) 29.17%/25.17% 16.02%/15.91% 18.05%/18.05% 10.08%/10.08% (6/30/72)
Class I shares 30.60% 17.01% 18.86% 10.73% (6/30/72)
- ----------------------------------------------------------------------------------------------------------------------------
Intrinsic Value Fund/(2)/
- ------------------------
Class A shares (NAV/public offering price) 25.03%/18.79% 17.03%/15.83% 16.07%/15.48% 15.54%/15.05% (12/31/85)
Class B shares (NAV/CDSC) 24.24%/20.24% 16.78%/16.67% 15.95%/15.95% 15.44%/15.44% (12/31/85)
Class I shares 25.25% 17.11% 16.11% 15.58% (12/31/85)
- ----------------------------------------------------------------------------------------------------------------------------
Growth and Value Fund/(2)/
- --------------------------
Class A shares (NAV/public offering price) 27.80%/21.41% 17.42%/16.22% 15.21%/14.62% 14.45%/14.03% (12/31/83)
Class B shares (NAV/CDSC) 26.90%/22.90% 16.96%/16.85% 14.99%/14.99% 14.28%/14.28% (12/31/83)
Class I shares 28.15% 17.50% 15.25% 14.47% (12/31/83)
- ----------------------------------------------------------------------------------------------------------------------------
Equity Index Fund/(2)/
- ----------------------
Class A shares (NAV/public offering price) 32.69%/28.71% 19.87%/19.15% 17.66%/17.31% 16.93%/16.65% (6/30/85)
Class B shares (NAV/CDSC) 31.71%/28.71% 19.26%/19.26% 17.36%/17.36% 16.69%/16.69% (6/30/85)
Class I shares 32.97% 19.94% 17.69% 16.96% (6/30/85)
- ----------------------------------------------------------------------------------------------------------------------------
International Equity Fund/(2)/
- -----------------------------
Class A shares (NAV/public offering price) 3.69%/(1.49)% 10.00%/ 8.87% 6.46%/ 5.91% 8.72%/ 8.24% (4/30/86)
Class B shares (NAV/CDSC) 3.12%/(0.88)% 9.63%/ 9.49% 6.28%/ 6.28% 8.56%/ 8.56% (4/30/86)
Class I shares 3.98% 10.12% 6.51% 8.77% (4/30/86)
- ----------------------------------------------------------------------------------------------------------------------------
BOND FUNDS:
- -----------
Intermediate Bond Fund/(2)/
- ---------------------------
Class A shares (NAV/public offering price) 8.04%/ 4.80% 6.73%/ 6.08% 8.16%/ 7.83% 8.84%/ 8.60% (12/31/83)
Class B shares (NAV/CDSC) 7.32%/ 4.32% 6.57%/ 6.57% 8.08%/ 8.08% 8.78%/ 8.78% (12/31/83)
Class I shares 8.37% 6.82% 8.21% 8.88% (12/31/83)
- ----------------------------------------------------------------------------------------------------------------------------
Bond Fund/(2)/
- --------------
Class A shares (NAV/public offering price) 9.65%/ 4.72% 8.09%/ 7.10% 9.29%/ 8.79% 10.10%/ 9.74% (12/31/83)
Class B shares (NAV/CDSC) 8.91%/ 4.91% 7.95%/ 7.81% 9.22%/ 9.22% 10.05%/10.05% (12/31/83)
Class I shares 9.97% 8.18% 9.33% 10.13% (12/31/83)
- ----------------------------------------------------------------------------------------------------------------------------
Short Bond Fund/(2)/
- --------------------
Class A shares (NAV/public offering price) 5.92%/ 4.86% 5.26%/ 5.05% 6.94%/ 6.83% 7.80%/ 7.72% (12/31/83)
Class B shares (NAV/CDSC) 5.19%/ 4.19% 5.02%/ 5.02% 6.82%/ 6.82% 7.71%/ 7.71% (12/31/83)
Class I shares 6.20% 5.34% 6.98% 7.83% (12/31/83)
- ----------------------------------------------------------------------------------------------------------------------------
Multi Sector Bond Fund/(1)/
- ---------------------------
Class A shares (NAV/public offering price) 8.58%/ 5.33% N/A N/A 6.31%/ 5.65% (3/5/93)
Class B shares (NAV/CDSC) 7.75%/ 4.75% N/A N/A 6.26%/ 5.56% (5/31/95)
Class I shares 8.86% N/A N/A 6.52% (3/5/93)
- ----------------------------------------------------------------------------------------------------------------------------
International Bond Fund/(1)(2)/
- -------------------------------
Class A shares (NAV/public offering price) (4.46)%/(8.76)% 8.16%/ 7.17% N/A 9.10%/ 8.49% (9/30/89)
Class B shares (NAV/CDSC) (5.04)%/(8.70)% 7.54%/ 7.39% N/A 8.71%/ 8.71% (9/30/89)
Class I shares (4.25)% 8.74% N/A 9.67% (9/30/89)
- ----------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund
- --------------------
Class A shares (NAV/public offering price) N/A N/A N/A 4.19%/(0.49)% (7/1/97)
Class B shares (NAV/CDSC) N/A N/A N/A 3.94%/(1.06)% (7/1/97)
Class I shares N/A N/A N/A 6.37% (7/1/97)
- ----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS:
- ---------------------
Municipal Bond Fund/(4)/
- ------------------------
Class A shares (NAV/public offering price) 9.13%/ 4.22% 7.43%/ 6.45% N/A 8.38%/ 7.88% (3/1/88)
Class B shares (NAV/CDSC) 7.71%/ 4.24% N/A N/A 7.07%/ 6.09% (4/4/95)
Class I shares 9.32% 7.72% N/A 8.65% (3/1/88)
- ----------------------------------------------------------------------------------------------------------------------------
Short Municipal Bond Fund/(2)/
- ------------------------------
Class A shares (NAV/public offering price) 4.41%/ 3.37% 4.20%/ 3.99% 5.26%/ 5.15% 5.80%/ 5.73% (12/31/83)
Class B shares (NAV/CDSC) 4.41%/ 3.41% 4.20%/ 4.20% 5.26%/ 5.26% 5.80%/ 5.80% (12/31/83)
Class I shares 4.67% 4.46% 5.52% 6.07% (12/31/83)
- ----------------------------------------------------------------------------------------------------------------------------
Intermediate Municipal Bond Fund/(1)/
- ------------------------------------
Class A shares (NAV/public offering price) 7.05%/ 3.84% 6.06%/ 5.42% N/A 7.36%/ 7.03% (3/1/88)
Class B shares (NAV/CDSC) 6.19%/ 3.19% 5.57%/ 5.57% N/A 7.11%/ 7.11% (3/1/88)
Class I shares 7.29% 6.41% N/A 7.67% (3/1/88)
- ----------------------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Fund
- ----------------------------
Class A shares (NAV/public offering price) 9.15%/ 4.24% N/A N/A 6.67%/ 5.68% (2/1/93)
Class B shares (NAV/CDSC) 8.26%/ 4.26% N/A N/A 6.40%/ 5.92% (2/1/93)
Class I shares 9.42% N/A N/A 6.75% (2/1/93)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/*/ Prior to November 20, 1996, these Asset Allocation Funds invested
substantially all of their assets directly in portfolio securities rather
than mutual fund shares. Investing in the Underlying Funds through the
Asset Allocation Funds involves certain additional expenses and tax
results that would not be present in a direct investment in the
Underlying Funds. Had these additional expenses and tax results been
reflected, performance would be reduced.
/(1)/ Prior to September 21, 1996, the Managed Assets Conservative, Equity
Income, Small-Cap Opportunity, Multi Sector Bond, International Bond and
Intermediate Municipal Bond Funds had no prior operating history. Except
as noted below, performance for periods prior to such date is represented
by the performance of the Prairie Managed Assets Income, Prairie Equity
Income, Prairie Special Opportunity, Prairie Intermediate Bond, Prairie
International Bond and Prairie Intermediate Municipal Bond Funds,
respectively. On September 21, 1996, the assets and liabilities of these
Prairie Funds were transferred to the above stated respective Funds of
the Trust. Performance of the Managed Assets Conservative Fund and
Intermediate Municipal Bond Fund for periods prior to March 3, 1995 and
March 1, 1998, respectively, is represented by the performance of the
First Prairie Diversified Assets Fund and the Intermediate Series of the
First Prairie Municipal Bond Fund, respectively. The Prairie Managed
Assets Income Fund and Prairie Intermediate Municipal Bond Fund and
Prairie Intermediate Municipal Bond Fund commenced operations through a
transfer of assets from the First Prairie Diversified Assets Fund and
Intermediate Series of the First Prairie Municipal Bond Fund,
respectively.
/(2)/ Performance of the Equity Income, Growth, Small-Cap Opportunity and
International Bond Funds for periods prior to January 27, 1995 is
represented by performance of certain common trust funds managed by FNBC
before the effective date of the registration statement of these Funds.
Performance of the Mid-Cap Opportunity (6/1/91), Intrinsic Value
(6/1/91), Growth and Value (6/1/91), Equity Index (7/10/92),
International Equity (12/3/94), Intermediate Bond (6/1/91), Bond
(6/1/91), Short Bond (9/17/94) and Short Municipal Bond (3/13/98) Funds
for periods prior to the dates shown here (inception of Funds under 1940
Act) is represented by performance of certain common trust funds managed
by NBD before the effective date of the registration statement of these
Funds. The common trust funds were not registered under the 1940 Act and
were not subject to certain restrictions that are imposed by the 1940 Act
and Sub-Chapter M of the Code. If the common trust funds had been
registered under the 1940 Act, performance may have been adversely
affected. The common trust funds did not charge any expenses. Performance
of the common trust funds has been restated to reflect the maximum
operating expenses charged (after waivers and expense reimbursements) by
the predecessor Prairie Funds upon their inception on January 27, 1995 in
the case of the Equity Income, Growth, Small-cap Opportunity and
International Bond Funds or by the other Fund's upon their inception, as
the case may be.
/(3)/ Performance for periods from January 27, 1995 to August 24, 1996 is
represented by the performance of the Prairie Growth Fund. On August 24,
1996, the assets and liabilities of the Prairie Growth Fund were
transferred to the Growth Fund.
/(4)/ Performance for periods to September 14, 1996 is represented by the
performance of the Prairie Municipal Bond Fund. On August 24, 1996, the
assets and liabilities of the Prairie Municipal Bond Fund were
transferred to the Municipal Bond Fund.
From time to time, references to the Funds may appear in
advertisements and sales literature for certain products or services, offered by
the Investment Adviser, its affiliates or others, through which it is possible
to invest in one or more of the Funds, such as the Pegasus Architect wrap
account, the Pathmaker variable annuity, and First Choice, First Choice
Provider, First Choice Pegasus and First Choice Select 401(k) products.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash.
The Funds may also include discussions or illustrations of the
potential investment goals of a prospective investor, investment management
strategies, techniques, policies or investment suitability of a Fund (such as
value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer, automatic accounting rebalancing, the advantages and
disadvantages of investing in tax-deferred and taxable instruments), economic
conditions, risk and volatility assessments, the relationship between sectors of
the economy and the economy as a whole, various securities markets, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time,
advertisements for each Asset Allocation Fund may include a discussion of the
target asset allocation ranges and of the Underlying Funds and the expected
ranges of investment in each of the Underlying Funds and may include a
discussion of the current and foreseeable investment ranges of the target asset
allocation and the Underlying Funds. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as the view of the Trust as to current market, economy, trade and
interest rate trends, legislative, regulatory and monetary developments,
investment strategies and related matters believed to be of relevance to a Fund.
The Funds may also include in advertisements charts, graphs or drawings which
compare the investment objective, return potential, relative stability and/or
growth possibilities of the Fund and/or other mutual funds, or illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, treasury bills and shares of a
Fund. In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds,
-64-
<PAGE> 67
shareholder profiles and hypothetical investor scenarios, timely information on
financial management, tax and retirement planning and investment alternatives to
certificates of deposit and other financial instruments. Such advertisements or
communicators may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein.
-65-
<PAGE> 68
APPENDIX A
----------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category is used
when interest payments of principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes such
payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers or (supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios,
A-1
<PAGE> 69
while sound, may be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effects 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" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses 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" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
A-2
<PAGE> 70
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1" - Securities have the strongest capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.
"F-2" - Securities have a satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of higher ratings.
"F-3" - Securities have adequate capacity for timely payment of
financial commitments; however, near-term adverse changes could result in a
reduction to non-investment grade.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal and interest of debt instruments
with original maturities of one year or less. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal
A-3
<PAGE> 71
and external) than those with higher ratings, the capacity to service principal
and interest in a timely fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
A-4
<PAGE> 72
Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues. An obligation rated
"AA" differs from the highest rated obligation only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
"A" - An obligation rated "A" 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" - An obligation rated "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.
"BB," "B," "CCC," "CC" and "C" - Debt is 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 risk exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces 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" - Debt is more vulnerable to non-payment 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 for the obligor to meet
its financial commitment on the obligation.
"CCC" - Debt is vulnerable to non-payment, and is dependent upon
favorable business, financial and economic conditions for the obligor to meet
its financial commitment on the obligation.
A-5
<PAGE> 73
"CC" - An obligation rated "CCC" is currently highly vulnerable to
non-payment.
"C" - The "C" rating may be 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" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be
A-6
<PAGE> 74
other elements present which make the long-term risks appear somewhat larger
than in "Aaa" securities.
"A" - 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" - Bonds are considered as medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" are of poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A-7
<PAGE> 75
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and have the lowest
expectation of credit risk. The obligor has a very strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and have a very low
expectation of credit risk. The obligor has a very strong capacity for timely
payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
"A" - Bonds considered to be investment grade and have a low
expectation of credit risk. The obligor's capacity for timely payment of
financial commitments is considered strong. This capacity may, nevertheless, be
more vulnerable to adverse changes in circumstances or in economic conditions
than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and have a currently
low expectation of credit risk. The obligor's capacity for timely financial
commitments is considered adequate, but adverse changes in circumstances or in
economic conditions are more likely to impair this capacity. This is the lowest
investment grade category.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is possibility of credit risk developing, particularly the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds considered to be highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC," "CC," "C" - Bonds have certain identifiable characteristics
that, if not remedied, may lead to default. Capacity for meeting financial
commitments is reliant upon sustained, favorable business or economic
developments. A "CC" rating indicates that default of some kind appears
probable. "C" ratings signal imminent default.
"DDD," "DD" and "D" - Securities are not meeting current obligations
and are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved. U.S. corporates,
for example, "DD" indicates expected recovery of 50%-90% of each outstanding and
"D" the lowest recovery potential, i.e. below 50%.
A-8
<PAGE> 76
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
A-9
<PAGE> 77
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality with margins
of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of
margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-10
<PAGE> 78
APPENDIX B
----------
As stated in their Prospectus, each of the Funds may enter into
futures contracts and related options for hedging purposes.
I. Interest Rate Futures Contracts
-------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures as
a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to hedge against expected increases in interest rates and futures contract
purchases to offset the impact of interest rate declines.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges - principally, the Chicago Board of Trade,
the Chicago Mercantile Exchange and the New York Futures Exchange. The Fund
would deal only in standardized
B-1
<PAGE> 79
contracts on recognized exchanges. Each exchange guarantees performance under
contract provisions through a clearing corporation, a nonprofit organization
managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; three-month United States Treasury Bills; and ninety-day commercial
paper. A Fund may trade in any futures contract for which there exists a public
market, including, without limitation, the foregoing instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury bonds"). The Investment Adviser wishes to hedge the
current market value of this portfolio security until some point in the future.
Assume the portfolio security has a market value of 100, and the Investment
Adviser believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market price
for the Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Investment Adviser could be wrong in its forecast of interest
rates and the equivalent futures market price could rise above 98. In this case,
the market value of the portfolio securities, including the portfolio security
being hedged, would increase. The benefit of this increase would be reduced by
the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Futures Contract Purchase. A Fund might engage in an
interest rate futures contract purchase when it is not fully invested in long-
term bonds but wishes to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter-
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
B-2
<PAGE> 80
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to hedge the effect of all or part of an expected
increase in market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Investment Adviser wishes to hedge the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the Investment Adviser believes
that, because of an anticipated fall in interest rates, the price will have
risen to 105 (and the yield will have dropped to about 9 1/2%) in four months. A
Fund might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Fund could, for example, assign a
pool of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term bond
at an assumed market price of 100. Assume these short-term securities are
yielding 15%. If the market price of the long-term bond does indeed rise from
100 to 105, the equivalent futures market price for Treasury bonds might also
rise from 98 to 103. In that case, the 5-point increase in the price that the
Fund pays for the long-term bond would be offset by the 5-point gain realized by
closing out the futures contract purchase.
The Investment Adviser could be wrong in its forecast of interest
rates; long-term interest rates might rise to above 10%; and the equivalent
futures market price could fall below 98. If short-term rates at the same time
fall to 10% or below, it is possible that a Fund would continue with its
purchase program for long-term bonds. The market price of available long-term
bonds would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that a Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses would also be incurred.
II. Index Futures Contracts
-----------------------
A stock or bond index assigns relative values to the stocks or bonds
included in the index and the index fluctuates with changes in the market values
of the stocks or bonds included. Some stock index futures contracts are based on
broad market indices, such as the Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures contracts
on narrower market indices, such as the Standard &
B-3
<PAGE> 81
Poor's 100 or indices based on an industry or market segment, such as oil and
gas stocks. Futures contracts are traded on organized exchanges regulated by the
Commodity Futures Trading Commission. Transactions on such exchanges are cleared
through a clearing corporation, which guarantees the performance of the parties
to each contract.
The Equity Funds may sell index futures contracts in order to hedge
against a decrease in market value of its portfolio securities that might
otherwise result from a market decline. A Fund may do so either to hedge the
value of its portfolio as a whole, or to hedge against declines, occurring prior
to sales of securities, in the value of the securities to be sold. Conversely,
the Funds may purchase index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, the Funds may
purchase such securities upon termination of the long futures position, but a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, the Funds may utilize index futures contracts in
anticipation of changes in the composition of their portfolio holdings. For
example, in the event that a Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. The
Fund may also sell futures contracts in connection with this strategy, in order
to hedge against the possibility that the value of the securities to be sold as
part of the restructuring of the portfolio will decline prior to the time of
sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Equity Fund at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Fund with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
</TABLE>
B-4
<PAGE> 82
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that is,
market value decreased and the Fund had entered into an anticipatory purchase
hedge, or market value increased and the Fund had hedged its stock portfolio,
the results of the Fund's transactions in stock index futures would be as set
forth below.
B-5
<PAGE> 83
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
</TABLE>
B-6
<PAGE> 84
III. Margin Payments
---------------
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the future contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and the Fund would
be required to make a variation margin payment to the broker. At any time prior
to expiration of the futures contract, the Investment Adviser may elect to close
the position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by a
Fund as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and
B-7
<PAGE> 85
movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater dollar amount than the dollar amount of securities being
hedged if the volatility over a particular time period of the prices of such
securities has been greater than the volatility over such time period of the
future, or if otherwise deemed to be appropriate by the Investment Adviser.
Conversely, a Fund may buy or sell fewer futures contracts if the volatility
over a particular time period of the prices of the securities being hedged is
less than the volatility over such time period of the futures contract being
used, or if otherwise deemed to be appropriate by the Investment Adviser. It is
also possible that, where a Fund has sold futures to hedge its portfolio against
a decline in the market, the market may advance and the value of securities held
by the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts (or options), will be deposited in a segregated account with the
Fund's Custodian and/or in a margin account with a broker to collateralize the
position and thereby ensure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. With respect to financial
futures contracts, the liquidity of the futures market depends on participants
entering into off-setting transactions rather than making or taking delivery. To
the extent participants decide to make or take delivery, liquidity in the
futures market could be reduced thus producing distortions. From the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Investment Adviser may still not
result in a successful hedging transaction over a short time frame.
B-8
<PAGE> 86
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although a Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of fluctuation
in a futures contract price during a single trading day. Once the daily limit
has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund is also subject to the Investment
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Fund has hedged against the possibility of a decline in the
market adversely affecting securities held in its portfolio and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts
----------------------------
Each Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
B-9
<PAGE> 87
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). Although permitted by their investment
policies, the Funds do not currently intend to write futures options, and will
not do so in the future absent any necessary regulatory approvals.
VI. Accounting and Tax Treatment
----------------------------
Accounting for futures contracts and options will be in accordance
with generally accepted accounting principles.
Generally, futures contracts held by a Fund at the close of the Fund's
taxable year will be treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"marking-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the length of time the Fund holds the futures contract ("the 40-60
rule"). The amount of any capital gain or loss actually realized by a Fund in a
subsequent sale or other disposition of those futures contracts will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the contracts. With respect to
futures contracts to sell, which will be regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by the Fund, losses as to such contracts to sell will be subject to certain
loss deferral rules which limit the amount of loss currently deductible on
either part of the straddle to the amount thereof which exceeds the unrecognized
gain, if any, with respect to the other part of the straddle, and to certain
wash sales regulations. With respect to certain futures contracts, deductions
for interest and carrying charges will not be allowed. Notwithstanding the rules
described above, with respect to futures contracts to sell which are properly
identified as such, a Fund may make an election which will exempt (in whole or
in part) those identified futures contracts from being treated for federal
income tax purposes as sold on the last business day of the Fund's taxable year,
but gains and losses will be subject to such short sales, wash sales, loss
deferral rules and the requirement to capitalize
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interest and carrying charges. Under temporary regulations, a Fund would be
allowed (in lieu of the foregoing) to elect either (1) to offset gains or losses
from portions which are part of a mixed straddle by separately identifying each
mixed straddle to which such treatment applies, or (2) to establish a mixed
straddle account for which gains and losses would be recognized and offset on a
periodic basis during the taxable year. Under either election, the 40-60 rule
will apply to the net gain or loss attributable to the futures contracts, but in
the case of a mixed straddle account election, not more than 50% of any net gain
may be treated as long-term and no more than 40% of any net loss may be treated
as short-term. Options on futures generally receive federal tax treatment
similar to that described above.
Certain foreign currency contracts entered into by a Fund may be
subject to the "marking-to-market" process and the 40%-60% rule in a manner
similar to that described in the preceding paragraph for futures contracts. To
receive such federal income tax treatment, a foreign currency contract must meet
the following conditions: (1) the contract must require delivery of a foreign
currency of a type in which regulated futures contracts are traded or upon which
the settlement value of the contract depends; (2) the contract must be entered
into at arm's length at a price determined by reference to the price in the
interbank market; and (3) the contract must be traded in the interbank market.
The Treasury Department has broad authority to issue regulations under the
provisions respecting foreign currency contracts. As of the date of this
Additional Statement, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by a Fund may result
in the creation of one or more straddles for federal income tax purposes, in
which case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
Some of the Funds' investments may be subject to special rules which
govern the federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S. dollar. The types of
transactions covered by the special rules include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option or similar
financial instrument. The disposition of a currency other than the U.S. dollar
by a U.S. taxpayer is also treated as a transaction subject to the special
currency rules. However, foreign currency-related regulated futures contracts
and nonequity options are generally not subject to the special currency rules if
they are or would be treated as sold for their fair market value at year-end
under the marking-to-market rules, unless an election is made to have such
currency rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not a
part of a straddle. In accordance with Treasury
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regulations, certain transactions that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) may be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Fund which are not subject to the special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
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STATEMENT OF ADDITIONAL INFORMATION
April 30, 1998
for
CLASS A, CLASS B AND CLASS I SHARES OF THE
MONEY MARKET FUND
AND
CLASS A AND CLASS I SHARES
OF THE
TREASURY MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
MICHIGAN MUNICIPAL MONEY MARKET FUND
of
PEGASUS FUNDS
P.O. Box 5142
Westborough, Massachusetts 01581
(800) 688-3350
This Statement of Additional Information ("Additional Statement") is
meant to be read in conjunction with the Pegasus Funds' Prospectus dated April
30, 1998 pertaining to all classes of shares of the Funds listed above (the
"Prospectus") (each, a "Fund" and collectively, the "Funds"), as it may be
revised from time to time, and is incorporated by reference in its entirety into
that Prospectus. Because this Additional Statement is not itself a prospectus,
no investment in shares of the Funds should be made solely upon the information
contained herein. Copies of the Funds' Prospectus may be obtained from any
office of the Distributor by writing or calling the Distributor or the Trust at
the address or telephone number listed above. Capitalized terms used but not
defined herein have the same meanings as in the Prospectus.
<PAGE> 91
TABLE OF CONTENTS
-----------------
Page
----
The Trust.............................................................. 1
Investment Objectives, Policies and Risk Factors....................... 1
Net Asset Value........................................................ 10
Additional Purchase and Redemption Information......................... 10
Description of Shares.................................................. 11
Additional Information Concerning Taxes................................ 15
Management............................................................. 19
Independent Public Accountants......................................... 29
Counsel................................................................ 30
Additional Information on Performance.................................. 30
Appendix A............................................................. A-1
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THE TRUST
The Pegasus Funds (the "Trust"), formerly "The Woodward Funds," was
organized as a Massachusetts business trust on April 21, 1987. As of December
31, 1997, the Trust consisted of thirty-one separate funds, of which four Funds
are covered by this Additional Statement. Prior to September 16, 1996, the name
of the Municipal Money Market Fund was the Woodward Tax-Exempt Money Market Fund
and prior to September 23, 1996, the name of the Michigan Municipal Money Market
Fund was the Woodward Michigan Tax Exempt Money Market Fund.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following policies supplement the Funds' respective investment
objectives and policies as set forth in the Prospectus.
Additional Information on Fund Instruments
Attached to this Additional Statement is Appendix A which contains
descriptions of the rating symbols used by Rating Agencies for securities in
which the Funds may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of Trustees,
the Investment Adviser is responsible for making decisions with respect to and
placing orders for all purchases and sales of portfolio securities for each
Fund.
The annualized portfolio turnover rate for each Fund is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
reporting period by the monthly average value of the portfolio securities owned
during the reporting period. The calculation excludes all securities, including
options, whose maturities or expiration dates at the time of acquisition are one
year or less.
Purchases of money market instruments by the Funds are made from
dealers, underwriters and issuers. The Funds currently do not expect to incur
any brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by dealers acting as principal
for their own accounts without a stated commission. The price of the security,
however, usually includes a profit to the dealer. Securities purchased in
underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When
<PAGE> 93
securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
A Fund will engage in this practice, however, only when the Investment Adviser,
in its sole discretion, believes such practice to be otherwise in the Fund's
interests.
For the fiscal years ended December 31, 1997, 1996 and 1995, the Funds
incurred no brokerage commissions.
The Advisory Agreement for the Funds provides that, in executing
portfolio transactions and selecting brokers or dealers, the Investment Adviser
will seek to obtain the best overall terms available for each Fund. In
assessing the best overall terms available for any transaction, the Investment
Adviser shall consider factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
In addition, the Agreement authorizes the Investment Adviser to cause a Fund to
pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Investment Adviser determines
in good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Investment Adviser to the Funds. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond and government securities
markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Investment Adviser and
does not reduce the advisory fees payable by the Funds. The Trustees will
periodically review any commissions paid by the Funds to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Funds. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which investment
discretion is exercised by the Investment Adviser. Conversely, a Fund may be
the primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
The Trust will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase
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<PAGE> 94
agreements with the Investment Adviser, the Distributor or an affiliated person
of any of them (as such term is defined in the 1940 Act) acting as principal,
except to the extent permitted under the 1940 Act. In addition, a Fund will not
purchase securities during the existence of any underwriting or selling group
relating thereto of which the Distributor or the Investment Adviser, or an
affiliated person of any of them, is a member, except to the extent permitted
under the 1940 Act. Under certain circumstances, the Funds may be at a
disadvantage because of these limitations in comparison with other investment
companies which have similar investment objectives but are not subject to such
limitations.
Investment decisions for each Fund are made independently from those
for the other Funds and for any other investment companies and accounts advised
or managed by the Investment Adviser. Such other investment companies and
accounts may also invest in the same securities as the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for other
investment companies or accounts in executing transactions. When a purchase or
sale of the same security is made at substantially the same time on behalf of
one or more of the Funds and another investment company or account, the
transaction will be averaged as to price and available investments allocated as
to amount, in a manner which the Investment Adviser believes to be equitable to
each Fund and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by the Fund.
Eligible Securities
Each Fund may purchase "eligible securities" that present minimal
credit risks as determined by the Investment Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities generally
include under certain circumstances, shares of other money market funds and,
generally, (1) securities that are rated (or, in certain cases, whose guarantee
is rated) by two or more Rating Agencies (or the only Rating Agency which has
issued a rating) in one of the two highest rating categories for short term debt
securities; (2) securities that have no short term rating (or securities with a
guarantee with no such rating), if the issuer has other outstanding short term
obligations that are (or a guarantee that is) comparable in priority and
security as determined by the Investment Adviser ("Comparable Obligations") and
that have been rated in accordance with (1) above; (3) securities (including
guarantees) that have no short term rating, but are determined to be of
comparable quality to a security satisfying (1) or (2) above, and the issuer
does not have Comparable Obligations rated by a Rating Agency; and (4)
obligations that carry a demand feature that complies with (1), (2) or (3)
above, and are unconditional (i.e., readily exercisable in the event of default)
or, if conditional, either they or the long term obligations of the issuer of
the demand obligation are (a) rated by two or more Rating Agencies (or the only
Rating Agency which has issued a rating) in one of the two highest categories
for long term debt obligations, or (b) determined by the Investment Adviser to
be of comparable quality to securities which are so rated.
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<PAGE> 95
Bank Obligations
In accordance with their respective investment objectives, the Funds
may purchase bank obligations, which include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits, including U.S. dollar-
denominated instruments issued or supported by the credit of U.S. or foreign
banks or savings institutions. Although the Funds invest in obligations of
foreign banks or foreign branches of U.S. banks only where the Investment
Adviser deems the instrument to present minimal credit risks, such investments
may nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1.0
billion in total assets at the time of purchase.
Commercial Paper
Commercial paper, including variable and floating rate notes and other
short term corporate obligations, must be rated in one of the two highest
categories by at least two Rating Agencies, or if not rated, must have been
independently determined by the Investment Adviser to be of comparable quality.
Variable and Floating Rate Instruments
With respect to variable and floating rate obligations that may be
acquired by the Funds, the Investment Adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
notes and will continuously monitor their financial status to meet payment on
demand. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Fund to
dispose of instruments if the issuer defaulted on its payment obligation or
during periods that the Fund is not entitled to exercise its demand rights, and
the Fund could, for these or other reasons, suffer a loss with respect to such
instruments.
Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Funds may invest from time to time in securities issued by
other investment companies which invest in high quality, short term debt
securities. The Funds intend to limit their investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of a Fund's total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of a Fund's total assets
will be invested in the aggregate in securities of investment companies as a
group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or the Trust as a whole.
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<PAGE> 96
Lending Securities
When a Fund lends its securities, it continues to receive interest or
dividends on the securities loaned and may simultaneously earn interest on the
investment of the cash collateral. Although voting rights, or rights to
consent, attendant to securities on loan pass to the borrower, such loans will
be called so that the securities may be voted by a Fund if a material event
affecting the investment is to occur.
Repurchase Agreements and Reverse Repurchase Agreements
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Trust's Custodian, in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans under the 1940
Act.
Reverse repurchase agreements are considered to be borrowings by the
Funds under the 1940 Act. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
U.S. Government securities or other liquid high-grade debt securities having a
value equal to or greater than the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Fund may decline below the price of the
securities it is obligated to repurchase.
When-Issued Purchases and Forward Commitments
As stated in their Prospectus, each Fund, except for the Treasury
Money Market Fund, may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. A Fund will purchase securities
on a when-issued basis or purchase or sell securities on a forward commitment
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. If deemed advisable as a matter of
investment strategy, however, a Fund may dispose of or renegotiate a commitment
after it is entered into, and may sell securities it has committed to purchase
before those securities are delivered to the Fund on the settlement date. In
these cases the Fund may realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
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<PAGE> 97
Municipal and Related Obligations
As stated in their Prospectus, the Municipal Funds may invest in
Municipal Obligations. There are, of course, variations in the quality of
Municipal Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend in part on a
variety of factors, including general market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Municipal Obligations by Rating Agencies represent their opinions
as to the quality of Municipal Obligations. It should be emphasized, however,
that ratings are general and are not absolute standards of quality, and
Municipal Obligations with the same maturity, interest rate and rating may have
different yields while Municipal Obligations with the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by a Fund, a Municipal Obligation may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund. The
Investment Adviser will consider such an event in determining whether the Fund
should continue to hold the obligation.
The payment of principal and interest on most Municipal Obligations
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. For the purpose of diversification under the 1940 Act, the
identification of the issuer of Municipal Obligations depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development
bond, if that bond is backed only by the assets and revenues of the non-
governmental user, then such non-governmental user would be deemed to be the
sole issuer. If, however, in either case, the creating government or some other
entity guarantees a security, such a guaranty would be considered a separate
security and will be treated as an issue of such government or other entity.
An issuer's obligations under its Municipal Obligations are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights or
remedies of creditors, such as the Federal Bankruptcy Code, and any laws that
may be enacted by federal or state legislatures extending the time for payment
of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest or principal of its Municipal Obligations may be materially
adversely affected by litigation or other conditions.
Certain of the Municipal Obligations held by the Funds may be insured
at the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Obligations at the time of original issuance. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such
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insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, pursuant to federal tax
legislation passed in 1986 interest on certain private activity bonds must be
included in an investor's federal alternative minimum taxable income, and
corporate investors must include all tax-exempt interest in their federal
alternative minimum taxable income. The Trust cannot predict what legislation,
if any, may be proposed in Congress in the future with respect to the federal
income tax status of interest on Municipal Obligations in general, or which
proposals, if any, might be enacted. Such proposals, if enacted, might
materially adversely affect the availability of Municipal Obligations for
investments by the Municipal Funds and their liquidity and value. In such
event, the Board of Trustees would reevaluate the Funds' investment objectives
and policies and consider changes in their structure or possible dissolution.
Special Risk Considerations Applicable to the Michigan Municipal Money Market
Fund
The following information is drawn from various Michigan governmental
publications and from official statements relating to securities offerings of
the State and its political subdivisions. While the Trust has not independently
verified such information, it has no reason to believe that it is not correct in
all material respects.
The State of Michigan's economy is principally dependent on
manufacturing (particularly automobiles, office equipment and other durable
goods), tourism and agriculture, and historically has been highly cyclical.
Total State wage and salary employment is estimated to have grown by
1.5% in 1997. The rate of unemployment is estimated to have been 4.1% in 1997,
below the national average for the fourth consecutive year. Personal income grew
at an estimated 4.7% annual rate in 1997, up from the 4.2% growth reported for
1996.
During the past five years, improvements in the Michigan economy have
resulted in increased revenue collections which, together with restraints on the
expenditure side of the budget, have resulted in State General Fund budget
surpluses, most of which were transferred to the State's Counter-Cyclical Budget
and Economic Stabilization Fund. The balance of that Fund as of September 30,
1997 is estimated to have been in excess of $1.1 billion.
The Michigan Constitution limits the amount of total State revenues
that can be raised from taxes and certain other sources. State revenues
(excluding federal aid and revenues for payment of principal and interest on
general obligation bonds) in any fiscal year are limited to a fixed percentage
of State personal income in the prior calendar year or the average of the prior
three calendar years, whichever is greater, and this fixed percentage equals the
percentage of the 1978-79 fiscal year state government revenues to total
calendar 1977 State personal income (which was 9.49%).
The Michigan Constitution also provides that the proportion of State
spending paid to all units of local government to total State spending may not
be reduced below the proportion in effect in the 1978-79 fiscal year. The State
originally determined that portion to be 41.6%. If such spending does not meet
the required level in a given year, an additional appropriation for local
governmental units is required by the following fiscal year; which means the
year following the determinations of the shortfall, according to an opinion
issued by the State's Attorney General. Spending for local units met this
requirement for fiscal years 1986-87 through 1991-92. As the result of
litigation, the State agreed to reclassify certain expenditures, beginning with
fiscal year 1992-93, and has recalculated the required percentage of spending
paid to local government units to be 48.97%.
The State has issued and has outstanding general obligation full faith
and credit bonds for Water Resources, Environmental Protection Program,
Recreation Program and School Loan purposes. As of September 30, 1997, the State
had approximately $677 million of general obligation bonds outstanding.
The State may issue notes or bonds without voter approval for the
purposes of making loans to school districts. The proceeds of such notes or
bonds are deposited in the School Bond Loan Fund maintained by the State
Treasurer and used to make loans to school districts for payment of debt on
qualified general obligation bonds issued by local school districts.
The State is a party to various legal proceedings seeking damages or
injunctive or other relief. In addition to routine litigation, certain of these
proceedings could, if unfavorably resolved from the point of view of the State,
substantially affect State programs or finances. As of early 1998, these
lawsuits involved programs generally in the areas of corrections, tax
collection, commerce, and proceedings involving budgetary reductions to school
districts and governmental units, and court funding.
The State Constitution limits the extent to which municipalities or
political subdivisions may levy taxes upon real and personal property through a
process that regulates assessments.
On March 15, 1994, Michigan voters approved a property tax and school
finance reform measure commonly known as Proposal A. Under Proposal A, as
approved, effective May 1, 1994, the State sales and use tax increased from 4%
to 6%, the State income tax decreased from 4.6% to 4.4%, the cigarette tax
increased from $.25 to $.75 per pack and an additional tax of 16% of the
wholesale price began to be imposed on certain other tobacco products. A .75%
real estate transfer tax became effective January 1, 1995. Beginning in 1994, a
state property tax of 6 mills began to be imposed on all real and personal
property currently subject to the general property tax. All local school boards
are authorized, with voter approval, to levy up to the lesser of 18 mills or the
number of mills levied in 1993 for school operating purposes on nonhomestead
property and nonqualified agricultural property. Proposal A contains additional
provisions regarding the ability of local school districts to levy taxes, as
well as a limit on assessment increases for each parcel of property, beginning
in 1995. Such increases for each parcel of property are limited to the lesser of
5% or the rate of inflation. When property is subsequently sold, its assessed
value will revert to the current assessment level of 50% of true cash value.
Under Proposal A, much of the additional revenue generated by the new taxes will
be dedicated to the State School Aid Fund.
Proposal A and its implementing legislation shifted significant
portions of the cost of local school operations from local school districts to
the State and raised additional State revenues to fund these additional State
expenses. These additional revenues will be included within the State's
constitutional revenue limitations and may impact the State's ability to raise
additional revenues in the future.
A state economy during a recessionary cycle would also, as a separate
matter, adversely affect the capacity of users of facilities constructed or
acquired through the proceeds of private activity bonds or other "revenue"
securities to make periodic payments for the use of those facilities.
The heavy concentration of the Michigan Municipal Money Market Fund in
Michigan Municipal Securities and the cyclical nature of the economy of the
state of Michigan may adversely affect the liquidity of the Fund.
Stand-By Commitments
The Municipal Funds may acquire "stand-by commitments" with respect to
Municipal Obligations they hold. Under a stand-by commitment, a dealer agrees
to purchase at the Fund's option specified Municipal Obligations at a specified
price. Stand-by commitments may be exercisable by the Funds at any time before
the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned only with the instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Funds may pay for a stand-by commitment either
separately in cash or by paying a higher price for Municipal Obligations which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Neither the Municipal Money
Market Fund nor the Michigan Municipal Money Market Fund will acquire a stand-by
commitment unless immediately after the acquisition, with respect to
75% of its assets not
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more than 5% of its total assets will be invested in instruments subject to a
demand feature, including stand-by commitments, with the same institution.
The Funds intend to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Investment Adviser's opinion, present
minimal credit risks. A Fund's reliance upon the credit of these dealers, banks
and broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment. Thus, the risk of loss to the
Funds in connection with a "stand-by commitment" will not be qualitatively
different from the risk of loss faced by a person that is holding securities
pending settlement after having agreed to sell the securities in the ordinary
course of business.
The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligations which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Where a Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as an unrealized loss for the period during which the
commitment is held by the Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
Additional Investment Limitations
In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the following investment limitations which may not be
changed without approval of the holders of the majority of the outstanding
shares of the affected Fund (as defined under Description of Shares below).
None of the Funds may:
1. Purchase any securities which would cause 25% or more of the value
of a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, domestic
bank obligations, and repurchase agreements secured by such instruments, (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents, (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry, and (d) personal credit
and business credit businesses will be considered separate industries.
-8-
<PAGE> 100
2. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
3. Invest in commodities, except that each Fund may purchase and sell
options, forward contracts, futures contracts, including without limitation
those relating to indices, as consistent with a Fund's investment objective and
policies.
4. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Fund might be deemed to be an
underwriter upon the disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitations may be deemed to be
underwriting.
In addition to the above fundamental limitations, the Funds are
subject to the following non-fundamental limitations, which may be changed
without a shareholder vote.
None of the Funds may:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except, as consistent with a Fund's investment
objective and policies, for transactions in options on securities or indices of
securities, futures contracts and options on futures contracts and in similar
investments.
3. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Fund's transactions in futures contracts and related options and in
options on securities or indices of securities and similar instruments, and (b)
each Fund may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of
exercising control.
5. Invest more than 10% of its net assets in illiquid securities.
No Fund intends to purchase securities while its outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of its
total assets. Securities held in escrow or separate accounts in connection with
a Fund's investment practices are not deemed to be pledged for purposes of this
limitation.
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<PAGE> 101
NET ASSET VALUE
Each Fund intends to value its portfolio securities based upon their
amortized cost in accordance with Rule 2a-7 under the 1940 Act. Where it is not
appropriate to value a security by the amortized cost method, the security will
be valued either by market quotations, or by fair value as determined by the
Board of Trustees. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Fund would receive if it sold the securities.
Pursuant to Rule 2a-7, each Fund is required to maintain a dollar-
weighted average portfolio maturity of 90 days or less, to purchase securities
having remaining deemed maturities of 13 months or less, and to invest only in
securities determined by the Board of Trustees to be of high quality with
minimal credit risks. The Board of Trustees has established procedures designed
to stabilize, to the extent reasonably possible, each Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. These procedures
include review of the investment holdings by the Board of Trustees, at such
intervals as it may deem appropriate, to determine whether a Fund's net asset
value calculated by using available market quotations deviates from $1.00 per
share based on amortized cost. The extent of any deviation will be examined by
the Board of Trustees. If the deviation exceeds 1/2 of 1%, the Board of
Trustees will promptly consider what action, if any, will be initiated. In the
event the Board of Trustees determines that a deviation exists which may result
in material dilution or other unfair results to investors or existing
shareholders, it may take such corrective actions as it deems necessary and
appropriate to eliminate or reduce, to the extent reasonably practicable, any
such dilution or unfair results. These actions may include selling portfolio
securities prior to maturity to realize capital gains or losses or to shorten a
Fund's average maturity, withholding or reducing dividends, redeeming shares in
kind, splitting, combining or otherwise recapitalizing outstanding shares or
establishing a net asset value per share by using available market quotations.
The Funds calculate their dividends based on daily net investment
income. Expenses of each Fund are accrued daily. As each Fund's portfolio
securities are normally valued at amortized cost, unrealized gains or losses on
such securities based on their market values will not normally be recognized.
However, should the net asset value deviate significantly from market value, the
Trustees could decide to value the securities at market value and then
unrealized gains and losses would be included in net investment income.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered and sold on a continuous basis by the
Trust's distributor, BISYS Fund Services ("BISYS") acting as agent.
Under the 1940 Act, 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
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<PAGE> 102
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
Exchange is closed for other than customary weekend and holiday closings; (c)
the SEC has by order permitted such suspension; or (d) an emergency exists as
determined by the SEC. (The Trust may also suspend or postpone the recordation
of the transfer of shares upon the occurrence of any of the foregoing
conditions.)
In addition to the situations described in the Prospectus under
"Redemption of Shares," the Trust may redeem shares involuntarily to reimburse
the Funds for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to a transaction effected for the benefit of a shareholder which
is applicable to Fund shares as provided in the Prospectus from time to time.
The Trust normally redeems shares for cash. However, the Trustees can
determine that conditions exist making cash payments undesirable. If they
should so determine, redemption payments could be made in securities valued at
the value used in determining net asset value. There may be brokerage and other
costs incurred by the redeeming shareholder in selling such securities. The
Trust has elected to be covered by Rule 18f-1 under the 1940 Act, pursuant to
which the Trust is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of net asset value during any 90-day period for any one
shareholder.
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust
authorizes the Board of Trustees to divide shares into two or more series, each
series relating to a separate portfolio of investments, and divide the shares of
any series into two or more classes. The number of shares of each series and/or
of a class within each series shall be unlimited. The Trust does not intend to
issue share certificates.
In the event of a liquidation or dissolution of the Trust or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund. If there are any
assets, income, earnings, proceeds, funds or payments, which are not readily
identifiable as belonging to any particular Fund, the Trustees shall allocate
them among any one or more of the Funds as they, in their sole discretion, deem
fair and equitable.
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 affected by the matter. A Fund is affected by a matter unless it is
clear that the interests of each Fund in the matter are substantially identical
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<PAGE> 103
or that the matter does not affect any interest of the Fund. Under the Rule, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a Fund only if
approved by a majority of the outstanding shares of such Fund. However, the Rule
also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of the Trust voting
together in the aggregate without regard to particular Funds.
When used in the Prospectus or in this Additional Statement, a
"majority" of shareholders means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the vote of the lesser of (1) 67% of the shares of the Trust, or the
applicable Fund, present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable Fund.
As of March 31, 1998, Trussal & Co., a nominee of NBD's Trust
Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of record
38.47%, 21.29%, 67.87% and 46.80%, respectively, of the outstanding shares of
the Money Market, Treasury Money Market, Municipal Money Market and Michigan
Municipal Money Market Funds, respectively. The Trustees and officers of the
Trust, as a group, owned less than 1% of the outstanding shares of each of these
Funds. Furthermore, as of March 31, 1998, with respect to the Money Market,
Treasury Money Market, Municipal Money Market, Michigan Municipal Money Market
Funds the following persons owned of record 5% or more of the outstanding shares
of such Funds:
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<PAGE> 104
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -------------
<S> <C> <C> <C>
Money Market Fund - Corelink Financial Services 363,324.870 79.65%
Class B P.O. Box 4054
Concord, CA 94524-4054
Donaldson, Lufkin & Jenrette 52,857.460 11.59%
Securities Corp., Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Money Market Fund - First National Bank of Chicago 79,386,048.790 5.30%
Class I Corporate Trust Admin.
1 F&B Plaza
Suite 0126
Chicago, IL 60670-0001
First Chicago NBD TTEE 160,826,963.830 10.74%
First Chicago NBD Svgs & Invsmt
Plan
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Treasury USA Global Link Inc. 17,382,429.670 7.68%
Money Market Fund - 50 N. 3rd Street
Class A Fairfield, IA 52556-3215
Treasury First National Bank of Chicago 446,115,451.990 54.80%
Money Market Fund - Corporate Trust Admin.
Class I 1 F&B Plaza
Suite 0126
Chicago, IL 60670-0001
</TABLE>
-13-
<PAGE> 105
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -------------
<S> <C> <C> <C>
Michigan James R. Donahey 2,368,337.190 7.62%
Municipal Pat J. Donahey
Money Market Fund - 421 Highland
Class I Ann Arbor, MI 48104
Richard H. Brown 3,800,451.510 12.23%
67753 Mile Northeast
Ada, MI 49301
Michigan Automated Cash Management 16,787,428.100 22.20%
Municipan Money System
Market Fund - 9000 Haggerty Road
Class I Belleville, MI 48111-1632
First National Bank of Chicago 5,645,131.640 7.47%
Corporate Trust Admin.
1 F&B Plaza
Suite 0126
Chicago, IL 60670-0001
</TABLE>
When issued for payment as described in the Funds' Prospectus and this
Additional Statement, shares of the Funds will be fully paid and non-assessable
by the Trust.
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<PAGE> 106
The Declaration of Trust provides that the Trustees, officers,
employees and agents of the Trust will not be liable to the Trust or to a
shareholder, nor will any such person be liable to any third party in connection
with the affairs of the Trust, except as such liability may arise from his or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of duties. It also provides that all third parties shall look solely to the
Trust property for satisfaction of claims arising in connection with the affairs
of the Trust. With the exceptions stated, the Declaration of Trust provides
that a Trustee, officer, employee or agent is entitled to be indemnified against
all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations which are in effect on the date hereof; such laws
and regulations may be changed by legislative or administrative action.
Investors are advised to consult their tax advisers with specific reference to
their own tax situations.
Each Fund is treated as a separate corporate entity under the Code and
intends to qualify as a regulated investment company. As a regulated investment
company, each Fund is exempt from federal income tax on its net investment
income and realized capital gains which it distributes to shareholders, provided
that it distributes an amount equal to at least the sum of (a) 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gain over net long-term capital loss, if any, for the year)
and (b) 90% of its net tax-exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income
and net tax-exempt interest income, if any, made during taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year will satisfy the Distribution Requirement.
In addition to the Distribution Requirement, each Fund must satisfy
certain requirements with respect to the source of its income for a taxable
year. At least 90% of the gross income of each Fund must be derived from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stocks, securities or foreign currencies, and other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to the Fund's business of investing in such
stock, securities or currencies. The Treasury Department may by regulation
exclude from qualifying income foreign currency gains which are not directly
related to the Fund's principal business of investing in stock or securities, or
options and futures with respect to stock or securities.
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<PAGE> 107
Any income derived by a Fund from a partnership or trust is treated as derived
with respect to the Fund's business of investing in stock, securities or
currencies only to the extent that such income is attributable to items of
income which would have been qualifying income if realized by the Fund in the
same manner as by the partnership or trust.
Each Fund will designate any distribution of long term capital gains
as a capital gain dividend in a written notice mailed to shareholders within 60
days after the close of the Fund's taxable year.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%; however, because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long
term capital gains are taxable at a maximum marginal rate of 28% (for the sale
of capital assets held more than 12 months but not more than 18 months) or 20%
(for the sale of capital assets held more than 18 months). For corporations,
long term capital gains and ordinary income are both taxable at a maximum
marginal rate of 35%.
A 4% nondeductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
If for any taxable year a Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions (whether or not derived from interest on Municipal
Obligations) would be taxable as ordinary income to shareholders to the extent
of the Fund's current and accumulated earnings and profits and the dividends
received deduction would be available for corporations.
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<PAGE> 108
Each Fund may be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients."
As of December 31, 1997, the following Funds had capital loss
carryforwards and related expiration dates as follows:
<TABLE>
<CAPTION>
Fund 1999 2001 2002 2003 2004 2005 Total
- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury Money Market Fund $ -- $ -- $16,000 -- $ 1,000 $ -- $17,000
Municipal Money Market Fund 1,000 2,000 1,000 $36,000 14,000 2,000 54,000
Michigan Municipal Money Market Fund -- -- -- -- 1,000 -- 1,000
</TABLE>
Depending upon the extent of the Funds' activities in states and
localities in which their offices are maintained, in which their agents or
independent contractors are located or in which they are otherwise deemed to be
conducting business, the Funds may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income tax
laws, the treatment of the Funds and their shareholders under such laws may
differ from their treatment under federal income tax laws.
As described above and in the Prospectus, the Municipal Money Market
and Michigan Municipal Money Market Funds are designed to provide investors with
current tax-exempt interest income. The Funds are not intended to constitute a
balanced investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Funds would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not only fail to gain any
additional benefit from the Funds' dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. In addition, the Funds may not be appropriate investments for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, (b) who occupies
more than 5% of the usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
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<PAGE> 109
Each Municipal Fund's policy is to pay each year as federal exempt-
interest dividends substantially all of its Municipal Obligations interest
income net of certain deductions. In order for a Fund to pay exempt-interest
dividends with respect to any taxable year, at the close of each quarter of its
taxable year at least 50% of the aggregate value of the Fund's assets must
consist of exempt-interest obligations. After the close of its taxable year, the
Fund will notify its shareholders of the portion of the dividends paid by it
which constitutes an exempt-interest dividend with respect to such taxable year.
However, the aggregate amount of dividends so designated by the Fund cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by the Fund during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. The
percentage of total dividends paid by the Fund with respect to any taxable year
which qualify as federal exempt-interest dividends will be the same for all
shareholders receiving dividends for such year.
A percentage of the interest on indebtedness incurred by a shareholder
to purchase or carry the Funds' shares, equal to the percentage of the total
non-capital gain dividends distributed during the shareholder's taxable year
that are exempt-interest dividends, is not deductible for federal income tax
purposes.
Michigan Taxes
As stated in the Prospectus, dividends paid by a Fund that are derived
from interest attributable to tax-exempt Michigan Municipal Obligations will be
exempt from Michigan income tax, Michigan intangibles tax and Michigan single
business tax. Conversely, to the extent that a Fund's dividends are derived
from interest on obligations other than Michigan Municipal Obligations or
certain U.S. Government obligations (or are derived from short-term or long-term
gains), such dividends will be subject to Michigan income tax, Michigan
intangibles tax and Michigan single business tax, even though the dividends may
be exempt for federal income tax purposes.
In particular, gross interest income and dividends derived from
obligations or securities of the State of Michigan and its political
subdivisions, exempt from federal income tax, are exempt from Michigan income
tax under Act No. 281, Public Acts of Michigan, 1967, as amended ("Michigan
Income Tax Act"), from Michigan intangibles tax under Act No. 301, Public Acts
of Michigan, 1939, as amended ("Michigan Intangibles Tax Act") and from Michigan
single business tax under Act. No. 228, Public Acts of Michigan, 1975, as
amended ("Michigan Single Business Tax Act"). The Michigan Income Tax Act
levies a flat rate income tax on individuals, estates and trusts. The Michigan
Intangibles Tax Act levies a tax on the ownership of intangible personal
property of individuals, estates, trusts and certain corporations. The Single
Business Tax Act levies a tax of 2.30% upon the "adjusted tax base" of most
individuals, financial institutions, partnerships, joint ventures, corporations,
estates and trusts engaged in "business activity" as defined in the Act.
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<PAGE> 110
The transfer of Fund shares by a shareholder is subject to Michigan
taxes measured by gain on the sale, payment or other disposition thereof. In
addition, the transfer of Fund shares by a shareholder may be subject to
Michigan estate or inheritance tax under Act No. 188, Public Acts of Michigan,
1899, as amended ("Michigan Estate Tax").
The foregoing is only a summary of some of the important Michigan
state tax considerations generally affecting the Municipal Money Market and
Michigan Municipal Money Market Funds and their shareholders. No attempt has
been made to present a detailed explanation of the Michigan state tax treatment
of the Funds or their shareholders, and this discussion is not intended as a
substitute for careful planning. Accordingly, potential investors in the Funds
should consult their tax advisers with respect to the application of such taxes
to the receipt of Fund dividends and as to their own Michigan state tax
situation, in general.
MANAGEMENT
Trustees and Officers of the Trust
The names of the Trustees and executive officers of the Trust, their
ages and their principal occupations for the last five years are set forth
below. Each Trustee has an address at Pegasus Funds, c/o NBD Bank, 900 Tower
Drive, Troy, Michigan 48098. Each Trustee also serves as a trustee of the
Pegasus Variable Funds, a registered investment company advised by the
Investment Adviser.
Nicholas J. De Grazia, Trustee
Business Consultant (since 1997); Consultant, Lionel L.L.C. (1995-1996);
President, Chief Operating Officer and Director, Lionel Trains, Inc. (1990-
1995); Vice President-Finance and Treasurer, University of Detroit (1981-1990);
President (1981-1990) and Director (1986-1995), Polymer Technologies, Inc.;
President, Florence Development Company (1987-1990); Chairman (since 1994) and
Director (1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman,
Michigan Higher Education Facilities Authority (since 1991); Trustee, Pegasus
Variable Funds. He is 55 years old.
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<PAGE> 111
John P. Gould, Trustee, Chairman of the Board
Executive Vice President of Lexecon Inc. (since 1995); Steven G. Rothmeier
Professor (since January, 1996); Distinguished Service Professor of Economics of
the University of Chicago Graduate School of Business (since 1984); Dean of the
University of Chicago Graduate School of Business (1983-1993); Member of
Economic Club of Chicago and Commercial Club of Chicago; Director of Harbor
Capital Advisors and Dimensional Fund Advisors; Trustee, Pegasus Variable Funds.
He is 59 years old.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern University (since
1985); Director of Planning and Policy Development for the University of
Colorado (1981-1985); Member of the Board of Directors of Evanston Hospital,
Mather Foundation and Metropolitan Family Services; member of Economic Club of
Chicago; Trustee, Pegasus Variable Funds. She is 50 years old.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman of the
Board (1974-1993), Maccabees Life Insurance Company; President and Chief
Executive Officer, Royal Financial Services (1991-1993); Director, American
Council of Life Insurance of Washington, D.C. (life insurance industry
association) (1988-1993); Director, Crowley, Milner and Company (department
store) (since 1988); Trustee, Lawrence Technological University (since 1982);
Director, Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since
1981); Trustee, Pegasus Variable Funds. He is 67 years old.
Donald G. Sutherland, Trustee and President
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis, Indiana;
Trustee, Pegasus Variable Funds. He is 69 years old.
*Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995), Association for
Investment Management and Research; Professor of Finance, Indiana University
(1970-1991); Vice President, Trust & Investment Advisers, Inc. (1990-1991);
Director, Federal Home Loan Bank of Indianapolis (1981-1985); Trustee, Pegasus
Variable Funds. He is 63 years old.
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<PAGE> 112
Alaina Metz, Vice President
An employee of the Distributor since June 1995. Prior to joining the
Distributor Ms. Metz was a supervisor at Alliance Capital Management L.P. in New
York. She is 31 years old and her address is 3435 Stelzer Road, Columbus, Ohio
43219-3035.
D'Ray Moore, Treasurer
An employee of the Distributor. She is 39 years old and her address is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania.
He is 55 years old, and his address is 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107
* Denotes Interested Trustee
- -----------------
For as long as the Distribution Plan described in "Distribution and
Shareholder Services Plans" remains in effect, the Trustees of the Trust who are
not "interested persons" of the Trust, as defined in the 1940 Act, will be
selected and nominated by the Trustees who are not "interested persons" of the
Trust.
Each Trustee receives from the Trust and the Pegasus Variable Funds a
total annual fee of $17,000 and a fee of $2,000 for each Board of Trustees
meeting attended. The Chairman is entitled to additional compensation of $4,250
per year for his services to the Trusts in that capacity. These fees are
allocated among the investment portfolios of the Trust and the Pegasus Variable
Funds based on their relative net assets. All Trustees are reimbursed for out of
pocket expenses incurred in connection with attendance at meetings. Drinker
Biddle & Reath LLP, of which Mr. McConnel is a partner, receives legal fees as
counsel to the Trust.
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<PAGE> 113
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ending December 31, 1997:
-22-
<PAGE> 114
<TABLE>
<CAPTION>
(3)
Total
Compensation
(2) From Trust and
Aggregate Fund Complex**
(1) Compensation Paid to Board
Name of Board Member from Trust* Member
-------------------- ------------ --------------
<S> <C> <C>
Will M. Caldwell, Trustee+ $27,000 $27,000
Nicholas J. DeGrazia, Trustee $27,000 $27,000
John P. Gould, Trustee and $31,250 $31,250
Chairman of the Board
Marilyn McCoy, Trustee++ $27,000 $27,000
Julius L. Pallone, Trustee ++ $27,000 $27,000
Donald G. Sutherland, $27,000 $27,000
Trustee and President
Donald L. Tuttle, Trustee ++ $27,000 $27,000
</TABLE>
- ---------------
* Amount does not include reimbursed expenses for attending Board meetings.
** The Fund Complex consists of the Trust and Pegasus Variable Funds.
+ Mr. Caldwell resigned as a Trustee of the Trust and Pegasus Variable Funds as
of December 31, 1997.
++ Deferred compensation in the amounts of $27,000, $13,500 and $27,000
accrued during the Pegasus Funds' fiscal year ended December 31, 1997 for
Messrs. Pallone, Tuttle, and Ms. McCoy, respectively.
- ---------------
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<PAGE> 115
Investment Adviser
Information about the Investment Adviser and its duties and
compensation as investment adviser is contained in the Prospectus. In addition,
the investment adviser is entitled to 4/10ths of the gross income earned by a
Portfolio on each loan of securities (excluding capital gains and losses, if
any). The adviser has informed the Trust's Board of Trustees that neither the
adviser nor any of its affiliates has engaged in any transactions involving
loans of the Trust's portfolio securities in which it received any compensation
since the inception of the Trust and will not do so unless permitted by the SEC
or SEC staff.
The Investment Adviser's own investment portfolios may include bank
certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments any of which may also be purchased by
the Trust. Joint purchase of investments for the Trust and for the Investment
Adviser's own investment portfolios will not be made. The Investment Adviser's
and its affiliates respective commercial banking departments may have deposit,
loan and other commercial banking relationships with issuers of securities
purchased by the Trust, including outstanding loans to such issuers which may be
repaid in whole or in part with the proceeds of securities purchased by the
Trust.
For the fiscal year ended December 31, 1997, the Trust paid the
Investment Adviser fees for advisory services under the Advisory Agreement on
behalf of each fund as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Money Market Fund $6,818,663
Treasury Money Market Fund $2,939,704
Municipal Money Market Fund $2,544,532
Michigan Municipal Money Market Fund $ 379,957
</TABLE>
For the period from September 16, 1996 through December 31, 1996, the
Trust paid the Investment Adviser fees for advisory services under the Advisory
Agreement on behalf of each Fund as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Money Market Fund $2,613,801
Treasury Money Market Fund $1,808,168
Municipal Money Market Fund $1,072,497
Michigan Municipal Money Market Fund $ 733,848
</TABLE>
For the period from September 16, 1996 through December 31, 1996, the
Investment Adviser voluntarily reimbursed expenses of $37,403 with respect to
the Michigan Municipal Money Market Fund.
For the period from January 1, 1996 through September 15, 1996, and
for the fiscal year ended December 31, 1995, the Trust paid NBD fees for
advisory and administrative services under the previous investment advisory
agreement with NBD on behalf of each Fund as follows:
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<PAGE> 116
<TABLE>
<CAPTION>
January 1,
1996 through
September 15, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Money Market Fund $5,373,325 $7,225,557
Treasury Money Market Fund $3,590,757 $3,248,535
Municipal Money Market Fund $1,455,419 $2,458,246
Michigan Municipal Money Market Fund $ 437,785 $ 496,026
</TABLE>
For the fiscal year ended December 31, 1995, NBD voluntarily waived
fees in the amount of $61,221 with respect to the Michigan Municipal Money
Market Fund.
Investment decisions for the Trust and other fiduciary accounts are
made by FCNIMCO solely from the standpoint of the independent interest of the
Trust and such other fiduciary accounts. FCNIMCO performs independent analyses
of publicly available information, the results of which are not made publicly
available. In making investment decisions for the Trust, FCNIMCO does not obtain
information from any other divisions or departments of its or its affiliates' or
otherwise, which is not publicly available. FCNIMCO executes transactions for
the Trust only with unaffiliated dealers but such dealers may be customers of
the Investment Adviser's affiliates. The Investment Adviser may make bulk
purchases of securities for the Trust and for other customer accounts (but not
for its own investment portfolio), in which case the Trust will be charged a pro
rata share of the transaction costs incurred in making the bulk purchase. See
"Investment Objectives, Policies and Risk Factors - Portfolio Transactions"
above.
FCNIMCO has agreed as Investment Adviser that it will reimburse the
Trust such portions of its fees as may be required to satisfy any expense
limitations imposed by state securities laws or other applicable laws.
Under the terms of the Advisory Agreement, the Investment Adviser is
obligated to manage the investment of each Fund's assets in accordance with
applicable laws and regulations, including, to the extent applicable, the
regulations and rulings of the various regulatory governmental bank agencies.
The Investment Adviser will not accept Trust shares as collateral for
a loan which is for the purpose of purchasing Trust shares, and will not make
loans to the Trust. Inadvertent overdrafts of the Trust's account with the
Custodian occasioned by clerical error or by failure of a shareholder to provide
available funds in connection with the purchase of shares will not be deemed to
be the making of a loan to the Trust by the Investment Adviser.
Under the Advisory Agreement, the Investment Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance,
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<PAGE> 117
bad faith or gross negligence on the part of the Investment Adviser in the
performance of its duties or from reckless disregard of its duties and
obligations under the Agreement.
Administrators
Pursuant to an Administration Agreement dated as of April 12, 1996
with the Trust, FCNIMCO and BISYS assist in all aspects of the Trust's
operations, other than providing investment advice, subject to the overall
authority of the Trust's Board in accordance with Massachusetts law. Under the
terms of the Administration Agreement, FCNIMCO and BISYS are entitled jointly to
a monthly administration fee at the annual rate of .15% of each Fund's average
daily net assets.
As stated above, prior to September 16, 1996, NBD provided
administrative services to the Funds as a part of the previous investment
advisory agreement. No separate administration fees were incurred. For the
fiscal year ended December 31, 1997 and the period from September 16, 1996
through December 31, 1996, the Trust paid FCNIMCO, as agent for the co-
administrators, fees for administrative services under the Administration
Agreement on behalf of each Fund as follows:
<TABLE>
<CAPTION>
September 16, 1996
through
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Money Market Fund $3,641,198 $1,161,735
Treasury Money Market Fund $1,602,847 $ 768,881
Municipal Money Market Fund $1,272,266 $ 434,557
Michigan Municipal Money Market Fund $ 189,978 $ 66,924
</TABLE>
The Trust has agreed that neither FCNIMCO nor BISYS will be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the agreement with FCNIMCO or BISYS
relates, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of FCNIMCO or BISYS in the performance of their
obligations or from reckless disregard by any of them of their obligations and
duties under the Administration Agreement.
In addition, the Administration Agreement provides that if, in any
fiscal year, the aggregate expenses of a Fund exceed the expense limitation of
any state having jurisdiction over the Fund, FCNIMCO and BISYS will bear such
excess expense to the extent required by state law.
The aggregate of the fees payable to FCNIMCO and BISYS is not subject
to reduction as the value of a Fund's net assets increases.
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<PAGE> 118
Distribution and Shareholder Servicing Plans
As stated in the Prospectus under "Distribution and Shareholder
Servicing Plans," the Trust may enter into Servicing Agreements with Service
Agents which may include the Investment Adviser and its affiliates. The
Servicing Agreements provide that the Service Agents will render shareholder
administrative support services to their customers who are the beneficial owners
of Fund shares in consideration for the Funds' payment of up to .25% (on an
annualized basis) of the average daily net asset value of the shares
beneficially owned by such customers and held by the Service Agents and, at the
Trust's option, it may reimburse the Service Agents' out-of-pocket expenses.
Such services may include: (i) processing dividend and distribution payments
from a Fund; (ii) providing information periodically to customers showing their
share positions; (iii) arranging for bank wires; (iv) responding to customer
inquiries; (v) providing subaccounting with respect to shares beneficially owned
by customers or the information necessary for such subaccounting; (vi)
forwarding shareholder communications; (vii) processing share exchange and
redemption requests from customers; (viii) assisting customers in changing
dividend options, account designations and addresses; and (ix) other similar
services requested by the Trust. Banks acting as Service Agents are prohibited
from engaging in any activity primarily intended to result in the sale of Fund
shares. However, Service Agents other than banks may be requested to provide
marketing assistance (e.g., forwarding sales literature and advertising to their
customers) in connection with the distribution of Fund shares.
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange
Commission under the 1940 Act provides, among other things, that an investment
company may bear expenses of distributing its shares only pursuant to a plan
adopted in accordance with the Rule. The Trust's Board of Trustees has adopted
such a plan (the "Plan") with respect to the Money Market Fund's Class B Shares,
pursuant to which the Fund pays the Distributor a fee of up to 0.75% of the
average daily net asset value attributable to such Shares for advertising,
marketing and distributing such Shares and for the provision of certain services
to the holders of such Shares. Under the Plan, the Distributor may make
payments to certain financial institutions, securities dealers and other
financial industry professionals (collectively, "Service Agents") in respect of
these services. The Board of Trustees believes that there is a reasonable
likelihood that the Plan will benefit the Fund and the holders of such Shares.
The Board of Trustees reviews, at least quarterly, a written report of
the amounts expended under the Plan and in connection with the Trust's
arrangements with Service Agents and the purposes for which the expenditures
were made. In addition, such arrangements are approved annually by a majority
of the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust, as defined in the 1940 Act, and have no direct or
indirect financial interest in such arrangements (the "Disinterested Trustees").
For the fiscal year ended December 31, 1997, the Class B Shares of the
Money Market Fund paid $2,984 pursuant to the Plan, all of which was retained
by BISYS. For the period September 16, 1996 (initial offering date of Class B
Shares) through December 31, 1996, the Class B Shares of the Money Market Fund
paid $238
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<PAGE> 119
pursuant to the Plan, all of which was retained by BISYS. These amounts were
used by BISYS to finance sales commissions to brokers selling such Class B
Shares.
Any material amendment to the Plan and the Trust's arrangements with
Service Agents under Shareholder Servicing Agreements must be approved by a
majority of the Board of Trustees (including a majority of the Disinterested
Trustees).
As stated in the Prospectus for the Funds, the Trust has implemented
the Servicing Plan described above with respect to Class A and Class B shares of
the Funds only and the Plan with respect to Class B shares of the Funds only.
The Trust will enter into shareholder servicing agreements with Service Agents
pursuant to which they provide services to their customers who beneficially own
Class A and Class B shares of the Funds in consideration for the payment of up
to .25% (on an annualized basis) of the average daily net asset value of such
shares. The Trust has allocated the Servicing Fees which are attributable to
the Class A and Class B shares exclusively to such shares and the Distribution
Fees which are attributable to the Class B shares exclusively to such shares.
For the fiscal year ended December 31, 1997, the fee paid under the
Servicing Plan with respect to Class A Shares (and Class B Shares of the Money
Market Fund) was as follows:
<TABLE>
<CAPTION>
Amount of Fee Paid
------------------
Class A Class B
------- -------
<S> <C> <C>
Money Market Fund $2,074,770 $994
Treasury Money Market Fund $ 473,261 --
Municipal Money Market Fund $ 463,609 --
Michigan Municipal Money Market Fund $ 143,515 --
</TABLE>
Distributor
The shares of the Funds are offered on a continuous basis through
BISYS, which acts under the Distribution Agreement as Distributor for the Trust.
As stated in the Prospectus, the Trust will allocate distribution fees which are
attributable to the Class B shares of the Money Market Fund exclusively to such
shares.
Prior to September 16, 1996, the shares of the Funds were offered on a
continuous basis through First of Michigan Corporation ("FoM") and Essex
National Securities, Inc. ("Essex") as co-distributors of the Fund. For the
period from January 1, 1996 to September 15, 1996, the Funds paid FoM and Essex
for their services the following fees:
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<PAGE> 120
<TABLE>
<CAPTION>
Fees to FoM Fees to Essex
----------- -------------
<S> <C> <C>
Money Market Fund $76,683 $60,486
Treasury Money Market Fund $38,093 $24,208
Municipal Money Market Fund $28,107 $ 6,125
Michigan Municipal Money Market Fund $ 5,268 $ 4,800
</TABLE>
For the period from January 1, 1996 to September 15, 1996, neither FoM
nor Essex incurred any expenses with respect to the Funds for the printing and
mailing of prospectuses to other than current shareholders.
Custodian and Transfer Agent
As Custodian for the Trust, NBD (i) maintains a separate account or
accounts in the name of each Fund, (ii) collects and makes disbursements of
money on behalf of each Fund, (iii) collects and receives all income and other
payments and distributions on account of the portfolio securities of each Fund,
and (iv) makes periodic reports to the Trust's Board of Trustees concerning the
Trust's operations.
For its services as Custodian, NBD is entitled to receive from the
Funds $11.00 for each clearing and settlement transaction and $23.00 for each
accounting and safekeeping service with respect to investments, in addition to
activity charges for master control and master settlement accounts.
First Data Investor Services Group, Inc., located at 4400 Computer
Drive, Westborough, MA 01581-5120 serves as the Trust's Transfer and Dividend
Disbursing Agent.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, 500 Woodward
Avenue, Detroit, Michigan 48226-3424, serves as auditors for the Trust. The
audited financial statements and notes thereto for each Fund are contained in
the Trust's Annual Report to Shareholders dated December 31, 1997 and are
incorporated by reference into this Statement of Additional Information. The
financial statements and notes thereto have been audited by Arthur Andersen LLP,
whose report thereon also appears in such Annual Report and is also incorporated
herein by reference. No other parts of the Annual Report are incorporated by
reference herein. Such financial statements have been incorporated herein in
reliance on the report of Arthur Andersen LLP, independent public accountants,
given on the authority of said firm as experts in auditing and accounting.
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<PAGE> 121
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania 19107-
3496, is counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, yield and total return of each class of shares of
each Fund for various periods may be quoted in advertisements, shareholder
reports or other communications to shareholders. Performance information is
generally available by calling (800) 688-3350.
The "yield" and "effective yield" of each class, as described in the
Funds' Prospectus, are calculated according to formulas prescribed by the SEC.
The standardized seven-day yield is computed separately by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account in a class having a balance of one share at the beginning of
the period, dividing the net change in account value by the value of the account
at the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The net change in the value of
an account includes the value of additional shares purchased with dividends from
the original share, and dividends declared on both the original share and any
such additional shares and all fees, other than nonrecurring account sales
charges, that are charged to all shareholder accounts in proportion to the
length of the base period and the Fund's average account size. The capital
changes to be excluded from the calculation of the net change in account value
are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. The effective annualized yield for a class is
computed by compounding the unannualized base period return (calculated as
above) by adding 1 to the base period return, raising the sum to a power equal
to 365 divided by 7, and subtracting one from the result. The fees which may be
imposed by financial intermediaries on their customers for cash management and
other services are not reflected in the Funds' calculations of yields. In
addition, the Municipal Money Market and Michigan Municipal Money Market Funds
may advertise their standardized "tax-equivalent yields," which are computed by:
(a) dividing the portion of the yield (as calculated above) that is exempt from
income tax by one minus a stated income tax rate; and (b) adding the figure
resulting from (a) above to that portion, if any, of the yield that is not tax-
exempt.
Because each Fund values its portfolio on an amortized cost basis, it
does not believe that there is likely to be any material difference between net
income for dividend and standardized yield quotation purposes.
For the seven-day period ended December 31, 1997, the annualized and
effective yields for each of the Funds and the tax equivalent annualized and
effective yields for the Municipal Money Market and Michigan Municipal Money
Market Funds (assuming a
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<PAGE> 122
39.6% federal income tax rate for both Funds and a 4.4% Michigan income tax rate
for the Michigan Municipal Money Market Fund) were as follows:
<TABLE>
<CAPTION>
7-Day 7-Day 7-Day 7-Day
Annualized Effective Tax-Equivalent Tax-Equivalent
Yield Yield Annualized Yield Effective Yield
---------- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
Money Market Fund
Class A Shares 5.14% 5.28% N/A N/A
Class B Shares 4.40% 4.49% N/A N/A
Class I Shares 5.40% 5.54% N/A N/A
Treasury Money Market Fund
Class A Shares 5.04% 5.16% N/A N/A
Class I Shares 5.24% 5.43% N/A N/A
Municipal Money Market Fund
Class A Shares 3.31% 3.36% 5.48% 5.56%
Class I Shares 3.56% 3.62% 5.89% 5.99%
Michigan Municipal Money Market Fund
Class A Shares 3.13% 3.17% 5.59% 5.66%
Class I Shares 3.38% 3.43% 6.04% 6.13%
</TABLE>
Other Performance Information
The Funds may from time to time include in advertisements, sales
literature, communications to shareholders and other materials ("Literature")
total return figures that are not calculated according to the formulas set forth
above in order to compare more accurately a Fund's performance with other
measures of investment return. For example, in comparing the Funds' total
returns with data published by Lipper Analytical Services, Inc., Morningstar,
CDA Investment Technologies, Inc. or Weisenberger Investment Company Service, or
with the performance of an index, the Funds may calculate their returns for the
period of time specified in the advertisement or communication by assuming the
investment of $10,000 in shares and assuming the reinvestment date. Percentage
increases are determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the beginning value.
The Funds may from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
The Funds may also include discussions or illustrations of the
potential investment goals of a prospective investor, investment management
strategies, techniques, policies or investment suitability of a Fund (such as
value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer, automatic accounting rebalancing, the advantages and
disadvantages of investing in tax-deferred and taxable instruments), economic
conditions, the relationship between sectors of the economy and the economy as a
whole,
-31-
<PAGE> 123
various securities markets, the effects of inflation and historical performance
of various asset classes, including but not limited to, stocks, bonds and
Treasury bills. From time to time advertisements or communications to
shareholders may summarize the substance of information contained in shareholder
reports (including the investment composition of a Fund), as well as the view of
the Trust as to current market, economy, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in advertisements charts, graphs or drawings which compare the
investment objective, return potential, relative stability and/or growth
possibilities of the Fund and/or other mutual funds, or illustrate the potential
risks and rewards of investment in various investment vehicles, including but
not limited to, stocks, bonds, treasury bills and shares of a Fund. In
addition, advertisements or shareholder communications may include a discussion
of certain attributes or benefits to be derived by an investment in a Fund
and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and investment alternatives to certificates of deposit and other
financial instruments. Such advertisements or communicators may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
-32-
<PAGE> 124
APPENDIX A
----------
Commercial Paper Ratings
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
rated "A-1." However, the obligor's capacity to meet its financial commitment
on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are 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" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.
"D" - Obligations are 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 S&P believes such payments will
be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE> 125
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. 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" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses 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" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses 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.
A-2
<PAGE> 126
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of securities rated
"F1."
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non-
investment grade.
"B" - Securities possess speculative credit quality, this designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that the capacity for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
A-3
<PAGE> 127
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
A-4
<PAGE> 128
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" 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" - An obligation rated "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.
"BB," "B," "CCC," "CC" and "C" - Debt is 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" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces 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" - Debt is more vulnerable to non-payment 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" - Debt is currently vulnerable to non-payment, and is 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" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
A-5
<PAGE> 129
"C" - The "C" rating may be 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" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest-
only and principal-only mortgage securities. The absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - 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.
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"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
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"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of investment risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this category.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", "C" - Bonds have high default risk. Capacity for meeting
financial commitments is reliant upon sustained, favorable business or economic
developments. "CC" ratings indicate that default of some kind appears probable,
and "C" ratings imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.
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To provide more detailed indications of credit quality, the Fitch
IBCA ratings from and including "AA" to "B" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States
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banks; and broker-dealers. The following summarizes the rating categories used
by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt
is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
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"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of
margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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PEGASUS FUNDS
Cash Management Funds
INSTITUTIONAL And SERVICE SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
April 30, 1998
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Cash Management Fund, Treasury Cash Management Fund, Treasury Prime Cash
Management Fund, U.S. Government Securities Cash Management Fund and Municipal
Cash Management Fund (each, a "Fund") of Pegasus Funds, dated April 30, 1998, as
it may be revised from time to time. To obtain a copy of the Funds' Prospectus,
please write to the Trust at 3435 Stelzer Road, Columbus, Ohio 43219-3035, or
call toll free 1-800-688-3350.
First Chicago NBD Investment Management Company ("FCNIMCO") serves as each
Fund's investment adviser (the "Investment Adviser") and FCNIMCO and BISYS Fund
Services serve as co-administrators.
BISYS Fund Services is the distributor (the "Distributor") and BISYS and
FCNIMCO serve as co-administrators of the Funds' shares.
<TABLE>
TABLE OF CONTENTS
Page
----
<S> <C>
The Trust................................................................ 2
Investment Objective and Management Policies............................. 2
Management of the Trust.................................................. 9
Management Arrangements.................................................. 14
Distribution and Services Plan........................................... 18
Purchase of Fund Shares.................................................. 20
Redemption of Fund Shares................................................ 20
Determination of Net Asset Value......................................... 21
Portfolio Transactions................................................... 22
Dividends, Distributions and Taxes....................................... 24
Performance Information.................................................. 24
Information About the Trust.............................................. 26
Counsel.................................................................. 29
Independent Auditors..................................................... 29
Appendix A............................................................... A-1
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THE TRUST
The Pegasus Funds (the "Trust"), formerly "The Woodward Funds" was
organized as a Massachusetts business trust on April 21, 1987. As of the date
of this Statement of Additional Information, the Trust consisted of thirty-one
separate funds, of which there were five cash management funds, (the "Funds"),
which are described in this Statement of Additional Information.
The Cash Management Fund commenced operations on July 30, 1992 as the
First Prairie Cash Management Fund, and the U.S. Government Securities Cash
Management Fund commenced operations on June 2, 1992 as the First Prairie U.S.
Treasury Securities Cash Management Fund. On January 17, 1995, all of the
assets and liabilities of First Prairie Cash Management Fund and First Prairie
U.S. Treasury Securities Cash Management were transferred to the Cash Management
Fund (the "Predecessor Cash Management Fund") and U.S. Government Securities
Cash Management Fund (the "Predecessor U.S. Government Securities Cash
Management Fund") of the Prairie Institutional Funds, respectively, in exchange
for Institutional Shares of those Funds pursuant to a reorganization agreement
approved by shareholders of each such First Prairie Fund. The Treasury Prime
Cash Management Fund (the "Predecessor Treasury Prime Cash Management Fund")
commenced operations on March 22, 1995 as a series of Prairie Institutional
Funds.
On July 13, 1996, all of the assets and liabilities of the Predecessor
Cash Management Fund, Predecessor Treasury Prime Cash Management Fund and
Predecessor U.S. Government Securities Cash Management Fund of the Prairie
Institutional Funds were transferred to the Cash Management Fund, Treasury Prime
Cash Management Fund and U.S. Government Securities Cash Management Fund,
respectively, in exchange for Institutional Shares and Service Shares pursuant
to an agreement and plan of reorganization approved by shareholders of the
Predecessor Cash Management, Predecessor Treasury Prime Cash Management and
Predecessor U.S. Government Securities Cash Management Funds (the
"Reorganization"). Prior to July 13, 1996, the Funds had no operating history.
The financial history contained herein includes information for the First
Prairie Funds and the Prairie Institutional Funds.
The Municipal Cash Management Fund and Treasury Cash Management Fund
commenced operations on August 18, 1997 and September 12, 1997, respectively.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in the Funds' Prospectus entitled "Description of the Funds"
and "Supplemental Information."
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Portfolio Securities and Investment Practices
Bank Obligations. (Cash Management Fund and, to a limited extent,
Municipal Cash Management Fund) Domestic commercial banks organized under
Federal law are supervised and examined by the Comptroller of the Currency and
are required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and examined by state
banking authorities but are members of the Federal Reserve System only if they
elect to join. In addition, state banks whose certificates of deposit ("Cds")
may be purchased by a Fund are insured by the FDIC (although such insurance may
not be of material benefit to the Fund, depending on the principal amount of the
Cds of each bank held by the Fund) and are subject to Federal examination and to
a substantial body of Federal law and regulation.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, such as Cds
and time deposits ("Tds"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial recordkeeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
Foreign Securities. (Cash Management Fund) Foreign securities markets
generally are not as developed or efficient as those in the United States.
Securities of some foreign issuers are less liquid and more volatile than
securities of comparable
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U.S. issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can be
greater than in the United States.
Furthermore, some of these securities are subject to brokerage taxes
levied by foreign governments, which have the effect of increasing the cost of
such investment and reducing the realized gain or increasing the realized loss
on such securities at the time of sale. Custodial expenses for a portfolio of
non-U.S. securities generally are higher than for a portfolio of U.S.
securities. Income earned or received by the Cash Management Fund from sources
within foreign countries may be reduced by withholding and other taxes.
Repurchase Agreements. (Cash Management Fund, Treasury Cash Management
Fund, U.S. Government Securities Cash Management Fund and Municipal Cash
Management Fund) Securities subject to repurchase agreements are held by the
Trust's custodian or subcustodian, in the Federal Reserve/Treasury book-entry
system or by another authorized Securities depository. Repurchase agreements
are considered by the staff of the Securities and Exchange Commission to be
loans by the Fund that enters into them. Each Fund will enter into repurchase
agreements only with registered or unregistered securities dealers or banks with
total assets in excess of one billion dollars, with respect to securities of the
type in which such Fund may invest, and will require that additional securities
be deposited with it if the value of the securities purchased should decrease
below the resale price. The Investment Adviser will monitor on an ongoing basis
the value of the collateral to assure that it always equals or exceeds the
repurchase price. Each of these Funds will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
Municipal and Related Obligations. (Municipal Cash Management Fund) The
Municipal Cash Management Fund may invest in Municipal Obligations. The ratings
of Municipal Obligations by nationally recognized statistical rating
organizations ("Rating Agencies") represent their opinions as to the quality of
Municipal Obligations. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields while
Municipal Obligations with the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Fund, a
Municipal Obligation may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Investment Adviser
will consider such an event in determining whether the Fund should continue to
hold the obligation.
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The payment of principal and interest on most Municipal Obligations
purchased by the Fund will depend upon the ability of the issuers to meet their
obligations. For the purpose of diversification under the 1940 Act, the
identification of the issuer of Municipal Obligations depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development
bond, if that bond is backed only by the assets and revenues of the non-
governmental user, then such non-governmental user would be deemed to be the
sole issuer. If, however, in either case, the creating government or some other
entity guarantees a security, such a guaranty would be considered a separate
security and will be treated as an issue of such government or other entity.
An issuer's obligations under its Municipal Obligations are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights or
remedies of creditors, such as the Federal Bankruptcy Code, and any laws that
may be enacted by federal or state legislatures extending the time for payment
of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest or principal of its Municipal Obligations may be materially
adversely affected by litigation or other conditions.
Certain of the Municipal Obligations held by the Fund may be insured at
the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Obligations at the time of original issuance. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such insurance will
not protect against market fluctuations caused by changes in interest rates and
other factors.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, pursuant to federal tax
legislation passed in 1986 interest on certain private activity bonds must be
included in an investor's federal alternative minimum taxable income, and
corporate investors must include all tax-exempt interest in their federal
alternative minimum taxable income. The Trust cannot predict what legislation,
if any, may be proposed in Congress in the future with respect to the federal
income tax status of interest on Municipal Obligations in general, or which
proposals, if any, might be enacted. Such
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proposals, if enacted, might materially adversely affect the availability of
Municipal Obligations for investments by the Municipal Cash Management Fund and
its liquidity and value. In such event, the Board of Trustees would reevaluate
the Fund's investment objective and policies and consider changes in its
structure or possible dissolution.
Stand-By Commitments. (Municipal Cash Management Fund) The Municipal
Cash Management Fund will not acquire a stand-by commitment unless immediately
after the acquisition, with respect to 75% of its assets not more than 5% of its
total assets will be invested in instruments subject to a demand feature,
including stand-by commitments, with the same institution.
The Municipal Cash Management Fund intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the Investment
Adviser's opinion, present minimal credit risks. The Fund's reliance upon the
credit of these dealers, banks and broker-dealers will be secured by the value
of the underlying Municipal Obligations that are subject to the commitment.
Thus, the risk of loss to the Fund in connection with a "stand-by commitment"
will not be qualitatively different from the risk of loss faced by a person that
is holding securities pending settlement after having agreed to sell the
securities in the ordinary course of business.
The Municipal Cash Management Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. The acquisition of a stand-by
commitment will not affect the valuation or assumed maturity of the underlying
Municipal Obligations which will continue to be valued in accordance with the
amortized cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Where the Fund pays directly or indirectly for a
stand-by commitment, its cost will be reflected as an unrealized loss for the
period during which the commitment is held by the Fund and will be reflected in
realized gain or loss when the commitment is exercised or expires.
Illiquid Securities. If a substantial market of qualified institutional
buyers develops pursuant to Rule 144A under the Securities Act of 1933, as
amended, for certain restricted securities held by a Fund, the Trust intends to
treat such securities as liquid securities in accordance with procedures
approved by the Trust's Board of Trustees. Because it is not possible to
predict with assurance how the market for restricted securities pursuant to Rule
144A will develop, the Trust's Board of Trustees has directed the Investment
Adviser to monitor carefully each Fund's investments in such securities with
particular regard to trading activity, availability of reliable
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price information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, a Fund's investing in such securities may have
the effect of increasing the level of illiquidity in its investment portfolio
during such period.
Lending Portfolio Securities. (Cash Management Fund, U.S. Government
Securities Cash Management Fund and Municipal Cash Management Fund) To a
limited extent, each of these Funds may lend its portfolio securities to
brokers, dealers and other financial institutions, provided it receives cash
collateral which at all times is maintained in an amount equal to at least 100%
of the current market value of the securities loaned. By lending its portfolio
securities, the Fund can increase its income through the investment of the cash
collateral. For purposes of this policy, the Trust considers collateral
consisting of U.S. Government securities or, in the case of the Cash Management
Fund and Municipal Cash Management Fund, irrevocable letters of credit issued by
banks whose securities meet the standards for investment by the Fund to be the
equivalent of cash. Such loans may not exceed 33 1/3% of the Fund's total
assets. From time to time, the Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing broker,"
a part of the interest earned from the investment of collateral received for
securities loaned.
Investment Restrictions
Each Fund has adopted the following investment restrictions as fundamental
investment limitations which cannot be changed, as to a particular Fund, without
approval by the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")), of that Fund's outstanding voting shares.
Each Fund may not:
1. Borrow money, issue senior securities, or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act.
2. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
3. Purchase or sell (a) real estate or (b) commodities, except to the
extent permitted under the 1940 Act.
4. Make loans to others (other than through investment in debt
obligations or other instruments referred to in the Fund's
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Prospectus), except that the Fund may lend its portfolio securities in an amount
not to exceed 33 1/3% of the value of its total assets.
5. Purchase any securities which would cause 25% or more of the value of
a Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to (i)
instruments issued or guaranteed by the U.S. Government, any state, territory
or possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, (ii)
instruments issued by domestic branches of U.S. banks and (iii) repurchase
agreements secured by instruments described in clauses (i) and (ii), (b) wholly-
owned finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the activities of
the parents and (c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry and (d) personal credit and business
credit businesses will be considered separate industries, and further provided
that the Cash Management Fund will invest at least 25% of its total assets in
obligations of issuers in the banking industry or instruments secured by such
obligations except during temporary defensive periods.
In construing number 5 in accordance with SEC policy, to the extent
permitted, U.S. branches of foreign banks will be considered to be U.S. banks
where they are subject to the same regulation as U.S. banks.
6. Purchase securities of any one issuer (except U.S. Government
securities and related repurchase agreements, and with respect to the Municipal
Cash Management Fund, other than as permitted by Rule 2a-7 under the 1940 Act)
if immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in the obligations of any one issuer, except that
up to 25% of the value of the Fund's total assets may be invested without regard
to this 5% limitation.
Each Fund has adopted the following investment restrictions as non-
fundamental limitations which may be changed, as to a particular Fund, by the
Board of Trustees without the approval of the holders of a majority, as defined
in the 1940 Act of that Fund's outstanding voting shares.
Each Fund may not:
1. Purchase securities on margin, except as described in the Fund's
Prospectus or this Statement of Additional Information.
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2. Invest in the securities of a company for the purpose of exercising
management or control, but the Fund will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
3. Purchase, sell or write puts, calls or combinations thereof, except
as described in the Fund's Prospectus or this Statement of Additional
Information.
4. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 10% of the value of the Fund's net assets would be so
invested.
5. Invest in securities of other investment companies, except to the
extent permitted under the 1940 Act.
6. Invest more than 5% of its assets in the obligations of any one
issuer, except if permitted under Rule 2a-7 under the 1940 Act.
7. Sell securities short.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
MANAGEMENT OF THE TRUST
Trustees and officers of the Trust, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Trustee has an address at the Trust, c/o NBD Bank, 611 Woodward
Avenue, Detroit, Michigan 48226.
Trustees and Officers of the Trust
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Nicholas J. De Grazia, Trustee
Business Consultant (1997); Consultant, Lionel L.L.C. (1995-1996);
President, Chief Operating Officer and Director, Lionel Trains, Inc. (1990-
1995); Vice President-Finance and Treasurer, University of Detroit (1981-1990);
President (1981-1990) and Director (since 1986), Polymer Technologies, Inc.;
President, Florence Development Company (1987-1990); Chairman (since 1994) and
Director (since 1992), Central Macomb County Chamber of Commerce; Vice Chairman,
Michigan Higher Education Facilities Authority (since 1991); Trustee, Pegasus
Variable Funds. He is 55 years old.
John P. Gould, Trustee, Chairman of the Board
Executive Vice President of Lexecon Inc. (since 1995); Steven G. Rothmeier
Professor (since January, 1996); Distinguished Service Professor of Economics of
the University of Chicago Graduate School of Business (since 1984); Dean of the
University of Chicago Graduate School of Business (1983-1993); Member of
Economic Club of Chicago and Commercial Club of Chicago; Director of Harbor
Capital Advisors and Dimensional Fund Advisors; Trustee, Pegasus Variable
Funds. He is 59 years old.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern University
(since 1985); Director of Planning and Policy Development for the University of
Colorado (1981-1985); Member of the Board of Directors of Evanston Hospital,
Mather Foundation and Metropolitan Family Services; Member of Economic Club of
Chicago and Chicago Network; Trustee, Pegasus Variable Funds. She is 50
years old.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman of
the Board (1974-1993), Maccabees Life Insurance Company; President and Chief
Executive Officer, Royal Financial Services (1991-1993); Director, American
Council of Life Insurance of Washington, D.C. (life insurance industry
association) (1988-1993); Director, Crowley, Milner and Company (department
store) (since 1988); Trustee, Lawrence Technological University (since 1982);
Director, Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since
1981); Trustee, Pegasus Variable Funds. He is 67 years old.
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<PAGE> 145
*Donald G. Sutherland, Trustee and President
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana; Trustee, Pegasus Variable Funds. He is 69 years old.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Professor of Finance,
Indiana University (1970-1991); Vice President, Trust & Investment Advisers,
Inc. (1990-1991); Director, Federal Home Loan Bank of Indianapolis (1981 to
1985); Trustee, Pegasus Variable Funds. He is 63 years old.
Alaina Metz, Vice President
An employee of the Distributor since June 1995. Prior to joining the
Distributor Ms. Metz was a supervisor at Alliance Capital Management L.P. in New
York. She is 31 years old and her address is 3435 Stelzer Road, Columbus, Ohio
43219-3035.
D'Ray Moore, Treasurer
An employee of the Distributor. She is 39 years old and her address is
3435 Stelzer Road, Columbus, Ohio 43219-3035.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania. He is 55 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
- ---------------
* Trustee who is an "interested person" of the Trust, as defined in the 1940
Act.
For so long as the plan described in the section captioned "Distribution
and Services Plan" remains in effect, the Trustees of the Trust who are not
"interested persons" of the Trust, as defined in the 1940 Act, will be selected
and nominated by the Trustees who are not "interested persons" of the Trust.
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<PAGE> 146
Each Trustee receives from the Trust and the Pegasus Variable Funds a
total annual fee of $17,000 and a fee of $2,000 for each Board of Trustees
meeting attended. The Chairman is entitled to additional compensation of $4,250
per year for his services to the Trusts in that capacity. These fees are
allocated among the investment portfolios of the Trust and the Pegasus Variable
Funds based on their relative net assets. All Trustees are reimbursed for out of
pocket expenses in connection with attendance at meetings. Drinker Biddle &
Reath LLP, of which Mr. McConnel is a partner, receives legal fees as counsel to
the Trusts.
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<PAGE> 147
The following table summarizes the compensation for each of the Trustees
for the Trust's fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
(3)
(2) Total Compensation
Aggregate From Trust and Fund
(1) Compensation Complex** Paid to
Name of Board Member from Trust* Board Member
-------------------- ------------ -------------------
<S> <C> <C>
Will M. Caldwell, Trustee++ $27,000 $27,000
Nicholas J. DeGrazia, Trustee $27,000 $27,000
John P. Gould, Trustee and
Chairman of the Board $31,250 $31,250
Marilyn McCoy, Trustee $27,000 $27,000
Julius L. Pallone, Trustee + $27,000 $27,000
Donald G. Sutherland,
Trustee and President + $27,000 $27,000
Donald L. Tuttle, Trustee + $27,000 $27,000
</TABLE>
______________________
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<PAGE> 148
* Amount does not include reimbursed expenses for attending Board meeting.
** The Fund Complex for the fiscal year ended December 31, 1997, consisted of
the Trust and Pegasus Variable Funds.
+ Deferred compensation in the amounts of $27,000, $13,500 and $27,000 accrued
during the fiscal year ended December 31, 1997 for Messrs. Pallone and Tuttle,
and Ms. McCoy, respectively.
++ Mr. Caldwell resigned as Trustee of the Trust and Pegasus Variable Funds as
of December 31, 1997.
________________________________
Board members and officers of the Trust, as a group, owned less than 1% of
any Fund's shares outstanding on April 1, 1998.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Management of the Trust."
Investment Advisory Agreement. FCNIMCO provides investment advisory
services pursuant to the Investment Advisory Agreement (the "Agreement") dated
as of April 12, 1996, as amended, with the Trust. As to each Fund, the
Agreement is subject to annual approval by (i) the Trust's Board of Trustees or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund, provided that in either event the continuance also is
approved by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust or FCNIMCO, by vote cast in person at a
meeting called for the purpose of voting on such approval. As to each Fund, the
Agreement is terminable without penalty, on 60 days' notice, by the Trust's
Board of Trustees or by vote of the holders of a majority of such Fund's shares,
or, on not less than 90 days' notice, by FCNIMCO. The Agreement will terminate
automatically, as to the relevant Fund, in the event of its assignment (as
defined in the 1940 Act).
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<PAGE> 149
FCNIMCO is responsible for investment decisions for each Fund in
accordance with the stated policies of such Fund, subject to the general
supervision of the Trust's Board of Trustees.
Under the terms of the Investment Advisory Agreement with the Trust,
FCNIMCO is entitled to a monthly advisory fee at the annual rate of .20% of each
Fund's average daily net assets. In addition, FCNIMCO is entitled to 4/10ths of
the gross income earned by a Fund on each loan of securities (excluding capital
gains and losses, if any). FCNIMCO has informed the Trust's Board of Trustees
that since the inception of the Trust neither it nor any of its affiliates has
engaged in and received compensation for any transactions involving lending of
portfolio securities. Furthermore, neither FCNIMCO nor any of its affiliates
will do so unless permitted by the SEC or SEC staff.
For the period ended December 31, 1997, the aggregate advisory fees
payable to FCNIMCO by the Cash Management Fund, Treasury Cash Management Fund,
Treasury Prime Cash Management Fund, Municipal Cash Management Fund and U.S.
Government Securities Cash Management Fund were $1,921,758, $133,148, $510,037,
$148,267 and $1,457,684, respectively, of which amounts $279,533, $33,327,
$105,789, $40,982 and $88,360, respectively, were reduced pursuant to
undertakings by FCNIMCO, resulting in a net advisory fee of $1,642,225, $99,821,
$404,248, $107,285 and $1,369,324, respectively.
For the period July 13, 1996 (date of the Reorganization) through December
31, 1996, the aggregate advisory fees payable to FCNIMCO by the Cash Management
Fund, Treasury Prime Cash Management Fund and U.S. Government Securities Cash
Management Fund were $620,226, $269,337 and $622,156, respectively, of which
amounts $222,088, $145,816 and $297,097, respectively, were reduced pursuant to
undertakings by FCNIMCO, resulting in a net advisory fee of $398,138, $123,521
and $325,059, respectively.
For the period January 1, 1996 through July 13, 1996 (date of the
Reorganization) the aggregate advisory fees payable to FCNIMCO by the
Predecessor Cash Management Fund, Predecessor Treasury Prime Cash Management
Fund and Predecessor U.S. Government Securities Cash Management Fund were
$487,093, $176,021 and $522,975, respectively, of which amounts $176,053,
$102,644 and $297,097, respectively, were reduced pursuant to undertakings by
FCNIMCO, resulting in a net advisory fee of $311,040, $73,377 and $383,484,
respectively.
Prior to January 17, 1995, The First National Bank of Chicago ("FNBC")
provided management services to First Prairie Cash Management Fund and First
Prairie U.S. Treasury Securities Cash Management Fund (the predecessor funds to
the Predecessor Cash Management Fund and Predecessor U.S. Government Securities
Cash Management Fund, respectively) pursuant to separate management agreements
with each such fund and engaged The Dreyfus Corporation ("Dreyfus") to provide
administrative services to the funds. As compensation for FNBC's services,
First Prairie Cash Management Fund and First Prairie U.S. Treasury Securities
Cash Management Fund each agreed to pay FNBC a monthly management fee at the
annual rate of .35 of 1% of the value of the fund's average daily net assets.
The fees payable to Dreyfus for its services were paid by FNBC.
-15-
<PAGE> 150
For the fiscal year ended June 30, 1995, the aggregate management/advisory
fee payable by the Predecessor Cash Management Fund and its predecessor amounted
to $793,104, which amount was reduced by $267,419 pursuant to undertakings by
FNBC and FCNIMCO, resulting in a net management/advisory fee paid by the
Predecessor Cash Management Fund and its predecessor of $525,685. For the
Predecessor Cash Management Fund's fiscal period ended December 31, 1995, the
aggregate management/advisory fee payable by the Predecessor Cash Management
Fund and its predecessor amounted to $716,956, which amount was reduced by
$331,599 pursuant to undertakings by FNBC and FCNIMCO, resulting in a net
management/advisory fee paid by the Predecessor Cash Management Fund and its
predecessor of $385,357.
For the period from March 22, 1995 (commencement of operations of the
Predecessor Treasury Prime Cash Management Fund) through December 31, 1995, the
advisory fee payable by the Predecessor Treasury Prime Cash Management Fund
amounted to $50,405, which amount was reduced by $27,592 pursuant to an
undertaking by FCNIMCO, resulting in a net advisory fee paid by the Predecessor
Treasury Prime Cash Management Fund of $22,813.
For the fiscal year ended May 31, 1995, the aggregate management/advisory
fee payable by the Predecessor U.S. Government Securities Cash Management Fund
and its predecessor amounted to $1,388,345, which amount was reduced by $312,740
pursuant to undertakings by FNBC and FCNIMCO, resulting in a net
management/advisory fee paid by the Predecessor U.S. Government Securities Cash
Management Fund and its predecessor of $1,075,605. For the Predecessor U.S.
Government Securities Cash Management Fund's fiscal period ended December 31,
1995, the aggregate management/advisory fee payable by the U.S. Government
Securities Cash Management Fund and its predecessor amounted to $968,761, which
amount was reduced by $381,198 pursuant to undertakings by FNBC and FCNIMCO,
resulting in a net management/advisory fee paid by the Predecessor U.S.
Government Securities Cash Management Fund and its predecessor of $587,563.
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<PAGE> 151
ADMINISTRATION AGREEMENT. Pursuant to an Administration Agreement dated as
of April 12, 1996 with the Trust, FCNIMCO and BISYS assist in all aspects of the
Trust's operations, other than providing investment advice, subject to the
overall authority of the Trust's Board in accordance with Massachusetts law.
Under the terms of the Administration Agreement, FCNIMCO and BISYS are entitled
jointly to a monthly administration fee at the annual rate of .15% of each
Fund's average daily net assets.
For the period ended December 31, 1997, the Cash Management Fund, Treasury
Cash Management Fund, Treasury Prime Cash Management Fund, Municipal Cash
Management Fund and U.S. Government Securities Cash Management Fund paid
FCNIMCO, as agent for the co-administrators, administration fees of $1,441,319,
$99,861, $382,527, $111,200 and $1,093,263, respectively.
For the period July 13, 1996 (date of the Reorganization) through December
31, 1996, the Cash Management Fund, Treasury Prime Cash Management Fund and U.S.
Government Securities Cash Management Fund paid FCNIMCO, as agent for the co-
administrators, administration fees of $465,170, $202,003 and $466,617,
respectively.
For the period from January 1, 1996 through July 13, 1996 (date of the
Reorganization), the Predecessor Cash Management Fund, Predecessor Treasury
Prime Cash Management Fund and Predecessor U.S. Government Securities Cash
Management Fund paid FCNIMCO administration fees of $365,320, $132,016 and
$392,231, respectively.
As stated above, prior to January 17, 1995, Dreyfus provided
administrative services to each Predecessor Fund (and its predecessor) and that
the fees payable to Dreyfus for its services were paid by FNBC. From January 17,
1995 through July 13, 1996, FCNIMCO provided administrative services to each
Predecessor Fund. For the period January 17, 1995 through December 31, 1995, the
Predecessor Cash Management Fund and the Predecessor U.S. Government Securities
Cash Management Fund paid FCNIMCO administration fees of $522,730 and $707,131,
respectively. For the period March 22, 1995 (commencement of operations of the
Predecessor Treasury Prime Cash Management Fund) through December 31, 1995, the
administration fee payable by the Predecessor Treasury Prime Cash Management
Fund amounted to $37,804, which amount was reduced by $9,695 pursuant to an
undertaking by FCNIMCO, resulting in a net administration fee paid by the
Predecessor Treasury Prime Cash Management Fund of $28,109.
The Trust has agreed that neither FCNIMCO nor BISYS will be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the agreement with FCNIMCO or BISYS
relates, except for a loss resulting from wilful misfeasance, bad faith or gross
negligence on the part of FCNIMCO or BISYS in the performance of their
obligations or from reckless disregard by any of them of their obligations and
duties under the Administration Agreement.
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<PAGE> 152
In addition, the Administration Agreement provides that if, in any fiscal
year, the aggregate expenses of a Fund exceed the expense limitation of any
state having jurisdiction over the Fund, FCNIMCO, and BISYS will bear such
excess expense to the extent required by state law.
The aggregate of the fees payable to FCNIMCO and BISYS is not subject to
reduction as the value of the Fund's net assets increases.
DISTRIBUTION AND SERVICES PLAN
(SERVICE SHARES ONLY)
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Distribution and Services
Plan."
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission
under the 1940 Act provides, among other things, that an investment company may
bear expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Trust's Board of Trustees has adopted such a plan
(the "Plan") with respect to each Fund's Service Shares, pursuant to which each
Fund pays BISYS a fee of up to .25% of the average daily net asset value
attributable to such Service Shares for advertising, marketing and distributing
such Service Shares and for the provision of certain services to the holders of
such Service Shares. Under the Plan, BISYS may make payments to certain
financial institutions, securities dealers and other financial industry
professionals (collectively, "Service Agents") in respect of these services. The
Board of Trustees believes that there is a reasonable likelihood that the Plan
will benefit each Fund and the holders of Service Shares.
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<PAGE> 153
For the period ended December 31, 1997, the Funds/*/ paid fees pursuant to
the Plan as follows:
<TABLE>
<CAPTION>
Amount
Paid
Amount to FCNIMCO
Total Paid to and its
Paid BISYS Affiliates
---------- ------- -----------
<S> <C> <C> <C>
Cash Management Fund $1,277,854 $ -- $1,277,854
Treasury Cash Management Fund* $ 165,217 $ -- $ 165,217
Treasury Prime Cash Management
Fund $ 556,037 $ -- $ 556,037
U.S. Government Securities Cash
Management Fund $ 679,593 $ -- $ 679,593
Municipal Cash Management Fund* $ 50,555 $ -- $ 50,555
</TABLE>
___________________________
* The Treasury Cash Management and Municipal Cash Management Funds did not
commence operations until September 12, 1997 and August 18, 1997,
respectively.
The Board of Trustees reviews, at least quarterly, a written report of the
amounts expended under the Plan and the purposes for which the expenditures were
made. In addition, such arrangements are approved annually by a majority of the
Trustees, including a majority of the Trustees who are not "interested persons"
of the Trust as defined in the 1940 Act and have no direct or indirect financial
interest in such arrangements (the "Disinterested Trustees").
Any material amendment to the Plan must be approved by a majority of the
Board of Trustees (including a majority of the Disinterested Trustees).
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<PAGE> 154
PURCHASE OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "How to Buy Fund Shares."
THE DISTRIBUTOR. The Distributor serves on a best efforts basis as the
Trust's distributor pursuant to an agreement which is renewable annually.
USING FEDERAL FUNDS. First Data Investor Services Group, Inc., the Trust's
transfer and dividend disbursing agent (the "Transfer Agent"), or the Trust may
attempt to notify the investor upon receipt of checks drawn on banks that are
not members of the Federal Reserve System as to the possible delay in conversion
into Federal Funds and may attempt to arrange for a better means of transmitting
the money. If the investor is a customer of a securities dealer, bank or other
financial institution and his order to purchase Fund shares is paid for other
than in Federal Funds, the securities dealer, bank or other financial
institution, acting on behalf of its customer, generally will complete the
conversion into, or itself advance, Federal Funds on the business day following
receipt of the customer order. The order is effective only when so converted and
received by the Transfer Agent. An order for the purchase of Fund shares placed
by an investor with a sufficient Federal Funds or cash balance in his brokerage
account with a securities dealer, bank or other financial institution will
become effective on the day that the order in proper form, including Federal
Funds, is received by the Transfer Agent. In some states, banks or other
institutions effecting transactions in Fund shares may be required to register
as dealers pursuant to state law.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "How to Redeem Fund Shares."
REDEMPTION COMMITMENT. The Trust normally redeems shares for cash.
However, the Trustees can determine that conditions exist making cash payments
undesirable. If they should so determine, redemption payments could be made in
securities valued at the value used in determining net asset value. There may be
brokerage and other costs incurred by the redeeming shareholder in selling such
securities. The Trust has elected to be covered by Rule 18f-1 under the 1940
Act, pursuant to which the Trust is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of net asset value during any 90-day period for
any one shareholder.
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<PAGE> 155
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the New York Stock Exchange
is closed (other than customary weekend and holiday closing), (b) when trading
in the markets the Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the SEC so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the SEC by order may permit to protect the Fund's
shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "How to Buy Fund Shares."
AMORTIZED COST PRICING. The valuation of each Fund's portfolio securities
is based upon their amortized cost which does not take into account unrealized
capital gains or losses. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
The Board of Trustees has established procedures, as a particular
responsibility within the overall duty of care owed to each Fund's investors,
reasonably designed to stabilize the Fund's price per share as computed for
purposes of purchases and redemptions at $1.00. Such procedures include review
of each Fund's portfolio holdings by the Board of Trustees, at such intervals as
it deems appropriate, to determine whether the Fund's net asset value calculated
by using available market quotations or market equivalents deviates from $1.00
per share based on amortized cost. Investments for which market quotations are
readily available will be valued at the most recent bid price or yield
equivalent for such securities or for securities of comparable maturity, quality
and type, as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets of the Funds will be
valued at fair value as determined in good faith by the Board of Trustees.
The extent of any deviation between a Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be examined by the Board of Trustees. If such deviation
exceeds 1/2 of 1%, the Board of Trustees will consider what actions, if any,
will be initiated. In the event the Board of Trustees determines that a
deviation
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<PAGE> 156
exists which may result in material dilution or other unfair results to
investors or existing shareholders, it has agreed to take such corrective action
as it regards as necessary and appropriate, including: selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations or market equivalents.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which the
New York Stock Exchange is closed currently are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas. In addition to these holidays, the Fund
will not compute net asset value on the following bank holidays: Columbus Day
and Veterans Day.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees,
FCNIMCO is responsible for making decisions with respect to and placing orders
for all purchases and sales of portfolio securities for each Fund.
Purchases of money market instruments by the Funds are made from dealers,
underwriters and issuers. The Funds currently do not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by dealers acting as principal
for their own accounts without a stated commission. The price of the security,
however, usually includes a profit to the dealer. Securities purchased in
underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid. No brokerage commissions have been paid by
any Fund to date.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
A Fund will engage in this practice, however, only when FCNIMCO, in its sole
discretion, believes such practice to be otherwise in the Fund's interests.
The Advisory Agreement for the Funds provides that, in executing portfolio
transactions and selecting brokers or dealers, FCNIMCO will seek to obtain the
best overall terms available for each Fund. In assessing the best overall terms
available for any
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<PAGE> 157
transaction, FCNIMCO shall consider factors it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In addition, the Agreement authorizes FCNIMCO to cause a
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that FCNIMCO determines in good faith
that such commission is reasonable in relation to the value of the brokerage and
research services provided by such broker-dealer, viewed in terms of either the
particular transaction or the overall responsibilities of FCNIMCO to the Funds.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews of
the stock, bond and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by FCNIMCO and does not reduce the
advisory fees payable by the Funds. The Trustees will periodically review any
commissions paid by the Funds to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Funds. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by FCNIMCO. Conversely, a Fund may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected for
such other account or investment company.
The Trust will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase agreements with FCNIMCO, the Distributor or an
affiliated person of any of them (as such term is defined in the 1940 Act)
acting as principal, except to the extent permitted under the 1940 Act. In
addition, a Fund will not purchase securities during the existence of any
underwriting or selling group relating thereto of which the Distributor or
FCNIMCO, or an affiliated person of any of them, is a member, except to the
extent permitted under the 1940 Act. Under certain circumstances, the Funds may
be at a disadvantage because of these limitations in comparison with other
investment companies which have similar investment objectives but are not
subject to such limitations.
Investment decisions for each Fund are made independently from those for
the other Funds and for any other investment companies and accounts advised or
managed by FCNIMCO. Such other investment companies and accounts may also
invest in the same
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<PAGE> 158
securities as the Funds. To the extent permitted by law, FCNIMCO may aggregate
the securities to be sold or purchased for the Funds with those to be sold or
purchased for other investment companies or accounts in executing transactions.
When a purchase or sale of the same security is made at substantially the same
time on behalf of one or more of the Funds and another investment company or
account, the transaction will be averaged as to price and available investments
allocated as to amount, in a manner which FCNIMCO believes to be equitable to
each Fund and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in Funds' Prospectus entitled "Dividends, Distributions and
Taxes."
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gain or loss. However, all or a portion of the gain realized
from the disposition of certain market discount bonds will be treated as
ordinary income under Section 1276 of the Internal Revenue Code of 1986, as
amended.
As of December 31, 1997, the Funds had capital loss carryforwards with
expiration dates as follows:
<TABLE>
<CAPTION>
2001 2002 2003 Total
------- -------- ------- --------
<S> <C> <C> <C> <C>
U.S. Government Securities Cash Management Fund $ -- $453,000 $58,000 $511,000
Cash Management Fund 19,000 151,000 32,000 202,000
</TABLE>
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Performance Information."
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one share at the beginning of a seven calendar day
period for which yield is to be quoted, dividing the net change by the value of
the account at the beginning of the period to obtain the base period return, and
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such additional
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<PAGE> 159
shares and fees that may be charged to the shareholder's account, in proportion
to the length of the base period and the Fund's average account size, but does
not include realized gains and losses or unrealized appreciation and
depreciation. Effective yield is computed by adding 1 to the base period return
(calculated as described above), raising that sum to a power equal to 365
divided by 7, and subtracting 1 from the result. In addition, the Municipal Cash
Management Fund may advertise its "tax-equivalent yield" which is computed by:
(a) dividing the portion of the yield (as calculated above) that is exempt from
income tax by one minus a stated income tax rate; and (b) adding the figure from
(a) above to that portion, if any, of the yield that is not tax-exempt.
For the seven-day period ended December 31, 1997, the yield and effective
yield (after fee waivers and/or expense reimbursements) of each Fund were as
follows:
<TABLE>
<CAPTION>
Name of Fund
and Class Yield Effective Yield
------------ ----- ---------------
<S> <C> <C>
Cash Management Fund
Institutional Shares 5.50% 5.65%
Service Shares 5.25% 5.39%
Treasury Prime Cash
Management Fund
Institutional Shares 4.97% 5.10%
Service Shares 4.72% 4.84%
Treasury Cash Management Fund
Institutional Shares 5.39% 5.53%
Service Shares 5.14% 5.27%
U.S. Government Securities
Cash Management Fund
Institutional Shares 5.44% 5.59%
Service Shares 5.19% 5.33%
Municipal Cash Management Fund
Institutional Shares 3.64% 3.70%
Service Shares 3.39% 3.44%
ADJOURNED
</TABLE>
Yields will fluctuate and are not necessarily representative of future
results. Each investor should remember that yield is a function of the type and
quality of the instruments in the portfolio, portfolio maturity and operating
expenses. An investor's principal in the Fund is not guaranteed. See
"Determination of Net Asset Value" for a discussion of the manner in which the
Fund's price per share is determined.
-25-
<PAGE> 160
From time to time, advertising materials for the Funds may refer to
FCNIMCO's or any of its affiliate's full line of investment products for the
corporate cash market, including sweep services, on-line money market mutual
fund purchases, customized portfolio management, and OASIS, a same-day sweep
product that sweeps funds to an overnight Eurodollar time deposit. In addition,
from time to time, references to the Funds may appear in advertisements and
sales literature for certain products or services offered by the Trust's
Investment Adviser, its affiliates or others, through which it is possible to
invest in one or more of the Funds, such as the Pegasus Architect wrap account,
the Pathmaker variable annuity, and First Choice, First Choice Provider, First
Choice Pegasus and First Choice Select 401(k) products.
INFORMATION ABOUT THE TRUST
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "General Information."
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Fund shares
have no preemptive, subscription or conversion rights and are freely
transferable.
As of March 31, 1997, the following persons may have beneficially owned 5%
or more of the outstanding shares of the following Funds:
<TABLE>
<CAPTION>
Percentage
of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -----------
<S> <C> <C> <C>
Cash Morand & Co. 68,961,633.440 7.48%
Management Fund - American National Bank
Class I 1 N. LaSalle Street
Floor 7
Chicago, IL 60602-3902
First National Bank of 63,442,440.760 6.88%
Chicago
IF&B Plaza
Corporate Trust Administration
Suite 0126
Chicago, IL 60670-6001
First National Bank of 47,811,452.480 5.18%
Chicago
Cash Management Department
Suite 0256, 6th Floor
525 W. Monroe St.
Chicago, IL 60661-3629
</TABLE>
-26-
<PAGE> 161
<TABLE>
<CAPTION>
Percentage
of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -----------
<S> <C> <C> <C>
Cash Management NBD Bank NA 599,028,357.750 55.27%
Fund - Class S Attn: Mary Ellen Bradley
9000 Haggerty Road
Belleville, MI 48111
First National Bank of 127,407,829.220 11.76%
Chicago
Commercial Products
1 First National Plaza
Suite 0649
Chicago, IL 60670
First National Bank of 384,419,860.580 30.86%
Chicago
Cash Management Dept.
Suite 0256
6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
Treasury First National Bank of 11,213,656.410 38.56%
Prime Cash Chicago
Management Fund - Cash Management Dept.
Class I Suite 0256
6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
First National Bank of 4,275,483.760 14.70%
Chicago
Corporate Trust Administration
1 F&B Plaza
Suite 0126
Chicago, IL 60670-0001
</TABLE>
-27-
<PAGE> 162
<TABLE>
<CAPTION>
Percentage
of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -----------
<S> <C> <C> <C>
Treasury First National Bank of 41,832,818.830 15.65%
Prime Cash Chicago
Management Fund - Corporate Trust
Class S Administration
1 F&B Plaza
Suite 0126
Chicago, IL 60670-0001
First National Bank of 59,994,325.750 22.45%
Chicago
Commercial Products
1 First National Plaza
Suite 0649
Chicago, IL 60670
First National Bank of 110,120,641.500 41.20%
Chicago
Cash Management Dept.
Suite 0256, 6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
Morand & Co. 42,796,789.070 16.01%
American National Bank
1 N. LaSalle St. Fl. 7
Chicago, IL 60602-3902
U.S. First National Bank of 670,594,011.140 84.63%
Government Chicago
Securities Corporate Trust
Cash Administration
Management Fund - 1 F&B Plaza
Class I Suite 0126
Chicago, IL 60670-0001
U.S.Government First National Bank of 274,393,739.000 61.04%
Securities Chicago
Cash Management Cash Management Dept.
Fund - Class S Suite 0256, 6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
First National Bank of 104,784,884.280 23.31%
Chicago
Commercial Products
1 First National Plaza
Suite 0649
Chicago, IL 60670
Morand & Co. 49,569,825.780 11.03%
American National Bank
1 N. LaSalle St. FL 7
Chicago, IL 60602-3902
Municipal Cash Morand & Co. 37,780,162.370 11.60%
Management Fund- American National Bank
Class I 1 N. LaSalle St. Fl. 7
Chicago, IL 60602-3902
Municipal Cash NBD Bank NA 55,067,609.390 100.00%
Management Fund- Attn: Mary Ellen Bradley
Class S 9000 Haggerty Road
Belleville, MI 48111
</TABLE>
-28-
<PAGE> 163
The Trust will send annual and semi-annual financial statements for the
Funds to their shareholders.
COUNSEL
Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia, PA 19107-
3496, serves as the Trust's counsel.
INDEPENDENT AUDITORS
Arthur Andersen LLP, 500 Woodward Avenue, Detroit, Michigan 48226-3424,
are the independent auditors of the Trust. Ernst & Young LLP served as
independent auditors for the First Prairie Funds and the Prairie Institutional
Funds. The audited financial statements and notes thereto for each Fund for the
fiscal year ended December 31, 1997 are contained in the Funds' Annual Report to
Shareholders dated December 31, 1997 and are incorporated by reference into this
Statement of Additional Information. The December 31, 1997 financial statements
and notes thereto have been audited by Arthur Andersen LLP, whose report thereon
also appears in such Annual Report and is also incorporated herein by reference.
Information in the audited financial statements for periods or years prior to
December 31, 1995 has been audited by Ernst & Young LLP. No other parts of the
Annual Report are incorporated by reference herein. Such financial statements
have been incorporated herein in reliance on the reports of Arthur Andersen LLP
and Ernst & Young LLP, independent auditors, given on the authority of said
firms as experts in auditing and accounting.
-29-
<PAGE> 164
APPENDIX A
----------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
rated "A-1". However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are 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" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on the obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE> 165
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. 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" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses 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" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as investment grade. Risk
A-2
<PAGE> 166
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses 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 has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F-1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F-2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of securities rated
"F1".
"F-3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that the capacity for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one
A-3
<PAGE> 167
year or less. The following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
A-4
<PAGE> 168
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in a small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" 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" - An obligation rated "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.
"BB," "B," "CCC," "CC" and "C" - Debt is 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" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces 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" - Debt is more vulnerable to non-payment 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" - Debt is currently vulnerable to non-payment, and is 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" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action had been taken, but
payments on this obligation are being continued.
A-5
<PAGE> 169
"D" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest-
only and principal-only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE> 170
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - 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" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" are of poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
A-7
<PAGE> 171
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of investment risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this category.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", "C" - Bonds have high default risk. Capacity for meeting
financial commitments is reliant upon sustained, favorable business or economic
developments. "CC" ratings indicate that default of some kind appears probable,
and "C" ratings signal imminent default.
"DDD", "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.
A-8
<PAGE> 172
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE> 173
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
A-10
<PAGE> 174
"D" - This designation indicates that the long-term debt
is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
A-11
<PAGE> 175
"MIG-4"/"VMIG-4" - This designation denotes adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of
margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE> 1
The One
Investor
Program
Annual Report
For the year ended June 30, 1998
The One Group Investor Growth Fund
The One Group Investor Growth & Income Fund
The One Group Investor Balanced Fund
The One Group Investor Conservative Growth Fund
THE ONE GROUP
----------------------
FAMILY OF MUTUAL FUNDS
<PAGE> 2
IMPORTANT CUSTOMER INFORMATION. INVESTMENT PRODUCTS:
- are not deposits or obligations of, or guaranteed by,
BANC ONE CORPORATION or any of its affiliates, [FDIC LOGO
WITH SLASH
- are not insured by the FDIC, and THOUGH IT]
- are subject to investment risks, including possible
loss of the principal amount invested.
<PAGE> 3
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Portfolio Performance Review............................................... 2
Schedules of Portfolio Investments......................................... 8
Statements of Assets and Liabilities....................................... 12
Statements of Operations................................................... 13
Statements of Changes in Net Assets........................................ 14
Notes to Financial Statements.............................................. 16
Financial Highlights....................................................... 22
Report of Independent Accountants.......................................... 38
1
<PAGE> 4
The One Group Investor Funds
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUNDS PERFORM?
For the year ended June 30, 1998, The One Group Investor Funds posted the
following total returns for their respective Fiduciary share class:
- - The One Group Investor Growth Fund, 23.81%
- - The One Group Investor Growth and Income Fund, 20.34%
- - The One Group Investor Balanced Fund, 17.02%
- - The One Group Investor Conservative Growth Fund, 12.73%
For information on other share classes and performance comparisons to indexes,
please see pages 4-7.
HOW DID THE BOND AND STOCK MARKETS PERFORM?
The bond market continued to benefit from low inflation, which helped push
interest rates down and bond prices up. Furthermore, events in Asia contributed
to a weakening global economy, which in turn helped support favorable bond
market conditions in the United States.
The stock market continued to provide better-than-average investment returns,
thanks to low inflation, moderate economic growth and strong corporate earnings
growth. In addition, a favorable bond market contributed to the stock market's
strength by allowing price/earnings (P/E) multiple expansion. That is, the
declining interest rate environment allowed companies to realize greater
profits, and stock prices increased on these favorable earnings results.
For more than four years, large-capitalization growth stocks have led the
domestic market surge, outperforming smaller-company stocks and value-oriented
stocks. Investors continued to favor larger companies due to their earnings
reliability and stock liquidity.
DID THE SITUATION IN ASIA INFLUENCE STOCK RETURNS?
Beginning in late 1997, many larger, multinational companies, particularly in
the semiconductor, energy and commodities sectors, felt the effects of the Asian
markets' meltdown. With too much capital and investment generating excess
capacity, lower prices led to insufficient profits. As a result, currencies
declined and market returns plummeted for most Asian markets.
WERE THERE ANY OTHER NOTABLE PERFORMANCES OVERSEAS?
Many European markets experienced a comeback, with strong one-year performance
from Italy, up 63%; Spain up 50%; Germany, up 46%; and France, up 43%.
WHAT WAS YOUR OVERALL ASSET ALLOCATION STRATEGY?
Each of the Investor Funds maintained relatively strong exposure to equity funds
(depending, of course, on each fund's overall investment objective and asset
allocation parameters), which enabled the funds to participate in the ongoing
stock market rally and post attractive overall returns. In addition, each Fund's
allocation toward the bond market was slightly greater than what we consider to
be average exposure.
WHY WAS THAT?
We implemented this strategy based on our ongoing research efforts, which showed
that stocks, on a valuation basis, continued to be more expensive than bonds. We
felt that this presented some additional risks for stocks. At the same time,
earnings momentum remained strong. We therefore made only a slight shift toward
fixed income funds in order to gain some downside protection from the stock
market's high valuations. The average fund allocations during the period were as
follows:
- - The One Group Investor Growth Fund: 86% equity funds; 13% fixed income funds;
1% money market funds
- - The One Group Investor Growth and Income Fund: 66% equity funds; 33% fixed
income funds; 1% money market funds
- - The One Group Investor Balanced Fund: 46% equity funds; 53% fixed income
funds; 1% money market funds
- - The One Group Conservative Growth Fund: 26% equity funds; 72% fixed income
funds; 2% money market funds
WHAT WERE YOUR KEY STRATEGIES IN THE EQUITY ARENA?
The Investor Funds enjoyed varying exposure, depending on the overall investment
objective, to the following equity styles: large capitalization,
mid-capitalization, small capitalization and international. Within each style,
individual stock selection remains the core of our management process. We
modestly adjusted our asset allocations to include in-
2
<PAGE> 5
The One Group Investor Funds
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
ternational stocks, giving the funds an opportunity to take advantage of lower
valuations in Asia and continued economic recovery in Europe. Our international
exposure is now between 5% and 11%, with the greatest exposure in The One Group
Investor Growth Fund. This ongoing approach toward diversification helped limit
risk while offering return opportunities from different market segments.
WHAT WERE YOUR KEY STRATEGIES WITHIN THE FIXED INCOME MARKET?
Within the fixed income funds, our efforts centered on maintaining a low-risk
profile by keeping durations at or near their average levels. (Duration is a
measure of a fund's price sensitivity to interest rate changes. A longer
duration indicates greater sensitivity; a shorter duration indicates less.)
Instead of making "bets" on interest rate movements by significantly altering
duration, we prefer to concentrate on the yield component of total return.
Over the past year, our fund managers focused on select investments in the
corporate, asset-backed and mortgage-backed sectors. This allowed the funds to
capture the yield advantages that these securities generally offered compared to
Treasury securities. At the same time, they focused on maintaining portfolios
with good average credit quality.
WHAT IS YOUR OUTLOOK FOR THE FUNDS?
Economic activity is critical to the funds' performance because the economy
drives earnings. The current economic expansion, now in its eighth year, is one
of the longest in history. Looking ahead to fiscal 1999, we expect U.S. economic
growth to remain positive, but to slow down from recent levels. Corporate
earnings should continue to grow, but perhaps not at the pace we've seen
recently.
We also believe that inflation will remain low, leading to a stable or lower
interest rate environment. As such, we believe there will be little opportunity
for price volatility to significantly influence bond market returns.
Asia remains the one wild card. An unforeseen depression in any of these
countries could spill over and put a squeeze on U.S. growth. We believe that a
depression is unlikely, however, because Japan's economic package should provide
guidance for the country and establish an outline for deregulation. These moves
should bring Japan closer to financial reform and improve the banking system.
Given the extraordinary equity gains of the last several years, it is not
realistic to expect this pace to continue. Going forward, we think the equity
market will be a bit more selective, which would make individual security
selection even more important.
We currently don't anticipate making any significant changes to our asset
allocation strategies. But we will continue to monitor the economic climate for
inflationary pressures and valuation levels in the financial markets. We also
will keep close tabs on the situation in Asia and how events there may affect
the funds' investments.
/s/ Richard R. Jandrain III
Richard R. Jandrain III
Senior Managing Director of Equity Securities
Director, Asset Allocation Committee
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
3
<PAGE> 6
The One Group Investor Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Fiduciary 23.81% 24.49%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 1500 Lipper Mix Fiduciary
<S> <C> <C> <C>
12/96 10000 10000 10000
6/97 11945 10680 11350
6/98 15462 12724 14053
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class A 23.44% 23.78%
Class A* 17.87% 20.17%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class A* Class A
6/98 15462 12724 13303 13929
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class B 22.52% 23.91%
Class B** 18.52% 21.61%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class B** Class B
6/98 15462 12724 13552 13952
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (7/1/97)
<S> <C> <C> <C>
Class C 22.42% 22.42%
Class C** 21.42% 21.42%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class C** Class C
6/98 12944 11914 12141 12241
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Investor Growth Fund is measured against the S&P 1500
Index, an unmanaged index generally representative of the performance of large
and small companies in the US stock market. Investors are unable to purchase the
index directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management. By contrast, the performance
of the fund reflects the deduction of these value-added services as well as the
deduction of sales charges on Class A Shares and applicable contingent deferred
sales charges on Class B and Class C Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper General Equity Funds Universe (75%), the Lipper International Funds
Universe (10%), and the Lipper Intermediate US Government Bond Funds Universe
(15%). The Lipper Universes consist of the equally weighted average monthly
return of all the funds within the category.
<TABLE>
<S> <C> <C> <C> <C>
6/97 11945 10680 10776 11284
12/96 10000 10000 9550 10000
6/97 11945 10680 11388 11388
12/96 10000 10000 10000 10000
7/97 10000 10000 10000 10000
</TABLE>
4
<PAGE> 7
The One Group Investor Growth & Income Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Fiduciary 20.34% 20.40%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 1500 Lipper Mix Fiduciary
<S> <C> <C> <C>
12/96 10000 10000 10000
6/97 11945 10535 11087
6/98 15462 12342 13342
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class A 20.18% 20.73%
Class A* 14.76% 17.21%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class A* Class A
6/98 15462 12342 12797 13399
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class B 19.13% 19.72%
Class B** 15.13% 17.38%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class B** Class B
6/98 15462 12342 12825 13225
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (7/1/97)
<S> <C> <C> <C>
Class C 19.08% 19.08%
Class C** 18.08% 18.08%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period
<S> <C> <C> <C> <C>
(Fiscal Year Covered) S&P 1500 Lipper Mix Class C** Class C
6/98 12944 11715 11808 11908
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Investor Growth & Income Fund is measured against the S&P
1500 Index, an unmanaged index generally representative of the performance of
large and small companies in the US stock market. Investors are unable to
purchase the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management. By
contrast, the performance of the fund reflects the deduction of these
value-added services as well as the deduction of sales charges on Class A Shares
and applicable contingent deferred sales charges on Class B and Class C Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper General Equity Funds Universe (60%), the Lipper International Funds
Universe (5%), and the Lipper Intermediate US Government Bond Funds Universe
(35%). The Lipper Universes consist of the equally weighted average monthly
return of all the funds within the category.
<TABLE>
<S> <C> <C> <C> <C>
6/97 11945 10535 10648 11150
12/96 10000 10000 9550 10000
6/97 11945 10535 11102 11102
12/96 10000 10000 10000 10000
7/97 10000 10000 10000 10000
</TABLE>
5
<PAGE> 8
The One Group Investor Balanced Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Fiduciary 17.02% 16.60%
</TABLE>
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C>
(Fiscal Year Covered) Aggregate Bond Lipper Mix Fiduciary
6/98 11219 11890 12694
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class A 16.62% 16.29%
Class A* 11.39% 12.90%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class A* Class A
6/98 11219 11890 12074 12641
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class B 15.85% 15.67%
Class B** 11.85% 13.28%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class B** Class B
6/98 11219 11890 12136 12536
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (7/1/97)
<S> <C> <C> <C>
Class C 15.66% 15.66%
Class C** 14.66% 14.66%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class C** Class C
6/98 10868 11444 11466 11566
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Investor Balanced Fund is measured against the Lehman
Brothers Intermediate Aggregate Bond Index, an unmanaged index comprised of US
Government, mortgage, corporate and asset-backed securities with maturities of
one to ten years. Investors are unable to purchase the index directly, although
they can invest in the underlying securities. The performance of the index does
not reflect the deduction of expenses associated with a mutual fund, such as
investment management. By contrast, the performance of the fund reflects the
deduction of these value-added services as well as the deduction of sales
charges on Class A Shares and applicable contingent deferred sales charges on
Class B and Class C Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper General Equity Funds Universe (40%), the Lipper International Funds
Universe (5%), and the Lipper Intermediate US Government Bond Funds Universe
(55%). The Lipper Universes consist of the equally weighted average monthly
return of all the funds within the category.
<TABLE>
<S> <C> <C> <C> <C>
6/97 10323 10390 10848
12/96 10000 10000 10000
6/97 10323 10390 10353 10841
12/96 10000 10000 9550 10000
6/97 10323 10390 10822 10822
12/96 10000 10000 10000 10000
7/97 10000 10000 10000 10000
</TABLE>
6
<PAGE> 9
The One Group Investor Conservative Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Fiduciary 12.73% 12.15%
</TABLE>
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C>
(Fiscal Year Covered) Aggregate Bond Lipper Mix Fiduciary
6/98 11219 11444 11949
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class A 12.38% 11.56%
Class A* 7.29% 8.31%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class A* Class A
6/98 11219 11444 11320 11852
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (12/10/96)
<S> <C> <C> <C>
Class B 11.53% 10.90%
Class B** 7.53% 8.46%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class B** Class B
6/98 11219 11444 11344 11744
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (7/1/97)
<S> <C> <C> <C>
Class C 11.48% 11.48%
Class C** 10.48% 10.48%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
<S> <C> <C> <C> <C>
(Fiscal Year Covered) Bond Lipper Mix Class C** Class C
6/98 10868 11172 11048 11148
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Investor Conservative Growth Fund is measured against the
Lehman Brothers Intermediate Aggregate Bond Index, an unmanaged index comprised
of US Government, mortgage, corporate and asset-backed securities with
maturities of one to ten years. Investors are unable to purchase the index
directly, although they can invest in the underlying securities. The performance
of the index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management. By contrast, the performance of the fund
reflects the deduction of these value-added services as well as the deduction of
sales charges on Class A Shares and applicable contingent deferred sales charges
on Class B and Class C Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper General Equity Funds Universe (20%), the Lipper International Funds
Universe (5%), and the Lipper Intermediate US Government Bond Funds Universe
(75%). The Lipper Universes consist of the equally weighted average monthly
return of all the funds within the category.
<TABLE>
<S> <C> <C> <C> <C>
6/97 10323 10243 10600
12/96 10000 10000 10000
6/97 10323 10243 10072 10546
12/96 10000 10000 9550 10000
6/97 10323 10243 10530 10530
12/96 10000 10000 10000 10000
7/97 10000 10000 10000 10000
</TABLE>
7
<PAGE> 10
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Investor Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- --------------------------------------- --------
<C> <S> <C>
INVESTMENT COMPANIES (98.4%):
1,853 The One Group Disciplined Value Fund
Fiduciary Class...................... $ 31,315
840 The One Group Government Bond Fund
Fiduciary Class...................... 8,489
1,473 The One Group Growth Opportunities Fund
Fiduciary Class...................... 33,163
890 The One Group Income Bond Fund
Fiduciary Class...................... 8,464
417 The One Group Intermediate Bond Fund
Fiduciary Class...................... 4,219
1,352 The One Group International Equity
Index Fund Fiduciary Class........... 24,301
1,437 The One Group Large Company Growth Fund
Fiduciary Class...................... 32,631
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- --------------------------------------- --------
<C> <S> <C>
INVESTMENT COMPANIES, CONTINUED:
1,812 The One Group Large Company Value Fund
Fiduciary Class...................... $ 30,264
402 The One Group Limited Volatility Fund
Fiduciary Class...................... 4,223
614 The One Group Prime Money Market Fund
Fiduciary Class...................... 614
688 The One Group Small Capitalization Fund
Fiduciary Class...................... 8,296
2,315 The One Group Value Growth Fund
Fiduciary Class...................... 31,278
--------
Total Investment Companies 217,257
--------
Total (Cost $199,115) (a) $217,257
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $220,699.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $103. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation...................... $18,727
Unrealized depreciation...................... (688)
-------
Net unrealized appreciation.................. $18,039
=======
</TABLE>
See notes to financial statements.
8
<PAGE> 11
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Investor Growth & Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- --------------------------------------- --------
<C> <S> <C>
INVESTMENT COMPANIES (98.6%):
1,426 The One Group Disciplined Value Fund
Fiduciary Class...................... $ 24,091
2,202 The One Group Government Bond Fund
Fiduciary Class...................... 22,263
1,133 The One Group Growth Opportunities Fund
Fiduciary Class...................... 25,514
2,334 The One Group Income Bond Fund
Fiduciary Class...................... 22,199
1,311 The One Group Intermediate Bond Fund
Fiduciary Class...................... 13,269
1,161 The One Group International Equity
Index Fund Fiduciary Class........... 20,855
1,184 The One Group Large Company Growth Fund
Fiduciary Class...................... 26,899
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- --------------------------------------- --------
<C> <S> <C>
INVESTMENT COMPANIES, CONTINUED:
1,494 The One Group Large Company Value Fund
Fiduciary Class...................... $ 24,945
843 The One Group Limited Volatility Fund
Fiduciary Class...................... 8,861
718 The One Group Prime Money Market Fund
Fiduciary Class...................... 718
361 The One Group Small Capitalization Fund
Fiduciary Class...................... 4,351
449 The One Group Ultra Short-Term Income
Fund Fiduciary Class................. 4,430
2,082 The One Group Value Growth Fund
Fiduciary Class...................... 28,127
--------
Total Investment Companies 226,522
--------
Total (Cost $208,652) (a) $226,522
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $229,831.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $380. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation...................... $17,785
Unrealized depreciation...................... (295)
-------
Net unrealized appreciation.................. $17,490
=======
</TABLE>
See notes to financial statements.
9
<PAGE> 12
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Investor Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- --------------------------------------- --------
<C> <S> <C>
INVESTMENT COMPANIES (97.8%):
800 The One Group Disciplined Value Fund
Fiduciary Class...................... $ 13,523
3,302 The One Group Government Bond Fund
Fiduciary Class...................... 33,384
636 The One Group Growth Opportunities Fund
Fiduciary Class...................... 14,321
3,294 The One Group Income Bond Fund
Fiduciary Class...................... 31,328
1,734 The One Group Intermediate Bond Fund
Fiduciary Class...................... 17,544
796 The One Group International Equity
Index Fund Fiduciary Class........... 14,306
760 The One Group Large Company Growth Fund
Fiduciary Class...................... 17,256
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- --------------------------------------- --------
<C> <S> <C>
INVESTMENT COMPANIES, CONTINUED:
958 The One Group Large Company Value Fund
Fiduciary Class...................... $ 16,002
1,116 The One Group Limited Volatility Fund
Fiduciary Class...................... 11,724
956 The One Group Prime Money Market Fund
Fiduciary Class...................... 956
792 The One Group Ultra Short-Term Income
Fund Fiduciary Class................. 7,816
1,530 The One Group Value Growth Fund
Fiduciary Class...................... 20,675
--------
Total Investment Companies 198,835
--------
Total (Cost $184,322) (a) $198,835
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $203,278.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $175. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation...................... $14,522
Unrealized depreciation...................... (184)
-------
Net unrealized appreciation.................. $14,338
=======
</TABLE>
See notes to financial statements.
10
<PAGE> 13
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Investor Conservative Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- ---------------------------------------- -------
<C> <S> <C>
INVESTMENT COMPANIES (99.2%):
99 The One Group Disciplined Value Fund
Fiduciary Class....................... $ 1,666
2,093 The One Group Government Bond Fund
Fiduciary Class....................... 21,164
78 The One Group Growth Opportunities Fund
Fiduciary Class....................... 1,764
1,864 The One Group Income Bond Fund Fiduciary
Class................................. 17,726
146 The One Group Income Equity Fund
Fiduciary Class....................... 3,516
1,080 The One Group Intermediate Bond Fund
Fiduciary Class....................... 10,934
245 The One Group International Equity Index
Fund Fiduciary Class.................. 4,405
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ------- ---------------------------------------- -------
<C> <S> <C>
INVESTMENT COMPANIES, CONTINUED:
205 The One Group Large Company Growth Fund
Fiduciary Class....................... $ 4,649
258 The One Group Large Company Value Fund
Fiduciary Class....................... 4,311
641 The One Group Limited Volatility Fund
Fiduciary Class....................... 6,739
1,686 The One Group Prime Money Market Fund
Fiduciary Class....................... 1,686
341 The One Group Ultra Short-Term Income
Fund Fiduciary Class.................. 3,369
264 The One Group Value Growth Fund
Fiduciary Class....................... 3,565
-------
Total Investment Companies 85,494
-------
Total (Cost $82,599) (a) $85,494
=======
</TABLE>
- ------------
Percentages indicated are based on net assets of $86,167.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $74. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation...................... $2,906
Unrealized depreciation...................... (85)
------
Net unrealized appreciation.................. $2,821
======
</TABLE>
See notes to financial statements.
11
<PAGE> 14
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
INVESTOR INVESTOR
INVESTOR GROWTH & INVESTOR CONSERVATIVE
GROWTH INCOME BALANCED GROWTH
FUND FUND FUND FUND
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $199,115; $208,652; $184,322;
and $82,599, respectively)................................ $217,257 $226,522 $198,835 $85,494
Cash........................................................ 1,265 819 2,113 357
Dividends receivable........................................ 188 400 535 306
Receivable from brokers for investments sold................ 1,500 1,500 1,000 --
Receivable for capital shares issued........................ 735 1,099 1,472 385
Receivable from advisor..................................... 31 9 -- 26
Prepaid expenses and other assets........................... 1 1 1 7
-------- -------- -------- -------
TOTAL ASSETS................................................ 220,977 230,350 203,956 86,575
-------- -------- -------- -------
LIABILITIES:
Dividends payable........................................... 84 300 463 272
Payable for capital shares redeemed......................... 42 33 55 42
Accrued expenses and other payables:
Investment advisory fees................................ 9 9 8 --
12b-1 fees.............................................. 70 78 64 36
Other................................................... 73 99 88 58
-------- -------- -------- -------
TOTAL LIABILITIES........................................... 278 519 678 408
-------- -------- -------- -------
NET ASSETS:
Capital..................................................... 197,904 207,764 185,728 82,826
Undistributed (distributions in excess of) net investment
income.................................................... 2,138 2,062 1,413 180
Accumulated undistributed net realized gains (losses) from
investment transactions................................... 2,515 2,135 1,624 266
Net unrealized appreciation (depreciation) from
investments............................................... 18,142 17,870 14,513 2,895
-------- -------- -------- -------
NET ASSETS.................................................. $220,699 $229,831 $203,278 $86,167
======== ======== ======== =======
NET ASSETS:
Fiduciary............................................... $ 86,355 $ 98,060 $93,557 $30,352
Class A................................................. 55,057 39,874 32,605 12,538
Class B................................................. 70,515 85,468 70,463 39,489
Class C................................................. 8,772 6,429 6,653 3,788
-------- -------- -------- -------
Total....................................................... $220,699 $229,831 $203,278 $86,167
======== ======== ======== =======
OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES):
Fiduciary............................................... 6,451 7,802 7,925 2,745
Class A................................................. 4,130 3,143 2,755 1,136
Class B................................................. 5,237 6,761 5,963 3,575
Class C................................................. 658 513 565 343
-------- -------- -------- -------
Total....................................................... 16,476 18,219 17,208 7,799
======== ======== ======== =======
Net Asset Value:
Fiduciary Offering and redemption price per share....... $ 13.39 $ 12.57 $ 11.81 $ 11.06
======== ======== ======== =======
Class A Redemption price per share...................... $ 13.33 $ 12.69 $ 11.83 $ 11.04
======== ======== ======== =======
Maximum sales charge................................ 4.50% 4.50% 4.50% 4.50%
======== ======== ======== =======
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to
nearest cent)..................................... $ 13.96 $ 13.29 $ 12.39 $ 11.56
======== ======== ======== =======
Class B Offering price per share (a).................... $ 13.47 $ 12.64 $ 11.82 $ 11.05
======== ======== ======== =======
Class C Offering price per share (a).................... $ 13.34 $ 12.54 $ 11.77 $ 11.03
======== ======== ======== =======
</TABLE>
- ------------
(a) Redemption price per Class B and Class C share varies based on length of
time shares are held.
See notes to financial statements.
12
<PAGE> 15
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
INVESTOR
INVESTOR INVESTOR GROWTH INVESTOR CONSERVATIVE
GROWTH FUND & INCOME FUND BALANCED FUND GROWTH FUND
----------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Distribution income........................ $ 1,410 $ 3,175 $ 4,519 $2,126
------- ------- ------- ------
EXPENSES:
Investment advisory fees................... 57 67 65 23
Administration fees........................ 114 134 129 46
12b-1 fees (Class A)....................... 78 64 45 18
12b-1 fees (Class B)....................... 327 391 297 162
12b-1 fees (Class C)....................... 41 24 27 19
Custodian and accounting fees.............. 11 12 10 16
Legal and audit fees....................... 6 7 6 4
Trustees' fees and expenses................ 1 2 2 1
Transfer agent fees........................ 126 105 80 68
Registration and filing fees............... 69 86 90 69
Printing costs............................. 19 26 24 9
Other...................................... 4 4 3 2
------- ------- ------- ------
Total expenses before waivers.............. 853 922 778 437
Less waivers and reimbursements............ (202) (193) (163) (151)
------- ------- ------- ------
Net Expenses............................... 651 729 615 286
------- ------- ------- ------
Net Investment Income...................... 759 2,446 3,904 1,840
------- ------- ------- ------
REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS:
Net realized gains (losses) from investment
transactions............................. 7,240 6,961 5,351 808
Net change in unrealized appreciation
(depreciation) from investments.......... 14,046 14,037 10,033 2,434
------- ------- ------- ------
Net realized/unrealized gains (losses) from
investments.............................. 21,286 20,998 15,384 3,242
------- ------- ------- ------
Change in net assets resulting from
operations............................... $22,045 $23,444 $19,288 $5,082
======= ======= ======= ======
</TABLE>
See notes to financial statements.
13
<PAGE> 16
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
INVESTOR INVESTOR GROWTH
GROWTH FUND & INCOME FUND
----------------------- -----------------------
YEAR DECEMBER 10, YEAR DECEMBER 10,
ENDED 1996 THROUGH ENDED 1996 THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 759 $ 256 $ 2,446 $ 556
Net realized gains (losses)....................... 7,240 (59) 6,961 (87)
Net change in unrealized appreciation
(depreciation) from investments................ 14,046 4,096 14,037 3,833
-------- ------- -------- -------
Change in net assets resulting from operations........ 22,045 4,293 23,444 4,302
-------- ------- -------- -------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income........................ (544) (227) (1,586) (494)
From net realized gains........................... (1,180) -- (1,513) --
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income........................ (172) (14) (357) (24)
From net realized gains........................... (471) -- (348) --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income........................ (38) (15) (472) (38)
From net realized gains........................... (776) -- (761) --
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net investment income........................ (5) -- (31) --
From net realized gains........................... (101) -- (55) --
-------- ------- -------- -------
Change in net assets from shareholder distributions... (3,287) (256) (5,123) (556)
-------- ------- -------- -------
CAPITAL TRANSACTIONS:
Proceeds from shares issued....................... 165,696 41,705 177,644 58,244
Proceeds from shares issued in conversion......... 10,702 -- 12,936 --
Dividends reinvested.............................. 2,757 25 3,682 49
Cost of shares redeemed........................... (20,622) (2,359) (39,570) (5,221)
-------- ------- -------- -------
Change in net assets from share transactions.......... 158,533 39,371 154,692 53,072
-------- ------- -------- -------
Change in net assets.................................. 177,291 43,408 173,013 56,818
NET ASSETS:
Beginning of period............................... 43,408 -- 56,818 --
-------- ------- -------- -------
End of period..................................... $220,699 $43,408 $229,831 $56,818
======== ======= ======== =======
SHARE TRANSACTIONS:
Issued............................................ 13,101 4,079 14,884 5,697
Issued in conversion.............................. 922 -- 1,150 --
Reinvested........................................ 232 3 319 4
Redeemed.......................................... (1,634) (227) (3,325) (510)
-------- ------- -------- -------
Change in shares...................................... 12,621 3,855 13,028 5,191
======== ======= ======== =======
</TABLE>
- ------------
(a) Period from commencement of operations.
See notes to financial statements.
14
<PAGE> 17
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
INVESTOR INVESTOR CONSERVATIVE
BALANCED FUND GROWTH FUND
----------------------- -----------------------
YEAR DECEMBER 10, YEAR DECEMBER 10,
ENDED 1996 THROUGH ENDED 1996 THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.............................. $ 3,904 $ 1,187 $ 1,840 $ 333
Net realized gains (losses)........................ 5,351 (67) 808 9
Net change in unrealized appreciation
(depreciation) from investments................. 10,033 4,480 2,434 461
-------- ------- ------- -------
Change in net assets resulting from operations......... 19,288 5,600 5,082 803
-------- ------- ------- -------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income......................... (2,708) (1,132) (980) (296)
From net realized gains............................ (1,584) -- (205) --
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income......................... (414) (15) (215) (14)
From net realized gains............................ (185) -- (29) --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income......................... (717) (40) (572) (23)
From net realized gains............................ (441) -- (120) --
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net investment income......................... (65) -- (67) --
From net realized gains............................ (37) -- (17) --
-------- ------- ------- -------
Change in net assets from shareholder distributions.... (6,151) (1,187) (2,211) (333)
-------- ------- ------- -------
CAPITAL TRANSACTIONS:
Proceeds from shares issued........................ 130,231 78,898 71,233 21,496
Proceeds from shares issued in conversion.......... 6,532 -- 707 --
Dividends reinvested............................... 3,506 49 1,170 41
Cost of shares redeemed............................ (30,131) (3,357) (8,767) (3,054)
-------- ------- ------- -------
Change in net assets from share transactions........... 110,138 75,590 64,343 18,483
-------- ------- ------- -------
Change in net assets................................... 123,275 80,003 67,214 18,953
NET ASSETS:
Beginning of period................................ 80,003 -- 18,953 --
-------- ------- ------- -------
End of period...................................... $203,278 $80,003 $86,167 $18,953
======== ======= ======= =======
SHARE TRANSACTIONS:
Issued............................................. 11,443 7,850 6,600 2,132
Issued in conversion............................... 600 -- 67 --
Reinvested......................................... 315 5 109 5
Redeemed........................................... (2,677) (328) (811) (303)
-------- ------- ------- -------
Change in shares....................................... 9,681 7,527 5,965 1,834
======== ======= ======= =======
</TABLE>
- ------------
(a) Period from commencement of operations.
See notes to financial statements.
15
<PAGE> 18
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998
1. ORGANIZATION:
The One Group (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company
established as a Massachusetts business trust. The accompanying financial
statements and financial highlights are those of the Investor Growth Fund,
the Investor Growth & Income Fund, the Investor Balanced Fund and the
Investor Conservative Growth Fund (individually a "Fund", collectively the
"Funds") only.
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
Investor Growth Fund Long-term capital appreciation by investing primarily in
a diversified group of The One Group mutual funds which
invest primarily in equity securities.
Investor Growth & Income Fund Long-term capital appreciation and growth of income by
investing primarily in a diversified group of The One
Group mutual funds which invest primarily in equity
securities.
Investor Balanced Fund High total return consistent with the preservation of
capital by investing primarily in a diversified group of
The One Group mutual funds which invest primarily in
equity and fixed income securities.
Investor Conservative Growth Fund Income and capital appreciation by investing primarily in
a diversified group of The One Group mutual funds which
invest primarily in equity and fixed income securities.
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Trust in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
SECURITY VALUATION
Investments in The One Group mutual funds (the "Underlying Funds") are
valued at the closing net asset value per share of each Underlying
Fund on the day of valuation. Short-term investments maturing in 60 days
or less are valued at amortized cost, which approximates market value.
SECURITY TRANSACTIONS AND RELATED INCOME
Purchases and sales of the Underlying Funds are accounted for on a
trade date basis. Net realized gains or losses on sales of the
Underlying Funds are determined on the specific identification cost
method. Other income and expenses are recognized on the accrual basis.
Distributions from the Underlying Funds and dividends to the Funds'
shareholders are recorded on the ex-dividend date.
Continued
16
<PAGE> 19
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
EXPENSES
Expenses directly attributable to a Fund are charged directly to that
Fund, while the expenses which are attributable to more than one fund of
the Trust are allocated among the respective Funds. Each class of shares
bears its pro-rata portion of expenses attributable to its series,
except that each class separately bears expenses related specifically to
that class, such as distribution fees.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid monthly for
the Funds. Net realized capital gains, if any, are distributed at least
annually. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates
are due to differences in separate class expenses.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards and deferrals of certain losses. Permanent book and tax
basis differences, which affect shareholder distributions, will be
reclassified to additional paid-in capital.
FEDERAL INCOME TAXES
The Trust treats each Fund as a separate entity for Federal income tax
purposes. Each Fund intends to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies as defined in applicable sections of the Internal
Revenue Code, and to make distributions from net investment income and
from net realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
3. SHARES OF BENEFICIAL INTEREST:
The Trust has an unlimited number of shares of beneficial interest, with no
par value, which may, without shareholder approval, be divided into an
unlimited number of series of such shares and any series may be classified or
reclassified into one or more classes. The Trust is registered to offer forty
series and five classes of shares: Fiduciary Class, Class A, Class B, Class C
and Service Class. Currently, the Trust consists of thirty-three active
Funds. The Funds are each authorized to issue Fiduciary Class, Class A, Class
B and Class C Shares. Class A Shares are subject to initial sales charges,
imposed at the time of purchase, in accordance with the Funds' prospectus.
Certain redemptions of Class B and Class C Shares are subject to contingent
deferred sales charges in accordance with the Funds' prospectus. Shareholders
are entitled to one vote for each full share held and will vote in the
aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees has determined that the matter to be
voted on affects only the interest of shareholders of a particular class or
series. The following is a summary of transactions in Fund shares for the
fiscal years ended June 30, 1998 and 1997:
Continued
17
<PAGE> 20
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
<TABLE>
<CAPTION>
INVESTOR
INVESTOR GROWTH &
GROWTH FUND INCOME FUND
----------------------- -----------------------
YEAR DECEMBER 10, YEAR DECEMBER 10,
ENDED 1996 THROUGH ENDED 1996 THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued............................... $47,160 $30,381 $61,976 $45,181
Proceeds from shares issued in conversion................. 10,702 -- 12,936 --
Dividends reinvested...................................... 1,220 11 1,780 13
Cost of shares redeemed................................... (13,523) (2,252) (32,898) (4,561)
------- ------- ------- -------
Change in net assets from Fiduciary Share transactions.... $45,559 $28,140 $43,794 $40,633
======= ======= ======= =======
CLASS A SHARES:
Proceeds from shares issued............................... $50,360 $ 4,125 $35,814 $ 4,604
Dividends reinvested...................................... 621 7 653 14
Cost of shares redeemed................................... (3,719) (19) (3,170) (606)
------- ------- ------- -------
Change in net assets from Class A Share transactions...... $47,262 $ 4,113 $33,297 $ 4,012
======= ======= ======= =======
CLASS B SHARES:
Proceeds from shares issued............................... $59,863 $ 7,199 $73,655 $ 8,459
Dividends reinvested...................................... 810 7 1,171 22
Cost of shares redeemed................................... (3,085) (88) (3,333) (54)
------- ------- ------- -------
Change in net assets from Class B Share transactions...... $57,588 $ 7,118 $71,493 $ 8,427
======= ======= ======= =======
CLASS C SHARES (b):
Proceeds from shares issued............................... $ 8,313 $ 6,199
Dividends reinvested...................................... 106 78
Cost of shares redeemed................................... (295) (169)
------- -------
Change in net assets from Class C Share transactions...... $ 8,124 $ 6,108
======= =======
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued.................................................... 3,722 3,000 5,278 4,443
Issued in conversion...................................... 922 -- 1,150 --
Reinvested................................................ 103 1 155 1
Redeemed.................................................. (1,080) (217) (2,777) (448)
------- ------- ------- -------
Change in Fiduciary Shares................................ 3,667 2,784 3,806 3,996
======= ======= ======= =======
CLASS A SHARES:
Issued.................................................... 3,973 397 2,960 443
Reinvested................................................ 52 1 56 1
Redeemed.................................................. (291) (2) (260) (57)
------- ------- ------- -------
Change in Class A Shares.................................. 3,734 396 2,756 387
======= ======= ======= =======
CLASS B SHARES:
Issued.................................................... 4,734 682 6,126 811
Reinvested................................................ 68 1 101 2
Redeemed.................................................. (240) (8) (274) (5)
------- ------- ------- -------
Change in Class B Shares.................................. 4,562 675 5,953 808
======= ======= ======= =======
CLASS C SHARES (b):
Issued.................................................... 672 520
Reinvested................................................ 9 7
Redeemed.................................................. (23) (14)
------- -------
Change in Class C Shares.................................. 658 513
======= =======
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Class C shares commenced operations on July 1, 1997.
Continued
18
<PAGE> 21
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
<TABLE>
<CAPTION>
INVESTOR
INVESTOR CONSERVATIVE
BALANCED FUND GROWTH FUND
----------------------- -----------------------
YEAR DECEMBER 10, YEAR DECEMBER 10,
ENDED 1996 THROUGH ENDED 1996 THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued............................... $29,880 $71,345 $18,972 $17,645
Proceeds from shares issued in conversion................. 6,532 -- 707 --
Dividends reinvested...................................... 1,866 15 338 18
Cost of shares redeemed................................... (25,609) (3,309) (6,167) (2,999)
-------- ------- ------- -------
Change in net assets from Fiduciary Share transactions.... $12,669 $68,051 $13,850 $14,664
======== ======= ======= =======
CLASS A SHARES:
Proceeds from shares issued............................... $30,496 $ 2,092 $11,834 $ 1,283
Dividends reinvested...................................... 518 9 192 8
Cost of shares redeemed................................... (1,837) -- (1,084) (29)
-------- ------- ------- -------
Change in net assets from Class A Share transactions...... $29,177 $ 2,101 $10,942 $ 1,262
======== ======= ======= =======
CLASS B SHARES:
Proceeds from shares issued............................... $63,523 $ 5,461 $36,712 $ 2,568
Dividends reinvested...................................... 1,034 25 571 15
Cost of shares redeemed................................... (2,638) (48) (1,395) (26)
-------- ------- ------- -------
Change in net assets from Class B Share transactions...... $61,919 $ 5,438 $35,888 $ 2,557
======== ======= ======= =======
CLASS C SHARES (b):
Proceeds from shares issued............................... $ 6,332 $ 3,715
Dividends reinvested...................................... 88 69
Cost of shares redeemed................................... (47) (121)
-------- -------
Change in net assets from Class C Share transactions...... $ 6,373 $ 3,663
======== =======
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued.................................................... 2,648 7,112 1,763 1,750
Issued in conversion...................................... 600 -- 67 --
Reinvested................................................ 169 2 32 2
Redeemed.................................................. (2,282) (324) (572) (297)
-------- ------- ------- -------
Change in Fiduciary Shares................................ 1,135 6,790 1,290 1,455
======== ======= ======= =======
CLASS A SHARES:
Issued.................................................... 2,665 203 1,092 128
Reinvested................................................ 46 1 18 1
Redeemed.................................................. (160) -- (100) (3)
-------- ------- ------- -------
Change in Class A Shares.................................. 2,551 204 1,010 126
======== ======= ======= =======
CLASS B SHARES:
Issued.................................................... 5,569 535 3,397 254
Reinvested................................................ 92 2 53 2
Redeemed.................................................. (231) (4) (128) (3)
-------- ------- ------- -------
Change in Class B Shares.................................. 5,430 533 3,322 253
======== ======= ======= =======
CLASS C SHARES (b):
Issued.................................................... 561 348
Reinvested................................................ 8 6
Redeemed.................................................. (4) (11)
-------- -------
Change in Class C Shares.................................. 565 343
======== =======
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Class C Shares commenced operations on July 1, 1997.
Continued
19
<PAGE> 22
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
4. INVESTMENT ADVISORY, ADMINISTRATIVE, AND DISTRIBUTION AGREEMENTS:
The Trust and Banc One Investment Advisors Corporation (the "Advisor") are
parties to an investment advisory agreement under which the Advisor is
entitled to receive an annual fee, computed daily and paid monthly, equal to
0.05% of the average net assets of the Investor Growth Fund, the Investor
Growth & Income Fund, the Investor Balanced Fund and the Investor
Conservative Growth Fund, respectively.
The Trust and The One Group Services Company (the "Administrator"), a
wholly-owned subsidiary of The BISYS Group, Inc., are parties to an
administrative agreement under which the Administrator provides services for
a fee that is computed daily and payable monthly, at an annual rate of 0.10%
on the first $500 million of each Fund's average daily net assets, 0.075% of
each Fund's average daily net assets between $500 million and $1 billion, and
0.05% of each Fund's average daily net assets when Fund assets exceed $1
billion. The Advisor also serves as sub-Administrator to each Fund of the
Trust, pursuant to an agreement between the Administrator and the Advisor.
Pursuant to this agreement, the Advisor performs many of the Administrator's
duties, for which the Advisor receives a fee paid by the Administrator.
The Trust and The One Group Services Company (the "Distributor") are parties
to a distribution agreement under which shares of the Funds are sold on a
continuous basis. Class A, Class B and Class C Shares are subject to a
distribution and shareholder services plan (the "Plans") pursuant to Rule
12b-1 under the 1940 Act. As provided in the Plans, the Trust will pay the
Distributor a fee of 0.35% of the average daily net assets of Class A Shares
of each of the Funds and 1.00% of the average daily net assets of the Class B
and Class C Shares of each of the Funds. Currently, the Distributor has
voluntarily agreed to limit payments under the Plans to 0.25% of average
daily net assets of the Class A Shares of each Fund. Up to 0.25% of the fees
payable under the Plans may be used as compensation for shareholder services
by the Distributor and/or financial institutions and intermediaries. Fees
paid under the Plans may be applied by the Distributor toward (i)
compensation for its services in connection with distribution assistance or
provision of shareholder services; or (ii) payments to financial institutions
and intermediaries such as banks (including affiliates of the Advisor),
brokers, dealers and other institutions, including the Distributor's
affiliates and subsidiaries as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance or provision of
shareholder services. Fiduciary Class Shares of each Fund are offered without
distribution fees. For the year ended June 30, 1998, the Distributor received
$11,735,166 from commissions earned on sales of Class A Shares and
redemptions of Class B and Class C Shares, of which, the Distributor
re-allowed $11,715,655 to affiliated broker-dealers of the Funds.
Certain officers of the Trust are affiliated with the Administrator. Such
officers receive no compensation from the Funds for serving in their
respective roles.
The Advisor, the Administrator and the Distributor voluntarily agreed to
waive a portion of their fees and to reimburse the Funds for certain
expenses. For the year ended June 30, 1998, fees in the following amounts
were waived and reimbursed from the funds (amounts in thousands):
<TABLE>
<CAPTION>
INVESTMENT 12B-1 FEES FEES
ADVISORY FEES ADMINISTRATION WAIVED REIMBURSED BY
WAIVED FEES WAIVED CLASS A ADVISOR
------------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
Investor Growth Fund................. $22 $114 $22 $44
Investor Growth & Income Fund........ 18 134 18 23
Investor Balanced Fund............... 12 129 13 9
Investor Conservative Growth Fund.... 19 46 5 81
</TABLE>
Continued
20
<PAGE> 23
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
5. SECURITIES TRANSACTIONS:
The cost of security purchases and the proceeds from the sale of securities
(excluding short-term securities and purchased options) during the year ended
June 30, 1998 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -------
<S> <C> <C>
Investor Growth Fund................................... $153,667 $ 4,603
Investor Growth & Income Fund.......................... 171,063 15,032
Investor Balanced Fund................................. 120,907 12,386
Investor Conservative Growth Fund...................... 64,328 1,447
</TABLE>
6. CONVERSION OF COMMON TRUST FUNDS:
On December 19, 1997 the net assets of certain common trust funds managed by
the Advisor were exchanged for shares of the corresponding One Group Funds.
The transaction was accounted for by a method followed for tax purposes in a
tax-free business combination. The following is a summary of shares issued,
net assets converted, net asset value per share issued and unrealized
appreciation of assets acquired as of the conversion date (amounts in
thousands except per share amounts):
<TABLE>
<CAPTION>
NET ASSET
SHARES NET ASSETS VALUE PER UNREALIZED
ISSUED CONVERTED SHARE ISSUED APPRECIATION
------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Investor Growth Fund................................. 922 $10,702 $11.61 $--
Investor Growth & Income Fund........................ 1,150 12,936 11.25 --
Investor Balanced Fund............................... 600 6,532 10.89 --
Investor Conservative Growth Fund.................... 67 707 10.56 --
</TABLE>
7. FEDERAL TAX INFORMATION (UNAUDITED):
The accompanying table below details distributions from long-term capital
gains for the following funds for the fiscal year ended June 30, 1998
(amounts in thousands):
<TABLE>
<CAPTION>
20% 28%
FUND AMOUNT AMOUNT
---- ------ ------
<S> <C> <C>
Investor Growth Fund.................................... $196 $1,246
Investor Growth & Income Fund........................... 204 1,307
Investor Balanced Fund.................................. 167 1,008
Investor Conservative Growth Fund....................... 32 189
</TABLE>
ELIGIBLE DISTRIBUTIONS:
The Trust designates the following percentage of distributions eligible for
the dividends received deductions for corporations.
<TABLE>
<CAPTION>
FUND AMOUNT
---- ----------
<S> <C>
Investor Growth Fund........................................ 20.66%
Investor Growth & Income Fund............................... 14.84%
Investor Balanced Fund...................................... 10.65%
Investor Conservative Growth Fund........................... 7.14%
</TABLE>
Continued
21
<PAGE> 24
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
FUND
-----------------------
FIDUCIARY
-----------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 11.25 $ 10.00
------- -------
Investment Activities
Net investment income..................................... 0.12 0.09
Net realized and unrealized gains (losses) from
investments............................................ 2.49 1.25
------- -------
Total from Investment Activities....................... 2.61 1.34
------- -------
Distributions
Net investment income..................................... (0.12) (0.09)
Net realized gains........................................ (0.35) --
------- -------
Total Distributions.................................... (0.47) (0.09)
------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 13.39 $ 11.25
======= =======
Total Return................................................ 23.81% 13.50%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $86,355 $31,318
Ratio of expenses to average net assets................... 0.20% 0.20%(c)
Ratio of net investment income to average net assets...... 1.04% 1.70%(c)
Ratio of expenses to average net assets*.................. 0.36% 0.77%(c)
Ratio of net investment income to average net assets*..... 0.88% 1.13%(c)
Portfolio turnover (d).................................... 4.05% 18.49%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
22
<PAGE> 25
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
FUND
-----------------------
CLASS A
-----------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 11.21 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.10 0.07
Net realized and unrealized gains (losses) from
investments............................................ 2.47 1.21
------- ------
Total from Investment Activities....................... 2.57 1.28
------- ------
Distributions
Net investment income..................................... (0.10) (0.07)
Net realized gains........................................ (0.35) --
------- ------
Total Distributions.................................... (0.45) (0.07)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 13.33 $11.21
======= ======
Total Return (Excludes Sales Charge)........................ 23.44% 12.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $55,057 $4,439
Ratio of expenses to average net assets................... 0.45% 0.46%(c)
Ratio of net investment income to average net assets...... 0.78% 1.82%(c)
Ratio of expenses to average net assets*.................. 0.70% 1.62%(c)
Ratio of net investment income to average net assets*..... 0.53% 0.66%(c)
Portfolio turnover (d).................................... 4.05% 18.49%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
23
<PAGE> 26
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
FUND
-----------------------
CLASS B
-----------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 11.34 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.02 0.04
Net realized and unrealized gains (losses) from
investments............................................ 2.48 1.34
------- ------
Total from Investment Activities....................... 2.50 1.38
------- ------
Distributions
Net investment income..................................... (0.02) (0.04)
Net realized gains........................................ (0.35) --
------- ------
Total Distributions.................................... (0.37) (0.04)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 13.47 $11.34
======= ======
Total Return (Excludes Sales Charge)........................ 22.52% 13.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $70,515 $7,651
Ratio of expenses to average net assets................... 1.20% 1.20%(c)
Ratio of net investment income to average net assets...... 0.04% 0.97%(c)
Ratio of expenses to average net assets*.................. 1.35% 2.18%(c)
Ratio of net investment income to average net assets*..... (0.11%) (0.01%)(c)
Portfolio turnover (d).................................... 4.05% 18.49%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
24
<PAGE> 27
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
FUND
--------
CLASS C
--------
YEAR
ENDED
JUNE 30,
1998(a)
--------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $11.25
------
Investment Activities
Net investment income..................................... 0.02
Net realized and unrealized gains (losses) from
investments............................................ 2.45
------
Total from Investment Activities....................... 2.47
------
Distributions
Net investment income..................................... (0.03)
Net realized gains........................................ (0.35)
------
Total Distributions.................................... (0.38)
------
NET ASSET VALUE,
END OF PERIOD............................................. $13.34
======
Total Return (Excludes Sales Charge)........................ 22.42%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $8,772
Ratio of expenses to average net assets................... 1.20%
Ratio of net investment income to average net assets...... 0.04%
Ratio of expenses to average net assets*.................. 1.35%
Ratio of net investment income to average net assets*..... (0.11%)
Portfolio turnover (b).................................... 4.05%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations on July 1, 1997.
(b) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
25
<PAGE> 28
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
& INCOME
FUND
-----------------------
FIDUCIARY
-----------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.93 $ 10.00
------- -------
Investment Activities
Net investment income..................................... 0.25 0.15
Net realized and unrealized gains (losses) from
investments............................................ 1.92 0.93
------- -------
Total from Investment Activities....................... 2.17 1.08
------- -------
Distributions
Net investment income..................................... (0.25) (0.15)
Net realized gains........................................ (0.28) --
------- -------
Total Distributions.................................... (0.53) (0.15)
------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 12.57 $ 10.93
======= =======
Total Return................................................ 20.34% 10.87%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $98,060 $43,660
Ratio of expenses to average net assets................... 0.20% 0.20%(c)
Ratio of net investment income to average net assets...... 2.17% 2.78%(c)
Ratio of expenses to average net assets*.................. 0.34% 0.66%(c)
Ratio of net investment income to average net assets*..... 2.03% 2.32%(c)
Portfolio turnover (d).................................... 11.38% 18.07%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
26
<PAGE> 29
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
& INCOME
FUND
-----------------------
CLASS A
-----------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 11.02 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.22 0.12
Net realized and unrealized gains (losses) from
investments............................................ 1.95 1.02
------- ------
Total from Investment Activities....................... 2.17 1.14
------- ------
Distributions
Net investment income..................................... (0.22) (0.12)
Net realized gains........................................ (0.28) --
------- ------
Total Distributions.................................... (0.50) (0.12)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 12.69 $11.02
======= ======
Total Return (Excludes Sales Charge)........................ 20.18% 11.50%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $39,874 $4,262
Ratio of expenses to average net assets................... 0.45% 0.46%(c)
Ratio of net investment income to average net assets...... 1.91% 2.67%(c)
Ratio of expenses to average net assets*.................. 0.67% 1.26%(c)
Ratio of net investment income to average net assets*..... 1.69% 1.87%(c)
Portfolio turnover (d).................................... 11.38% 18.07%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
27
<PAGE> 30
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
& INCOME
FUND
-----------------------
CLASS B
-----------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 11.00 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.14 0.09
Net realized and unrealized gains (losses) from
investments............................................ 1.92 1.00
------- ------
Total from Investment Activities....................... 2.06 1.09
------- ------
Distributions
Net investment income..................................... (0.14) (0.09)
Net realized gains........................................ (0.28) --
------- ------
Total Distributions.................................... (0.42) (0.09)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 12.64 $11.00
======= ======
Total Return (Excludes Sales Charge)........................ 19.13% 11.02%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $85,468 $8,896
Ratio of expenses to average net assets................... 1.20% 1.21%(c)
Ratio of net investment income to average net assets...... 1.15% 1.94%(c)
Ratio of expenses to average net assets*.................. 1.32% 1.89%(c)
Ratio of net investment income to average net assets*..... 1.03% 1.26%(c)
Portfolio turnover (d).................................... 11.38% 18.07%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
28
<PAGE> 31
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
GROWTH
& INCOME
FUND
--------
CLASS C
--------
YEAR
ENDED
JUNE 30,
1998(a)
--------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $10.93
------
Investment Activities
Net investment income..................................... 0.14
Net realized and unrealized gains (losses) from
investments............................................ 1.90
------
Total from Investment Activities....................... 2.04
------
Distributions
Net investment income..................................... (0.15)
Net realized gains........................................ (0.28)
------
Total Distributions.................................... (0.43)
------
NET ASSET VALUE,
END OF PERIOD............................................. $12.54
======
Total Return (Excludes Sales Charge)........................ 19.08%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $6,429
Ratio of expenses to average net assets................... 1.20%
Ratio of net investment income to average net assets...... 1.14%
Ratio of expenses to average net assets*.................. 1.31%
Ratio of net investment income to average net assets*..... 1.03%
Portfolio turnover (b).................................... 11.38%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations on July 1, 1997.
(b) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
29
<PAGE> 32
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
BALANCED
FUND
------------------------
FIDUCIARY
------------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.63 $ 10.00
------- -------
Investment Activities
Net investment income..................................... 0.37 0.21
Net realized and unrealized gains (losses) from
investments............................................ 1.39 0.63
------- -------
Total from Investment Activities....................... 1.76 0.84
------- -------
Distributions
Net investment income..................................... (0.36) (0.21)
Net realized gains........................................ (0.22) --
------- -------
Total Distributions.................................... (0.58) (0.21)
------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 11.81 $ 10.63
======= =======
Total Return................................................ 17.02% 8.48%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $93,557 $72,155
Ratio of expenses to average net assets................... 0.20% 0.20%(c)
Ratio of net investment income to average net assets...... 3.31% 3.84%(c)
Ratio of expenses to average net assets*.................. 0.32% 0.56%(c)
Ratio of net investment income to average net assets*..... 3.19% 3.48%(c)
Portfolio turnover (d).................................... 9.71% 12.20%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
30
<PAGE> 33
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
BALANCED
FUND
------------------------
CLASS A
------------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.66 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.34 0.17
Net realized and unrealized gains (losses) from
investments............................................ 1.39 0.66
------- ------
Total from Investment Activities....................... 1.73 0.83
------- ------
Distributions
Net investment income..................................... (0.34) (0.17)
Net realized gains........................................ (0.22) --
------- ------
Total Distributions.................................... (0.56) (0.17)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 11.83 $10.66
======= ======
Total Return (Excludes Sales Charge)........................ 16.62% 8.41%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $32,605 $2,176
Ratio of expenses to average net assets................... 0.45% 0.47%(c)
Ratio of net investment income to average net assets...... 3.01% 3.78%(c)
Ratio of expenses to average net assets*.................. 0.66% 1.12%(c)
Ratio of net investment income to average net assets*..... 2.80% 3.13%(c)
Portfolio turnover (d).................................... 9.71% 12.20%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
31
<PAGE> 34
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
BALANCED
FUND
------------------------
CLASS B
------------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.65 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.26 0.16
Net realized and unrealized gains (losses) from
investments............................................ 1.39 0.65
------- ------
Total from Investment Activities....................... 1.65 0.81
------- ------
Distributions
Net investment income..................................... (0.26) (0.16)
Net realized gains........................................ (0.22) --
------- ------
Total Distributions.................................... (0.48) (0.16)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 11.82 $10.65
======= ======
Total Return (Excludes Sales Charge)........................ 15.85% 8.22%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $70,463 $5,672
Ratio of expenses to average net assets................... 1.20% 1.22%(c)
Ratio of net investment income to average net assets...... 2.26% 2.93%(c)
Ratio of expenses to average net assets*.................. 1.31% 1.73%(c)
Ratio of net investment income to average net assets*..... 2.15% 2.42%(c)
Portfolio turnover (d).................................... 9.71% 12.20%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
32
<PAGE> 35
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
BALANCED
FUND
--------
CLASS C
--------
YEAR
ENDED
JUNE 30,
1998(a)
--------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $10.63
------
Investment Activities
Net investment income..................................... 0.26
Net realized and unrealized gains (losses) from
investments............................................ 1.37
------
Total from Investment Activities....................... 1.63
------
Distributions
Net investment income..................................... (0.27)
Net realized gains........................................ (0.22)
------
Total Distributions.................................... (0.49)
------
NET ASSET VALUE,
END OF PERIOD............................................. $11.77
======
Total Return (Excludes Sales Charge)........................ 15.66%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $6,653
Ratio of expenses to average net assets................... 1.20%
Ratio of net investment income to average net assets...... 2.24%
Ratio of expenses to average net assets*.................. 1.30%
Ratio of net investment income to average net assets*..... 2.14%
Portfolio turnover (b).................................... 9.71%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations on July 1, 1997.
(b) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
33
<PAGE> 36
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
CONSERVATIVE
GROWTH FUND
------------------------
FIDUCIARY
------------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.33 $ 10.00
------- -------
Investment Activities
Net investment income..................................... 0.46 0.26
Net realized and unrealized gains (losses) from
investments............................................ 0.82 0.33
------- -------
Total from Investment Activities....................... 1.28 0.59
------- -------
Distributions
Net investment income..................................... (0.45) (0.26)
Net realized gains........................................ (0.10) --
------- -------
Total Distributions.................................... (0.55) (0.26)
------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 11.06 $ 10.33
======= =======
Total Return................................................ 12.73% 6.00%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $30,352 $15,038
Ratio of expenses to average net assets................... 0.20% 0.20%(c)
Ratio of net investment income to average net assets...... 4.43% 4.92%(c)
Ratio of expenses to average net assets*.................. 0.56% 1.46%(c)
Ratio of net investment income to average net assets*..... 4.07% 3.66%(c)
Portfolio turnover (d).................................... 3.22% 28.46%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
34
<PAGE> 37
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
CONSERVATIVE
GROWTH FUND
------------------------
CLASS A
------------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.32 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.43 0.22
Net realized and unrealized gains (losses) from
investments............................................ 0.82 0.32
------- ------
Total from Investment Activities....................... 1.25 0.54
------- ------
Distributions
Net investment income..................................... (0.43) (0.22)
Net realized gains........................................ (0.10) --
------- ------
Total Distributions.................................... (0.53) (0.22)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 11.04 $10.32
======= ======
Total Return (Excludes Sales Charge)........................ 12.38% 5.46%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $12,538 $1,299
Ratio of expenses to average net assets................... 0.45% 0.47%(c)
Ratio of net investment income to average net assets...... 4.12% 4.76%(c)
Ratio of expenses to average net assets*.................. 0.82% 3.05%(c)
Ratio of net investment income to average net assets*..... 3.75% 2.18%(c)
Portfolio turnover (d).................................... 3.22% 28.46%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
35
<PAGE> 38
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
CONSERVATIVE
GROWTH FUND
------------------------
CLASS B
------------------------
YEAR DECEMBER 10,
ENDED 1996 THROUGH
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.33 $10.00
------- ------
Investment Activities
Net investment income..................................... 0.37 0.19
Net realized and unrealized gains (losses) from
investments............................................ 0.81 0.33
------- ------
Total from Investment Activities....................... 1.18 0.52
------- ------
Distributions
Net investment income..................................... (0.36) (0.19)
Net realized gains........................................ (0.10) --
------- ------
Total Distributions.................................... (0.46) (0.19)
------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 11.05 $10.33
======= ======
Total Return (Excludes Sales Charge)........................ 11.53% 5.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $39,489 $2,616
Ratio of expenses to average net assets................... 1.20% 1.21%(c)
Ratio of net investment income to average net assets...... 3.37% 4.06%(c)
Ratio of expenses to average net assets*.................. 1.47% 3.52%(c)
Ratio of net investment income to average net assets*..... 3.10% 1.75%(c)
Portfolio turnover (d).................................... 3.22% 28.46%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
36
<PAGE> 39
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
CONSERVATIVE
GROWTH FUND
------------
CLASS C
------------
YEAR
ENDED
JUNE 30,
1998(a)
------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $10.33
------
Investment Activities
Net investment income..................................... 0.35
Net realized and unrealized gains (losses) from
investments............................................ 0.81
------
Total from Investment Activities....................... 1.16
------
Distributions
Net investment income..................................... (0.36)
Net realized gains........................................ (0.10)
------
Total Distributions.................................... (0.46)
------
NET ASSET VALUE,
END OF PERIOD............................................. $11.03
======
Total Return (Excludes Sales Charge)........................ 11.48%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $3,788
Ratio of expenses to average net assets................... 1.20%
Ratio of net investment income to average net assets...... 3.39%
Ratio of expenses to average net assets*.................. 1.47%
Ratio of net investment income to average net assets*..... 3.12%
Portfolio turnover (b).................................... 3.22%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations on July 1, 1997.
(b) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
37
<PAGE> 40
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
To the Shareholders and Board of Trustees of
The One Group Family of Mutual Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Investor Growth Fund, the
Investor Growth and Income Fund, the Investor Balanced Fund and the Investor
Conservative Growth Fund (four series of The One Group Family of Mutual Funds),
at June 30, 1998, the results of each of their operations for the period then
ended, the changes in each of their net assets for the periods presented and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of The One Group Family of Mutual Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
August 18, 1998
38
<PAGE> 41
Important Customer Information.
Please Read:
Shares of The One Group:
- - are not deposits or obligations
of, or guaranteed by BANC One
CORPORATION or its affiliates
- - are not insured or guaranteed by the
FDIC or by any other governmental
agency or government-sponsored
agency of the federal government
or any state
- - are subject to investment risks,
including possible loss of the
principal amount invested.
Banc One Investment Advisors
Corporation, a registered investment
advisor and an indirect subsidiary of
BANC ONE CORPORATION, serves
as an investment advisor to The One
Group, for which it receives advisory
fees. The One Group is distributed by
The One Group Services Company,
3435 Stelzer Road, Columbus,
Ohio 43219, which is not affiliated
with BANC ONE CORPORATION and
is not a bank. Contact us at our web
site address: www.onegroup.com or
e-mail us at [email protected]
For more complete information on
any of The One Group Funds, includ-
ing management fees and expenses,
you may obtain a prospectus from
The One Group Services Company.
Read the prospectus carefully
before investing.
BANC ONE
INVESTMENT
ADVISORS
CORPORATION
[BANC ONE LOGO]
<PAGE> 42
Institutional Money
Market Funds
Annual Report
For the year ended June 30, 1998
Treasury Only Money Market Fund
Government Money Market Fund
THE ONE GROUP
----------------------
FAMILY OF MUTUAL FUNDS
<PAGE> 43
IMPORTANT CUSTOMER INFORMATION. INVESTMENT PRODUCTS:
- are not deposits or obligations of, or guaranteed by,
BANC ONE CORPORATION or any of its affiliates, [FDIC LOGO
WITH SLASH
- are not insured by the FDIC, and THOUGH IT]
- are subject to investment risks, including possible
loss of the principal amount invested.
<PAGE> 44
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Portfolio Performance Review...................................................2
Schedules of Portfolio Investments.............................................4
Statements of Assets and Liabilities...........................................7
Statements of Operations.......................................................8
Statements of Changes in Net Assets............................................9
Notes to Financial Statements.................................................10
Financial Highlights..........................................................13
Report of Independent Accountants.............................................15
1
<PAGE> 45
The One Group Treasury Only Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group Treasury Only Money Market Fund was 5.04%
on June 30, 1998, down slightly from 5.12% on June 30, 1997.
WHAT CONTRIBUTED TO THE FUND'S FAIRLY STABLE YIELD?
The Fund's yield reflects the relative stability in interest rates brought on by
the Federal Reserve's unchanged monetary policy. Rate movements during the year
were fairly moderate. They reflected changing views on economic strength and
whether that strength would lead to inflationary pressures requiring Federal
Reserve action.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The portfolio continued to benefit from a "barbell" maturity structure, a common
technique that involves investing in securities at the long and short ends of a
particular maturity range instead of those with intermediate maturities.
This strategy led to an average maturity of 49 days on June 30, 1998, enabling
the Fund to maintain its "AAA" average quality rating--the best possible--from
Standard & Poor's and Moody's Investors Service. This rating indicates that the
Fund's securities are of the highest quality and offer the lowest risk. In order
to receive this rating, a fund must have an average maturity no greater than 60
days.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Economic activity and its influences on Federal Reserve policies may have a
direct effect on the Fund over the next year. Over the near term, strong
domestic demand is likely to be offset by the Asian crisis. This will require
the Federal Reserve to be diligent in directing monetary policy. This outlook
warrants continued caution so the Fund can be positioned to benefit from any
action the Federal Reserve may take.
/s/ Andrew T. Linton
Andrew T. Linton
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
7 DAY YIELD 1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
5.04% 5.30% 4.87% 4.80%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
2
<PAGE> 46
The One Group Government Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group Government Money Market Fund was 5.56% on
June 30, 1998, up slightly from 5.30% on June 30, 1997.
WHAT CONTRIBUTED TO THE FUND'S FAIRLY STABLE YIELD?
The Fund's yield reflects the relative rate stability caused by the Federal
Reserve's unchanged monetary policy. Rate movements throughout the year were
fairly moderate. They reflected changing views on economic strength and whether
that strength would lead to inflationary pressures requiring Federal Reserve
action.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund was invested primarily in agency securities because they offered a
yield advantage of 10 to 15 basis points over Treasuries and repurchase
agreements (one basis point equals 1/100th of a percent). The Fund also held
between 15% and 20% of its assets in floating-rate securities, which offered
yields that changed on a weekly basis. This position helped the Fund quickly
take advantage of rising interest rates.
The portfolio continued to benefit from a "barbell" maturity structure, a common
strategy that involves favoring securities at the long and short ends of a
particular maturity range over those with intermediate maturities. At the "long"
end, we purchased securities with maturities of six months to one year, and at
the "short" end, we held overnight repurchase agreements. The longer securities
allowed the Fund to benefit from the steepness of the yield curve (which occurs
when securities with longer maturities offer relatively higher yields), while
the overnight securities helped the Fund maintain a high degree of liquidity.
The Fund's barbell structure contributed to an average maturity of 37 days on
June 30, 1998, compared to 72 days on June 30, 1997.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Economic activity and its influences on Federal Reserve policies may have a
direct effect on the Fund over the next year. Over the near term, strong
domestic demand is likely to be offset by the Asian crisis. This will require
the Federal Reserve to be diligent in directing monetary policy. This outlook
warrants continued caution so the Fund can be positioned to benefit from any
action the Federal Reserve may take.
/s/ Andrew T. Linton
Andrew T. Linton
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
7 DAY YIELD 1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
5.56% 5.64% 5.09% 5.08%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
3
<PAGE> 47
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Treasury Only Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (99.3%):
U.S. Treasury Bills (51.7%):
$ 41,934 7/2/98 (b)......................... $ 41,928
2,117 7/16/98............................ 2,113
69,586 7/23/98 (b)........................ 69,382
6,545 8/6/98............................. 6,513
141,005 8/20/98............................ 140,053
63,760 9/10/98............................ 63,139
32,232 9/17/98 (b)........................ 31,879
6,860 10/1/98............................ 6,772
1,835 10/15/98........................... 1,808
8,940 11/12/98........................... 8,765
--------
372,352
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS, CONTINUED:
U.S. Treasury Notes (47.6%):
$115,000 6.25%, 7/31/98 (b)................. $115,102
52,000 5.25%, 7/31/98..................... 52,010
30,000 9.25%, 8/15/98..................... 30,144
40,088 5.88%, 8/15/98..................... 40,113
27,630 6.13%, 8/31/98 (b)................. 27,657
51,102 6.00%, 9/30/98..................... 51,177
15,994 5.88%, 3/31/99..................... 16,039
10,000 7.00%, 4/15/99..................... 10,108
--------
342,350
--------
Total U.S. Treasury Obligations 714,702
--------
Total (Amortized Cost $714,702) (a) $714,702
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $719,570.
(a) Represents cost for financial reporting purposes and differs from cost for
federal income tax by $1.
(b) A portion of this security was loaned as of June 30, 1998.
See notes to financial statements.
4
<PAGE> 48
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Government Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ------------------------------------ ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY SECURITIES (22.2%):
Federal Farm Credit Bank (1.9%):
$ 25,000 5.60%, 10/1/98...................... $ 24,987
25,000 5.53%, 10/1/98...................... 24,999
20,000 5.50%, 4/1/99....................... 19,976
----------
69,962
----------
Federal Home Loan Bank (7.3%):
25,000 5.80%, 9/18/98...................... 25,004
7,550 5.69%, 10/2/98...................... 7,551
20,000 5.68%, 10/16/98..................... 19,996
10,000 5.60%, 10/23/98*.................... 9,999
25,000 5.84%, 12/17/98..................... 24,994
40,000 5.55%, 3/23/99...................... 39,992
25,000 5.56%, 3/25/99...................... 24,984
54,000 5.50%, 3/26/99...................... 53,956
45,000 5.63%, 4/9/99....................... 44,979
20,000 5.63%, 5/5/99....................... 19,989
----------
271,444
----------
Federal National Mortgage Assoc. (9.0%):
25,000 5.72%, 8/28/98...................... 25,004
20,000 5.71%, 9/9/98....................... 19,995
10,000 5.65%, 11/4/98*..................... 9,999
40,000 5.37%, 12/30/98..................... 38,914
10,000 5.38%, 2/9/99....................... 9,988
20,000 5.41%, 2/23/99...................... 19,985
25,000 5.37%, 2/26/99...................... 24,963
40,000 5.53%, 3/16/99*..................... 39,986
14,000 5.45%, 4/15/99...................... 13,976
50,000 5.34%, 4/23/99...................... 47,805
50,000 5.63%, 5/5/99....................... 49,952
4,000 5.26%, 6/2/99*...................... 4,000
20,000 5.26%, 7/26/99*..................... 20,000
10,000 5.26%, 9/22/99*..................... 10,000
----------
334,567
----------
Student Loan Marketing Assoc. (4.0%):
104,000 5.32%, 9/28/98*..................... 103,942
25,000 5.32%, 11/10/98*.................... 25,000
10,000 5.34%, 1/13/99*..................... 10,000
10,000 5.35%, 8/2/99*...................... 9,998
----------
148,940
----------
Total U.S. Government Agency Securities 824,913
----------
U.S. TREASURY OBLIGATIONS (1.4%):
U.S. Treasury Notes (1.4%):
25,000 5.25%, 7/31/98 (b).................. 24,993
25,000 8.88%, 2/15/99...................... 25,502
----------
Total U.S. Treasury Obligations 50,495
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ------------------------------------ ----------
<C> <S> <C>
REPURCHASE AGREEMENTS (77.3%):
$ 150,000 Barclays De Zoette Wedd, 6.00%,
7/1/98 (Collateralized by $150,249
various U.S. Government
Securities, 5.52% - 7.85%,
6/10/99 - 2/15/08, market value
$153,001)......................... $ 150,000
150,000 Donaldson, Lufkin & Jenrette, 5.85%,
7/1/98 (Collateralized by $150,892
various U.S. Government
Securities, 0.00% - 9.05%,
7/7/98 - 4/23/08, market value
$153,001)......................... 150,000
900,000 Goldman Sachs, 6.25%, 7/1/98
(Collateralized by $1,905,451
various U.S. Government
Securities, 5.10% - 8.58%,
1/1/08 - 2/1/38, market value
$918,000)......................... 900,000
150,000 HSBC Securities, 5.90%, 7/1/98
(Collateralized by $154,534
various U.S. Government
Securities, 0.00% - 6.53%,
7/1/98 - 4/15/08, market value
$153,004)......................... 150,000
25,000 HSBC Securities, 5.80%, 7/1/98
(Collateralized by $25,075 various
U.S. Government Securities,
0.00% - 10.35%, 7/6/98 - 12/10/15,
market value $25,504)............. 25,000
600,000 J.P. Morgan Securities, 6.10%,
7/1/98 (Collateralized by
$1,697,988 various U.S. Government
Securities, 8.50% - 9.00%,
3/15/09 - 2/15/28, market value
$618,000)......................... 600,000
300,000 J.P. Morgan Securities, 6.00%,
7/1/98 (Collateralized by $302,773
various U.S. Government
Securities, 0.00% - 9.55%,
7/6/98 - 4/17/28, market value
$306,000)......................... 300,000
150,000 Lehman Brothers Holdings, Inc.,
5.90%, 7/1/98 (Collateralized by
$159,325 various U.S. Government
Securities, 0.00% - 7.32%,
9/25/98 - 12/27/14, market value
$152,985)......................... 150,000
175,000 Prudential Securities, 6.10%, 7/1/98
(Collateralized by $190,099
various U.S. Government
Securities, 0.00% - 8.90%,
7/1/98 - 6/15/44, market value
$178,501)......................... 175,000
150,000 Societe Generale, 6.15%, 7/1/98
(Collateralized by $263,084
various U.S. Government
Securities, 8.50% - 9.00%,
11/15/17 - 10/15/26, market value
$157,220)......................... 150,000
</TABLE>
Continued
5
<PAGE> 49
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Government Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ------------------------------------ ----------
<C> <S> <C>
REPURCHASE AGREEMENTS, CONTINUED:
$ 25,000 Societe Generale, 5.75%, 7/1/98
(Collateralized by $62,000 various
U.S. Government Securities,
7.46% - 7.76%, 7/1/25 - 2/1/27,
market value $26,732)............. $ 25,000
94,646 Westdeutsche Landesbank, 5.75%,
7/1/98 (Collateralized by $97,553
various U.S. Government
Securities, 6.50%, 6/1/28, market
value $97,575).................... 94,646
----------
Total Repurchase Agreements 2,869,646
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ------------------------------------ ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL (0.7%):
$ 26,066 Paine Webber, Repurchase Agreement,
6.15%, 7/1/98 (Collateralized by
$26,162 various U.S. Government
Securities, 0.00% - 9.35%,
9/25/98 - 9/18/27, market value
$26,608).......................... $ 26,066
----------
Total Short-Term Securities Held as Collateral 26,066
----------
Total (Amortized Cost $3,771,120) (a) $3,771,120
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $3,712,252.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
(b) A portion of this security was loaned as of June 30, 1998.
* Securities having interest rates that reset weekly based on the U.S. Treasury
Bill auctions. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect at June 30, 1998.
See notes to financial statements.
6
<PAGE> 50
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
TREASURY ONLY GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
------------- -------------
<S> <C> <C>
ASSETS:
Investments, at amortized cost.............................. $714,702 $ 875,408
Repurchase agreements, at cost.............................. -- 2,895,712
-------- ----------
Total.................................................. 714,702 3,771,120
Cash........................................................ 1 --
Interest receivable......................................... 7,812 9,642
Prepaid expenses and other assets........................... 9 7
-------- ----------
TOTAL ASSETS................................................ 722,524 3,780,769
-------- ----------
LIABILITIES:
Dividends payable........................................... 2,833 16,861
Payable to brokers for investments purchased................ -- 25,000
Payable for return of collateral received for securities on
loan...................................................... -- 26,066
Accrued expenses and other payables:
Investment advisory fees............................... 45 246
Administration fees.................................... 28 154
Other.................................................. 48 190
-------- ----------
TOTAL LIABILITIES........................................... 2,954 68,517
-------- ----------
NET ASSETS:
Capital..................................................... 719,663 3,712,374
Accumulated undistributed net realized gains (losses) from
investment transactions................................... (93) (122)
-------- ----------
NET ASSETS.................................................. $719,570 $3,712,252
======== ==========
Outstanding shares of beneficial interest................... 719,663 3,712,374
======== ==========
Net Asset Value:
Offering and redemption price per share................... $1.00 $1.00
======== ==========
</TABLE>
See notes to financial statements.
7
<PAGE> 51
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
TREASURY ONLY GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income............................................. $34,333 $122,173
Income from securities lending.............................. 212 14
------- --------
TOTAL INCOME................................................ 34,545 122,187
------- --------
EXPENSES:
Investment advisory fees.................................... 519 1,735
Administration fees......................................... 324 1,085
Custodian and accounting fees............................... 31 105
Legal and audit fees........................................ 18 67
Organization costs.......................................... 4 20
Trustees' fees and expenses................................. 8 28
Transfer agent fees......................................... 10 11
Registration and filing fees................................ 36 186
Printing costs.............................................. 11 37
Other....................................................... 28 23
------- --------
TOTAL EXPENSES.............................................. 989 3,297
------- --------
Net Investment Income....................................... 33,556 118,890
------- --------
REALIZED GAINS (LOSSES) FROM INVESTMENT TRANSACTIONS:
Net realized gains (losses) from investment transactions.... (1) 62
------- --------
Change in net assets resulting from operations.............. $33,555 $118,952
======= ========
</TABLE>
See notes to financial statements.
8
<PAGE> 52
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
TREASURY ONLY MONEY GOVERNMENT MONEY
MARKET FUND MARKET FUND
------------------------- -------------------------
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........................ $ 33,556 $ 24,629 $ 118,890 $ 56,288
Net realized gains (losses) from investment
transactions............................... (1) (16) 62 (119)
----------- ----------- ----------- -----------
Change in net assets resulting from operations.... 33,555 24,613 118,952 56,169
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................... (33,556) (24,629) (118,890) (56,288)
----------- ----------- ----------- -----------
Change in net assets from shareholder
distributions................................... (33,556) (24,629) (118,890) (56,288)
----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.................. 2,224,094 1,603,666 10,068,682 4,075,935
Dividends reinvested......................... 2,709 3,409 16,460 11,375
Cost of shares redeemed...................... (1,988,092) (1,542,160) (7,456,390) (3,859,366)
----------- ----------- ----------- -----------
Change in net assets from share transactions...... 238,711 64,915 2,628,752 227,944
----------- ----------- ----------- -----------
Change in net assets.............................. 238,710 64,899 2,628,814 227,825
NET ASSETS:
Beginning of period.......................... 480,860 415,961 1,083,438 855,613
----------- ----------- ----------- -----------
End of period................................ $ 719,570 $ 480,860 $ 3,712,252 $ 1,083,438
=========== =========== =========== ===========
SHARE TRANSACTIONS:
Issued....................................... 2,224,095 1,603,664 10,068,682 4,075,935
Reinvested................................... 2,710 3,409 16,459 11,375
Redeemed..................................... (1,988,092) (1,542,160) (7,456,390) (3,859,366)
----------- ----------- ----------- -----------
Change in shares.................................. 238,713 64,913 2,628,751 227,944
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
9
<PAGE> 53
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998
1. ORGANIZATION:
The One Group (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company
established as a Massachusetts business trust. The accompanying financial
statements and financial highlights are those of the Treasury Only Money
Market Fund and the Government Money Market Fund (individually a "Fund",
collectively the "Funds") only. The Funds are diversified mutual funds and
are not offered in multiple classes.
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
Treasury Only Money Market Fund High current income with liquidity and stability of
principal.
Government Money Market Fund High current income with liquidity and stability of
principal.
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
SECURITY VALUATION
Securities are valued utilizing the amortized cost method permitted in
accordance with Rule 2a-7 under the 1940 Act. Under the amortized cost
method, discount or premium is amortized on a constant basis to the
maturity of the security. In addition, the Funds may not (a) purchase
any instrument with a remaining maturity greater than 397 days unless
such instrument is subject to a demand feature, or (b) maintain a
dollar-weighted average maturity which exceeds 90 days.
REPURCHASE AGREEMENTS
The Government Money Market Fund may invest in repurchase agreements
with institutions that are deemed by Banc One Investment Advisors
Corporation (the "Advisor") to be of good standing and creditworthy
under guidelines established by the Board of Trustees. Each repurchase
agreement is recorded at cost. The Fund requires that the securities
purchased in a repurchase agreement transaction be transferred to the
custodian in a manner sufficient to enable the Fund to obtain those
securities in the event of a counterparty default. The seller, under the
repurchase agreement, is required to maintain the value of the
securities held at not less than the repurchase price, including accrued
interest. Repurchase agreements are considered to be loans by a fund
under the 1940 Act.
SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are accounted for on a trade date basis. Net
realized gains or losses from sales of securities are determined on the
specific identification cost method. Interest income and expenses are
recognized on the accrual basis. Interest income, including any discount
or premium, is accrued as earned using the effective interest method.
Continued
10
<PAGE> 54
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
SECURITIES LENDING
To generate additional income, the Funds may lend up to 33% of
securities in which they are invested pursuant to agreements requiring
that the loan be continuously secured by cash, U.S. Government or U.S.
Government Agency securities, shares of an investment trust or mutual
fund, or any combination of cash and such securities as collateral equal
at all times to at least 100% of the market value plus accrued interest
on the securities lent. The Funds continue to earn interest on
securities lent while simultaneously seeking to earn interest on the
investment of collateral. Collateral is marked to market daily to
provide a level of collateral at least equal to the market value of
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 be made only to
borrowers deemed by the Advisor to be of good standing and creditworthy
under guidelines established by the Board of Trustees and when, in the
judgment of the Advisor, the consideration which can be earned currently
from such securities loans justifies the attendant risks. Loans are
subject to termination by the Funds or the borrower at any time, and
are, therefore, not considered to be illiquid investments. As of
June 30, 1998, the following Funds had securities with the following
amortized cost on loan (amounts in thousands):
<TABLE>
<CAPTION>
AMORTIZED COST AMORTIZED COST AMORTIZED COST
OF CASH OF NON-CASH OF LOANED
COLLATERAL COLLATERAL SECURITIES
-------------- -------------- --------------
<S> <C> <C> <C>
Treasury Only Money Market Fund......... -- $144,935 $137,437
Government Money Market Fund............ $26,066 -- $ 25,551
</TABLE>
The loaned securities were fully collateralized by cash and U.S.
Government securities as of June 30, 1998.
EXPENSES
Expenses directly attributable to a Fund are charged directly to that
Fund, while the expenses which are attributable to more than one fund of
the Trust are allocated among the respective Funds.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly.
Net investment income for this purpose consists of interest accrued and
discount earned (including both original issue discount and market
discount) less amortization of any market premium and accrued expenses.
Net realized capital gains, if any, are distributed at least annually.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards and deferrals of certain losses. Permanent book and tax
basis differences, if any, have been reclassified among the components of
net assets.
FEDERAL INCOME TAXES
The Trust treats each Fund as a separate entity for Federal income tax
purposes. Each Fund intends to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
Continued
11
<PAGE> 55
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
3. SHARES OF BENEFICIAL INTEREST:
The Trust has an unlimited number of shares of beneficial interest, with no
par value, which may, without shareholder approval, be divided into an
unlimited number of series of such shares and any series may be classified or
reclassified into one or more classes. The Trust is registered to offer forty
series and five classes of shares: Fiduciary, Class A, Class B, Class C and
Service Class. Currently, the Trust consists of thirty-three active Funds,
and not all Funds offer all classes of shares. Shareholders are entitled to
one vote for each full share held and will vote in the aggregate and not by
class or series, except as otherwise expressly required by law or when the
Board of Trustees has determined that the matter to be voted on affects only
the interest of shareholders of a particular class or series.
4. INVESTMENT ADVISORY, ADMINISTRATIVE AND DISTRIBUTION AGREEMENTS:
The Trust and Advisor are parties to an investment advisory agreement under
which the Advisor is entitled to receive a fee, computed daily and paid
monthly, equal to 0.08% of the average daily net assets of each Fund.
The Trust and The One Group Services Company (the "Administrator"), a
wholly-owned subsidiary of The BISYS Group, Inc., are parties to an
administrative agreement under which the Administrator provides services for
a fee that is computed daily and paid monthly at an annual rate of 0.05% of
each Fund's average daily net assets. The Advisor also serves as
Sub-Administrator to each fund of the Trust, pursuant to an agreement between
the Administrator and the Advisor. Pursuant to this agreement, the Advisor
performs many of the Administrator's duties, for which the Advisor receives a
fee paid by the Administrator.
The One Group Services Company (the "Distributor") and the Trust are parties
to a distribution agreement under which shares of the Funds are sold on a
continuous basis. No compensation is paid to the Distributor for distribution
services for the Funds.
Certain officers of the Trust are affiliated with the Administrator. Such
officers receive no compensation from the Funds for serving in their
respective roles.
5. FEDERAL TAX INFORMATION (UNAUDITED):
At June 30, 1998 the following Funds have capital loss carryforwards which
are available to offset future capital gains, if any (amounts in thousands):
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
- ---- ------ -------
<S> <C> <C>
Treasury Only Money Market Fund........................... $ 17 2004
Treasury Only Money Market Fund........................... 67 2005
Treasury Only Money Market Fund........................... 9 2006
Government Money Market Fund.............................. 4 2004
Government Money Market Fund.............................. 119 2005
</TABLE>
6. SUBSEQUENT EVENTS
On May 21, 1998, the Board of Trustees approved an agreement and plan of
reorganization and liquidation ("the Plan") with the Marquis Family of Funds
(the "Marquis Funds"). Under the Plan, the assets and liabilities of each
Marquis fund were transferred to a comparable One Group fund. Shares of the
comparable One Group fund were distributed to the Marquis shareholders in a
complete liquidation of each Marquis fund. A special Shareholder Meeting to
approve the plan was held on July 30, 1998. In a tax-free exchange on August
10, 1998, $69,923,110 of the Marquis Institutional Money Market Fund were
exchanged for 69,923,110 shares of the One Group Treasury Only Money Market
Fund.
12
<PAGE> 56
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TREASURY ONLY MONEY MARKET FUND
--------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Investment Activities:
Net investment income.................. 0.052 0.051 0.052 0.051 0.032
-------- -------- -------- -------- --------
Distributions:
Net investment income.................. (0.052) (0.051) (0.052) (0.051) (0.032)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return............................. 5.30% 5.24% 5.38% 5.22% 3.23%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)...... $719,570 $480,860 $415,961 $288,697 $217,725
Ratio of expenses to average net
assets.............................. 0.15% 0.15% 0.17% 0.20% 0.15%
Ratio of net investment income to
average net assets.................. 5.18% 5.12% 5.23% 5.14% 3.23%
Ratio of expenses to average net
assets*............................. 0.15% 0.15% 0.17% 0.21% 0.22%
Ratio of net investment income to
average net assets*................. 5.18% 5.12% 5.23% 5.13% 3.16%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
13
<PAGE> 57
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND
------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- -------- -------- --------
Investment Activities:
Net investment income................. 0.055 0.053 0.055 0.053 0.033
---------- ---------- -------- -------- --------
Distributions:
Net investment income................. (0.055) (0.053) (0.055) (0.053) (0.033)
---------- ---------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ======== ======== ========
Total Return............................ 5.64% 5.43% 5.61% 5.41% 3.40%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..... $3,712,252 $1,083,438 $855,613 $720,699 $692,253
Ratio of expenses to average net
assets............................. 0.15% 0.14% 0.18% 0.21% 0.11%
Ratio of net investment income to
average net assets................. 5.48% 5.31% 5.46% 5.28% 3.41%
Ratio of expenses to average net
assets*............................ 0.15% 0.14% 0.18% 0.22% 0.20%
Ratio of net investment income to
average net assets*................ 5.48% 5.31% 5.46% 5.27% 3.32%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
14
<PAGE> 58
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
To the Shareholders and Board of Trustees of
The One Group Family of Mutual Funds
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Treasury Only Money Market Fund
and the Government Money Market Fund (two series of The One Group Family of
Mutual Funds), at June 30, 1998, the results of each of their operations for the
period then ended, the changes in each of their net assets for the periods
presented and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of The One Group Family of Mutual Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1998 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
August 18, 1998
15
<PAGE> 59
Important Customer Information.
Please Read:
Shares of The One Group:
- - are not deposits or obligations
of, or guaranteed by BANC One
CORPORATION or its affiliates
- - are not insured or guaranteed by the
FDIC or by any other governmental
agency or government-sponsored
agency of the federal government
or any state
- - are subject to investment risks,
including possible loss of the
principal amount invested.
Banc One Investment Advisors
Corporation, a registered investment
advisor and an indirect subsidiary of
BANC ONE CORPORATION, serves
as an investment advisor to The One
Group, for which it receives advisory
fees. The One Group is distributed by
The One Group Services Company,
3435 Stelzer Road, Columbus,
Ohio 43219, which is not affiliated
with BANC ONE CORPORATION and
is not a bank. Contact us at our web
site address: www.onegroup.com or
e-mail us at [email protected]
For more complete information on
any of The One Group Funds, includ-
ing management fees and expenses,
you may obtain a prospectus from
The One Group Services Company.
Read the prospectus carefully
before investing.
BANC ONE
INVESTMENT
ADVISORS
CORPORATION
[BANC ONE LOGO]
<PAGE> 60
Money
Market Funds
Annual Report
For the year ended June 30, 1998
U.S. Treasury Securities
Money Market Fund
Prime Money Market Fund
Municipal Money Market Fund
Ohio Municipal Money Market Fund
THE ONE GROUP
----------------------
FAMILY OF MUTUAL FUNDS
<PAGE> 61
IMPORTANT CUSTOMER INFORMATION. INVESTMENT PRODUCTS:
- are not deposits or obligations of, or guaranteed by,
BANC ONE CORPORATION or any of its affiliates, [FDIC LOGO
WITH SLASH
- are not insured by the FDIC, and THOUGH IT]
- are subject to investment risks, including possible
loss of the principal amount invested.
<PAGE> 62
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Portfolio Performance Review................................................ 2
Schedules of Portfolio Investments.......................................... 6
Statements of Assets and Liabilities......................................... 17
Statements of Operations..................................................... 18
Statements of Changes in Net Assets.......................................... 19
Notes to Financial Statements................................................ 21
Financial Highlights......................................................... 28
Report of Independent Accountants............................................ 39
1
<PAGE> 63
The One Group U.S. Treasury Securities Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group U.S. Treasury Securities Money Market Fund
Fiduciary share class was 5.12% on June 30, 1998, up slightly from 5.03% on June
30, 1997.
WHAT CONTRIBUTED TO THE FUND'S FAIRLY STABLE YIELDS?
The Fund's yield reflects the relative stability in interest rates brought on by
the Federal Reserve's unchanged monetary policy. Rate movements throughout the
year were fairly moderate. They reflected changing views on economic strength
and whether that strength would lead to inflationary pressures requiring Federal
Reserve action.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary strategy during the period was to maintain a "barbell" maturity
structure, meaning that we focused on securities at the extremes of the
short-term maturity range. As such, the Fund emphasized securities with
maturities between six months and one year along with overnight repurchase
agreements.
The money market yield curve during the fiscal year remained fairly steep,
meaning that securities with longer maturities paid relatively higher yields.
The Fund's "longer" securities-those maturing in six months to one year-enabled
the Fund to increase its yield. At the same time, the repurchase agreements,
which matured overnight, allowed the Fund to retain a high level of liquidity.
This strategy led to an average maturity of 37 days on June 30, 1998, enabling
the Fund to maintain its "AAA" average quality rating-the best possible-from
Standard & Poor's and Moody's Investors Service. This rating indicates that the
Fund's securities are of the highest quality and offer the lowest risk. In order
to receive this rating, a fund must have an average maturity no greater than 60
days.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Economic activity and its influences on Federal Reserve policies will have a
direct effect on the Fund over the next year. Over the near term, strong
domestic demand is likely to be offset by the Asian crisis. This will require
the Federal Reserve to be diligent in directing monetary policy. This outlook
warrants continued caution so the Fund can be positioned to benefit from any
action the Federal Reserve may take.
/s/ Andrew T. Linton
Andrew T. Linton
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
CLASS OF SHARES 7 DAY YIELD 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
Fiduciary 5.12% 5.19% 4.73% 5.39% 5.48%
Class A 4.87% 4.92% 4.47% NA 4.10%
Class B 4.12% 4.14% NA NA 4.11%
Class C 4.08% NA NA NA 1.47%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
2
<PAGE> 64
The One Group Prime Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group Prime Money Market Fund Fiduciary share
class was 5.22% on June 30, 1998, down slightly from 5.25% on June 30, 1997.
WHAT CONTRIBUTED TO THE FUND'S FAIRLY STABLE YIELD?
The relative stability of the Fund's yield reflects the fact that the Federal
Reserve left monetary policy unchanged throughout the fiscal year. Interim rate
movements were fairly moderate and reflected market participants' changing views
on how the problems in Asia would affect the domestic economy. Some believed
that the seriousness of the situation would lead to a significant slowdown of
the U.S. economy, causing the Federal Reserve to cut interest rates. Others
believed that the underlying strength of the domestic economy would overwhelm
any Asian impact, and that the Federal Reserve would be forced to hike interest
rates in anticipation of higher inflation.
WHICH VIEWPOINT DID YOU FAVOR?
Our stance was that the Federal Reserve would leave interest rates unchanged. We
believed that cheaper imports resulting from the Asian crisis would help keep
the U.S. inflation rate low, as U.S. producers would be compelled to keep prices
down in order to compete. Also encouraging the Federal Reserve to leave rates
alone was the federal budget surplus. With Congress apparently gridlocked on how
to spend it, fiscal stimulus was not a problem facing monetary policy makers.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
With Federal Reserve monetary policy on hold, the Fund's weighted average
maturity stayed in a range of 60 days to 85 days-slightly higher than usual.
When interest rates climbed, we extended the weighted average maturity to the
higher end of the range to capture better yields. And, when rates drifted
downward, we shortened the weighted average maturity until we perceived better
value in the market.
On June 30, 1998, the Fund's weighted average maturity was 71 days, compared to
68 days on June 30, 1997.
WHAT IS YOUR OUTLOOK FOR THE FUND?
As long as the Federal Reserve maintains a gradual, modest approach to
regulating monetary supply, we will continue to pursue yield advantages from a
weighted average maturity range that is slightly longer than average.
/s/ Roger C. Hale
Roger C. Hale, CFA, CFP
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
CLASS OF SHARES 7 DAY YIELD 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
Fiduciary 5.22% 5.39% 4.92% 5.63% 5.76%
Class A 4.97% 5.13% 4.66% NA 4.29%
Class B 4.22% 4.35% NA NA 4.36%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
3
<PAGE> 65
The One Group Municipal Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group Municipal Money Market Fund Fiduciary share
class was 3.15% on June 30, 1998, compared to 3.63% on June 30, 1997. (For
investors in the 39.6% federal income tax bracket, the June 30, 1998, tax-exempt
yield translates into a tax-equivalent yield of 5.16%.)
The Fund also experienced a significant increase in assets during the year to
$613.9 million from $524.5 million.
DID YIELDS FLUCTUATE MUCH DURING THE YEAR?
Yields in the variable-rate sector experienced the most volatility of any
sector, moving within a trading range of 2.75% to 4.50%. Rates reached their
peak in April and their low point in February. This volatility was due primarily
to changing technical supply and demand factors combined with inconsistent
market cash flows. In comparison, the one-year fixed-rate sector traded within a
narrower range of 3.55% to 3.85%.
HOW DID ECONOMIC EVENTS INFLUENCE MARKET PERFORMANCE?
Short-term tax-exempt rates moved moderately lower during the year. With the
Federal Reserve's monetary policy remaining unchanged, the market reacted
positively to moderate economic output and a low-inflation environment.
Many short-term municipal issuers have continued to benefit significantly from
the ongoing economic expansion. This favorable environment has allowed many
borrowers to either reduce their outstanding deficits or increase their cash
surplus, which resulted in reduced issuance compared to previous years. Lower
financing needs coupled with steady demand supported the downward trend in
rates.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary strategy continues to involve adjusting the mix of variable-rate and
fixed-rate obligations based on changing market conditions. We also incorporate
a quality-oriented investment selection process to help ensure that all issues
selected for the Fund represent minimal credit risk. Because of this process,
the Fund did not experience any adverse impact or credit downgrades from the
Asian bank and credit crisis that began to unfold in October.
As the yield curve shifted during the year, we maintained the Fund's average
maturity in a range of 34 days to 61 days. This enabled us to take advantage of
changing market conditions and to accommodate the Fund's liquidity needs. At
year-end, the average maturity was 46 days, compared to 37 days a year ago.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The outlook for the municipal money market continues to look positive. While
demand for short-term products should continue to exceed available market
supply, we plan to focus on longer-term issues and rely on our investment
process in an attempt to provide competitive returns.
/s/ Thomas W. Cary
Thomas W. Cary
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
CLASS OF SHARES 7 DAY YIELD 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
Fiduciary 3.15% 3.27% 3.05% 3.77% 3.84%
Class A 2.90% 3.01% 2.81% NA 2.64%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
4
<PAGE> 66
The One Group Ohio Municipal Money Market Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The seven-day yield on The One Group Ohio Municipal Money Market Fund Fiduciary
share class was 3.21% on June 30, 1998, compared to 3.73% on June 30, 1997. (For
investors in the 39.6% federal income tax bracket and the 7.0% Ohio state tax
bracket, the June 30, 1998 tax-exempt yield translates into a tax-equivalent
yield of 6.01%.)
The Fund also experienced a large increase in total assets during the year,
increasing to $118.3 million from $87.2 million.
HOW DID ECONOMIC EVENTS INFLUENCE PERFORMANCE?
The Federal Reserve kept monetary policy unchanged, heavily influenced by
moderate economic activity within a favorable inflationary environment. This
combination allowed for rates to trend moderately lower.
While short-term tax-exempt rates generally declined during the year, they did
so in an uneven fashion. Yields in the variable-rate demand sector experienced
the most volatility, moving within a trading range of 2.60% to 4.40%. This
volatility was due to the impact of quickly changing market conditions on
varying levels of supply and demand. In comparison, the one-year fixed-rate
sector traded within a narrower range of 3.45% to 3.75%.
DID THE OHIO POLITICAL PROCESS HAVE A ROLE IN THE SUPPLY/DEMAND SCENARIO?
The Ohio political scene played a role in affecting the supply of one-year
school district note issues. Many school district issuers put their financing
needs on hold, pending the May 1998 ballot decision on two proposals to let the
state reallocate revenues to school districts on a more equitable basis. When
the proposals were defeated, these issuers had to delay their voter-approved
issues until the November ballot, which ultimately reduced the supply of new
school notes during the spring. The relative lack of supply helped support
attractive prices during this period.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary strategy was to adjust the mix of variable-rate and fixed-rate
obligations in anticipation of and in response to changing market conditions.
While rates were slightly lower overall, there were noticeable upward rate
spikes during the year, underscoring the importance of the variable-rate sector.
Within this context, we maintained a high-quality portfolio, relying extensively
on our investment selection process to avoid any credit concerns resulting from
the Asian crisis.
With the yield curve shifting during the year, we maintained the Fund's average
maturity in a range of 34 days to 64 days. The changes in average maturity were
necessary to take advantage of shifting market conditions and to accommodate the
Fund's liquidity needs. At year-end, the average maturity was 36 days, compared
to 50 days a year ago.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The near-term outlook for the Ohio municipal market remains favorable. With a
forecast of slowing economic activity and relatively stable rates, we believe
the Fund should continue to focus on slightly longer-term issues, supported by
our investment selection process, to attempt to provide attractive returns.
/s/ Thomas W. Cary
Thomas W. Cary
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
CLASS OF SHARES 7 DAY YIELD 1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Fiduciary 3.21% 3.31% 3.06% 3.05%
Class A 2.96% 3.06% 2.83% 2.77%
</TABLE>
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
5
<PAGE> 67
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
U.S. Treasury Securities Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (19.5%):
U.S. Treasury Bills (2.5%):
$ 100,000 11/12/98........................... $ 98,042
----------
U.S. Treasury Notes (17.0%):
120,000 5.25%, 7/31/98 (b)................. 119,966
95,000 6.13%, 8/31/98 (b)................. 95,058
50,000 5.88%, 10/31/98.................... 50,046
50,000 8.88%, 2/15/99 (b)................. 51,003
50,000 5.88%, 2/28/99..................... 50,102
50,000 6.25%, 3/31/99 (b)................. 50,264
140,000 7.00%, 4/15/99..................... 141,518
100,000 6.38%, 5/15/99..................... 100,588
----------
658,545
----------
Total U.S. Treasury Obligations 756,587
----------
REPURCHASE AGREEMENTS (80.7%):
150,000 Barclays De Zoette Wedd, 5.80%
7/1/98 (Collateralized by
$182,288 various U.S. Treasury
Securities, 0.00% - 12.50%,
10/29/98 - 4/15/28, market value
$153,000)........................ 150,000
150,000 Deutche Morgan Grenfell, 6.00%,
7/1/98 (Collateralized by
$145,118 various U.S. Treasury
Securities, 5.00% - 14.00%,
2/15/99 - 11/15/11, market value
$153,001)........................ 150,000
30,000 Deutche Morgan Grenfell, 5.50%,
7/1/98 (Collateralized by $29,024
various U.S. Treasury Securities,
5.00% - 14.00%,
2/15/99 - 11/15/11, market value
$30,600)......................... 30,000
901,953 Goldman Sachs, 5.80%, 7/1/98
(Collateralized by $1,051,085
various U.S. Treasury Securities,
0.00% - 7.13%,
12/3/98 - 11/15/27, market value
$919,992)........................ 901,953
50,000 Goldman Sachs, 5.50%, 7/1/98
(Collateralized by $58,267
various U.S. Treasury Securities,
0.00% - 7.13%,
12/3/98 - 11/15/27, market value
$51,000)......................... 50,000
150,000 Greenwich Capital Inc., 5.75%,
7/1/98 (Collateralized by
$148,673 various U.S. Treasury
Securities, 3.38% - 6.50%,
7/15/02 - 4/15/28, market value
$153,002)........................ 150,000
150,000 HSBC Securities, 5.80%, 7/1/98
(Collateralized by $108,107
various U.S. Treasury Securities,
9.00% - 9.25%,
2/15/16 - 11/15/18, market value
$153,001)........................ 150,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
REPURCHASE AGREEMENTS, CONTINUED:
$ 150,000 J.P. Morgan Securities, 5.80%,
7/1/98 (Collateralized by
$140,384 various U.S. Treasury
Securities, 5.50% - 8.13%,
7/31/99 - 8/15/19, market value
$153,001)........................ $ 150,000
25,000 J.P. Morgan Securities, 5.40%,
7/1/98 (Collateralized by $24,750
U.S. Treasury Notes, 6.25%,
10/31/01, market value
$25,501)......................... 25,000
900,000 Morgan Stanley, 5.73%, 7/1/98
(Collateralized by $856,187
various U.S. Treasury Securities,
0.00% - 10.38%,
8/15/98 - 8/15/23, market value
$918,036)........................ 900,000
150,000 Prudential Securities, 5.65%,
7/1/98 (Collateralized by
$141,514 various U.S. Treasury
Securities, 0.00% - 13.38%,
7/31/98 - 2/15/25, market value
$153,001)........................ 150,000
150,000 Societe Generale, 6.00%, 7/1/98
(Collateralized by $149,146
various U.S. Treasury Securities,
5.88% - 11.75%,
4/30/99 - 2/15/15, market value
$153,021)........................ 150,000
150,000 Westdeutsche Landesbank, 5.70%,
7/1/98 (Collateralized by
$108,800 various U.S. Treasury
Securities, 5.38% - 14.00%,
2/15/01 - 11/15/11, market value
$153,001)........................ 150,000
30,000 Westdeutsche Landesbank, 5.50%,
7/1/98 (Collateralized by $21,760
various U.S. Treasury Securities,
5.38% - 14.00%,
2/15/01 - 11/15/11, market value
$30,616)......................... 30,000
----------
Total Repurchase Agreements 3,136,953
----------
SHORT-TERM SECURITIES HELD AS COLLATERAL (6.6%):
Repurchase Agreements
203,538 Goldman Sachs, 5.80%, 7/1/98
(Collateralized by $205,585 U.S.
Treasury Notes, 5.63%, 5/15/01,
market value $207,609)........... 203,538
52,125 Goldman Sachs, 5.20%, 7/1/98
(Collateralized by $48,403 U.S.
Treasury Notes, 5.63%, 5/15/01,
market value $53,168)............ 52,125
----------
Total Short-Term Securities Held as
Collateral 255,663
----------
Total (Amortized Cost $4,149,203) (a) $4,149,203
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $3,887,140.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
(b) A portion of this security was loaned as of June 30, 1998.
See notes to financial statements.
6
<PAGE> 68
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Prime Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
CERTIFICATES OF DEPOSIT (3.7%):
Banking (3.7%):
$ 25,000 Bankers Trust New York Corp.,
6.00%, 7/7/98.................... $ 25,000
25,000 Bankers Trust New York Corp.,
5.88%, 7/14/98................... 25,000
20,000 Bankers Trust New York Corp.,
5.92%, 7/17/98................... 20,000
25,000 Bankers Trust New York Corp.,
5.91%, 8/7/98.................... 24,999
25,000 Bankers Trust New York Corp.,
5.77%, 5/21/99................... 24,989
----------
Total Certificates of Deposit 119,988
----------
COMMERCIAL PAPER (56.2%):
Automotive (5.1%):
30,000 American Honda Finance Corp.,
5.49%, 7/22/98................... 29,903
23,400 Harley-Davidson Funding, 5.53%,
7/9/98........................... 23,371
10,000 Harley-Davidson Funding, 5.55%,
7/10/98.......................... 9,986
12,320 Harley-Davidson Funding, 5.54%,
7/13/98.......................... 12,297
10,445 Harley-Davidson Funding, 5.54%,
7/16/98.......................... 10,421
15,450 Harley-Davidson Funding, 5.56%,
7/23/98.......................... 15,398
17,600 Harley-Davidson Funding, 5.55%,
7/24/98.......................... 17,538
8,300 Harley-Davidson Funding, 5.56%,
8/13/98.......................... 8,245
14,300 Harley-Davidson Funding, 5.58%,
8/18/98.......................... 14,194
22,500 Harley-Davidson Funding, 5.55%,
9/16/98.......................... 22,233
----------
163,586
----------
Banking (9.0%):
50,000 AB Spintab, 5.55%, 8/20/98......... 49,615
25,000 AB Spintab, 5.53%, 12/2/98......... 24,409
50,000 AB Spintab, 5.52%, 12/10/98........ 48,758
25,000 AB Spintab, 5.55%, 12/28/98........ 24,306
50,000 Banco Rio de la Plata S.A., 5.47%,
12/7/98.......................... 48,794
48,500 Banco Rio de la Plata S.A., 5.46%,
12/8/98.......................... 47,323
50,000 Norwest Corporation, 6.25%,
7/1/98........................... 49,999
----------
293,204
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER, CONTINUED:
Brokerage Services (4.6%):
$ 50,000 Lehman Brothers Holdings, Inc.,
5.52%, 7/15/98................... $ 49,892
50,000 Lehman Brothers Holdings, Inc.,
5.45%, 8/19/98................... 49,629
50,000 Salomon Smith Barney Holdings,
5.52%, 8/11/98................... 49,686
----------
149,207
----------
Construction (1.1%):
34,000 Cemex, S.A. de CV, 5.42%,
7/30/98.......................... 33,852
----------
Financial Services (8.8%):
17,550 Ace Overseas Corp., 5.60%,
7/10/98.......................... 17,525
32,000 Ace Overseas Corp., 5.62%,
7/17/98.......................... 31,920
47,550 Corporate Receivables Corp., 5.55%,
7/17/98.......................... 47,433
11,500 Old Line Funding Corp., 5.60%,
7/14/98.......................... 11,477
39,450 Old Line Funding Corp., 5.60%,
7/15/98.......................... 39,364
10,053 Old Line Funding Corp., 5.60%,
7/16/98.......................... 10,030
38,766 Variable Funding Capital Corp.,
5.57%, 8/18/98................... 38,478
15,000 WCP Funding, Inc., 5.53%,
7/07/98.......................... 14,986
25,000 WCP Funding, Inc., 5.50%,
7/14/98.......................... 24,950
25,000 WCP Funding, Inc., 5.53%,
7/23/98.......................... 24,916
25,000 WCP Funding, Inc., 5.53%,
7/29/98.......................... 24,892
----------
285,971
----------
Gas & Electric Utility (2.7%):
53,897 Cogentrix of Richmond, 5.65%,
7/23/98.......................... 53,711
13,000 Duke Capital Corp., 5.54%,
7/02/98.......................... 12,998
21,000 Duke Capital Corp., 5.54%,
7/16/98.......................... 20,952
----------
87,661
----------
Industrial Goods & Services (0.5%):
15,000 Akzo Nobel, Inc., 5.49%, 7/6/98.... 14,989
----------
Insurance (4.6%):
68,100 Safeco Credit Co., 5.56%, 7/8/98... 68,026
20,000 Safeco Credit Co., 5.54%,
7/13/98.......................... 19,963
20,000 Safeco Credit Co., 5.55%,
7/23/98.......................... 19,932
25,000 Safeco Credit Co., 5.55%, 8/3/98... 24,873
15,350 Safeco Credit Co., 5.58%,
9/21/98.......................... 15,155
----------
147,949
----------
Office Equipment & Services (3.8%):
37,000 Xerox Mexico SA de CV, 5.55%,
7/6/98........................... 36,971
49,500 Xerox Mexico SA de CV, 5.63%,
7/29/98.......................... 49,283
36,500 Xerox Mexico SA de CV, 5.56%,
8/5/98........................... 36,303
----------
122,557
----------
</TABLE>
Continued
7
<PAGE> 69
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Prime Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER, CONTINUED:
Oil & Gas Exploration (3.9%):
$ 50,000 Pemex Capital, Inc., 5.54%,
8/20/98.......................... $ 49,615
16,000 Petroleo Brasileiro SA, 5.52%,
8/26/98.......................... 15,863
30,000 Petroleo Brasileiro SA, 5.43%,
9/29/98.......................... 29,593
30,000 Petroleo Brasileiro SA, 5.40%,
11/30/98......................... 29,316
----------
124,387
----------
Real Estate (8.5%):
46,385 75 State Street Capital Corp.,
5.56%, 7/9/98.................... 46,328
55,801 75 State Street Capital Corp.,
5.57%, 7/10/98................... 55,724
24,654 75 State Street Capital Corp.,
5.56%, 7/14/98................... 24,605
31,302 75 State Street Capital Corp.,
5.58%, 7/16/98................... 31,229
18,500 Countrywide Home Loans, 5.55%,
7/16/98.......................... 18,457
25,000 Countrywide Home Loans, 5.54%,
8/12/98.......................... 24,838
40,000 Countrywide Home Loans, 5.54%,
8/26/98.......................... 39,655
35,000 Countrywide Home Loans, 5.53%,
9/2/98........................... 34,661
----------
275,497
----------
Retail (3.6%):
25,000 Sotheby's, Inc., 5.55%, 7/1/98..... 25,000
25,000 Sotheby's, Inc., 5.56%, 7/13/98.... 24,954
25,000 Sotheby's, Inc., 5.56%, 7/20/98.... 24,927
10,000 Sotheby's, Inc., 5.56%, 8/3/98..... 9,949
15,000 Sotheby's, Inc., 5.55%, 8/14/98.... 14,898
15,000 Sotheby's, Inc., 5.58%, 8/21/98.... 14,881
----------
114,609
----------
Total Commercial Paper 1,813,469
----------
CORPORATE NOTES & BONDS (4.7%):
Banking (1.6%):
25,000 Abbey National, 5.88%, 12/22/98.... 24,994
26,000 Abbey National, 5.72%, 6/11/99..... 25,981
----------
50,975
----------
Brokerage Services (1.6%):
50,000 Bear Stearns Co., Inc., 5.63%,
5/14/99*......................... 50,000
----------
Computer Hardware (1.5%):
50,000 IBM Credit Corp., 5.45%, 2/18/99... 49,962
----------
Total Corporate Notes & Bonds 150,937
----------
FUNDING AGREEMENTS (11.8%):
50,000 Allstate Life Insurance Co., 5.82%,
8/31/98*......................... 50,000
160,000 General American Life Insurance
Co., 5.85%, 12/21/98*............ 160,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
FUNDING AGREEMENTS, CONTINUED:
$ 60,000 Peoples Security Life Insurance
Co., 5.82%, 10/1/98*............. $ 60,000
60,000 Providian Life & Health Insurance
Co., 5.82%, 11/1/98*............. 60,000
50,000 Providian Life & Health Insurance
Co., 5.76%, 2/12/99*............. 50,000
----------
Total Funding Agreements 380,000
----------
U.S. GOVERNMENT AGENCY SECURITIES (1.6%):
Student Loan Marketing Assoc. (1.6%):
50,000 5.32%, 9/28/98*.................... 50,000
----------
Total U.S. Government Agency Securities 50,000
----------
YANKEE & EURODOLLAR (18.4%):
Banking (18.4%):
15,000 Bank of Montreal, 5.81%, 11/9/98... 15,007
50,000 Bank of Nova Scotia, 5.89%,
12/15/98......................... 50,002
25,000 Bayerische Landesbank, 5.81%,
12/17/98......................... 24,992
30,000 Bayerische Vereinsbank AG, 5.70%,
10/6/98.......................... 29,995
25,000 Canadian Imperial Bank of Commerce,
5.94%, 10/21/98.................. 24,996
25,000 Canadian Imperial Bank of Commerce,
5.64%, 3/2/99.................... 24,990
25,000 Canadian Imperial Bank of Commerce,
5.69%, 3/10/99................... 24,995
15,000 Den Danske Bank, 5.72%, 11/30/98... 15,001
30,000 Deutsche Bank A.G., 5.66%,
3/26/99.......................... 29,988
25,000 Deutsche Bank A.G., 5.70%,
6/7/99........................... 24,987
25,000 National Australia Bank, 5.74%,
10/13/98......................... 24,997
27,000 National Westminster Bank, 5.71%,
4/16/99.......................... 26,991
26,000 Societe Generale, 5.86%, 7/21/98... 25,998
25,000 Societe Generale, 5.97%, 9/15/98... 24,998
25,000 Societe Generale, 5.86%,
11/18/98......................... 25,008
25,000 Societe Generale, 5.88%,
12/16/98......................... 24,997
25,000 Societe Generale, 5.73%, 3/29/99... 24,991
25,000 Swiss Bank Corp., 5.90%, 8/28/98... 24,998
75,000 Swiss Bank Corp., 5.83%,
12/16/98......................... 75,018
25,000 Swiss Bank Corp., 5.64%, 2/26/99... 24,992
25,000 Swiss Bank Corp., 5.81%, 4/29/99... 24,988
----------
Total Yankee & Eurodollar 592,929
----------
</TABLE>
Continued
8
<PAGE> 70
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Prime Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ----------
<C> <S> <C>
REPURCHASE AGREEMENTS (3.2%):
$102,434 Prudential Securities, 6.10%,
7/1/98 (Collateralized by
$101,841 various U.S. Government
Securities, 0.00% - 7.25%,
7/1/98 - 8/15/04, market value
$104,484)........................ $ 102,434
----------
Total Repurchase Agreements 102,434
----------
Total (Amortized Cost $3,209,757)(a) $3,209,757
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $3,223,901.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate securities. The interest rate, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
9
<PAGE> 71
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
DAILY DEMAND NOTES (9.4%):
Alabama (0.8%):
$ 1,300 Phenix City, IDR for Mead, AMT,
4.05%, 3/1/31, LOC:.............. $ 1,300
Bayerische Landesbank*
3,600 Phenix City, IDR for Mead, Series
93-A, AMT, 4.05%, 6/1/28, LOC:
Toronto Domimion Bank*........... 3,600
--------
4,900
--------
Idaho (1.3%):
7,915 Health Facility Authority Revenue,
St. Lukes Regional Medical Center
Project, 3.75%, 5/1/22, LOC:
Bayerische Landesbank*........... 7,915
--------
Kentucky (1.7%):
5,200 Lexington Fayette Urban County
Airport Revenue, AMT, 4.10%,
4/01/24, LOC: Credit Local De
France*.......................... 5,200
4,900 Lexington Fayette Urban County
Airport Revenue, 4.10%, 7/1/28,
MBIA*............................ 4,900
--------
10,100
--------
Michigan (0.4%):
2,500 State Strategic Fund, Detroit
Edison Project, 3.80%, 9/1/30,
LOC: Barclay's Bank Plc*......... 2,500
--------
New York (0.1%):
500 New York, GO, Series B, 4.10%,
10/1/21, FGIC*................... 500
--------
North Carolina (3.6%):
21,100 Person County Industrial and
Pollution Control Revenue, AMT,
3.95%, 11/1/16, LOC: SunTrust
Bank*............................ 21,100
--------
Ohio (0.0%):
200 State Air Quality Development
Authority, Cincinnati Gas &
Electric, 3.80%, 12/1/15, LOC:
J.P. Morgan*..................... 200
--------
Texas (1.3%):
3,300 Brazos River Authority, PCR, Texas
Utilities Electric Co. Project,
AMT, 3.90%, 6/1/30, AMBAC*....... 3,300
4,475 Sabine River Authority, PCR, Texas
Utilities Electric Co. Project,
Series C, 3.90%, 6/1/30, LOC:
Union Bank of Switzerland*....... 4,475
--------
7,775
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
DAILY DEMAND NOTES, CONTINUED:
Washington (0.1%):
$ 800 Health Care Facilities, Fred
Hutchinson, Series A, 3.75%,
1/1/18, LOC: Morgan Guaranty*.... $ 800
--------
Wyoming (0.1%):
800 Sublette County, PCR, Series B,
3.80%, 7/1/17, GTY: Exxon*....... 800
--------
Total Daily Demand Notes 56,590
--------
MONTHLY DEMAND NOTES (2.5%):
Indiana (2.5%):
14,800 Gary Environmental Improvement
Revenue, U.S. Steel Corp.
Project, 3.70%, 7/15/02, LOC:
Bank of Nova Scotia*............. 14,800
--------
Total Monthly Demand Notes 14,800
--------
MUNICIPAL NOTES (10.4%):
California (1.7%):
10,000 Los Angeles County Tax & Revenue
Anticipation Notes Series A,
4.50%, 6/30/99................... 10,080
--------
Colorado (0.8%):
5,000 State Of Colorado Transportation,
4.00, 6/25/99.................... 5,020
--------
Kentucky (1.2%):
7,000 Asset Liability Commission General
Fund, Trans 98-A, 4.50%,
6/25/99.......................... 7,061
--------
Ohio (1.0%):
5,900 Dublin Transportation System, GO,
3.62%, 12/17/98.................. 5,902
--------
Oregon (1.0%):
6,000 State Housing And Community
Services, 3.75%, 5/13/99......... 6,000
--------
Pennsylvania (0.8%):
5,000 Pennsylvania State University,
Series A, 4.50%, 3/30/99......... 5,034
--------
Tennessee (0.8%):
5,000 State Local Development Authority,
4.00%, 5/19/99................... 5,013
--------
Texas (0.6%):
3,500 State Tax & Revenue Anticipation
Notes, Series 97A, 4.75%,
8/31/98.......................... 3,505
--------
Wisconsin (2.5%):
15,000 State Operating Notes, 4.50%,
6/15/99.......................... 15,132
--------
Total Municipal Notes 62,747
--------
</TABLE>
Continued
10
<PAGE> 72
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
PUT BONDS (2.9%):
Arizona (1.5%):
$ 9,000 Cochise County, PCR, Arizona
Electric Power Corp., Series A,
AMT, 3.55%, 9/1/24............... $ 9,000
--------
Florida (1.0%):
6,000 Putnam County Development
Authority, Seminole Electric Co.,
3.65%, 12/15/09.................. 6,000
--------
North Dakota (0.4%):
2,600 Mercer County, Solid Waste Disposal
Revenue, National Rural Utility
Power Project, Series U, 3.80%,
12/1/18.......................... 2,600
--------
Total Put Bonds 17,600
--------
TAX FREE COMMERCIAL PAPER (18.2%):
Alabama (2.4%):
1,500 Phenix IDR, Mead Paper, AMT, 3.77%,
7/7/98, LOC: ABN AMRO*........... 1,500
2,000 Phenix IDR, Mead Paper, AMT, 3.70%.
7/15/98, LOC: ABN AMRO*.......... 2,000
5,600 Phenix IDR, Mead Paper, AMT, 3.45%,
7/31/98, LOC: ABN AMRO*.......... 5,600
3,000 Phenix IDR, Mead Paper, AMT, 3.65%,
8/18/98, LOC: ABN AMRO*.......... 3,000
2,400 Phenix IDR, Mead Paper, AMT, 3.80%,
8/24/98, LOC: ABN AMRO*.......... 2,400
--------
14,500
--------
Arizona (1.5%):
4,000 Mesa Municipal Development Corp.,
3.45%, 7/8/98, LOC: Westdeutsche
Landesbank*...................... 4,000
4,770 Mesa Municipal Development Corp.,
3.55%, 7/14/98, LOC: Westdeutsche
Landesbank*...................... 4,770
--------
8,770
--------
Colorado (1.3%):
1,400 Platte River Electric Revenue,
3.45%, 7/6/98, LOC: J.P.
Morgan*.......................... 1,400
2,000 Platte River Electric Revenue,
3.40%, 7/6/98, LOC: J.P.
Morgan*.......................... 2,000
4,400 Platte River Electric Revenue,
3.60%, 8/13/98, LOC: J.P.
Morgan*.......................... 4,400
--------
7,800
--------
Minnesota (0.4%):
1,000 Rochester Healthcare Facility
Revenue, 3.65%, 7/13/98.......... 1,000
1,700 Rochester Healthcare Facility
Revenue, 3.45%, 7/13/98.......... 1,700
--------
2,700
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
TAX FREE COMMERCIAL PAPER, CONTINUED:
Missouri (0.4%):
$ 2,500 State Environmental Authority,
Union Electric Co., 3.63%,
7/10/98, LOC: Union Bank of
Switzerland...................... $ 2,500
--------
North Carolina (1.4%):
8,300 Eastern Municipal Power, 3.40%,
7/21/98, LOC: Canadian Imperial
Bank of Commerce................. 8,300
--------
Pennsylvania (0.8%):
1,500 Delaware County, Philadelphia
Electric Co., 3.45%, 9/3/98,
FGIC............................. 1,500
3,300 Delaware County, Philadelphia
Electric Co., 3.40%, 9/3/98,
FGIC............................. 3,300
--------
4,800
--------
Texas (7.3%):
20,000 Brazos River Authority, Texas
Utilities Co., 3.50%, 8/7/98,
LOC: Canadian Imperial Bank of
Commerce:........................ 20,000
5,000 Brazos River Utilities, Texas
Utilities Co., 3.55%, 9/8/98,
LOC: Canadian Imperial Bank of
Commerce......................... 5,000
10,000 Public Finance Authority, 3.40%,
9/9/98, LOC: Union Bank of
Switzerland...................... 10,000
5,000 Public Finance Authority, GO,
Series 93A, 3.65%, 9/9/98, LOC:
Union Bank of Switzerland........ 5,000
3,400 Texas A&M, 3.40%, 7/9/98, LOC:
Union Bank of Switzerland........ 3,400
--------
43,400
--------
West Virginia (0.7%):
4,500 State Public Authority Energy
Revenue, Morgantown Assoc.
Project, AMT, 3.65%, 7/17/98,
LOC: Swiss Bank*................. 4,500
--------
Wisconsin (0.8%):
5,015 GO Series 97, 3.60%, 8/18/98....... 5,015
--------
Wyoming (1.2%):
2,000 Gillette Pollution Control Revenue,
AMT, 3.65%, 8/6/98, LOC: ABN
AMBRO*........................... 2,000
5,400 Sweetwater County, PCR, Series
88-A, 3.65%, 7/1/98, LOC: Union
Bank of Switzerland*............. 5,400
--------
7,400
--------
Total Tax Free Commercial Paper 109,685
--------
</TABLE>
Continued
11
<PAGE> 73
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
WEEKLY DEMAND NOTES (58.4%):
Arkansas (1.8%):
$ 8,100 Clark County, Solid Waste Disposal
Revenue, Reynolds Metals Co.
Project, AMT, 3.65%, 8/1/22, LOC:
SunTrust Bank*................... $ 8,100
2,900 Clark County, Solid Waste Disposal
Revenue, AMT, 3.65%, 8/1/22, LOC:
SunTrust Bank*................... 2,900
--------
11,000
--------
Colorado (3.7%):
2,900 Housing Finance Authority, Pool I,
Series B, Coventry Village,
3.55%, 10/15/16, FNMA*........... 2,900
5,600 Student Obligation Bond Authority,
AMT, 3.50%, 7/1/20, SLMA*........ 5,600
13,900 Student Obligation Bond Authority,
Series 90-A, AMT, 3.50%, 9/1/24,
SLMA*............................ 13,900
--------
22,400
--------
District of Columbia (1.6%):
9,705 Metro Washington D.C. Airports
Authority Trust Receipts, 3.75%,
10/1/16, LIQ: Societe General*... 9,705
--------
Georgia (2.8%):
13,000 De Kalb Private Hospital Authority
Revenue, Egleston Children's
Hospital, Series A, 3.45%,
3/1/24, LOC: SunTrust Bank*...... 13,000
3,735 Gwinnett County Housing Authority,
Herrington Woods Apts., Series
96A, AMT, 3.65%, 9/15/26, LOC:
KeyBank*......................... 3,735
--------
16,735
--------
Illinois (9.2%):
11,100 Chicago O'Hare International
Airport Revenue, Second Lien,
Series B, AMT, 3.65%, 1/1/18,
LOC: Societe Generale*........... 11,100
10,000 Chicago School Board Of Education,
Series 3, 3.70%, 12/1/27,
AMBAC*........................... 10,000
5,200 Development Finance Authority
Revenue, Aurora Central Catholic
High School, 3.55%, 4/1/24, LOC:
Northern Trust................... 5,200
3,700 Development Finance Authority
Revenue, Presbyterian Home Lake
Forrest Place Project, 3.55%,
9/1/31, LOC: LaSalle National
Bank*............................ 3,700
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
WEEKLY DEMAND NOTES, CONTINUED:
Illinois, continued:
$ 4,500 Development Finance Authority
Revenue, Roosevelt University
Project, 3.55%, 4/1/25, LOC:
American National Bank*.......... $ 4,500
5,800 Development Finance Authority
Revenue, Special Facility, Little
City Foundation, 3.55%, 2/1/19,
LOC: LaSalle National Bank*...... 5,800
1,620 Development Finance Authority
Revenue, St. Paul's House
Project, 3.55%, 2/1/25, LOC:
LaSalle National Bank*........... 1,620
3,000 Health Facility Authority Revenue,
Washington & Jane Smith Home,
3.55%, 7/1/26, LOC: Comerica
Bank*............................ 3,000
7,640 Jacksonville Industrial Project
Revenue, AGI, Inc. Project, AMT,
3.80%, 2/1/26, LOC: Bank of
America*......................... 7,640
1,100 Lombard IDR, Chicago Roll Co.
Project, 3.90%, 2/1/10, LOC:
American National Bank*.......... 1,100
2,000 Orland Hills, Multi Family Mortgage
Revenue, 88th Avenue Project,
3.55%, 12/1/04, LOC: LaSalle
National Bank*................... 2,000
--------
55,660
--------
Indiana (8.7%):
14,600 Health Facility Financing
Authority, Rehabilitation
Hospital, Inc., 3.50%, 11/1/20,
LOC: National Bank of Detroit*... 14,600
5,600 Indianapolis Economic Development
Revenue, Children's Museum
Project, 3.55%, 10/1/25, LOC:
National Bank of Detroit*........ 5,600
3,300 Jasper Economic Development
Revenue, Best Chairs, Inc.
Project, AMT, 3.75%, 3/1/19, LOC:
PNC Bank*........................ 3,300
16,200 Rockport, PCR, Indiana & Michigan
Electric Co., Series A, 3.65%,
8/1/14, LOC: Swiss Bank*......... 16,200
13,000 State Educational Authority
Revenue, Wesleyan University,
3.50%, 6/1/28, LOC: National Bank
of Detroit*...................... 13,000
--------
52,700
--------
</TABLE>
Continued
12
<PAGE> 74
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
WEEKLY DEMAND NOTES, CONTINUED
Kentucky (0.6%):
$ 3,500 Mayfield, League of Cities Lease
Finance Program 96, 3.70%,
7/1/26, LOC: PNC Bank*........... $ 3,500
--------
Michigan (7.8%):
20,500 Higher Education Student Loan,
Series B, AMT, 3.55%, 10/1/13,
AMBAC*........................... 20,500
10,000 Kent Hospital Authority Revenue,
Spectrum Health, Series B, 3.45%,
1/15/26, MBIA*................... 10,000
1,000 State Job Authority Revenue, 3.50%,
8/1/15, LOC: Rabo Bank*.......... 1,000
1,560 State Strategic Fund, Limited
Obligation, Wayne Disposal
Oakland Project, AMT, 3.70%,
3/1/05, LOC: Credit Suisse-First
Boston*.......................... 1,560
13,940 Wayne County Airport Revenue
(Detroit Airport), Series B, AMT,
3.50%, 12/1/16, LOC: Bayerische
Landesbank*...................... 13,940
--------
47,000
--------
New York (1.7%):
10,000 Long Island Power Authority,
Electric System Revenue, Series
1, 3.50%, 5/1/33, LOC:
Westdeutsche and Bayerische
Landesbank*...................... 10,000
--------
North Carolina (0.8%):
5,000 Mecklenburg County, Series C,
3.50%, 2/1/17, LOC: First Union
National Bank*................... 5,000
--------
Ohio (6.8%):
8,600 Butler County Multi-Family Revenue,
3.50%, 11/15/30, FNMA*........... 8,600
8,800 State Air Quality Development
Authority Revenue, JMG Funding
Ltd. Partnership, Series A, AMT,
3.60%, 4/1/28, LOC: Societe
Generale*........................ 8,800
3,700 State Air Quality Development
Authority, JMG Funding Ltd.
Partnership, AMT, 3.60%, 4/1/29,
LOC: Societe Generale*........... 3,700
20,000 Student Loan Funding Corp.,
Cincinnati, Series 98-A2, AMT,
3.60%, 8/1/10, LOC: Bank of
America*......................... 20,000
--------
41,100
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
WEEKLY DEMAND NOTES, CONTINUED:
Pennsylvania (2.3%):
$ 2,500 Philadelphia Redevelopment
Authority Revenue, 3.65%,
12/1/03, LOC: PNC Bank*.......... $ 2,500
6,300 State Economic Development Finance
Authority Revenue, Series 98D,
3.75%, 6/1/10 LOC: PNC Bank*..... 6,300
4,800 State Higher Education Authority
Revenue, 3.50%, 3/1/26 LOC: First
Union National Bank*............. 4,800
--------
13,600
--------
South Carolina (0.3%):
1,700 Cherokee County, Industrial
Revenue, Oshkosh Truck Corp.
Project, AMT, 3.80%, 8/1/19, LOC:
Bank of Nova Scotia*............. 1,700
--------
Tennessee (2.4%):
10,500 Montgomery County Public Building,
3.60%, 7/1/19, LOC:
NationsBank*..................... 10,500
3,800 Oak Ridge Industrial Development
Board, Economic Development
Revenue, Limited Obligation,
3.60%, 5/1/09, LOC: ABN AMRO*.... 3,800
--------
14,300
--------
Texas (6.8%):
14,100 Capital Health Facilities
Development Corp., Island on Lake
Travis Ltd. Project, AMT, 3.55%,
12/1/16, LOC: Credit Suisse-First
Boston*.......................... 14,100
17,800 Panhandle Plains Higher Education
Inc., Student Loan Revenue,
Series A, AMT, 3.50% 6/1/21,
SLMA*............................ 17,800
9,400 Panhandle Plains Higher Education
Inc., Student Loan Revenue,
Series A, AMT, 3.50%, 6/1/23,
SLMA*............................ 9,400
--------
41,300
--------
</TABLE>
Continued
13
<PAGE> 75
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
WEEKLY DEMAND NOTES, CONTINUED:
West Virginia (1.1%):
$ 2,300 Marion County Community Solid Waste
Disposal Facility Revenue, Grant
Town, AMT, 3.65%, 10/1/17, LOC:
National Westminister*........... $ 2,300
4,500 Marion County Community Solid Waste
Disposal Facility Revenue, Grant
Town, AMT, 3.50%, 10/1/17, LOC:
National Westminister*........... 4,500
--------
6,800
--------
Total Weekly Demand Notes 352,500
--------
Total (Amortized Cost $613,922) (a) $613,922
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $602,936.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate securities having liquidity agreements. The interest rate,
which will change periodically, is based upon an index of market rates. The
rate reflected on the Schedule of Portfolio Investments is the rate in effect
at June 30, 1998.
<TABLE>
<S> <C>
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
FGIC Insured by Financial Guaranty Insurance Corp.
FSA Insured by Financial Security Assurance
GO General Obligation
GTY Guaranty
FNMA Federal National Mortgage Association
IDR Industrial Development Revenue
LIQ Liquidity Agreement
LOC Letter of Credit
MBIA Insured by Municipal Bond Insurance Association
PCR Pollution Control Revenue
SLMA Student Loan Marketing Association
</TABLE>
See notes to financial statements.
14
<PAGE> 76
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
ANTICIPATION NOTES (13.0%):
Ohio (13.0%):
$2,200 Butler County, GO, BAN, 4.10%,
7/8/99........................... $ 2,208
2,000 Butler County, Sewer System, GO,
BAN, 4.29%, 8/6/98............... 2,001
3,000 Dublin Transportation System,
Series A, GO, 3.62%, 12/17/98.... 3,001
1,000 Lucas County Metro Sewer & Water,
GO, 4.11%, 10/21/98.............. 1,001
1,000 Ontario Village Board, GO, BAN,
4.20%, 12/23/98.................. 1,002
1,500 Pickerington School District, GO,
BAN, 4.07%, 8/3/98............... 1,501
1,100 Union County, GO, Colt Waterline
Construction, Series B, 4.01%,
6/17/99.......................... 1,103
3,250 University of Cincinnati, General
Receipts, BAN, Series AJ, 3.80%,
3/1/99........................... 3,254
--------
Total Anticipation Notes 15,071
--------
DAILY DEMAND NOTES (12.4%):
Ohio (12.4%):
400 Paulding, Solid Waste, Lafarge
Corp., 4.00%, 8/1/26, LOC: Royal
Bank of Canada*.................. 400
4,200 State Air Quality Development
Authority, Cincinnati Gas &
Electric, 3.80%, 12/1/15, LOC:
J.P. Morgan*..................... 4,200
300 State Air Quality Development
Authority, Cincinnati Gas &
Electric, Series A, 3.80%,
12/1/15, LOC: Union Bank of
Switzerland*..................... 300
2,400 State Air Quality Development
Authority, Cincinnati Gas &
Electric, Series A, 3.70%,
9/1/30, LOC: ABN AMRO Bank*...... 2,400
4,400 State PCR, British Petroleum,
4.00%, 5/1/22*................... 4,400
2,700 Twinsburg, IDR, United Stationers
Project, 3.95%, 12/1/11, LOC: PNC
Bank*............................ 2,700
--------
Total Daily Demand Notes 14,400
--------
MONTHLY DEMAND NOTES (4.2%):
Ohio (4.2%):
4,900 Housing Finance Agency, Kenwood
Retirement Project, 3.75%,
12/1/15, LOC: Morgan Guaranty*... 4,900
--------
Total Monthly Demand Notes 4,900
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS (2.9%):
Ohio (2.9%):
$2,570 Hamilton County, Sewer Revenue,
Series A, 4.50%, 12/1/98, FGIC... $ 2,579
830 State Infrastructure, GO, Series R,
4.00%, 8/1/98.................... 830
--------
Total Municipal Bonds 3,409
--------
TAX FREE COMMERCIAL PAPER (7.1%):
Ohio (7.1%):
1,500 State Air Quality Development
Authority, Cleveland Electric
Illuminating Co., Series B,
3.75%, 7/9/98, FGIC.............. 1,500
2,500 State Air Quality Development
Authority, Cleveland Electric
Illuminating Co., Series B,
3.60%, 9/10/98, FGIC............. 2,500
2,500 State Air Quality Development
Authority, Cleveland Electric
Illuminating Co., Series B,
3.60%, 7/10/98, FGIC............. 2,500
300 Toledo-Lucas County, CSX
Transportation, 3.65%, 9/15/98,
LOC: Bank of Nova Scotia......... 300
1,500 Toledo-Lucas County, CSX
Transportation, 3.60%, 9/15/98,
LOC: Bank of Nova Scotia......... 1,500
--------
Total Tax Free Commercial Paper 8,300
--------
WEEKLY DEMAND NOTES (62.1%):
Ohio (62.1%):
5,600 Butler County, Meadow Ridge
Apartments, AMT, 3.50%, 11/15/30,
FNMA*............................ 5,600
4,000 Cleveland Airport System, Series D,
Airport Revenue, AMT, 3.60%,
1/1/27, LOC: Toronto Dominion
Bank*............................ 4,000
6,000 Clinton County, Hospital Revenue,
3.65%, 6/1/28, LOC: Fifth Third
Bank*............................ 6,000
2,000 Cuyahoga County, Hospital Revenue,
Cleveland Clinic Foundation,
Series A, 3.50%, 1/1/26, LOC:
Morgan Guaranty*................. 2,000
300 Cuyahoga County, IDR, Allen Group,
Inc., 3.50%, 4/1/12, LOC:
Dresdner Bank AG*................ 300
3,500 Franklin County, Hospital Revenue,
Holy Cross Health Systems, 3.45%,
6/1/16, LIQ: Morgan Guaranty*.... 3,500
1,500 Franklin County, Hospital Revenue,
Lutheran City, Inc. Project,
3.55%, 5/1/15, LOC: National Bank
of Detroit*...................... 1,500
</TABLE>
Continued
15
<PAGE> 77
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
WEEKLY DEMAND NOTES, CONTINUED:
Ohio, continued:
$1,300 Franklin County, Inland Products,
Inc., 3.75%, 6/1/04, LOC: PNC
Bank*............................ $ 1,300
2,000 Geauga County, IDR, General Signal
Corp., 3.65%, 4/1/04, LOC:
Wachovia Bank*................... 2,000
2,000 Hamilton County, Hospital
Facilities Revenue, Bethesda
Hospital, 3.40%, 2/15/24, LOC:
Rabobank Nederland*.............. 2,000
1,500 Hamilton County, Hospital
Facilities Revenue, Children's
Hospital Medical Center, 3.60%,
5/15/17, LOC: PNC Bank*.......... 1,500
5,125 Hamilton County, Hospital
Facilities Revenue, Health
Alliance of Cincinnati, Series B,
3.55%, 1/1/18, MBIA*............. 5,125
1,000 Hamilton County, Hospital
Facilities Revenue, Health
Alliance, Series F, 3.55%,
1/1/18, MBIA*.................... 1,000
3,000 Housing Finance Agency, Spring
Valley Apartments, 3.65%,
12/15/29, LOC: Key Bank*......... 3,000
6,050 Ohio State University, General
Receipts, 3.40%, 12/1/17*........ 6,050
560 Ohio State University, General
Receipts, Series B, 3.45%,
12/1/06, SBPA: National
Westminister Bank*............... 560
1,000 Ross County, Ohio Hospital
Facilities, Medical Center
Project, 3.55%, 12/1/20, LOC:
Fifth Third Bank*................ 1,000
3,600 State Air Quality Development
Authority, JMG Funding Ltd.
Partnership, AMT, 3.60%, 4/1/29,
LOC: Societe Generale*........... 3,600
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
- --------- ----------------------------------- ---------
<C> <S> <C>
WEEKLY DEMAND NOTES, CONTINUED:
Ohio, continued:
$2,100 State Air Quality Development
Authority, JMG Funding Ltd.
Partnership, Series A, AMT,
3.60%, 4/1/28, LOC: Societe
Generale*........................ $ 2,100
1,700 State Air Quality Development
Revenue Bond, Timken Co. Project,
AMT, 3.60%, 6/1/01, LOC: Credit
Suisse-First Boston*............. 1,700
1,300 State Higher Educational
Facilities, Oberlin College,
3.40%, 10/1/15, SBPA: Morgan
Guaranty*........................ 1,300
7,000 State Solid Waste Disposal Revenue,
USG Corp. Project, 3.60%, 8/1/32,
LOC: Chase Mahattan Bank*........ 7,000
2,000 State Water Development Authority,
Cleveland Electric, Series B,
3.25%, 8/1/20, LOC: First
National Bank of Chicago*........ 2,000
4,000 State Water Development Authority,
Timken Co. Project, 3.60%,
6/1/01, LOC: Wachovia Bank*...... 4,000
2,000 Student Loan Funding Corp., Series
1983-A, 4.40%, 12/29/98, LOC:
Bank of America*................. 2,000
2,100 Wooster, IDR, Allen Group, Inc.,
3.65%, 12/1/10, LOC: National
Bank of Detroit*................. 2,100
--------
Total Weekly Demand Notes 72,235
--------
Total (Amortized Cost $118,315)(a) $118,315
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $116,324.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate securities having liquidity agreements. The interest rate,
which will change periodically, is based an index of market rates. The rate
reflected on the Schedule of Portfolio Investments is the rate in effect at
June 30, 1998.
<TABLE>
<S> <C>
AMT Alternative Minimum Tax Paper
BAN Bond Anticipation Notes
FGIC Insured by Financial Guaranty Insurance Corp.
FNMA Insured by Federal National Mortgage Association
GO General Obligation
IDR Industrial Development Revenue
LIQ Liquidity Agreement
LOC Letter of Credit
MBIA Insured by Municipal Bond Insurance Association
PCR Pollution Control Revenue
SBPA Stand by Bond Purchase Agreement
</TABLE>
See notes to financial statements.
16
<PAGE> 78
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
U.S. TREASURY OHIO
SECURITIES MUNICIPAL MUNICIPAL
MONEY MARKET PRIME MONEY MONEY MARKET MONEY MARKET
FUND MARKET FUND FUND FUND
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at amortized cost................ $ 756,587 $3,107,323 $613,922 $118,315
Repurchase agreements, at cost................ 3,392,616 102,434 -- --
---------- ---------- -------- --------
Total......................................... 4,149,203 3,209,757 613,922 118,315
Cash.......................................... -- 1 4,548 --
Interest receivable........................... 11,892 30,105 2,781 576
Receivable from brokers for investments
sold........................................ -- -- 20,790 --
Prepaid expenses and other assets............. 60 18 3 1
---------- ---------- -------- --------
TOTAL ASSETS.................................. 4,161,155 3,239,881 642,044 118,892
---------- ---------- -------- --------
LIABILITIES:
Cash overdraft................................ -- -- -- 2
Dividends payable............................. 15,780 13,774 1,562 304
Payable to brokers for investments
purchased................................... -- -- 37,293 2,209
Payable for return of collateral received for
securities on loan.......................... 255,663 -- -- --
Accrued expenses and other payables:
Investment advisory fees.................. 1,008 842 126 24
Administration fees....................... 466 416 78 9
12b-1 fees................................ 180 126 22 8
Other..................................... 918 822 27 12
---------- ---------- -------- --------
TOTAL LIABILITIES............................. 274,015 15,980 39,108 2,568
---------- ---------- -------- --------
NET ASSETS:
Capital....................................... 3,886,907 3,223,805 603,068 116,407
Undistributed (distributions in excess of) net
investment income........................... 193 7 (130) (75)
Accumulated undistributed net realized gains
(losses) from investment transactions....... 40 89 (2) (8)
---------- ---------- -------- --------
NET ASSETS.................................... $3,887,140 $3,223,901 $602,936 $116,324
========== ========== ======== ========
NET ASSETS:
Fiduciary................................. $3,025,608 $2,616,698 $498,127 $ 77,224
Class A................................... 861,350 605,291 104,809 39,100
Class B................................... 181 1,912 -- --
Class C................................... 1 -- -- --
---------- ---------- -------- --------
Total......................................... $3,887,140 $3,223,901 $602,936 $116,324
========== ========== ======== ========
OUTSTANDING UNITS OF BENEFICIAL INTEREST:
Fiduciary................................. 3,025,409 2,616,620 498,245 77,260
Class A................................... 861,313 605,275 104,821 39,122
Class B................................... 181 1,912 -- --
Class C................................... 1 -- -- --
---------- ---------- -------- --------
Total......................................... 3,886,904 3,223,807 603,066 116,382
========== ========== ======== ========
Net asset value--offering and redemption price
per share (Fiduciary, Class A, Class B, and
Class C shares)............................. $1.00 $1.00 $1.00 $1.00
========== ========== ======== ========
</TABLE>
See notes to financial statements.
17
<PAGE> 79
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
U.S. TREASURY OHIO
SECURITIES MUNICIPAL MUNICIPAL
MONEY MARKET PRIME MONEY MONEY MARKET MONEY MARKET
FUND MARKET FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................... $184,497 $189,463 $21,708 $3,737
Dividend income........................... -- -- 165 80
Income from securities lending............ 150 -- -- --
-------- -------- ------- ------
Total Income.............................. 184,647 189,463 21,873 3,817
-------- -------- ------- ------
EXPENSES:
Investment advisory fees.................. 11,575 11,482 2,087 313
Administration fees....................... 5,416 5,374 977 171
12b-1 fees (Class A)...................... 1,955 1,399 258 97
12b-1 fees (Class B)...................... 1 10 -- --
Custodian and accounting fees............. 355 292 51 12
Legal and audit fees...................... 176 148 22 6
Organization costs........................ -- -- -- 1
Trustees' fees and expenses............... 104 92 11 1
Transfer agent fees....................... 638 391 33 22
Registration and filing fees.............. 881 721 105 17
Printing costs............................ 342 299 34 4
Other..................................... 381 151 13 2
-------- -------- ------- ------
Total expense before waivers.............. 21,824 20,359 3,591 646
Less waivers.............................. (2,892) (2,237) (677) (136)
-------- -------- ------- ------
Net Expenses.............................. 18,932 18,122 2,914 510
-------- -------- ------- ------
Net Investment Income..................... 165,715 171,341 18,959 3,307
-------- -------- ------- ------
REALIZED GAINS (LOSSES) FROM INVESTMENT
TRANSACTIONS:
Net realized gains (losses) from
investment transactions................. 40 89 11 8
-------- -------- ------- ------
Net increase in net assets resulting from
operations.............................. $165,755 $171,430 $18,970 $3,315
======== ======== ======= ======
</TABLE>
See notes to financial statements.
18
<PAGE> 80
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES PRIME
MONEY MARKET FUND MONEY MARKET FUND
-------------------------- --------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................... $ 165,715 $ 121,830 $ 171,341 $ 140,355
Net realized gains (losses) from
investment transactions................ 40 190 89 27
----------- ----------- ----------- -----------
Change in net assets resulting from
operations.................................. 165,755 122,020 171,430 140,382
----------- ----------- ----------- -----------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income............... (129,665) (105,790) (144,494) (124,100)
From net realized gains from investment
transactions........................... -- (5) -- --
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income............... (36,044) (16,039) (26,806) (16,246)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income............... (6) (1) (41) (9)
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net investment income............... --(a) -- -- --
----------- ----------- ----------- -----------
Change in net assets from shareholder
distributions............................... (165,715) (121,835) (171,341) (140,355)
----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.............. 8,548,866 6,413,072 7,765,924 6,677,852
Dividends reinvested..................... 11,731 9,274 18,174 16,726
Cost of shares redeemed.................. (7,447,086) (5,604,396) (7,457,318) (6,299,509)
----------- ----------- ----------- -----------
Change in net assets from share
transactions................................ 1,113,511 817,950 326,780 395,069
----------- ----------- ----------- -----------
Change in Net Assets.......................... 1,113,551 818,135 326,869 395,096
NET ASSETS:
Beginning of period...................... 2,773,589 1,955,454 2,897,032 2,501,936
----------- ----------- ----------- -----------
End of period............................ $ 3,887,140 $ 2,773,589 $ 3,223,901 $ 2,897,032
=========== =========== =========== ===========
SHARE TRANSACTIONS:
Issued................................... 8,548,866 6,413,072 7,765,927 6,677,852
Reinvested............................... 11,731 9,274 18,174 16,726
Redeemed................................. (7,447,086) (5,604,396) (7,457,319) (6,299,509)
----------- ----------- ----------- -----------
Change in shares.............................. 1,113,511 817,950 326,782 395,069
=========== =========== =========== ===========
</TABLE>
- ------------
(a) Amount is less than $1,000.
See notes to financial statements.
19
<PAGE> 81
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
MUNICIPAL OHIO MUNICIPAL
MONEY MARKET FUND MONEY MARKET FUND
-------------------------- ----------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income....................... $ 18,959 $ 16,457 $ 3,307 $ 2,727
Net realized gains (losses) from investment
transactions.............................. 11 (10) 8 (15)
----------- ----------- --------- ---------
Change in net assets resulting from operations... 18,970 16,447 3,315 2,712
----------- ----------- --------- ---------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income.................. (16,050) (15,228) (2,208) (1,662)
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income.................. (2,909) (1,229) (1,099) (1,065)
----------- ----------- --------- ---------
Change in net assets from shareholder
distributions.................................. (18,959) (16,457) (3,307) (2,727)
----------- ----------- --------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued................. 1,494,647 1,311,970 312,708 359,395
Dividends reinvested........................ 1,841 1,285 1,062 1,067
Cost of shares redeemed..................... (1,409,168) (1,308,167) (284,375) (370,573)
----------- ----------- --------- ---------
Change in net assets from share transactions..... 87,320 5,088 29,395 (10,111)
----------- ----------- --------- ---------
Change in Net Assets............................. 87,331 5,078 29,403 (10,126)
NET ASSETS:
Beginning of period......................... 515,605 510,527 86,921 97,047
----------- ----------- --------- ---------
End of period............................... $ 602,936 $ 515,605 $ 116,324 $ 86,921
=========== =========== ========= =========
SHARE TRANSACTIONS:
Issued...................................... 1,494,647 1,311,970 312,708 359,395
Reinvested.................................. 1,841 1,285 1,062 1,067
Redeemed.................................... (1,409,168) (1,308,167) (284,375) (370,573)
----------- ----------- --------- ---------
Change in shares................................. 87,320 5,088 29,395 (10,111)
=========== =========== ========= =========
</TABLE>
See notes to financial statements.
20
<PAGE> 82
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998
1. ORGANIZATION:
The One Group (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company
established as a Massachusetts business trust. The accompanying financial
statements and financial highlights are those of 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 (individually, a "Fund";
collectively, the "Funds") only. Each Fund is a diversified mutual fund,
except the Ohio Municipal Money Market Fund which is non-diversified.
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
U.S. Treasury Securities Money Market Fund Current income with liquidity and stability of
principal.
Prime Money Market Fund Current income with liquidity and stability of
principal.
Municipal Money Market Fund As high a level of current interest income
exempt from Federal income tax as is consistent
with capital preservation and stability of
principal.
Ohio Municipal Money Market Fund As high a level of current interest income
exempt from Federal income tax and Ohio
personal income tax as is consistent with
capital preservation and stability of
principal.
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
SECURITY VALUATION
Securities are valued utilizing the amortized cost method permitted in
accordance with Rule 2a-7 under the 1940 Act. Under the amortized cost
method, discount or premium is amortized on a constant basis to the
maturity of the security. In addition, the Funds may not (a) purchase any
instrument with a remaining maturity greater than 397 days unless such
instrument is subject to a demand feature, or (b) maintain a
dollar-weighted average maturity which exceeds 90 days.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements with institutions that are
deemed by Banc One Investment Advisors Corporation (the "Advisor") to be
of good standing and creditworthy under guidelines established by the
Board of Trustees. Each repurchase agreement is recorded at cost. The
Fund requires that the securities purchased in a repurchase transaction
be transferred to the custodian in a manner sufficient to enable the Fund
to obtain those securities in the event of a counterparty default. The
seller, under the repurchase agreement, is required to maintain the value
of the securities held at not less than the repurchase price, including
accrued interest. Repurchase agreements are considered to be loans by a
fund under the 1940 Act.
Continued
21
<PAGE> 83
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are accounted for on a trade date basis. Net
realized gains or losses on sales of securities are determined on the
specific identification cost method. Interest income and expenses are
recognized on the accrual basis. Interest income, including any discount
or premium, is accrued as earned using the effective interest method.
SECURITIES LENDING
To generate additional income, the Funds may lend up to 33% of securities
in which they are invested pursuant to agreements requiring that the loan
be continuously secured by cash, U.S. Government or U.S. Government
Agency securities, shares of an investment trust or mutual fund, or any
combination of cash and such securities as collateral equal at all times
to at least 100% of the market value plus accrued interest on the
securities lent. The Funds continue to earn interest on securities lent
while simultaneously seeking to earn interest on the investment of
collateral. Collateral is marked to market daily to provide a level of
collateral at least equal to the market value of 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 be made only to borrowers deemed by the
Advisor to be of good standing and creditworthy under guidelines
established by the Board of Trustees and when, in the judgment of the
Advisor, the consideration which can be earned currently from such
securities loans justifies the attendant risks. Loans are subject to
termination by the Funds or the borrower at any time, and are, therefore,
not considered to be illiquid investments. As of June 30, 1998, the
following Fund had securities with the following amortized cost on loan
(amount in thousands):
<TABLE>
<CAPTION>
AMORTIZED COST AMORTIZED COST
OF COLLATERAL OF LOANED SECURITIES
-------------- --------------------
<S> <C> <C>
U.S. Treasury Securities Money Market Fund................ $255,663 $250,570
</TABLE>
The loaned securities were fully collateralized by cash and U.S.
Government securities as of June 30, 1998.
EXPENSES
Expenses directly attributable to a Fund are charged directly to that
Fund, while the expenses which are attributable to more than one fund of
the Trust are allocated among the respective Funds. Each class of shares
bears its pro-rata portion of expenses attributable to its series, except
that each class separately bears expenses related specifically to that
class, such as distribution fees.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly.
Net income for this purpose consists of interest accrued and discount
earned (including both original issue discount and market discount) less
amortization of any market premium and accrued expenses. Net realized
capital gains, if any, are distributed at least annually. Dividends are
declared separately for each class. No class has preferential dividend
rights; differences in per share dividend rates are due to differences in
separate class expenses.
Net investment income and net capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of expiring capital loss carryforwards and deferrals
of certain losses. Permanent book and tax differences, if any, have been
reclassified among the components of net assets.
Continued
22
<PAGE> 84
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
FEDERAL INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment
company by complying with the provisions available to certain investment
companies as defined in applicable sections of the Internal Revenue Code,
and to make distributions of net investment income and net realized
capital gains sufficient to relieve it from all, or substantially all,
federal income taxes.
3. SHARES OF BENEFICIAL INTEREST:
The Trust has an unlimited number of shares of beneficial interest, with no
par value, which may, without shareholder approval, be divided into an
unlimited number of series of such shares and any series may be classified or
reclassified into one or more classes. The Trust is registered to offer forty
series and five classes of shares: Fiduciary Class, Class A, Class B, Class C
and Service Class. Currently, the Trust consists of thirty-three active
funds. The Funds are each authorized to issue Fiduciary Class, Class A and
Class C Shares. In addition, the U.S. Treasury Securities Money Market Fund
and the Prime Money Market Fund are authorized to issue Class B and Service
Class Shares. As of June 30, 1998 there were no shareholders in Class C
(except for the U.S. Treasury Securities Money Market Fund) or the Service
Class. Shareholders are entitled to one vote for each full share held and
will vote in the aggregate and not by class or series, except as otherwise
expressly required by law or when the Board of Trustees has determined that
the matter to be voted on affects only the interest of shareholders of a
particular class or series. The following is a summary of transactions in
Fund shares for the fiscal years ending June 30, 1998 and 1997:
Continued
23
<PAGE> 85
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES PRIME MONEY
MONEY MARKET FUND MARKET FUND
------------------------- -------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued............................. $6,794,618 $ 4,920,570 $5,665,895 $ 4,681,923
Dividends reinvested.................................... 443 521 1,891 1,986
Cost of shares redeemed................................. (6,012,860) (4,522,461) (5,614,930) (4,306,729)
----------- ----------- ----------- -----------
Change in net assets from Fiduciary share
transactions.......................................... 782,201 398,630 52,856 377,180
=========== =========== =========== ===========
CLASS A SHARES:
Proceeds from shares issued............................. $1,753,840 $ 1,492,429 $2,096,713 $ 1,994,727
Dividends reinvested.................................... 11,283 8,752 16,253 14,734
Cost of shares redeemed................................. (1,433,946) (1,081,910) (1,840,335) (1,992,191)
----------- ----------- ----------- -----------
Change in net assets from
Class A share transactions............................ $ 331,177 $ 419,271 $ 272,631 $ 17,270
=========== =========== =========== ===========
CLASS B SHARES:
Proceeds from shares issued............................. $ 407 $ 73 $ 3,316 $ 1,202
Dividends reinvested.................................... 5 1 30 6
Cost of shares redeemed................................. (280) (25) (2,053) (589)
----------- ----------- ----------- -----------
Change in net assets from
Class B share transactions............................ $ 132 $ 49 $ 1,293 $ 619
=========== =========== =========== ===========
CLASS C SHARES:
Proceeds from shares issued............................. $ 1
Dividends reinvested.................................... --
Cost of shares redeemed................................. --
-----------
Change in net assets from Class C share transactions.... $ 1
===========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued.................................................. 6,794,618 4,920,570 5,665,897 4,681,923
Reinvested.............................................. 443 521 1,891 1,986
Redeemed................................................ (6,012,860) (4,522,461) (5,614,931) (4,306,729)
----------- ----------- ----------- -----------
Change in Fiduciary Shares.............................. 782,201 398,630 52,857 377,180
=========== =========== =========== ===========
CLASS A SHARES:
Issued.................................................. 1,753,840 1,492,429 2,096,713 1,994,727
Reinvested.............................................. 11,283 8,752 16,253 14,734
Redeemed................................................ (1,433,946) (1,081,910) (1,840,335) (1,992,191)
----------- ----------- ----------- -----------
Change in Class A Shares................................ 331,177 419,271 272,631 17,270
=========== =========== =========== ===========
CLASS B SHARES:
Issued.................................................. 407 73 3,317 1,202
Reinvested.............................................. 5 1 30 6
Redeemed................................................ (280) (25) (2,053) (589)
----------- ----------- ----------- -----------
Change in Class B Shares................................ 132 49 1,294 619
=========== =========== =========== ===========
CLASS C SHARES:
Issued.................................................. 1
Reinvested.............................................. --
Redeemed................................................ --
-----------
Change in Class C Shares................................ 1
===========
</TABLE>
Continued
24
<PAGE> 86
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
MUNICIPAL MONEY MARKET OHIO MUNICIPAL
FUND MONEY MARKET FUND
------------------------- -------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued............................. $1,087,776 $ 1,104,184 $ 199,296 $ 178,921
Dividends reinvested.................................... 171 138 55 87
Cost of shares redeemed................................. (1,057,248) (1,096,700) (178,572) (178,473)
----------- ----------- ----------- -----------
Change in net assets from
Fiduciary share transactions.......................... $ 30,699 $ 7,622 $ 20,779 $ 535
=========== =========== =========== ===========
CLASS A SHARES:
Proceeds from shares issued............................. $ 406,871 $ 207,786 $ 113,412 $ 180,474
Dividends reinvested.................................... 1,670 1,147 1,007 980
Cost of shares redeemed................................. (351,920) (211,467) (105,803) (192,100)
----------- ----------- ----------- -----------
Change in net assets from
Class A share transactions.......................... $ 56,621 $ (2,534) $ 8,616 $ (10,646)
=========== =========== =========== ===========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued.................................................. 1,087,776 1,104,184 199,296 178,921
Reinvested.............................................. 171 138 55 87
Redeemed................................................ (1,057,248) (1,096,700) (178,572) (178,473)
----------- ----------- ----------- -----------
Change in Fiduciary Shares.............................. 30,699 7,622 20,779 535
=========== =========== =========== ===========
CLASS A SHARES:
Issued.................................................. 406,871 207,786 113,412 180,474
Reinvested.............................................. 1,670 1,147 1,007 980
Redeemed................................................ (351,920) (211,467) (105,803) (192,100)
----------- ----------- ----------- -----------
Change in Class A Shares................................ 56,621 (2,534) 8,616 (10,646)
=========== =========== =========== ===========
</TABLE>
Continued
25
<PAGE> 87
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
4. INVESTMENT ADVISORY, ADMINISTRATIVE, AND DISTRIBUTION AGREEMENTS:
The Trust and the Advisor, are parties to an investment advisory agreement
under which the Advisor is entitled to receive an annual fee, computed daily
and paid monthly, equal to 0.35% of the average daily net assets of the U.S.
Treasury Securities Money Market Fund, the Prime Money Market Fund and the
Municipal Money Market Fund and 0.30% of the average daily net assets of the
Ohio Municipal Money Market Fund.
The Trust and The One Group Services Company (the "Administrator"), a
wholly-owned subsidiary of The BISYS Group, Inc., are parties to an
administration agreement under which the Administrator provides services for
a fee that is computed daily and paid monthly, at an annual rate of 0.20% on
each Fund's average daily net assets on the first $1.5 billion of Trust net
assets (excluding the Investor Growth Fund, the Investor Growth & Income
Fund, the Investor Conservative Growth Fund and the Investor Balanced Fund
(the "Investor Funds") and the Treasury Only Money Market Fund and the
Government Money Market Fund (the "Institutional Money Market Funds")); 0.18%
on the next $0.5 billion of Trust net assets (excluding the Investor Funds
and the Institutional Money Market Funds); and 0.16% on Trust net assets
(excluding the Investor Funds and the Institutional Money Market Funds) over
$2 billion. The Advisor also serves as Sub-Administrator to each Fund of the
Trust, pursuant to an agreement between the Administrator and the Advisor.
Pursuant to this agreement, the Advisor performs many of the Administrator's
duties, for which the Advisor receives a fee paid by the Administrator.
The Trust and The One Group Services Company (the "Distributor") are parties
to a distribution agreement under which shares of the Funds are sold on a
continuous basis. Class A Shares, Class B Shares, Class C Shares and Service
Class Shares are subject to distribution and shareholder services plans (the
"Plans") pursuant to Rule 12b-1 under the 1940 Act. As provided in the Plans,
the Trust will pay the Distributor a fee of 0.25% of the average daily net
assets of Class A shares of each of the Funds, 1.00% of the average daily net
assets of Class B and Class C Shares and 0.75% of the average daily net
assets of the Service Class Shares of each of the Funds. The Distributor has
voluntarily agreed to limit payments under the Plans to 0.55% of average
daily net assets of the Service Class Shares of each Fund. Up to 0.25% of the
fees payable under the Plans may be used as compensation of shareholder
services by the Distributor and/or financial institutions and intermediaries.
Fees paid under the Plans may be applied by the Distributor toward (i)
compensation for its services in connection with distribution assistance or
provision of shareholder services; or (ii) payments to financial institutions
and intermediaries such as banks (including affiliates of the Advisor),
brokers, dealers and other institutions, including the Distributor's
affiliates and subsidiaries as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance or provision of
shareholder services. Fiduciary Class Shares of each Fund are offered without
distribution fees.
Certain officers of the Trust are affiliated with the Administrator. Such
officers receive no compensation from the Funds for serving in their
respective roles.
The Advisor, Administrator and the Distributor voluntarily agreed to waive a
portion of their fees. For the year ended June 30, 1998, fees in the
following amounts were waived from the Funds (amounts in thousands):
Continued
26
<PAGE> 88
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
<TABLE>
<CAPTION>
INVESTMENT 12B-1 FEES
ADVISORY FEES ADMINISTRATION WAIVED
WAIVED FEES WAIVED CLASS A
------------- -------------- ----------
<S> <C> <C> <C>
U.S. Treasury Securities Money Market Fund................. $2,237 $570 $ 85
Prime Money Market Fund.................................... 1,675 500 62
Municipal Money Market Fund................................ 596 68 13
Ohio Municipal Money Market Fund........................... 60 72 4
</TABLE>
5. CONCENTRATION OF CREDIT RISK:
The Ohio Municipal Money Market Fund invests primarily in debt obligations
issued by the State of Ohio and its political subdivisions, agencies and
public authorities to obtain funds for various public purposes. The Fund is
more susceptible to economic and political factors adversely affecting
issuers of Ohio's specific municipal securities than are municipal bond funds
that are not concentrated in these issuers to the same extent.
6. FEDERAL TAX INFORMATION (UNAUDITED):
At June 30, 1998, the following funds had capital loss carryforwards which
are available to offset future capital gains if any (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRES
------------ -------
<S> <C> <C>
Municipal Money Market Fund................................. $2 2005
Ohio Municipal Money Market Fund............................ 8 2005
</TABLE>
Distributions paid from tax-exempt income during the fiscal year ended June
30, 1998 are as follows (amounts in thousands):
<TABLE>
<S> <C>
Municipal Money Market Fund................................. $18,880
Ohio Municipal Money Market Fund............................ 3,242
</TABLE>
7. SUBSEQUENT EVENTS:
On May 21, 1998, the Board of Trustees approved an agreement and plan of
reorganization and liquidation ("the Plan") with the Marquis Family of Funds
(the "Marquis Funds"). Under the Plan, the assets and liabilities of each
Marquis fund were transferred to a comparable One Group fund. Shares of the
comparable One Group fund were distributed to the Marquis shareholders in a
complete liquidation of each Marquis fund. A special Shareholder Meeting to
approve the plan was held on July 30, 1998. In a tax-free exchange on August
10, 1998, net assets of the Marquis funds were exchanged for shares of a
corresponding fund of The One Group as follows (amounts in thousands):
<TABLE>
<CAPTION>
SHARES NET ASSETS
ONE GROUP FUND ISSUED MARQUIS FUND CONVERTED
-------------- --------- ------------ ----------
<S> <C> <C> <C>
U.S. Treasury Securities Money Market
Fund............................... 1,232,968 Treasury Securities Money Market Fund $1,232,968
Municipal Money Market Fund.......... 161,019 Tax Exempt Money Market Fund 161,019
</TABLE>
Continued
27
<PAGE> 89
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS JUNE 30, 1998
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES MONEY MARKET FUND
----------------------------------------------------------------
FIDUCIARY
----------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- --------
Investment Activities:
Net investment income............ 0.051 0.050 0.052 0.050 0.030
---------- ---------- ---------- ---------- --------
Less Distributions:
Net investment income............ (0.051) (0.050)(a) (0.052) (0.050) (0.030)
---------- ---------- ---------- ---------- --------
NET ASSET VALUE,
END OF PERIOD.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ========
Total Return....................... 5.19% 5.07% 5.34% 5.07% 3.01%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period...... $3,025,608 $2,243,376 $1,844,590 $1,178,091 $969,326
Ratio of expenses to average net
assets........................ 0.52% 0.46% 0.42% 0.41% 0.40%
Ratio of net investment income to
average net assets............ 5.07% 4.95% 5.17% 4.96% 3.02%
Ratio of expenses to average net
assets*....................... 0.60% 0.57% 0.56% 0.59% 0.58%
Ratio of net investment income to
average net assets*........... 4.99% 4.84% 5.03% 4.78% 2.84%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Includes $.000002 short term capital gain.
See notes to financial statements.
28
<PAGE> 90
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES MONEY MARKET FUND
------------------------------------------------------
CLASS A
------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- ------- -------
Investment Activities:
Net investment income...................... 0.048 0.047 0.050 0.047 0.027
-------- -------- -------- ------- -------
Less: Distributions:
Net investment income...................... (0.048) (0.047)(a) (0.050) (0.047) (0.027)
-------- -------- -------- ------- -------
NET ASSET VALUE,
END OF PERIOD.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======= =======
Total Return................................. 4.92% 4.81% 5.08% 4.81% 2.76%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).......... $861,350 $530,164 $110,864 $98,723 $53,423
Ratio of expenses to average net assets.... 0.77% 0.72% 0.67% 0.66% 0.63%
Ratio of net investment income to average
net assets.............................. 4.82% 4.71% 4.92% 4.71% 2.81%
Ratio of expenses to average net assets*... 0.86% 0.93% 0.91% 0.94% 0.87%
Ratio of net investment income to average
net assets*............................. 4.73% 4.50% 4.68% 4.43% 2.57%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Includes $.000002 short term capital gain.
See notes to financial statements.
29
<PAGE> 91
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES
MONEY MARKET FUND
------------------------
<S> <C> <C>
CLASS B
------------------------
<CAPTION>
YEAR NOVEMBER 21,
ENDED 1996 TO
JUNE 30, JUNE 30,
1998 1997(a)
------ ------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $1.000 $1.000
------ ------
Investment Activities:
Net investment income..................................... 0.041 0.024
------ ------
Less: Distributions:
Net investment income..................................... (0.041) (0.024)(b)
------ ------
NET ASSET VALUE,
END OF PERIOD............................................. $1.000 $1.000
====== ======
Total Return................................................ 4.14% 2.44%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 181 $ 49
Ratio of expenses to average net assets................... 1.52% 1.48%(d)
Ratio of net investment income to average net assets...... 4.06% 3.97%(d)
Ratio of expenses to average net assets*.................. 1.60% 1.59%(d)
Ratio of net investment income to average net assets*..... 3.98% 3.86%(d)
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Includes $.000002 short term capital gain.
(c) Not annualized.
(d) Annualized.
See notes to financial statements.
30
<PAGE> 92
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES
MONEY MARKET FUND
------------------------
<S> <C>
CLASS C
-------
<CAPTION>
FEBRUARY 18,
1998 TO
JUNE 30,
1998(a)
-------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 1.000
-------
Investment Activities:
Net investment income..................................... 0.015
-------
Less: Distributions:
Net investment income..................................... (0.015)
-------
NET ASSET VALUE,
END OF PERIOD............................................. $ 1.000
=======
Total Return................................................ 1.47%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 1
Ratio of expenses to average net assets................... 1.57%(c)
Ratio of net investment income to average net assets...... 4.01%(c)
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
31
<PAGE> 93
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDUCIARY
--------------------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
Investment Activities:
Net investment income................. 0.053 0.051 0.054 0.052 0.031
---------- ---------- ---------- ---------- ----------
Less: Distributions:
Net investment income................. (0.053) (0.051) (0.054) (0.052) (0.031)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total Return............................ 5.39% 5.20% 5.49% 5.34% 3.19%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..... $2,616,698 $2,563,768 $2,186,562 $1,965,416 $1,600,876
Ratio of expenses to average net
assets............................. 0.51% 0.48% 0.44% 0.41% 0.40%
Ratio of net investment income to
average net assets................. 5.26% 5.08% 5.34% 5.27% 3.18%
Ratio of expenses to average net
assets*............................ 0.58% 0.56% 0.55% 0.57% 0.59%
Ratio of net investment income to
average net assets*................ 5.19% 5.00% 5.23% 5.12% 2.99%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
32
<PAGE> 94
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
---------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD........................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------
Investment Activities:
Net investment income......................... 0.050 0.048 0.051 0.050 0.027
-------- -------- -------- -------- -------
Less: Distributions:
Net investment income......................... (0.050) (0.048) (0.051) (0.050) (0.027)
-------- -------- -------- -------- -------
NET ASSET VALUE,
END OF PERIOD................................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== =======
Total Return.................................... 5.13% 4.94% 5.22% 5.08% 2.93%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............. $605,291 $332,646 $315,374 $201,968 $74,759
Ratio of expenses to average net assets....... 0.76% 0.73% 0.69% 0.67% 0.65%
Ratio of net investment income to average net
assets..................................... 5.01% 4.83% 5.09% 5.02% 2.92%
Ratio of expenses to average net assets*...... 0.83% 0.91% 0.90% 0.92% 0.90%
Ratio of net investment income to average net
assets*.................................... 4.94% 4.65% 4.88% 4.77% 2.67%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
33
<PAGE> 95
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
--------------------------
CLASS B
--------------------------
YEAR NOVEMBER 21,
ENDED 1996 TO
JUNE 30, JUNE 30,
1998 1997(a)
-------- ------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $1.000 $1.000
------ ------
Investment Activities:
Net investment income..................................... 0.043 0.026
------ ------
Less: Distributions:
Net investment income..................................... (0.043) (0.026)
------ ------
NET ASSET VALUE,
END OF PERIOD............................................. $1.000 $1.000
====== ======
Total Return................................................ 4.35% 2.63%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $1,912 $ 618
Ratio of expenses to average net assets................... 1.51% 1.51%(c)
Ratio of net investment income to average net assets...... 4.25% 4.16%(c)
Ratio of expenses to average net assets*.................. 1.57% 1.59%(c)
Ratio of net investment income to average net assets*..... 4.19% 4.08%(c)
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
34
<PAGE> 96
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
----------------------------------------------------
FIDUCIARY
----------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Investment Activities:
Net investment income........................ 0.032 0.031 0.033 0.032 0.021
-------- -------- -------- -------- --------
Less: Distributions:
Net investment income........................ (0.032) (0.031) (0.033) (0.032) (0.021)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return................................... 3.27% 3.19% 3.34% 3.28% 2.16%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............ $498,127 $467,420 $459,807 $437,743 $352,702
Ratio of expenses to average net assets...... 0.45% 0.43% 0.41% 0.41% 0.40%
Ratio of net investment income to average net
assets.................................... 3.22% 3.16% 3.29% 3.26% 2.13%
Ratio of expenses to average net assets*..... 0.56% 0.55% 0.59% 0.59% 0.60%
Ratio of net investment income to average net
assets*................................... 3.11% 3.04% 3.11% 3.08% 1.93%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
35
<PAGE> 97
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
------------------------------------------------
CLASS A
------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- ------- ------- ------- -------
Investment Activities:
Net investment income............................ 0.030 0.029 0.030 0.030 0.021
-------- ------- ------- ------- -------
Less: Distributions:
Net investment income............................ (0.030) (0.029) (0.030) (0.030) (0.021)
-------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD.................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======= ======= ======= =======
Total Return....................................... 3.01% 2.97% 3.08% 3.02% 1.96%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................ $104,809 $48,185 $50,720 $56,518 $41,595
Ratio of expenses to average net assets.......... 0.70% 0.68% 0.66% 0.66% 0.65%
Ratio of net investment income to average net
assets........................................ 2.97% 2.91% 3.04% 3.01% 1.92%
Ratio of expenses to average net assets*......... 0.81% 0.90% 0.94% 0.94% 0.91%
Ratio of net investment income to average net
assets*....................................... 2.86% 2.69% 2.76% 2.73% 1.66%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
36
<PAGE> 98
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET FUND
---------------------------------------------------
FIDUCIARY
---------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.................................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Investment Activities:
Net investment income................................ 0.033 0.032 0.033 0.032 0.022
------- ------- ------- ------- -------
Less: Distributions:
Net investment income................................ (0.033) (0.032) (0.032) (0.032) (0.022)
In excess of net investment.......................... -- -- (0.001) -- --
------- ------- ------- ------- -------
Total Distributions............................... (0.033) (0.032) (0.033) (0.032) (0.022)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD........................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return........................................... 3.31% 3.22% 3.34% 3.20% 2.25%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................... $77,224 $56,442 $55,915 $51,806 $55,375
Ratio of expenses to average net assets.............. 0.40% 0.40% 0.41% 0.41% 0.34%
Ratio of net investment income to average net
assets............................................ 3.27% 3.17% 3.19% 3.13% 2.29%
Ratio of expenses to average net assets*............. 0.53% 0.53% 0.71% 0.60% 0.57%
Ratio of net investment income to average net
assets*........................................... 3.14% 3.04% 2.89% 2.94% 2.06%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
37
<PAGE> 99
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET FUND
-----------------------------------------------
CLASS A
-----------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Investment Activities:
Net investment income............................. 0.030 0.029 0.030 0.029 0.021
------- ------- ------- ------- -------
Less: Distributions:
Net investment income............................. (0.030) (0.029) (0.029) (0.029) (0.021)
In excess of net investment....................... -- -- (0.001) -- --
------- ------- ------- ------- -------
Total Distributions............................ (0.030) (0.029) (0.030) (0.029) (0.021)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return........................................ 3.06% 2.96% 3.08% 2.98% 2.09%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................. $39,100 $30,479 $41,132 $35,790 $37,356
Ratio of expenses to average net assets........... 0.65% 0.65% 0.66% 0.63% 0.44%
Ratio of net investment income to average net
assets......................................... 2.98% 2.90% 2.94% 2.91% 2.05%
Ratio of expenses to average net assets*.......... 0.78% 0.88% 1.06% 0.95% 0.94%
Ratio of net investment income to average net
assets*........................................ 2.85% 2.67% 2.54% 2.59% 1.55%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
38
<PAGE> 100
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1997
To the Shareholders and Board of Trustees of
The One Group Family of Mutual Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of 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 (four series of The One Group Family of
Mutual Funds), at June 30, 1998, the results of each of their operations for the
period then ended, the changes in each of their net assets for the periods
presented and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of The One Group Family of Mutual Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1998 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
August 18, 1998
See notes to financial statements.
39
<PAGE> 101
Important Customer Information.
Please Read:
Shares of The One Group:
- - are not deposits or obligations
of, or guaranteed by BANC One
CORPORATION or its affiliates
- - are not insured or guaranteed by the
FDIC or by any other governmental
agency or government-sponsored
agency of the federal government
or any state
- - are subject to investment risks,
including possible loss of the
principal amount invested.
Banc One Investment Advisors
Corporation, a registered investment
advisor and an indirect subsidiary of
BANC ONE CORPORATION, serves
as an investment advisor to The One
Group, for which it receives advisory
fees. The One Group is distributed by
The One Group Services Company,
3435 Stelzer Road, Columbus,
Ohio 43219, which is not affiliated
with BANC ONE CORPORATION and
is not a bank. Contact us at our web
site address: www.onegroup.com or
e-mail us at [email protected]
For more complete information on
any of The One Group Funds, includ-
ing management fees and expenses,
you may obtain a prospectus from
The One Group Services Company.
Read the prospectus carefully
before investing.
BANC ONE
INVESTMENT
ADVISORS
CORPORATION
[BANC ONE LOGO]
<PAGE> 102
GROWTH
FUNDS
ANNUAL REPORT
For the year ended June 30, 1998
Asset Allocation Fund
Income Equity Fund
Equity Income Fund
Value Growth Fund
Large Company Value Fund
Disciplined Value Fund
Large Company Growth Fund
Growth Opportunities Fund
Small Capitalization Fund
International Equity Index Fund
THE ONE GROUP(R)
- ----------------
FAMILY OF MUTUAL FUNDS
<PAGE> 103
IMPORTANT CUSTOMER INFORMATION. INVESTMENT PRODUCTS:
* are not deposits or obligations of, or guaranteed by,
BANC ONE CORPORATION or any of its affiliates.
* are not insured by the FDIC, and [FDIC Logo
with slash thru it]
* are subject to investment risks, including possible
loss of the principal amount invested.
<PAGE> 104
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Portfolio Performance Review................................................ 2
Schedules of Portfolio Investments........................................... 28
Statements of Assets and Liabilities......................................... 88
Statements of Operations..................................................... 92
Statements of Changes in Net Assets.......................................... 94
Statements of Cash Flows..................................................... 98
Notes to Financial Statements................................................ 99
Financial Highlights.........................................................113
Report of Independent Accountants............................................150
1
<PAGE> 105
The One Group Asset Allocation Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Asset Allocation Fund Fiduciary
share class posted a total return of 22.12%. (For information on other share
classes and performance comparisons to indexes, please see page 4.)
WHAT WERE YOUR OVERALL STRATEGIES AND TACTICS?
In November 1997, we increased the Fund's equity weighting by 2%, bringing the
asset allocation to 57% equities and 43% fixed income. Our research indicated
that while stock valuations remained fairly high, corporate profitability was
strong, which prompted the slight shift toward equities. Nonetheless, the
allocation remains fairly conservative compared to our benchmark of 60% equities
and 40% fixed income.
The 1997 tax law created three categories of capital gains: short-term, for
securities held less than a year and taxed as regular income; mid-term, for
securities held from one year to 18 months and taxed at 28%; and long-term for
securities held for at least 18 months and taxed at 20%. To limit the number of
short-term gains, we held securities longer, reducing the Fund's turnover rate
from an average of 81% to 46% during the year.
HOW DID EVENTS PLAY OUT IN THE FUND'S EQUITY PORTFOLIO?
Overall, corporate earnings exceeded expectations throughout the year,
contributing to the stock market's strong performance. At the same time, a
favorable interest rate environment helped support additional gains in the
market.
The equity philosophy of the Fund is research driven. Our bottom-up stock
selection approach led to attractive results in the Fund's equity portfolio.
Instead of trying to time the market or focus on certain areas of the market, we
rely on fundamental research to select individual stocks from all market
sectors. As a result, the Fund's stock portfolio represents the "best ideas" of
the equity research team. Equity returns were driven by stock selection, not
market timing or sector rotation.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
During the fiscal year, the Fund's equity portfolio benefited from particularly
good stock selection in the following sectors: technology (Dell Computer, up
216%); retail (Wal-Mart, up 80%); health care (Warner-Lambert, up 68%); and
telephone utilities (LCI International, up 65%).
HOW DID THE PORTFOLIO'S TOP 10 HOLDINGS CHANGE?*
Six of fiscal 1997's top 10 holdings remained among the top 10 during the past
year: Microsoft, 1.9% (technology), General Electric, 1.6% (capital goods),
Exxon, 1.2% (energy) Wal-Mart, 1.0%, Bristol-Myers Squibb, 1.0% (health care)
and Intel, 1.0% (technology). The remaining top 10 stock holdings included
Nations-Bank, 1.0% (financial services), Cisco Systems, 1.0% (technology), Dell
Computer, 1.0% and Travelers Group, 0.8% (financial services).
HOW DID EVENTS PLAY OUT IN THE FUND'S FIXED INCOME PORTFOLIO?
The largest contributing factor to the Fund's fixed income portfolio was the
general decline in interest rates, which led to a corresponding increase in bond
prices. Events in Asia contributed to a weakening global economy, which in turn
contributed to a general decrease in U.S. bond market yields and an increase in
U.S. bond prices.
We maintained diversity among government, agency mortgage-backed, asset-backed
and corporate securities. With only a moderate level of volatility in the bond
market, the performance of certain mortgage-backed securities was strong. These
bonds offered yield advantages over other securities, with little offset due to
market volatility. We also purchased select corporate securities that enhanced
the portfolio's yield.
The portfolio's duration, at 4.3 years, remained slightly longer than our
neutral stance of 4.1 years. (Duration is a measure of a fund's price
sensitivity to interest rate changes. A longer duration indicates greater
sensitivity; a shorter duration indicates less.) Slightly extending the duration
enabled the portfolio to experience more price appreciation resulting from the
declining interest rate environment.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We plan to maintain the Fund's current asset allocation mix and investment
strategies, as we expect the U.S. economy to maintain its steady, albeit slower,
growth pattern over the next year. Of course, we will continue to monitor
valuation levels in the financial markets and
2
<PAGE> 106
The One Group Asset Allocation Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
watch for signs of inflationary pressures. Any changes may warrant a shift in
our strategies.
With slower anticipated growth, inflation is likely to remain tame and interest
rates stable. Such an environment would not threaten the Fund's investments in
corporate bonds, which would become more vulnerable in a recession, or mortgage
securities, which would suffer if interest rates were to change dramatically. In
fact, we expect mortgage-backed, asset-backed and corporate securities to offer
return advantages over Treasuries in the coming months.
In the stock market, we expect corporate earnings to come under greater pressure
in the months ahead. As such, we look for more "normal" performance from the
stock market. We plan to maintain our sector neutrality, which gives us the
opportunity to take advantage of opportunities in various industries and
companies.
/s/ Daniel J. Kapusta
- ---------------------------
Daniel J. Kapusta
Fund Manager
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
/s/ Scott Grimshaw
- ---------------------------
Scott Grimshaw
Fund Manager
/s/ Gary J. Madich, CFA
- ---------------------------
Gary J. Madich, CFA
Senior Managing Director of Fixed Income Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
3
<PAGE> 107
The One Group Asset Allocation Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (4/5/93)
<S> <C> <C> <C>
Fiduciary 22.12% 14.11% 13.71%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 S&P/Lipper Mix Fiduciary
<S> <C> <C> <C>
4/93 $10,000 $10,000 $10,000
6/93 10,298 10,241 10,129
6/94 10,442 10,260 10,027
6/95 13,165 12,218 11,636
6/96 16,588 14,245 13,356
6/97 22,343 17,395 16,048
6/98 $29,082 $21,124 $19,596
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (4/2/93)
<S> <C> <C> <C>
Class A 21.71% 13.82% 13.40%
Class A* 16.25% 12.78% 12.41%
</TABLE>
* Reflects 4.50% Sales Charge
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 S&P/Lipper Mix Class A* Class A
<S> <C> <C> <C> <C>
4/93 $10,000 $10,000 $ 9,550 $10,000
6/93 10,298 10,241 9,668 10,124
6/94 10,442 10,260 9,553 10,003
6/95 13,165 12,218 11,057 11,580
6/96 16,588 14,245 12,657 13,257
6/97 22,343 17,395 15,166 15,888
6/98 $29,082 $21,124 $18,468 $19,336
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 20.95% 13.63%
Class B** 16.95% 13.34%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 S&P/Lipper Mix Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,344 9,410 9,402 9,402
6/95 11,779 11,206 10,803 10,803
6/96 14,842 13,065 12,292 12,292
6/97 19,992 15,995 14,616 14,616
6/98 $26,022 $19,424 $17,476 $17,676
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Asset Allocation Fund is measured against the S&P 500
Index, an unmanaged index generally representative of the performance of large
companies in the US stock market. Investors are unable to purchase the index
directly, although they can invest in the underlying securities. The performance
of the index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management. By contrast, the performance of the fund
reflects the deduction of these value-added services as well as the deduction of
sales charges on Class A Shares and applicable contingent deferred sales charges
on Class B Shares.
The S&P/Lipper Mix for all the classes is a blended index consisting of 60% of
the average monthly returns of the S&P 1500 Index from January 1, 1995 (index
inception date) until present and of the S&P 500 Index from April 1993 through
December 1994. The final 40% consists of the Lipper Intermediate US Government
Bond Funds Index.
4
<PAGE> 108
The One Group Income Equity Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Income Equity Fund Fiduciary share class posted a total return of
23.18% for the year ended June 30, 1998. (For information on other share classes
and performance comparisons to the Fund's benchmark index, please see page 7.)
With inflation, unemployment and federal fiscal balances at their best levels in
a generation, the equity market offered strong double-digit returns for the
fourth consecutive year.
TO WHAT DO YOU ATTRIBUTE SUCH STRONG PERFORMANCE?
The Fund continued to benefit from its concentration in the types of companies
investors have preferred-large-capitalization, high-quality, consistent-growth
companies. At the same time, the Fund was rewarded for not owning companies with
severe earnings problems, such as those with significant exposure to Asia.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our portfolio strategies during the year focused on maintaining strong
performance measures while positioning the portfolio for a more challenging
market environment we think may be in store. As such, we sold and took profits
on certain issues that have been the best performers over the last several
years. We also eliminated some disappointing holdings and established new
positions in securities that we think are likely to be future market leaders.
We also have been improving the Fund's current income by reducing
lower-dividend-yielding issues and building positions in higher-yielding
securities. We also cut in half the Fund's position in convertible securities
and used the proceeds to invest in real estate investment trusts (REITs). In
addition to enhancing the Fund's diversification, we believe the REITs offer
good value and add important defensive characteristics to the Fund due to their
attractive yields.
On average, the Fund held 89% of its assets in common stocks, 5% in convertible
securities, 5% in REITs and 1% in cash during the year.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
The Fund enjoyed strong fiscal-year performance from several sectors in which
certain companies consistently achieved superior earnings growth or benefited
from major restructuring:
- - Health care (Schering-Plough, Pfizer and Warner-Lambert were up 65% or more)
- - Finance (American Express, Chase Manhattan, U.S. Bancorp, Lincoln National,
FNMA and National City were up 35% or more)
- - Telephone utilities (AT&T, BellSouth and Sprint were up 30% or more)
- - Selected industrials (Ford was up 55%).
WERE THERE ANY DISAPPOINTING HOLDINGS?*
Disappointing performers were concentrated in more volatile sectors, including
transportation (Union Pacific declined 37% for the fiscal year), energy and
mining (Amoco was off 4%, Cyprus-Amax down 46%) and manufacturing (Corning,
Boeing and Deere declined in price). Our policy in handling such "problem"
issues is to reduce the position size when earnings expectations are not being
met and sell out completely if a turnaround is unlikely, as we did with Union
Pacific and Cyprus-Amax. To help avoid problem situations, we concentrate on
favorable growth areas and look to fundamental research conducted by our
in-house analysts.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
Two new issues moved into the top 10 holdings-American Home Products, 2.1%
(health care) and Schering-Plough, 1.9% replaced Mobil (energy) and Philip
Morris (consumer non-durables). The remaining top 10 holdings were unchanged
from last year and included General Electric, 3.4% (capital goods), American
Express, 2.5%, Bristol-Myers Squibb, 2.4% (health care), Exxon, 2.2% (energy),
BankAmerica, 2.1% (financial services), Warner-Lambert, 2.1%, Coca-Cola, 2.1%
(consumer non-durable), and Royal Dutch Petroleum, 2.0% (energy).
5
<PAGE> 109
The One Group Income Equity Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
We are pleased with the current composition of the portfolio and the fundamental
progress of the companies the Fund owns. Nevertheless, the financial markets
have been highly volatile. Many of the uncertainties confronting investors
today-Asian problems, nuclear proliferation, historically high stock
valuations-have no quick-fix solutions. Furthermore, corporate earnings gains
aren't as good as they have been in recent years. This would suggest that we
should lower our return expectations and become more focused and selective.
Perhaps the best plan is to remain flexible and vigilant in order to take
advantage of opportunities when they arise. If a more challenging market
develops, we believe the Fund is well positioned, given its defensive
characteristics, higher-than-average income, holdings in predictable growth
companies and exposure to real estate.
/s/ R. Lynn Yturri
- ---------------------------
R. Lynn Yturri
Fund Manager
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Fixed Income Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
6
<PAGE> 110
The One Group Income Equity Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (7/2/87)
<S> <C> <C> <C> <C>
Fiduciary 23.18% 20.21% 16.29% 13.99%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Fiduciary
<S> <C> <C>
6/88 $10,000 $10,000
6/89 12,055 11,858
6/90 14,044 13,375
6/91 15,082 14,376
6/92 17,104 16,153
6/93 19,436 18,020
6/94 19,709 18,609
6/95 24,847 22,526
6/96 31,307 28,053
6/97 42,170 36,720
6/98 $54,889 $45,230
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 22.91% 19.89% 17.43%
Class A* 17.39% 18.79% 16.59%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Class A* Class A
<S> <C> <C> <C>
2/92 $10,000 $ 9,550 $10,000
6/92 9,992 9,625 10,079
6/93 11,354 10,721 11,226
6/94 11,514 11,037 11,557
6/95 14,515 13,301 13,961
6/96 18,289 16,569 17,353
6/97 24,635 21,602 22,625
6/98 $32,065 $26,558 $27,806
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 21.97% 20.06%
Class B** 17.97% 19.82%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Class B** Class B
<S> <C> <C> <C>
1/94 $10,000 $10,000 $10,000
6/94 9,344 9,663 9,663
6/95 11,779 11,587 11,587
6/96 14,842 14,300 14,300
6/97 19,992 18,515 18,515
6/98 $26,022 $22,387 $22,587
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 16.57%
Class C** 15.57%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 500 Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $11,973 $11,556 $11,656
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Income Equity Fund is measured against the S&P 500 Index,
an unmanaged index generally representative of the performance of large
companies in the US stock market. Investors are unable to purchase the index
directly, although they can invest in the underlying securities. The performance
of the index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management. By contrast, the performance of the fund
reflects the deduction of these value-added services as well as the deduction of
sales charges on Class A Shares and applicable contingent deferred sales charges
on Class B and Class C Shares.
7
<PAGE> 111
The One Group Equity Index Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Equity Index Fund Fiduciary
share class posted a total return of 29.73%. (For information on other share
classes and a performance comparison to the index, please see page 9.)
As it is designed to do, the Fund offered a return that nearly matched that of
the S&P 500 Index, the unmanaged group of stocks the Fund seeks to track with
little or no excess risk. The S&P 500 Index returned 30.16% for the year. The
slight difference in returns between the Fund and the Index is due to fees and
transaction costs charged to the Fund but not to the Index.
WHAT CONTRIBUTED TO SUCH A STRONG RETURN?
A strong economy, low inflation, declining interest rates and favorable
corporate earnings growth led to attractive stock market returns for yet another
year. Once again, large-capitalization growth companies, the type represented in
the S&P 500 Index, outperformed other types of U.S. stocks.
WHICH MARKET SECTORS OFFERED NOTABLE PERFORMANCE?
The Fund offered exposure to 15 market sectors. Among those sectors, retail and
telephone utilities offered the strongest performance. The retail sector
benefited from lower costs on Asian imports, while telephone utilities advanced
due to acquisition activity.
The weakest-performing sectors included technology, energy and industrial
commodities. The technology sector suffered somewhat from the economic and
market crisis that swept through Asia, while energy stocks declined due to lower
oil prices. In the industrial commodities sector (chemical, paper and metal
companies), stocks suffered from the sector's lack of pricing power.
WHAT WERE SOME OF THE STRONGEST AND WEAKEST STOCKS?*
The Fund enjoyed outstanding performance from a handful of stocks, including
technology provider Unisys, up 270% for the fiscal year due to strong earnings;
computer manufacturer Dell Computer, up 216% on strong earnings; cable
television company Tele-Communications, up 159% and acquired by AT&T; financial
service provider Providian Financial, up 145% on strong earnings; and auto
manufacturer Ford Motor, up 55% due to strong earnings.
Weak earnings contributed to poor performance from certain holdings, including
diversified mining company Freeport-McMoran Copper and Gold, down 51% for the
fiscal year; technology company Advanced Micro Devices, down 52%; and technology
provider Cabletron Systems, down 53%.
WHAT WERE THE FUND'S TOP 10 HOLDINGS?*
Most of the Fund's top 10 holdings retained their spots during the past year.
The only changes to the group were the addition of Pfizer, 1.5% (health care
sector) and Wal-Mart, 1.5% (retail), which replaced Philip Morris (consumer
non-durables) and IBM (technology). The remaining top 10 included General
Electric, 3.2% (capital goods), Microsoft, 2.9% (technology), Coca-Cola, 2.3%
(consumer non-durables), Exxon, 1.9% (energy), Merck, 1.7% (health care), Intel,
1.4% (technology), Proctor & Gamble, 1.3% (consumer non-durables) and Royal
Dutch Petroleum, 1.3% (energy).
WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET?
The environment for stocks should remain favorable over the coming year. We
expect economic growth to continue, but at a slower pace. We also expect
interest rates and inflation to remain low. Corporate earnings and stock prices
should continue to grow, but earnings are likely to come under increasing
pressure. Nevertheless, it's important to remember that returns of the last few
years have been unusually strong, and they probably are not sustainable. We
expect to see stock returns revert to more "normal" levels.
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
The S&P 500 Index is an unmanaged group of stocks generally representative of
the performance of large U.S.-based companies. Investors cannot purchase the
index directly, but they can invest in the underlying securities.
8
<PAGE> 112
The One Group Equity Index Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (7/2/91)
<S> <C> <C> <C>
Fiduciary 29.73% 22.58% 19.64%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Fiduciary
<S> <C> <C>
7/91 $10,000 $10,000
6/92 10,836 11,211
6/93 12,313 12,673
6/94 12,486 12,753
6/95 15,741 16,043
6/96 19,834 20,129
6/97 26,717 27,033
6/98 $34,775 $35,070
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 29.33% 22.29% 19.44%
Class A* 23.49% 21.17% 18.58%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Class A* Class A
<S> <C> <C> <C>
2/92 $10,000 $ 9,550 $10,000
6/92 9,992 9,595 9,992
6/93 11,354 10,818 11,354
6/94 11,514 10,879 11,514
6/95 14,515 13,644 14,515
6/96 18,289 17,075 18,289
6/97 24,635 22,869 24,635
6/98 $32,066 $29,574 $30,976
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 28.47% 22.74%
Class B** 24.47% 22.51%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Class B** Class B
<S> <C> <C> <C>
1/94 $10,000 $10,000 $10,000
6/94 9,344 9,443 9,443
6/95 11,779 11,765 11,765
6/96 14,842 14,595 14,595
6/97 19,992 19,400 19,400
6/98 $26,022 $24,721 $24,921
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 21.07%
Class C** 20.07%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Dollars
(Fiscal Year Covered) S&P 500 Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $11,973 $12,006 412,106
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Equity Index Fund is measured against the S&P 500 Index,
an unmanaged index generally representative of the performance of large
companies in the US stock market. Investors are unable to purchase the index
directly, although they can invest in the underlying securities. The performance
of the index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management. By contrast, the performance of the fund
reflects the deduction of these value-added services as well as the deduction of
sales charges on Class A Shares and applicable contingent deferred sales charges
on Class B and Class C Shares.
9
<PAGE> 113
The One Group Value Growth Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Value Growth Fund Fiduciary share class posted a total return of
32.26% for the year ended June 30, 1998. (For information on other share classes
and performance comparisons to indexes, please see page 12.)
TO WHAT DO YOU ATTRIBUTE THE FUND'S SOLID RETURN?
Domestic stocks of all styles enjoyed another strong year, as low inflation,
declining interest rates and better-than-expected corporate earnings contributed
to the gains.
Rather than emphasizing particular market sectors or trying to time the market's
next moves, we research, evaluate and select stocks on an individual basis to
build a diversified portfolio. We don't consciously overweight a single sector
or a single style of stock. Instead, we invest in stocks from the four major
equity styles -- large capitalization growth, large capitalization value, medium
capitalization growth and medium capitalization value -- and look for stocks
that we believe offer the best return potential relative to their level of risk.
Over the past year, for example, we saw some vicious swings among sectors,
creating a momentum market that saw investors attempting to pick the "right"
sector at the right time. But, our emphasis on individual stock selection paid
off, as that process gave the Fund exposure to many different industries and
contributed to the Fund's strong return.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund owned more stocks than usual and was more diverse than usual in an
active attempt to be less exposed to any single momentum play. Momentum markets
tend to last longer than investors expect, and stocks that are not participating
tend to lose their value quickly.
Events in Asia played an interesting role in the Fund's performance. After the
domino effect, which started in Thailand, hit U.S. shores in October 1997, we
avoided the stocks of companies that we thought would be most negatively
affected by the malaise -- namely, commodity cyclical companies. By steering
away from that group, the Fund became more growth-oriented than usual.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
Industry positions such as the pharmaceutical area of health care
(Schering-Plough, up 91% for the fiscal year, and Bristol-Myers Squibb, up 42%);
the software and PC areas of technology (Microsoft, up 71%; BMC Software, up
88%; Dell Computer, up 216%); and the long distance segment of
telecommunications (Century Telephone, up 104%; Sprint, up 35%) added to the
Fund's strong performance.
The Fund also benefited from strong performance from Cisco Systems (technology),
up 106% for the year; Equitable Co. (financial services), up 125%; Morgan
Stanley Dean Witter (financial services), up 112%; Lucent Technologies
(technology), up 131%; and Energy East (utility), up 99%.
At the same time, a few Fund holdings realized poor performance, namely Callaway
Golf (consumer services), down 45% for the year; Toys R Us (retail), down 33%;
BetzDearborn (raw materials), down 37%; Columbia/HCA Healthcare (health care),
down 26%; and Phycor (health care), down 52%.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
More than half of the Fund's top 10 holdings were among the leading holdings one
year ago: Microsoft, 3.3% (technology), General Electric, 2.9% (capital goods),
Exxon, 2.1% (energy), Wal-Mart, 1.8% (retail), Bristol Myers, 1.8% (health care)
and Intel, 1.7% (technology). The remaining members of the top 10 on June 30,
1998, included NationsBank, 1.8% (financial services), Cisco Systems, 1.8%, Dell
Computer, 1.7% and Coca-Cola, 1.5% (consumer non-durables).
10
<PAGE> 114
The One Group Value Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
We anticipate corporate earnings to revert to more normal levels, and we believe
volatility will continue. We plan to maintain the Fund's style diversity in
similar proportion as last year to address this market.
/s/ Michael D. Weiner
- ---------------------
Michael D. Weiner
Fund Manager
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
11
<PAGE> 115
The One Group Value Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (12/29/89)
<S> <C> <C> <C>
Fiduciary 32.26% 19.63% 17.91%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Fiduciary
<S> <C> <C>
12/89 $10,000 $10,000
6/90 10,309 10,657
6/91 11,072 11,631
6/92 12,557 13,847
6/93 14,268 16,554
6/94 14,469 16,496
6/95 18,241 19,198
6/96 22,959 23,242
6/97 30,524 30,673
6/98 $39,510 $40,584
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (12/29/89)
<S> <C> <C> <C>
Class A 31.96% 19.48% 17.82%
Class A* 26.04% 18.38% 17.19%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Class A* Class A
<S> <C> <C> <C>
12/89 $10,000 $ 9,550 $10,000
6/90 10,309 10,178 10,657
6/91 11,072 11,107 11,631
6/92 12,557 13,224 13,847
6/93 14,268 15,809 16,554
6/94 14,469 15,754 16,496
6/95 18,241 18,334 19,198
6/96 22,959 22,178 23,225
6/97 30,524 29,171 30,548
6/98 $39,510 $38,504 $40,326
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (9/9/94)
<S> <C> <C> <C>
Class B 30.89% 23.28%
Class B** 26.89% 22.84%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Class B** Class B
<S> <C> <C> <C>
9/94 $10,000 $10,000 $10,000
6/95 12,019 10,806 10,806
6/96 15,129 12,981 12,981
6/97 20,113 16,942 16,942
6/98 $26,034 $21,873 $22,173
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C> <C>
Class C 20.87%
Class C** 19.87%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period VALUE OF $10,000 INVESTMENT
(Fiscal Year Covered) S&P 1500 Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $11,858 $11,987 $12,087
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The above-quoted performance data includes the performance of the Paragon Value
Equity Income Fund for the period prior to the commencement of operations of The
One Group Value Growth Fund on March 26, 1996. Performance for the Fiduciary
Shares is based on Class A Share performance adjusted to reflect the absence of
sales charges.
The performance of the Value Growth Fund is measured against the S&P 1500 Index,
an unmanaged index generally representative of the performance of large and
small companies in the US stock market. Investors are unable to purchase the
index directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management. By contrast, the performance
of the fund reflects the deduction of these value-added services as well as the
deduction of sales charges on Class A Shares and applicable contingent deferred
sales charges on Class B and Class C Shares.
The S&P 1500 Index for all classes consists of the average monthly returns of
the S&P 500 Index from December 1989 through December 1994. Thereafter, the data
are from the S&P 1500 Index which corresponds with the initiation of the S&P
1500 Index on January 1, 1995.
12
<PAGE> 116
The One Group Large Company Value Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Large Company Value Fund
Fiduciary share class posted a total return of 21.46%. (For information on other
share classes and a performance comparison to the index, please see page 15.)
TO WHAT DO YOU ATTRIBUTE THE FUND'S SOLID RETURN?
A positive economic environment led to strong corporate earnings growth, which
benefited stocks in the Fund. Likewise, low inflation and a favorable interest
rate environment boosted stock values.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our strategy involves implementing traditional value-investing techniques,
including focusing on stocks with below-average price-to-earnings and
price-to-book ratios. We employ this approach within the context of our basic
research discipline -- investing in attractively priced stocks with improving
fundamentals. Our goal is to realize price appreciation within a reasonable time
horizon.
We slightly modified the Fund's sector weightings during the year, increasing
exposure to electric utilities so that the sector is now a bit overweighted. We
believe the industry is well into its deregulation cycle, and we expect returns
to become even more compelling. This should result in further buying interest
going forward. We also made some minor changes in the technology sector, where
computer giant IBM is now the sector's largest holding.
DID EVENTS OVERSEAS INFLUENCE FUND RETURNS?
While the companies in which the Fund invests do not have tremendous exposure to
Europe, the stronger economies in that region did have an overall positive
impact on the Fund. On the other hand, weak Asian demand hurt companies with
significant Asian sales, especially in the capital goods sector. Fortunately,
the Fund was only slightly affected, as just 5% of its holdings had exposure to
Asia.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
The Fund was invested primarily in energy, banking, financial and telephone
stocks during the year. The banking and financial stocks were the best
performers due to continued consolidation in their industries. In fact, the Fund
enjoyed fiscal-year gains of at least 20% from the following financial services
companies: Travelers Group, Morgan Stanley Dean Witter, Lincoln National,
Hartford Financial Services Group and Fannie Mae.
Acquisition targets also proved to be among the best performing Fund holdings.
Auto maker Chrysler saw its stock price advance 71% over the year, primarily due
to its merger with German car maker Daimler Benz. In the telephone industry, MCI
Communications' pending acquisition by WorldCom pushed shares of MCI 52% higher
for the year. And, in the raw materials sector, Alcoa's acquisition of Alumax
helped shares of Alumax advance 22%.
On the other hand, energy stocks lagged as weak oil prices hurt earnings.
Because of this, we decreased the Fund's exposure to the major oil companies and
increased exposure to the natural gas pipeline and refining companies. The
refining companies are expected to benefit from lower oil prices.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
More than half of the Fund's top 10 holdings remained unchanged during the year.
Those that held their spots from the previous year included Exxon, 4.3%
(energy), IBM, 4.2%, NationsBank, 2.8% (financial services), Travelers Group,
2.8%, Royal Dutch Petroleum, 2.7% (energy) and BankAmerica, 2.1% (financial
services). New to the group were Chrysler, 2.1%, Allstate, 1.9% (financial
services), Sears Roebuck & Co., 1.9% (retail) and Citicorp, 1.8% (financial
services).
13
<PAGE> 117
The One Group Large Company Value Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
Our outlook for the economy suggests a favorable environment for stocks over the
coming year. We expect modest, but slower, economic growth with interest rates
and inflation remaining under control. As such, we expect corporate earnings and
stock prices to continue to grow. But, we expect to see stock returns revert to
more "normal" levels, compared to the unusually high results of the past few
years.
/s/ Edmund M. Cowart
- --------------------
Edmund M. Cowart
Managing Director, Value Growth Team
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
14
<PAGE> 118
The One Group Large Company Value Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/1/91)
<S> <C> <C> <C>
Fiduciary 21.46% 16.88% 14.68%
<CAPTION>
<S> <C>
Fiduciary
</TABLE>
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Value Fiduciary
<S> <C> <C>
3/91 $10,000 $10,000
6/91 10,035 10,148
6/92 11,405 11,721
6/93 13,514 12,511
6/94 13,932 12,709
6/95 16,903 15,685
6/96 21,094 17,678
6/97 27,610 22,470
6/98 $34,546 $27,292
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 21.14% 16.66% 14.00%
Class A* 15.69% 15.59% 13.17%
<CAPTION>
<S> <C>
Class A
Class A*
</TABLE>
* Reflects 4.50% Sales Charge
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Value Class A* Class A
<S> <C> <C> <C>
2/92 $10,000 $ 9,550 $10,000
6/92 10,267 9,539 9,988
6/93 12,165 10,173 10,652
6/94 12,542 10,370 10,862
6/95 15,217 12,716 13,321
6/96 18,990 14,292 14,973
6/97 24,856 18,137 19,000
6/98 $31,100 $21,976 $23,018
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 20.18% 16.80%
Class B** 16.18% 16.54%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Value Class B** Class B
<S> <C> <C> <C>
1/94 $10,000 $10,000 $10,000
6/94 9,643 9,652 9,652
6/95 11,317 11,802 11,802
6/96 14,123 13,213 13,213
6/97 18,485 16,630 16,630
6/98 $23,128 $19,783 $19,983
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Large Company Value Fund is measured against the
S&P/BARRA 500 Value Index, an unmanaged index representing the performance of
the lowest price to book securities in the S&P 500. Investors are unable to
purchase the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management. By
contrast, the performance of the fund reflects the deduction of these
value-added services as well as the deduction of sales charges on Class A Shares
and applicable contingent deferred sales charges on Class B Shares.
15
<PAGE> 119
The One Group Disciplined Value Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Disciplined Value Fund Fiduciary share class posted a total return
of 28.27% for the year ended June 30, 1998. (For information on other share
classes and performance comparisons to the index, please see page 18.)
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Interest rates ended the year lower, but experienced volatility throughout the
12-month period. To avoid some of the stock price volatility associated with
interest rate swings, we maintained a diversified portfolio with exposure to a
variety of economic sectors. Within this framework, we emphasized in-depth
analysis and individual stock selection, and we continued to rebalance the
portfolio in order to improve structure and upgrade holdings as market
conditions changed.
Because of the Fund's value orientation, we emphasized the sectors that offered
the greatest perceived value. As a result, almost half of the Fund's assets were
in the electric utility, financial, industrial, commodity and banking sectors.
These were the areas that contained the largest number of equity securities with
below-market-average price-to-earnings and price-to-book ratios.
Given the continued strength of the market, certain stocks reached their target
prices quicker than we had anticipated, prompting the sale of those securities
and the purchase of new ones. In addition, as certain stocks increased in
valuation, they became more growth-like and were no longer appropriate for this
value-oriented fund. For example, in the second half of 1997 prices on bank
stocks soared, and the resulting valuations converted many of these stocks to
growth stocks. As a result, remaining sectors that were relatively undervalued
became more influential, and their weightings within the Fund increased.
Specifically, we increased the Fund's holdings within the capital equipment,
financial, industrial commodity and consumer durable sectors to make up for the
gap caused by the decline in bank holdings.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
Outstanding performance from several individual stocks during the fiscal year
was driven largely by takeovers. For example, in the technology sector Qwest
Communications acquired LCI International, in which the Fund had a large
exposure; National City Bank acquired First of America, a Fund holding; and
Williams Companies acquired the energy company Mapco, another Fund holding. In
addition, the Fund's holding of Century Telephone nearly doubled in value over
the year, as analysts projected superior earnings growth for the combined
Century Telephone/Pacific Telesis company. Indeed, the merged company
experienced revenue growth and margin expansion after joining forces, as it cut
costs and expanded its territory.
Another merger, between cement manufacturers Southdown and Medusa, also
contributed to the Fund's solid return. But, price gains on these stocks
primarily were driven by excellent fundamentals within the industry. The
supply/demand equation favored the manufacturers, given the steadily increasing
demand for cement from the housing and infrastructure sectors, while the supply
of cement has been virtually unchanged in the last decade. In addition, U.S.
government restrictions on the amount of cement that can be imported helped the
U.S. manufacturers.
DID EVENTS IN ASIA INFLUENCE ANY OF THE FUND'S HOLDINGS?*
On the downside, events in Asia caused certain Fund holdings to decline. As
Asian currency values plummeted, it appears Asian customers chose to curtail
their gaming excursions to the United States. As a result, the Fund's holdings
in Circus Circus and MGM declined for the fiscal year. In addition, CompUSA lost
half of its value due to the unanticipated sharp declines in computer prices.
Lower demand from Asia contributed to the price declines, as did the lack of new
memory-consuming software applications, which prompted revenue declines and
margin contraction.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE DURING THE FISCAL YEAR?*
Only two of the Fund's top 10 holdings remained from last year -- CMS Energy,
1.6% (utilities) and Southtrust Corp., 1.6% (financial services). Rounding out
the top 10 were utilities companies New Century Enterprises, 1.5%, Allegheny
Energy, 1.3%, Century Telephone, 1.5%, El Paso Natural Gas, 1.6% and Teco
Energy, 1.2%; financial companies Bear Stearns,
16
<PAGE> 120
The One Group Disciplined Value Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
1.6% and Paine Webber, 1.2%; and Tyson Foods, 1.1%, a member of the consumer
non-durable sector.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Looking ahead, we plan to maintain our current strategy of broad sector
diversification, stringent in-house research and individual stock selection.
Within each sector, we will continue to look for the best values among medium
capitalization stocks, or those issues with low price/earnings and price/book
ratios.
/s/ Edmund M. Cowart
- --------------------
Edmund M. Cowart
Managing Director, Value Growth Team
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings subject to change.
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
17
<PAGE> 121
The One Group Disciplined Value Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
Dollars
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/2/89)
<S> <C> <C> <C>
Fiduciary 28.27% 17.52 14.11%
<CAPTION>
<S> <C>
Fiduciary
</TABLE>
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT Dollars
S&P
Measurement Period BARRA/Midcap
(Fiscal Year Covered) 400/Value Fiduciary
<S> <C> <C>
3/89 10,000 10,000
6/89 10,883 10,989
6/90 12,677 11,372
6/91 13,615 11,572
6/92 15,441 13,451
6/93 17,545 15,278
6/94 17,792 15,895
6/95 22,430 18,443
6/96 27,627 22,150
6/97 34,233 26,704
6/98 43,366 34,253
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
Dollars
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 27.90% 17.27% 15.79%
Class A* 22.13% 16.19% 14.96%
<CAPTION>
<S> <C>
Class A
Class A*
</TABLE>
* Reflects 4.50% Sales Charge
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
S&P
Measurement Period BARRA/Midcap
(Fiscal Year Covered) 400/Value Class A* Class A
<S> <C> <C> <C>
2/92 10,000 9,550 10,000
6/92 9,992 9,666 10,121
6/93 11,354 10,948 11,464
6/94 11,514 11,418 11,956
6/95 14,515 13,179 13,801
6/96 17,879 15,788 16,534
6/97 22,153 18,977 19,875
6/98 28,063 24,279 25,419
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
Dollars
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 26.97% 16.38%
Class B** 22.97% 16.12%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
Measurement Period S&P
(Fiscal Year Covered) BARRA/Midcap Class B** Class B
<S> <C> <C> <C>
1/94 10,000 10,000 10,000
6/94 9,344 9,500 9,500
6/95 11,779 10,918 10,918
6/96 14,509 12,985 12,985
6/97 17,978 15,476 15,476
6/98 22,775 19,465 19,665
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Disciplined Value Fund is measured against the S&P/BARRA
Midcap 400 Value Index, an unmanaged index representing the performance of the
lowest price to book securities in the S&P Midcap 400 Index. Investors are
unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The S&P/BARRA Midcap 400 Value Index consists of the average monthly returns of
the S&P 500 Index for periods prior to June 1991. Thereafter, the data are from
the S&P/BARRA Midcap 400 Value Index which corresponds with the initiation of
the S&P/BARRA Midcap 400 Value Index on June 30, 1991.
18
<PAGE> 122
The One Group Large Company Growth Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Large Company Growth Fund Fiduciary share class posted a total
return of 35.75% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 20.)
TO WHAT DO YOU ATTRIBUTE THE FUND'S SOLID RETURN?
A strong domestic economy, low inflation and declining interest rates all worked
together to maintain a favorable equity environment. Once again, the market
favored the largest growth-oriented companies because of their earnings
reliability and stock liquidity.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary investment strategy during this market climate has been to find good
companies within industries that are growing at a faster rate than the economy.
These are companies that we believe have the ability to exhibit sustained growth
at some multiple of their underlying industry growth rate. In addition, we
search for strong management teams and superior product positioning.
After evaluating the impact of the Asian crisis on the Fund's stocks, we cut the
portfolio's technology holdings because much of these companies' exports went to
Asia. We also increased our retail holdings, as many of these companies purchase
their materials from Asia and thus benefit from lower costs.
This strategy worked well, because the technology sector, as a whole, has
underperformed the market, while the retail sector has outperformed.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
The Fund enjoyed outstanding performance from computer manufacturer Dell
Computer, up 216% for the fiscal year; software giant Microsoft, up 71% and
online service provider America Online, up 278%.
On the other hand, there were a few disappointing performances from the
technology sector. For example, Applied Materials was off 17% and Oracle Corp.
declined 27%.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
Most of the Fund's top 10 holdings remained unchanged during the year. The only
newcomers were Dell Computer, 2.6% (technology) and Lucent Technologies, 2.3%
(technology). The remaining members included General Electric, 6.8% (capital
goods), Microsoft, 6.4% (technology), Coca-Cola, 4.3% (consumer non-durable),
Wal-Mart, 3.2% (retail), Merck, 3.0% (health care), Bristol-Myers Squibb, 3.0%
(health care), Pfizer, 2.9% (health care) and Proctor & Gamble, 2.6% (consumer
non-durable).
WHAT IS YOUR OUTLOOK FOR THE FUND?
Looking ahead, we remain optimistic about continued U.S. economic growth and low
inflation. We believe that interest rates may continue to decline, which would
support ongoing stock market growth, but perhaps not at the unusually strong
pace we've seen over the last several years. As such, it seems prudent to lower
our expectations somewhat for the next year.
Our overall strategy remains intact -- to search for companies with strong
fundamentals, effective management teams and favorable long-term outlooks.
Because the Asian situation remains unresolved, we will continue to monitor its
effects on the Fund's holdings.
/s/ Ashi Parikh
Ashi Parikh
Managing Director, Growth Equity Team
/s/ Richard R. Jandrain III
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your fund.
19
<PAGE> 123
The One Group Large Company Growth Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT DOLLARS
Since
Inception
1 Year 5 Year (2/28/92)
<S> <C> <C> <C>
Fiduciary 35.75% 22.79% 19.88%
<CAPTION>
<S> <C>
Fiduciary
</TABLE>
<TABLE>
<CAPTION>
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Fiduciary
<S> <C> <C>
2/92 10,000 10,000
6/92 9,743 9,920
6/93 10,550 11,301
6/94 10,522 12,210
6/95 13,755 14,878
6/96 17,505 17,461
6/97 24,215 23,243
6/98 32,661 31,553
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
VALUE OF $10,000 INVESTMENT DOLLARS
<TABLE>
<CAPTION>
Since
Inception
1 Year (2/22/94)
<S> <C> <C> <C>
Class A 35.43% 23.70%
Class A* 29.33% 22.39%
</TABLE>
* Reflects 4.50% Sales Charge.
<TABLE>
<CAPTION>
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Class A* Class A
<S> <C> <C> <C>
2/94 10,000 9,550 10,000
6/94 9,530 9,453 9,898
6/95 12,458 11,486 12,028
6/96 15,854 13,420 14,054
6/97 21,931 17,790 18,631
6/98 29,581 24,085 25,230
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
VALUE OF $10,000 INVESTMENT DOLLARS
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 34.39% 22.49%
Class B** 30.39% 22.26%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Class B** Class B
<S> <C> <C> <C>
1/94 10,000 10,000 10,000
6/94 9,539 9,934 9,934
6/95 12,235 11,831 11,831
6/96 15,570 13,952 13,952
6/97 21,539 18,381 18,381
6/98 29,052 24,496 24,696
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
DOLLARS
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C> <C>
Class C 27.63%
Class C** 26.63%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
VALUE OF $10,000 INVESTMENT
Measurement Period S&P/BARRA
(Fiscal Year Covered) 500 Growth Class C** Class C
<S> <C> <C> <C>
11/97 10,000 10,000 10,000
6/98 12,458 12,663 12,763
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Large Company Growth Fund is measured against the
S&P/BARRA 500 Growth Index, an unmanaged index representing the performance of
the highest price to book securities in the S&P 500. Investors are unable to
purchase the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management. By
contrast, the performance of the fund reflects the deduction of these
value-added services as well as the deduction of sales charges on Class A Shares
and applicable contingent deferred sales charges on Class B and Class C Shares.
20
<PAGE> 124
The One Group Growth Opportunities Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Growth Opportunities Fund Fiduciary share class posted a total
return of 31.11% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 22.)
TO WHAT DO YOU ATTRIBUTE THE FUND'S SOLID RETURN?
Medium-capitalization growth stocks continued to benefit from a strong economy,
solid corporate earnings, low inflation and low interest rates. In addition to
these factors, the Fund's performance has benefited from good stock selection.
Instead of looking for stocks based on general economic or market trends, we
evaluate stocks on an individual basis, searching for those with appealing
fundamentals.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary investment strategy is to identify high growth companies within
attractive, fast-growing industries. We look for companies that will benefit
from strong management teams and competitive advantages. These factors should
allow sustained high growth at a rate that outpaces the industry average.
After the Asian crisis erupted, we evaluated the impact of the fallout. Many of
the Fund's technology companies had significant Asian exports, so we cut certain
technology holdings to lessen the impact that decreased Asian demand would have
on these companies. At the same time, we increased our retail holdings because
many of these companies purchase materials from Asia. As such, these retailers
were able to benefit from lower prices on Asian imports.
This strategy worked well, because the technology sector, as a whole,
underperformed the market, while the retail sector outperformed.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
The Fund enjoyed outstanding performance from computer manufacturer Dell
Computer, up 216% for the fiscal year; retailer Just for Feet, up 63% and
technology company Compuware, up 114%.
On the other hand, there were a few disappointing performances from Altera
(technology), down 42% for the fiscal year; KLA-Tencor (technology), down 43%;
and Global Marine (energy), down 19%.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
Half of the Fund's top 10 holdings changed during the year. At year-end, those
that remained in the top 10 included Coca-Cola Enterprises, 3.0% (consumer non-
durable), BMC Software, 2.2% (technology), Just for Feet, 2.0% (retail), AES
Corp., 1.9% (utilities) and AFLAC, 1.6% (financial services). The new members
included America Online, 4.4% (technology), USA Waste Services, 2.5% (capital
equipment), Compuware, 2.0% (technology), Kohl's, 1.6% (retail) and Staples,
1.6% (retail).
WHAT IS YOUR OUTLOOK FOR THE FUND?
Looking ahead, we remain optimistic about continued U.S. economic growth and low
inflation. We believe that interest rates may continue to decline, which would
support ongoing stock market growth, but perhaps not at the unusually strong
pace we've seen over the last several years. As such, it seems prudent to lower
our expectations somewhat for the next year.
Our overall strategy remains intact -- to search for companies with strong
fundamentals, effective management teams and favorable long-term growth rates.
Because the Asian situation remains unresolved, we will continue to monitor its
effects on the Fund's holdings.
/s/ Ashi Parikh
- -------------------------------------
Ashi Parikh
Managing Director, Growth Equity Team
/s/ Richard R. Jandrain III
- -------------------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your fund.
21
<PAGE> 125
The One Group Growth Opportunities Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/2/89)
<S> <C> <C> <C>
Fiduciary 31.11% 19.12% 18.35%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Mix Fiduciary
<S> <C> <C>
3/89 $10,000 $10,000
6/89 10,883 10,822
6/90 12,677 13,077
6/91 13,165 14,364
6/92 15,441 16,543
6/93 17,545 20,076
6/94 17,792 20,044
6/95 22,430 24,002
6/96 28,311 29,915
6/97 34,939 36,721
6/98 $44,334 $48,146
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 30.95% 18.85% 15.87%
Class A* 25.07% 17.76% 15.03%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Mix Class A* Class A
<S> <C> <C> <C>
2/92 $10,000 $ 9,550 $10,000
6/92 9,992 8,448 8,847
6/93 11,354 10,282 10,766
6/94 11,514 10,229 10,710
6/95 14,515 12,224 12,799
6/96 18,321 15,196 15,912
6/97 22,611 18,618 19,495
6/98 $28,691 $24,380 $25,528
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 29.79% 18.09%
Class B** 25.79% 17.84%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P Mix Class B** Class B
<S> <C> <C> <C>
1/94 $10,000 $10,000 $10,000
6/94 9,344 9,093 9,093
6/95 11,779 10,772 10,772
6/96 14,868 13,307 13,307
6/97 18,349 16,198 16,198
6/98 $23,283 $20,783 $20,983
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 14.27%
Class C** 13.27%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P Mix Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $11,373 $11,327 $11,427
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Growth Opportunities Fund is measured against the
S&P/BARRA Midcap 400 Growth Index, an unmanaged index representing the
performance of the highest price to book securities in the S&P Midcap 400 Index.
Investors are unable to purchase the index directly, although they can invest in
the underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B and Class C
Shares.
The S&P/BARRA Midcap 400 Growth Index for the Fiduciary Class Shares consists of
the average monthly returns of the Russell 2000 Index for periods prior to June,
1991. Thereafter, the data are from the S&P/BARRA Midcap 400 Growth Index which
corresponds with the initiation of the S&P/BARRA Midcap 400 Growth Index on June
30, 1991.
22
<PAGE> 126
The One Group Small Capitalization Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Small Capitalization Fund
Fiduciary share class posted a total return of 23.58%. (For information on other
share classes and a performance comparison to the index, please see page 24.)
For the fourth year in a row, performance of small-capitalization stocks trailed
that of large-capitalization stocks. Investors continued to favor larger-company
stocks because of their liquidity traits and earnings predictability.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our primary strategies during the year were to maintain an average market
capitalization of $500 million or less and enhance the portfolio's
diversification. We started improving the Fund's diversification in November
1997, after shareholders approved a change in the Fund's investment objective.
Previously, the Fund focused on companies based in the Southeast region of the
United States. Now, the Fund invests primarily in small and emerging companies
throughout the United States, seeking to offer growth opportunities from a much
larger universe of companies. The number of companies represented in the
portfolio increased by 40% during the year.
We select stocks on an individual basis, relying on in-depth research to uncover
companies with talented management teams and promising growth characteristics.
As such, we avoid emphasizing particular sectors or industries and, instead,
tend to remain sector neutral.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG HOLDINGS?*
The Fund benefited from impressive performance from several individual holdings.
In particular, furniture retailer Ethan Allen Interiors was up more than 75% for
the year, after doubling in value the previous fiscal year. Safeskin Corp., in
the health care sector, was up more than 179% for the year.
WERE THERE ANY PARTICULARLY WEAK HOLDINGS?*
We significantly reduced the Fund's energy weighting during the year, as oil
prices declined. Nevertheless, several of the Fund's holdings in oil service
companies, which had performed extremely well in fiscal 1997, declined nearly
50% from their highs. In addition, several stocks in the volatile health care
and technology sectors dropped in value.
HOW DID THE FUND'S TOP 10 HOLDINGS CHANGE?*
The Fund's top 10 holdings were led by five technology stocks -- Sanmina, 1.2%,
Tech Data, 1.0%, Platinum Technology, 0.9%, Aspect Telecommunications, 0.8%, and
Comverse Technology, 0.8% -- and three financial stocks -- Protective Life,
1.2%, Sirrom Capital, 0.9% and Alabama National Bancorp, 0.9%. The remaining
members of the top 10 were Ethan Allen Interiors, 1.0% and Hibbett Sporting
Goods, 0.8% (retail).
WHAT IS YOUR OUTLOOK FOR THE FUND?
Looking ahead, we remain optimistic about continued U.S. economic growth and low
inflation. We believe that interest rates may decline further, which would
support ongoing stock market growth. Although the market continues to demand
liquidity, which is provided by large-capitalization stocks, the valuations in
small-company stocks are becoming more compelling on a price/earnings to growth
relationship.
Our overall strategy remains intact -- to take a bottom-up approach in our
search for small companies with promising growth qualities.
/s/ Donald E. Allred
- ---------------------------
Donald E. Allred
Fund Manager
/s/ Richard R. Jandrain III
- ---------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
* Holdings are subject to change.
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
23
<PAGE> 127
The One Group Small Capitalization Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (7/1/91)
<S> <C> <C> <C>
Fiduciary 23.58% 14.55% 17.10%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 600 Fiduciary
<S> <C> <C>
6/91 $10,000 $10,000
6/92 11,710 12,122
6/93 15,046 15,309
6/94 15,326 15,874
6/95 18,447 17,772
6/96 23,246 21,551
6/97 28,287 24,448
6/98 $33,792 $30,200
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (7/1/91)
<S> <C> <C> <C>
Class A 23.28% 14.42% 17.01%
Class A* 17.69% 13.37% 16.25%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 600 Class A* Class A
<S> <C> <C> <C>
6/91 $10,000 $ 9,550 $10,000
6/92 11,710 11,577 12,122
6/93 15,046 14,620 15,309
6/94 15,326 15,159 15,877
6/95 18,447 16,972 17,772
6/96 23,246 20,502 21,468
6/97 28,287 23,275 24,371
6/98 $33,792 $28,683 $30,034
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (9/12/94)
<S> <C> <C> <C>
Class B 22.24% 15.88%
Class B** 18.24% 15.35%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 600 Class B** Class B
<S> <C> <C> <C>
9/94 $10,000 $10,000 $10,000
6/95 11,188 10,594 10,594
6/96 14,098 12,702 12,702
6/97 17,156 14,320 14,320
6/98 $20,494 $17,199 $17,499
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C> <C>
Class C 3.08%
Class C** 2.16%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S&P 600 Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $10,826 $10,215 $10,307
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The above-quoted performance data includes the performance of the Paragon Gulf
South Growth Fund for the period prior to the commencement of operations of The
One Group Small Capitalization Fund on March 26, 1996. Performance for the
Fiduciary Shares is based on Class A Share performance adjusted to reflect the
absence of sales charges.
The performance of the Small Capitalization Fund is measured against the S&P 600
Index, an unmanaged index generally representative of the performance of small
companies in the US stock market. Investors are unable to purchase the index
directly, although they can invest in the underlying securities. The performance
of the index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management. By contrast, the performance of the fund
reflects the deduction of these value-added services as well as the deduction of
sales charges on Class A Shares and applicable contingent deferred sales charges
on Class B and Class C Shares.
24
<PAGE> 128
The One Group International Equity Index Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group International Equity Index Fund
Fiduciary share class provided a total return of 9.54%. (For information on
other share classes and a performance comparison to the index, please see page
27.)
TO WHAT DO YOU ATTRIBUTE THE FUND'S PERFORMANCE?
The Fund's strategy has two components. It seeks to invest 90% of its assets in
the developed international markets in a manner designed to track the Morgan
Stanley Capital International Europe, Australia, Far East/
Gross Domestic Product (EAFE/GDP) Index; and it invests the remaining 10% of its
assets in emerging markets.
Over the past 12 months, the difference in return between the developed markets
and the emerging markets was dramatic. The EAFE/GDP Index rose 15.14% over this
period, while the customized index we track in the emerging markets fell 16.09%.
The Fund's return trailed the EAFE/GDP Index due to its investments in emerging
markets and due to fees and expenses charged to the Fund. (An index has no
expenses because it is an unmanaged portfolio.)
WHY DID THE EMERGING MARKETS FALL SO SHARPLY?
The turmoil in the emerging markets began on July 2, 1997, when a rapid decline
in Thailand's currency precipitated an economic crisis throughout Asia. As the
region's currencies dropped, companies' foreign debts grew beyond their ability
to pay. Many companies had borrowed from foreign lenders because interest rates
were lower in those countries than they were at home. The amount of foreign debt
surprised most investors, as companies in these countries did not adequately
disclose those loans. Investors' reacted to these developments and equity prices
plunged along with the currencies.
WHAT ABOUT THE INFLUENCE FROM THE DEVELOPED MARKETS?
European equity markets performed very well this past year, which allowed the
Fund to achieve its positive return in spite of the turmoil in the Asian
markets. The Fund's investments in Europe started the year at more than 61% of
total assets.
HOW DID THE U.S. DOLLAR'S STRENGTH INFLUENCE RETURNS?
Overall performance once again was held back by a strong U.S. dollar, which
increased in value versus nearly every currency across the globe. Because the
Fund's foreign-denominated investments suffered from currency declines in all
the countries where it invests over the past year, the strong U.S. dollar
prevented the Fund from achieving a higher return.
DID THE PORTFOLIO BENEFIT FROM ANY PARTICULARLY STRONG MARKETS?
Equity market returns across Europe outpaced even the exceptional U.S. equity
market during the past 12 months. Among the developed countries, Finland
performed best, up 66%. Other outstanding returns were posted in Italy, up 63%;
Spain, up 50%; Ireland, up 41%; and Austria, France and Germany, each up more
than 30%. European emerging countries also performed well, with Greece up 37%,
Hungary up 25%, and Turkey up 24%.
In contrast, performance in Asia ranged from bad to worse. Japan, the largest
weight in the Fund a year ago at 27% of assets, fell almost 32%. Among the
developed markets in Asia, Malaysia fell 75%, Hong Kong fell 48%, and Singapore
fell 48%. Results in Asia's emerging markets were even worse.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The Fund will continue its strategy of tracking the EAFE/GDP Index with the bulk
of its assets and investing broadly across the emerging markets. We continue to
be optimistic about prospects in the European equity markets. Furthermore,
recent developments in Asia have forced these countries to address their
problems, and we expect those markets to fully recover eventually. We feel that
sticking with the Fund's strategy will allow the Fund to participate in the
recovery.
25
<PAGE> 129
The One Group International Equity Index Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
The Fund, by nature of its investment in 34 foreign countries, continues to
offer superb diversification, especially for an investor with a large allocation
to U.S. equities.
/s/ Norman Meltz
- ------------------------------
Norman Meltz
Independence International Associates Inc.
Fund Sub-Advisor
/s/ Richard R. Jandrain III
- ------------------------------
Richard R. Jandrain III
Senior Managing Director of Equity Securities
Please refer to the prospectus and the accompanying financial statements for
more information about your Fund.
26
<PAGE> 130
The One Group International Equity Index Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (10/28/92)
<S> <C> <C> <C>
Fiduciary 9.54% 10.93% 12.84%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period Morgan Stanley
(Fiscal Year Covered) EAFE/GDP Fiduciary
<S> <C> <C>
10/92 $10,000 $10,000
6/93 12,248 11,812
6/94 14,527 13,636
6/95 15,057 14,209
6/96 16,946 15,803
6/97 19,378 18,116
6/98 $22,312 $19,843
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (4/23/93)
<S> <C> <C> <C>
Class A 9.34% 10.70% 10.21%
Class A* 4.40% 9.68% 9.23%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Measurement Period Morgan Stanley
(Fiscal Year Covered) EAFE/GDP Class A* Class A
<S> <C> <C> <C>
4/93 $10,000 $ 9,550 $ 10,000
6/93 9,981 9,510 9,958
6/94 11,837 10,953 11,469
6/95 12,269 11,374 11,913
6/96 13,808 12,641 13,248
6/97 15,790 14,448 15,144
6/98 $18,181 $15,809 $416,556
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 8.48% 8.53%
Class B** 4.48% 8.19%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period Morgan Stanley
(Fiscal Year Covered) EAFE/GDP Class B** Class B
<S> <C> <C> <C>
1/94 $10,000 $10,000 $10,000
6/94 10,057 10,323 10,323
6/95 10,424 10,650 10,650
6/96 11,732 11,712 11,712
6/97 13,415 13,278 13,278
6/98 $15,446 $14,203 $14,403
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 16.34%
Class C** 15.34%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Measurement Period Morgan Stanley Dollars
(Fiscal Year Covered) EAFE/GDP Class C** Class C
<S> <C> <C> <C>
11/97 $10,000 $10,000 $10,000
6/98 $12,365 $11,534 $11,634
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
International investing involves increased risk and volatility.
The performance of the International Equity Index Fund is measured against the
Morgan Stanley EAFE/GDP Index, an unmanaged index generally representative of
the performance of international stock markets. Investors are unable to purchase
the index directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management. By contrast, the performance
of the fund reflects the deduction of these value-added services as well as the
deduction of sales charges on Class A Shares and applicable contingent deferred
sales charges on Class B and Class C Shares.
27
<PAGE> 131
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Asset Allocation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
ASSET BACKED SECURITIES (2.0%):
Financial Services (2.0%):
$ 42 Advanta Mortgage Loan Trust, Series
1994-3, Class A2, 7.60%,
7/25/10.......................... $ 42
542 Case Equipment Loan Trust, Series
1996-B, Class A3, 6.65%,
9/15/03.......................... 552
1,000 Chemical Master Credit Card Trust,
Series 1995-2, Class A, 6.23%,
6/15/03.......................... 1,010
480 Greentree Financial Corp., Series
1996-3, Class A3, 6.70%,
5/15/27.......................... 487
800 Greentree Financial Corp., Series
1996-7, Class A4, 6.80%,
10/15/27......................... 830
105 KeyCorp Auto Grantor Trust, Series
1995-A A, 5.80%,................. 106
312 Nationsbank Auto Owner Trust,
Series 1996-A A3, 6.38%,
7/15/00.......................... 314
525 Olympic Automobile Receivables
Trust, 6.05%, 8/15/02............ 526
1,025 Olympic Automobile Receivables
Trust, Series 1996-B, Class A4,
6.70%, 3/15/02................... 1,036
395 The Money Store Home Equity Trust,
Series 1993-C, 5.18%, 7/15/06.... 391
73 The Money Store Home Equity Trust,
Series 1994-B, Class A2, 6.80%,
2/15/13.......................... 74
--------
Total Asset Backed Securities 5,368
--------
COMMERCIAL PAPER (1.9%):
Financial Services (1.9%):
5,200 Merrill Lynch, 5.59%, 9/18/98
(d).............................. 5,137
--------
Total Commercial Paper 5,137
--------
COMMON STOCKS (53.5%):
Business Equipment & Service (0.7%):
14 Miller (Herman), Inc............... 333
25 Service Corp. International........ 1,085
11 U.S.A. Waste Services, Inc.
(b)(c)........................... 523
--------
1,941
--------
Capital Goods (3.9%):
9 Cooper Industries, Inc............. 483
18 Emerson Electric Co................ 1,092
50 General Electric Co................ 4,504
16 Harsco Corp........................ 738
8 Hubbell, Inc., Class B............. 329
13 Johnson Controls, Inc.............. 725
6 Medusa Corp........................ 389
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Capital Goods, continued:
25 Teleflex, Inc...................... $ 939
21 Tyco International, Ltd............ 1,335
--------
10,534
--------
Consumer Durable (0.7%):
25 Autozone, Inc. (b)(c).............. 789
21 Chrysler Corp...................... 1,201
--------
1,990
--------
Consumer Non-Durable (4.6%):
28 Coca-Cola Co....................... 2,360
25 ConAgra, Inc....................... 792
14 Interstate Bakeries Corp........... 471
25 Intimate Brands, Inc............... 675
10 Lancaster Colony Corp.............. 367
18 McCormick & Co., Inc............... 654
24 Newell Companies, Inc.............. 1,176
43 Philip Morris Co., Inc............. 1,709
10 Proctor & Gamble Co................ 902
17 Quaker Oats Co..................... 917
15 Revlon, Inc. (b)(c)................ 745
21 Rubbermaid, Inc.................... 710
18 Sara Lee Corp...................... 1,029
--------
12,507
--------
Consumer Services (2.7%):
26 Belo (A.H.) Corp., Series A........ 626
24 Hasbro, Inc........................ 930
30 Hilton Hotels Corp................. 849
13 MGM Grand, Inc. (b)(c)............. 420
22 Tele-Communications, Inc. (b)(c)... 855
19 Time Warner, Inc................... 1,650
17 Viacom, Inc. (b)................... 996
9 Walt Disney Co..................... 893
--------
7,219
--------
Energy (3.9%):
12 Ashland, Inc....................... 609
10 Devon Energy Corp. (c)............. 363
10 Dresser Industries, Inc............ 432
46 Exxon Corp......................... 3,259
30 Royal Dutch Petroleum, NY Shares... 1,633
27 Texaco, Inc........................ 1,612
16 Tosco Corp. (c).................... 479
10 Transocean Offshore, Inc........... 436
17 Ultramar Diamond Shamrock Corp..... 521
33 USX-Marathon Group................. 1,119
--------
10,463
--------
Financial Services (9.3%):
11 Allstate Corp...................... 1,026
9 American International Group,
Inc.............................. 1,343
6 Associates First Capital, Class
A................................ 469
</TABLE>
Continued
28
<PAGE> 132
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Asset Allocation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
11 Bear Stearns Co., Inc.............. $ 614
24 Charter One Financial, Inc......... 809
23 Chase Manhattan Corp............... 1,744
13 Cigna Corp......................... 897
11 Equitable Co., Inc................. 809
27 Federal National Mortgage Assoc.... 1,622
23 First Tennessee National Corp...... 729
18 First Union Corp................... 1,031
10 Hartford Financial Services
Group............................ 1,121
21 MBNA Corp.......................... 690
14 Mercantile Bankshares Corp......... 498
19 Morgan Stanley Dean Witter
Discover......................... 1,754
16 National City Corp................. 1,157
36 NationsBank Corp................... 2,761
6 PMI Group, Inc..................... 462
26 Southtrust Corp.................... 1,151
13 State Street Corp.................. 869
38 Travelers Group, Inc............... 2,322
3 Wells Fargo & Co................... 1,255
--------
25,133
--------
Health Care (5.9%):
33 American Home Products Co.......... 1,713
12 Bausch & Lomb, Inc................. 596
16 Baxter International, Inc.......... 866
10 Boston Scientific Corp. (b)(c)..... 731
24 Bristol Myers Squibb Co............ 2,713
8 Cardinal Health, Inc............... 703
18 IDEXX Laboratories, Inc. (b)....... 458
9 Johnson & Johnson.................. 634
20 Medtronic, Inc..................... 1,275
12 Merck & Co., Inc................... 1,578
8 Pfizer, Inc........................ 837
16 Schering Plough Corp............... 1,439
6 Sofamor Danek Group, Inc. (b)...... 545
27 Warner Lambert Co.................. 1,852
--------
15,940
--------
Raw Materials (2.0%):
12 Betzdearborn, Inc.................. 498
18 Crompton & Knowles Corp............ 456
18 Du Pont (EI) de Nemours & Co....... 1,350
22 Ferro Corp......................... 561
23 Morton International, Inc.......... 585
17 Nalco Chemical Co.................. 580
16 Olin Corp.......................... 663
18 Praxair, Inc....................... 847
--------
5,540
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail (3.7%):
23 Dayton Hudson Corp................. $ 1,130
36 Just For Feet, Inc. (b)............ 1,023
21 Kohl's Corp. (b)................... 1,063
30 Kroger Co. (b)..................... 1,273
42 Officemax, Inc. (b)................ 693
12 Outback Steakhouse, Inc. (b)(c).... 476
16 Safeway, Inc. (b).................. 643
46 Wal-Mart Stores, Inc. (c).......... 2,813
24 Williams Sonoma, Inc. (b).......... 770
--------
9,884
--------
Shelter (1.5%):
6 Armstrong World Industries, Inc.... 411
23 Kimberly Clark Corp................ 1,060
28 Leggett & Platt, Inc............... 705
17 Masco Corp......................... 1,004
18 Pentair, Inc....................... 769
--------
3,949
--------
Technology (8.7%):
18 American Power Conversion (b)...... 543
13 Applied Materials, Inc. (b)........ 378
18 BMC Software, Inc. (b)............. 924
22 Cadence Design Systems, Inc. (b)... 681
29 Cisco Systems, Inc. (b)............ 2,693
29 Dell Computer Corp. (b)............ 2,673
13 Gateway 2000, Inc. (b)(c).......... 643
25 Hewlett Packard Co................. 1,503
36 Intel Corp......................... 2,639
20 International Business Machines.... 2,239
8 Lockheed Martin Corp............... 815
19 LSI Logic Corp. (b)................ 436
20 Lucent Technologies, Inc........... 1,689
16 Maxim Integrated Products, Inc.
(b).............................. 513
48 Microsoft Corp. (b)................ 5,169
--------
23,538
--------
Utilities (5.9%):
18 AES Corp. (b)...................... 951
22 Baltimore Gas & Electric Co........ 677
19 Century Telephone Enterprises...... 885
20 Cinergy Corp....................... 711
17 El Paso Natural Gas................ 646
33 Energy East Corp................... 1,353
24 General Public Utilities Corp...... 908
30 GTE Corp........................... 1,669
13 L G & E Energy Corp................ 346
13 MCN Corp........................... 311
39 Qwest Communications International
(b).............................. 1,377
51 SBC Communications, Inc............ 2,028
24 Sprint Corp........................ 1,713
</TABLE>
Continued
29
<PAGE> 133
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Asset Allocation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities, continued:
24 Williams Cos., Inc. (c)............ $ 797
34 WorldCom, Inc. (b)(c).............. 1,647
--------
16,019
--------
Total Common Stocks 144,657
--------
CORPORATE BONDS (10.8%):
Banking, Finance & Insurance (5.8%):
$1,000 Association Corp., 8.27%,
11/8/01.......................... 1,066
1,000 BankAmerica Corp., 8.13%, 2/1/02... 1,063
500 Chrysler Financial Corp., 5.88%,
2/7/01........................... 499
1,200 Circuit City Credit Card Master
Trust, 6.38%, 8/15/05............ 1,214
1,000 First Hawaiian, Inc., 6.25%,
8/15/00.......................... 1,001
610 Ford Credit Auto Loan Master Trust,
5.50%, 2/15/03................... 606
500 Ford Motor Credit Corp., 8.38%,
1/15/00.......................... 518
250 General Motors Acceptance Corp.,
7.00%, 3/1/00.................... 254
1,250 General Motors Acceptance Corp.,
8.25%, 2/24/04................... 1,365
1,000 Goldman Sachs Group, 7.20%, 3/1/07,
144 A............................ 1,063
750 Huntington National Bank, 6.75%,
6/15/03.......................... 769
1,000 International Lease Finance Corp.,
5.88%, 1/15/01................... 996
1,000 KeyCorp National Bank, 6.75%,
6/15/03.......................... 1,025
300 Lehman Brothers Holdings, Inc.,
8.88%, 11/1/98................... 303
500 Lehman Brothers, Inc., 9.88%,
10/15/00......................... 539
413 MBNA Master Credit Card, 5.40%,
3/15/99.......................... 411
800 McDonnell Douglas Corp., 9.30%,
9/11/02.......................... 825
307 McDonnell Douglas Corp., 6.45%,
12/5/02.......................... 311
1,250 Midland Bank PLC, 6.95%, 3/15/11... 1,303
250 Nationsbank Texas, 6.75%,
8/15/00.......................... 254
500 Suntrust Banks, 7.38%, 7/1/02...... 523
--------
15,908
--------
Consumer Non-Durable (0.4%):
250 Anheuser Busch Co., 8.75%,
12/1/99.......................... 260
500 Campbell Soup Co., 5.63%,
9/15/03.......................... 490
250 Coca-Cola Co., 7.88%, 9/15/98...... 251
--------
1,001
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Governments (Foreign) (0.4%):
$1,000 Province of Quebec, 6.50%,
1/17/06.......................... $ 1,021
--------
Industrials (2.4%):
1,000 Cummins Engine Co., Inc., 6.45%,
3/1/05........................... 1,009
1,000 Dayton Hudson Corp., 7.25%,
9/1/04........................... 1,053
200 Du Pont (EI) de Nemours & Co.,
8.70%, 2/7/01.................... 214
250 Ford Motor Co., 9.00%, 9/15/01..... 271
750 Hertz, 6.00%, 1/15/03.............. 744
200 Illinois Tool Works, 7.50%,
12/1/98.......................... 201
500 J C Penney & Co., 5.38%,
11/15/98......................... 498
250 Johnson & Johnson, 7.38%,
6/29/02.......................... 262
1,250 Occidental Petroleum, 9.25%,
8/1/19........................... 1,577
750 Sears Roebuck Acceptance, 7.13%,
5/2/03........................... 776
--------
6,605
--------
Transportation (0.2%):
500 Union Pacific Co., 7.60%, 5/1/05... 535
--------
Utilities (1.6%):
500 AT&T Corp., 6.00%, 8/1/00.......... 499
750 AT&T Corp., 7.50%, 6/1/06.......... 810
1,250 Columbia Gas System, 6.39%,
11/28/00......................... 1,258
250 Duke Power Co., 7.00%, 7/1/00...... 255
250 Southern California Edison, 7.50%,
4/15/99.......................... 253
675 Virginia Electric & Power, 9.15%,
6/10/99.......................... 695
500 Virginia Electric & Power, 6.63%,
4/1/03........................... 512
--------
4,282
--------
Total Corporate Bonds 29,352
--------
FEDERAL AGENCY DEBENTURES (0.7%):
Federal National Mortgage Assoc. (0.7%):
1,000 5.55%, 9/8/98...................... 999
1,000 5.53%, 2/10/99..................... 1,000
--------
Total Federal Agency Debentures 1,999
--------
U.S. GOVERNMENT AGENCY MORTGAGES (15.4%):
Federal Home Loan Mortgage Corp. (5.2%):
102 10.00%, 9/1/03, Pool #E30407....... 108
280 8.00%, 3/1/08, Pool #E45796........ 289
896 7.00%, 1/1/12, Pool #E66116........ 914
1,483 6.50%, 3/1/13, Pool #E69466........ 1,493
1,484 6.00%, 3/1/13, Pool #E69409........ 1,470
1,000 7.00%, 6/1/13, Pool #E00554........ 1,011
1,000 6.50%, 7/1/13, TBA................. 1,012
1,000 6.00%, 7/1/13, TBA................. 988
269 10.50%, 10/1/20, Pool #D24679...... 299
</TABLE>
Continued
30
<PAGE> 134
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Asset Allocation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Federal Home Loan Mortgage Corp., continued:
$ 535 8.00%, 4/1/25, Pool #C00401........ $ 555
370 8.00%, 5/1/25, Pool #D60455........ 384
402 7.00%, 2/1/26, Pool #D69343........ 409
637 6.50%, 2/1/26, Pool #D68616........ 637
833 6.50%, 2/1/26, Pool #D68124........ 833
482 7.00%, 3/1/26, Pool #D69430........ 490
791 7.50%, 5/1/26, Pool #C00460........ 813
586 8.50%, 7/1/26, Pool #C00472........ 613
896 7.00%, 10/1/26, Pool #D75494....... 911
858 7.50%, 12/1/27, Pool #C00542....... 879
--------
14,108
--------
Federal National Conventional Loan (0.3%):
534 8.00%, 6/1/24, Pool #270402........ 555
301 8.00%, 6/1/24, Pool #250085........ 313
--------
868
--------
Federal National Mortgage Assoc. (4.8%):
250 6.40%, 1/13/04 (c)................. 250
807 6.50%, 5/1/11, Pool #337195........ 815
1,480 6.00%, 3/1/13, Pool #417081........ 1,464
1,494 6.50%, 4/1/13, Pool #414513........ 1,503
1,000 7.00%, 6/1/13, Pool #427488........ 1,018
2,000 6.50%, 6/25/13, Series 94-1 K...... 2,026
739 7.00%, 7/1/25, Pool #317252........ 753
730 6.50%, 2/1/26, Pool #337115........ 729
994 7.00%, 3/1/26, Pool #365488........ 1,010
753 7.50%, 5/1/26, Pool #344916........ 775
863 7.00%, 5/1/26, Pool #346269........ 877
859 7.50%, 11/1/26, Pool #363626....... 883
996 6.50%, 2/1/28, Pool #417157........ 992
--------
13,095
--------
Government National Mortgage Assoc. (5.1%):
678 5.50%, 4/20/11, Pool #2222......... 655
103 8.00%, 4/15/17, Pool #192100....... 108
59 8.00%, 5/15/22, Pool #329176....... 62
85 6.50%, 1/15/24, Pool #376656....... 86
209 8.00%, 4/15/24, Pool #376038....... 218
895 8.00%, 8/15/24, Pool #394024....... 932
1,260 7.00%, 8/15/25, Pool #413007....... 1,285
909 6.50%, 4/15/26, Pool #424185....... 910
971 6.50%, 4/15/26, Pool #416192....... 971
751 7.50%, 5/15/26, Pool #375345....... 774
903 7.00%, 5/15/26, Pool #375344....... 921
684 8.50%, 1/15/27, Pool #432266....... 723
999 8.00%, 9/15/27, Pool #451932....... 1,035
957 7.50%, 12/15/27, Pool #455358...... 984
987 7.00%, 4/15/28, Pool #473915....... 1,003
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Government National Mortgage Assoc., continued:
$ 999 7.50%, 5/15/28, Pool# 465069....... $ 1,027
1,000 7.00%, 6/15/28, Pool #477123....... 1,016
1,000 6.50%, 7/1/28, TBA................. 997
--------
13,707
--------
Total U.S. Government Agency Mortgages 41,778
--------
U.S. TREASURY OBLIGATIONS (12.4%):
U.S. Treasury Bills (0.1%):
30 8/8/98 (d)......................... 30
30 8/20/98 (d)........................ 30
105 8/27/98 (d)........................ 104
55 9/24/98 (d)........................ 54
--------
218
--------
U.S. Treasury Bonds (5.8%):
750 11.25%, 2/15/15 (c)................ 1,201
5,900 7.50%, 11/15/16 (c)................ 7,080
4,700 8.13%, 8/15/19..................... 6,058
1,000 7.88%, 2/15/21 (c)................. 1,268
--------
15,607
--------
U.S. Treasury Notes (6.5%):
200 8.88%, 2/15/99..................... 204
300 5.88%, 3/31/99 (c)................. 301
300 6.00%, 10/15/99.................... 302
250 7.75%, 11/30/99 (c)................ 257
6,000 6.50%, 5/31/01 (c)................. 6,151
8,500 6.50%, 8/31/01 (c)................. 8,729
150 6.25%, 2/15/03 (c)................. 154
1,500 6.50%, 5/15/05 (c)................. 1,582
--------
17,680
--------
Total U.S. Treasury Obligations 33,505
--------
REPURCHASE AGREEMENTS (4.0%):
10,900 Prudential Securities, 6.10%,
7/1/98, (Collateralized by
$11,056 U.S. Treasury Note,
5.63%, 11/30/99, market value
$11,118)......................... 10,900
--------
Total Repurchase Agreements
............................................... 10,900
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (10.7%):
Master Notes (1.9%):
1,103 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*.................. 1,103
919 Danaher Corp., 6.68%, 10/9/98*..... 919
552 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................. 552
</TABLE>
Continued
31
<PAGE> 135
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Asset Allocation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Master Notes, continued:
$1,250 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*.................. $ 1,250
331 NationsBanc Capital Markets, 6.70%,
7/1/98*.......................... 331
1,103 Williamette Industries, Inc.,
5.85%, 7/23/98*.................. 1,103
--------
5,258
--------
Put Bonds (3.0%):
919 Associates Corp. N.A., 5.79%,
1/4/99*.......................... 919
735 Branch Banking & Trust, 5.92%,
12/10/99*........................ 735
368 Citicorp, 5.94%, 8/3/98*........... 368
846 Evangelical Lutheran, 5.74%,
4/28/00*......................... 844
1,103 GMAC, 5.85%, 11/10/99*............. 1,104
919 Goldman Sachs, 6.06%, 11/21/00*.... 919
919 Greenwich Capital, 6.11%,
12/13/99*........................ 919
919 Lehman Brothers Holdings, 5.85%,
8/18/99*......................... 919
368 Merrill Lynch, 6.07%, 11/13/98*.... 368
919 PNC Bank, 5.74%, 10/2/98*.......... 919
--------
8,014
--------
Repurchase Agreements (5.8%):
3,677 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$3,759 various Corporate and
Government Securities,
2.85% - 17.25%, 10/15/02 -
4/15/35, market value $3,818).... 3,677
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$1,838 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $1,959 various
Corporate Bonds, 0.00%, 7/7/98 -
9/18/98, market value $1,952).... $ 1,838
9,450 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $9,686 various
Corporate Bonds, 0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$10,138)......................... 9,450
6 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $7 Media One
Group Bonds, 0.00%, 10/5/98,
market value $7)................. 6
294 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $1,841 various
Government Securities, 0.00% -
10.00%, 12/1/18 - 5/1/24, market
value $303)...................... 294
368 Paine Webber, 6.40%, 7/1/98
(Collateralized by $367 various
Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value
$386)............................ 368
--------
15,633
--------
Total Short-Term Securities Held as
Collateral 28,905
--------
Total (Cost $264,919) (a) $301,601
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $270,656.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $46. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $38,554
Unrealized depreciation..................................... (1,918)
-------
Net unrealized appreciation................................. $36,636
=======
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
<TABLE>
<CAPTION>
CURRENT
NUMBER OPENING MARKET
OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE (000) (000)
- --------- ------------- --------- -------
<C> <S> <C> <C>
20 Long S&P 500, September 1998 Futures $5,534 $5,716
</TABLE>
See notes to financial statements.
32
<PAGE> 136
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Income Equity Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS (94.8%):
Business Equipment & Services (1.9%):
63 Automatic Data Processing, Inc.... $ 4,591
180 Browning-Ferris Industries, Inc.
(b)............................. 6,255
225 Dun & Bradstreet Corp. (b)........ 8,128
----------
18,974
----------
Capital Goods (6.2%):
215 Cooper Industries, Inc............ 11,812
87 Deere & Co........................ 4,600
80 Emerson Electric Co............... 4,825
365 General Electric Co............... 33,215
100 Johnson Controls, Inc............. 5,706
----------
60,158
----------
Consumer Durable (1.9%):
75 Chrysler Corp..................... 4,228
250 Ford Motor Co..................... 14,750
----------
18,978
----------
Consumer Non-Durable (13.8%):
120 American Greetings Corp., Class
A............................... 6,113
254 Campbell Soup Co.................. 13,473
100 Clorox Co......................... 9,538
242 Coca-Cola Co...................... 20,690
450 ConAgra, Inc...................... 14,259
110 Eastman Kodak Co.................. 8,037
150 H.J. Heinz Co..................... 8,419
120 International Flavors &
Fragrances, Inc. (b)............ 5,213
150 McCormick & Co., Inc.............. 5,358
60 Newell Co., Inc................... 2,989
165 PepsiCo, Inc...................... 6,796
325 Philip Morris Co., Inc............ 12,797
165 Proctor & Gamble Co............... 15,024
104 Quaker Oats Co.................... 5,714
----------
134,420
----------
Consumer Services (1.0%):
120 McGraw-Hill Co., Inc.............. 9,788
----------
Energy (8.9%):
265 Amoco Corp........................ 11,031
100 Atlantic Richfield Co............. 7,813
100 Dresser Industries, Inc. (b)...... 4,406
300 Exxon Corp........................ 21,394
100 Halliburton Co. (b)............... 4,456
210 Mobil Corp........................ 16,091
350 Royal Dutch Petroleum Co. (b)..... 19,184
75 USX-Marathon Group................ 2,573
----------
86,948
----------
Financial Services (18.4%):
115 Allstate Corp..................... 10,530
210 American Express Co............... 23,941
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
72 Associates First Capital, Class
A............................... $ 5,541
240 BankAmerica Corp.................. 20,745
146 Chase Manhattan Corp.............. 11,027
65 Citicorp.......................... 9,701
216 Federal National Mortgage Assoc... 13,122
240 First Tennessee National Corp..... 7,575
100 First Union Corp.................. 5,825
95 J.P. Morgan & Co., Inc............ 11,127
155 Lincoln National Corp............. 14,163
125 National City Corp................ 8,875
110 Norwest Corp...................... 4,111
200 Reliastar Financial Corp.......... 9,600
98 Southtrust Corp................... 4,241
80 TransAmerica Corp................. 9,210
240 U.S. Bancorp...................... 10,320
----------
179,654
----------
Health Care (13.5%):
126 Abbott Labs....................... 5,150
400 American Home Products Co......... 20,700
250 Baxter International, Inc......... 13,453
200 Bristol Myers Squibb Co........... 22,987
125 Merck & Co., Inc.................. 16,719
125 Pfizer, Inc....................... 13,586
200 Schering Plough Corp.............. 18,325
300 Warner Lambert Co................. 20,813
----------
131,733
----------
Multi-Industry (0.6%):
70 Minnesota Mining & Manufacturing
Co.............................. 5,753
----------
Raw Materials (3.8%):
150 Dow Chemical Co. (b).............. 14,502
140 Du Pont (EI) de Nemours & Co...... 10,448
150 Nalco Chemical Co................. 5,269
83 Olin Corp......................... 3,460
160 Pall Corp. (b).................... 3,280
----------
36,959
----------
Retail (3.5%):
178 Albertsons, Inc................... 9,223
163 May Department Stores Co.......... 10,680
185 Wal-Mart Stores, Inc. (b)......... 11,238
80 Walgreen Co. (b).................. 3,305
----------
34,446
----------
Shelter (7.0%):
24 Avalon Bay Communities, Inc....... 891
66 Boston Properties, Inc............ 2,280
45 Camden Property Trust............. 1,348
56 CBL & Associates Properties....... 1,353
35 Chelsea GCA Realty, Inc., (b)..... 1,416
</TABLE>
Continued
33
<PAGE> 137
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Income Equity Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Shelter, continued:
44 Colonial Properties Trust......... $ 1,364
138 Equity Office Properties Trust.... 3,902
35 Equity Residential Properties
Trust........................... 1,651
73 Federal Realty Trust.............. 1,747
32 Gables Residential Trust.......... 857
120 Kimberly Clark Corp............... 5,505
66 Liberty Property Trust............ 1,685
31 Macerich Co....................... 912
58 Mack Cali Realty Corp............. 1,980
142 Masco Corp........................ 8,585
61 Merry Land & Investment Co........ 1,283
55 Mills Corp........................ 1,327
73 Patriot American Hospitality...... 1,747
66 Prentiss Properties Trust......... 1,614
47 Public Storage, Inc............... 1,313
49 Shurgard Storage Centers.......... 1,349
29 Simon Debartolo Group, Inc........ 943
270 Sonoco Products Co................ 8,151
43 Spieker Properties, Inc........... 1,682
95 Starwood Hotels & Resorts (b)..... 4,599
68 Summit Properties, Inc............ 1,292
74 Taubman Centers, Inc.............. 1,059
48 Vornado Realty Trust.............. 1,917
28 Weeks Corp........................ 898
80 Weyerhaeuser Co................... 3,695
----------
68,345
----------
Technology (5.5%):
60 AMP, Inc. (b)..................... 2,063
100 Boeing Co......................... 4,456
127 Hewlett Packard Co................ 7,604
105 International Business Machines... 12,055
60 Lockheed Martin Corp. (b)......... 6,353
60 United Technologies Corp. (b)..... 5,550
150 Xerox Corp........................ 15,243
----------
53,324
----------
Transportation (0.2%):
70 Norfolk Southern Corp............. 2,087
----------
Utilities (8.6%):
181 AT&T Corp. (b).................... 10,332
180 BellSouth Corp.................... 12,083
147 Central & South West Corp......... 3,951
49 El Paso Energy Corp. (c).......... 2,597
50 El Paso Natural Gas Co............ 1,913
160 Entergy Corp...................... 4,600
230 GTE Corp.......................... 12,793
200 L G & E Energy Corp............... 5,423
80 New Century Energies, Inc......... 3,635
140 Northern States Power Co.......... 4,008
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities, continued:
400 SBC Communications, Inc........... $ 15,999
90 Sprint Corp....................... 6,345
----------
83,679
----------
Total Common Stocks 925,246
----------
CONVERTIBLE BONDS (2.5%):
Health Care (1.1%):
$5,000 Alza Corp., 5.00%, 5/1/06......... 6,350
3,500 Athena Neurosciences, 4.75%,
11/15/04, Callable 11/15/00 @
102.7 (b)....................... 4,051
----------
10,401
----------
Shelter (1.1%):
6,500 Hilton Hotels Corp., 5.00%,
5/15/06......................... 6,752
4,500 Medical Care International, 6.75%,
10/1/06......................... 4,123
----------
10,875
----------
Utilities (0.3%):
2,500 U.S. Filter Corp., 4.50%,
12/15/01........................ 2,547
----------
Total Convertible Bonds 23,823
----------
PREFERRED STOCKS (2.4%):
Capital Goods (0.3%):
125 Ingersoll-Rand Co. (c)............ 3,000
----------
Computer Software (0.5%):
55 Microsoft Corp.(c)................ 5,225
----------
Financial Services (0.7%):
60 Newell Financial Trust (c)........ 3,458
45 St. Paul Capital (c).............. 3,204
----------
6,662
----------
Industrial Goods & Services (0.9%):
50 Corning Delaware (c).............. 2,825
120 Crown Cork & Seal Co. (c)......... 5,370
----------
8,195
----------
Total Preferred Stocks 23,082
----------
REPURCHASE AGREEMENTS (0.3%):
$3,405 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $3,505
U.S. Treasury Bills, 9/3/98,
market value $3,474)............ 3,405
----------
Total Repurchase Agreements 3,405
----------
SHORT-TERM SECURITIES HELD AS COLLATERAL (5.4%):
Master Notes (1.0%):
2,021 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*................. 2,021
1,684 Danaher Corp., 6.68%, 10/9/98*.... 1,684
</TABLE>
Continued
34
<PAGE> 138
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Income Equity Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Master Notes, continued:
$1,011 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*................. $ 1,011
2,292 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*................. 2,292
606 NationsBanc Capital Markets,
6.70%, 7/1/98*.................. 606
2,021 Williamette Industries, Inc.,
5.85%, 7/23/98*................. 2,021
----------
9,635
----------
Put Bonds (1.5%):
1,684 Associates Corp. N.A., 5.79%,
1/4/99*......................... 1,683
1,347 Branch Banking & Trust, 5.92%,
12/10/99*....................... 1,347
674 Citicorp, 5.94%, 8/3/98*.......... 674
1,550 Evangelical Lutheran, 5.74%,
4/28/00*........................ 1,547
2,021 GMAC, 5.85%, 11/10/99*............ 2,025
1,684 Goldman Sachs, 6.66%, 11/21/00*... 1,684
1,684 Greenwich Capital, 6.11%,
12/13/99........................ 1,684
1,684 Lehman Brothers Holdings, 5.85%,
8/18/99*........................ 1,685
674 Merrill Lynch, 6.07%, 11/13/98*... 674
1,684 PNC Bank, 5.74%, 10/2/98*......... 1,683
----------
14,686
----------
Repurchase Agreements (2.9%):
6,737 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$6,888 various Corporate and
Government Securities,
2.85% - 17.25%,
10/15/02 - 4/15/35, market value
$6,996)......................... 6,737
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$3,369 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $3,590
various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value
$3,577)......................... $ 3,369
17,315 Lehman Brothers, 6.55%, 7/1/98
(Collateralized by $17,748
various Corporate Bonds,
0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$18,576)........................ 17,315
12 Lehman Brothers, 6.47%, 7/1/98
(collateralized by $12 Media One
Group Bonds, 0.00%, 10/5/98,
market value $12)............... 12
539 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $3,374
various Government Securities
0.00% - 10.00%, 12/1/18-5/1/24,
market value $555).............. 539
674 Paine Webber, 6.40%, 7/1/98
(Collateralized by $672 various
Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value
$707)........................... 674
----------
28,646
----------
Total Short-Term Securities Held as
Collateral 52,967
----------
Total (Cost $549,687) (a) $1,028,523
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $976,168.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting to
approximately $4. Cost for federal income tax purposes differs from value by
net unrealized appreciation of securities as follows (amounts in
thousands.):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $483,794
Unrealized depreciation..................................... (4,962)
--------
Net unrealized appreciation................................. $478,832
========
</TABLE>
(b) A portion of this security was loaned as of June 30, 1998
(c) Non-income producing securities
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
35
<PAGE> 139
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER (0.7%):
Financial Services (0.7%):
$9,000 Merrill Lynch, 5.56%, 9/9/98...... $ 8,904
----------
Total Commercial Paper 8,904
----------
COMMON STOCKS (98.3%):
Business Equipment & Services (1.8%):
40 Automatic Data Processing, Inc.... 2,946
25 Browning-Ferris Industries,
Inc............................. 868
12 Canadian Moore Corp., Ltd......... 160
10 Ceridian Corp..................... 613
23 Cognizant Corp.................... 1,449
20 Computer Sciences Corp. (b)....... 1,311
12 Deluxe Corp....................... 415
23 Dun & Bradstreet Corp............. 839
18 Ecolab, Inc....................... 554
21 Equifax, Inc. (c)................. 750
61 First Data Corp................... 2,038
14 H & R Block....................... 592
18 Ikon Office Solutions (c)......... 256
17 Interpublic Group Co., Inc........ 1,018
42 Laidlaw, Inc...................... 511
7 National Service Industries,
Inc............................. 345
21 Omnicom Group, Inc. (c)........... 1,057
37 Pitney Bowes, Inc................. 1,793
21 R.R. Donnelley & Sons Co.......... 957
11 Ryder Systems, Inc. (c)........... 344
34 Service Corp. International....... 1,478
62 WMX Technologies, Inc............. 2,176
----------
22,470
----------
Capital Goods (5.7%):
3 Aeroquip-Vickers, Inc............. 202
12 Black & Decker Corp............... 730
10 Case Corp......................... 472
50 Caterpillar, Inc.................. 2,634
5 Cincinnati Milacron, Inc.......... 131
16 Cooper Industries, Inc............ 901
6 Crane Co.......................... 293
6 Cummins Engine, Inc............... 288
35 Deere & Co........................ 1,842
31 Dover Corp........................ 1,051
61 Emerson Electric Co............... 3,686
12 Fluor Corp........................ 597
5 Foster Wheeler Corp............... 116
444 General Electric Co............... 40,386
7 General Signal Corp............... 252
15 Grainger W.W., Inc................ 739
7 Harnischfeger Industries, Inc..... 193
17 Honeywell, Inc.................... 1,452
33 Illinois Tool Works............... 2,203
22 Ingersoll Rand Co................. 953
11 Johnson Controls, Inc............. 650
1 Nacco Industries, Inc............. 144
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Capital Goods, continued:
11 Navistar International Corp....... $ 303
7 Owens-Corning Fiberglass Corp..... 287
10 Paccar, Inc....................... 537
15 Parker-Hannifin Corp.............. 589
25 PPG Industries, Inc............... 1,737
24 Sherwin-Williams Co............... 795
9 Snap-On, Inc...................... 322
12 Stanley Works..................... 503
20 Thermo Electron Corp. (b)......... 701
8 Timken Co......................... 240
78 Tyco International, Ltd........... 4,923
----------
70,852
----------
Consumer Durable (2.3%):
21 Autozone, Inc. (b) (c)............ 666
3 Briggs & Stratton Corp............ 103
89 Chrysler Corp..................... 4,996
11 Cooper Tire & Rubber Co........... 235
14 Dana Corp. (c).................... 737
11 Eaton Corp........................ 830
9 Echlin, Inc....................... 430
165 Ford Motor Co..................... 9,748
91 General Motors Corp............... 6,093
25 Genuine Parts Co. (c)............. 863
21 Goodyear Tire & Rubber Co. (b).... 1,354
16 ITT Industries, Inc............... 594
14 Maytag Corp....................... 682
10 Whirlpool Corp.................... 714
----------
28,045
----------
Consumer Non-Durable (11.1%):
7 Alberto Culver Co., Class B....... 205
10 American Greetings Corp., Class
A............................... 529
68 Anheuser Busch Co., Inc. (c)...... 3,192
79 Archer-Daniels-Midland Co......... 1,538
18 Avon Products, Inc................ 1,433
4 Ball Corp......................... 143
8 Bemis Co.......................... 307
40 Bestfoods......................... 2,321
10 Brown-Forman Corp., Class B....... 620
64 Campbell Soup Co.................. 3,395
15 Clorox Co......................... 1,387
338 Coca-Cola Co...................... 28,913
40 Colgate Palmolive Co.............. 3,531
66 ConAgra, Inc...................... 2,080
5 Coors Adolph Co., Class B......... 176
17 Crown Cork & Seal Co.............. 815
44 Eastman Kodak Co.................. 3,237
28 Fort James Corp................... 1,267
24 Fortune Brands Inc................ 914
11 Fruit of the Loom, Inc., Class A
(b)............................. 351
22 General Mills, Inc................ 1,495
</TABLE>
Continued
36
<PAGE> 140
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Consumer Non-Durable, continued:
153 Gillette Co....................... $ 8,648
50 H.J. Heinz Co..................... 2,833
21 Hershey Foods Corp................ 1,447
15 International Flavors &
Fragrances, Inc................. 653
6 Jostens, Inc...................... 135
57 Kellogg Co........................ 2,135
10 Liz Claiborne, Inc. (c)........... 545
22 Newell Co......................... 1,097
40 Nike, Inc., Class B (c)........... 1,927
203 PepsiCo, Inc...................... 8,358
333 Philip Morris Co., Inc............ 13,098
33 Pioneer Hi-Bred International,
Inc............................. 1,378
7 Polaroid Corp..................... 233
183 Proctor & Gamble Co............... 16,706
18 Quaker Oats Co.................... 1,012
14 Ralston Purina Group.............. 1,687
8 Reebok International Ltd. (b)..... 218
21 Rubbermaid, Inc................... 705
5 Russell Corp...................... 163
64 Sara Lee, Corp.................... 3,554
47 Seagram Co., Ltd.................. 1,929
2 Springs Industries, Inc., Class
A............................... 98
10 Supervalu, Inc.................... 427
49 Sysco Corp........................ 1,257
9 Tupperware Corp................... 249
87 Unilever N V...................... 6,888
27 UST, Inc.......................... 721
18 V.F. Corp......................... 925
16 Wrigley (Wm.) Junior Co. (c)...... 1,554
----------
138,429
----------
Consumer Services (4.0%):
13 Brunswick Corp.................... 331
97 CBS Corp. (c)..................... 3,068
116 Cendant Corp...................... 2,425
17 Clear Channel Communications
(b)(c).......................... 1,840
50 Comcast Corp., Class A............ 2,040
13 Dow Jones & Co., Inc.............. 740
38 Gannett, Inc...................... 2,736
14 Harrah's Entertainment, Inc.
(b)(c).......................... 320
18 Hasbro, Inc....................... 697
34 Hilton Hotels Corp................ 975
10 King World Productions, Inc.
(b)............................. 255
11 Knight-Ridder, Inc................ 631
35 Marriott International, Class A... 1,130
38 Mattel, Inc....................... 1,613
14 McGraw-Hill Co., Inc.............. 1,136
85 Media One Group, Inc. (b)(c)...... 3,721
7 Meredith Corp..................... 325
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Consumer Services, continued:
24 Mirage Resorts, Inc. (b)(c)....... $ 513
13 New York Times Co., Class A....... 1,066
69 Tele-Communications, Inc., Class A
(b)(c).......................... 2,648
78 Time Warner, Inc.................. 6,647
12 Times Mirror Co., Class A......... 758
18 Tribune Co........................ 1,224
49 Viacom, Inc., Class B (b)......... 2,850
93 Walt Disney Co.................... 9,734
----------
49,423
----------
Energy (7.2%):
13 Amerada Hess Corp................. 680
131 Amoco Corp........................ 5,437
8 Anadarko Petroleum Corp. (c)...... 546
12 Apache Corp....................... 389
9 Ashland, Inc...................... 469
44 Atlantic Richfield Co............. 3,456
22 Baker Hughes, Inc................. 777
24 Burlington Northern............... 1,029
89 Chevron Corp. (c)................. 7,390
24 Dresser Industries, Inc........... 1,065
333 Exxon Corp........................ 23,763
34 Halliburton Co.................... 1,537
5 Helmerich & Payne, Inc............ 119
7 Kerr McGee Corp................... 423
8 McDermott International, Inc...... 274
108 Mobil Corp........................ 8,245
50 Occidental Petroleum Corp......... 1,351
14 Oryx Energy Co. (b)............... 305
7 Pennzoil Co....................... 335
36 Phillips Petroleum Co............. 1,731
12 Rowan Cos., Inc................... 230
293 Royal Dutch Petroleum Co. (c)..... 16,043
68 Schlumberger Ltd. (c)............. 4,631
10 Sun, Inc.......................... 396
24 Tenneco, Inc...................... 908
75 Texaco, Inc....................... 4,466
34 Union Pacific Resources Group,
Inc............................. 600
34 Unocal Corp. (c).................. 1,201
40 USX-Marathon Group................ 1,358
8 Western Atlas, Inc. (b)........... 662
----------
89,816
----------
Financial Services (17.5%):
57 Allstate Corp..................... 5,239
63 American Express Co............... 7,220
33 American General Corp............. 2,354
96 American International Group,
Inc............................. 14,005
22 Aon Corp.......................... 1,533
47 Associates First Capital, Class
A............................... 3,642
96 Banc One Corp. (c)................ 5,332
</TABLE>
Continued
37
<PAGE> 141
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
52 Bank of New York Co., Inc. (c).... $ 3,150
93 BankAmerica Corp.................. 8,032
40 Bankboston Corp................... 2,248
13 Bankers Trust New York Corp....... 1,549
19 BB&T Corp......................... 1,253
16 Bear Stearns Co., Inc............. 882
8 Beneficial Corp................... 1,151
9 Capital One Financial Corp........ 1,118
36 Charles Schwab Corp............... 1,174
116 Chase Manhattan Corp.............. 8,748
24 Chubb Corp........................ 1,905
29 Cigna Corp........................ 2,017
22 Cincinnati Financial Corp......... 852
61 Citicorp.......................... 9,169
23 Comerica, Inc..................... 1,496
25 Conseco, Inc. (c)................. 1,155
14 Country Wide Credit............... 721
92 Federal Home Loan Mortgage Corp... 4,352
141 Federal National Mortgage Assoc... 8,590
33 Fifth Third Bancorp (c)........... 2,050
40 First Chicago NBD Corp............ 3,578
132 First Union Corp.................. 7,699
39 Fleet Financial Group, Inc........ 3,240
34 Franklin Resources, Inc........... 1,860
10 General Re Corp................... 2,656
8 Golden West Financial Corp........ 885
19 Green Tree Financial Corp......... 801
15 H.F. Ahmanson & Co................ 1,061
16 Hartford Financial Services
Group........................... 1,805
44 Household International, Inc.
(c)............................. 2,192
26 Huntington Bancshares............. 875
24 J.P. Morgan & Co., Inc............ 2,846
15 Jefferson Pilot Corp.............. 875
60 KeyCorp........................... 2,121
16 Lehman Brothers Holding, Inc...... 1,255
14 Lincoln National Corp............. 1,285
34 Marsh & McLennan Co............... 2,034
13 MBIA, Inc......................... 1,001
69 MBNA Corp......................... 2,262
34 Mellon Bank Corp.................. 2,397
18 Mercantile Bancorporation......... 886
47 Merrill Lynch & Co. (c)........... 4,351
16 MGIC Investment Corp. (c)......... 931
82 Morgan Stanley Dean Witter
Discover........................ 7,484
45 National City Corp................ 3,182
131 NationsBank Corp.................. 9,987
15 Northern Trust Corp............... 1,175
101 Norwest Corp...................... 3,787
42 PNC Bank Corp..................... 2,259
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
9 Progressive Corp., Ohio........... $ 1,335
13 Providian Financial............... 1,017
15 Republic N Y Corp................. 944
19 SAFECO Corp....................... 875
23 SLM Holding Corp.................. 1,142
32 St. Paul Co., Inc................. 1,361
22 State Street Corp................. 1,529
24 Summit Bancorp.................... 1,133
25 Sunamerica, Inc................... 1,446
29 SunTrust Banks, Inc............... 2,386
34 Synovus Financial Corp. (c)....... 810
20 Torchmark Corp.................... 915
9 TransAmerica Corp................. 1,040
156 Travelers Group, Inc.............. 9,439
102 U.S. Bancorp...................... 4,391
21 UNUM Corp......................... 1,150
28 Wachovia Corp..................... 2,355
51 Washington Mutual, Inc. (c)....... 2,234
12 Wells Fargo & Co.................. 4,272
----------
217,481
----------
Health Care (11.9%):
209 Abbott Labs....................... 8,537
20 Aetna............................. 1,543
9 Allergan, Inc..................... 419
12 Alza Corp. (b).................... 507
179 American Home Products Co......... 9,264
36 Amgen, Inc. (b)................... 2,372
8 Bard C.R., Inc.................... 295
8 Bausch & Lomb, Inc................ 402
38 Baxter International, Inc......... 2,026
18 Becton Dickinson & Co. (c)........ 1,368
16 Biomet, Inc....................... 521
27 Boston Scientific Corp. (b) (c)... 1,900
137 Bristol Myers Squibb Co........... 15,701
15 Cardinal Health, Inc.............. 1,398
91 Columbia/HCA Healthcare Corp.
(c)............................. 2,643
152 Eli Lilly & Co.................... 10,052
20 Guidant Corp...................... 1,423
59 HBO & Co.......................... 2,068
54 Healthsouth Corp. (b)............. 1,432
22 Humana, Inc....................... 693
184 Johnson & Johnson................. 13,538
10 Mallinckrodt Group, Inc........... 311
9 Manor Care, Inc................... 343
65 Medtronic, Inc.................... 4,166
164 Merck & Co., Inc.................. 21,871
6 Millipore Corp.................... 176
176 Pfizer, Inc....................... 19,137
69 Pharmacia & Upjohn, Inc........... 3,195
</TABLE>
Continued
38
<PAGE> 142
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Health Care, continued:
100 Schering Plough Corp.............. $ 9,186
3 Shared Medical Systems Corp....... 194
12 St. Jude Medical Center, Inc.
(b)............................. 435
40 Tenet Healthcare Corp. (b)........ 1,239
9 U.S. Surgical, Corp............... 401
25 United Healthcare Corp............ 1,593
111 Warner Lambert Co................. 7,730
----------
148,079
----------
Multi-Industry (1.1%):
77 Allied Signal, Inc................ 3,419
32 Corning, Inc. (c)................. 1,095
5 FMC Corp.......................... 333
10 Harcourt General, Inc............. 613
16 Loews Corp........................ 1,396
56 Minnesota Mining & Manufacturing
Co.............................. 4,587
2 Octel Corp. (b)................... 43
22 Textron, Inc...................... 1,612
17 TRW, Inc.......................... 950
----------
14,048
----------
Raw Materials (3.0%):
31 Air Products & Chemical, Inc...... 1,231
31 Alcan Aluminum Ltd................ 848
24 Allegheny Teledyne, Inc........... 551
24 Aluminum Co. of America (c)....... 1,577
14 Armco, Inc. (b)................... 90
6 ASARCO, Inc....................... 133
15 Avery Dennison Corp............... 817
10 B. F. Goodrich Co................. 482
49 Barrick Gold Corp................. 946
31 Battle Mountain Gold Co........... 184
15 Bethlehem Steel Corp.............. 186
13 Cyprus Amax Minerals Co........... 174
32 Dow Chemical Co. (c).............. 3,077
155 Du Pont (EI) de Nemours & Co...... 11,541
11 Eastman Chemical Co............... 693
20 Engelhard Corp.................... 401
27 Freeport-McMoran Copper & Gold,
Class B......................... 416
9 Great Lakes Chemical Corp......... 352
14 Hercules, Inc..................... 594
20 Homestake Mining Co. (c).......... 207
23 Inco Ltd.......................... 309
80 Monsanto Co. (c).................. 4,490
20 Morton International, Inc......... 492
10 Nalco Chemical Co................. 335
21 Newmont Mining Corp............... 501
12 Nucor Corp........................ 556
16 Pall Corp......................... 329
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Raw Materials, continued:
9 Phelps Dodge Corp................. $ 505
33 Placer Dome, Inc.................. 383
21 Praxair, Inc...................... 979
9 Reynolds Metals Co................ 508
9 Rohm & Haas Co.................... 917
14 Sigma-Aldrich Corp................ 491
18 Union Carbide Corp................ 971
12 USX -- U.S. Steel Group, Inc...... 384
10 W.R. Grace & Co................... 168
13 Worthington Industries, Inc....... 190
----------
37,008
----------
Retail (6.0%):
1 Abercrombie & Fitch Co. (b)....... 44
34 Albertsons, Inc................... 1,774
39 American Stores Co................ 947
13 Circuit City Stores, Inc.......... 621
15 Consolidated Stores Co. (b)....... 529
29 Costco Companies, Inc. (c)........ 1,855
52 CVS Corp.......................... 2,030
22 Darden Restaurants, Inc........... 346
59 Dayton Hudson Corp................ 2,877
15 Dillard Department Stores, Inc.,
Class A......................... 636
28 Federated Department Stores, Inc.
(b)(c).......................... 1,511
55 Gap, Inc.......................... 3,412
8 Giant Food Inc., Class A.......... 359
5 Great Atlantic & Pacific Tea,
Inc............................. 175
100 Home Depot, Inc................... 8,298
35 J.C. Penney, Inc. (c)............. 2,503
64 K Mart, Inc. (b)(c)............... 1,233
34 Kroger Co. (b).................... 1,450
31 Limited, Inc...................... 1,024
4 Longs Drug Stores, Inc............ 121
47 Lowe's Co......................... 1,900
32 May Department Stores Co.......... 2,097
95 McDonald's Corp................... 6,567
5 Mercantile Stores Co., Inc........ 385
11 Nordstrom, Inc.................... 879
9 Pep Boys--Manny, Moe & Jack....... 166
32 Rite Aid Corp. (c)................ 1,218
53 Sears Roebuck & Co................ 3,260
14 Tandy Corp........................ 741
42 TJX Co., Inc...................... 1,023
38 Toys R Us, Inc. (b)............... 905
21 Tricon Global Restaurants (b)..... 672
18 Venator Group, Inc................ 346
307 Wal-Mart Stores, Inc. (c)......... 18,638
</TABLE>
Continued
39
<PAGE> 143
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail, continued:
68 Walgreen Co....................... $ 2,807
17 Wendy's International, Inc........ 410
21 Winn Dixie Stores, Inc. (c)....... 1,051
----------
74,810
----------
Shelter (1.2%):
5 Armstrong World Industries,
Inc............................. 351
7 Boise Cascade Corp................ 232
7 Centex Corp....................... 274
13 Champion International Co......... 631
5 Fleetwood Enterprises, Inc........ 187
12 Georgia Pacific Corp.............. 733
41 International Paper Co............ 1,762
5 Kaufman & Broad Home Corp......... 169
77 Kimberly Clark Corp............... 3,514
15 Louisiana Pacific Corp............ 268
22 Masco Corp........................ 1,326
16 Mead Corp......................... 499
21 Owens-Illinois, Inc. (b).......... 943
3 Potlatch Corp..................... 146
6 Pulte Corp........................ 183
11 Sealed Air Corp. (b).............. 415
13 Stone Container Corp.............. 203
8 Temple Inland, Inc................ 430
10 Union Camp Corp................... 482
14 Westvaco Corp..................... 390
27 Weyerhaeuser Co................... 1,269
16 Williamette Industries, Inc....... 516
----------
14,923
----------
Technology (14.9%):
46 3Com Corp. (b).................... 1,406
10 Adobe Systems, Inc................ 410
19 Advanced Micro Devices, Inc.
(b)............................. 319
29 AMP, Inc.......................... 1,012
12 Andrew Corp. (b).................. 223
17 Apple Computer, Inc. (b) (c)...... 480
49 Applied Materials, Inc. (b)....... 1,433
26 Ascend Communications, Inc. (b)
(c)............................. 1,303
7 Auto Desk, Inc.................... 263
30 Bay Networks, Inc. (b)............ 978
137 Boeing Co......................... 6,103
21 Cabletron Systems, Inc. (b)....... 281
139 Cisco Systems, Inc. (b)........... 12,800
227 Compaq Computer Corp.............. 6,433
75 Computer Associates International,
Inc............................. 4,164
5 Data General Corp. (b)............ 74
89 Dell Computer Corp. (b)........... 8,272
16 DSC Communications Corp. (b)
(c)............................. 467
7 EG&G, Inc......................... 219
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Technology, continued:
67 EMC Corp. (b) (c)................. $ 3,022
21 Gateway 2000, Inc. (b)............ 1,072
18 General Dynamics Corp............. 825
17 General Instrument Corp. (b)...... 472
10 Harris Corp....................... 465
142 Hewlett Packard Co................ 8,514
231 Intel Corp........................ 17,104
129 International Business Machines... 14,768
11 KLA-Tencor Corp. (b) (c).......... 313
26 Lockheed Martin Corp.............. 2,797
18 LSI Logic Corp. (b)............... 413
179 Lucent Technologies, Inc.......... 14,893
28 Micron Technology, Inc. (b) (c)... 704
335 Microsoft Corp. (b)............... 36,354
81 Motorola, Inc..................... 4,246
22 National Semiconductor Corp. (b)
(c)............................. 294
72 Northern Telecom, Ltd............. 4,083
9 Northrop Grumman Corp............. 931
49 Novell, Inc. (b).................. 626
134 Oracle Corp. (b) (c).............. 3,300
35 Parametric Technology Corp. (b)... 940
6 Perkin-Elmer Corp................. 382
12 Raychem Corp...................... 359
46 Raytheon Co., Class B (c)......... 2,732
28 Rockwell International Corp.
(c)............................. 1,323
11 Scientific-Atlanta, Inc........... 271
34 Seagate Technology, Inc. (b)...... 810
23 Silicon Graphics, Inc. (b)........ 281
51 Sun Microsystems, Inc. (b)........ 2,215
6 Tektronix, Inc.................... 229
24 Tellabs, Inc. (b) (c)............. 1,739
52 Texas Instruments, Inc............ 3,022
7 Thomas & Betts Corp............... 347
34 Unisys Corp....................... 962
31 United Technologies Corp.......... 2,888
44 Xerox Corp. (c)................... 4,515
----------
184,851
----------
Transportation (1.0%):
25 AMR Corp. (b)..................... 2,054
21 Burlington Northern Santa Fe
Corp............................ 2,060
29 CSX Corp.......................... 1,312
10 Delta Air Lines, Inc.............. 1,280
20 FDX Corp. (b)..................... 1,279
52 Norfolk Southern Corp............. 1,564
30 Southwest Airlines Co............. 885
33 Union Pacific Corp. (c)........... 1,475
12 US Air Group...................... 981
----------
12,890
----------
</TABLE>
Continued
40
<PAGE> 144
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities (9.6%):
77 Airtouch Communications, Inc.
(b)............................. $ 4,508
26 Alltel Corp. (c).................. 1,213
19 Ameren Corp....................... 744
26 American Electric Power, Inc...... 1,168
151 Ameritech Corp.................... 6,798
221 AT&T Corp. (c).................... 12,627
20 Baltimore Gas & Electric Co....... 624
213 Bell Atlantic Corp................ 9,727
136 BellSouth Corp.................... 9,098
21 Carolina Power & Light Co......... 925
29 Central & South West Corp......... 778
21 Cinergy Corp...................... 744
14 Coastal Corp...................... 981
12 Columbia Gas System, Inc.......... 645
32 Consolidated Edison, Inc.......... 1,481
13 Consolidated Natural Gas Co....... 744
20 Detroit Edison Co................. 805
24 Dominion Resources, Inc. of
Virginia........................ 978
49 Duke Power Co., Inc............... 2,893
2 Eastern Enterprises............... 92
49 Edison International.............. 1,458
45 Enron Corp. (c)................... 2,424
32 Entergy Corp...................... 913
31 First Energy Corp................. 964
25 Florida Power & Light Group, Inc.
(c)............................. 1,598
22 Frontier Corp..................... 700
16 General Public Utilities Corp..... 608
132 GTE Corp.......................... 7,323
38 Houston Industries................ 1,173
99 MCI Communications Corp........... 5,735
33 Nextel Communications, Inc., Class
A (b)........................... 830
20 Niagara Mohawk Power Corp. (b).... 294
7 NICOR, Inc........................ 297
19 Northern States Power Co.......... 549
3 Oneok, Inc........................ 133
40 Pacificorp........................ 897
31 Peco Energy Corp. (c)............. 891
4 Peoples Energy Corp............... 173
52 PG & E Corp. (c).................. 1,639
22 PP&L Resources, Inc............... 497
33 Public Service Enterprise Group... 1,139
252 SBC Communications, Inc........... 10,080
18 Sempra Energy (b)................. 492
15 Sonat, Inc........................ 579
92 Southern Co....................... 2,547
59 Sprint Corp....................... 4,166
33 Texas Utilities (c)............... 1,364
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities, continued:
56 The Williams Companies, Inc.
(c)............................. $ 1,896
29 Unicom Corp....................... 1,028
71 US West, Inc...................... 3,321
139 WorldCom, Inc. (b) (c)............ 6,717
----------
119,998
----------
Total Common Stocks 1,223,123
----------
U.S. TREASURY OBLIGATIONS (0.1%):
U.S. Treasury Bills (0.1%):
$ 220 7/16/98 (d)....................... 220
885 7/23/98 (d)....................... 882
15 8/20/98 (d)....................... 15
520 8/27/98 (d)....................... 516
----------
Total U.S. Treasury Obligations 1,633
----------
REPURCHASE AGREEMENTS (0.8%):
9,880 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $9,880
various U.S. Government
Securities, 6.10% - 6.25%,
4/30/01 - 6/26/03, market value
$9,976)......................... 9,880
----------
Total Repurchase Agreements 9,880
----------
SHORT-TERM SECURITIES HELD AS COLLATERAL (9.2%):
Master Notes (1.7%):
4,384 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*................. 4,384
3,653 Danaher Corp., 6.68%, 10/9/98*.... 3,653
2,192 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*................. 2,192
4,969 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*................. 4,969
1,315 NationsBanc Capital Markets,
6.70%, 7/1/98*.................. 1,315
4,384 Williamette Industries, Inc.,
5.85%, 7/23/98*................. 4,384
----------
20,897
----------
Put Bonds (2.6%):
3,653 Associates Corp. N.A., 5.79%,
1/4/99*......................... 3,651
2,923 Branch Banking & Trust, 5.92%,
12/10/99*....................... 2,923
1,461 Citicorp, 5.94%, 8/3/98*.......... 1,461
3,361 Evangelical Lutheran, 5.74%,
4/28/00*........................ 3,355
4,384 GMAC, 5.85%, 11/10/99*............ 4,391
3,653 Goldman Sachs, 6.06%, 11/21/00*... 3,653
3,653 Greenwich Capital, 6.11%,
12/13/99*....................... 3,653
3,653 Lehman Brothers Holdings, 5.85%,
8/18/99*........................ 3,653
</TABLE>
Continued
41
<PAGE> 145
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Put Bonds, continued:
$1,461 Merrill Lynch, 6.07%, 11/13/98*... $ 1,461
3,653 PNC Bank, 5.74%, 10/2/98*......... 3,651
----------
31,852
----------
Repurchase Agreements (4.9%):
14,613 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$14,940 various Corporate and
Government Securities,
2.85% - 17.25%,
10/15/02 - 4/15/35, market value
$15,175)........................ 14,613
7,307 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $7,788
various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value
$7,759)......................... 7,307
37,556 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $38,496
various Corporate Bonds,
0.00% - 10.13%,
9/15/99, - 10/17/96, market
value $40,293).................. 37,556
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$ 25 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $27 Media One
Group Bonds, 0.00%, 10/5/98,
market value $27)............... $ 25
1,169 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $7,318
various Government Securities,
0.00% - 10.00%,
12/1/18 - 5/1/24, market value
$1,203)......................... 1,169
1,461 Paine Webber, 6.40%, 7/1/98
(Collateralized by $1,459
various Corporate Bonds,
4.00% - 9.75%, 7/15/98-12/31/49,
market value $1,534)............ 1,461
----------
62,131
----------
Total Short-Term Securities Held as
Collateral 114,880
----------
Total (Cost $914,982) (a) $1,358,421
----------
----------
</TABLE>
- ------------
Percentages indicated are based on net assets of $1,244,778.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $828. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $463,433
Unrealized depreciation..................................... (20,822)
--------
Net unrealized appreciation................................. $442,611
========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
<TABLE>
<CAPTION>
CURRENT
NUMBER OPENING MARKET
OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE (000) (000)
- --------- ------------- --------- -------
<C> <S> <C> <C>
Long S&P 500, September 1998
74 Futures $20,861 $21,146
</TABLE>
* The interest rate for this variable rate note, which will change periodically,
is based upon a index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
42
<PAGE> 146
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Value Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMERCIAL PAPER (1.7%):
Financial Services (1.7%):
$12,800 Merrill Lynch, 5.59%, 9/19/98........ $ 12,646
--------
Total Commercial Paper 12,646
--------
COMMON STOCKS (95.4%):
Business Equipment & Services (1.3%):
67 Miller (Herman), Inc................. 1,617
123 Service Corp. International.......... 5,256
52 U.S.A. Waste Services, Inc. (b)(c)... 2,553
--------
9,426
--------
Capital Goods (7.0%):
43 Cooper Industries, Inc............... 2,368
89 Emerson Electric Co.................. 5,356
243 General Electric Co.................. 22,112
78 Harsco Corp.......................... 3,569
39 Hubbell, Inc., Class B............... 1,640
62 Johnson Controls, Inc................ 3,521
30 Medusa Corp.......................... 1,883
120 Teleflex, Inc........................ 4,560
107 Tyco International Ltd............... 6,747
--------
51,756
--------
Consumer Durable (1.3%):
121 Autozone, Inc. (b)(c)................ 3,874
104 Chrysler Corp........................ 5,852
--------
9,726
--------
Consumer Non-Durable (8.3%):
134 Coca-Cola Co......................... 11,474
120 Conagra, Inc......................... 3,790
69 Interstate Bakeries Corp.(c)......... 2,277
120 Intimate Brands, Inc................. 3,302
47 Lancaster Colony Corp................ 1,788
90 McCormick & Co., Inc................. 3,225
114 Newell Cos., Inc..................... 5,689
208 Philip Morris Co., Inc............... 8,186
48 Proctor & Gamble Co.................. 4,407
83 Quaker Oats Co....................... 4,560
72 Revlon, Inc., Class A (b)(c)......... 3,673
104 Rubbermaid, Inc...................... 3,458
90 Sara Lee Corp........................ 5,023
--------
60,852
--------
Consumer Services (4.7%):
123 Belo (A.H.) Corp., Series A.......... 3,003
115 Hasbro, Inc.......................... 4,505
143 Hilton Hotels Corp................... 4,084
64 MGM Grand, Inc. (b) (c).............. 2,014
110 Tele-Communications, Inc., Class A
(b)(c)............................. 4,211
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Consumer Services, continued:
94 Time Warner, Inc. (c)................ $ 8,065
83 Viacom, Inc., Class B (b)............ 4,841
41 Walt Disney Co....................... 4,308
--------
35,031
--------
Energy (6.9%):
58 Ashland, Inc......................... 2,984
52 Devon Energy Corp. (c)............... 1,803
47 Dresser Industries, Inc. (c)......... 2,080
222 Exxon Corp........................... 15,845
151 Royal Dutch Petroleum Co. (c)........ 8,259
131 Texaco, Inc.......................... 7,813
79 Tosco Corp. (c)...................... 2,324
48 Transocean Offshore, Inc............. 2,114
81 Ultramar Diamond Shamrock Corp....... 2,541
158 USX-Marathon Group................... 5,408
--------
51,171
--------
Financial Services (16.7%):
55 Allstate Corp........................ 5,008
45 American International Group, Inc.... 6,526
29 Associates First Capital, Class A.... 2,260
53 Bear Stearns Co., Inc................ 2,986
117 Charter One Financial, Inc........... 3,925
116 Chase Manhattan Corp................. 8,773
63 Cigna Corp........................... 4,326
53 Equitable Co., Inc................... 3,934
130 Federal National Mortgage Assoc...... 7,916
113 First Tennessee National Corp........ 3,560
86 First Union Corp..................... 5,021
51 Hartford Financial Services Group.... 5,833
102 MBNA Corp............................ 3,356
69 Mercantile Bankshares Corp........... 2,409
98 Morgan Stanley Dean Witter
Discover........................... 8,918
79 National City Corp................... 5,623
175 NationsBank Corp..................... 13,418
31 PMI Group, Inc....................... 2,238
128 Southtrust Corp...................... 5,566
59 State Street Corp.................... 4,087
187 Travelers Group, Inc................. 11,307
17 Wells Fargo & Co..................... 6,384
--------
123,374
--------
Health Care (10.5%):
162 American Home Products Corp.......... 8,389
58 Bausch & Lomb, Inc................... 2,907
79 Baxter International, Inc............ 4,240
50 Boston Scientific Corp. (b)(c)....... 3,553
115 Bristol Myers Squibb Co.............. 13,159
36 Cardinal Health, Inc................. 3,394
90 IDEXX Laboratories, Inc. (b)......... 2,229
42 Johnson & Johnson.................... 3,112
</TABLE>
Continued
43
<PAGE> 147
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Value Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Health Care, continued:
98 Medtronic, Inc....................... $ 6,248
57 Merck & Co., Inc..................... 7,624
38 Pfizer, Inc.......................... 4,152
77 Schering Plough Corp................. 7,018
31 Sofamor Danek Group, Inc. (b)........ 2,649
130 Warner-Lambert Co.................... 8,991
--------
77,665
--------
Raw Materials (3.7%):
58 Betzdearborn, Inc.................... 2,430
90 Crompton & Knowles Corp.............. 2,254
89 Du Pont (EI) de Nemours & Co......... 6,627
106 Ferro Corp........................... 2,695
118 Morton International, Inc............ 2,943
81 Nalco Chemical Co.................... 2,831
77 Olin Corp............................ 3,197
88 Praxair, Inc......................... 4,105
--------
27,082
--------
Retail (6.5%):
113 Dayton Hudson Corp................... 5,461
175 Just For Feet, Inc. (b)(c)........... 4,988
100 Kohl's Corp. (b)..................... 5,167
143 Kroger Co. (b)....................... 6,114
204 Officemax, Inc. (b).................. 3,371
60 Outback Steakhouse, Inc. (b)(c)...... 2,340
77 Safeway, Inc. (b).................... 3,141
226 Wal-Mart Stores, Inc. (c)............ 13,705
118 Williams Sonoma, Inc. (b)............ 3,744
--------
48,031
--------
Shelter (2.6%):
30 Armstrong World Industries, Inc...... 2,035
112 Kimberly Clark Corp.................. 5,156
138 Leggett & Platt, Inc................. 3,440
81 Masco Corp........................... 4,888
88 Pentair, Inc......................... 3,736
--------
19,255
--------
Technology (15.5%):
88 American Power Conversion (b)........ 2,643
63 Applied Materials, Inc. (b).......... 1,850
87 BMC Software, Inc. (b)............... 4,508
106 Cadence Design Systems, Inc.
(b)(c)............................. 3,309
145 Cisco Systems, Inc. (b).............. 13,317
140 Dell Computer Corp. (b).............. 12,984
62 Gateway 2000, Inc. (b)............... 3,119
122 Hewlett Packard Co................... 7,317
169 Intel Corp........................... 12,535
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Technology, continued:
92 International Business Machines...... $ 10,609
38 Lockheed Martin Corp................. 3,981
92 LSI Logic Corp. (b).................. 2,117
99 Lucent Technologies, Inc............. 8,269
79 Maxim Integrated Products, Inc.
(b)................................ 2,487
230 Microsoft Corp. (b).................. 24,958
--------
114,003
--------
Utilities (9.5%):
88 AES Corp. (b)........................ 4,641
106 Baltimore Gas & Electric Co.......... 3,296
93 Century Telephone Enterprises........ 4,262
98 Cinergy Corp......................... 3,437
82 El Paso Natural Gas.................. 3,137
135 Energy East Corp..................... 5,607
118 General Public Utilities Corp........ 4,462
147 GTE Corp............................. 8,155
62 L G & E Energy Corp.................. 1,678
61 MCN Corp. (c)........................ 1,515
193 Qwest Communications International
(b)................................ 6,743
248 SBC Communications, Inc.............. 9,915
120 Sprint Corp.......................... 8,431
114 Williams Co. (c)..................... 3,861
165 Worldcom, Inc. (b)(c)................ 7,983
--------
70,380
--------
Total Common Stocks 704,495
--------
U.S. TREASURY OBLIGATIONS (0.1%):
U.S. Treasury Bills (0.1%):
$ 485 8/20/98 (d).......................... 482
55 9/24/98 (d).......................... 54
--------
Total U.S. Treasury Obligations 536
--------
REPURCHASE AGREEMENTS (2.7%):
19,589 Prudential Securities, 6.10%, 7/1/98
(Collateralized by $14,752 U.S.
Government Securities, 6.10%-8.75%,
6/26/03-5/15/17, market value
$19,981)........................... 19,589
--------
Total Repurchase Agreements 19,589
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (6.7%):
Master Notes (1.2%):
1,875 Bear Stearns Mortgage Capital, 6.77%,
10/9/98*........................... 1,875
1,563 Danaher Corp., 6.68%, 10/9/98*....... 1,563
938 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................... 938
</TABLE>
Continued
44
<PAGE> 148
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Value Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Master Notes, continued:
$ 2,125 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*.................... $ 2,124
563 NationsBanc Capital Markets, 6.70%,
7/1/98*............................ 563
1,875 Williamette Industries, Inc., 5.85%,
7/23/98*........................... 1,875
--------
8,938
--------
Put Bonds (1.8%):
1,563 Associates Corp. N.A., 5.79%,
1/4/99*............................ 1,562
1,250 Branch Banking & Trust, 5.92%,
12/10/99*.......................... 1,250
625 Citicorp, 5.94%, 8/3/98*............. 625
1,438 Evangelical Lutheran, 5.74%,
4/28/00*........................... 1,435
1,875 GMAC, 5.85%, 11/10/99*............... 1,877
1,563 Goldman Sachs, 6.06%, 11/21/00*...... 1,563
1,563 Greenwich Capital, 6.11%,
12/13/99*.......................... 1,563
1,563 Lehman Brothers Holdings, 5.85%,
8/18/99*........................... 1,563
625 Merrill Lynch, 6.07%, 11/13/98*...... 625
1,563 PNC Bank, 5.74%, 10/2/98*............ 1,562
--------
13,625
--------
Repurchase Agreements (3.7%):
6,251 Donaldson, Lufkin & Jenrette, 6.65%,
7/1/98 (Collateralized by $6,391
various Corporate and Government
Securities, 2.85% - 17.25%,
10/15/02 - 4/15/35, market value
$6,491)............................ 6,251
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$ 3,125 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $3,331 various
Corporate Bonds, 0.00%, 7/7/98 -
9/18/98, market value $3,319)...... $ 3,125
16,065 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $16,466 various
Corporate Bonds, 0.00% - 10.13%,
9/15/99-10/17/96, market value
$17,235)........................... 16,065
11 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $11 Media One
Group Bonds, 0.00%, 10/5/98, market
value $11)......................... 11
500 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $3,130 various
Government Securities,
0.00% - 10.00%, 12/1/18-5/1/24,
market value $515)................. 500
625 Paine Webber, 6.40%, 7/1/98
(Collateralized by $624 various
Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value
$656).............................. 625
--------
26,577
--------
Total Short-Term Securities Held as Collateral 49,140
--------
Total (Cost $617,512) (a) $786,406
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $737,575.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $5. Cost for federal income tax purposes differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $176,101
Unrealized depreciation..................................... (7,212)
--------
Net unrealized appreciation................................. $168,889
========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
<TABLE>
<CAPTION>
CURRENT
NUMBER OPENING MARKET
OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE (000) (000)
- --------- ------------- --------- -------
<C> <S> <C> <C>
50 Long S&P 500, September 1998 Futures $13,835 $14,287
</TABLE>
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
45
<PAGE> 149
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Large Company Value Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS (94.7%):
Business Equipment & Services (0.5%):
111 Browning-Ferris Industries, Inc.
(c)............................... $ 3,860
--------
Capital Goods (2.9%):
75 Case Corp.(c)....................... 3,619
90 Cooper Industries, Inc.............. 4,944
60 Emerson Electric Co................. 3,619
100 Harsco Corp......................... 4,581
100 Sherwin-Williams Co................. 3,313
100 Trinity Industries, Inc............. 4,150
--------
24,226
--------
Consumer Durable (3.6%):
200 Autozone, Inc. (b) (c).............. 6,388
300 Chrysler Corp....................... 16,912
100 General Motors Corp................. 6,681
--------
29,981
--------
Consumer Non-Durable (6.3%):
200 American Greetings Corp., Class A 10,188
205 Archer-Daniels-Midland Co........... 3,972
50 Eastman Kodak Co.................... 3,653
100 Kellogg Co.......................... 3,756
200 Nike, Inc. (c)...................... 9,738
297 RJR Nabisco Holdings Corp........... 7,063
150 Rubbermaid, Inc. (c)................ 4,978
200 Supervalu, Inc...................... 8,875
--------
52,223
--------
Consumer Services (4.4%):
200 CBS Corp. (c)....................... 6,350
100 Hasbro, Inc......................... 3,931
100 Hilton Hotels Corp.................. 2,850
135 Time Warner, Inc.................... 11,534
195 Viacom, Inc., Class A (b) (c)....... 11,408
--------
36,073
--------
Energy (14.0%):
100 Amoco Corp.......................... 4,163
100 Ashland, Inc........................ 5,163
50 Burlington Resources, Inc........... 2,153
50 Chevron Corp. (c)................... 4,153
100 Dresser Industries, Inc............. 4,406
500 Exxon Corp.......................... 35,656
86 Mobil Corp.......................... 6,620
400 Royal Dutch Petroleum Co. (c)....... 21,925
250 Texaco, Inc......................... 14,922
100 Tosco Corp. (c)..................... 2,938
100 Ultramar Diamond Shamrock Corp...... 3,156
300 USX-Marathon Group.................. 10,294
--------
115,549
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services (27.7%):
170 Allstate Corp....................... $ 15,566
200 BankAmerica Corp.................... 17,287
200 Charter One Financial, Inc.......... 6,738
180 Chase Manhattan Corp................ 13,590
150 Cigna Corp.......................... 10,350
100 Citicorp............................ 14,925
150 Federal National Mortgage Assoc..... 9,113
115 First Chicago Corp.................. 10,192
130 First Union Corp. (c)............... 7,573
130 Hartford Financial Services Group... 14,869
120 Household International (c) 5,970
207 KeyCorp............................. 7,389
110 Lincoln National Corp............... 10,051
100 Morgan Stanley Dean Witter
Discover.......................... 9,138
300 NationsBank Corp.................... 22,949
100 Southtrust Corp..................... 4,350
100 State Street Corp................... 6,950
40 TransAmerica Corp................... 4,605
375 Travelers Group, Inc. (c)........... 22,733
40 Wells Fargo & Co.................... 14,760
--------
229,098
--------
Health Care (2.1%):
200 American Home Products Corp......... 10,350
50 Bausch & Lomb, Inc.................. 2,506
100 Biomet, Inc......................... 3,306
50 Tenet Healthcare Corp. (b).......... 1,563
--------
17,725
--------
Multi-Industry (0.7%):
70 Allied Signal, Inc.................. 3,106
30 Loews Corp.......................... 2,614
--------
5,720
--------
Raw Materials (2.0%):
65 Aluminum Co. of America (c)......... 4,258
50 B. F. Goodrich Co................... 2,481
150 Nalco Chemical Co................... 5,269
50 Olin Corp........................... 2,084
50 Praxair, Inc........................ 2,341
--------
16,433
--------
</TABLE>
Continued
46
<PAGE> 150
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Large Company Value Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail (3.0%):
125 American Stores Co.................. $ 3,023
95 McDonald's Corp..................... 6,555
250 Sears Roebuck & Co.................. 15,266
--------
24,844
--------
Shelter (2.5%):
25 Armstrong World Industries, Inc..... 1,684
100 International Paper Co. (c)......... 4,300
150 Masco Corp.......................... 9,075
127 Weyerhaeuser Co..................... 5,866
--------
20,925
--------
Technology (7.8%):
119 Boeing Co........................... 5,298
250 Cypress Semiconductor Corp. (b)..... 2,078
300 International Business Machines
(c)............................... 34,444
90 Litton Industries, Inc.(b) (c)...... 5,328
70 Lockheed Martin Corp................ 7,411
100 LSI Logic Corp. (b)................. 2,306
100 Motorola, Inc....................... 5,256
40 Rockwell International Corp. (c).... 1,923
--------
64,044
--------
Transportation (0.4%):
30 Burlington Northern Santa Fe
Corp.............................. 2,946
--------
Utilities (16.8%):
75 Allegheny Energy Inc................ 2,259
100 Ameritech Corp...................... 4,488
150 AT&T Corp. (c)...................... 8,569
250 Baltimore Gas & Electric Co......... 7,766
200 BellSouth Corp...................... 13,424
150 Cinergy Corp........................ 5,250
50 CMS Energy Corp..................... 2,200
140 Edison International................ 4,139
171 El Paso Natural Gas (c)............. 6,555
100 Entergy Corp........................ 2,875
50 Florida Power & Light Group, Inc.... 3,150
150 General Public Utilities Corp....... 5,672
82 GTE Corp............................ 4,561
50 L G & E Energy Corp................. 1,353
200 MCI Communications Corp............. 11,625
200 Public Service Enterprises, Inc..... 6,888
117 Qwest Communications International
(b)............................... 4,067
224 SBC Communications, Inc. (c)........ 8,960
87 Southern Co. (c).................... 2,409
150 Sprint Corp......................... 10,575
50 Texas Utilities Corp. (c)........... 2,081
216 Williams Co., Inc. (c).............. 7,305
250 Worldcom, Inc.(b) (c)............... 12,109
--------
138,280
--------
Total Common Stocks 781,927
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
REPURCHASE AGREEMENTS (4.7%):
$38,915 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $38,915
various U.S. Government Agency
Securities, 0.00% - 6.10%,
12/31/00 - 11/24/14, market value
$39,694).......................... $ 38,915
--------
Total Repurchase Agreements 38,915
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (10.1%):
Master Notes (1.8%):
3,172 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*................... 3,172
2,643 Danaher Corp., 6.68%, 10/9/98*...... 2,643
1,586 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*................... 1,586
3,596 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*................... 3,596
952 NationsBanc Capital Markets, 6.70%,
7/1/98*........................... 952
3,172 Williamette Industries, Inc., 5.85%,
7/23/98*.......................... 3,172
--------
15,121
--------
Put Bonds (2.8%):
2,643 Associates Corp. N.A., 5.79%,
1/4/99*........................... 2,642
2,115 Branch Banking & Trust, 5.92%,
12/10/99*......................... 2,115
1,057 Citicorp, 5.94%, 8/3/98*............ 1,057
2,432 Evangelical Lutheran, 5.74%,
4/28/00*.......................... 2,428
3,172 GMAC, 5.85%, 11/10/99*.............. 3,178
2,643 Goldman Sachs, 6.06%, 11/21/00*..... 2,643
2,643 Greenwich Capital, 6.11%,
12/13/99*......................... 2,643
2,643 Lehman Brothers Holdings, 5.85%,
8/18/99*.......................... 2,644
1,057 Merrill Lynch, 6.07%, 11/13/98*..... 1,057
2,643 PNC Bank, 5.74%, 10/2/98*........... 2,642
--------
23,049
--------
Repurchase Agreements (5.5%):
10,574 Donaldson, Lufkin & Jenrette, 6.65%,
7/1/98 (Collateralized by $10,810
various Corporate and Government
Securities, 2.85% - 17.25%,
10/15/02 - 4/15/35, market value
$10,981).......................... 10,574
5,287 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $5,635 various
Corporate Bonds, 0.00%, 7/7/98 -
9/18/98, market value $5,615)..... 5,287
27,174 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $27,855 various
Corporate Bonds, 0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$29,156).......................... 27,174
</TABLE>
Continued
47
<PAGE> 151
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Large Company Value Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$ 18 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $19 Media One
Group Bonds, 0.00%, 10/5/98,
market value $19)................. $ 18
846 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $5,296 various
Government Securities, 0.00% -
10.00%, 12/1/18 - 5/1/24, market
value $871)....................... 846
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$1,057 Paine Webber, 6.40%, 7/1/98
(Collateralized by $1,055 various
Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value
$1,110)........................... $ 1,057
--------
44,956
--------
Total Short-Term Securities Held as Collateral 83,126
--------
Total (Cost $708,580) (a) $903,968
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $825,502.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $1,248. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $202,188
Unrealized depreciation..................................... (8,048)
--------
Net unrealized appreciation................................. $194,140
========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
48
<PAGE> 152
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Disciplined Value Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS (98.1%):
Business Equipment & Services (4.6%):
65 A.C. Nielson Corp. (b)............... $ 1,641
24 America Online, Inc. (b)............. 2,544
85 Jacobs Engineering Group, Inc. (b)... 2,724
37 Kelly Services Inc., Class A......... 1,309
222 Office Depot, Inc. (b)(c)............ 7,006
48 Ogden Corp........................... 1,329
64 Olsten Corp.......................... 716
40 Pittston Co.......................... 1,475
90 Sensormatic Electronics Corp. (b).... 1,260
53 Service Corp. International.......... 2,272
60 Sotheby's Holdings, Class A.......... 1,343
20 Standard Register Co................. 708
126 Stewart Enterprises Corp., Class A... 3,355
70 Sungard Data Systems, Inc. (b)(c).... 2,686
36 U.S.A. Waste Services, Inc. (b)(c)... 1,778
--------
32,146
--------
Capital Goods (6.4%):
128 Harsco Corp.......................... 5,855
153 Hubbell, Inc., Class B............... 6,384
33 Johnson Controls, Inc................ 1,883
36 Kennametal, Inc...................... 1,503
82 Mark IV Industries, Inc.............. 1,763
78 Medusa Corp.......................... 4,895
139 Molex, Inc........................... 3,470
87 Southdown, Inc....................... 6,210
84 Teleflex, Inc........................ 3,200
116 Trinity Industries, Inc.............. 4,814
111 United States Filter Corp. (b)(c).... 3,115
33 York International Corp.............. 1,438
--------
44,530
--------
Consumer Durable (0.2%):
42 Autozone, Inc. (b)(c)................ 1,341
--------
Consumer Non-Durable (4.1%):
80 First Brands Corp.................... 2,050
82 Hormel Foods Corp. (c)............... 2,834
93 IBP, Inc............................. 1,686
98 McCormick & Co., Inc................. 3,500
73 Newell Co............................ 3,636
346 Tyson Foods, Inc., Class A........... 7,504
60 U.S. Foodservice (b)................. 2,104
46 Universal Corp....................... 1,719
75 Warnaco Group, Inc., Class A......... 3,183
--------
28,216
--------
Consumer Services (2.8%):
43 Banta Corp........................... 1,328
256 Belo (A.H.) Corp., Series A.......... 6,244
36 Chris-Craft Industries, Inc. (b)..... 1,969
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Consumer Services, continued:
65 Hasbro, Inc.......................... $ 2,555
20 Houghton Mifflin Co.................. 635
51 Lee Enterprises, Inc................. 1,562
35 MGM Grand, Inc. (b) (c).............. 1,105
95 Promus Hotel Corp. (b)............... 3,658
14 Scholastic Corp. (b)................. 558
--------
19,614
--------
Energy (7.2%):
36 Ashland, Inc......................... 1,859
148 BJ Services Co. (b)(c)............... 4,301
145 ENSCO International, Inc............. 2,519
53 Murphy Oil Corp. (c)................. 2,686
100 Nabors Industries, Inc. (b).......... 1,981
63 Noble Affiliates, Inc................ 2,394
175 Noble Drilling Corp. (b)............. 4,211
102 Pioneer Natural Resources Co......... 2,435
60 Tidewater, Inc....................... 1,980
293 Tosco Corp. (c)...................... 8,607
194 Transocean Offshore, Inc............. 8,633
172 Ultramar Diamond Shamrock Corp....... 5,429
93 Valero Energy Corp................... 3,103
--------
50,138
--------
Financial Services (23.5%):
126 A.G. Edwards, Inc.................... 5,379
105 Ambac Financial Group, Inc........... 6,143
40 American Financial Group, Inc........ 1,733
80 Associated Banc-Corp................. 3,010
195 Bear Stearns Co., Inc................ 11,090
29 Capital One Financial Corp........... 3,601
234 Charter One Financial, Inc........... 7,886
21 CMAC Investment Corp................. 1,292
134 Crestar Financial Corp............... 7,311
188 Dime Bancorp, Inc.................... 5,628
51 Finova Group, Inc.................... 2,888
225 First Security Corp.................. 4,816
47 First Virginia Banks, Inc............ 2,398
170 Firstar Corp......................... 6,460
50 GATX Corp............................ 2,194
112 Hibernia Corp., Class A.............. 2,261
18 HSB Group, Inc....................... 987
187 Marshall & Ilsley Corp............... 9,549
45 MBNA Corp............................ 1,485
103 Mercantile Bankshares Corp........... 3,568
23 Northern Trust Corp.................. 1,754
137 Old Kent Financial Corp.............. 4,910
217 Old Republic International Corp...... 6,346
86 Pacific Century Financial Corp....... 2,064
201 Paine Webber Group, Inc.............. 8,596
54 PMI Group, Inc....................... 3,962
</TABLE>
Continued
49
<PAGE> 153
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Disciplined Value Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
182 Provident Co., Inc................... $ 6,279
185 Regions Financial Corp............... 7,597
116 Reliastar Financial Corp............. 5,568
249 Southtrust Corp...................... 10,847
30 State Street Corp.................... 2,085
123 TCF Financial Corp................... 3,629
36 Transatlantic Holdings, Inc.......... 2,814
112 Union Planters Corp.................. 6,587
--------
162,717
--------
Health Care (4.4%):
87 Allegiance Corp...................... 4,433
21 ATL Ultrasound, Inc. (b)............. 958
55 Bergen Brunswig Corp., Class A....... 2,551
147 Beverly Enterprises, Inc. (b)(c)..... 2,030
200 Chiron Corp. (b)..................... 3,138
95 Genzyme Corp. (b) (c)................ 2,428
80 HBO & Co............................. 2,820
112 IDEXX Laboratories, Inc. (b)......... 2,786
43 NovaCare, Inc. (b)................... 505
57 PacifiCare Health Systems, Inc.,
Class B (b)........................ 5,038
22 Sofamor Danek Group, Inc. (b)........ 1,904
46 Watson Pharmaceuticals, Inc. (b)..... 2,148
--------
30,739
--------
Multi-Industry (0.2%):
61 Gencorp, Inc......................... 1,540
--------
Raw Materials (5.5%):
47 A. Schulman, Inc..................... 919
96 Airgas, Inc. (b)(c).................. 1,380
35 AK Steel Holding Corp................ 626
28 Albemarle Corp....................... 618
28 Aluminum Co. of America (c).......... 1,820
43 B. F. Goodrich Co.................... 2,134
109 Cabot Corp........................... 3,522
12 Cleveland Cliffs, Inc................ 644
38 Crompton & Knowles Corp.............. 957
33 Dexter Corp.......................... 1,050
23 Fuller (H. B.) Co.................... 1,247
70 Hanna (M.A.) Co...................... 1,286
164 IMC Global, Inc...................... 4,940
83 Lubrizol Corp........................ 2,511
33 Minerals Technologies, Inc........... 1,679
102 Olin Corp............................ 4,252
22 Praxair, Inc......................... 1,030
200 RPM, Inc............................. 3,400
37 Sigma-Aldrich Corp................... 1,300
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Raw Materials, continued:
53 Wellman, Inc......................... $ 1,202
68 Witco Corp........................... 1,989
--------
38,506
--------
Retail (6.3%):
55 BJ's Wholesale Club, Inc. (b)........ 2,234
32 Bob Evans Farms, Inc................. 678
88 Borders Group, Inc. (b).............. 3,256
98 Brinker International, Inc. (b)...... 1,887
43 Buffets, Inc. (b).................... 675
50 Claire's Stores, Inc................. 1,034
105 CompUSA, Inc. (b).................... 1,897
82 Cracker Barrel....................... 2,604
73 Fingerhut Companies, Inc............. 2,409
58 Fred Meyer, Inc. (b)(c).............. 2,482
66 Hannaford Brothers Co................ 2,900
100 Just For Feet, Inc. (b).............. 2,850
40 Kohl's Corp. (b)..................... 2,075
85 OfficeMax, Inc. (b).................. 1,403
96 Outback Steakhouse, Inc. (b)(c)...... 3,743
48 Payless Shoesource, Inc. (b)......... 3,537
115 Proffitts, Inc. (b).................. 4,642
42 Saks Holdings, Inc. (b).............. 1,160
70 Williams Sonoma, Inc. (b)............ 2,227
--------
43,693
--------
Shelter (3.7%):
59 Bowater, Inc......................... 2,788
19 Chesapeake Corp...................... 740
73 Clayton Homes, Inc................... 1,387
116 Consolidated Papers, Inc............. 3,161
108 Georgia Pacific Timber Corp.......... 2,484
134 Leggett & Platt, Inc................. 3,350
35 Masco Corp........................... 2,118
148 Pentair, Inc......................... 6,289
69 Rayonier, Inc........................ 3,165
--------
25,482
--------
Technology (6.4%):
114 American Power Conversion (b)........ 3,420
77 Arrow Electronics, Inc. (b).......... 1,679
68 ATMEL Corp. (b)...................... 927
35 Avnet, Inc........................... 1,887
100 Cirrus Logic, Inc. (b)............... 1,113
84 Cordant Technology, Inc.............. 3,874
38 Dell Computer Corp. (b).............. 3,527
22 Litton Industries, Inc. (b).......... 1,298
130 LSI Logic Corp. (b).................. 2,998
47 NCR Corp. (b)........................ 1,528
96 Qualcomm, Inc. (b)(c)................ 5,393
137 Quantum Corp. (b).................... 2,849
</TABLE>
Continued
50
<PAGE> 154
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Disciplined Value Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Technology, continued:
94 SCI Systems, Inc. (b)(c)............. $ 3,537
109 Sterling Software, Inc. (b).......... 3,222
88 Storage Technology Corp. (b)......... 3,816
33 Stratus Computer, Inc. (b)........... 825
46 Teradyne, Inc. (b)(c)................ 1,231
67 Vishay Intertechnology, Inc. (b)..... 1,202
--------
44,326
--------
Transportation (1.4%):
12 Alaska Air Group, Inc. (b)........... 655
58 Alexander & Baldwin, Inc............. 1,689
43 ASA Holdings, Inc.................... 2,134
65 CNF Transportation, Inc.............. 2,762
75 Wisconsin Central Transportation
Corp. (b).......................... 1,641
57 Yellow Corp. (b)..................... 1,058
--------
9,939
--------
Utilities (21.4%):
102 AES Corp. (b)........................ 5,361
307 Allegheny Energy, Inc................ 9,248
70 American Water Works, Inc. (c)....... 2,170
105 Baltimore Gas & Electric Co.......... 3,262
48 Calenergy, Inc. (b).................. 1,443
222 Century Telephone Enterprises........ 10,184
102 Cinergy Corp......................... 3,570
253 CMS Energy Corp. (c)................. 11,133
63 Conectiv, Inc. (b)................... 1,292
290 El Paso Natural Gas Co............... 11,093
151 Energy East Corp..................... 6,285
83 Florida Progress Corp................ 3,413
85 General Public Utilities Corp........ 3,214
100 L G & E Energy Corp.................. 2,706
170 Marketspan Corp...................... 5,089
70 MCN Energy Group, Inc................ 1,741
200 Montana Power Co..................... 6,943
236 New Century Energies, Inc............ 10,702
39 New England Electric System.......... 1,687
171 Nipsco Industries, Inc. (c).......... 4,788
80 Northeast Utilities (b).............. 1,355
122 OGE Energy Corp...................... 3,294
160 Pinnacle West Capital Corp........... 7,182
166 Potomac Electric Power Co............ 4,160
140 Qwest Communications International,
Inc. (b)........................... 4,880
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities, continued:
251 SCANA Corp. (c)...................... $ 7,483
322 TECO Energy, Inc..................... 8,634
130 The Williams Companies, Inc. (c)..... 4,381
36 UtiliCorp United, Inc................ 1,357
--------
148,050
--------
Total Common Stocks 680,977
--------
REPURCHASE AGREEMENTS (2.6%):
$18,245 Prudential Securities, 6.10%, 7/1/98
(Collateralized by $18,437 various
U.S. Government Securities, 5.25% -
6.10%, 11/30/99 - 6/26/03, market
value $18,611)..................... 18,245
--------
Total Repurchase Agreements 18,245
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (8.6%):
Master Notes (1.6%):
2,270 Bear Stearns Mortgage Capital, 6.77%,
10/9/98*........................... 2,270
1,892 Danaher Corp., 6.68%, 10/9/98*....... 1,892
1,135 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................... 1,135
2,572 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*.................... 2,572
681 NationsBanc Capital Markets, 6.70%,
7/1/98*............................ 681
2,270 Williamette Industries, Inc., 5.85%,
7/23/98*........................... 2,270
--------
10,820
--------
Put Bonds (2.4%):
1,892 Associates Corp. N.A., 5.79%,
1/4/99*............................ 1,891
1,513 Branch Banking & Trust, 5.92%,
12/10/99*.......................... 1,513
757 Citicorp, 5.94%, 8/3/98*............. 757
1,740 Evangelical Lutheran, 5.74%,
4/28/00*........................... 1,737
2,270 GMAC, 5.85%, 11/10/99*............... 2,273
1,892 Goldman Sachs, 6.06%, 11/21/00*...... 1,892
1,892 Greenwich Capital, 6.11%,
12/13/99*.......................... 1,892
1,892 Lehman Brothers Holdings, 5.85%,
8/18/99*........................... 1,892
757 Merrill Lynch, 6.07%, 11/13/98*...... 757
1,892 PNC Bank, 5.74%, 10/2/98*............ 1,890
--------
16,494
--------
</TABLE>
Continued
51
<PAGE> 155
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Disciplined Value Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements (4.6%):
$ 7,567 Donaldson, Lufkin & Jenrette, 6.65%,
7/1/98 (Collateralized by $7,736
various Corporate and Government
Securities, 2.85% - 17.25%,
10/15/02
- 4/15/35, market value $7,858).... $ 7,567
3,783 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $4,032 various
Corporate Bonds, 0.00%, 7/7/98
- 9/18/98, market value $4,018).... 3,783
19,447 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $19,933 various
Corporate Bonds, 0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$20,864)........................... 19,447
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$ 13 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $14 Media One
Group Bonds, 0.00%, 10/5/98, market
value $14)......................... $ 13
605 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $3,790 various
Government Securities,
0.00% - 10.00%, 12/1/18 - 5/1/24,
market value $623)................. 605
757 Paine Webber, 6.40%, 7/1/98
(Collateralized by $755 various
Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value
$795).............................. 757
--------
32,172
--------
Total Short-Term Securities Held as Collateral 59,486
--------
Total (Cost $650,635)(a) $758,708
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $694,209.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $161. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $120,042
Unrealized depreciation..................................... (12,130)
--------
Net unrealized appreciation................................. $107,912
========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
52
<PAGE> 156
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Large Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS (99.6%):
Business Equipment & Services (1.8%):
55 America Online (b)................. $ 5,830
130 Automatic Data Processing, Inc..... 9,474
60 Omnicom Group, Inc. (c)............ 2,993
358 U.S.A. Waste Services, Inc.
(b)(c)........................... 17,695
----------
35,992
----------
Capital Goods (7.8%):
1,474 General Electric Co................ 134,134
345 Tyco International, Ltd. (c)....... 21,741
----------
155,875
----------
Consumer Non-Durable (16.9%):
155 Anheuser Busch Co., Inc............ 7,324
40 Avon Products, Inc................. 3,100
110 Bestfoods.......................... 6,387
200 Campbell Soup Co................... 10,636
1,008 Coca-Cola Co....................... 86,188
140 Colgate Palmolive Co............... 12,320
151 Conagra, Inc....................... 4,791
447 Gillette Co........................ 25,351
65 H.J. Heinz Co...................... 3,654
210 Kellogg Co......................... 7,896
170 Newell Co.......................... 8,483
582 PepsiCo, Inc....................... 23,958
1,101 Philip Morris Co., Inc............. 43,356
568 Procter & Gamble Co................ 51,740
75 Quaker Oats Co..................... 4,120
30 Ralston-Ralston Purina Group....... 3,504
190 Sara Lee, Corp..................... 10,634
250 Unilever N V....................... 19,750
100 UST, Inc........................... 2,700
----------
335,892
----------
Consumer Services (1.8%):
165 Comcast Corp., Class A (c)......... 6,698
115 Gannett, Inc....................... 8,179
200 Hilton Hotels Corp. (c)............ 5,700
95 Mattel, Inc. (c)................... 4,024
190 Tele-Communications, Inc. (b)(c)... 7,307
60 Tribune Co......................... 4,129
----------
36,037
----------
Energy (1.0%):
90 Halliburton Co. (c)................ 4,015
230 Schlumberger Ltd. (c).............. 15,732
----------
19,747
----------
Financial Services (10.3%):
205 American Express Co................ 23,370
279 American International Group, Inc.
(c).............................. 40,686
73 Capital One Financial Corp......... 9,066
171 Charles Schwab Corp. (c)........... 5,541
360 Chase Manhattan Corp............... 27,210
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
320 Federal National Mortgage Assoc.... $ 19,417
25 Fifth Third Bancorp................ 1,575
94 First Virginia Banks, Inc.......... 4,796
101 Franklin Resources, Inc............ 5,476
200 Household International............ 9,950
69 Marsh & McLennan Co. (c)........... 4,170
210 MBNA Corp. (c)..................... 6,933
40 MGIC Investment Group (c).......... 2,288
130 Morgan Stanley Dean Witter Discover
(c).............................. 11,906
100 National City Corp................. 7,100
59 State Street Corp.................. 4,094
20 T. Rowe Price Associates, Inc...... 751
324 U.S. Bancorp....................... 13,938
150 Washington Mutual, Inc. (c)........ 6,522
----------
204,789
----------
Health Care (20.1%):
471 Abbott Labs........................ 19,236
539 American Home Products Co.......... 27,914
90 Baxter International, Inc.......... 4,854
85 Boston Scientific Corp. (b)(c)..... 6,088
511 Bristol Myers Squibb Co............ 58,676
75 Cardinal Health, Inc. (c).......... 7,031
450 Eli Lilly & Co..................... 29,755
50 Guidant Corp....................... 3,566
170 HBO & Co........................... 6,000
500 Johnson & Johnson.................. 36,859
155 Medtronic, Inc. (c)................ 9,881
446 Merck & Co., Inc................... 59,619
531 Pfizer, Inc........................ 57,710
393 Schering Plough Corp............... 36,013
550 Warner Lambert Co.................. 38,177
----------
401,379
----------
Multi-Industry (0.6%):
150 Minnesota Mining & Manufacturing
Co............................... 12,328
----------
Raw Materials (2.6%):
488 Du Pont (EI) de Nemours & Co....... 36,453
260 Monsanto Co........................ 14,523
----------
50,976
----------
Retail (8.2%):
120 Consolidated Stores Corp. (b)...... 4,350
85 Costco Cos., Inc. (b)(c)........... 5,360
160 CVS Corp........................... 6,238
189 Dayton Hudson Corp. (c)............ 9,186
165 Gap, Inc. (c)...................... 10,174
292 Home Depot, Inc.................... 24,257
808 Just For Feet, Inc. (b)(c)......... 23,025
</TABLE>
Continued
53
<PAGE> 157
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Large Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail, continued:
125 Kroger Co. (b)..................... $ 5,368
162 TJX Cos., Inc...................... 3,899
1,036 Wal-Mart Stores, Inc. (c).......... 62,949
215 Walgreen Co........................ 8,895
----------
163,701
----------
Shelter (0.6%):
239 Kimberly Clark Corp................ 10,963
----------
Technology (21.7%):
185 Applied Materials, Inc. (b)........ 5,460
125 Ascend Communications, Inc. (b).... 6,195
453 Cisco Systems, Inc. (b)............ 41,679
204 Computer Associates International,
Inc. (c)......................... 11,313
0 Compuware Corp. (d)................ 5
565 Dell Computer Corp. (b)............ 52,476
255 EMC Corp. (b)(c)................... 11,436
50 Gateway 2000, Inc. (b)(c).......... 2,536
16 Hewlett Packard Co................. 930
549 Intel Corp......................... 40,673
325 International Business Machines.... 37,314
551 Lucent Technologies, Inc........... 45,795
1,177 Microsoft Corp. (b)................ 127,514
251 Northern Telecom, Ltd.............. 14,244
250 Oracle Corp. (b)(c)................ 6,146
85 Tellabs, Inc. (b)(c)............... 6,088
100 United Technologies Corp........... 9,250
140 Xerox Corp......................... 14,258
----------
433,312
----------
Transportation (0.2%):
50 Southwest Airlines Company......... 1,481
30 US Airways Group, Inc. (b)......... 2,378
----------
3,859
----------
Utilities (6.0%):
230 Airtouch Communications, Inc.
(b).............................. 13,446
451 Ameritech Corp..................... 20,216
623 Bell Atlantic Corp. (c)............ 28,443
370 GTE Corp........................... 20,604
781 SBC Communications, Inc............ 31,232
100 WorldCom, Inc. (b)................. 4,844
----------
118,785
----------
Total Common Stocks.......................... 1,983,635
----------
REPURCHASE AGREEMENTS (0.1%):
$1,891 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $1,947
U.S. Treasury Bills, 9/3/98,
market value $1,929)............. 1,891
----------
Total Repurchase Agreements.................. 1,891
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL (8.9%):
Master Notes (1.6%):
$6,760 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*.................. $ 6,760
5,633 Danaher Corp., 6.68%, 10/9/98*..... 5,633
3,380 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................. 3,380
7,661 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*.................. 7,662
2,028 NationsBanc Capital Markets, 6.70%,
7/1/98*.......................... 2,028
6,760 Williamette Industries, Inc.,
5.85%, 7/23/98*.................. 6,760
----------
32,223
----------
Put Bonds (2.5%):
5,633 Associates Corp. N.A., 5.79%,
1/4/99*.......................... 5,630
4,507 Branch Banking & Trust, 5.92%,
12/10/99*........................ 4,507
2,253 Citicorp, 5.94%, 8/3/98*........... 2,253
5,183 Evangelical Lutheran, 5.74%,
4/28/00*......................... 5,174
6,760 GMAC, 5.85%, 11/10/99*............. 6,771
5,633 Goldman Sachs, 6.06%, 11/21/00*.... 5,633
5,633 Greenwich Capital, 6.11%,
12/13/99*........................ 5,633
5,633 Lehman Brothers Holdings, 5.85%,
8/18/99*......................... 5,634
2,253 Merrill Lynch, 6.07%, 11/13/98*.... 2,253
5,633 PNC Bank, 5.74%, 10/2/98*.......... 5,630
----------
49,118
----------
Repurchase Agreements (4.8%):
22,534 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$23,038 various Corporate and
Government Securities,
2.85% - 17.25%,
10/15/02 - 4/15/35, market value
$23,400)......................... 22,534
11,267 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $12,009
various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value
$11,965)......................... 11,267
57,910 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $59,361
various Corporate Bonds,
0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$62,133)......................... 57,910
39 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $41 Media One
Group Bonds, 0.00%, 10/5/98,
market value $41)................ 39
</TABLE>
Continued
54
<PAGE> 158
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Large Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$1,803 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $11,285
various Government Securities,
0.00% - 10.00%, 12/1/18 - 5/1/24,
market value $1,856)............. $ 1,803
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$2,253 Paine Webber, 6.40%, 7/1/98
(Collateralized by $2,249 various
Corporate Bonds, 4.00%-9.75%,
7/15/98-12/31/49, market value
$2,366).......................... $ 2,253
----------
95,806
----------
Total Short-Term Securities Held as
Collateral 177,147
----------
Total (Cost $1,443,904) (a) $2,162,673
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $1,990,628.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $3,471. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $724,999
Unrealized depreciation..................................... (9,701)
--------
Net unrealized appreciation................................. $715,298
========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Rounds to less than 1,000
* The interest rate for this variable rate note, which will change periodically,
is based upon on index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
55
<PAGE> 159
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Growth Opportunities Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS (98.2%):
Business Equipment & Services (17.7%):
270 AccuStaff, Inc. (b)................ $ 8,438
437 America Online, Inc. (b)(c)........ 46,301
190 Cintas Corp........................ 9,710
210 Comdisco, Inc...................... 3,990
172 Corrections Corporation of America
(b).............................. 4,042
177 Fiserv, Inc. (b)................... 7,508
45 GTECH Holdings Corp. (b)........... 1,516
158 Manpower, Inc...................... 4,544
211 Miller (Herman), Inc............... 5,130
338 Paychex, Inc....................... 13,743
27 Pittston Co........................ 981
59 Policy Management Systems Corp.
(b).............................. 2,316
279 Reynolds & Reynolds Co............. 5,069
563 Staples, Inc. (b)(c)............... 16,286
177 Sterling Commerce, Inc. (b)(c)..... 8,606
240 Sungard Data Systems, Inc.
(b)(c)........................... 9,198
522 U.S.A. Waste Services, Inc.
(b)(c)........................... 25,789
91 Viad Corp.......................... 2,536
280 Viking Office Products (b)......... 8,785
101 Wallace Computer Services, Inc..... 2,401
----------
186,889
----------
Capital Goods (2.6%):
128 Diebold, Inc....................... 3,684
30 Donaldson Co., Inc................. 707
85 Fastenal Co. (c)................... 3,929
76 Federal Signal Corp................ 1,853
75 Martin Marietta Materials, Inc..... 3,375
129 Sundstrand Corp.................... 7,361
70 UCAR International, Inc. (b)....... 2,043
170 United States Filter Corp.
(b)(c)........................... 4,771
----------
27,723
----------
Consumer Durable (2.5%):
222 Danaher Corp. (c).................. 8,134
78 Federal Mogul Corp. (c)............ 5,252
283 Harley-Davidson, Inc............... 10,981
50 Kaydon Corp........................ 1,766
----------
26,133
----------
Consumer Non-Durable (7.7%):
790 Coca-Cola Enterprises, Inc. (c).... 30,991
75 Dean Foods Co...................... 4,120
193 Dial Corp. (c)..................... 4,993
119 Dole Food, Inc..................... 5,923
184 Flowers Industries, Inc............ 3,765
159 General Nutrition Cos., Inc. (b)... 4,952
149 Interstate Bakeries Co. (c)........ 4,928
205 Jones Apparel Group, Inc. (b)...... 7,513
68 Lancaster Colony Corp.............. 2,574
135 McCormick & Co., Inc............... 4,822
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Consumer Non-Durable, continued:
105 Unifi, Inc......................... $ 3,607
50 Vlasic Foods International, Inc.
(b).............................. 1,006
74 Wausau-Mosinee Paper Corp.......... 1,693
----------
80,887
----------
Consumer Services (2.4%):
4 Belo (A.H.) Corp., Series A........ 98
245 International Game Technologies.... 5,948
50 Media General Inc., Class A........ 2,438
39 Promus Hotel Corp. (b)............. 1,486
38 TCA Cable TV, Inc.................. 2,280
22 Washington Post Co................. 12,901
----------
25,151
----------
Energy (3.8%):
70 Camco International, Inc........... 5,451
7 ENSCO International, Inc........... 118
200 EVI Weatherford, Inc. (b).......... 7,426
367 Global Marine, Inc. (b)............ 6,864
92 Nabors Industries, Inc. (b)........ 1,828
62 Noble Drilling Corp. (b)........... 1,489
209 Ocean Energy, Inc. (b)............. 4,089
96 Smith International, Inc. (b)(c)... 3,352
49 Tidewater, Inc. (c)................ 1,620
108 Tosco Corp. (c).................... 3,184
241 Varco International, Inc. (b)...... 4,779
----------
40,200
----------
Financial Services (7.1%):
537 AFLAC, Inc......................... 16,287
4 Associated Banc-Corp............... 141
14 Capital One Financial Corp......... 1,763
102 City National Corp................. 3,768
5 First Security Corp................ 115
271 First Tennessee National Corp...... 8,553
85 First Virginia Banks, Inc.......... 4,335
19 Marshall & Ilsley Corp............. 970
220 North Fork Bancorp., Inc........... 5,376
184 Robert Half International, Inc.
(b).............................. 10,292
239 T. Rowe Price Associates, Inc...... 8,995
7 TCF Financial Corp................. 204
65 Union Planters Corp................ 3,829
52 Wilmington Trust Corp.............. 3,166
132 Zions Bancorp...................... 7,013
----------
74,807
----------
Health Care (13.0%):
25 Beckman Coulter, Inc............... 1,456
154 Biogen, Inc. (b)................... 7,536
151 Centocor, Inc. (b)(c).............. 5,481
161 Chiron Corp. (b)(c)................ 2,526
30 Concentra Managed Care, Inc.
(b)(c)........................... 780
</TABLE>
Continued
56
<PAGE> 160
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Growth Opportunities Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Health Care, continued:
146 DENTSPLY International, Inc........ $ 3,655
161 First Health Group Corp. (b)(c).... 4,584
176 Forest Laboratories, Inc., Class A
(b).............................. 6,292
242 Foundation Health Systems, Inc.,
Series A (b)..................... 6,370
88 Health Care & Retirement Corp.
(b)(c)........................... 3,467
323 Health Management Associates, Inc.
(b).............................. 10,808
125 Hillenbrand Industries, Inc........ 7,470
145 ICN Pharmaceuticals, Inc........... 6,625
190 McKesson Corp. (c)................. 15,437
255 Mylan Laboratories, Inc. (c)....... 7,666
154 Omnicare, Inc...................... 5,871
206 Oxford Health Plans, Inc. (b)...... 3,154
20 PSS World Medical, Inc. (b)........ 293
145 Quintiles Transnational Corp.
(b).............................. 7,132
150 Quorum Health Group, Inc. (b)...... 3,975
40 R. P. Scherer Corp. (b)............ 3,545
183 Stryker Corp. (c).................. 7,038
195 Sybron International Corp. (b)..... 4,924
100 Total Renal Care Holdings, Inc.
(b).............................. 3,450
171 Watson Pharmaceutical, Inc. (b).... 7,993
----------
137,528
----------
Multi-Industry (0.5%):
40 Brio Technology, Inc. (b).......... 535
25 UniCapital Corp. (b)............... 478
200 Whitman Corp....................... 4,588
----------
5,601
----------
Raw Materials (2.5%):
52 Betzdearborn, Inc.................. 2,202
146 Crompton & Knowles Corp............ 3,687
57 Cytec Industries, Inc. (b)......... 2,540
86 Ferro Corp......................... 2,165
161 Lyondell Petrochemical Co.......... 4,910
205 Solutia, Inc....................... 5,882
39 Vulcan Materials Co................ 4,203
38 Witco Corp......................... 1,106
----------
26,695
----------
Retail (9.9%):
131 Barnes & Noble, Inc. (b)........... 4,897
139 Bed Bath & Beyond, Inc. (b)(c)..... 7,223
157 Best Buy, Inc. (b)................. 5,686
100 Borders Group, Inc. (b)............ 3,700
4 CompUSA, Inc. (b).................. 68
295 Dollar General Corp. (c)........... 11,675
412 Family Dollar Stores, Inc.......... 7,616
245 Fred Meyer, Inc. (b)(c)............ 10,413
741 Just For Feet, Inc. (b)............ 21,118
328 Kohl's Corp. (b)................... 16,993
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail, continued:
60 Lands' End, Inc. (b)............... $ 1,898
77 Outback Steakhouse, Inc. (b)....... 3,014
25 Restoration Hardware, Inc.
(b)(c)........................... 628
166 Starbucks Corp. (b)(c)............. 8,860
16 Tiffany & Co....................... 768
----------
104,557
----------
Shelter (2.3%):
129 HON INDUSTRIES, Inc................ 4,386
381 Leggett & Platt, Inc............... 9,520
222 Shaw Industries, Inc............... 3,913
212 Sonoco Products Co................. 6,413
----------
24,232
----------
Technology (19.3%):
280 ADC Telecommunications, Inc.
(b)(c)........................... 10,240
191 Altera Corp. (b)................... 5,649
170 American Power Conversion Corp.
(b).............................. 5,109
431 Analog Devices, Inc. (b)(c)........ 10,582
438 BMC Software, Inc. (b)............. 22,769
514 Cadence Design Systems, Inc.
(b)(c)........................... 16,053
406 Compuware Corp. (b)................ 20,757
55 Comverse Technology, Inc. (b)(c)... 2,853
144 Dell Computer Corp. (b)............ 13,384
126 Electronic Arts, Inc. (b).......... 6,826
130 Keane, Inc. (b).................... 7,280
136 Lexmark International Group, Inc.
(b).............................. 8,296
152 Linear Technology Corp............. 9,161
320 Maxim Integrated Products, Inc.
(b).............................. 10,140
25 MIPS Technologies, Inc. (b)........ 325
243 Network Associates, Inc. (b)(c).... 11,610
125 SCI Systems, Inc. (b)(c)........... 4,707
125 software.net Corp. (b)(c).......... 2,391
233 Solectron Corp. (b)(c)............. 9,809
169 Storage Technology Corp. (b)....... 7,330
63 Structural Dynamics Research Corp.
(b).............................. 1,452
80 Symantec Corp. (b)(c).............. 2,090
111 Symbol Technologies, Inc........... 4,202
115 Synopsys, Inc. (b)(c).............. 5,261
50 Unigraphics Solutions, Inc.
(b)(c)........................... 700
146 Xilinx, Inc. (b)................... 4,978
----------
203,954
----------
Transportation (1.7%):
100 Airborne Freight Corp.............. 3,494
45 Canadian National Railway Co....... 2,365
5 CNF Transportation, Inc............ 213
213 Kansas City Southern Industries,
Inc.............................. 8,870
----------
16,642
----------
</TABLE>
Continued
57
<PAGE> 161
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Growth Opportunities Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities (5.2%):
241 360 Communications Co. (b)......... $ 7,696
379 AES Corp. (b)...................... 19,910
270 Cincinnati Bell, Inc. (c).......... 7,729
15 Intelect Communications, Inc.
(b)(c)........................... 80
44 Interstate Energy Corp............. 1,430
271 LG&E Energy Corp................... 7,329
4 MCN Energy Group, Inc.............. 100
2 Qwest Communications International,
Inc. (b)......................... 86
115 Seagull Energy Corp. (b)........... 1,906
133 Southern New England
Telecommunications, Inc.......... 8,711
----------
54,977
----------
Total Common Stocks 1,035,976
----------
REPURCHASE AGREEMENTS (0.5%):
$ 5,221 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $5,374
U.S. Treasury Bills, 9/3/98,
market value $5,326)............. 5,221
----------
Total Repurchase Agreements 5,221
----------
SHORT-TERM SECURITIES HELD AS COLLATERAL (19.5%):
Master Notes (3.5%):
7,860 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*.................. 7,860
6,550 Danaher Corp., 6.68%, 10/9/98*..... 6,550
3,930 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................. 3,930
8,908 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*.................. 8,907
2,358 NationsBanc Capital Markets, 6.70%,
7/1/98*.......................... 2,358
7,860 Williamette Industries, Inc.,
5.85%, 7/23/98*.................. 7,859
----------
37,464
----------
Put Bonds (5.4%):
6,550 Associates Corp. N.A., 5.79%,
1/4/99*.......................... 6,546
5,240 Branch Banking & Trust, 5.92%,
12/10/99*........................ 5,240
2,620 Citicorp, 5.94%, 8/3/98*........... 2,620
6,026 Evangelical Lutheran, 5.74%,
4/28/00*......................... 6,015
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Put Bonds, continued:
$ 7,860 GMAC, 5.85%, 11/10/99*............. $ 7,871
6,550 Goldman Sachs, 6.06%, 11/21/00*.... 6,550
6,550 Greenwich Capital, 6.11%,
12/13/99*........................ 6,550
6,550 Lehman Brothers Holdings, 5.85%,
8/18/99*......................... 6,550
2,620 Merrill Lynch, 6.07%, 11/13/98*.... 2,620
6,550 PNC Bank, 5.74%, 10/2/98*.......... 6,545
----------
57,107
----------
Repurchase Agreements (10.6%):
26,199 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$26,785 various Corporate and
Government Securities, 2.85% -
17.25%, 10/15/02 - 4/15/35,
market value $27,207)............ 26,199
13,099 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $13,962
various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value
$13,911)......................... 13,099
67,332 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $69,017
various Corporate Bonds, 0.00% -
10.13%, 9/15/99 - 10/17/96,
market value $72,239)............ 67,332
45 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $48 Media One
Group Bonds, 0.00%, 10/5/98,
market value $48)................ 45
2,096 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $13,121
various Government Securities,
0.00% - 10.00%, 12/1/18 - 5/1/24,
market value $2,158)............. 2,096
2,620 Paine Webber, 6.40%, 7/1/98
(Collateralized by $2,615 various
Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value
$2,751).......................... 2,620
----------
111,391
----------
Total Short-Term Securities Held as
Collateral 205,962
----------
Total (Cost $1,037,010) (a) $1,247,159
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $1,056,566.
Continued
58
<PAGE> 162
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Growth Opportunities Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $9,940. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $235,024
Unrealized depreciation..................................... (34,815)
--------
Net unrealized appreciation................................. $200,209
========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
59
<PAGE> 163
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Small Capitalization Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMERCIAL PAPER (4.8%):
Financial Services (4.8%):
$7,300 Merrill Lynch, 5.60%, 9/19/98........ $ 7,212
--------
Total Commercial Paper 7,212
--------
COMMON STOCKS (84.9%):
Business Equipment & Services (9.8%):
20 A Consulting Team, Inc. (b).......... 213
35 Acxiom Corp. (b)..................... 872
15 American Management Systems (b)...... 449
50 Billing Information Concepts (b)..... 774
10 Bowne & Co., Inc..................... 450
28 Carriage Services, Inc., Class A
(b)................................ 704
10 Catalina Marketing Corp. (b)......... 519
15 Central Parking Corp................. 683
40 CHS Electronics, Inc. (b)(c)......... 715
38 Concord EFS, Inc. (b)................ 979
30 Equity Corporation International
(b)................................ 720
20 Hyperion Software Corp. (b).......... 556
30 Inspire Insurance Solutions (b)...... 997
24 Interim Services, Inc. (b)........... 771
25 International Telecommunications Data
Systems (b)........................ 725
15 MPW Industrial Services Group (b).... 203
30 Nova Corp. (b)(c).................... 1,072
30 Paxar Corp. (b)...................... 345
20 Staff Leasing, Inc. (b).............. 590
20 Staffmark, Inc. (b).................. 733
7 Stone & Webster, Inc................. 277
10 Tetra Technologies, Inc. (b)......... 168
12 Wackenhut Corrections Corp. (b)...... 283
10 World Access, Inc. (b)(c)............ 300
18 Zebra Technologies, Class A (b)...... 770
--------
14,868
--------
Capital Goods (4.8%):
13 Applied Power, Inc., Class A......... 447
9 Astec Industries, Inc. (b)........... 311
12 Belden, Inc.......................... 368
26 Blount International, Inc., Class
A.................................. 740
20 Imco Recycling, Inc.................. 370
34 Interface, Inc....................... 686
8 Ionics, Inc. (b)..................... 295
25 Kuhlman Corp......................... 988
8 Lone Star Industries (c)............. 617
10 Medusa Corp.......................... 628
20 Roper Industries, Inc................ 523
30 Savoir Technology Group, Inc.
(b)(c)............................. 345
11 Texas Industries, Inc. (c)........... 583
15 Wabash National Corp. (c)............ 386
--------
7,287
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Consumer Durable (1.5%):
15 Breed Technologies, Inc. (c)......... $ 230
30 Gentex Corp. (b)..................... 544
20 Keystone Automotive Industries, Inc.
(b)................................ 463
7 SPX Corp. (b)........................ 451
18 Watsco, Inc.......................... 632
--------
2,320
--------
Consumer Non-Durable (7.6%):
26 Advanced Energy Corp. (b)............ 605
10 Aptargroup, Inc...................... 622
13 Canandaigua Wine Co., Class A (b).... 639
6 Coca-Cola Bottling Co................ 397
20 Corn Products International, Inc.
(b)................................ 678
20 Earthgrains Co....................... 1,117
17 Guilford Mills, Inc.................. 340
25 Mohawk Industries Co. (b)............ 792
22 Natures Sunshine Products, Inc....... 496
20 Nautica Enterprises, Inc. (b)........ 536
40 NBTY, Inc. (b)....................... 735
15 Pacific Sunwear of California (b).... 525
14 Pillowtex Corp....................... 562
18 Richfood Holdings, Inc............... 372
18 Smithfield Foods, Inc. (b)........... 549
12 St. John Knits, Inc.................. 464
6 Timberland Co., Class A (b).......... 432
30 Westpoint Stevens, Inc. (b)(c)....... 989
30 Wolverine World Wide, Inc............ 651
--------
11,501
--------
Consumer Services (2.7%):
30 Action Performance Co., Inc.
(b)(c)............................. 965
10 Carmike Cinemas, Inc., Class A (b)... 269
22 Grand Casinos (b).................... 369
25 International Speedway Corp., Class
A.................................. 710
30 Players International, Inc. (b)...... 149
22 Primadonna Resorts, Inc. (b)......... 316
10 Sturm, Ruger & Co., Inc.............. 168
30 Suburban Lodges of America (b)....... 454
12 World Color Press, Inc. (b).......... 420
--------
3,820
--------
Energy (2.7%):
10 Barrett Resources Corp. (b).......... 374
10 Devon Energy Corp. (c)............... 349
40 EEX Corp. (b)........................ 375
20 Global Industries Ltd. (b)........... 338
12 Newfield Exploration Co. (b)......... 299
20 Newpark Resources, Inc. (b).......... 223
30 Patterson Energy, Inc. (b)........... 293
25 Pride Petroleum Services, Inc. (b)... 423
7 Saint Mary Land & Exploration........ 169
25 Santa Fe Energy Resources, Inc.
(b)................................ 269
</TABLE>
Continued
60
<PAGE> 164
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Small Capitalization Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Energy, continued:
10 Snyder Oil Corp...................... $ 199
12 Stone Energy Corp. (b)............... 426
25 Superior Energy Services, Inc. (b)... 127
12 Vintage Petroleum, Inc............... 227
--------
4,091
--------
Financial Services (14.0%):
35 Alabama National Bankcorp............ 1,316
25 Allied Capital Corp.................. 613
25 Amresco, Inc. (b).................... 728
11 BankAtlantic Bancorp, Inc., Series
B.................................. 145
13 Centura Banks, Inc................... 813
20 Colonial BancGroup, Inc.............. 645
35 Cooperative Bankshares, Inc. (b)..... 613
15 Cullen/Frost Bankers, Inc............ 814
10 Dain Rauscher Corp................... 548
15 Eagle Bancshares, Inc................ 360
15 Fidelity Bankshares, Inc............. 429
15 Fidelity National Corp. (b).......... 169
11 First Commercial Corp................ 729
40 First Financial Holdings, Inc........ 950
30 First Liberty Financial Corp......... 735
12 Keystone Financial, Inc.............. 444
10 Legg Mason, Inc...................... 576
35 Long Beach Financial Corp. (b)....... 385
15 Morgan Keegan, Inc................... 388
20 PMT Services, Inc. (b)............... 509
50 Protective Life Corp. (c)............ 1,833
16 Provident Financial Group, Inc....... 730
23 Raymond James Financial, Inc......... 674
22 Republic Bancshares, Inc. (b)........ 597
37 Resource Bancshares Mortgage Group... 689
50 Sirrom Capital Corp. (c)............. 1,300
42 Sovereign Bancorp, Inc............... 686
17 Trans Financial, Inc................. 975
30 Triad Guaranty, Inc. (b)............. 1,020
12 Whitney Holding Corp................. 609
--------
21,022
--------
Health Care (9.0%):
13 Alpharma, Inc., Class A (c).......... 282
14 Ballard Medical Products............. 259
24 Centennial Healthcare Corp. (b)...... 435
8 Cooper Cos., Inc. (b)................ 273
15 Cryolife, Inc. (b)................... 236
30 Genesis Health Ventures, Inc.
(b)(c)............................. 750
17 IDEXX Laboratories, Inc. (b)......... 413
11 Incyte Pharmaceuticals, Inc. (b)..... 379
14 Invacare Corp........................ 364
11 Jones Pharma, Inc.................... 364
22 Lincare Holdings, Inc. (b)........... 925
12 MedImmune, Inc. (b).................. 724
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Health Care, continued:
12 Mentor Corp.......................... $ 293
4 North American Vaccine, Inc.
(b)(c)............................. 57
43 Orthodontic Centers of America
(b)(c)............................. 890
18 Patterson Dental Co. (b)............. 641
20 Phycor, Inc. (b)..................... 331
11 Protein Design Labs, Inc. (b)........ 263
18 PSS World Medical, Inc. (b).......... 256
19 Quorum Health Group, Inc. (b)........ 504
18 Respironics, Inc. (b)................ 283
24 Roberts Pharmaceutical Corp. (b)..... 552
22 Safeskin Corp. (b)................... 888
14 Steris Corp. (b)..................... 909
28 Sunrise Assisted Living, Inc.
(b)(c)............................. 945
15 Universal Health Services, Class B
(b)................................ 876
7 Vertex Pharmaceuticals, Inc.
(b)(c)............................. 158
7 Visx, Inc. (b)....................... 399
--------
13,649
--------
Manufacturing-Capital Goods (0.3%):
11 Wolverine Tube, Inc. (b)............. 418
--------
Multi-Industry (0.4%):
40 Denali, Inc. (b)..................... 625
--------
Raw Materials (2.5%):
27 Birmingham Steel Corp................ 334
20 Buckeye Technologies, Inc. (b)....... 471
22 Cambrex Corp......................... 578
25 Chemfirst, Inc....................... 632
20 Quanex Corp.......................... 606
16 Scotts Co., Class A (b).............. 596
6 Tredegar Industries, Inc............. 509
--------
3,726
--------
Retail (7.7%):
16 Cash America International, Inc...... 244
35 Cato Corp., Class A.................. 609
15 CKE Restaurants, Inc................. 619
10 Discount Auto Parts, Inc. (b)........ 260
14 Eagle Hardware & Garden, Inc. (b).... 324
12 Footstar, Inc. (b)................... 576
30 Hibbet Sporting Goods, Inc. (b)(c)... 1,201
30 Just For Feet, Inc. (b).............. 855
25 Landry's Seafood Restaurants, Inc.
(b)................................ 452
18 Men's Wearhouse, Inc. (b)............ 594
30 Michaels Stores, Inc. (b)............ 1,058
18 O'Reilly Automotive, Inc. (b)........ 648
12 Papa John's International, Inc.
(b)................................ 473
30 Pier 1 Imports, Inc.................. 716
19 Ross Stores, Inc..................... 817
36 Ruby Tuesday, Inc. (b)............... 558
46 Stein Mart, Inc. (b)................. 621
</TABLE>
Continued
61
<PAGE> 165
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Small Capitalization Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail, continued:
15 Travis Boats & Motors, Inc. (b)...... $ 368
20 Williams Sonoma, Inc. (b)............ 636
--------
11,629
--------
Shelter (4.0%):
24 Caraustar Industries, Inc............ 693
15 Crossmann Communities, Inc. (b)...... 456
30 Ethan Allen Interiors, Inc........... 1,498
12 La-Z-Boy, Inc........................ 678
15 Ladd Furniture, Inc. (b)............. 450
20 Oakwood Homes Corp................... 600
10 Palm Harbor Homes, Inc. (b).......... 426
15 Pulaski Furniture Corp............... 375
17 Toll Brothers, Inc. (b).............. 488
9 U S Home Corp. (b)................... 371
--------
6,035
--------
Technology (12.6%):
12 Aavid Thermal Technologies (b)....... 351
14 Adtran, Inc. (b)..................... 366
14 Alliant Techsystems, Inc. (b)........ 886
38 Anixter International, Inc. (b)...... 724
33 Applied Materials, Inc. (b).......... 974
46 Aspect Telecommunications, Inc.
(b)................................ 1,259
34 Berg Electronics, Corp. (b).......... 665
60 Brightpoint, Inc. (b)(c)............. 870
1 Com21, Inc. (b)...................... 21
24 Comverse Technology, Inc. (b)(c)..... 1,219
20 Corsair Communications, Inc.
(b)(c)............................. 186
4 Datastream Systems, Inc. (b)......... 76
11 Etec Systems, Inc. (b)............... 387
47 Harbinger Corp. (b).................. 1,125
50 Infinium Software, Inc. (b).......... 694
15 MacDermid, Inc....................... 424
14 Microchip Technology, Inc. (b)....... 366
9 Novellus Systems, Inc. (b)........... 321
13 Oak Industries, Inc. (b)............. 460
37 P-Com, Inc. (b)...................... 339
14 Photronics, Inc. (b)................. 309
49 Platinum Technology, Inc. (b)(c)..... 1,399
20 Plexus Corp. (b)..................... 398
40 Powertel, Inc. (b)................... 740
41 Sanmina Corp. (b)(c)................. 1,795
16 SCI Systems, Inc. (b)(c)............. 606
18 Systems & Computer Technology Corp.
(b)................................ 486
34 Tech Data Corp. (b).................. 1,457
--------
18,903
--------
Transportation (3.2%):
34 Atlantic Coast Airlines, Inc. (b).... 1,020
23 Comair Holdings, Inc................. 695
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Transportation, continued:
20 Halter Marine Group, Inc. (b)........ $ 301
25 Heartland Express, Inc. (b).......... 506
10 MS Carriers, Inc. (b)................ 271
15 Railtex, Inc. (b).................... 199
32 Skywest, Inc......................... 896
10 U.S. Xpress Enterprises, Class A
(b)................................ 168
10 USFreightways Corp................... 328
23 Werner Enterprises, Inc.............. 429
--------
4,813
--------
Utilities (2.1%):
22 Energen Corp......................... 443
16 K N Energy, Inc...................... 866
15 Public Service Co. of NC, Inc........ 326
33 Rural Cellular Corp., Class A (b).... 516
11 Sierra Pacific Resources............. 399
26 Tel-Save Holdings, Inc. (b)(c)....... 384
10 TNP Enterprises, Inc................. 309
--------
3,243
--------
Total Common Stocks 127,950
--------
PREFERRED STOCKS (1.3%):
Computer Software (0.3%):
11 National Data Corp................... 481
Financial Services (1.0%):
10 CCB Financial Corp................... 1,063
20 Southwest Securities Group, Inc...... 450
--------
1,513
--------
Total Preferred Stocks 1,994
--------
U.S. TREASURY OBLIGATIONS (0.1%):
U.S. Treasury Bills (0.1%):
$ 50 7/23/98 (d).......................... 50
110 8/20/98 (d).......................... 109
40 8/27/98 (d).......................... 40
15 9/24/98 (d).......................... 15
--------
Total U.S. Treasury Obligations 214
--------
REPURCHASE AGREEMENTS (3.9%):
5,937 Prudential Securities, 6.10%, 7/1/98
(Collateralized by $6,111 U.S.
Treasury Bills, 9/3/98, market
value $6,057)...................... 5,937
--------
Total Repurchase Agreements 5,937
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (9.6%):
Master Notes (1.7%):
555 Bear Stearns Mortgage Capital, 6.77%,
10/9/98*........................... 555
462 Danaher Corp., 6.68%, 10/9/98*....... 462
277 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................... 277
</TABLE>
Continued
62
<PAGE> 166
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Small Capitalization Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Master Notes, continued:
$ 629 Morgan Stanley Mortgage Capital,
5.76%, 7/21/98*.................... $ 629
166 NationsBanc Capital Markets, 6.70%,
7/1/98*............................ 166
555 Williamette Industries, Inc., 5.85%,
7/23/98*........................... 555
--------
2,644
--------
Put Bonds (2.7%):
462 Associates Corp. N.A., 5.79%,
1/4/99*............................ 462
370 Branch Banking & Trust, 5.92%,
12/10/99*.......................... 370
185 Citicorp, 5.94%, 8/3/98*............. 185
425 Evangelical Lutheran, 5.74%,
4/28/00*........................... 425
555 GMAC, 5.85%, 11/10/99*............... 556
462 Goldman Sachs, 6.06%, 11/21/00*...... 462
462 Greenwich Capital, 6.11%,
12/13/99*.......................... 462
462 Lehman Brothers Holdings, 5.85%,
8/18/99*........................... 462
185 Merrill Lynch, 6.07%, 11/13/98*...... 185
462 PNC Bank, 5.74%, 10/2/98*............ 462
--------
4,031
--------
Repurchase Agreements (5.2%):
1,849 Donaldson, Lufkin & Jenrette, 6.65%,
7/1/98 (Collateralized by $1,891
various Corporate and Government
Securities, 2.85% - 17.25%,
10/15/02 - 4/15/35, market value
$1,920)............................ 1,849
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$ 925 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $985 various
Corporate Bonds, 0.00%,
7/7/98-9/18/98, market value
$982).............................. $ 925
4,752 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $4,871 various
Corporate Bonds, 0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$5,099)............................ 4,752
3 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $3 Media One
Group Bonds, 0.00%, 10/5/98, market
value $3).......................... 3
148 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $926 various
Government Securities, 0.00% -
10.00%, 12/1/18 - 5/1/24, market
value $152)........................ 148
185 Paine Webber, 6.40%, 7/1/98
(Collateralized by $185 various
Corporate Bonds, 4.00% - 9.75%,
7/15/98 - 12/31/49, market value
$194).............................. 185
--------
7,862
--------
Total Short-Term Securities Held as Collateral 14,537
--------
Total (Cost $132,255)(a) $157,845
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $145,242.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $19. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $30,146
Unrealized depreciation..................................... (4,575)
-------
Net unrealized appreciation................................. $25,571
=======
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
<TABLE>
<CAPTION>
CURRENT
NUMBER OPENING MARKET
OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE (000) (000)
- ---------- ------------- --------- -------
<C> <S> <C> <C>
25 Long Russell 2000 September 1998 Futures $5,485 $5,779
10 Long Midcap 400, September 1998 Futures 1,782 1,823
------ ------
$7,267 $7,602
====== ======
</TABLE>
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
See notes to financial statements.
63
<PAGE> 167
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS (94.5%):
ARGENTINA (0.5%):
Automotive (0.0%):
34 Renault Argentina................... $ 68
--------
Banking & Finance (0.0%):
40 Banco Galicia....................... 176
--------
Beverages & Tobacco (0.0%):
0 Buenos Aires Embottelladora SA,
Class B (b)(e).................... 0
--------
Metals & Mining (0.0%):
17 Siderca SA.......................... 29
--------
Oil & Gas Exploration, Production & Services (0.3%):
130 Perez Companc SA.................... 652
39 YPF Sociedad Anonima................ 1,160
--------
1,812
--------
Telecommunications (0.2%):
89 Telecom Argentina SA, Class B....... 505
235 Telefonica de Argentina SA, Class
B................................. 758
--------
1,263
--------
Total Argentina..................... 3,348
--------
AUSTRALIA (1.6%):
Banking (0.4%):
120 National Australia Bank Ltd......... 1,581
171 Westpac Banking Corp., Ltd.......... 1,043
--------
2,624
--------
Beverages & Tobacco (0.1%):
57 Coca-Cola Amatil Ltd................ 371
--------
Brewery (0.0%):
113 Foster's Brewing Group Ltd.......... 266
--------
Broadcasting & Publishing (0.2%):
157 News Corp., Ltd. (b)................ 1,278
--------
Building Products (0.2%):
221 Boral Ltd........................... 414
135 CSR Ltd............................. 390
131 Pioneer International Ltd........... 313
--------
1,117
--------
Diversified (0.0%):
82 Southcorp Holdings Ltd.............. 238
--------
Engineering (0.0%):
31 Leighton Holdings Ltd............... 108
--------
Metals (0.0%):
229 M.I.M. Holdings Ltd................. 111
36 RGC Ltd. (b)........................ 35
--------
146
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
AUSTRALIA, CONTINUED:
Metals & Mining (0.3%):
68 Aberfoyle Ltd....................... $ 108
125 Australian National Industries
Ltd............................... 72
135 Broken Hill Proprietary Co. Ltd..... 1,139
30 Delta Gold.......................... 37
28 Great Central Mines Ltd............. 26
12 Homestake Mining Company............ 118
35 Newcrest Mining Ltd. (b)............ 42
122 Normandy Mining Ltd................. 100
31 Resolute Limited (b)(e)............. 19
87 WMC Ltd............................. 261
--------
1,922
--------
Real Estate (0.2%):
186 General Property Trust.............. 301
177 Stockland Trust Group............... 404
186 Westfield Trust..................... 357
--------
1,062
--------
Retail-Stores/Catalog (0.1%):
102 Coles Myer Ltd...................... 398
--------
Services (0.1%):
18 Brambles Industries Ltd............. 351
--------
Total Australia..................... 9,881
--------
AUSTRIA (1.7%):
Airlines (0.1%):
22 Austrian Airlines................... 708
--------
Automotive (0.0%):
7 Steyr-Daimler-Puch AG............... 178
--------
Banking & Finance (0.6%):
7 Bank Austria AG..................... 485
6 Bank Austria AG - Vorzug............ 463
30 Bank Austria AG, Participating
Certificates...................... 2,450
--------
3,398
--------
Beverages & Tobacco (0.0%):
4 Osterreichische Brau-Beteiligungs
AG................................ 233
--------
Building Products (0.1%):
2 Wienerberger Baustoffindustrie AG... 575
--------
Chemicals (0.0%):
4 Lenzing AG (b)...................... 309
--------
Electrical Equipment (0.0%):
1 Austria Mikro Systeme
International..................... 68
--------
Engineering (0.1%):
4 VA Technologie AG................... 535
--------
Environmental Services (0.1%):
2 BWT AG.............................. 382
--------
</TABLE>
Continued
64
<PAGE> 168
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
AUSTRIA, CONTINUED:
Insurance (0.1%):
3 EA-Generali AG...................... $ 837
--------
Miscellaneous Materials & Commodities (0.1%):
9 Radex-Heraklith
Industriebeteiligungs AG.......... 434
--------
Oil & Gas Exploration, Production & Services (0.2%):
8 OMV AG.............................. 1,118
--------
Paper Products (0.0%):
1 Mayr-Melnhof Karton AG.............. 78
--------
Telecommunications -- Services and Equipment (0.3%):
11 Osterreichische
Elekrizitatswirtschafts-AG, Class
A................................. 1,275
--------
Transportation (0.0%):
5 Flughafen Wien AG................... 233
--------
Total Austria....................... 10,361
--------
BELGIUM (2.0%):
Banking (0.6%):
2 Generale de Banque SA............... 1,359
27 Kredietbank NV...................... 2,439
13 Kredietbank Strip................... 1
--------
3,799
--------
Chemicals (0.2%):
14 Solvay SA........................... 1,073
--------
Industrial Holding Company (0.1%):
4 Groupe Bruxelles Lambert SA......... 831
--------
Insurance (0.3%):
4 Fortis AG........................... 1,126
2 Royale Belge........................ 718
--------
1,844
--------
Merchandising (0.2%):
14 Delhaize-Le Lion SA................. 985
--------
Metals & Mining (0.0%):
3 Union Miniere Group................. 185
--------
Oil & Gas Exploration, Production & Services (0.2%):
3 PetroFina SA........................ 1,055
--------
Telecommunications -- Services and Equipment (0.4%):
9 Electrabel SA....................... 2,615
--------
Total Belgium....................... 12,387
--------
BRAZIL (0.2%):
Auto Parts (0.0%):
8 Marcopolo SA........................ 14
--------
Banking (0.0%):
800 Banco do Estado De SA............... 38
2,000 Uniao de Bancos Brasileir........... 48
--------
86
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
BRAZIL, CONTINUED:
Beverages & Tobacco (0.0%):
41 Companhia Cervejaria Brahma......... $ 23
--------
Chemicals (0.0%):
242 Copesul -- Companhia Pertoquimica do
Sul............................... 8
19 White Martins SA.................... 18
--------
26
--------
Electric Utility (0.0%):
8,991 Gerasul (b)......................... 12
--------
Gaming (0.0%):
5 Companhia Vidraria Santa Maria...... 8
--------
Gas & Electric Utility (0.2%):
8,991 Centrais Electricas Brasileiras
SA................................ 260
1,712 Centrais Electricas Brasileiras SA,
Class B........................... 52
4,116 Companhia Paranaense de Energia-
Copel (b)......................... 32
363 Light -- Servicos de Eletricidade
SA................................ 116
--------
460
--------
Steel (0.0%):
3,589 Companhia Siderurgica Nacional...... 86
4 Companhia Vale do Rio Doce (b)...... 76
--------
162
--------
Telecommunications (0.0%):
1,865 Telecomunicacoes Brasileiras SA..... 149
193 Telecomunicacoes de Sao Paulo SA
(b)............................... 29
441 Telesp Celular B (b)................ 37
193 Telesp Celular SA (b)............... 8
--------
223
--------
Tobacco (0.0%):
26 Souza Cruz SA....................... 191
--------
Total Brazil........................ 1,205
--------
CHILE (0.4%):
Banking & Finance (0.0%):
6 Banco de Santiago ADR............... 99
--------
Beverages & Tobacco (0.1%):
11 Embotelladora Andina SA ADR......... 177
7 Embotelladora Andina SA, Series A
ADR............................... 120
3 Vina Concho y Toro SA ADR........... 86
--------
383
--------
Chemicals (0.0%):
6 Quimica Y Minera Chile SA ADR....... 215
--------
Electric Utility (0.0%):
15 Gener SA ADR........................ 266
--------
</TABLE>
Continued
65
<PAGE> 169
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
CHILE, CONTINUED:
Forest Products (0.0%):
12 Maderas Y Sinteticos Anonima SA
ADR............................... $ 97
--------
Gas & Electric Utility (0.2%):
12 Chilectra SA ADR.................... 250
18 Enersis SA ADR...................... 447
--------
697
--------
Metals & Mining (0.0%):
12 Madeco SA ADR....................... 107
--------
Packaging (0.0%):
9 Cristalerias de Chile ADR........... 111
--------
Pharmaceutical (0.0%):
5 Laboratorio Chile ADR............... 68
--------
Telecommunications (0.1%):
27 Telecomunicaciones de Chile SA
ADR............................... 544
--------
Total Chile......................... 2,587
--------
DENMARK (1.4%):
Agriculture (0.0%):
3 Korn-OG Foderstof Kompagniet A/S.... 70
--------
Banking & Finance (0.2%):
7 Danske Bank......................... 870
7 Unidanmark A/S, Class A............. 593
--------
1,463
--------
Beverages & Tobacco (0.1%):
4 Carlsberg A/S, Class A.............. 258
7 Carlsberg A/S, Class B.............. 531
--------
789
--------
Commercial Services (0.0%):
4 ISS International Service System
A/S, Class B...................... 215
--------
Diversified (0.1%):
14 Superfos A/S........................ 370
--------
Electronics (0.0%):
2 Bang & Olufsen Holding.............. 133
--------
Engineering (0.0%):
7 FLS Industries A/S B................ 187
--------
Food Products & Services (0.1%):
9 Danisco A/S......................... 631
--------
Pharmaceuticals (0.3%):
11 Novo Nordisk A/S, Class B........... 1,571
--------
Telecommunications (0.3%):
19 Tele Danmark A/S, Class B........... 1,810
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
DENMARK, CONTINUED:
Transportation & Shipping (0.3%):
0 D/S 1912, Class B (e)............... $ 729
0 D/S Svendborg A/S, Class B (e)...... 904
0 Lauritzen (J.) Holding A/S (e)...... 30
5 SAS Danmark A/S..................... 94
--------
1,757
--------
Total Denmark....................... 8,996
--------
FINLAND (1.1%):
Banking & Finance (0.1%):
96 Merita Ltd., Class A................ 632
--------
Forest Products (0.1%):
27 UPM-Kymmene Corp.................... 748
--------
Health Care (0.0%):
2 Instrumentarium Group, Series A..... 120
--------
Insurance (0.1%):
5 Pohjola Insurance Group, Class B.... 239
8 Sampo Insurance Co.................. 379
--------
618
--------
Metals (0.0%):
24 Outokumpo OY, Class A............... 300
--------
Telecommunications (0.8%):
43 Nokia Oyj, Class A.................. 3,170
16 Nokia Oyj, Class K.................. 1,163
--------
4,333
--------
Total Finland....................... 6,751
--------
FRANCE (11.7%):
Automotive (0.2%):
6 PSA Peugeot......................... 1,355
--------
Banking (1.0%):
24 Banque Nationale de Paris........... 1,957
18 Paribas............................. 1,937
11 Societe Generale.................... 2,219
--------
6,113
--------
Beverages & Tobacco (0.4%):
10 LVMH (Moet Hennessy Louis
Vuitton).......................... 1,909
8 Pernod Ricard....................... 563
--------
2,472
--------
Broadcasting/Cable (0.1%):
4 Canal Plus.......................... 673
--------
Building Products (0.3%):
3 Imetal SA........................... 392
15 Lafarge SA.......................... 1,577
--------
1,969
--------
</TABLE>
Continued
66
<PAGE> 170
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
FRANCE, CONTINUED:
Business Service (0.7%):
20 Compagnie Generale des Eaux......... $ 4,357
0 Havas SA (c)(e)..................... 0
--------
4,357
--------
Chemicals (0.6%):
11 L'Air Liquide....................... 1,800
40 Rhone-Poulenc SA.................... 2,239
--------
4,039
--------
Commercial Services (0.2%):
1 Addeco SA........................... 266
5 Sodexho SA.......................... 983
--------
1,249
--------
Construction (0.1%):
4 Bouygues............................ 763
--------
Defense (0.2%):
1 Sagem SA (c)........................ 506
18 Thomson CSF (c)..................... 671
--------
1,177
--------
Diversified (0.1%):
15 Lagardere SCA....................... 620
--------
Electrical & Electronic (1.0%):
18 Alcatel Alsthom..................... 3,688
4 Legrand SA.......................... 1,178
17 Schneider SA........................ 1,343
--------
6,209
--------
Energy (1.2%):
30 Elf Aquitane SA..................... 4,254
28 Total SA, Class B................... 3,666
--------
7,920
--------
Engineering (0.1%):
4 Compagnie Francaise d'Etudes et de
Construction Technip.............. 458
--------
Food & Household Products (0.2%):
4 Eridania Beghin-Say SA.............. 983
--------
Food Products & Services (0.4%):
8 Groupe Danone....................... 2,293
--------
Health & Personal Care (0.9%):
7 L'OREAL............................. 4,106
12 Sanofi SA........................... 1,354
--------
5,460
--------
Industrial Goods & Services (0.2%):
17 Michelin Class B, Registered........ 1,002
--------
Industrial Holding Company (0.5%):
17 Lyonnaise des Eaux SA............... 2,844
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
FRANCE, CONTINUED:Insurance (0.7%):
36 AXA SA.............................. $ 4,085
--------
Leisure (0.2%):
4 Accor SA............................ 1,217
--------
Media (0.0%):
1 Pathe SA............................ 282
--------
Merchandising (1.0%):
4 Carrefour SA........................ 2,687
8 Etablissements Economiques du Casino
Guichard-Perrachon................ 664
3 Pinault-Printemps-Redoute SA........ 2,230
2 Promodes............................ 1,216
--------
6,797
--------
Office Equipment & Services (0.1%):
9 BIC................................. 654
--------
Oil & Gas (0.3%):
10 Compagnie de Saint Gobain........... 1,845
--------
Telecommunications -- Services and Equipment (1.0%):
89 France Telecom (c).................. 6,111
--------
Textile Products (0.0%):
2 Dollfus-Mieg & Cie (b).............. 65
--------
Total France........................ 73,012
--------
GERMANY (16.9%):
Airlines (0.2%):
54 Lufthansa AG........................ 1,354
--------
Automotive (1.9%):
73 Daimler-Benz AG (c)................. 7,206
2 Man AG.............................. 661
4 Volkswagen AG....................... 4,263
--------
12,130
--------
Banking (2.9%):
101 Bayer AG............................ 5,212
43 Bayerische Vereinsbank AG........... 3,690
74 Deutsche Bank AG.................... 6,272
71 Dresdner Bank AG.................... 3,804
--------
18,978
--------
Banking & Finance (0.4%):
38 Bayerische Hypotheken-und Wechsel-
Bank AG (c)....................... 2,422
--------
Building Products (0.1%):
8 Heidelberger Zement AG.............. 732
--------
Business Service (0.8%):
9 SAP AG.............................. 5,247
--------
</TABLE>
Continued
67
<PAGE> 171
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
GERMANY, CONTINUED:
Chemicals (0.8%):
87 BASF AG............................. $ 4,122
15 Degussa AG.......................... 948
--------
5,070
--------
Conglomerates (1.6%):
32 Metro AG (c)........................ 1,936
3 Preussag AG......................... 992
70 VEBA AG............................. 4,794
4 Viag AG............................. 2,568
--------
10,290
--------
Construction (0.1%):
9 Hochtief AG......................... 445
--------
Consumer Goods & Services (0.2%):
7 Adidas AG (c)....................... 1,136
--------
Electrical & Electronic (0.8%):
79 Siemens AG.......................... 4,777
--------
Engineering (1.0%):
10 AGIV AG............................. 286
6 Bilfinger & Berger Bau AG........... 200
55 Mannesmann AG....................... 5,559
--------
6,045
--------
Health Care (0.2%):
11 Schering AG......................... 1,253
--------
Industrial Goods & Services (0.1%):
3 Carbon AG........................... 348
--------
Insurance (3.0%):
33 Allianz AG.......................... 10,955
1 Allianz AG (b)...................... 286
6 AMB Aachener und Muenchener
Beteiligungs...................... 675
2 AMB Aachener und Muenchener
Beteiligungs AG................... 223
4 CKAG Colonia Konzern AG............. 467
1 Muenchener Rueckversicherungs
Gesellschaft AG, Bearer Shares.... 250
11 Muenchener Rueckversicherungs
Gesellschaft AG, Registered
Shares............................ 5,598
--------
18,454
--------
Investment Company (0.2%):
17 Beiersdorf AG....................... 1,064
--------
Machinery & Equipment (0.2%):
9 Kloeckner-Humbolt-Deutz AG (b)...... 105
1 Linde AG............................ 890
--------
995
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
GERMANY, CONTINUED:
Metals & Mining (0.2%):
9 Kugelfischer Georg Schaefer AG...... $ 138
5 Thyssen AG.......................... 1,250
--------
1,388
--------
Pharmaceuticals (0.2%):
25 Merck KGaA.......................... 1,098
--------
Retail (0.1%):
1 Karstadt AG (c)..................... 609
--------
Retail -- General Merchandise (0.0%):
5 Douglas Holding AG.................. 277
--------
Telecommunications (1.4%):
315 Deutsche Telekom AG (c)............. 8,485
--------
Telecommunications -- Services and Equipment (0.5%):
48 RWE AG.............................. 2,842
--------
Total Germany....................... 105,439
--------
GREECE (0.9%):
Agriculture (0.0%):
10 Hellenic Sugar Industry SA.......... 100
--------
Appliances & Household Products (0.0%):
2 Fourlis Brothers Corp............... 28
--------
Banking & Finance (0.4%):
9 Alpha Credit Bank................... 702
5 Commercial Bank of Greece SA........ 406
6 Ergo Bank SA........................ 489
5 National Bank of Greece SA.......... 667
--------
2,264
--------
Beverages & Tobacco (0.1%):
24 Hellenic Bottling Co. SA............ 736
--------
Building Products (0.1%):
14 Heracles General Cement Co. SA...... 335
2 Titan Cement Co..................... 148
--------
483
--------
Health Care (0.0%):
7 Athens Medical Care................. 130
--------
Insurance (0.0%):
5 Aspis Pronia (b).................... 64
--------
Miscellaneous Materials & Commodities (0.0%):
0 Silver & Baryte Ores Mining (e)..... 15
--------
Telecommunications (0.3%):
65 Hellenic Telecommunication
Organization...................... 1,674
2 Intracom SA......................... 73
--------
1,747
--------
</TABLE>
Continued
68
<PAGE> 172
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
GREECE, CONTINUED:
Textile Products (0.0%):
5 El. D. Mouzakis SA.................. $ 14
--------
Tobacco (0.0%):
4 Papastratos Cigarette............... 89
--------
Transportation & Shipping (0.0%):
8 Attica Enterprises.................. 117
--------
Total Greece........................ 5,787
--------
HONG KONG (0.5%):
Airlines (0.0%):
194 Cathay Pacific Airways.............. 136
--------
Banking (0.1%):
83 Bank of East Asia Ltd. (b).......... 90
16 HSBC Holdings PLC................... 382
--------
472
--------
Banking & Finance (0.0%):
38 Wing Lung Bank...................... 88
--------
Broadcasting & Publishing (0.0%):
95 Television Broadcasts Ltd........... 251
--------
Conglomerates (0.0%):
68 Swire Pacific Ltd., Class A......... 257
--------
Electrical Equipment (0.0%):
645 Elec & Eltek International Holdings
Ltd............................... 123
--------
Industrial Holding Company (0.2%):
145 Hutchison Whampoa Ltd............... 766
--------
Printing & Publishing (0.0%):
263 Oriental Press Group Ltd............ 24
--------
Real Estate (0.0%):
59 Sun Hung Kai Properties Ltd......... 251
--------
Telecommunications (0.2%):
391 Hong Kong Telecommunications Ltd.... 733
--------
Total Hong Kong..................... 3,101
--------
INDIA (0.5%):
Aluminum (0.0%):
16 Indian Aluminum Company Ltd. GDR
(b)............................... 23
--------
Automotive (0.1%):
45 Mahindra & Mahindra Ltd. GDR (b).... 192
44 Tata Engineering & Locomotive Co.,
Ltd. GDR.......................... 140
--------
332
--------
Building Products (0.0%):
22 Gujarat Ambuja Cements Ltd. GDR..... 110
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
INDIA, CONTINUED:
Chemicals (0.0%):
10 Indian Petrochemicals Corp., Ltd.
GDR............................... $ 30
95 Indo Gulf Fertilizers and Chemicals
Corp., Ltd. GDR................... 69
7 United Phosphorus Ltd. GDR.......... 18
--------
117
--------
Diversified (0.2%):
17 Grasim Industries Ltd. GDR.......... 111
35 ITC Ltd. GDR........................ 574
--------
685
--------
Hotels & Lodging (0.0%):
13 East India Hotels Ltd. GDR.......... 60
13 Indian Hotels Co., Ltd. GDR (b)..... 100
--------
160
--------
Manufacturing -- Capital Goods (0.0%):
30 Ashok Leyland Ltd. GDR.............. 65
38 India Cements Ltd. GDR.............. 51
18 Larsen & Toubro Ltd. GDR............ 172
--------
288
--------
Metals & Mining (0.0%):
20 Steel Authority of India Ltd. GDR... 50
--------
Pharmaceuticals (0.0%):
13 Ranbaxy Laboratories Ltd. GDR....... 202
--------
Textile Products (0.2%):
59 Arvind Mills Ltd. GDR............... 52
22 Bombay Dye & Manufacturing Co. GDR.. 33
70 Century Textile & Industries Ltd.
GDR............................... 74
21 Indian Rayon & Industries Ltd.
GDR............................... 69
8 Raymond Ltd. GDR.................... 21
59 Reliance Industries Ltd. GDR........ 388
--------
637
--------
Transportation (0.0%):
20 Bajaj Auto Ltd. GDR................. 256
--------
Transportation -- Shipping (0.0%):
21 Great Eastern Shipping Co. GDR...... 77
--------
Total India......................... 2,937
--------
IRELAND (0.5%):
Banking & Finance (0.4%):
170 Allied Irish Banks PLC.............. 2,452
--------
Beverages & Tobacco (0.0%):
77 James Crean PLC..................... 168
--------
Industrial Goods & Services (0.1%):
133 Smufit (Jefferson) Group............ 395
--------
</TABLE>
Continued
69
<PAGE> 173
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
IRELAND, CONTINUED:
Media (0.0%):
34 Independent Newspapers PLC.......... $ 180
--------
Total Ireland....................... 3,195
--------
ISRAEL (0.7%):
Agriculture (0.0%):
0 Mehadrin Ltd. (e)................... 15
--------
Banking (0.2%):
253 Bank Hapoalim Ltd. (b).............. 765
80 First International Bank of Israel
(1)............................... 125
20 First International Bank of Israel
(5)............................... 156
--------
1,046
--------
Chemicals (0.0%):
166 Israel Chemicals Ltd................ 211
--------
Computer Hardware (0.0%):
8 Scitex Corp., Ltd. (b).............. 102
--------
Computer Software (0.0%):
2 New Dimension Software Ltd. (b)..... 81
--------
Construction (0.0%):
55 Industrial Buildings Corp........... 92
--------
Diversified (0.1%):
6 Elco Holdings Ltd................... 31
5 IDB Holding Corp., Ltd.............. 128
1 Israel Corp., Ltd. (b).............. 47
7 Israel Land Development ADR (b)..... 132
--------
338
--------
Food Products & Services (0.1%):
8 Osem Investment Ltd................. 41
4 Super-Sol Ltd....................... 14
18 Super-Sol Ltd. ADR.................. 297
--------
352
--------
Insurance (0.0%):
9 Clal Insurance Enterprise
Holdings.......................... 93
--------
Investment Company (0.0%):
23 Makhteshim Agan Industries (b)...... 74
--------
Machinery & Equipment (0.0%):
15 Ormat Industries Ltd................ 20
--------
Materials (0.0%):
3 Israel Petrochemical Enterprises.... 14
--------
Oil & Gas (0.0%):
2 Delek Israel Fuel Corp., Ltd........ 88
--------
Paper Products (0.0%):
0 American Israeli Paper Mills (e).... 12
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
ISRAEL, CONTINUED:
Pharmaceuticals (0.1%):
5 Agis Industries Ltd. (b)............ $ 34
11 Teva Pharmaceutical ADR............. 394
--------
428
--------
Real Estate (0.0%):
0 Africa-Israel Investments Ltd.
(b)(e)............................ 17
4 Azorim Investments Development &
Construction...................... 29
11 Jerusalem Economic Corp., Ltd....... 57
1 Property & Building Corp., Ltd...... 73
--------
176
--------
Telecommunications (0.1%):
135 Bezeq Israeli Telecom Co............ 432
16 Koor Industries ADR................. 369
--------
801
--------
Telecommunications -- Equipment (0.1%):
15 ECI Telecommunications.............. 549
1 Gilat Satellite Networks Ltd. (b)... 37
2 Teledata Communications Ltd. (b).... 21
--------
607
--------
Total Israel........................ 4,550
--------
ITALY (10.7%):
Agriculture (0.1%):
306 Parmalat Finanziaria SpA (c)........ 624
--------
Auto Parts (0.0%):
90 Magneti Marelli SpA................. 197
--------
Automotive (0.6%):
754 Fiat SpA (c)........................ 3,299
179 Fiat SpA di Risp (Non-convertible)
(c)............................... 443
--------
3,742
--------
Banking (1.6%):
378 Banca Commerciale Italiana.......... 2,260
58 Banca Popolare di Milano (c)........ 464
315 Banco Ambrosiano Veneto SpA (c)..... 1,763
585 Credito Italiano SpA (c)............ 3,061
163 Istituto Bancario San Paolo di
Torino............................ 2,352
34 Riunione Adriatica di Sicurta SpA di
Risp.............................. 305
--------
10,205
--------
Banking & Finance (0.2%):
114 Mediobanca SpA...................... 1,449
--------
Broadcasting & Publishing (0.3%):
249 Mediaset SpA (c).................... 1,587
--------
</TABLE>
Continued
70
<PAGE> 174
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
ITALY, CONTINUED:
Building Products (0.1%):
32 Italcementi SpA..................... $ 289
15 Italcementi SpA RNC................. 66
--------
355
--------
Chemicals (0.2%):
998 Montedison SpA (c).................. 1,238
119 Montedison SpA di Risp.............. 92
130 Snia MPD SpA........................ 159
--------
1,489
--------
Engineering (0.0%):
145 Impregilo SpA....................... 128
--------
Financial Services (0.3%):
125 Istituto Mobiliare Italiano (c)..... 1,975
--------
Financial -- Banking (0.1%):
123 Banca Intesa SpA RNC................ 363
--------
Gas & Electric Utility (0.3%):
129 Edison SpA (c)...................... 1,032
144 Italgas SpA......................... 587
--------
1,619
--------
Insurance (1.8%):
210 Assicurazioni Generali.............. 6,836
789 Istituto Nazionale delle
Assicurazioni (c)................. 2,243
52 Milano Assicurazioni (b)(c)......... 201
84 Riuniune Adriatici de Sicurta SpA... 1,088
63 Societa Assicuratrice Industriale
(SAI) SpA......................... 802
--------
11,170
--------
Jewelry (0.0%):
54 Bulgari SpA......................... 281
--------
Office Equipment & Services (0.1%):
541 Olivetti SpA (b)(c)................. 805
--------
Oil & Gas (1.7%):
1,619 Ente Nazionale Idrocarburi SpA
(ENI)............................. 10,608
--------
Paper Products (0.1%):
34 Burgo (Cartiere) SpA................ 271
17 Reno de Medici SpA (b).............. 59
--------
330
--------
Printing & Publishing (0.1%):
28 Mandadori........................... 333
--------
Retail (0.1%):
39 La Rinascente SpA................... 384
--------
Steel (0.0%):
29 Falck Acciaierie & Ferriere Lombarde
SpA............................... 186
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
ITALY, CONTINUED:
Telecommunications (2.6%):
56 Sirti SpA........................... $ 303
1,362 Telecom Italia Mobile SpA di Risp
(Non-convertible) (b)............. 8,331
357 Telecom Italia SpA.................. 1,203
773 Telecom Italia SpA (c).............. 5,688
213 Telecom Italia SpA RNC.............. 1,030
--------
16,555
--------
Textile Products (0.2%):
359 Benetton Group SpA (c).............. 746
13 Marzotto (Gaetano) & Figli SpA...... 200
--------
946
--------
Tire & Rubber (0.2%):
373 Pirelli SpA (c)..................... 1,166
--------
Total Italy......................... 66,497
--------
JAPAN (17.5%):
Agriculture (0.0%):
25 Nippon Beet Sugar Manufacturing..... 35
--------
Airlines (0.1%):
115 Japan Airlines (b)(c)............... 320
--------
Aluminum (0.0%):
74 Nippon Light Metal Co............... 85
--------
Appliances & Household Products (1.1%):
164 Matsushita Electric Industrial Co.,
Ltd. (c).......................... 2,635
12 Pioneer Electronic Corp............. 229
136 Sanyo Electric Co................... 412
81 Sharp Corp. (c)..................... 656
31 Sony Corp. (c)...................... 2,669
--------
6,601
--------
Automotive (1.7%):
3 Autobacs Seven Co................... 86
72 Honda Motor Co., Ltd................ 2,562
159 Nissan Motor Co., Ltd. (c).......... 501
12 Sanden.............................. 81
23 Toyoda Automatic Loom Works (c)..... 406
289 Toyota Motor Corp................... 7,475
--------
11,111
--------
Banking (1.7%):
143 Asahi Bank Ltd. (c)................. 629
363 Bank of Tokyo-Mitsubishi (c)........ 3,837
211 Fuji Bank Ltd. (c).................. 941
175 Industrial Bank of Japan (c)........ 1,097
135 Mitsui Trust & Banking Co. (c)...... 318
304 Sakura Bank Ltd. (c)................ 789
244 Sumitomo Bank (c)................... 2,373
</TABLE>
Continued
71
<PAGE> 175
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Banking, continued:
136 Tokai Bank (c)...................... $ 749
26 Yamaguchi Bank...................... 333
--------
11,066
--------
Basic Industry (0.0%):
42 Sekisui Chemical Co., Ltd........... 215
--------
Beverages & Tobacco (0.2%):
35 Asahi Breweries Ltd. (c)............ 441
74 Kirin Brewery Co., Ltd.............. 699
36 Takara Shuzo........................ 149
--------
1,289
--------
Brewery (0.0%):
18 Sapporo Breweries................... 69
--------
Broadcasting & Publishing (0.0%):
18 Tokyo Broadcasting System........... 201
--------
Building Products (0.1%):
35 Chichibu Onoda Cement Co. (c)....... 63
7 Dianippon Screen Manufacturing Co.,
Ltd............................... 29
48 Nihon Cement Co., Ltd............... 96
32 Sanwa Shutter Corp.................. 141
19 Tostem Corp......................... 246
--------
575
--------
Chemicals (0.8%):
89 Asahi Chemical Industry Co., Ltd.... 321
32 Daicel Chemical Industries Ltd...... 68
49 Dainippon Ink & Chemicals, Inc...... 150
97 Denki Kagaku Kogyo K.K.............. 157
26 Ishihara Sangyo Kaisha (b).......... 36
32 Kaneka Corp......................... 168
24 Konica Corp......................... 108
13 Kureha Chemical Industry............ 30
119 Mitsubishi Chemical Corp. (c)....... 215
28 Mitsubishi Gas Chemical Co.......... 85
14 Nippon Shokubai K.K. Co............. 75
22 NOF Corp............................ 40
27 Shin-Etsu Chemical Co............... 474
70 Showa Denko K.K..................... 71
112 Sumitomo Chemical Co. (c)........... 345
65 Takeda Chemical Industries.......... 1,727
94 Toray Industries, Inc............... 488
72 Tosoh Corp.......................... 125
74 Ube Industries Ltd.................. 96
--------
4,779
--------
Commercial Services (0.0%):
3 Oyo Corp............................ 40
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Computer Software (0.0%):
4 CSK Corp............................ $ 79
3 Konami Co., Ltd..................... 65
--------
144
--------
Construction (0.2%):
26 Aoki Corp. (b)(c)................... 13
21 Daikyo, Inc. (b) (c)................ 24
37 Daiwa House Industry Co., Ltd....... 327
38 Haseko Corp. (b).................... 22
56 Kumagai Gumi Co., Ltd. (b)(c)....... 40
12 Misawa Homes (c).................... 33
18 Okumura Corp........................ 63
28 Penta-Ocean Construction Co.,
Ltd............................... 65
61 Sekisui House Ltd................... 472
59 Shimizu Corp. (c)................... 170
--------
1,229
--------
Consumer Goods & Services (0.1%):
35 Nippon Sheet Glass Co., Ltd......... 55
76 Renown, Inc. (b).................... 56
10 Shimano, Inc........................ 254
14 Tokyo Style Co., Ltd................ 137
50 Toto Ltd............................ 301
--------
803
--------
Cosmetics/Personal Care (0.1%):
29 Shisiedo Co., Ltd................... 329
--------
Data Processing & Reproduction (0.2%):
139 Fujitsu Ltd. (c).................... 1,462
2 Trans Cosmos, Inc................... 48
--------
1,510
--------
Distribution (0.1%):
164 Itochu Corp......................... 355
--------
Diversified (0.1%):
9 Amano Corp.......................... 79
7 Sanrio Co., Ltd. (b)................ 83
18 Yamaha Corp......................... 176
--------
338
--------
Electrical & Electronic (0.4%):
15 Casio Computer Co., Ltd............. 139
14 Kyocera Corp........................ 684
141 Mitsubishi Electric Corp............ 324
26 Nikon Corp.......................... 187
17 Omron Corp.......................... 260
10 Rohm Co............................. 1,027
--------
2,621
--------
</TABLE>
Continued
72
<PAGE> 176
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Electrical Equipment (0.1%):
12 Alps Electric Co., Ltd.............. $ 143
5 SMC Corp. (c)....................... 403
8 Taiyo Yuden Co., Ltd................ 85
--------
631
--------
Electronic Components/Instruments (0.7%):
7 Adventest Corp...................... 398
22 Fanuc Co., Ltd...................... 771
3 Hirose Electric 151
244 Hitachi Ltd. (c).................... 1,591
117 NEC Corp. (c)....................... 1,090
23 Yokogawa Electric Corp.............. 123
--------
4,124
--------
Electronics (0.0%):
9 Nitto Denko Corp. (c)............... 135
--------
Energy (0.1%):
169 Japan Energy Corp................... 179
110 Nippon Oil Co....................... 355
--------
534
--------
Engineering (0.2%):
13 Daito Trust Construction Co.,
Ltd............................... 98
36 Fujita Corp. (b) (c)................ 20
33 Hazama Corp. (b) (c)................ 19
49 Kajima Corp. (c).................... 134
10 Kandenko Co., Ltd................... 62
92 Kawasaki Heavy Industries........... 186
19 Kinden Corp......................... 228
19 Nishimatsu Construction............. 93
53 Obayashi Corp. (c).................. 225
17 Sato Kogyo.......................... 14
17 Toa Corp............................ 25
24 Toyo Engineering.................... 32
--------
1,136
--------
Entertainment (0.0%):
13 Toei................................ 41
1 Toho Co............................. 116
20 Tokyo Dome Corp..................... 108
--------
265
--------
Financial Services (0.7%):
18 Acom Co., Ltd....................... 855
108 Mitsubishi Trust & Banking Co.
(c)............................... 917
154 Nomura Securities Co. (c)........... 1,792
6 Orix Corp........................... 405
5 Uni-Charm........................... 178
--------
4,147
--------
Financial -- Banking (0.1%):
49 77th Bank Ltd. (c).................. 410
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Food & Household Products (0.2%):
42 Ajinomoto Co., Inc.................. $ 368
47 Kao Corp. (c)....................... 725
14 Nippon Meat Packers, Inc............ 171
10 Nissin Food Products................ 179
--------
1,443
--------
Food Products & Services (0.1%):
59 Daiei, Inc. (c)..................... 138
17 Kikkoman Corp....................... 89
27 Meiji Milk Products Co., Ltd........ 72
49 Nichirei Corp....................... 101
45 Nippon Suisan Kaisha Ltd. (b)....... 52
22 Yamazaki Baking Co., Ltd............ 195
--------
647
--------
Forest Products (0.2%):
38 Mitsubishi Paper Mills.............. 74
115 New Oji Paper Co. (c)............... 502
70 Nippon Paper Industries Co.......... 292
17 Sumitomo Forestry Co., Ltd.......... 95
--------
963
--------
Gas & Electric Utility (0.8%):
84 Kansai Electric Power Co., Inc...... 1,453
184 Osaka Gas Co........................ 472
48 Tohoku Electric Power............... 710
106 Tokyo Electric Power................ 2,070
204 Tokyo Gas Co., Ltd. (c)............. 454
--------
5,159
--------
Health & Personal Care (0.3%):
15 Chugai Pharmaceutical Co., Ltd...... 98
29 Kyowa Hakko Kogyo Co., Ltd.......... 115
21 Lion Corp........................... 71
34 Sankyo Co., Ltd..................... 774
44 Yamanouchi Pharmaceutical Co., Ltd.
(c)............................... 917
--------
1,975
--------
Hotels & Lodging (0.0%):
11 Fujita Kanko, Inc................... 90
--------
Industrial Goods & Services (0.6%):
59 Bridgestone Corp. (c)............... 1,393
64 Denso Corp. (c)..................... 1,061
75 Mitsui Engineering & Shipbuilding
Co., Ltd. (b)(c).................. 57
36 NGK Insulators Ltd.................. 313
18 NGK Spark Plug Co................... 153
52 Sumitomo Electric Industries........ 526
--------
3,503
--------
</TABLE>
Continued
73
<PAGE> 177
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Insurance (0.4%):
69 Mitsui Marine & Fire Insurance Co.,
Ltd............................... $ 347
41 Nichido Fire & Marine Insurance Co.,
Ltd............................... 212
45 Nippon Fire & Marine Insurance...... 184
58 Sumitomo Marine & Fire Insurance.... 324
122 Tokio Marine & Fire Insurance Co.... 1,254
--------
2,321
--------
Jewelry (0.1%):
40 Citizen Watch Co., Ltd.............. 330
9 Hoya Corp........................... 255
--------
585
--------
Leasing (0.1%):
45 Yamato Transport Co., Ltd. (c)...... 504
--------
Leisure (0.0%):
3 Namco (c)........................... 72
--------
Machinery & Equipment (0.6%):
18 Amada Co., Ltd...................... 88
25 Brother Industries Ltd.............. 93
45 Chiyoda Corp. (b)................... 55
14 Daifuku Co., Ltd.................... 52
18 Daikin Industries Ltd............... 116
14 Ebara Corp.......................... 124
61 Komatsu Ltd......................... 296
5 Komori Corp......................... 95
40 Koyo Seiko Co., Ltd................. 149
94 Kubota Corp......................... 217
9 Kurita Water........................ 106
6 Makino Milling Machine (c).......... 42
32 Minebea Co., Ltd.................... 318
232 Mitsubishi Heavy Industries, Ltd.... 877
6 Mori Seiki.......................... 73
58 Nigata Engineering Co., Ltd. (b).... 39
77 NSK Ltd............................. 313
49 NTN Corp............................ 154
20 Okuma Corp.......................... 91
34 Sumitomo Heavy Industries Ltd....... 78
5 Takuma Co., Ltd..................... 36
13 Tokyo Electron Ltd.................. 390
15 Tsubakimoto Chain................... 50
--------
3,852
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Manufacturing -- Capital Goods (0.2%):
27 Fujikura Ltd. (c)................... $ 120
16 Kokuyo Co., Ltd..................... 271
21 Makita Corp......................... 242
18 Murata Manufacturing Co., Ltd....... 583
10 Nippon Sharyo Ltd................... 24
22 Noritake Co., Ltd................... 103
--------
1,343
--------
Manufacturing -- Consumer Goods (0.5%):
65 Canon, Inc. (c)..................... 1,475
37 Fuji Photo Film Co., Ltd. (c)....... 1,288
6 Sega Enterprises.................... 104
--------
2,867
--------
Materials (0.0%):
9 Okamoto Industries, Inc............. 20
34 Sumitomo Osaka Cement Co., Ltd...... 44
--------
64
--------
Medical Supplies (0.0%):
24 Olympus Optical..................... 209
--------
Merchandising (0.4%):
31 ITO-Yokado Co., Ltd................. 1,458
23 JUSCO Co............................ 422
26 Marui Co., Ltd...................... 388
--------
2,268
--------
Metals & Mining (0.2%):
51 Furukawa Electric Co................ 172
73 Hitachi Zosen Corp.................. 118
66 Japan Steel Works (b)............... 81
78 Mitsubishi Materials Corp........... 159
33 Mitsui Mining & Smelting (c)........ 137
59 Mitsui Mining Co., Ltd. (b)......... 50
57 Seika Corp.......................... 88
39 Sumitomo Metal Mining Co. (c)....... 158
--------
963
--------
Office Equipment & Services (0.1%):
57 Dai Nippon Printing Co., Ltd........ 910
--------
Oil & Gas Exploration, Production & Services (0.1%):
9 Arabian Oil Co...................... 131
88 Asahi Glass Co., Ltd................ 475
61 Teikoku Oil Co...................... 189
--------
795
--------
Oil & Gas Transmission (0.0%):
75 Iwatani International Corp.......... 131
83 Mitsubishi Oil Co., Ltd. (b)........ 117
--------
248
--------
</TABLE>
Continued
74
<PAGE> 178
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Packaging (0.0%):
15 Toyo Seikan Kaisha.................. $ 183
--------
Pharmaceuticals (0.2%):
17 Dai-Ichi Pharmaceuticals............ 224
19 Eisai Co., Ltd...................... 259
40 Meiji Seika......................... 122
13 Shionogi & Co....................... 75
29 Taisho Pharmacuetical Co............ 541
--------
1,221
--------
Real Estate (0.2%):
98 Mitsubishi Estate Co. (c)........... 861
61 Mitsui Fudosan...................... 482
20 Tokyo Tatemono Co., Ltd. (b)........ 38
--------
1,381
--------
Restaurants (0.0%):
8 Skylark Co., Ltd.................... 79
--------
Retail (0.3%):
6 Aoyama Trading Co., Ltd............. 136
15 Credit Saison Co., Ltd. (c)......... 287
21 Daimura, Inc. (c)................... 55
12 Hankyu Department Stores............ 62
17 Isetan Co........................... 142
31 Mitsukoshi Ltd. (c)................. 89
52 Mycal Corp. (c)..................... 330
4 Shimachu Co......................... 66
26 Takashimaya Co...................... 196
13 Uny Co., Ltd........................ 211
--------
1,574
--------
Services (0.2%):
12 Secom 693
48 Toppan Printing Co., Ltd............ 513
--------
1,206
--------
Steel (0.4%):
67 Daido Steel Co., Ltd................ 120
53 Japan Metals & Chemicals (b) (c).... 75
246 Kawasaki Steel Corp................. 443
476 Nippon Steel Co. (c)................ 836
263 NKK Corp............................ 252
260 Sumitomo Metal Industries........... 418
18 Tokyo Steel......................... 93
--------
2,237
--------
Storage (0.0%):
14 Mitsubishi Logistics Corp........... 125
34 Mitsui-Soko Co., Ltd................ 102
--------
227
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Telecommunications (1.3%):
10 Nippon Comsys Corp. (c)............. $ 115
1 Nippon Telegraph & Telephone
Corp.............................. 7,880
--------
7,995
--------
Textile Products (0.2%):
191 Kanebo Ltd. (b) (c)................. 158
53 Kurabo Industries................... 69
31 Kuraray Co., Ltd.................... 264
27 Mitsubishi Rayon Co., Ltd........... 75
33 Nisshinbo Industries................ 132
15 Onward Kashiyama Co., Ltd........... 188
56 Teijin Ltd.......................... 169
108 Toyobo Ltd.......................... 142
48 Unitika Ltd. (b).................... 36
--------
1,233
--------
Transportation & Shipping (0.3%):
0 East Japan Railway Co. (e).......... 1,334
30 Kamigumi Co., Ltd................... 125
93 Kawasaki Kisen Kaisha Ltd........... 161
81 Mitsui OSK Lines, Ltd............... 138
78 Nippon Yusen Kabushiki Kaisha (c)... 264
12 Seino Transportation................ 67
--------
2,089
--------
Transportation -- Road & Railroad (0.4%):
91 Hankyu Corp......................... 373
30 Keihin Electric Express Railway
(c)............................... 87
232 Kinki Nippon Railway (c)............ 1,088
62 Nippon Express Co., Ltd............. 332
48 Odakyu Electric Railway............. 147
57 Tobu Railway Co., Ltd............... 151
72 Tokyu Corp.......................... 218
--------
2,396
--------
Wholesale & International Trade (0.3%):
130 Marubeni Corp....................... 259
112 Mitsubishi Corp..................... 694
106 Mitsui & Co. (c).................... 573
58 Sumitomo Corp....................... 279
--------
1,805
--------
Wholesale Distribution (0.0%):
14 Nagase & Co......................... 51
--------
Wire & Cable Products (0.0%):
19 Tokyo Rope MFG...................... 24
--------
Total Japan......................... 109,579
--------
</TABLE>
Continued
75
<PAGE> 179
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
LUXEMBOURG (0.0%):
Aluminum (0.0%):
9 Hindalco Industries Co.............. $ 148
--------
MALAYSIA (0.2%):
Agriculture (0.0%):
118 Highlands & Lowlands Berhad......... 84
45 IOI Corp. Berhad.................... 22
--------
106
--------
Automotive (0.0%):
281 Tan Chong Motors.................... 51
--------
Building Products (0.0%):
10 Golden Plus Holdings................ 2
9 Jaya Tiasa Holdings Berhad.......... 11
198 Pan-Malaysia Cement Works Berhad.... 41
--------
54
--------
Construction (0.0%):
28 YTL Corp. Berhad.................... 21
--------
Diversified (0.0%):
24 Berjaya Group Berhad................ 3
231 Malaysian Mosaics Berhad............ 48
28 Mulph International................. 3
63 Multi-Purpose Holdings Berhad....... 16
--------
70
--------
Engineering (0.0%):
25 United Engineers (Malaysia) Ltd..... 10
--------
Financial Services (0.0%):
72 Malayan Banking Berhad.............. 72
40 MBF Capital Berhad.................. 7
69 Rashid Hussain Berhad............... 34
--------
113
--------
Food Products & Services (0.1%):
54 Nestle (Malaysia) Berhad............ 245
--------
Forest Products (0.0%):
376 Land & General Berhad............... 43
--------
Leisure (0.0%):
26 Berjaya Land Berhad................. 14
--------
Miscellaneous (0.0%):
290 Johan Holdings Berhad............... 32
--------
Real Estate (0.0%):
13 Malaysian Resources................. 3
--------
Steel (0.0%):
156 Malayawata Steel Berhad............. 38
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
MALAYSIA, CONTINUED:
Telecommunications (0.1%):
41 Technology Resources Industries
Berhad............................ $ 28
115 Tenaga Nasional Berhad.............. 139
--------
167
--------
Total Malaysia...................... 967
--------
MEXICO (0.6%):
Beverages & Tobacco (0.1%):
11 Compania Cervezas Unidas SA ADR..... 226
17 Grupo Continental SA................ 53
24 Grupo Modelo SA, Series C........... 199
--------
478
--------
Brewery (0.0%):
0 Fomento Economico Mexica UBD (e).... 6
--------
Building Products (0.0%):
10 Apasco SA de CV..................... 52
8 Cemex SA de CV, Series A............ 31
2 Cemex SA de CV, Series B............ 10
2 Cemex SA de CV, Series CPO.......... 9
2 Cemex SA, Series B.................. 2
7 Tolmex SA de CV, Series B2 (b)...... 31
3 Tubos de Acero de MexiCo............ 39
--------
174
--------
Diversified (0.1%):
32 ALFA SA de CV, Class A.............. 133
10 Carso Global Telecom, Series A-1.... 30
6 Desc SA de CV, Series A............. 27
10 Desc SA de CV, Series B............. 51
29 Grupo Carso SA de CV, Series A-1.... 117
--------
358
--------
Financial Services (0.0%):
35 Grupo Financiero Banamex Accival SA
de CV, Class B (b)................ 66
149 Grupo Financiero Bancomer (b)....... 55
14 Grupo Financiero Inbursa SA de CV,
Class B (b)....................... 22
--------
143
--------
Food & Household Products (0.0%):
85 Kimberly-Clark de Mexico SA de CV,
Class A........................... 295
--------
Food Products & Services (0.0%):
22 Empresas La Moderna SA de CV (b).... 127
--------
Industrial Goods & Services (0.0%):
76 Grupo Industrial Bimbo SA de CV,
Series A.......................... 151
--------
</TABLE>
Continued
76
<PAGE> 180
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
MEXICO, CONTINUED:
Merchandising (0.1%):
33 Cifra SA de CV, Series C............ $ 46
209 Cifra SA de CV, Series V............ 306
--------
352
--------
Metals & Mining (0.0%):
33 Grupo Mexico SA, Series B........... 91
25 Industrias Penoles SA, Series CP.... 79
--------
170
--------
Retail -- General Merchandise (0.0%):
39 Controladora Comercial Mexicana SA
de CV............................. 33
--------
Retail -- Stores/Catalog (0.0%):
70 El Puerto de Liverpool SA de CV,
Series 1.......................... 100
35 Grupo Elektra SA.................... 34
--------
134
--------
Steel (0.0%):
26 Altos Hornos de Mexico SA (b)....... 29
10 Hylsamex SA......................... 32
--------
61
--------
Telecommunications (0.3%):
12 Grupo Televisa SA, Series CPO (b)... 226
300 Telefonos de Mexico SA, Series L.... 715
--------
941
--------
Transportation -- Shipping (0.0%):
30 Vitro SA............................ 64
--------
Wholesale Distribution (0.0%):
15 Grupo Casa Autrey SA de CV.......... 10
--------
Total Mexico........................ 3,497
--------
NETHERLANDS (2.6%):
Appliances & Household Products (0.2%):
15 Philips Electronics NV.............. 1,299
--------
Banking (0.3%):
67 ABN Amro Holding NV................. 1,563
--------
Beverages & Tobacco (0.1%):
15 Heineken NV......................... 571
--------
Broadcasting & Publishing (0.1%):
43 Elsevier NV......................... 644
--------
Chemicals (0.2%):
4 Akzo Nobel.......................... 989
--------
Energy (0.8%):
86 Royal Dutch Petroleum............... 4,756
--------
Financial Services (0.4%):
39 ING Groep NV........................ 2,547
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
NETHERLANDS, CONTINUED:
Food Products & Services (0.3%):
27 Unilever NV CVA..................... $ 2,158
--------
Services (0.2%):
23 Koninklijke Royal PTT Nederland
NV................................ 866
23 TNT Post Group NV (b)............... 575
--------
1,441
--------
Total Netherlands................... 15,968
--------
NEW ZEALAND (0.2%):
Beverages & Tobacco (0.0%):
125 Lion Nathan Ltd..................... 279
--------
Forest Products (0.0%):
88 Carter Holt Harvey.................. 76
21 Fletcher Challenge Forestry (b)..... 12
42 Fletcher Challenge Paper............ 47
--------
135
--------
Telecommunications (0.2%):
235 Telecom Corp. of New Zealand Ltd.... 967
--------
Total New Zealand................... 1,381
--------
NORWAY (0.8%):
Banking (0.0%):
61 Christiania Bank og Kreditkasse..... 256
--------
Engineering (0.0%):
8 Kvaerner ASA........................ 256
--------
Entertainment (0.0%):
36 NCL Holdings ASA (b)................ 177
--------
Forest Products (0.0%):
6 Norske Skogsindustrier ASA.......... 173
--------
Insurance (0.1%):
54 Storebrand ASA (b).................. 478
--------
Manufacturing -- Consumer Goods (0.1%):
16 Orkla ASA, Series A................. 373
--------
Medical Equipment & Supplies (0.0%):
43 Hafslund ASA, Class A............... 172
--------
Metals & Mining (0.0%):
15 Elkem ASA........................... 175
--------
Oil & Gas (0.1%):
11 Petroleum Geo-Services ASA (b)...... 351
--------
Oil & Gas Exploration, Production & Services (0.4%):
9 Aker ASA, Class A (b)............... 134
16 Aker ASA, Class B................... 247
41 Norsk Hydro ASA..................... 1,799
--------
2,180
--------
Pharmaceuticals (0.0%):
42 Nycomed Amersham PLC, Series B...... 309
--------
</TABLE>
Continued
77
<PAGE> 181
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
NORWAY, CONTINUED:
Transportation & Shipping (0.1%):
10 Bona Shipholding (b)................ $ 73
17 Leif Hoegh & Co. ASA................ 254
--------
327
--------
Total Norway........................ 5,227
--------
PHILIPPINES (0.7%):
Banking (0.0%):
29 Security Bank Corp. (b)............. 13
35 Union Bank Philippines.............. 14
--------
27
--------
Banking & Finance (0.1%):
88 Metropolitan Bank & Trust Co........ 516
58 Philippine National Bank (b)........ 68
--------
584
--------
Beverages & Tobacco (0.1%):
266 San Miguel Corp., Class B........... 351
--------
Building Products (0.0%):
744 DMCI Holdings, Inc. (b)............. 23
2,109 Southeast Asia Cement Holdings, Inc.
(b)............................... 18
--------
41
--------
Diversified (0.0%):
367 Ayala Corp., Series B............... 95
--------
Electronic Components/Instruments (0.0%):
149 Ionics Circuit, Inc................. 47
--------
Food Products & Services (0.0%):
597 Universal Robina Corp............... 61
--------
Homebuilders (0.0%):
1,817 C&P Homes, Inc. (b)................. 91
--------
Oil & Gas Exploration, Production & Services (0.1%):
3,954 Petron Corp. (b).................... 417
--------
Real Estate (0.2%):
1,396 Ayala Land, Inc..................... 402
1,903 Filinvest Land, Inc. (b)............ 80
3,567 SM Prime Holdings, Inc.............. 565
--------
1,047
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
PHILIPPINES, CONTINUED:
Telecommunications (0.2%):
132 Manila Electric Co., Class B........ $ 349
43 Philipino Telephone Corp............ 975
--------
1,324
--------
Total Philippines................... 4,085
--------
PORTUGAL (1.0%):
Banking (0.4%):
25 Banco Comercial Portugues SA........ 711
22 Banco Espirito Santo e Commerical de
Lisboa SA, Registered............. 662
23 Banco Internacional do Funchal SA... 278
2 Banco Pinto & Sotto Mayor........... 40
17 BPI-SGPS SA, Registered............. 546
--------
2,237
--------
Beverages & Tobacco (0.0%):
11 UNICER-Uniao Cervejeira SA.......... 253
--------
Building Products (0.0%):
3 Cimpor-Cimentos de Portugal, SGPS
SA................................ 109
--------
Food & Household Products (0.2%):
23 Estabelecimentos Jeronimo Martins &
Filho SA.......................... 1,105
--------
Forest Products (0.1%):
8 Soporcel-Sociedade Portuguesa de
Celulose SA (b)................... 331
--------
Industrial Holding Company (0.1%):
10 Sonae Investimentos SA.............. 563
--------
Insurance (0.0%):
11 Companhia de Seguros Tranquilidade,
Registered........................ 300
--------
Retail -- General Merchandise (0.1%):
14 Modelo Continente-Sociedade Gestora
de Participacoes Sociais SA....... 373
--------
Telecommunications (0.1%):
16 Portugal Telecom SA................. 864
--------
Total Portugal...................... 6,135
--------
SINGAPORE (0.2%):
Automotive (0.0%):
20 Cycle & Carriage.................... 49
--------
Banking (0.0%):
41 Oversea-Chinese Banking Corp.,
Ltd............................... 140
--------
Conglomerates (0.0%):
326 United Industries................... 94
--------
Electrical Equipment (0.0%):
4 Creative Technology Ltd. (b)........ 49
--------
</TABLE>
Continued
78
<PAGE> 182
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SINGAPORE, CONTINUED:
Health Care (0.0%):
51 Parkway Holdings.................... $ 88
--------
Machinery & Equipment (0.0%):
54 Van Der Horst Ltd. (b).............. 10
--------
Real Estate (0.1%):
55 City Developments Ltd............... 153
89 DBS Land Ltd........................ 73
76 First Capital Corp.................. 26
124 United Overseas Land Ltd............ 67
--------
319
--------
Retail -- Stores/Catalog (0.0%):
45 Metro Holdings...................... 27
--------
Steel (0.0%):
47 NatSteel Ltd........................ 46
--------
Telecommunications (0.1%):
269 Goldtron Ltd. (c)................... 20
334 Singapore Telecommunications Ltd.
(c)............................... 473
--------
493
--------
Transportation & Shipping (0.0%):
468 Chuan Hup Holdings Ltd.............. 100
347 Neptune Orient Lines Ltd. (b)....... 120
--------
220
--------
Transportation -- Shipping (0.0%):
41 Sembawang Marine & Logistics........ 22
--------
Total Singapore..................... 1,557
--------
SOUTH AFRICA (0.6%):
Banking & Finance (0.1%):
11 Nedcor Ltd.......................... 239
34 Standard Bank....................... 146
--------
385
--------
Brewery (0.1%):
16 South African Breweries Ltd......... 333
--------
Computer Hardware (0.0%):
30 Dimension Data Holdings Ltd. (b).... 164
--------
Diversified (0.1%):
9 Anglovaal Industries Ltd............ 10
11 Barlow Ltd.......................... 56
11 Imperial Holdings Ltd............... 111
18 Malbak Ltd.......................... 12
22 Rembrandt Group Ltd................. 137
22 Smith (C.G.) Ltd.................... 62
--------
388
--------
Engineering (0.0%):
31 Murray & Roberts Holdings Ltd....... 32
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SOUTH AFRICA, CONTINUED:
Entertainment (0.0%):
55 Sun International (South Africa)
Ltd............................... $ 19
--------
Financial Services (0.0%):
29 Amalgamated Banks of South Africa... 179
--------
Financial -- Banking (0.0%):
3 Investec Group Ltd.................. 133
--------
Food & Household Products (0.0%):
5 Tiger Oats Ltd...................... 42
--------
Forest Products (0.0%):
11 Nampak Ltd.......................... 27
13 Sappi Ltd. (b)...................... 47
--------
74
--------
Industrial Goods & Services (0.0%):
16 African Oxygen Ltd.................. 28
4 Anglo American Industrial Corp.,
Ltd............................... 60
--------
88
--------
Insurance (0.1%):
105 Firstrand Ltd....................... 162
12 Liberty Life Association of Africa
Ltd............................... 235
33 Metropolitan Life Ltd............... 92
--------
489
--------
Materials (0.0%):
1 Anglo American Coal Corp., Ltd...... 65
--------
Metals (0.0%):
1 Anglogold Ltd....................... 35
186 Iscor Ltd........................... 35
4 Western Areas Gold Mining (b)....... 14
--------
84
--------
Metals & Mining (0.2%):
6 Anglo American Corp. of South Africa
Ltd............................... 200
1 Anglo American Gold Investment Co.,
Ltd............................... 19
41 Billiton PLC........................ 81
17 DeBeers Centenary AG................ 305
5 Driefontein Consolidated Ltd........ 27
8 Gencor Ltd.......................... 13
9 Gold Fields Ltd. (b)................ 38
2 Gold Fields of South Africa Ltd..... 17
3 Gold Shelf.......................... 11
8 Johnnies Industrial Corp., Ltd...... 70
8 Randfontein Estates Gold Mining Co.
(b)............................... 18
7 Rustenburg Platinum Holdings Ltd.... 76
4 Samancor Ltd........................ 17
--------
892
--------
</TABLE>
Continued
79
<PAGE> 183
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SOUTH AFRICA, CONTINUED:
Oil & Gas (0.0%):
6 Engen Ltd........................... $ 17
--------
Oil & Gas Exploration, Production & Services (0.0%):
22 Sasol Ltd........................... 125
--------
Pharmaceuticals (0.0%):
3 South African Druggists Ltd......... 14
--------
Printing & Publishing (0.0%):
8 Nasionale Pers Beperk, Series N..... 55
--------
Retail -- General Merchandise (0.0%):
2 Ellerine Holdings Ltd............... 14
7 New Clicks Holdings Ltd............. 8
--------
22
--------
Retail -- Stores/Catalog (0.0%):
13 Pepkor Ltd.......................... 47
--------
Telecommunications -- Services and Equipment (0.0%):
18 M Web Holdings Ltd. (b)............. 65
--------
Total South Africa.................. 3,712
--------
SPAIN (4.7%):
Agriculture (0.1%):
12 Azucarera Ebro Agricolas (b)........ 346
--------
Banking (1.0%):
45 Banco Central Hispanoamericano SA... 1,423
135 Banco Santander SA.................. 3,457
62 Corporacion Bancaria de Espana SA... 1,393
--------
6,273
--------
Banking & Finance (0.7%):
87 Banco Bilbao Vizcaya SA............. 4,457
--------
Beverages & Tobacco (0.1%):
12 El Aguila SA (b).................... 113
26 Tabacalera SA....................... 533
--------
646
--------
Building Products (0.0%):
7 Uralita SA.......................... 103
--------
Chemicals (0.0%):
38 Ercros SA (b)....................... 48
--------
Construction (0.1%):
7 Dragados Y Construcciones SA........ 225
7 Fomento de Constucciones y Contratas
SA................................ 372
--------
597
--------
Energy (0.4%):
40 Repsol SA........................... 2,224
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SPAIN, CONTINUED:
Forest Products (0.0%):
5 Empresa Nacional de Celulosas SA.... $ 86
24 Sarrio SA (b) (c)................... 115
--------
201
--------
Gas & Electric Utility (0.9%):
37 Empresa Nacional de Electricidad
SA................................ 524
132 Endesa SA........................... 2,894
116 Iberdrola SA........................ 1,892
40 Union Electric Fenosa SA............ 515
--------
5,825
--------
Industrial Holding Company (0.1%):
3 Corporacion Financiara Alba......... 374
--------
Insurance (0.0%):
8 Corporacion Mapfre.................. 274
--------
Oil & Gas Exploration, Production & Services (0.3%):
19 Gas Natural SDG..................... 1,375
5 Viscofan Industria Navarra de
Envolturas Celulosicas SA......... 219
--------
1,594
--------
Real Estate (0.1%):
13 Inmobiliaria Metro.................. 391
5 Vallehermoso SA..................... 184
--------
575
--------
Steel (0.0%):
2 Acerinox SA......................... 264
--------
Telecommunications (0.9%):
124 Telefonica de Espana................ 5,734
--------
Total Spain......................... 29,535
--------
SWEDEN (1.7%):
Automotive (0.1%):
17 Volvo AB, Series B.................. 495
--------
Banking & Finance (0.2%):
29 Skandiaviska Enskilda Banken, Class
A................................. 490
11 Svenska Handlesbanken, Class A...... 529
--------
1,019
--------
Engineering (0.1%):
32 ABB AB, A Shares.................... 447
11 ABB AB, B Shares.................... 154
5 Skanska AB, Series B................ 236
--------
837
--------
</TABLE>
Continued
80
<PAGE> 184
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SWEDEN, CONTINUED:
Forest Products (0.1%):
15 Stora Kopparbergs Bergslags
Aktiebolag, Series A.............. $ 238
6 Stora Kopparbergs Bergslags
Aktiebolag, Series B.............. 91
16 Svenska Cellulosa AB, Series B...... 401
--------
730
--------
Insurance (0.1%):
27 Skandia Forsakrings AB.............. 383
--------
Machinery & Equipment (0.1%):
13 Atlas Copco AB, Series A............ 350
--------
Manufacturing -- Consumer Goods (0.1%):
28 Electrolux AB, Series B............. 474
--------
Metals & Mining (0.0%):
6 SKF AB, Series B.................... 109
8 Trelleborg AB, Series B............. 105
--------
214
--------
Office Equipment & Services (0.0%):
5 Esselte AB, Series B................ 107
--------
Pharmaceuticals (0.3%):
80 Astra AB, A Shares.................. 1,627
26 Astra AB, B Shares.................. 524
--------
2,151
--------
Real Estate (0.0%):
18 Fastighetspartner NF AB (b)......... 19
--------
Retail -- General Merchandise (0.1%):
14 Hennes & Mauritz AB, Series B....... 890
--------
Telecommunications (0.5%):
95 Telefonaktiebolaget LM Ericsson,
Series B.......................... 2,778
--------
Tobacco (0.0%):
20 Swedish Match AB.................... 67
--------
Total Sweden........................ 10,514
--------
SWITZERLAND (2.0%):
Chemicals (0.1%):
4 Ciba Specialty Chemicals AG......... 454
--------
Commercial Services (0.0%):
0 Kuoni Reisen Holding (e)............ 50
0 Societe Generale de Surveillance
Holdings SA (e)................... 110
--------
160
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SWITZERLAND, CONTINUED:
Diversified (0.1%):
0 Alusuisse-Lonza Holding AG,
Registered (b)(e)................. $ 190
0 SFR ABB AG (e)...................... 384
--------
574
--------
Fertilizers (0.0%):
1 Societe Suisse pour la
Microelectronique et l'Horlogerie
AG................................ 192
--------
Financial Services (0.5%):
6 CS Holding AG, Registered........... 1,266
5 Union Bank of Switzerland AG,
Registered........................ 1,857
--------
3,123
--------
Food Products & Services (0.3%):
1 Nestle SA, Registered............... 1,947
--------
Insurance (0.2%):
0 Swiss Reinsurance Co., Registered
(e)............................... 986
--------
Pharmaceuticals (0.8%):
2 Novartis AG, Bearer................. 2,652
0 Roche Holding AG (e)................ 593
0 Roche Holding AG, Bearer (e)........ 1,473
--------
4,718
--------
Restaurants (0.0%):
0 Moevenpick Holding, Bearer (e)...... 25
--------
Retail -- Special Line (0.0%):
0 Jelmoli Holdings (e)................ 58
--------
Transportation (0.0%):
1 Danzas Holding AG, Registered....... 134
--------
Total Switzerland................... 12,371
--------
THAILAND (0.6%):
Airlines (0.0%):
136 Thai Airways International Public
Co., Ltd., Foreign Registered
Shares............................ 114
--------
Auto Parts (0.0%):
75 Thairung Union Car Public Co........ 23
--------
Automotive (0.0%):
109 Thai Manufacturing (b).............. 41
--------
Banking (0.1%):
410 Bangkok Bank PLC, Foreign Registered
Shares (c)........................ 505
348 Thai Farmers Bank, Foreign
Registered Shares (c)............. 306
--------
811
--------
Beverages & Tobacco (0.0%):
6 Serm Suk Co., Ltd. (b).............. 40
--------
</TABLE>
Continued
81
<PAGE> 185
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
THAILAND, CONTINUED:
Broadcasting/Cable (0.0%):
164 International Broadcasting Corp.,
Ltd. (b).......................... $ 109
--------
Building Products (0.1%):
52 Siam Cement, Foreign Registered
Shares (b)........................ 251
73 Tipco Asphalt Co., Ltd. (b)......... 83
--------
334
--------
Computer Hardware (0.1%):
24 K.R. Precision Public Co. (b)....... 16
82 Shinawatra Computer PLC (b) (c)..... 298
--------
314
--------
Construction (0.0%):
200 Italian-Thai Development Public,
Ltd. (b).......................... 102
--------
Cosmetics/Personal Care (0.0%):
57 I.C.C. International PLC............ 50
--------
Electronic Components/Instruments (0.0%):
6 Hana Microelectronics Co., Ltd.
(b)............................... 14
26 Hana Microelectronics Co., Ltd.,
Foreign Registered Shares (b)..... 66
--------
80
--------
Oil & Gas (0.2%):
113 PTT Exploration & Production (b)
(c)............................... 855
--------
Printing & Publishing (0.0%):
128 Nation Multimedia Group PLC (b)..... 27
107 Nation Multimedia Group, Foreign
Registered Shares (b)............. 36
--------
63
--------
Restaurants (0.0%):
31 Pizza Co., Ltd...................... 92
--------
Telecommunications (0.1%):
30 Advanced Information Services PLC,
Foreign Registered Shares......... 119
1,358 TelecomAsia Corp., Foreign
Registered Shares (b) (c)......... 393
102 TelecomAsia Corp., PLC (b).......... 23
--------
535
--------
Total Thailand...................... 3,563
--------
TURKEY (0.7%):
Appliances & Household Products (0.0%):
3,387 Arcelik AS.......................... 159
--------
Automotive (0.0%):
236 Otosan Otomobil Sanayii AS.......... 127
1,953 Tofas Turk Otomobil Fabrikas AS
(b)............................... 82
--------
209
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
TURKEY, CONTINUED:
Banking & Finance (0.2%):
1,937 Akbank TAS.......................... $ 63
7,356 Turkiye Garanti Bankasi AS (b)...... 337
--------
400
--------
Beverages & Tobacco (0.0%):
776 Ege Biracilik ve Malt Sanayi AS..... 92
404 Ericiyas Biracilik ve Malt
Sanayii........................... 61
--------
153
--------
Building Products (0.1%):
4,234 Akcansa Cimento AS.................. 130
983 Cimentas AS (b)..................... 55
999 Cimsa Cimento Sanayi ve Ticaret
AS................................ 51
1,322 Trakya Cam Sanayii.................. 55
746 Turk Sise ve Cam Fabrikalari AS..... 25
--------
316
--------
Chemicals (0.0%):
20 Petkim Petrokimya Holding AS........ 11
--------
Diversified (0.0%):
165 Alarko Holding...................... 45
469 Ihlas Holding....................... 64
153 Koc Holding AS...................... 30
--------
139
--------
Electrical & Electronic (0.0%):
94 Raks Electronik Ev Aletleri......... 35
--------
Electronics (0.0%):
719 Vestel Elektronik Sanayi (b)........ 96
--------
Financial Services (0.3%):
19,610 Turkiye Is Bankasi AS, Class C 791
3 Turkiye Is Bankasi, Class B (b)..... 8
17,547 Yapi ve Kredi Bankasi AS............ 448
--------
1,247
--------
Food Products & Services (0.0%):
1,079 Tat Konserve Sanayii AS............. 36
--------
Forest Products (0.0%):
569 Kartonsan Karton Sanayi ve Ticaret
AS................................ 44
--------
Industrial Goods & Services (0.0%):
455 Kordsa Kord Bezi Sanayi ve Ticaret
AS................................ 73
--------
Manufacturing -- Capital Goods (0.0%):
1,549 Turk Demir Dokum Fabrikalari AS..... 26
--------
Metals & Mining (0.0%):
959 Eregli Demir ve Celik Fabrikalari
TAS (b)........................... 149
799 Izmir Demir Celik Sanayi AS (b)..... 7
--------
156
--------
</TABLE>
Continued
82
<PAGE> 186
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
TURKEY, CONTINUED:
Oil & Gas (0.0%):
888 Turcas Petrolculuk AS............... $ 44
--------
Oil & Gas Exploration, Production & Services (0.0%):
395 Aygaz AS............................ 59
109 Petrol Ofisi AS..................... 28
131 Tupras Turkiye Petrol Rafinerileri
AS (b)............................ 21
--------
108
--------
Pharmaceuticals (0.0%):
263 Eczacibasi Ilac Sanayi Ve Ti (b).... 14
--------
Telecommunications (0.1%):
91 Cukurova Elektrik AS................ 259
293 Netas-Northern Elektrik
Telekomunikasyon AS (b)........... 78
--------
337
--------
Textile Products (0.0%):
746 Aksa Akrilik Kimya Sanayii AS....... 23
--------
Tire & Rubber (0.0%):
931 Brisa Bridgestone Sabanci Lastik
SAN, ve Tic AS.................... 45
1,233 Goodyear Lastikleri TAS............. 67
--------
112
--------
Transportation (0.0%):
1,419 Turk Hava Yollari AO (b)............ 149
--------
Wholesale Distribution (0.0%):
247 Migros Turk TAS..................... 241
--------
Total Turkey........................ 4,128
--------
UNITED KINGDOM (8.7%):
Aerospace & Military Technology (0.2%):
81 British Aerospace PLC............... 623
43 Rolls-Royce PLC..................... 179
35 Smiths Industries PLC............... 485
--------
1,287
--------
Airlines (0.1%):
57 British Airways PLC................. 609
--------
Appliances & Household Products (0.0%):
24 EMI Group PLC....................... 215
--------
Auto Parts (0.0%):
56 LucasVarity PLC..................... 226
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
UNITED KINGDOM, CONTINUED:
Banking (0.9%):
73 Abbey National PLC.................. $ 1,293
75 Barclays PLC........................ 2,151
29 HSBC Holdings PLC................... 731
49 HSBC Holdings PLC (Hong Kong
Dollars).......................... 1,186
26 Royal Bank of Scotland Group PLC.... 451
--------
5,812
--------
Beverages & Tobacco (0.4%):
135 Diageo PLC.......................... 1,603
50 Scottish & Newcastle PLC............ 707
--------
2,310
--------
Brewery (0.1%):
36 Bass PLC 667
--------
Broadcasting/Cable (0.1%):
62 British Sky Broadcasting Group
PLC............................... 444
--------
Building Products (0.1%):
30 Marley PLC.......................... 55
10 Meyer International PLC............. 60
50 Rugby Group PLC..................... 93
96 Tarmac PLC.......................... 172
--------
380
--------
Chemicals (0.1%):
33 Imperial Chemical Industries PLC.... 532
--------
Conglomerates (0.2%):
107 B.A.T. Industries PLC............... 1,065
13 Lonrho Africa PLC................... 16
19 Lonrho PLC (b)...................... 89
--------
1,170
--------
Construction (0.0%):
44 Taylor Woodrow PLC.................. 148
26 Wilson Connolly Holdings PLC........ 59
--------
207
--------
Electrical & Electronic (0.3%):
50 Bowthorpe PLC....................... 440
57 Electrocomponents PLC............... 463
100 General Electric Co., PLC........... 862
--------
1,765
--------
Energy (0.6%):
237 British Petroleum Co., PLC.......... 3,449
--------
Engineering (0.0%):
25 Barratt Developments PLC............ 109
--------
</TABLE>
Continued
83
<PAGE> 187
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
UNITED KINGDOM, CONTINUED:
Financial Services (0.5%):
193 Lloyds TSB Group PLC................ $ 2,700
55 St. James's Place Capital PLC....... 299
--------
2,999
--------
Food & Household Products (0.3%):
42 Cadbury Schweppes PLC............... 655
112 Unilever PLC........................ 1,198
--------
1,853
--------
Food Products & Services (0.1%):
69 J Sainsbury PLC..................... 613
--------
Forest Products (0.0%):
14 Arjo Wiggins Appleton............... 46
--------
Health & Personal Care (0.8%):
129 Glaxo Wellcome PLC.................. 3,886
30 Zeneca PLC.......................... 1,306
--------
5,192
--------
Industrial Holding Company (0.1%):
28 BICC Group PLC...................... 62
117 BTR PLC, Series A................... 331
56 Hanson PLC.......................... 340
--------
733
--------
Insurance (0.5%):
56 Commercial Union PLC................ 1,051
33 Legal and General Group PLC......... 354
65 Prudential Corp. PLC................ 852
53 Royal & Sun Alliance Insurance Group
PLC............................... 537
23 Sedwick Group PLC................... 48
13 Willis Corroon Group................ 33
--------
2,875
--------
Leisure (0.2%):
58 Granada Group PLC................... 1,064
26 Ladbroke Group PLC.................. 141
31 Rank Group PLC...................... 166
--------
1,371
--------
Machinery & Equipment (0.1%):
47 GKN PLC............................. 593
--------
Merchandising (0.0%):
43 Safeway PLC......................... 282
--------
Metals & Mining (0.1%):
89 British Steel PLC................... 196
72 English China Clays PLC............. 248
43 RTZ Corp., PLC, Registered.......... 479
--------
923
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
UNITED KINGDOM, CONTINUED:
Miscellaneous Materials & Commodities (0.0%):
37 Elementis 1998 PLC.................. $ 94
--------
Oil & Gas Exploration, Production & Services (0.2%):
160 BG PLC.............................. 924
50 LASMO PLC 200
51 Pilkington PLC...................... 94
--------
1,218
--------
Paper Products (0.0%):
41 Rexam PLC 179
--------
Pharmaceuticals (0.4%):
196 SmithKline Beecham PLC.............. 2,380
--------
Printing & Publishing (0.2%):
11 De La Rue Ltd....................... 55
15 Pearson............................. 270
34 Reed International PLC.............. 303
79 Reuters Group....................... 902
--------
1,530
--------
Real Estate (0.2%):
19 British Land Co., PLC............... 193
49 Land Securities PLC................. 752
--------
945
--------
Real Estate Investment Trust (0.1%):
23 Peninsular & Oriental Steam
Navigation Co..................... 330
--------
Retail -- General Merchandise (0.1%):
19 Kingfisher.......................... 313
--------
Retail -- Stores/Catalog (0.6%):
46 Boots Co., PLC...................... 757
41 Great Universal Stores PLC.......... 541
90 Marks & Spencer PLC................. 820
23 Next PLC............................ 195
117 Tesco PLC........................... 1,142
21 Thorn PLC........................... 81
--------
3,536
--------
Telecommunications (1.0%):
249 British Telecommunications PLC...... 3,061
94 Cable & Wireless PLC................ 1,149
154 Centrica PLC(b)..................... 260
50 National Power PLC.................. 471
127 Vodaphone Group PLC................. 1,606
--------
6,547
--------
Textile Products (0.0%):
24 Courtaulds Textiles PLC............. 118
--------
</TABLE>
Continued
84
<PAGE> 188
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
UNITED KINGDOM, CONTINUED:
Transportation -- Road & Railroad (0.1%):
17 Railtrack Group PLC................. $ 420
--------
Total United Kingdom................ 54,272
--------
UNITED STATES (0.0%):
Diversified (0.0%):
2 U.S. Industries, Inc................ 60
--------
VENEZUELA (0.4%):
Banking (0.0%):
22 Banco Venezuela Credito ADR......... 165
--------
Financial Services (0.0%):
37 Mercantil Servicios ADR............. 193
--------
Food Products & Services (0.1%):
107 Mavesa SA ADR....................... 340
--------
Home Furnishings (0.0%):
49 Ceramica Carabobo ADR............... 106
--------
Industrial Goods & Services (0.0%):
19 Siderurgica Venezuela ADR........... 121
--------
Paper Products (0.0%):
192 Venepal S.A.C.A. ADR................ 75
--------
Telecommunications (0.3%):
55 Compania Anonima Nacional Telefonos
de Venezuela...................... 1,384
--------
Textile Products (0.0%):
15 Mantex S.A.C.A. ADR................. 186
40 Sudamtex de Venezuela ADR........... 88
--------
274
--------
Total Venezuela..................... 2,658
--------
Total Common Stocks 589,391
--------
OPALS (0.6%):
TAIWAN (0.6%):
538 Morgan Stanley Composite Index,
Taiwan OPALS B.................... 3,847
--------
Total OPALS 3,847
--------
PREFERRED STOCKS (1.8%):
AUSTRALIA (0.2%):
Media (0.2%):
181 News Corp., Ltd..................... 1,280
--------
BRAZIL (0.4%):
Banking (0.1%):
21,519 Banco Bradesco SA................... 181
241 Banco Itau SA....................... 136
--------
317
--------
Beverages & Tobacco (0.0%):
151 Companhia Cervejaria Brahma......... 93
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
PREFERRED STOCKS, CONTINUED:
BRAZIL, CONTINUED:
Electric Utility (0.0%):
1,704 Cia Energetica de Sao Paolo......... $ 50
3,761 Companhia Energetica de Minas
Gerais............................ 116
1,712 Grasul Preferred -- B Share (b)..... 2
--------
168
--------
Forest Products (0.0%):
90 Sadia-Concordia SA.................. 52
--------
Oil & Gas Exploration, Production & Services (0.0%):
740 Petroleo Brasileiro SA.............. 138
--------
Steel (0.2%):
57 Companhia Vale do Rio Doce, Series
A................................. 1,152
--------
Telecommunications (0.1%):
3,900 Telecomunicacoes Brasileiras SA..... 430
441 Telecomunicacoes de Sao Paolo SA.... 105
--------
535
--------
Total Brazil........................ 2,455
--------
GERMANY (1.1%):
Automotive (0.1%):
1 Volkswagen AG....................... 927
--------
Building Products (0.0%):
1 Dyckerhoff AG....................... 207
--------
Business Service (0.8%):
6 SAP AG.............................. 4,180
--------
Gas & Electric Utility (0.2%):
35 RWE AG.............................. 1,498
--------
Total Germany....................... 6,812
--------
GREECE (0.0%):
Telecommunications (0.0%):
9 Intracom SA......................... 304
--------
ITALY (0.1%):
Automotive (0.1%):
218 Fiat SpA (b)........................ 543
--------
Total Preferred Stocks 11,394
--------
RIGHTS -- FOREIGN SECURITIES (0.0%):
AUSTRALIA (0.0%):
7 Resolute Limited (b)(e)............. 0
--------
AUSTRIA (0.0%):
36 Bank Austria AG (b)(e).............. 0
--------
BRAZIL (0.0%):
Steel (0.0%):
11 Vale do Rio Doce Bond Rights
(b)(e)............................ 0
--------
</TABLE>
Continued
85
<PAGE> 189
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
RIGHTS -- FOREIGN SECURITIES, CONTINUED:
BRAZIL, CONTINUED:
Telecommunications (0.0%):
9 Telecommunicacoes de Sao Paulo SA
(b)(e)............................ $ 0
--------
21 Telecommunicacoes de Sao Paulo SA,
Preferred (b)(e).................. 0
--------
CHILE (0.0%):
2 Telecom Chile ADR (b)............... 1
--------
GERMANY (0.0%):
73 Daimler-Benz (b).................... 82
32 Metro AG (b)........................ 1
--------
83
--------
GREECE (0.0%):
9 Alpha Credit Bank (b)............... 15
--------
MEXICO (0.0%):
8 Cemex SA de CV, Series A (b)(e)..... 0
2 Cemex SA de CV, Series B (b)(e)..... 0
--------
THAILAND (0.0%):
32 International Broadcasting (b)...... 6
--------
Total Rights - Foreign Securities 105
--------
U.S. TREASURY OBLIGATIONS (0.1%):
U.S. Treasury Bills (0.1%):
$ 500 9/17/98 (d)......................... 495
--------
Total U.S. Treasury Obligations 495
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
REPURCHASE AGREEMENTS (2.4%):
UNITED STATES (2.4%):
$15,035 State Street Bank, 5.00%, 7/1/98
(Collateralized by $15,035 U.S.
Treasury Bonds, 5.00%, 8/15/14,
market value $15,339)............. $ 15,035
--------
Total Repurchase Agreements 15,035
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (14.8%):
Repurchase Agreements (14.8%):
2,361 Lehman Brothers, 6.47%,
7/1/98(Collateralized by $2,479
Media One Group Bonds, 0.00%,
10/5/98, market value $2,479)..... 2,361
90,000 Paine Webber, 6.40%, 7/1/98
(Collateralized by $89,832 various
Corporate Bonds, 4.00% -- 9.75%,
7/15/98 -- 12/31/49, market value
$94,500).......................... 90,000
--------
Total Short-Term Securities Held as Collateral 92,361
--------
Total (Cost $579,126) (a) $712,628
--------
</TABLE>
- ------------
Percentages indicated are based on net assets of $624,227.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $120. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 201,067
Unrealized depreciation..................................... (67,685)
----------
Net unrealized appreciation................................. $ 133,382
==========
</TABLE>
(b) Non-income producing securities.
(c) A portion of this security was loaned as of June 30, 1998.
(d) Serves as collateral for futures contracts.
(e) Rounded to less than a thousand.
Continued
86
<PAGE> 190
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
International Equity Index Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
CURRENT
NUMBER OPENING MARKET
OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE (000) (000)
- --------- -------------------------------------------- --------- -------
<C> <S> <C> <C>
52 Long Nikkei 225, September 1998 Futures $ 3,947 $ 4,079
29 Long EuroTop 100, September 1998 Futures 8,148 8,442
------- -------
$12,095 $12,521
======= =======
</TABLE>
<TABLE>
<S> <C>
ADR American Depository Receipt
GDR Global Depository Receipt
</TABLE>
At June 30, 1998, the Fund's open forward currency contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
DELIVERY CONTRACT CONTRACT CONTRACT MARKET APPRECIATION/
CURRENCY DATE PRICE AMOUNT VALUE VALUE (DEPRECIATION)
-------- -------- --------- -------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Long Contracts:
European Currency Unit............. 9/18/98 $ 0.9036 $ 6,200 $ 6,862 $ 6,813 $ (49)
Japanese Yen....................... 9/9/98 138.003 467,000 3,384 3,398 14
------- ------- -----
Total Long Contracts............... $10,246 $10,211 $ (35)
======= ======= =====
</TABLE>
See notes to financial statements.
87
<PAGE> 191
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSET ALLOCATION INCOME EQUITY
FUND FUND
---------------- -------------
<S> <C> <C>
ASSETS:
Investments, at value....................................... $275,068 $ 996,472
Repurchase agreements, at cost.............................. 26,533 32,051
-------- ----------
Total (cost $264,919; $549,687; $914,982; $617,512;
$708,580; respectively)................................... 301,601 1,028,523
Cash........................................................ -- 1
Interest and dividends receivable........................... 1,549 1,983
Receivable for capital shares issued........................ 440 640
Receivable from brokers for investments sold................ -- 1,408
Prepaid expenses and other assets........................... 1 5
-------- ----------
TOTAL ASSETS................................................ 303,591 1,032,560
-------- ----------
LIABILITIES:
Dividends payable........................................... 522 789
Payable for capital shares redeemed......................... 52 175
Payable for return of collateral received for securities on
loan...................................................... 28,905 52,967
Payable to brokers for investments purchased................ 2,988 1,351
Payable for variation margin on futures contracts........... 43 --
Options written, at value (premiums received $97)........... -- --
Accrued expenses and other payables:
Investment advisory fees................................ 126 588
Administration fees..................................... 16 135
12b-1 fees.............................................. 100 157
Other................................................... 183 230
-------- ----------
TOTAL LIABILITIES........................................... 32,935 56,392
-------- ----------
NET ASSETS:
Capital..................................................... 224,327 447,045
Undistributed (distributions in excess) of net investment
income.................................................... 27 162
Accumulated undistributed net realized gains (losses) from
investment, options and futures transactions.............. 9,438 50,125
Net unrealized appreciation (depreciation) from investments,
futures and options....................................... 36,864 478,836
-------- ----------
NET ASSETS.................................................. $270,656 $ 976,168
======== ==========
NET ASSETS:.................................................
Fiduciary............................................... $105,243 $ 691,878
Class A................................................. 50,456 117,682
Class B................................................. 114,957 165,813
Class C................................................. -- 795
-------- ----------
Total....................................................... $270,656 $ 976,168
======== ==========
OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES):
Fiduciary............................................... 7,627 28,742
Class A................................................. 3,652 4,895
Class B................................................. 8,290 6,886
Class C................................................. -- 33
======== ==========
Total....................................................... 19,569 40,556
======== ==========
Net Asset Value :
Fiduciary Offering and redemption price per share....... $ 13.80 $ 24.07
======== ==========
Class A Redemption price per share...................... $ 13.81 $ 24.04
======== ==========
Maximum sales charge.................................. 4.50% 4.50%
======== ==========
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest
cent)................................................ $ 14.46 $ 25.17
======== ==========
Class B Offering price per share (a).................... $ 13.87 $ 24.08
======== ==========
Class C Offering price per share (a).................... $ 24.08
==========
</TABLE>
- ------------
(a) Redemption price per Class B and Class C share varies based on length of
time shares are held.
See notes to financial statements.
88
<PAGE> 192
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
EQUITY INDEX VALUE GROWTH LARGE COMPANY
FUND FUND VALUE FUND
- ------------ ------------ -------------
<S> <C> <C>
$1,286,410 $740,240 $820,097
72,011 46,166 83,871
---------- -------- --------
1,358,421 786,406 903,968
-- 1 3,937
1,250 713 1,164
1,775 637 66
4,686 -- 3,647
4 3 3
---------- -------- --------
1,366,136 787,760 912,785
---------- -------- --------
707 179 666
183 7 13
114,880 49,140 83,126
4,321 -- 2,598
158 106 --
-- -- 78
99 435 499
119 99 115
323 36 17
568 183 171
---------- -------- --------
121,358 50,185 87,283
---------- -------- --------
780,024 525,615 586,115
88 53 42
20,942 42,561 43,938
443,724 169,346 195,407
---------- -------- --------
$1,244,778 $737,575 $825,502
========== ======== ========
$ 671,422 $630,340 $792,649
218,518 80,500 15,699
351,624 25,501 17,154
3,214 1,234 --
========== ======== ========
$1,244,778 $737,575 $825,502
========== ======== ========
24,719 46,646 47,474
8,049 5,964 936
12,959 1,903 1,019
118 92 --
========== ======== ========
45,845 54,605 49,429
========== ======== ========
$ 27.16 $ 13.51 $ 16.70
========== ======== ========
$ 27.15 $ 13.50 $ 16.77
========== ======== ========
4.50% 4.50% 4.50%
========== ======== ========
$ 28.43 $ 14.14 $ 17.56
========== ======== ========
$ 27.13 $ 13.40 $ 16.84
========== ======== ========
$ 27.14 $ 13.47
========== ========
</TABLE>
89
<PAGE> 193
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
DISCIPLINED VALUE LARGE COMPANY
FUND GROWTH FUND
----------------- -------------
<S> <C> <C>
ASSETS:
Investments, at value....................................... $ 708,291 $2,064,976
Repurchase agreements, at cost.............................. 50,417 97,697
---------- ----------
Total (cost $650,635; $1,443,904; $1,037,010; $132,255;
$579,126; respectively)................................... 758,708 2,162,673
Cash........................................................ 203 1
Foreign currency, at value (cost $2,408).................... -- --
Interest and dividends receivable........................... 672 1,975
Receivable for capital shares issued........................ 75 882
Receivable from brokers for investments sold................ 75,046 86,533
Net receivable for variation margin on futures contracts.... -- --
Tax reclaim receivable...................................... -- --
Prepaid expenses and other assets........................... 4 8
---------- ----------
TOTAL ASSETS................................................ 834,708 2,252,072
---------- ----------
LIABILITIES:
Dividends payable........................................... 499 --
Payable for capital shares redeemed......................... 25 213
Payable for return of collateral received for securities on
loan...................................................... 59,486 177,147
Payable to brokers for investments purchased................ 79,792 81,870
Net payable for variation margin on futures contracts....... -- --
Payable for forward foreign currency contracts.............. -- --
Accrued expenses and other payables:
Investment advisory fees................................ 415 1,160
Administration fees..................................... 96 265
12b-1 fees.............................................. 30 257
Other................................................... 156 532
---------- ----------
TOTAL LIABILITIES........................................... 140,499 261,444
---------- ----------
NET ASSETS:
Capital..................................................... 501,412 1,095,916
Undistributed (distributions in excess) of net investment
income.................................................... 1 --
Accumulated undistributed net realized gains (losses) from
investment, options and futures transactions.............. 84,723 175,943
Net unrealized appreciation (depreciation) from investments,
futures, options and translation of assets and liabilities
in foreign currencies..................................... 108,073 718,769
---------- ----------
NET ASSETS.................................................. $ 694,209 $1,990,628
========== ==========
NET ASSETS:
Fiduciary............................................... $ 634,672 $1,510,521
Class A................................................. 29,443 199,052
Class B................................................. 30,094 280,563
Class C................................................. -- 492
---------- ----------
Total....................................................... $ 694,209 $1,990,628
========== ==========
OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES):
Fiduciary............................................... 37,560 66,523
Class A................................................. 1,739 8,534
Class B................................................. 1,786 12,341
Class C................................................. -- 22
========== ==========
Total....................................................... 41,085 87,420
========== ==========
Net Asset Value:
Fiduciary Offering and redemption price per share......... $ 16.90 $ 22.71
========== ==========
Class A Redemption price per share........................ $ 16.93 $ 23.32
========== ==========
Maximum sales charge.................................... 4.50% 4.50%
========== ==========
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to nearest
cent).................................................. $ 17.73 $ 24.42
========== ==========
Class B Offering price per share (a)...................... $ 16.85 $ 22.73
========== ==========
Class C Offering price per share (a)...................... $ 22.57
==========
</TABLE>
- ------------
(a) Redemption price per Class B and Class C share varies based on length of
time shares are held.
See notes to financial statements.
90
<PAGE> 194
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
GROWTH SMALL INTERNATIONAL
OPPORTUNITIES CAPITALIZATION EQUITY INDEX
FUND FUND FUND
- ------------- -------------- -------------
<S> <C> <C>
$1,130,547 $144,046 $605,232
116,612 13,799 107,396
---------- -------- --------
1,247,159 157,845 712,628
1 10 --
-- -- 2,389
427 51 2,290
490 82 65
110,456 2,386 71
-- 27 --
-- -- 981
5 -- 3
---------- -------- --------
1,358,538 160,401 718,427
---------- -------- --------
-- -- --
78 8 10
205,962 14,537 92,361
94,767 440 594
-- -- 24
-- -- 35
622 86 273
142 17 84
91 11 15
310 60 804
---------- -------- --------
301,972 15,159 94,200
---------- -------- --------
780,252 105,263 496,208
-- -- 1,864
66,165 14,054 (7,735)
210,149 25,925 133,890
---------- -------- --------
$1,056,566 $145,242 $624,227
========== ======== ========
$ 868,901 $114,951 $586,741
95,647 21,634 24,060
90,930 8,567 13,307
1,088 90 119
---------- -------- --------
$1,056,566 $145,242 $624,227
========== ======== ========
38,597 9,542 32,647
4,278 1,800 1,337
4,242 727 768
49 7 7
========== ======== ========
47,166 12,076 34,759
========== ======== ========
$ 22.51 $ 12.05 $ 17.97
========== ======== ========
$ 22.36 $ 12.02 $ 17.99
========== ======== ========
4.50% 4.50% 4.50%
========== ======== ========
$ 23.41 $ 12.59 $ 18.84
========== ======== ========
$ 21.44 $ 11.79 $ 17.33
========== ======== ========
$ 22.42 $ 11.97 $ 17.91
========== ======== ========
</TABLE>
91
<PAGE> 195
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
ASSET ALLOCATION INCOME EQUITY EQUITY INDEX VALUE GROWTH LARGE COMPANY
FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................... $ 6,541 $ 1,924 $ 1,531 $ 1,683 $ 2,012
Dividend income......................... 1,547 19,180 15,277 8,118 15,254
Income from securities lending.......... 59 119 210 131 154
---------- ---------- ---------- ----------- ------------
Total Income............................ 8,147 21,223 17,018 9,932 17,420
---------- ---------- ---------- ----------- ------------
EXPENSES:
Investment advisory fees................ 1,370 6,571 2,978 4,485 5,638
Administration fees..................... 345 1,454 1,626 993 1,248
12b-1 fees (Class A).................... 140 346 544 216 58
12b-1 fees (Class B).................... 739 1,219 2,522 161 132
12b-1 fees (Class C).................... -- 4 6 2 --
Custodian and accounting fees........... 72 62 170 70 59
Legal and audit fees.................... 12 28 34 23 24
Trustees' fees and expenses............. 3 14 17 10 12
Transfer agent fees..................... 258 439 981 168 94
Registration and filing fees............ 78 166 159 129 49
Printing costs.......................... 23 87 108 62 72
Other................................... 7 27 22 9 22
---------- ---------- ---------- ----------- ------------
Total expenses before waivers........... 3,047 10,417 9,167 6,328 7,408
Less waivers............................ (421) (99) (2,774) (62) (17)
---------- ---------- ---------- ----------- ------------
Net Expenses............................ 2,626 10,318 6,393 6,266 7,391
---------- ---------- ---------- ----------- ------------
Net Investment Income................... 5,521 10,905 10,625 3,666 10,029
---------- ---------- ---------- ----------- ------------
REALIZED / UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS, OPTIONS AND FUTURES:
Net realized gains (losses) from
investment, option and future
transactions.......................... 15,512 76,585 26,070 72,571 71,328
Net change in unrealized appreciation
(depreciation) from investments,
options and futures................... 19,656 98,696 216,751 92,392 66,164
---------- ---------- ---------- ----------- ------------
Net realized/unrealized gains (losses)
from investments, options and
futures............................... 35,168 175,281 242,821 164,963 137,492
---------- ---------- ---------- ----------- ------------
Change in net assets resulting from
operations............................ $ 40,689 $ 186,186 $ 253,446 $ 168,629 $ 147,521
========== ========== ========== =========== ============
</TABLE>
See notes to financial statements.
92
<PAGE> 196
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
GROWTH SMALL INTERNATIONAL
DISCIPLINED LARGE COMPANY OPPORTUNITIES CAPITALIZATION EQUITY INDEX
VALUE FUND GROWTH FUND FUND FUND FUND
----------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income..................... $ 821 $ 606 $ 821 $ 577 $ 513
Dividend income..................... 10,584 18,607 4,269 557 11,478
Income from securities lending...... 251 252 593 100 399
Foreign tax withholding............. -- -- -- -- (1,356)
-------- -------- -------- ------- -------
Total Income.............. 11,656 19,465 5,683 1,234 11,034
-------- -------- -------- ------- -------
EXPENSES:
Investment advisory fees............ 4,759 12,024 6,492 902 2,791
Administration fees................. 1,053 2,661 1,437 200 831
12b-1 fees (Class A)................ 99 553 236 68 58
12b-1 fees (Class B)................ 254 1,953 639 55 114
12b-1 fees (Class C)................ -- 1 1 -- --
Custodian and accounting fees....... 69 119 127 40 570
Legal and audit fees................ 20 49 26 9 18
Organization costs.................. -- -- -- -- 2
Trustees' fees and expenses......... 9 26 14 2 8
Transfer agent fees................. 150 881 491 102 132
Registration and filing fees........ 41 165 107 50 71
Printing costs...................... 58 164 88 17 47
Other............................... 21 44 30 9 12
-------- -------- -------- ------- -------
Total expenses before waivers....... 6,533 18,640 9,688 1,454 4,654
Less waivers........................ (28) (158) (67) (57) (17)
-------- -------- -------- ------- -------
Net Expenses........................ 6,505 18,482 9,621 1,397 4,637
-------- -------- -------- ------- -------
Net Investment Income (Loss)........ 5,151 983 (3,938) (163) 6,397
-------- -------- -------- ------- -------
REALIZED / UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS, OPTIONS, FUTURES
AND FOREIGN CURRENCIES:
Net realized gains (losses) from
investment, option, future, and
foreign currency transactions..... 141,237 278,531 140,625 21,421 172
Net change in unrealized
appreciation (depreciation) from
investments, options, futures and
translation of assets and
liabilities in foreign
currencies........................ 9,794 237,485 99,487 1,800 43,167
-------- -------- -------- ------- -------
Net realized/unrealized gains
(losses) from investments,
options, futures and foreign
currency.......................... 151,031 516,016 240,112 23,221 43,339
-------- -------- -------- ------- -------
Change in net assets resulting from
operations........................ $156,182 $516,999 $236,174 $23,058 $49,736
======== ======== ======== ======= =======
</TABLE>
See notes to financial statements.
93
<PAGE> 197
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND INCOME EQUITY FUND EQUITY INDEX FUND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss)....... $ 5,521 $ 4,173 $ 10,905 $ 9,950 $ 10,625 $ 9,130
Net realized gains (losses) from
investment, option and future
transactions..................... 15,512 15,867 76,585 63,053 26,070 20,871
Net change in unrealized
appreciation (depreciation) from
investments, options and
futures.......................... 19,656 4,463 98,696 89,271 216,751 140,765
-------- -------- --------- --------- ---------- ---------
Change in net assets resulting from
operations........................... 40,689 24,503 186,186 162,274 253,446 170,766
-------- -------- --------- --------- ---------- ---------
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income......... (2,881) (2,678) (9,093) (8,549) (7,794) (7,178)
In excess of net investment
income........................... -- (11) -- (14) -- --
From net realized gains from
investment transactions.......... (10,063) (2,959) (62,899) (10,510) (14,824) (3,288)
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income......... (1,102) (764) (1,122) (948) (1,688) (899)
In excess of net investment
income........................... -- (3) -- (2) -- --
From net realized gains from
investment transactions.......... (3,738) (974) (9,117) (1,743) (3,454) (420)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income......... (1,516) (731) (521) (453) (1,052) (780)
In excess of net investment
income........................... -- (3) -- (1) -- --
From net realized gains from
investment transactions.......... (6,134) (1,129) (10,250) (1,424) (5,722) (629)
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net investment income......... -- -- (2) -- (3) --
From net realized gains from
investment transactions.......... -- -- (11) -- (1) --
-------- -------- --------- --------- ---------- ---------
Change in net assets from shareholder
distributions........................ (25,434) (9,252) (93,015) (23,644) (34,538) (13,194)
-------- -------- --------- --------- ---------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued........ 116,110 74,038 175,771 113,454 453,171 372,043
Proceeds from shares issued in
conversion....................... -- 37,254 70,389 283,942 -- --
Dividends reinvested............... 16,312 6,840 36,266 11,938 16,587 6,593
Cost of shares redeemed............ (47,271) (49,880) (206,930) (135,743) (191,744) (180,134)
-------- -------- --------- --------- ---------- ---------
Change in net assets from share
transactions......................... 85,151 68,252 75,496 273,591 278,014 198,502
-------- -------- --------- --------- ---------- ---------
Change in net assets................... 100,406 83,503 168,667 412,221 496,922 356,074
NET ASSETS:
Beginning of period................ 170,250 86,747 807,501 395,280 747,856 391,782
-------- -------- --------- --------- ---------- ---------
End of period...................... $270,656 $170,250 $ 976,168 $ 807,501 $1,244,778 $ 747,856
======== ======== ========= ========= ========== =========
SHARE TRANSACTIONS:
Issued............................. 8,804 6,114 7,871 6,001 18,855 20,262
Issued in conversion............... -- 3,076 3,342 14,913 -- --
Reinvested......................... 1,278 573 1,690 656 719 360
Redeemed........................... (3,607) (4,071) (9,166) (7,141) (8,031) (9,830)
-------- -------- --------- --------- ---------- ---------
Change in shares....................... 6,475 5,692 3,737 14,429 11,543 10,792
======== ======== ========= ========= ========== =========
</TABLE>
See notes to financial statements.
94
<PAGE> 198
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
VALUE GROWTH FUND LARGE COMPANY VALUE FUND DISCIPLINED VALUE FUND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss)...... $ 3,666 $ 3,251 $ 10,029 $ 12,627 $ 5,151 $ 8,249
Net realized gains (losses) from
investment, option and future
transactions.................... 72,571 42,586 71,328 17,493 141,237 59,778
Net change in unrealized
appreciation (depreciation) from
investments, options and
futures......................... 92,392 51,518 66,164 126,134 9,794 36,525
--------- --------- ---------- --------- --------- ---------
Change in net assets resulting from
operations.......................... 168,629 97,355 147,521 156,254 156,182 104,552
--------- --------- ---------- --------- --------- ---------
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS
From net investment income........ (3,380) (2,906) (9,741) (12,228) (4,991) (7,822)
From net realized gains from
investment transactions......... (54,060) (36,353) (41,719) (47,388) (91,826) (53,221)
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income........ (243) (316) (177) (209) (169) (274)
From net realized gains from
investment transactions......... (6,125) (5,893) (1,000) (904) (4,398) (2,285)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income........ (2) (16) (70) (69) (7) (89)
From net realized gains from
investment transactions......... (1,479) (992) (700) (410) (3,742) (1,855)
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net investment income........ --(a) -- -- -- -- --
From net realized gains from
investment transactions......... --(a) -- -- -- -- --
--------- --------- ---------- --------- --------- ---------
Change in net assets from shareholder
distributions....................... (65,289) (46,476) (53,407) (61,208) (105,133) (65,546)
--------- --------- ---------- --------- --------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued....... 244,292 236,686 145,236 165,729 153,275 107,311
Proceeds from shares issued in
conversion...................... -- -- -- 63,222 -- 48,296
Dividends reinvested.............. 30,601 39,472 24,049 26,644 54,080 32,360
Cost of shares redeemed........... (129,318) (70,246) (148,173) (238,407) (170,905) (179,880)
--------- --------- ---------- --------- --------- ---------
Change in net assets from share
transactions........................ 145,575 205,912 21,112 17,188 36,450 8,087
--------- --------- ---------- --------- --------- ---------
Change in net assets.................. 248,915 256,791 115,226 112,234 87,499 47,093
NET ASSETS:
Beginning of period............... 488,660 231,869 710,276 598,042 606,710 559,617
--------- --------- ---------- --------- --------- ---------
End of period..................... $ 737,575 $ 488,660 $ 825,502 $ 710,276 $ 694,209 $ 606,710
========= ========= ========== ========= ========= =========
SHARE TRANSACTIONS:
Issued............................ 19,945 22,826 9,198 12,629 9,189 7,390
Issued in conversion.............. -- -- -- 4,655 -- 3,333
Reinvested........................ 2,642 4,071 1,586 2,051 3,435 2,299
Redeemed.......................... (10,452) (6,738) (9,357) (17,923) (10,296) (12,355)
--------- --------- ---------- --------- --------- ---------
Change in shares...................... 12,135 20,159 1,427 1,412 2,328 667
========= ========= ========== ========= ========= =========
</TABLE>
- ------------
(a) Amount is less than 1,000.
See notes to financial statements.
95
<PAGE> 199
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
LARGE COMPANY GROWTH FUND GROWTH OPPORTUNITIES FUND SMALL CAPITALIZATION FUND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss)...... $ 983 $ 6,257 $ (3,938) $ 7,629 $ (163) $ (231)
Net realized gains (losses) from
investment, option and future
transactions.................... 278,531 130,961 140,625 35,797 21,421 10,486
Net change in unrealized
appreciation (depreciation) from
investments, options and
futures......................... 237,485 186,164 99,487 87,369 1,800 1,985
---------- ---------- ---------- --------- --------- ---------
Change in net assets resulting from
operations.......................... 516,999 323,382 236,174 130,795 23,058 12,240
---------- ---------- ---------- --------- --------- ---------
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS
From net investment income........ (1,456) (5,746) -- (7,053) -- --
In excess of net investment
income.......................... -- -- -- (669) -- --
From net realized gains from
investment transactions......... (167,063) (37,414) (80,645) (83,581) (9,265) (8,358)
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income........ (14) (403) -- (361) -- --
In excess of net investment
income.......................... (44) -- -- (34) -- --
From net realized gains from
investment transactions......... (20,430) (4,265) (7,223) (4,572) (1,939) (1,835)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income........ -- (23) -- (215) -- --
In excess of net investment
income.......................... -- -- -- (20) -- --
From net realized gains from
investment transactions......... (24,184) (3,785) (7,104) (3,102) (521) (302)
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net realized gains from
investment transactions......... (4) -- --(a) -- --(a) --
---------- ---------- ---------- --------- --------- ---------
Change in net assets from shareholder
distributions....................... (213,195) (51,636) (94,972) (99,607) (11,725) (10,495)
---------- ---------- ---------- --------- --------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued....... 343,977 230,983 305,038 291,882 59,655 14,236
Proceeds from shares issued in
conversion...................... 81,659 289,603 57,769 -- -- --
Dividends reinvested.............. 119,823 31,237 63,284 56,517 10,295 9,973
Cost of shares redeemed........... (259,677) (299,888) (215,417) (248,384) (35,493) (30,774)
---------- ---------- ---------- --------- --------- ---------
Change in net assets from share
transactions........................ 285,782 251,935 210,674 100,015 34,457 (6,565)
---------- ---------- ---------- --------- --------- ---------
Change in net assets.................. 589,586 523,681 351,876 131,203 45,790 (4,820)
NET ASSETS:
Beginning of period............... 1,401,042 877,361 704,690 573,487 99,452 104,272
---------- ---------- ---------- --------- --------- ---------
End of period..................... $1,990,628 $1,401,042 $1,056,566 $ 704,690 $ 145,242 $ 99,452
========== ========== ========== ========= ========= =========
SHARE TRANSACTIONS:
Issued............................ 17,372 14,003 14,578 16,132 4,975 1,433
Issued in conversion.............. 4,595 17,279 3,113 -- -- --
Reinvested........................ 6,450 1,936 3,314 3,283 946 1,042
Redeemed.......................... (12,865) (18,015) (10,127) (13,633) (2,939) (3,085)
---------- ---------- ---------- --------- --------- ---------
Change in shares...................... 15,552 15,203 10,878 5,782 2,982 (610)
========== ========== ========== ========= ========= =========
</TABLE>
- ------------
(a) Amount is less than 1,000.
See notes to financial statements.
96
<PAGE> 200
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX
FUND
---------------------------
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss)........................... $ 6,397 $ 4,485
Net realized gains (losses) from investment, option
future and foreign currency transactions.............. 172 5,054
Net change in unrealized appreciation (depreciation)
from investments, options and futures and translation
of assets and liabilities in foreign currencies....... 43,167 51,395
-------- --------
Change in net assets resulting from operations.............. 49,736 60,934
-------- --------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS
From net investment income............................. (623) (4,346)
In excess of net investment income..................... -- (3,417)
From net realized gains from investment transactions... (12,040) (3,811)
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income............................. (4) (92)
In excess of net investment income..................... -- (73)
From net realized gains from investment transactions... (435) (111)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income............................. -- (47)
From net realized gains from investment transactions... (301) (72)
In excess of net realized gains from investment
transactions.......................................... -- (37)
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net realized gains from investment transactions... --(a) --
-------- --------
Change in net assets from shareholder distributions......... (13,403) (12,006)
-------- --------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................ 200,947 191,629
Dividends reinvested................................... 8,154 2,834
Cost of shares redeemed................................ (93,751) (135,282)
-------- --------
Change in net assets from share transactions................ 115,350 59,181
-------- --------
Change in net assets........................................ 151,683 108,109
NET ASSETS:
Beginning of period.................................... 472,544 364,435
-------- --------
End of period.......................................... $624,227 $472,544
======== ========
SHARE TRANSACTIONS:
Issued................................................. 11,868 12,777
Reinvested............................................. 539 189
Redeemed............................................... (5,635) (9,008)
-------- --------
Change in shares............................................ 6,772 3,958
======== ========
</TABLE>
- ------------
(a) Amount is less than 1,000.
See notes to financial statements.
97
<PAGE> 201
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
GROWTH INTERNATIONAL
ASSET ALLOCATION OPPORTUNITIES EQUITY INDEX
FUND FUND FUND
---------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Total investment income................................. $ 8,147 $ 5,683 $ 11,034
Net Expenses............................................ (2,626) (9,621) (4,637)
----------- ----------- -----------
Net investment income (loss)............................ 5,521 (3,938) 6,397
Adjustments to reconcile net investment income to net
cash provided (used) by operating activities:
(Amortization)/accretion of discount/premium....... (97) -- (15)
Change in interest and dividends receivable........ (348) (38) (1,328)
Change in accrued expenses and other payables...... 249 554 232
----------- ----------- -----------
Total adjustments.................................. (196) 516 (1,111)
----------- ----------- -----------
Net cash provided (used) by operating activities........ 5,325 (3,422) 5,286
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments......... 1,841,799 3,505,742 2,507,704
Proceeds from sales of long-term investments.......... 92,165 1,372,349 49,480
Purchases of short-term investments................... (1,853,269) (3,568,447) (2,513,911)
Purchases of long-term investments.................... (146,956) (1,406,474) (146,672)
Purchases of short-term investments with cash received
as collateral from securities lending.............. (28,905) (205,962) (92,361)
Mark to market of futures............................. 1,217 -- 612
----------- ----------- -----------
Net cash provided (used) by investing activities........ (93,949) (302,792) (195,148)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares issued........................... 115,990 347,298 200,975
Cost of shares redeemed............................... (47,244) (215,357) (93,748)
Distributions paid to shareholders.................... (25,339) (94,972) (17,882)
Dividends reinvested.................................. 16,312 63,284 8,155
Collateral received from securities lending........... 28,905 205,962 92,361
----------- ----------- -----------
Net cash provided (used) by financing activities........ 88,624 306,215 189,861
Net increase (decrease) in cash......................... -- 1 (1)
Cash at beginning of period............................. -- -- 1
----------- ----------- -----------
Cash at end of period................................... $ -- $ 1 $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
98
<PAGE> 202
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998
1. ORGANIZATION:
The One Group (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company
established as a Massachusetts business trust. The accompanying financial
statements and financial highlights are those of 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 Small Capitalization Fund
(previously named the Gulf South Growth Fund) and the International Equity
Index Fund (individually a "Fund", collectively the "Funds") only. In 1997
the investment objective of the Gulf South Growth Fund was changed to permit
investments in companies headquartered or doing business outside of the
Southeastern region of the United States, and to focus the Fund's investments
to a greater extent on investments in the equity securities of small
capitalization and emerging growth companies. As a result, the name of the
Fund was changed to The One Group Small Capitalization Fund. Each Fund is a
diversified mutual fund.
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
Asset Allocation Fund To provide total return while preserving capital.
Income Equity Fund Current income through regular payment of dividends with
the secondary goal of achieving capital appreciation by
investing primarily in equity securities.
Equity Index Fund Investment results that correspond to the aggregate price
and dividend performance of the securities in the
Standard & Poor's 500 Composite Stock Price Index.
Value Growth Fund Long-term capital growth and growth of income with a
secondary objective of providing a moderate level of
current income.
Large Company Value Fund Capital appreciation with the incidental goal of
achieving current income by investing primarily in
equity securities.
Disciplined Value Fund Capital appreciation with the secondary goal of achieving
current income by investing primarily in equity
securities.
Large Company Growth Fund Long-term capital appreciation and growth of income by
investing primarily in equity securities.
Growth Opportunities Fund Growth of capital and secondarily, current income by
investing primarily in equity securities.
Small Capitalization Fund Long-term capital growth, primarily by investing in a
portfolio of equity securities of small-capitalization
and emerging growth companies.
International Equity Index Fund To provide investment results that correspond to the
aggregate price and dividend performance of the
securities in the Gross Domestic Product Weighted Morgan
Stanley Capital International Europe, Australia, and Far
East Index.
</TABLE>
Continued
99
<PAGE> 203
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Trust in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
SECURITY VALUATION
Listed securities are valued at the latest available sales price on the
principal exchange where such securities are traded. Unlisted securities
or listed securities for which latest sales prices are not available are
valued at the mean of the latest bid and ask price in the principal
market where such securities are normally traded. Corporate debt
securities and debt securities of U.S. issuers (other than short-term
investments maturing in 60 days or less), including municipal securities,
are valued on the basis of valuations provided by dealers or by an
independent pricing service approved by the Board of Trustees. Short-term
investments maturing in 60 days or less are valued at amortized cost,
which approximates market value. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange
on which they are traded. Options traded on an exchange are valued using
the last sale price or, in the absence of a sale, the last offering
price. Options traded over-the-counter are valued using dealer-supplied
valuations. Investments for which there are no such quotations or
valuations are carried at fair value as determined by the Fair Value
Committee which is comprised of members from Banc One Investment Advisors
Corporation (the "Advisor") and The One Group Services Company (the
"Administrator") under the direction of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION
Investment valuations, other assets and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars
based upon current exchange rates. Purchases and sales of foreign
investments and income and expenses are converted into U.S. dollars based
upon exchange rates prevailing on the respective dates of such
transactions. That portion of realized gains or losses and unrealized
appreciation or depreciation from investments due to fluctuations in
foreign currency exchange rates is not separately disclosed. Such
fluctuations are included with the net realized and unrealized gain or
loss from investments.
FORWARD FOREIGN CURRENCY CONTRACTS
Forward foreign currency contracts are valued at the daily exchange rate
of the underlying currency. Purchases and sales of forward foreign
currency contracts having the same settlement date and broker are
presented net on the Statement of Assets and Liabilities. The forward
foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized appreciation or depreciation
until the contract settlement date. Gains or losses from the purchase or
sale of forward foreign currency contracts having the same settlement
date and broker are recorded as realized on the date of offset; otherwise
gains or losses are recorded as realized on settlement date.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements with institutions that are
deemed by the Advisor to be of good standing and creditworthy under
guidelines established by the Board of Trustees. Each repurchase
agreement is recorded at cost. The Fund requires that the securities
purchased in a repurchase agreement
Continued
100
<PAGE> 204
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
transaction be transferred to the custodian in a manner sufficient to
enable the Fund to obtain those securities in the event of a counterparty
default. The seller, under the repurchase agreement, is required to
maintain the value of the securities held at not less than the repurchase
price, including accrued interest. Repurchase agreements are considered
to be loans under the 1940 Act.
WRITTEN OPTIONS
The Funds may write covered call or secured put options for which
premiums received are recorded as liabilities and are subsequently
adjusted to the current value of the options written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options, which are either exercised or closed, are
offset against the proceeds received or amount paid on the transaction to
determine realized gains or losses.
FUTURES CONTRACTS
The Funds may enter into futures contracts for the delayed delivery of
securities at a fixed price at some future date or for the change in the
value of a specified financial index over a predetermined time period.
Cash or securities are deposited with brokers in order to maintain a
position. Subsequent payments made or received by the Fund based on the
daily change in the market value of the position are recorded as
unrealized appreciation or depreciation until the contract is closed out,
at which time the appreciation or depreciation is realized.
INDEXED SECURITIES
The Funds may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities
may be more volatile than the referenced instrument itself, but any loss
is limited to the amount of the original investment.
SECURITIES LENDING
To generate additional income, the Funds may lend up to 33% of securities
in which they are invested pursuant to agreements requiring that the loan
be continuously secured by cash, U.S. Government or U.S. Government
Agency securities, shares of an investment trust or mutual fund, or any
combination of cash and such securities as collateral equal at all times
to at least 100% of the market value plus accrued interest on the
securities lent. The Funds continue to earn dividends and interest on
securities lent while simultaneously seeking to earn interest on the
investment of collateral. Collateral is marked to market daily to provide
a level of collateral at least equal to the market value of 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 be made only to borrowers deemed by
the Advisor to be of good standing and creditworthy under guidelines
established by the Board of Trustees and when, in the judgment of the
Advisor, the consideration which can be earned currently from such
securities loans justifies the attendant risks. Loans are subject to
termination by the Funds or the borrower at any time, and are, therefore,
not
Continued
101
<PAGE> 205
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
considered to be illiquid investments. As of June 30, 1998, the following
Funds had securities with the following market values on loan (amounts in
thousands):
<TABLE>
<CAPTION>
MARKET VALUE MARKET VALUE MARKET VALUE
OF CASH OF NON-CASH OF LOANED
COLLATERAL COLLATERAL SECURITIES
------------- ------------- -------------
<S> <C> <C> <C>
Asset Allocation Fund............... $ 28,905 $ 7,650 $ 35,563
Income Equity Fund.................. 52,967 8,656 59,102
Equity Index Fund................... 114,880 6,175 117,972
Value Growth Fund................... 49,140 1,726 49,552
Large Company Value Fund............ 83,126 14,954 95,208
Disciplined Value Fund.............. 59,486 -- 58,328
Large Company Growth Fund........... 177,147 1,841 170,452
Growth Opportunities Fund........... 205,962 5,570 206,531
Small Capitalization Fund........... 14,537 -- 14,520
International Equity Index Fund..... 92,361 -- 91,782
</TABLE>
The loaned securities were fully collateralized by cash and U.S.
Government securities as of June 30, 1998.
SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are accounted for on a trade date basis. Net
realized gains or losses from sales of securities are determined on the
specific identification cost method. Interest income and expenses are
recognized on the accrual basis. Dividends are recorded on the
ex-dividend date. Interest income, including any discount or premium, is
accrued as earned using the effective interest method.
EXPENSES
Expenses directly attributable to a Fund are charged directly to that
Fund, while the expenses, which are attributable to more than one Fund of
the Trust, are allocated among the respective Funds. Each class of shares
bears its pro-rata portion of expenses attributable to its series, except
that each class separately bears expenses related specifically to that
class, such as distribution fees.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid monthly for
the Funds except for the International Equity Index Fund which declares
and pays dividends, if any, at least annually. Net realized capital
gains, if any, are distributed at least annually. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are due to differences in
separate class expenses.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards, foreign currency transactions, and deferrals of certain
losses. Permanent book and tax basis differences have been reclassified
among the components of net assets.
FEDERAL INCOME TAXES
The Trust treats each Fund as a separate entity for Federal income tax
purposes. Each Fund intends to continue to qualify as a regulated
investment company by complying with the provisions available to certain
Continued
102
<PAGE> 206
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
investment companies as defined in applicable sections of the Internal
Revenue Code, and to make distributions from net investment income and
from net realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes. Withholding taxes on foreign
dividends have been paid or provided for in accordance with the
applicable country's tax rules and rates.
3. SHARES OF BENEFICIAL INTEREST:
The Trust has an unlimited number of shares of beneficial interest, with no
par value which may, without shareholder approval, be divided into an
unlimited number of series of such shares and any series may be classified or
reclassified into one or more. The Trust is registered to offer forty series
and five classes of shares: Fiduciary Class, Class A, Class B, Class C and
Service Class. Currently, the Trust consists of thirty-three active funds.
The Funds are each authorized to issue Fiduciary Class, Class A, Class B and
Class C Shares. Class A Shares are subject to initial sales charges, imposed
at the time of purchase, in accordance with the Funds' prospectus. Certain
redemptions of Class B and Class C Shares are subject to contingent deferred
sales charges in accordance with the Fund's prospectus. As of June 30, 1998,
there were no shareholders in Class C of the Asset Allocation Fund, Large
Company Value Fund or the Disciplined Value Fund. Shareholders are entitled
to one vote for each full share held and will vote in the aggregate and not
by class or series, except as otherwise expressly required by law or when the
Board of Trustees has determined that the matter to be voted on affects only
the interest of shareholders of a particular class or series. The following
is a summary of transactions in Fund shares for the fiscal years ended June
30, 1998 and 1997:
Continued
103
<PAGE> 207
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND INCOME EQUITY FUND EQUITY INDEX FUND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued......... $ 30,168 $ 36,157 $ 58,578 $ 39,671 $ 190,730 $193,036
Proceeds from shares issued in
conversion........................ -- 37,254 70,389 283,942 -- --
Dividends reinvested................ 4,088 3,380 15,841 7,467 4,908 3,889
Cost of shares redeemed............. (30,385) (41,096) (171,640) (115,841) (132,565) (148,567)
-------- -------- --------- --------- --------- --------
Change in net assets from
Fiduciary Share transactions...... $ 3,871 $ 35,695 $ (26,832) $ 215,239 $ 63,073 $ 48,358
======== ======== ========= ========= ========= ========
CLASS A SHARES:
Proceeds from shares issued......... $ 19,947 $ 14,748 $ 40,534 $ 33,483 $ 115,183 $ 72,287
Dividends reinvested................ 4,728 1,663 9,837 2,597 4,949 1,279
Cost of shares redeemed............. (8,491) (5,587) (21,803) (15,299) (34,893) (25,085)
-------- -------- --------- --------- --------- --------
Change in net assets from
Class A Share transactions........ $ 16,184 $ 10,824 $ 28,568 $ 20,781 $ 85,239 $ 48,481
======== ======== ========= ========= ========= ========
CLASS B SHARES:
Proceeds from shares issued......... $ 65,995 $ 23,133 $ 75,943 $ 40,300 $ 144,112 $106,720
Dividends reinvested................ 7,496 1,797 10,575 1,874 6,727 1,425
Cost of shares redeemed............. (8,395) (3,197) (13,487) (4,603) (24,214) (6,482)
-------- -------- --------- --------- --------- --------
Change in net assets from
Class B Share transactions........ $ 65,096 $ 21,733 $ 73,031 $ 37,571 $ 126,625 $101,663
======== ======== ========= ========= ========= ========
CLASS C SHARES:
Proceeds from shares issued......... $ 716 $ 3,146
Dividends reinvested................ 13 3
Cost of shares redeemed............. -- (72)
--------- ---------
Change in net assets from
Class C Share transactions........ $ 729 $ 3,077
========= =========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued.............................. 2,320 3,003 2,678 2,121 8,081 10,607
Issued in conversion................ -- 3,076 3,342 14,913 -- --
Reinvested.......................... 322 284 736 412 212 215
Redeemed............................ (2,330) (3,348) (7,605) (6,085) (5,630) (8,036)
-------- -------- --------- --------- --------- --------
Change in Fiduciary Shares.......... 312 3,015 (849) 11,361 2,663 2,786
======== ======== ========= ========= ========= ========
CLASS A SHARES:
Issued.............................. 1,513 1,212 1,796 1,768 4,740 3,962
Reinvested.......................... 370 139 459 142 213 69
Redeemed............................ (645) (460) (966) (814) (1,415) (1,452)
-------- -------- --------- --------- --------- --------
Change in Class A Shares............ 1,238 891 1,289 1,096 3,538 2,579
======== ======== ========= ========= ========= ========
CLASS B SHARES:
Issued.............................. 4,971 1,899 3,365 2,112 5,913 5,693
Reinvested.......................... 586 150 494 102 294 76
Redeemed............................ (632) (263) (595) (242) (984) (342)
-------- -------- --------- --------- --------- --------
Change in Class B Shares............ 4,925 1,786 3,264 1,972 5,223 5,427
======== ======== ========= ========= ========= ========
CLASS C SHARES:
Issued.............................. 32 121
Reinvested.......................... 1 --(a)
Redeemed............................ -- (2)
--------- ---------
Change in Class C Shares............ 33 119
========= =========
</TABLE>
- ------------
(a) Amount is less than 1,000.
Continued
104
<PAGE> 208
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
LARGE COMPANY VALUE
VALUE GROWTH FUND FUND DISCIPLINED VALUE FUND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued................. $ 203,642 $ 222,240 $ 126,127 $ 150,998 137,992 $ 95,887
Proceeds from shares issued in conversion... -- -- -- 63,222 -- 48,296
Dividends reinvested........................ 22,920 32,485 22,134 25,070 45,915 27,911
Cost of shares redeemed..................... (117,078) (59,895) (132,244) (229,727) (158,657) (168,332)
--------- --------- --------- --------- --------- ---------
Change in net assets from
Fiduciary Share transactions.............. $ 109,484 $ 194,830 $ 16,017 $ 9,563 25,250 $ 3,762
========= ========= ========= ========= ========= =========
CLASS A SHARES:
Proceeds from shares issued................. $ 26,868 $ 9,761 $ 11,457 $ 10,438 $ 8,085 $ 8,230
Dividends reinvested........................ 6,201 5,980 1,150 1,100 4,444 2,515
Cost of shares redeemed..................... (10,432) (9,421) (13,864) (8,010) (9,149) (9,255)
--------- --------- --------- --------- --------- ---------
Change in net assets from
Class A Share transactions................ $ 22,637 $ 6,320 $ (1,257) $ 3,528 $ 3,380 $ 1,490
========= ========= ========= ========= ========= =========
CLASS B SHARES:
Proceeds from shares issued................. $ 12,570 $ 4,685 $ 7,652 $ 4,293 $ 7,198 $ 3,194
Dividends reinvested........................ 1,480 1,007 765 474 3,721 1,934
Cost of shares redeemed..................... (1,805) (930) (2,065) (670) (3,099) (2,293)
--------- --------- --------- --------- --------- ---------
Change in net assets from
Class B Share transactions................ $ 12,245 $ 4,762 $ 6,352 $ 4,097 $ 7,820 $ 2,835
========= ========= ========= ========= ========= =========
CLASS C SHARES:
Proceeds from shares issued................. $ 1,212
Dividends reinvested........................ --(a)
Cost of shares redeemed..................... (3)
---------
Change in net assets from
Class C Share transactions................ $ 1,209
=========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued...................................... 16,681 21,444 8,011 11,519 8,280 6,612
Issued in conversion........................ -- -- -- 4,655 -- 3,333
Reinvested.................................. 1,984 3,352 1,462 1,931 2,926 1,984
Redeemed.................................... (9,458) (5,755) (8,381) (17,266) (9,567) (11,571)
--------- --------- --------- --------- --------- ---------
Change in Fiduciary Shares.................. 9,207 19,041 1,092 839 1,639 358
========= ========= ========= ========= ========= =========
CLASS A SHARES:
Issued...................................... 2,167 929 712 793 481 559
Reinvested.................................. 531 615 75 84 277 178
Redeemed.................................... (847) (893) (849) (607) (544) (628)
--------- --------- --------- --------- --------- ---------
Change in Class A Shares.................... 1,851 651 (62) 270 214 109
========= ========= ========= ========= ========= =========
CLASS B SHARES:
Issued...................................... 1,005 453 475 317 428 219
Reinvested.................................. 127 104 49 36 232 137
Redeemed.................................... (147) (90) (127) (50) (185) (156)
--------- --------- --------- --------- --------- ---------
Change in Class B Shares.................... 985 467 397 303 475 200
========= ========= ========= ========= ========= =========
CLASS C SHARES:
Issued...................................... 92
Reinvested.................................. --(a)
Redeemed.................................... --(a)
---------
Change in Class C Shares.................... 92
=========
</TABLE>
- ------------
(a) Amount is less than 1,000.
Continued
105
<PAGE> 209
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
LARGE COMPANY GROWTH
FUND GROWTH OPPORTUNITIES FUND SMALL CAPITALIZATION FUND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued................. $ 181,645 $ 134,662 $ 203,143 $ 216,371 $ 50,388 $ 9,250
Proceeds from shares issued in conversion... 81,659 289,603 57,769 -- -- --
Dividends reinvested........................ 75,483 22,758 49,055 48,075 7,886 7,857
Cost of shares redeemed..................... (208,952) (274,724) (189,297) (199,916) (30,812) (23,477)
--------- --------- --------- --------- -------- --------
Change in net assets from
Fiduciary Share transactions.............. $ 129,835 $ 172,299 $ 120,670 $ 64,530 $ 27,462 $ (6,370)
========= ========= ========= ========= ======== ========
CLASS A SHARES:
Proceeds from shares issued................. $ 57,440 $ 39,340 $ 56,011 $ 54,262 $ 4,568 $ 3,550
Dividends reinvested........................ 20,287 4,698 7,158 5,065 1,888 1,821
Cost of shares redeemed..................... (33,812) (17,325) (19,911) (46,273) (3,978) (6,707)
--------- --------- --------- --------- -------- --------
Change in net assets from
Class A Share transactions................ $ 43,915 $ 26,713 $ 43,258 $ 13,054 $ 2,478 $ (1,336)
========= ========= ========= ========= ======== ========
CLASS B SHARES:
Proceeds from shares issued................. $ 104,460 $ 56,981 $ 44,814 $ 21,249 $ 4,606 $ 1,436
Dividends reinvested........................ 24,050 3,781 7,071 3,377 521 295
Cost of shares redeemed..................... (16,913) (7,839) (6,203) (2,195) (703) (590)
--------- --------- --------- --------- -------- --------
Change in net assets from
Class B Share transactions................ $ 111,597 $ 52,923 $ 45,682 $ 22,431 $ 4,424 $ 1,141
========= ========= ========= ========= ======== ========
CLASS C SHARES:
Proceeds from shares issued................. $ 432 $ 1,070 $ 93
Dividends reinvested........................ 3 --(a) --(a)
Cost of shares redeemed..................... -- (6)
--------- --------- --------
Change in net assets from
Class C Share transactions................ $ 435 $ 1,064 $ 93
========= ========= ========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued...................................... 9,422 8,322 9,733 11,966 4,210 933
Issued in conversion........................ 4,595 17,279 3,113 -- -- --
Reinvested.................................. 4,107 1,418 2,574 2,790 724 821
Redeemed.................................... (10,404) (16,537) (8,883) (11,005) (2,551) (2,352)
--------- --------- --------- --------- -------- --------
Change in Fiduciary Shares.................. 7,720 10,482 6,537 3,751 2,383 (598)
========= ========= ========= ========= ======== ========
CLASS A SHARES:
Issued...................................... 2,777 2,308 2,614 2,954 374 354
Reinvested.................................. 1,060 285 365 293 173 190
Redeemed.................................... (1,625) (1,016) (940) (2,503) (329) (673)
--------- --------- --------- --------- -------- --------
Change in Class A Shares.................... 2,212 1,577 2,039 744 218 (129)
========= ========= ========= ========= ======== ========
CLASS B SHARES:
Issued...................................... 5,151 3,373 2,183 1,212 384 146
Reinvested.................................. 1,283 233 375 200 49 31
Redeemed.................................... (836) (462) (304) (125) (59) (60)
--------- --------- --------- --------- -------- --------
Change in Class B Shares.................... 5,598 3,144 2,254 1,287 374 117
========= ========= ========= ========= ======== ========
CLASS C SHARES:
Issued...................................... 22 48 7
Reinvested.................................. --(a) --(a) --(a)
Redeemed.................................... -- --(a) --
--------- --------- --------
Change in Class C Shares.................... 22 48 7
--------- --------- --------
</TABLE>
- ------------
(a) Amount is less than 1,000.
Continued
106
<PAGE> 210
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
INDEX FUND
-------------------------
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued........ $172,750 $182,120
Dividends reinvested............... 7,260 2,570
Cost of shares redeemed............ (77,664) (129,185)
-------- --------
Change in net assets from
Fiduciary Share transactions..... $102,346 $ 55,505
======== ========
CLASS A SHARES:
Proceeds from shares issued........ $ 23,709 $ 5,122
Dividends reinvested............... 536 167
Cost of shares redeemed............ (13,917) (4,769)
-------- --------
Change in net assets from
Class A Share transactions....... $ 10,328 $ 520
======== ========
CLASS B SHARES:
Proceeds from shares issued........ $ 4,365 $ 4,387
Dividends reinvested............... 358 97
Cost of shares redeemed............ (2,165) (1,328)
-------- --------
Change in net assets from
Class B Share transactions....... $ 2,558 $ 3,156
======== ========
CLASS C SHARES:
Proceeds from shares issued........ $ 123
Dividends reinvested............... --(a)
Cost of shares redeemed............ (5)
--------
Change in net assets from
Class C Share transactions....... $ 118
========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued............................. 10,217 12,143
Reinvested......................... 481 171
Redeemed........................... (4,685) (8,601)
-------- --------
Change in Fiduciary Shares......... 6,013 3,713
======== ========
CLASS A SHARES:
Issued............................. 1,376 337
Reinvested......................... 34 11
Redeemed........................... (816) (317)
-------- --------
Change in Class A Shares........... 594 31
======== ========
CLASS B SHARES:
Issued............................. 268 297
Reinvested......................... 24 7
Redeemed........................... (134) (90)
-------- --------
Change in Class B Shares........... 158 214
======== ========
CLASS C SHARES:
Issued............................. 7
Reinvested......................... --(a)
Redeemed........................... --(a)
--------
Change in Class C Shares........... 7
========
</TABLE>
- ------------
(a) Amount is less than 1,000.
Continued
107
<PAGE> 211
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
4. INVESTMENT ADVISORY, ADMINISTRATIVE, AND DISTRIBUTION AGREEMENTS:
The Trust and the Advisor are parties to an investment advisory agreement
under which the Advisor is entitled to a fee, computed daily and paid
monthly, at the annual rate of 0.74% of the average net assets of the Income
Equity Fund, the Value Growth Fund, the Large Company Value Fund, the
Disciplined Value Fund, the Large Company Growth Fund, the Growth
Opportunities Fund, and the Small Capitalization Fund; 0.65% of the average
daily net assets of the Asset Allocation Fund; 0.55% of the average daily net
assets of the International Equity Index Fund; and 0.30% of the average daily
net assets of the Equity Index Fund.
Independence International Associates ("IIA"), an indirect subsidiary of John
Hancock Mutual Life Insurance Company, manages the investment portfolio of
the International Equity Index Fund subject to the supervision of the Advisor
pursuant to a Sub-Advisory Agreement with the Advisor. For its services, IIA
is paid a fee by the Advisor, computed daily and paid monthly, at the annual
rate of 0.275% of average daily net assets up to $10 million, 0.225% of
average daily net assets over $10 million up to $25 million, 0.195% of net
assets over $25 million up to $50 million, 0.125% of the average daily net
assets over $50 million up to $100 million and 0.060% of the average daily
net assets over $100 million.
The Trust and the Administrator, a wholly-owned subsidiary of The BISYS
Group, Inc., are parties to an administrative agreement under which the
Administrator provides services for a fee that is computed daily and paid
monthly, at an annual rate of 0.20% on the first $1.5 billion of Trust net
assets (excluding the Investor Growth Fund, the Investor Growth & Income
Fund, the Investor Conservative Fund, and the Investor Balanced Fund (the
"Investor Funds") and the Treasury Only Money Market Fund and the Government
Money Market Fund (the "Institutional Money Market Funds")); 0.18% on the
next $0.5 billion of Trust net assets (excluding the Investor Funds and the
Institutional Money Market Funds); and 0.16% of Trust net assets (excluding
the Investor Funds and the Institutional Money Market Funds) over $2 billion.
The Advisor also serves as Sub-Administrator to each Fund of the Trust,
pursuant to an agreement between the Administrator and the Advisor. Pursuant
to this agreement, the Advisor performs many of the Administrator's duties,
for which the Advisor receives a fee paid by the Administrator.
The Trust and The One Group Services Company (the "Distributor") are parties
to a distribution agreement under which shares of the Funds are sold on a
continuous basis. Class A, Class B, and Class C Shares are subject to
distribution and shareholder services plans (the "Plans") pursuant to Rule
12b-1 under the 1940 Act. As provided in the Plans, the Trust will pay the
Distributor a fee of 0.35% of the average daily net assets of Class A Shares
of each of the Funds and 1.00% of the average daily net assets of the Class B
Shares and Class C Shares of each of the Funds. Currently, the Distributor
has voluntarily agreed to limit payments under the Plans to 0.25% of average
daily net assets of the Class A Shares of each Fund. Up to 0.25% of the fees
payable under the Plans may be used as compensation for shareholder services
by the Distributor and/or financial institutions and intermediaries. Fees
paid under the Plans may be applied by the Distributor toward (i)
compensation for its services in connection with distribution assistance or
provision of shareholder services; or (ii) payments to financial institutions
and intermediaries such as banks (including affiliates of the Advisor),
brokers, dealers and other institutions, including the Distributor's
affiliates and subsidiaries as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance or provision of
shareholder services. Fiduciary Class Shares of each Fund are offered without
distribution fees. For the year ended June 30, 1998, the Distributor received
$23,155,470 from commissions earned on sales of Class A Shares and
redemptions of Class B Shares and Class C Shares, of which, the Distributor
re-allowed $22,831,371 to affiliated broker-dealers of the Funds.
Certain officers of the Trust are affiliated with the Administrator. Such
officers receive no compensation from the Funds for serving in their
respective roles.
Continued
108
<PAGE> 212
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
The Advisor, the Administrator and the Distributor voluntarily agreed to
waive a portion of their fees. For the year ended June 30, 1998, fees in the
following amounts were waived (amounts in thousands):
<TABLE>
<CAPTION>
INVESTMENT 12b-1 FEES
ADVISORY FEES ADMINISTRATION WAIVED
WAIVED FEES WAIVED CLASS A
------------- --------------- ----------
<S> <C> <C> <C>
Asset Allocation Fund......................... $ 192 $189 $ 40
Income Equity Fund............................ -- -- 99
Equity Index Fund............................. 1,986 633 155
Value Growth Fund............................. -- -- 62
Large Company Value Fund...................... -- -- 17
Disciplined Value Fund........................ -- -- 28
Large Company Growth Fund..................... -- -- 158
Growth Opportunities Fund..................... -- -- 67
Small Capitalization Fund..................... -- 38 19
International Equity Index Fund............... -- -- 17
</TABLE>
5. SECURITIES TRANSACTIONS:
The cost of security purchases and the proceeds from the sale of securities
(excluding short-term securities and purchased options) during the year ended
June 30, 1998 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Asset Allocation Fund....................................... $ 146,956 $ 92,165
Income Equity Fund.......................................... 128,438 198,358
Equity Index Fund........................................... 314,037 41,376
Value Growth Fund........................................... 422,844 360,483
Large Company Value Fund.................................... 340,970 356,506
Disciplined Value Fund...................................... 669,033 716,503
Large Company Growth Fund................................... 1,915,515 1,902,532
Growth Opportunities Fund................................... 1,406,474 1,372,349
Small Capitalization Fund................................... 104,484 94,432
International Equity Index Fund............................. 146,672 49,480
</TABLE>
6. FINANCIAL INSTRUMENTS:
Investing in financial instruments such as options, futures, indexed
securities and sales of forward foreign currency contracts involves risk in
excess of the amounts reflected in the Statements of Assets and Liabilities.
The face or contract amounts reflect the extent of the involvement the Funds
have in the particular class of instrument. Risks associated with these
instruments include an imperfect correlation between the movements in the
price of the instruments and the price of the underlying securities and
interest rates, an illiquid secondary market for the instruments or inability
of counterparties to perform under the terms of the contract, and changes in
the value of currency relative to the U.S. dollar. The Funds enter into these
contracts primarily as a means to hedge against adverse fluctuations in the
value of securities.
Continued
109
<PAGE> 213
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
The following is a summary of option activity for the year ended June 30,
1998 by the Funds (amounts in thousands):
<TABLE>
<CAPTION>
LARGE COMPANY VALUE FUND
-------------------------
SHARES SUBJECT
TO CONTRACT PREMIUMS
-------------- --------
<S> <C> <C>
COVERED CALL OPTIONS
Balance at beginning of period............................ 0 $ 0
Options written........................................... 1,080 1,447
Options closed............................................ 0 0
Options expired........................................... (592) (792)
Options exercised......................................... (388) (558)
----- ------
Options outstanding at end of period...................... 100 $ 97
===== ======
</TABLE>
<TABLE>
<CAPTION>
LARGE COMPANY GROWTH FUND
--------------------------
SHARES SUBJECT
TO CONTRACT PREMIUMS
-------------- --------
<S> <C> <C>
PURCHASED CALL OPTIONS
Balance at beginning period............................... 0 $ 0
Options Purchased......................................... 475 5,148
Options Sold.............................................. (475) (5,148)
----- ------
Options outstanding at end of period...................... 0 $ 0
===== ======
</TABLE>
<TABLE>
<CAPTION>
LARGE COMPANY VALUE FUND
-------------------------
SHARES SUBJECT
TO CONTRACT PREMIUMS
-------------- --------
<S> <C> <C>
COVERED CALL OPTIONS
Options outstanding at end of period consist of:
Archer-Daniels-Midland Co., $20, 7/20/98.................. 50 $ 22
Viacom, Inc., $60, 7/20/98................................ 50 56
----- ------
100 $ 78
===== ======
</TABLE>
7. CONCENTRATION OF CREDIT RISK:
The International Equity Index Fund has a relatively large concentration of
securities invested in companies domiciled in Japan. The Fund may be more
susceptible to the political, social and economic events adversely affecting
the Japanese companies than funds not so concentrated.
8. CONVERSION OF COMMON TRUST FUNDS:
On December 19, 1997, the net assets of certain common trust funds managed by
the Advisor were exchanged in a tax-free conversion for shares of the
corresponding One Group Funds. The transaction was accounted for by a method
followed for tax purposes in a tax-free business combination. The following
is a summary of shares issued, net assets converted, net assets value per
share issued and unrealized appreciation of assets acquired as of the
conversion date (amounts in thousands except per share amounts):
Continued
110
<PAGE> 214
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
<TABLE>
<CAPTION>
NET ASSET
VALUE
SHARES NET ASSETS PER SHARE UNREALIZED
ISSUED CONVERTED ISSUED APPRECIATION
------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Income Equity Fund....................... 3,342 $70,389 $21.06 $23,821
Large Company Growth Fund................ 4,595 81,659 17.77 33,084
Growth Opportunities Fund................ 3,113 57,769 18.56 15,137
</TABLE>
On January 20, 1997, the net assets of certain common trust funds managed by
the Advisor were exchanged in a tax-free conversion for shares of the
corresponding One Group Funds. The transaction was accounted for by a method
followed for tax purposes in a tax-free business combination. The following
is a summary of shares issued, net assets converted, net assets value per
share issued and unrealized appreciation of assets acquired as of the
conversion date (amounts in thousands except per share amounts):
<TABLE>
<CAPTION>
NET ASSET
VALUE
SHARES NET ASSETS PER SHARE UNREALIZED
ISSUED CONVERTED ISSUED APPRECIATION
------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Asset Allocation Fund.................... 3,076 $ 37,254 $12.11 $ 8,361
Income Equity Fund....................... 14,913 283,942 19.04 150,438
Large Company Value Fund................. 4,655 63,222 13.58 7,315
Disciplined Value Fund................... 3,333 48,296 14.49 7,763
Large Company Growth Fund................ 17,279 289,603 16.76 102,448
</TABLE>
9. FEDERAL TAX INFORMATION (UNAUDITED):
The accompanying table below details distributions from long-term capital
gains for the following funds for the fiscal year ended June 30, 1998
(amounts in thousands):
<TABLE>
<CAPTION>
20% 28%
FUND DISTRIBUTION DISTRIBUTION
---- ------------ ------------
<S> <C> <C>
Asset Allocation Fund....................................... $ 2,427 $ 8,826
Income Equity Fund.......................................... 30,673 47,694
Equity Index Fund........................................... 17,664 3,010
Value Growth Fund........................................... 8,988 11,490
Large Company Value Fund.................................... 11,322 10,306
Disciplined Value Fund...................................... 23,206 45,629
Large Company Growth Fund................................... 92,507 106,905
Growth Opportunities Fund................................... 9,527 --
Small Capitalization Fund................................... 3,165 5,779
International Equity Index Fund............................. 9,654 2,364
</TABLE>
Capital losses and currency losses incurred after October 31 within the
Fund's fiscal year may be deferred and treated as occurring on the first day
of the following fiscal year. The following deferred losses will be treated
as arising on the first day of the fiscal year ended June 30, 1999 (amounts
in thousands):
<TABLE>
<CAPTION>
FUND AMOUNT
---- ------
<S> <C>
International Equity Index Fund............................. $7,190
</TABLE>
ELIGIBLE DISTRIBUTIONS:
The Trust designates the following percentage of distributions eligible for
the dividends received deductions for corporations.
Continued
111
<PAGE> 215
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
<TABLE>
<CAPTION>
FUND AMOUNT
---- -------
<S> <C>
Asset Allocation Fund....................................... 10.66%
Income Equity Fund.......................................... 99.78%
Equity Index Fund........................................... 96.31%
Value Growth Fund........................................... 17.65%
Large Company Value Fund.................................... 53.51%
Disciplined Value Fund...................................... 31.71%
Large Company Growth Fund................................... 29.53%
Growth Opportunities Fund................................... 5.26%
Small Capitalization Fund................................... 18.22%
International Equity Index Fund............................. --
</TABLE>
10. SUBSEQUENT EVENTS
On May 21, 1998, the Board of Trustees approved an agreement and plan of
reorganization and liquidation ("the Plan") with the Marquis Family of Funds
(the "Marquis Funds"). Under the Plan, the assets and liabilities of each
Marquis fund were transferred to a comparable One Group fund. Shares of the
comparable One Group fund were distributed to the Marquis shareholders in a
complete liquidation of each Marquis fund. A special Shareholder Meeting to
approve the plan was held on July 30, 1998. In a tax-free exchange on August
10, 1998, net assets of the Marquis funds were exchanged for shares of a
corresponding fund of The One Group as follows (amounts in thousands):
<TABLE>
<CAPTION>
SHARES NET ASSETS
ONE GROUP FUND ISSUED MARQUIS FUND CONVERTED
-------------- ------ ------------ ----------
<S> <C> <C> <C>
Asset Allocation Fund 10,802 Balanced Fund $141,641
Disciplined Value Fund 9,923 Value Equity Fund 136,943
Growth Opportunities Fund 1,962 Growth Equity Fund 38,617
Small Capitalization Fund 376 Small Cap Equity Fund 3,669
International Equity Index Fund 96 International Equity Fund 1,666
</TABLE>
112
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
------------------------------------------------
FIDUCIARY
------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 12.98 $ 11.71 $ 10.73 $ 9.64 $ 10.06
-------- ------- ------- ------- -------
Investment Activities:
Net investment income..................................... 0.40 0.43 0.41 0.38 0.29
Net realized and unrealized gains (losses) from
investments............................................. 2.24 1.81 1.16 1.12 (0.38)
-------- ------- ------- ------- -------
Total from Investment Activities........................ 2.64 2.24 1.57 1.50 (0.09)
-------- ------- ------- ------- -------
Distributions:
Net investment income..................................... (0.39) (0.43) (0.41) (0.37) (0.29)
Net realized gains........................................ (1.43) (0.54) (0.18) (0.04) (0.04)
-------- ------- ------- ------- -------
Total Distributions..................................... (1.82) (0.97) (0.59) (0.41) (0.33)
-------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 13.80 $ 12.98 $ 11.71 $ 10.73 $ 9.64
======== ======= ======= ======= =======
Total Return................................................ 22.12% 20.16% 14.87% 16.06% (1.01)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $105,243 $94,971 $50,323 $37,658 $42,751
Ratio of expenses to average net assets................... 0.85% 0.80% 0.94% 1.06% 1.06%
Ratio of net investment income to average net assets...... 3.03% 3.55% 3.58% 3.72% 2.91%
Ratio of expenses to average net assets*.................. 1.03% 1.00% 1.19% 1.31% 1.33%
Ratio of net investment income to average net assets*..... 2.85% 3.35% 3.33% 3.47% 2.64%
Portfolio turnover (a).................................... 46.04% 80.96% 73.38% 115.36% 56.55%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
113
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
----------------------------------------------
CLASS A
----------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 13.00 $ 11.72 $ 10.74 $ 9.65 $10.06
------- ------- ------- ------- ------
Investment Activities:
Net investment income..................................... 0.36 0.39 0.37 0.35 0.27
Net realized and unrealized gains (losses) from
investments............................................. 2.24 1.83 1.16 1.13 (0.38)
------- ------- ------- ------- ------
Total from Investment Activities........................ 2.60 2.22 1.53 1.48 (0.11)
------- ------- ------- ------- ------
Distributions:
Net investment income..................................... (0.36) (0.40) (0.37) (0.34) (0.26)
In excess of net investment income........................ -- -- -- (0.01) --
Net realized gains........................................ (1.43) (0.54) (0.18) (0.04) (0.04)
------- ------- ------- ------- ------
Total Distributions..................................... (1.79) (0.94) (0.55) (0.39) (0.30)
------- ------- ------- ------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 13.81 $ 13.00 $ 11.72 $ 10.74 $ 9.65
======= ======= ======= ======= ======
Total Return (Excludes Sales Charge)........................ 21.71% 19.85% 14.48% 15.76% (1.19)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period(000).......................... $50,456 $31,379 $17,849 $ 4,745 $1,691
Ratio of expenses to average net assets................... 1.10% 1.05% 1.19% 1.31% 1.33%
Ratio of net investment income to average net assets...... 2.77% 3.30% 3.33% 3.57% 2.68%
Ratio of expenses to average net assets*.................. 1.38% 1.34% 1.54% 1.66% 1.67%
Ratio of net investment income to average net assets*..... 2.49% 3.01% 2.98% 3.22% 2.34%
Portfolio turnover (a).................................... 46.04% 80.96% 73.38% 115.36% 56.55%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
114
<PAGE> 218
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
----------------------------------------------------
CLASS B
----------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
-------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(a)
-------- -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................... $ 13.04 $ 11.76 $ 10.76 $ 9.67 $10.37
-------- -------- ------- ------ ------
Investment Activities:
Net investment income................................. 0.26 0.30 0.28 0.27 0.08
Net realized and unrealized gains (losses) from
investments......................................... 2.26 1.83 1.18 1.14 (0.70)
-------- -------- ------- ------ ------
Total from Investment Activities.................... 2.52 2.13 1.46 1.41 (0.62)
-------- -------- ------- ------ ------
Distributions:
Net investment income................................. (0.26) (0.31) (0.28) (0.27) (0.08)
In excess of net investment income.................... -- -- -- (0.01) --
Net realized gains.................................... (1.43) (0.54) (0.18) (0.04) --
-------- -------- ------- ------ ------
Total Distributions................................. (1.69) (0.85) (0.46) (0.32) (0.08)
-------- -------- ------- ------ ------
NET ASSET VALUE,
END OF PERIOD......................................... $ 13.87 $ 13.04 $ 11.76 $10.76 $ 9.67
======== ======== ======= ====== ======
Total Return (Excludes Sales Charge).................... 20.95% 18.90% 13.79% 14.90% (5.98)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..................... $114,957 $ 43,900 $18,575 $3,019 $1,862
Ratio of expenses to average net assets............... 1.85% 1.81% 1.94% 2.07% 2.40% (c)
Ratio of net investment income to average net
assets.............................................. 2.01% 2.54% 2.58% 2.77% 1.99% (c)
Ratio of expenses to average net assets*.............. 2.03% 2.01% 2.19% 2.31% 2.40% (c)
Ratio of net investment income to average net
assets*............................................. 1.83% 2.34% 2.33% 2.52% 1.99% (c)
Portfolio turnover (d)................................ 46.04% 80.96% 73.38% 115.36% 56.55%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
115
<PAGE> 219
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME EQUITY FUND
--------------------------------------------------------
FIDUCIARY
--------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...................................... $ 21.93 $ 17.65 $ 15.13 $ 13.22 $ 13.21
-------- -------- -------- -------- --------
Investment Activities:
Net investment income.................................... 0.32 0.36 0.40 0.40 0.39
Net realized and unrealized gains (losses) from
investments............................................ 4.36 4.89 3.22 2.28 0.01
-------- -------- -------- -------- --------
Total from Investment Activities....................... 4.68 5.25 3.62 2.68 0.40
-------- -------- -------- -------- --------
Distributions:
Net investment income.................................... (0.31) (0.36) (0.40) (0.40) (0.39)
Net realized gains....................................... (2.23) (0.61) (0.70) (0.37) --
-------- -------- -------- -------- --------
Total Distributions.................................... (2.54) (0.97) (1.10) (0.77) (0.39)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................ $ 24.07 $ 21.93 $ 17.65 $ 15.13 $ 13.22
======== ======== ======== ======== ========
Total Return............................................... 23.18% 30.90% 24.53% 21.04% 3.27%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................ $691,878 $649,007 $321,827 $170,919 $198,787
Ratio of expenses to average net assets.................. 1.00% 1.00% 0.98% 1.01% 0.98%
Ratio of net investment income to average net assets..... 1.39% 1.91% 2.44% 2.85% 3.18%
Ratio of expenses to average net assets*................. 1.00% 1.00% 1.01% 1.01% 1.05%
Ratio of net investment income to average net assets*.... 1.39% 1.91% 2.41% 2.85% 3.11%
Portfolio turnover (a)................................... 14.64% 28.18% 14.92% 4.03% 22.69%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
116
<PAGE> 220
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME EQUITY FUND
----------------------------------------------------
CLASS A
----------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 21.90 $ 17.64 $ 15.11 $ 13.20 $ 13.20
-------- -------- -------- -------- --------
Investment Activities:
Net investment income................................... 0.25 0.31 0.38 0.03 0.36
Net realized and unrealized gains (losses) from
investments........................................... 4.37 4.87 3.20 2.29 --
-------- -------- -------- -------- --------
Total from Investment Activities...................... 4.62 5.18 3.58 2.32 0.36
-------- -------- -------- -------- --------
Distributions:
Net investment income................................... (0.25) (0.31) (0.35) (0.03) (0.34)
In excess of net investment income...................... -- -- -- (0.01) (0.02)
Net realized gains...................................... (2.23) (0.61) (0.70) (0.37) --
-------- -------- -------- -------- --------
Total Distributions................................... (2.48) (0.92) (1.05) (0.41) (0.36)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD........................................... $ 24.04 $ 21.90 $ 17.64 $ 15.11 $ 13.20
======== ======== ======== ======== ========
Total Return (Excludes Sales Charge)...................... 22.91% 30.39% 24.23% 20.79% 2.95%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)....................... $117,682 $ 78,976 $ 44,284 $ 13,793 $ 12,054
Ratio of expenses to average net assets................. 1.25% 1.25% 1.23% 1.26% 1.23%
Ratio of net investment income to average net assets.... 1.15% 1.65% 2.19% 2.61% 3.01%
Ratio of expenses to average net assets*................ 1.35% 1.34% 1.36% 1.36% 1.40%
Ratio of net investment income to average net assets*... 1.05% 1.56% 2.06% 2.51% 2.84%
Portfolio turnover (a).................................. 14.64% 28.18% 14.92% 4.03% 22.69%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
117
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME EQUITY FUND
---------------------------------------------------
CLASS B
---------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(a)
-------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 21.95 $ 17.68 $ 15.14 $13.23 $13.83
-------- ------- ------- ------ ------
Investment Activities:
Net investment income................................... 0.26 0.17 0.24 0.26 0.11
Net realized and unrealized gains (losses) from
investments........................................... 4.36 4.89 3.23 2.29 (0.60)
-------- ------- ------- ------ ------
Total from Investment Activities...................... 4.62 5.06 3.47 2.55 (0.49)
-------- ------- ------- ------ ------
Distributions:
Net investment income................................... (0.26) (0.18) (0.23) (0.25) (0.11)
In excess of net investment income...................... -- -- -- (0.02) --
Net realized gains...................................... (2.23) (0.61) (0.70) (0.37) --
-------- ------- ------- ------ ------
Total Distributions................................... (2.49) (0.79) (0.93) (0.64) (0.11)
-------- ------- ------- ------ ------
NET ASSET VALUE,
END OF PERIOD........................................... $ 24.08 $ 21.95 $ 17.68 $15.14 $13.23
======== ======= ======= ====== ======
Total Return (Excludes Sales Charge)...................... 21.97% 29.48% 23.41% 19.91% (3.37)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period(000)........................ $165,813 $79,518 $29,169 $3,468 $1,714
Ratio of expenses to average net assets................. 1.99% 2.00% 1.98% 2.01% 1.95%(c)
Ratio of net investment income to average net assets.... 0.39% 0.89% 1.44% 1.88% 2.70%(c)
Ratio of expenses to average net assets*................ 1.99% 2.00% 2.01% 2.02% 1.95%(c)
Ratio of net investment income to average net assets*... 0.39% 0.89% 1.41% 1.87% 2.70%(c)
Portfolio turnover (d).................................. 14.64% 28.18% 14.92% 4.03% 22.69%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
118
<PAGE> 222
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME EQUITY FUND
------------------
CLASS C
------------------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(a)
------------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $21.40
------
Investment Activities:
Net investment income..................................... 0.06
Net realized and unrealized gains (losses) from
investments............................................. 3.39
------
Total from Investment Activities........................ 3.45
------
Distributions:
Net investment income..................................... (0.07)
Net realized gains........................................ (0.70)
------
Total Distributions..................................... (0.77)
------
NET ASSET VALUE,
END OF PERIOD............................................. $24.08
======
Total Return (Excludes Sales Charge)........................ 16.57% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period(000).......................... $ 795
Ratio of expenses to average net assets................... 1.98% (c)
Ratio of net investment income to average net assets...... 0.38% (c)
Portfolio turnover (d).................................... 14.64%
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
119
<PAGE> 223
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INDEX FUND
--------------------------------------------------------
FIDUCIARY
--------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...................................... $ 21.80 $ 16.66 $ 14.03 $ 11.59 $ 11.92
-------- -------- -------- -------- --------
Investment Activities:
Net investment income.................................... 0.33 0.35 0.33 0.32 0.29
Net realized and unrealized gains (losses) from
investments............................................ 5.98 5.27 3.16 2.59 (0.20)
-------- -------- -------- -------- --------
Total from Investment Activities....................... 6.31 5.62 3.49 2.91 0.09
-------- -------- -------- -------- --------
Distributions:
Net investment income.................................... (0.32) (0.33) (0.33) (0.29) (0.29)
In excess of net investment income....................... -- -- (0.01) (0.02) (0.04)
Net realized gains....................................... (0.63) (0.15) (0.52) (0.16) (0.09)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.95) (0.48) (0.86) (0.47) (0.42)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................ $ 27.16 $ 21.80 $ 16.66 $ 14.03 $ 11.59
======== ======== ======== ======== ========
Total Return............................................... 29.73% 34.30% 25.47% 25.79% 0.63%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period(000)......................... $671,422 $480,819 $321,058 $234,895 $165,370
Ratio of expenses to average net assets.................. 0.35% 0.30% 0.30% 0.33% 0.46%
Ratio of net investment income to average net assets..... 1.37% 1.87% 2.18% 2.57% 2.44%
Ratio of expenses to average net assets*................. 0.62% 0.61% 0.59% 0.66% 0.59%
Ratio of net investment income to average net assets*.... 1.10% 1.56% 1.89% 2.24% 2.31%
Portfolio turnover (a)................................... 4.32% 5.81% 9.08% 2.71% 11.81%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
120
<PAGE> 224
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INDEX FUND
--------------------------------------------------------
CLASS A
--------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...................................... $ 21.81 $ 16.67 $ 14.02 $ 11.59 $ 11.91
-------- -------- -------- -------- -------
Investment Activities:
Net investment income.................................... 0.26 0.29 0.27 0.29 0.28
Net realized and unrealized gains (losses) from
investments............................................ 5.97 5.28 3.18 2.58 (0.20)
-------- -------- -------- -------- -------
Total from Investment Activities....................... 6.23 5.57 3.45 2.87 0.08
-------- -------- -------- -------- -------
Distributions:
Net investment income.................................... (0.26) (0.28) (0.27) (0.28) (0.27)
In excess of net investment income....................... -- -- (0.01) -- (0.04)
Net realized gains....................................... (0.63) (0.15) (0.52) (0.16) (0.09)
-------- -------- -------- -------- -------
Total Distributions.................................... (0.89) (0.43) (0.80) (0.44) (0.40)
-------- -------- -------- -------- -------
NET ASSET VALUE,
END OF PERIOD............................................ $ 27.15 $ 21.81 $ 16.67 $ 14.02 $ 11.59
======== ======== ======== ======== =======
Total Return (Excludes Sales Charge)....................... 29.33% 33.94% 25.16% 25.43% 0.56%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................ $218,518 $ 98,338 $ 32,186 $ 3,003 $ 1,416
Ratio of expenses to average net assets.................. 0.60% 0.55% 0.55% 0.56% 0.62%
Ratio of net investment income to average net assets..... 1.11% 1.59% 1.93% 2.38% 2.37%
Ratio of expenses to average net assets*................. 0.96% 0.95% 0.94% 1.01% 0.94%
Ratio of net investment income to average net assets*.... 0.75% 1.19% 1.54% 1.94% 2.05%
Portfolio turnover (a)................................... 4.32% 5.81% 9.08% 2.71% 11.81%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
121
<PAGE> 225
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INDEX FUND
----------------------------------------------------
CLASS B
----------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
-------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(a)
-------- -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................... $ 21.80 $ 16.68 $ 14.05 $11.61 $12.39
-------- -------- ------- ------ ------
Investment Activities:
Net investment income................................. 0.10 0.16 0.16 0.18 0.09
Net realized and unrealized gains (losses) from
investments......................................... 5.97 5.27 3.16 2.61 (0.78)
-------- -------- ------- ------ ------
Total from Investment Activities.................... 6.07 5.43 3.32 2.79 (0.69)
-------- -------- ------- ------ ------
Distributions:
Net investment income................................. (0.11) (0.16) (0.16) (0.19) (0.09)
In excess of net investment income.................... -- -- (0.01) -- --
Net realized gains.................................... (0.63) (0.15) (0.52) (0.16) --
-------- -------- ------- ------ ------
Total Distributions................................. (0.74) (0.31) (0.69) (0.35) (0.09)
-------- -------- ------- ------ ------
NET ASSET VALUE,
END OF PERIOD......................................... $ 27.13 $ 21.80 $ 16.68 $14.05 $11.61
======== ======== ======= ====== ======
Total Return (Excludes Sales Charge).................... 28.47% 32.93% 24.05% 24.58% (5.57)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..................... $351,624 $168,699 $38,538 $1,408 $ 248
Ratio of expenses to average net assets............... 1.35% 1.30% 1.30% 1.34% 1.10% (c)
Ratio of net investment income to average net
assets.............................................. 0.36% 0.83% 1.18% 1.60% 2.08% (c)
Ratio of expenses to average net assets*.............. 1.61% 1.61% 1.59% 1.67% 1.15% (c)
Ratio of net investment income to average net
assets*............................................. 0.10% 0.52% 0.89% 1.27% 2.03% (c)
Portfolio turnover (d)................................ 4.32% 5.81% 9.08% 2.71% 11.81%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
122
<PAGE> 226
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INDEX FUND
-----------------
CLASS C
-------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(a)
-----------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $22.60
------
Investment Activities:
Net investment income..................................... 0.07
Net realized and unrealized gains (losses) from
investments............................................. 4.67
------
Total from Investment Activities........................ 4.74
------
Distributions:
Net investment income..................................... (0.08)
Net realized gains........................................ (0.12)
------
Total Distributions..................................... (0.20)
------
NET ASSET VALUE,
END OF PERIOD............................................. $27.14
======
Total Return (Excludes Sales Charge)........................ 21.07% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $3,214
Ratio of expenses to average net assets................... 1.35% (c)
Ratio of net investment income to average net assets...... 0.27% (c)
Ratio of expenses to average net assets*.................. 1.60% (c)
Ratio of net investment income to average net assets*..... 0.02% (c)
Portfolio turnover (d).................................... 4.32%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
123
<PAGE> 227
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
VALUE GROWTH FUND
---------------------------------
FIDUCIARY
---------------------------------
MARCH 26,
YEAR ENDED JUNE 30, 1996 TO
------------------- JUNE 30,
1998 1997 1996(a)
-------- -------- -----------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 11.51 $ 10.39 $ 10.00
-------- -------- --------
Investment Activities:
Net investment income..................................... 0.08 0.11 0.03
Net realized and unrealized gains (losses) from
investments............................................. 3.36 2.85 0.39
-------- -------- --------
Total from Investment Activities........................ 3.44 2.96 0.42
-------- -------- --------
Distributions:
Net investment income..................................... (0.08) (0.11) (0.03)
Net realized gains........................................ (1.36) (1.73) --
-------- -------- --------
Total Distributions..................................... (1.44) (1.84) (0.03)
-------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................. $ 13.51 $ 11.51 $ 10.39
======== ======== ========
Total Return................................................ 32.26% 31.97% 10.49%(b)(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $630,340 $430,837 $191,212
Ratio of expenses to average net assets................... 0.98% 0.98% 0.95%(d)
Ratio of net investment income to average net assets...... 0.66% 1.06% 1.13%(d)
Ratio of expenses to average net assets*.................. 0.98% 1.00% 1.04%(d)
Ratio of net investment income to average net assets*..... 0.66% 1.04% 1.04%(d)
Portfolio turnover (e).................................... 62.37% 113.17% 65.21%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from date reorganized as a fund of The One Group.
(b) Represents total return for Class A Shares from December 1, 1995 through
March 25, 1996 plus total return for Fiduciary Shares for the period from
March 26, 1996 through June 30, 1996.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
124
<PAGE> 228
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
VALUE GROWTH FUND
------------------------------------------------------------------
CLASS A
------------------------------------------------------------------
SEVEN
MONTHS
YEAR ENDED JUNE 30, ENDED YEAR ENDED NOVEMBER 30,
-------------------- JUNE 30, ------------------------------
1998 1997 1996(a) 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.......................... $ 11.50 $ 10.39 $ 11.15 $ 9.00 $ 10.02 $ 9.42
------- ------- ------- -------- -------- --------
Investment Activities:
Net investment income........................ 0.05 0.09 0.94 0.12 0.13 0.11
Net realized and unrealized gains (losses)
from investments........................... 3.36 2.83 0.08 2.44 (0.56) 0.83
------- ------- ------- -------- -------- --------
Total from Investment Activities........... 3.41 2.92 1.02 2.56 (0.43) 0.94
------- ------- ------- -------- -------- --------
Distributions:
Net investment income........................ (0.05) (0.08) (0.94) (0.12) (0.14) (0.12)
In excess of net investment income........... -- -- (0.01) -- -- --
Net realized gains........................... (1.36) (1.73) (0.83) (0.29) (0.45) (0.22)
------- ------- ------- -------- -------- --------
Total Distributions........................ (1.41) (1.81) (1.78) (0.41) (0.59) (0.34)
------- ------- ------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD................................ $ 13.50 $ 11.50 $ 10.39 $ 11.15 $ 9.00 $ 10.02
======= ======= ======= ======== ======== ========
Total Return (Excludes Sales Charge)........... 31.96% 31.53% 10.40%(b) 29.57% (4.32)% 10.13%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............ $80,500 $47,306 $35,984 $217,978 $173,198 $171,141
Ratio of expenses to average net assets...... 1.23% 1.23% 0.97%(c) 0.95% 0.96% 0.96%
Ratio of net investment income to average net
assets..................................... 0.40% 0.83% 0.85%(c) 1.25% 1.34% 1.21%
Ratio of expenses to average net assets*..... 1.33% 1.34% 1.05%(c) 0.95% 0.96% 0.96%
Ratio of net investment income to average net
assets*.................................... 0.30% 0.72% 0.77%(c) 1.25% 1.34% 1.21%
Portfolio turnover (d)....................... 62.37% 113.17% 65.21% 77.00% 53.00% 66.00%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Upon reorganizing as a fund of the One Group, the Paragon Value Growth Fund
became the Value Growth Fund. Financial highlights for the periods prior to
March 26, 1996 represent the Paragon Value Growth Fund. The per share data
for the periods prior to March 26, 1996 have been restated to reflect the
impact of restatement of net asset value from $15.26 to $10.00 effective
March 26, 1996.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
125
<PAGE> 229
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Value Growth Fund
---------------------------------------------------------------
Class B
---------------------------------------------------------------
SEVEN
Year Ended MONTHS SEPTEMBER 9,
June 30, ENDED YEAR ENDED 1994 TO
------------------ JUNE 30, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(a) 1995 1994(b)
------- ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 11.47 $ 10.39 $ 11.16 $ 9.01 $ 9.85
------- ------- ------- ------ -------
Investment Activities:
Net investment income (loss)....................... (0.02) 0.01 0.91 0.05 0.02
Net realized and unrealized gains (losses) from
investments...................................... 3.31 2.82 0.07 2.46 (0.84)
------- ------- ------- ------ -------
Total from Investment Activities................. 3.29 2.83 0.98 2.51 (0.82)
------- ------- ------- ------ -------
Distributions:
Net investment income.............................. -- (0.02) (0.91) (0.07) (0.02)
In excess of net investment income................. -- -- (0.01) -- --
Net realized gains................................. (1.36) (1.73) (0.83) (0.29) --
------- ------- ------- ------ -------
Total Distributions.............................. (1.36) (1.75) (1.75) (0.36) (0.02)
------- ------- ------- ------ -------
NET ASSET VALUE,
END OF PERIOD...................................... $ 13.40 $ 11.47 $ 10.39 $11.16 $ 9.01
======= ======= ======= ====== =======
Total Return (Excludes Sales Charge)................. 30.89% 30.52% 9.96%(c) 28.74% (8.31)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................. $25,501 $10,517 $ 4,673 $2,923 $ 412
Ratio of expenses to average net assets............ 1.98% 1.98% 1.86%(d) 1.70% 1.71% (d)
Ratio of net investment income to average net
assets........................................... (0.35)% 0.07% 0.13%(d) 0.38% 0.76% (d)
Ratio of expenses to average net assets*........... 1.98% 2.00% 1.94%(d) 1.70% 1.71% (d)
Ratio of net investment income to average net
assets*.......................................... (0.35)% 0.05% 0.05%(d) 0.38% 0.76% (d)
Portfolio turnover (e)............................. 62.37% 113.17% 65.21% 77.00% 53.00%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Upon reorganizing as a fund of the One Group, the Paragon Value Growth Fund
became the Value Growth Fund. Financial highlights for the periods prior to
March 26, 1996 represent the Paragon Value Growth Fund. The per share data
for the periods prior to March 26, 1996 have been restated to reflect the
impact of restatement of net asset value from $15.21 to $10.00 effective
March 26, 1996.
(b) Period from commencement of operations.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
126
<PAGE> 230
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
VALUE GROWTH FUND
-----------------
CLASS C
-----------------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(a)
-----------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $11.76
------
Investment Activities:
Net realized and unrealized gains (losses) from
investments............................................. 2.35
------
Total from Investment Activities........................ 2.35
------
Distributions:
Net investment income..................................... (0.01)
Net realized gains........................................ (0.63)
------
Total Distributions..................................... (0.64)
------
NET ASSET VALUE,
END OF PERIOD............................................. $13.47
======
Total Return (Excludes Sales Charge)........................ 20.87%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $1,234
Ratio of expenses to average net assets................... 1.99% (c)
Ratio of net investment income to average net assets...... (0.43)%(c)
Portfolio turnover (d).................................... 62.37%
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
127
<PAGE> 231
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE COMPANY VALUE FUND
----------------------------------------------------------------
FIDUCIARY
----------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 14.79 $ 12.83 $ 12.87 $ 11.34 $ 11.64
-------- -------- -------- -------- --------
Investment Activities:
Net investment income................................. 0.21 0.27 0.31 0.31 0.20
Net realized and unrealized gains (losses) from
investments......................................... 2.84 3.01 1.20 2.18 (0.01)
-------- -------- -------- -------- --------
Total from Investment Activities.................... 3.05 3.28 1.51 2.49 0.19
-------- -------- -------- -------- --------
Distributions:
Net investment income................................. (0.21) (0.26) (0.31) (0.32) (0.19)
Net realized gains.................................... (0.93) (1.06) (1.24) (0.64) (0.30)
-------- -------- -------- -------- --------
Total Distributions................................. (1.14) (1.32) (1.55) (0.96) (0.49)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD......................................... $ 16.70 $ 14.79 $ 12.83 $ 12.87 $ 11.34
======== ======== ======== ======== ========
Total Return............................................ 21.46% 27.10% 12.71% 23.42% (1.59)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..................... $792,649 $686,156 $584,527 $365,376 $169,127
Ratio of expenses to average net assets............... 0.95% 0.97% 0.97% 1.00% 0.95%
Ratio of net investment income to average net
assets.............................................. 1.34% 1.99% 2.43% 2.74% 1.72%
Ratio of expenses to average net assets*.............. 0.95% 0.97% 0.98% 1.01% 1.02%
Ratio of net investment income to average net
assets*............................................. 1.34% 1.99% 2.42% 2.73% 1.65%
Portfolio turnover (a)................................ 47.35% 77.05% 186.84% 203.13% 111.72%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
128
<PAGE> 232
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE COMPANY VALUE FUND
--------------------------------------------------------
CLASS A
--------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 14.85 $ 12.87 $12.89 $11.34 $11.64
------- ------- ------ ------ ------
Investment Activities:
Net investment income..................................... 0.18 0.23 0.27 0.28 0.17
Net realized and unrealized gains (losses) from
investments............................................. 2.84 3.04 1.22 2.20 (0.01)
------- ------- ------ ------ ------
Total from Investment Activities........................ 3.02 3.27 1.49 2.48 0.16
------- ------- ------ ------ ------
Distributions:
Net investment income..................................... (0.17) (0.23) (0.27) (0.27) (0.16)
In excess of net investment income........................ -- -- -- (0.02) --
Net realized gains........................................ (0.93) (1.06) (1.24) (0.64) (0.30)
------- ------- ------ ------ ------
Total Distributions..................................... (1.10) (1.29) (1.51) (0.93) (0.46)
------- ------- ------ ------ ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 16.77 $ 14.85 $12.87 $12.89 $11.34
======= ======= ====== ====== ======
Total Return (Excludes Sales Charge)........................ 21.14% 26.90% 12.40% 22.64% 1.35%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $15,699 $14,832 $9,380 $3,481 $ 698
Ratio of expenses to average net assets................... 1.20% 1.22% 1.22% 1.25% 1.20%
Ratio of net investment income to average net assets...... 1.10% 1.72% 2.18% 2.52% 1.57%
Ratio of expenses to average net assets*.................. 1.30% 1.31% 1.33% 1.37% 1.37%
Ratio of net investment income to average net assets*..... 1.00% 1.63% 2.07% 2.41% 1.40%
Portfolio turnover (a).................................... 47.35% 77.05% 186.84% 203.13% 111.72%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
129
<PAGE> 233
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE COMPANY VALUE FUND
------------------------------------------------------------
CLASS B
------------------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(a)
------- ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..................................... $ 14.95 $12.98 $12.96 $11.41 $11.87
------- ------ ------ ------ ------
Investment Activities:
Net investment income................................... 0.07 0.14 0.18 0.17 0.05
Net realized and unrealized gains (losses) from
investments........................................... 2.84 3.04 1.26 2.19 (0.46)
------- ------ ------ ------ ------
Total from Investment Activities...................... 2.91 3.18 1.44 2.36 (0.41)
------- ------ ------ ------ ------
Distributions:
Net investment income................................... (0.09) (0.15) (0.18) (0.17) (0.05)
Net realized gains...................................... (0.93) (1.06) (1.24) (0.64) --
------- ------ ------ ------ ------
Total Distributions................................... (1.02) (1.21) (1.42) (0.81) (0.05)
------- ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD........................................... $ 16.84 $14.95 $12.98 $12.96 $11.41
======= ====== ====== ====== ======
Total Return (Excludes Sales Charge)...................... 20.18% 25.86% 11.95% 22.28% 3.48% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)....................... $17,154 $9,288 $4,135 $ 861 $ 182
Ratio of expenses to average net assets................. 1.95% 1.97% 1.97% 2.00% 2.00% (c)
Ratio of net investment income to average net assets.... 0.33% 0.96% 1.43% 1.74% 1.06% (c)
Ratio of expenses to average net assets*................ 1.95% 1.97% 1.98% 2.01% 2.00% (c)
Ratio of net investment income to average net assets*... 0.33% 0.96% 1.42% 1.72% 1.06% (c)
Portfolio turnover (d).................................. 47.35% 77.05% 186.84% 203.13% 111.72%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
130
<PAGE> 234
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DISCIPLINED VALUE FUND
----------------------------------------------------------------
FIDUCIARY
----------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................... $ 15.65 $ 14.69 $ 13.20 $ 11.90 $ 12.76
-------- -------- -------- -------- --------
Investment Activities:
Net investment income................................. 0.14 0.22 0.29 0.28 0.26
Net realized and unrealized gains from investments.... 3.99 2.57 2.27 1.57 0.29
-------- -------- -------- -------- --------
Total from Investment Activities.................... 4.13 2.79 2.56 1.85 0.55
-------- -------- -------- -------- --------
Distributions:
Net investment income................................. (0.14) (0.22) (0.29) (0.27) (0.26)
Net realized gains.................................... (2.74) (1.61) (0.78) (0.28) (1.15)
-------- -------- -------- -------- --------
Total Distributions................................. (2.88) (1.83) (1.07) (0.55) (1.41)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD......................................... $ 16.90 $ 15.65 $ 14.69 $ 13.20 $ 11.90
======== ======== ======== ======== ========
Total Return............................................ 28.27% 20.56% 20.10% 16.03% 4.04%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..................... $634,672 $562,302 $522,474 $448,530 $418,238
Ratio of expenses to average net assets............... 0.96% 0.98% 0.99% 1.00% 0.93%
Ratio of net investment income to average net
assets.............................................. 0.85% 1.52% 2.04% 2.21% 2.14%
Ratio of expenses to average net assets*.............. 0.96% 0.98% 1.00% 1.10% 0.98%
Ratio of net investment income to average net
assets*............................................. 0.85% 1.52% 2.03% 2.11% 2.09%
Portfolio turnover (a)................................ 106.41% 92.66% 90.55% 176.66% 56.33%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
131
<PAGE> 235
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DISCIPLINED VALUE FUND
-----------------------------------------------------------
CLASS A
-----------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 15.68 $ 14.72 $ 13.22 $ 11.91 $ 12.75
------- ------- ------- ------- -------
Investment Activities:
Net investment income..................................... 0.10 0.19 0.25 0.24 0.24
Net realized and unrealized gains from investments........ 3.99 2.57 2.28 1.59 0.30
------- ------- ------- ------- -------
Total from Investment Activities........................ 4.09 2.76 2.53 1.83 0.54
------- ------- ------- ------- -------
Distributions:
Net investment income..................................... (0.10) (0.19) (0.25) (0.24) (0.23)
Net realized gains........................................ (2.74) (1.61) (0.78) (0.26) (1.10)
In excess of net realized gains........................... -- -- -- (0.02) (0.05)
------- ------- ------- ------- -------
Total Distributions..................................... (2.84) (1.80) (1.03) (0.52) (1.38)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 16.93 $ 15.68 $ 14.72 $ 13.22 $ 11.91
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)........................ 27.90% 20.21% 19.80% 15.43% 3.95%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $29,443 $23,909 $20,838 $13,560 $10,448
Ratio of expenses to average net assets................... 1.21% 1.23% 1.24% 1.26% 1.18%
Ratio of net investment income to average net assets...... 0.60% 1.26% 1.79% 1.99% 2.00%
Ratio of expenses to average net assets*.................. 1.31% 1.31% 1.35% 1.36% 1.33%
Ratio of net investment income to average net assets*..... 0.50% 1.18% 1.68% 1.89% 1.85%
Portfolio turnover (a).................................... 106.41% 92.66% 90.55% 176.66% 56.33%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
132
<PAGE> 236
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DISCIPLINED VALUE FUND
-------------------------------------------------------
CLASS B
-------------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
---------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(a)
------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..................................... $ 15.64 $ 14.69 $ 13.19 $ 11.90 $12.60
------- ------- ------- ------- ------
Investment Activities:
Net investment income (loss)............................ (0.02) 0.08 0.15 0.15 0.07
Net realized and unrealized gains (losses) from
investments........................................... 3.98 2.55 2.27 1.58 (0.70)
------- ------- ------- ------- ------
Total from Investment Activities...................... 3.96 2.63 2.42 1.73 (0.63)
------- ------- ------- ------- ------
Distributions:
Net investment income................................... (0.01) (0.07) (0.14) (0.15) (0.06)
In excess of net investment income...................... -- -- -- (0.01) (0.01)
Net realized gains...................................... (2.74) (1.61) (0.78) (0.28) --
------- ------- ------- ------- ------
Total Distributions................................... (2.75) (1.68) (0.92) (0.44) (0.07)
------- ------- ------- ------- ------
NET ASSET VALUE,
END OF PERIOD........................................... $ 16.85 $ 15.64 $ 14.69 $ 13.19 $11.90
======= ======= ======= ======= ======
Total Return (Excludes Sales Charge).................. 26.97% 19.19% 18.93% 14.92% (5.00)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)....................... $30,094 $20,499 $16,305 $11,222 $5,356
Ratio of expenses to average net assets................. 1.96% 1.98% 1.99% 2.00% 1.96% (c)
Ratio of net investment income to average net assets.... (0.15)% 0.51% 1.04% 1.26% 1.80% (c)
Ratio of expenses to average net assets*................ 1.96% 1.98% 2.00% 2.01% 1.96% (c)
Ratio of net investment income to average net assets*... (0.15)% 0.51% 1.03% 1.25% 1.80% (c)
Portfolio turnover (d).................................. 106.41% 92.66% 90.55% 176.66% 56.33%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
133
<PAGE> 237
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE COMPANY GROWTH FUND
--------------------------------------------------------------------
FIDUCIARY
--------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................ $ 19.44 $ 15.44 $ 13.47 $ 11.32 $ 10.92
---------- ---------- -------- -------- --------
Investment Activities:
Net investment income.............................. 0.04 0.12 0.18 0.20 0.20
Net realized and unrealized gains from
investments...................................... 6.13 4.79 2.14 3.04 0.67
---------- ---------- -------- -------- --------
Total from Investment Activities................. 6.17 4.91 2.32 3.24 0.87
---------- ---------- -------- -------- --------
Distributions:
Net investment income.............................. (0.02) (0.11) (0.18) (0.20) (0.20)
Net realized gains................................. (2.88) (0.80) (0.17) (0.89) (0.27)
---------- ---------- -------- -------- --------
Total Distributions.............................. (2.90) (0.91) (0.35) (1.09) (0.47)
---------- ---------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD...................................... $ 22.71 $ 19.44 $ 15.44 $ 13.47 $ 11.32
========== ========== ======== ======== ========
Total Return......................................... 35.75% 33.11% 17.36% 21.85% 8.04%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................. $1,510,521 $1,142,864 $745,986 $531,595 $150,035
Ratio of expenses to average net assets............ 0.99% 0.99% 0.96% 1.00% 0.78%
Ratio of net investment income to average net
assets........................................... 0.21% 0.69% 1.20% 1.72% 1.87%
Ratio of expenses to average net assets*........... 0.99% 0.99% 0.99% 1.00% 1.13%
Ratio of net investment income to average net
assets*.......................................... 0.21% 0.69% 1.17% 1.72% 1.52%
Portfolio turnover (a)............................. 117.34% 57.17% 35.51% 14.22% 9.04%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
134
<PAGE> 238
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE COMPANY GROWTH FUND
----------------------------------------------------------
CLASS A
----------------------------------------------------------
FEBRUARY 22,
YEAR ENDED JUNE 30, 1994 TO
------------------------------------------ JUNE 30,
1998 1997 1996 1995 1994(a)
-------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.................................. $ 19.92 $ 15.83 $ 13.83 $ 11.62 $11.78
-------- -------- ------- ------- ------
Investment Activities:
Net investment income (loss)......................... (0.01) 0.08 0.14 0.17 0.04
Net realized and unrealized gains (losses) from
investments........................................ 6.30 4.88 2.17 3.10 (0.16)
-------- -------- ------- ------- ------
Total from Investment Activities..................... 6.29 4.96 2.31 3.27 (0.12)
-------- -------- ------- ------- ------
Distributions:
Net investment income................................ -- (0.07) (0.14) (0.16) (0.04)
In excess of net investment income................... (0.01) -- -- (0.01) --
Net realized gains................................... (2.88) (0.80) (0.17) (0.89) --
-------- -------- ------- ------- ------
Total Distributions................................ (2.89) (0.87) (0.31) (1.06) (0.04)
-------- -------- ------- ------- ------
NET ASSET VALUE,
END OF PERIOD........................................ $ 23.32 $ 19.92 $ 15.83 $ 13.83 $11.62
======== ======== ======= ======= ======
Total Return (Excludes Sales Charge)................... 35.43% 32.57% 16.85% 21.52% (1.02)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................... $199,052 $125,910 $75,114 $27,428 $ 368
Ratio of expenses to average net assets.............. 1.24% 1.24% 1.21% 1.26% 1.25% (c)
Ratio of net investment income to average net
assets............................................. (0.04)% 0.44% 0.95% 1.49% 1.78% (c)
Ratio of expenses to average net assets*............. 1.34% 1.32% 1.34% 1.36% 1.35% (c)
Ratio of net investment income to average net
assets*............................................ (0.14)% 0.36% 0.82% 1.39% 1.68% (c)
Portfolio turnover (d)............................... 117.34% 57.17% 35.51% 14.22% 9.04%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
135
<PAGE> 239
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE COMPANY GROWTH FUND
---------------------------------------------------------
CLASS B
---------------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
------------------------------------------ JUNE 30,
1998 1997 1996 1995 1994(a)
-------- -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................... $ 19.61 $ 15.63 $ 13.63 $ 11.47 $11.57
-------- -------- ------- ------- ------
Investment Activities:
Net investment income (loss).......................... (0.10) (0.04) 0.05 0.09 0.03
Net realized and unrealized gains (losses) from
investments......................................... 6.10 4.82 2.17 3.06 (0.10)
-------- -------- ------- ------- ------
Total from Investment Activities.................... 6.00 4.78 2.22 3.15 (0.07)
-------- -------- ------- ------- ------
Distributions:
Net investment income................................. -- -- (0.05) (0.09) (0.03)
In excess of net investment income -- -- -- (0.01) --
Net realized gains.................................... (2.88) (0.80) (0.17) (0.89) --
-------- -------- ------- ------- ------
Total Distributions................................. (2.88) (0.80) (0.22) (0.99) (0.03)
-------- -------- ------- ------- ------
NET ASSET VALUE,
END OF PERIOD......................................... $ 22.73 $ 19.61 $ 15.63 $ 13.63 $11.47
======== ======== ======= ======= ======
Total Return (Excludes Sales Charge).................... 34.39% 31.74% 16.41% 20.65% (0.66)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $280,563 $132,268 $56,261 $ 6,918 $ 334
Ratio of expenses to average net assets............... 1.99% 2.00% 1.96% 2.01% 1.99% (c)
Ratio of net investment income to average net assets (0.80)% (0.33)% 0.20% 0.74% 0.96% (c)
Ratio of expenses to average net assets*.............. 1.99% 2.00% 1.99% 2.01% 1.99% (c)
Ratio of net investment income to average net assets* (0.80)% (0.33)% 0.17% 0.74% 0.96% (c)
Portfolio turnover (d)................................ 117.34% 57.17% 35.51% 14.22% 9.04%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
136
<PAGE> 240
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE COMPANY
GROWTH FUND
-------------
CLASS C
-------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(a)
-----------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $18.98
------
Investment Activities:
Net investment income (loss).............................. (0.06)
Net realized and unrealized gains from investments........ 4.99
------
Total from Investment Activities........................ 4.93
------
Distributions:
Net realized gains........................................ (1.34)
------
Total Distributions..................................... (1.34)
------
NET ASSET VALUE,
END OF PERIOD............................................. $22.57
======
Total Return (Excludes Sales Charge)........................ 27.63% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 492
Ratio of expenses to average net assets................... 1.98% (c)
Ratio of net investment income to average net assets...... (0.87)%(c)
Portfolio turnover (d).................................... 117.34%
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
137
<PAGE> 241
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH OPPORTUNITIES FUND
----------------------------------------------------------------
FIDUCIARY
----------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 19.46 $ 18.81 $ 18.40 $ 15.96 $ 16.96
-------- -------- -------- -------- --------
Investment Activities:
Net investment income (loss)......................... (0.07) 0.25 0.20 0.06 0.07
Net realized and unrealized gains (losses) from
investments........................................ 5.70 3.59 3.83 2.98 (0.05)
-------- -------- -------- -------- --------
Total from Investment Activities................... 5.63 3.84 4.03 3.04 0.02
-------- -------- -------- -------- --------
Distributions:
Net investment income................................ -- (0.25) (0.20) (0.06) (0.07)
In excess of net investment income................... -- (0.02) -- -- --
Net realized gains................................... (2.58) (2.92) (3.42) (0.54) (0.95)
-------- -------- -------- -------- --------
Total Distributions................................ (2.58) (3.19) (3.62) (0.60) (1.02)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD......................... $ 22.51 $ 19.46 $ 18.81 $ 18.40 $ 15.96
======== ======== ======== ======== ========
Total Return........................................... 31.11% 22.75% 24.63% 19.75% (0.16)%
Ratios/Supplementary Data:
Net Assets at end of period (000).................... $868,901 $623,911 $532,525 $413,518 $389,567
Ratio of expenses to average net assets.............. 1.00% 0.99% 1.00% 0.98% 0.98%
Ratio of net investment income to average net
assets............................................. (0.36)% 1.32% 1.15% 0.38% 0.42%
Ratio of expenses to average net assets*............. 1.00% 0.99% 1.01% 0.98% 1.03%
Ratio of net investment income to average net
assets*............................................ (0.36)% 1.32% 1.14% 0.38% 0.37%
Portfolio turnover (a)............................... 158.43% 301.35% 435.30% 132.63% 70.67%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
138
<PAGE> 242
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH OPPORTUNITIES FUND
-----------------------------------------------------------
CLASS A
-----------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 19.37 $ 18.76 $ 18.36 $ 15.93 $ 16.96
------- ------- ------- ------- -------
Investment Activities:
Net investment income (loss).............................. (0.08) 0.21 0.17 0.02 0.04
Net realized and unrealized gains (losses) from
investments............................................. 5.65 3.58 3.80 2.98 (0.08)
------- ------- ------- ------- -------
Total from Investment Activities........................ 5.57 3.79 3.97 3.00 (0.04)
------- ------- ------- ------- -------
Distributions:
Net investment income..................................... -- (0.24) (0.15) (0.01) (0.03)
In excess of net investment income........................ -- (0.02) -- (0.02) (0.01)
Net realized gains........................................ (2.58) (2.92) (3.42) (0.54) (0.95)
------- ------- ------- ------- -------
Total Distributions..................................... (2.58) (3.18) (3.57) (0.57) (0.99)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 22.36 $ 19.37 $ 18.76 $ 18.36 $ 15.93
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)........................ 30.95% 22.52% 24.32% 19.50% (0.52)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $95,647 $43,370 $28,052 $11,178 $ 8,097
Ratio of expenses to average net assets................... 1.25% 1.25% 1.25% 1.23% 1.22%
Ratio of net investment income to average net assets...... (0.60)% 0.92% 0.90% 0.12% 0.27%
Ratio of expenses to average net assets*.................. 1.35% 1.34% 1.36% 1.33% 1.38%
Ratio of net investment income to average net assets*..... (0.70)% 0.83% 0.79% 0.02% 0.11%
Portfolio turnover (a).................................... 158.43% 301.35% 435.30% 132.63% 70.67%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
139
<PAGE> 243
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH OPPORTUNITIES FUND
-------------------------------------------------------
CLASS B
-------------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
----------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(a)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 18.82 $ 18.43 $ 18.14 $ 15.85 $ 17.44
-------- -------- -------- -------- --------
Investment Activities:
Net investment income (loss)......................... (0.15) 0.11 0.09 (0.07) (0.02)
Net realized and unrealized gains (losses) from
investments........................................ 5.35 3.44 3.69 2.90 (1.56)
-------- -------- -------- -------- --------
Total from Investment Activities................... 5.20 3.55 3.78 2.83 (1.58)
-------- -------- -------- -------- --------
Distributions:
Net investment income................................ -- (0.22) (0.07) -- (0.01)
In excess of net investment income................... -- (0.02) -- -- --
Net realized gains................................... (2.58) (2.92) (3.42) (0.54) --
-------- -------- -------- -------- --------
Total Distributions................................ (2.58) (3.16) (3.49) (0.54) (0.01)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD........................................ $ 21.44 $ 18.82 $ 18.43 $ 18.14 $ 15.85
======== ======== ======== ======== ========
Total Return (Excludes Sales Charge)................... 29.79% 21.73% 23.53% 18.47% (9.07)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................... $ 90,930 $ 37,409 $ 12,910 $ 2,787 $ 1,131
Ratio of expenses to average net assets.............. 2.00% 2.00% 2.00% 1.98% 2.12%(c)
Ratio of net investment income to average net
assets............................................. (1.35)% 0.01% 0.15% (0.63)% (0.55)%(c)
Ratio of expenses to average net assets*............. 2.00% 2.00% 2.01% 1.98% 2.12%(c)
Ratio of net investment income to average net
assets*............................................ (1.35)% 0.01% 0.14% (0.63)% (0.55)%(c)
Portfolio turnover (d)............................... 158.43% 301.35% 435.30% 132.63% 70.67%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
140
<PAGE> 244
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH
OPPORTUNITIES
FUND
-------------
CLASS C
-------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(a)
-----------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $21.47
------
Investment Activities:
Net investment income (loss).............................. (0.04)
Net realized and unrealized gains from investments........ 2.77
------
Total from Investment Activities........................ 2.73
------
Distributions:
Net realized gains........................................ (1.78)
------
Total Distributions......................................... (1.78)
------
NET ASSET VALUE,
END OF PERIOD............................................. $22.42
======
Total Return (Excludes Sales Charge)........................ 14.27% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $1,088
Ratio of expenses to average net assets................... 2.01% (c)
Ratio of net investment income to average net assets...... (1.31)%(c)
Portfolio turnover (d).................................... 158.43%
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
141
<PAGE> 245
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The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SMALL CAPITALIZATION FUND
----------------------------------
FIDUCIARY
----------------------------------
MARCH 26,
YEAR ENDED JUNE 30, 1996 TO
--------------------- JUNE 30,
1998 1997 1996(a)
-------- ------- ---------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.94 $ 10.75 $ 10.00
-------- ------- -------
Investment Activities:
Net investment income (loss).............................. -- (0.02) --
Net realized and unrealized gains (losses) from
investments............................................. 2.44 1.31 0.78
-------- ------- -------
Total from Investment Activities........................ 2.44 1.29 0.78
-------- ------- -------
Distributions:
Net realized gains........................................ (1.33) (1.10) (0.03)
-------- ------- -------
Total Distributions..................................... (1.33) (1.10) (0.03)
-------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 12.05 $ 10.94 $ 10.75
======== ======= =======
Total Return................................................ 23.58% 13.44% 13.39%(b)(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $114,951 $78,318 $83,371
Ratio of expenses to average net assets................... 1.06% 1.02% 0.96%(d)
Ratio of net investment income to average net assets...... (0.05)% (0.16)% (0.16)%(d)
Ratio of expenses to average net assets*.................. 1.09% 1.12% 1.05%(d)
Ratio of net investment income to average net assets*..... (0.08)% (0.26)% (0.25)%(d)
Portfolio turnover (e).................................... 83.77% 92.01% 59.57%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from date reorganized as a fund of The One Group.
(b) Not annualized.
(c) Represents total return for Class A Shares from December 1, 1995 through
March 25, 1996 plus total return for Fiduciary Shares for the period from
March 26, 1996 through June 30, 1996.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
142
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SMALL CAPITALIZATION FUND
------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS
JUNE 30, ENDED YEAR ENDED NOVEMBER 30,
-------------------- JUNE 30, ---------------------------------
1998 1997 1996(a) 1995 1994 1993
------- ------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................... $ 10.94 $ 10.73 $ 11.50 $ 9.36 $ 10.11 $ 9.48
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income (loss).............. (0.03) (0.04) (0.07) (0.04) (0.04) (0.02)
Net realized and unrealized gains (losses)
from investments........................ 2.44 1.35 1.40 2.35 (0.63) 0.88
------- ------- ------- ------- ------- -------
Total from Investment Activities........ 2.41 1.31 1.33 2.31 (0.67) 0.86
------- ------- ------- ------- ------- -------
Distributions:
Net investment income..................... -- -- -- -- -- (0.01)
Net realized gains........................ (1.33) (1.10) (2.10) (0.17) (0.08) (0.22)
------- ------- ------- ------- ------- -------
Total Distributions..................... (1.33) (1.10) (2.10) (0.17) (0.08) (0.23)
------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................. $ 12.02 $ 10.94 $ 10.73 $ 11.50 $ 9.36 $ 10.11
======= ======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)........ 23.28% 13.52% 12.85% (b) 25.07% (6.66)% 9.10%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......... $21,634 $17,299 $18,356 $95,467 $77,540 $74,982
Ratio of expenses to average net assets... 1.31% 1.27% 1.05% (c) 1.03% 1.00% 1.01%
Ratio of net investment income to average
net assets.............................. (0.31)% (0.41)% (0.33)%(c) (0.36)% (0.38)% (0.21)%
Ratio of expenses to average net
assets*................................. 1.44% 1.45% 1.07% (c) 1.03% 1.00% 1.01%
Ratio of net investment income to average
net assets*............................. (0.44)% (0.59)% (0.35) (c) (0.36)% (0.38)% (0.21)%
Portfolio turnover (d).................... 83.77% 92.01% 59.57% 65.00% 51.00% 59.00%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Upon reorganizing as a fund of The One Group, the Paragon Gulf South Growth
Fund became the Gulf South Growth Fund. Financial highlights for the periods
prior to March 26, 1996 represents the Paragon Gulf South Growth Fund. The
per share data for the periods prior to March 26, 1996 have been restated to
reflect the impact of restatement of net asset value from $15.70 to $10.00
effective March 26, 1996.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
143
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SMALL CAPITALIZATION FUND
--------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS YEAR SEPTEMBER 12,
JUNE 30, ENDED ENDED 1994 TO
------------------ JUNE 30, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(a) 1995 1994(b)
------ ------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD......................... $10.84 $10.72 $11.56 $ 9.47 $10.40
------ ------ ------ ------ ------
Investment Activities:
Net investment income (loss)................ (0.03) (0.10) (0.06) (0.07) (0.01)
Net realized and unrealized gains (losses)
from investments.......................... 2.31 1.32 1.35 2.33 (0.92)
------ ------ ------ ------ ------
Total from Investment Activities.......... 2.28 1.22 1.29 2.26 (0.93)
------ ------ ------ ------ ------
Distributions:
Net realized gains.......................... (1.33) (1.10) (2.13) (0.17) --
------ ------ ------ ------ ------
Total Distributions....................... (1.33) (1.10) (2.13) (0.17) --
------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD............................... $11.79 $10.84 $10.72 $11.56 $ 9.47
====== ====== ====== ====== ======
Total Return (Excludes Sales Charge).......... 22.24% 12.74% 12.47% (c) 24.21% (9.08)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........... $8,567 $3,835 $2,545 $1,814 $ 231
Ratio of expenses to average net assets..... 2.06% 2.02% 1.87% (d) 1.78% 1.75% (d)
Ratio of net investment income to average
net assets................................ (1.02)% (1.16)% (1.10)%(d) (1.16)% (0.90)%(d)
Ratio of expenses to average net assets*.... 2.09% 2.12% 1.92% (d) 1.78% 1.75% (d)
Ratio of net investment income to average
net assets*............................... (1.05)% (1.26)% (1.15)%(d) (1.16)% (0.90)%(d)
Portfolio turnover (e)...................... 83.77% 92.01% 59.57% 65.00% 51.00%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Upon reorganizing as a fund of The One Group, the Paragon Gulf South Growth
Fund became the Gulf South Growth Fund. Financial highlights for the periods
prior to March 26, 1996 represents the Paragon Gulf South Growth Fund. The
per share data for the periods prior to March 26, 1996 have been restated to
reflect the impact of restatement of net asset value from $15.48 to $10.00
effective March 26, 1996.
(b) Class B Shares commenced offering September 12, 1994.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
144
<PAGE> 248
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SMALL CAPITALIZATION FUND
-------------------------
CLASS C
-------------------------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(a)
-------------------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 13.03
--------
Investment Activities:
Net investment income (loss).............................. (0.02)
Net realized and unrealized gains (losses) from
investments............................................. 0.29
--------
Total from Investment Activities........................ 0.27
--------
Distributions:
Net realized gains........................................ (1.33)
--------
Total Distributions..................................... (1.33)
--------
NET ASSET VALUE,
END OF PERIOD............................................. $ 11.97
========
Total Return (Excludes Sales Charge)........................ 3.08%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 90
Ratio of expenses to average net assets................... 2.05% (c)
Ratio of net investment income to average net assets...... (0.85)%(c)
Ratio of expenses to average net assets*.................. 2.07% (c)
Ratio of net investment income to average net assets*..... (0.87)%(c)
Portfolio turnover (d).................................... 83.77%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
145
<PAGE> 249
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX FUND
----------------------------------------------------------------
FIDUCIARY
----------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 16.89 $ 15.17 $ 13.93 $ 13.46 $ 11.80
-------- -------- -------- -------- --------
Investment Activities:
Net investment income................................. 0.21 0.15 0.11 0.13 0.11
Net realized and unrealized gains (losses) from
investments......................................... 1.32 2.02 1.43 0.46 1.68
-------- -------- -------- -------- --------
Total from Investment Activities.................... 1.53 2.17 1.54 0.59 1.79
-------- -------- -------- -------- --------
Distributions:
Net investment income................................. (0.02) (0.17) (0.16) (0.08) (0.11)
In excess of net investment income.................... -- (0.13) (0.02) -- --
Net realized gains.................................... (0.43) (0.15) (0.12) (0.04) (0.01)
In excess of net realized gains....................... -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total Distributions................................. (0.45) (0.45) (0.30) (0.12) (0.13)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 17.97 $ 16.89 $ 15.17 $ 13.93 $ 13.46
======== ======== ======== ======== ========
Total Return............................................ 9.54% 14.64% 11.22% 4.20% 15.44%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..................... $586,741 $449,949 $347,790 $218,299 $145,640
Ratio of expenses to average net assets............... 0.88% 0.86% 0.97% 1.04% 1.02%
Ratio of net investment income to average net
assets.............................................. 1.29% 1.00% 1.04% 1.25% 1.27%
Ratio of expenses to average net assets*.............. 0.88% 0.86% 1.00% 1.04% 1.02%
Ratio of net investment income to average net
assets*............................................. 1.29% 1.00% 1.01% 1.25% 1.27%
Portfolio turnover (a)................................ 9.90% 9.61% 6.28% 4.67% 7.74%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
146
<PAGE> 250
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX FUND
---------------------------------------------------------
CLASS A
---------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 16.92 $ 15.16 $ 13.92 $13.49 $11.80
------- ------- ------- ------ ------
Investment Activities:
Net investment income..................................... 0.19 0.11 0.14 0.12 0.09
Net realized and unrealized gains (losses) from
investments............................................. 1.31 2.03 1.40 0.43 1.67
------- ------- ------- ------ ------
Total from Investment Activities........................ 1.50 2.14 1.54 0.55 1.76
------- ------- ------- ------ ------
Distributions:
Net investment income..................................... -- (0.13) (0.16) (0.08) (0.05)
In excess of net investment income........................ -- (0.10) (0.02) -- --
Net realized gains........................................ (0.43) (0.15) (0.12) (0.04) (0.02)
------- ------- ------- ------ ------
Total Distributions..................................... (0.43) (0.38) (0.30) (0.12) (0.07)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 17.99 $ 16.92 $ 15.16 $13.92 $13.49
======= ======= ======= ====== ======
Total Return (Excludes Sales Charge)........................ 9.34% 14.31% 11.20% 3.87% 15.18%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $24,060 $12,562 $10,789 $5,028 $2,395
Ratio of expenses to average net assets................... 1.13% 1.11% 1.22% 1.28% 1.26%
Ratio of net investment income to average net assets...... 1.11% 0.73% 0.79% 1.09% 1.15%
Ratio of expenses to average net assets*.................. 1.23% 1.19% 1.35% 1.38% 1.36%
Ratio of net investment income to average net assets*..... 1.01% 0.65% 0.66% 0.99% 1.05%
Portfolio turnover (a).................................... 9.90% 9.61% 6.28% 4.67% 7.74%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
147
<PAGE> 251
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX FUND
-------------------------------------------------------------
CLASS B
-------------------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
-------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(a)
------- ------- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 16.44 $ 14.79 $13.73 $13.40 $13.00
------- ------- ------ ------ ------
Investment Activities:
Net investment income (loss).............................. 0.08 0.09 0.03 0.03 0.06
Net realized and unrealized gains from investments
(losses)................................................ 1.24 1.86 1.32 0.41 0.34
------- ------- ------ ------ ------
Total from Investment Activities........................ 1.32 1.95 1.35 0.44 0.40
------- ------- ------ ------ ------
Distributions:
Net investment income..................................... -- (0.08) (0.15) (0.07) --
In excess of net investment income........................ -- (0.07) (0.02) -- --
Net realized gains........................................ (0.43) (0.15) (0.12) (0.04) --
------- ------- ------ ------ ------
Total Distributions..................................... (0.43) (0.30) (0.29) (0.11) --
------- ------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 17.33 $ 16.44 $14.79 $13.73 $13.40
======= ======= ====== ====== ======
Total Return (Excludes Sales Charge)........................ 8.48% 13.37% 9.97% 3.17% 3.23% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $13,307 $10,033 $5,856 $3,687 $1,872
Ratio of expenses to average net assets................... 1.88% 1.86% 1.97% 2.04% 2.00%(c)
Ratio of net investment income to average net assets...... 0.26% 0.08% 0.04% 0.25% 1.37% (c)
Ratio of expenses to average net assets*.................. 1.88% 1.86% 2.00% 2.04% 2.00% (c)
Ratio of net investment income to average net assets*..... 0.26% 0.08% 0.01% 0.25% 1.37% (c)
Portfolio turnover (d).................................... 9.90% 9.61% 6.28% 4.67% 7.74%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
148
<PAGE> 252
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
INDEX FUND
--------------
CLASS C
--------------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(a)
--------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $15.70
------
Investment Activities:
Net investment income (loss).............................. 0.06
Net realized and unrealized gains from investments
(losses)................................................ 2.45
------
Total from Investment Activities........................ 2.51
------
Distributions:
Net realized gains........................................ (0.30)
------
Total Distributions..................................... (0.30)
------
NET ASSET VALUE, END OF PERIOD.............................. $17.91
======
Total Return (Excludes Sales Charge)........................ 16.34%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 119
Ratio of expenses to average net assets................... 1.87%(c)
Ratio of net investment income to average net assets...... 2.88%(c)
Portfolio turnover (d).................................... 9.90%
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
149
<PAGE> 253
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
To the Shareholders and Board of Trustees of
The One Group Family of Mutual Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and related statements of operations, of changes
in net assets and of cash flows and the financial highlights present fairly, in
all material respects, the financial position of 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 Small Capitalization Fund and the
International Equity Index Fund (ten series of The One Group Family of Mutual
Funds), at June 30, 1998, the results of each of their operations for the period
then ended, the changes in each of their net assets, and the cash flows of the
Asset Allocation Fund, the Growth Opportunities Fund and the International
Equity Index Fund for the periods presented and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of The One Group
Family of Mutual Funds' management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
August 18, 1998
150
<PAGE> 254
Important Customer Information.
Please Read:
Shares of The One Group:
* are not deposits or obligations of, or guaranteed by, BANC ONE CORPORATION or
its affiliates
* are not insured or guaranteed by the FDIC or by any other governmental agency
or government-sponsored agency of the federal government or any state
* are subject to investment risks, including possible loss of the principal
amount invested.
Banc One Investment Advisors Corporation, a registered investment advisor and
an indirect subsidiary of BANC ONE CORPORATION, serves as an investment advisor
to The One Group, for which it receives advisory fees. The One Group is
distributed by The One Group Services Company, 3435 Stelzer Road, Columbus,
Ohio 43219, which is not affiliated with BANC ONE CORPORATION and is not a
bank. Contact us at our web site address: www.onegroup.com or e-mail us at
[email protected].
For more complete information on any of The One Group Funds, including
management fees and expenses, you may obtain a prospectus from The One Group
Services Company. Read the prospectus carefully before investing.
BANC ONE
INVESTMENT
ADVISORS
CORPORATION
[BANC ONE LOGO]
TOG-F-038-AN (8/98)
<PAGE> 255
Municipal
Income Funds
Annual Report
For the year ended June 30, 1998
Intermediate Tax-Free Bond Fund
Municipal Income Fund
Kentucky Municipal Bond Fund
Ohio Municipal Bond Fund
Louisiana Municipal Bond Fund
West Virginia Municipal Bond Fund
Arizona Municipal Bond Fund
THE ONE GROUP
----------------------
FAMILY OF MUTUAL FUNDS
<PAGE> 256
IMPORTANT CUSTOMER INFORMATION. INVESTMENT PRODUCTS:
- are not deposits or obligations of, or guaranteed by,
BANC ONE CORPORATION or any of its affiliates [FDIC LOGO
WITH SLASH
- are not issued by the FDIC, and THOUGH IT]
- are subject to investment risks, including possible
loss of the principal amount invested.
<PAGE> 257
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Portfolio Performance Review............................................... 2
Schedules of Portfolio Investments......................................... 22
Statements of Assets and Liabilities....................................... 77
Statements of Operations................................................... 79
Statements of Changes in Net Assets........................................ 81
Notes to Financial Statements.............................................. 84
Financial Highlights....................................................... 94
Report of Independent Accountants........................................... 116
1
<PAGE> 258
The One Group Intermediate Tax-Free Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Intermediate Tax-Free Bond Fund Fiduciary share class offered a
total return of 7.74% for the year ended June 30, 1998. (For information on
other share classes and performance comparisons to indexes, please see page 4.)
Overall, interest rates declined during the year, and the Fund's 30-day SEC
yield (Fiduciary share class) fell to 4.15% at year-end, compared to 4.57% on
June 30, 1997. (For investors in the 39.6% federal income tax bracket, the June
30, 1998, yield translates into a taxable-equivalent yield of 6.87%.)
HOW DID YOU MANAGE INTEREST RATE VOLATILITY?
We generated the Fund's total return by continually realigning the portfolio
through one of the most volatile market environments in recent history. With
worries of inflation-induced Federal Reserve intervention and fallout from the
Asian situation, we witnessed significant market moves on a regular basis. With
limited cash flow in the Fund, we sought to add value for shareholders by taking
advantage of this volatility. By investing in discount coupon bonds, we could
buy when the market fell off and let the bonds run up in price when the markets
recovered from the many sell-offs during the year.
With an eye on after-tax total return, we remain conscious of capital gains. As
such, we will take losses on bonds when the market declines, which helps offset
the gains the Fund realizes when the market rallies. Our intent is to generate
tax-free income, but we also want to enhance total return by realigning the
portfolio to react to market conditions.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Our belief during the year was that the market would be volatile, but that
interest rates would head lower. As such, we maintained an average duration near
the six-year mark, added yield to the portfolio, and traded securities to take
advantage of market volatility. (Duration is a measure of a fund's price
sensitivity to interest rate changes. A longer duration indicates greater
sensitivity; a shorter duration indicates less.)
In keeping with our strategy, when rates moved up, and prices fell, we sold
certain issues and captured losses (see above). Then, we replaced those issues
with bonds of similar structure--positive convexity, discount coupons and high
liquidity--which increased the portfolio's yield. (Convexity is a secondary
measure of a fund's price sensitivity to interest rate changes. Generally, bonds
with positive convexity perform better than those with negative convexity in
periods of high interest rate volatility.) Our strategy was to restructure a
portion of the portfolio with blocks of desirable bonds, so as to sell them at a
profit if our outlook changed during the year. Given the volatility in the
market from repeated economic data suggesting the death of inflation, to the
Asian turmoil that sent the markets reeling in the fourth quarter of 1997, our
tactics were sound.
DID THE FUND'S OVERALL QUALITY CHANGE?
The Fund's overall credit quality remained high, largely because an increasing
number of bonds coming to market are insured. At year-end, 73.9% of the Fund's
assets were invested in securities rated AAA and AA. We continue to look in the
lower-investment-grade areas for bonds with higher yields. But, this has been
somewhat challenging because the spread, or difference in yield, between
medium-grade bonds (those rated A and BBB) and AAA-rated bonds has been
compressed over the last 18 months, meaning that there is little yield advantage
to moving into the medium-quality area.
2
<PAGE> 259
The One Group Intermediate Tax-Free Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
We have no real evidence that market volatility will subside in the near future,
so we anticipate trading in the range we have seen over the past year. We remain
vigilant in our inflation watch, because any sign of an overheating economy
should lead the Federal Reserve to raise rates and, therefore, erode the value
of bonds. Nevertheless, we expect inflation to remain under control for the near
term, as a slower-growth economy should keep interest rates low and may even
force the Fed to ease monetary policy.
/s/ Patrick M. Morrissey
Patrick M. Morrissey
Fund Manager
/s/ Gary J. Madich, CFA
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
3
<PAGE> 260
The One Group Intermediate Tax-Free Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (9/4/90)
<S> <C> <C> <C>
Fiduciary 7.74% 5.46% 6.95%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Fiduciary
<S> <C> <C> <C>
9/90 $10,000 $10,000 $10,000
6/91 10,814 10,749 10,777
6/92 11,996 11,854 11,805
6/93 13,285 13,026 12,961
6/94 13,453 13,156 12,946
6/95 14,560 14,046 13,820
6/96 15,366 14,764 14,564
6/97 16,446 15,715 15,694
6/98 $17,653 $16,807 $16,908
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 7.50% 5.22% 6.08%
Class A* 2.70% 4.26% 5.32%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class A* Class A
<S> <C> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,550 $10,000
6/92 10,319 10,311 9,850 10,314
6/93 11,428 11,331 10,783 11,291
6/94 11,572 11,443 10,747 11,253
6/95 12,525 12,218 11,444 11,983
6/96 13,218 12,842 12,046 12,616
6/97 14,147 13,669 12,933 13,547
6/98 $15,185 $14,619 $13,904 $14,561
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 6.81% 4.28%
Class B** 2.81% 3.89%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,622 9,601 9,552 9,552
6/95 10,413 10,251 10,115 10,115
6/96 10,990 10,775 10,568 10,568
6/97 11,762 11,469 11,289 11,289
6/98 $12,625 $12,266 $11,856 $12,056
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The performance of the Intermediate Tax-Free Bond Fund is measured against the
Lehman Brothers 7 Year Municipal Bond Index, an unmanaged index comprised of
investment grade municipal bonds with maturities close to seven years. Investors
are unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
4
<PAGE> 261
The One Group Municipal Income Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Municipal Income Fund Fiduciary share class offered a total return
of 8.09% for the year ended June 30, 1998. (For information on other share
classes and performance comparisons to indexes, please see page 7.)
HOW DID INTEREST RATES INFLUENCE PERFORMANCE?
Overall, interest rates declined during the year, and the Fund's 30-day SEC
yield (Fiduciary share class) fell to 4.76% at year-end, compared to 5.20% on
June 30, 1997. (For investors in the 39.6% federal income tax bracket, the June
30, 1998, yield translates into a taxable-equivalent yield of 7.88%.)
While the low-inflation environment continued to boost the market, it also left
many investors wondering when this favorable climate would end. This, coupled
with fears that the Federal Reserve would increase interest rates, acted as a
catalyst to market volatility, but we were able to use that volatility to the
Fund's advantage. Combining cash flow, which was strong from new money, and
patience to find attractively priced bonds, we were able to capture yield and
enhance the Fund's overall total return.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund's primary strategy remains the same--seeking to generate a high level
of income while maintaining high overall credit quality and a more stable share
price compared to funds of longer maturity and duration. (Duration is a measure
of a fund's price sensitivity to interest rate changes. A higher duration
indicates greater sensitivity; a shorter duration indicates less.) At 6.0
years, the Fund's duration is slightly longer than it was last year, which
helped the Fund's price performance as rates declined. Nevertheless, duration
has remained between 5.0 years and 6.5 years since the Fund's inception, and we
intend to keep it within this narrow band.
We continued to emphasize municipal housing bonds during the year, as these
bonds exhibit the defensive characteristics that are the cornerstone of the
Fund. They tend to offer a high level of income and relative price stability
compared to other municipal bonds. We also invest in bonds from other market
sectors that exhibit good structure--that is, they offer higher-than-
market-rate coupons and embedded call options or sinking funds, features that
make their payment schedules more predictable.
Over the past year, we also have taken positions in high-quality discount bonds
to take advantage of the declining rate environment, which pushed bond prices
upward. We realized the best results with zero-coupon and 5%-coupon bonds.
Another tactic that worked well for the Fund's performance was purchasing
high-quality, specialty-state discount bonds. Because the supply of these bonds
often is limited, we usually can sell them at a profit when demand increases.
And, if we can sell into an increased demand at a time when rates are lower than
when we bought the bonds (as rates go down, prices go up), we can realize the
best gains. Of course, we use this strategy sparingly, as not to generate an
excess amount of short-term capital gains. The majority of the bonds we purchase
are those we expect to hold for a long time.
5
<PAGE> 262
The One Group Municipal Income Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
WHAT IS YOUR OUTLOOK FOR THE FUND?
Looking forward, we will continue to watch for signs that the economy is
overheating. We don't expect this to happen over the near term, though, as
fallout from the Asian crisis should contribute to a slower-growth economy. As a
result, inflation and interest rates should remain low. We plan to stick with
our ongoing strategy of attempting to generate a high level of income while
maintaining a relatively stable share price environment.
/s/ Patrick M. Morrissey
Patrick M. Morrissey
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
6
<PAGE> 263
The One Group Municipal Income Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/9/93)
<S> <C> <C> <C>
Fiduciary 8.09% 5.76% 5.92%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers Municipal Bond
(Fiscal Year Covered) Housing Bond Funds Index Fiduciary
<S> <C> <C> <C>
2/93 $10,000 $10,000 $10,000
6/93 10,530 10,135 10,303
6/94 10,662 10,236 10,444
6/95 11,556 10,928 11,118
6/96 12,423 11,487 11,734
6/97 13,440 12,226 12,613
6/98 $14,601 $13,076 $13,632
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/23/93)
<S> <C> <C> <C>
Class A 7.84% 5.57% 5.67%
Class A* 2.94% 4.59% 4.77%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Intermediate
Measurement Period Housing Bond Municipal Bond
(Fiscal Year Covered) Index Funds Index Class A* Class A
<S> <C> <C> <C> <C>
2/93 $10,000 $10,000 $ 9,550 $10,000
6/93 10,530 10,135 9,781 10,242
6/94 10,662 10,236 9,912 10,379
6/95 11,556 10,928 10,527 11,023
6/96 12,423 11,487 11,090 11,612
6/97 13,440 12,226 11,892 12,453
6/98 $14,601 $13,076 $12,829 $13,429
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 7.04% 4.85%
Class B** 3.04% 4.47%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers Municipal Bond
(Fiscal Year Covered) Housing Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,670 9,721 9,802 9,802
6/95 10,482 10,251 10,349 10,349
6/96 11,267 10,775 10,830 10,830
6/97 12,191 11,469 11,539 11,539
6/98 $13,244 $12,266 $12,151 $12,351
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 8.28%
Class C** 7.28%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers Municipal Bond
(Fiscal Year Covered) Housing Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/98 $10,828 $10,728 $10,476 $10,345
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The performance of the Municipal Income Fund is measured against the Lehman
Brothers Housing Bond Index, an unmanaged index comprised of municipal housing
bonds. Investors are unable to purchase the index directly, although they can
invest in the underlying securities. The performance of the index does not
reflect the deduction of expenses associated with a mutual fund, such as
investment management. By contrast, the performance of the fund reflects the
deduction of these value-added services as well as the deduction of sales
charges on Class A Shares and applicable contingent deferred sales charges on
Class B and Class C Shares.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
7
<PAGE> 264
The One Group Kentucky Municipal Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Kentucky Municipal Bond Fund Fiduciary share class posted a total
return of 7.11% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 10.)
Despite strong volatility during the first six months of 1998, interest rates
ended the fiscal year lower. The Fund's 30-day SEC yield (Fiduciary share class)
followed suit, declining to 3.91% on June 30, 1998, compared to 4.34% on June
30, 1997. (For investors in the 39.6% federal income tax bracket and the 6.0%
Kentucky state bracket, the June 30, 1998, yield translates into a 6.89%
tax-equivalent yield.) This decline was slightly less than the 45 basis point
drop incurred by securities in the 10- to 15-year maturity range of the general
market.
HOW DID INCOME AND PRICE APPRECIATION INFLUENCE TOTAL RETURN?
The major contributor to the Fund's strong performance was income, which
accounted for 5.15% of the Fund's total return. Price appreciation accounted for
1.96% of the Fund's one-year return, which essentially matched the interest rate
movement in the general market. The Fund's older, higher-coupon bonds
contributed to the income return, while the non-callable, zero-coupon holdings
provided much of the price appreciation.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Because this is a single-state fund, our investment selections primarily are
limited to bonds issued in Kentucky, and supply can be limited at times.
Therefore, we must consider bonds in all market sectors, focusing on
high-quality, full-coupon (at par or a slight premium price), intermediate-term
(maturing in nine to 15 years) securities with good call structures. (Call
refers to a bond issuer's right to repay, or "call" the bond prior to its
maturity date.) Bonds with these characteristics should provide a higher level
of income and better price protection if interest rates begin to rise. These
bonds also should experience some positive price performance if rates decline
modestly.
We also maintained our "buy and hold" strategy, which has been successful over
the years. For example, it was the older, higher-coupon bonds purchased in prior
years that strengthened the Fund's income return during fiscal 1998.
Finally, we attempted to remain nearly fully invested during the year, which
helped enhance the Fund's income stream and maintain the Fund's duration.
(Duration is a measure of a fund's price sensitivity to interest rate changes. A
longer duration indicates greater price movement; a shorter duration indicates
less.) The Fund's duration remained fairly constant at 5.2 years, which helped
enhance the Fund's yield and kept the Fund's price performance from lagging that
of the general market.
DID THE FUND'S AVERAGE QUALITY CHANGE?
The Fund's average quality remained high during the year, with approximately 70%
of the portfolio rated AA or better, slightly above that of a year ago.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect the current market volatility to continue over the coming months, as
the struggle between domestic growth and concerns over several important foreign
economies will continue to play out. This volatility likely will be accompanied
by a modest downward trend in interest rates over the near term. There are fears
that inflation may heat up, but evidence of this actually happening has not
surfaced.
8
<PAGE> 265
The One Group Kentucky Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Given this outlook, we expect to maintain our current Fund strategies. We will
continue to focus on keeping the income stream as high as possible, because
overall price performance should be muted with rates as low as they are.
/s/ David M. Sivinski
David M. Sivinski, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
9
<PAGE> 266
The One Group Kentucky Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/12/93)
<S> <C> <C> <C>
Fiduciary 7.11% 5.40% 5.52%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Fiduciary
<S> <C> <C> <C>
3/93 $10,000 $10,000 $10,000
6/93 10,277 10,252 10,221
6/94 10,407 10,354 10,250
6/95 11,263 11,054 10,935
6/96 11,887 11,620 11,630
6/97 12,722 12,367 12,414
6/98 $13,656 $13,227 $13,297
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/12/93)
<S> <C> <C> <C>
Class A 6.86% 5.17% 5.30%
Class A* 2.06% 4.20% 4.39%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class A* Class A
<S> <C> <C> <C> <C>
3/93 $10,000 $10,000 $ 9,550 $10,000
6/93 10,277 10,252 9,761 10,221
6/94 10,407 10,354 9,789 10,250
6/95 11,263 11,054 10,444 10,935
6/96 11,887 11,620 11,039 11,559
6/97 12,722 12,367 11,752 12,305
6/98 $13,656 $13,227 $12,560 $13,151
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/16/95)
<S> <C> <C>
Class B 6.20% 6.04%
Class B** 2.20% 5.23%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
3/95 $10,000 $10,000 $10,000 $10,000
6/95 10,284 10,226 10,263 10,263
6/96 10,853 10,749 10,792 10,792
6/97 11,616 11,440 11,419 11,419
6/98 $12,469 $12,235 $11,827 $12,127
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The above-quoted performance data includes the performance of the Trademark
Kentucky Municipal Bond Fund for the period prior to the commencement of
operations of The One Group Kentucky Municipal Bond Fund on January 20, 1995.
Performance for Class A Shares is based on Fiduciary Share performance adjusted
to reflect the sales charges applicable to Class A Shares.
The performance of the Kentucky Municipal Bond Fund is measured against the
Lehman Brothers 7 Year Municipal Bond Index, an unmanaged index comprised of
investment grade municipal bonds with maturities close to seven years. Investors
are unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
10
<PAGE> 267
The One Group Ohio Municipal Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Ohio Municipal Bond Fund Fiduciary share class posted a total
return of 7.13% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 13.)
There was strong volatility during the first six months of 1998, and interest
rates ended the fiscal year modestly lower. The 30-day SEC yield on the Fund's
Fiduciary share class followed suit, declining to 4.19% on June 30, 1998,
compared to 4.31% on June 30, 1997. (For investors in the 39.6% federal income
tax bracket and the 7.2% Ohio state bracket, the June 30, 1998, yield translates
into a 7.47% tax-equivalent yield.)
HOW DID INCOME AND PRICE APPRECIATION INFLUENCE TOTAL RETURN?
Price appreciation accounted for 1.84% of the Fund's one-year return, a figure
that essentially matched the interest rate movement in the general market. But,
the major contributor to the Fund's strong performance was income, which
accounted for 5.29% of the Fund's total return. The Fund's older, higher-coupon
bonds contributed to the income return, while the non-callable, zero-coupon
holdings accounted for much of the price appreciation.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Because this is a single-state fund, our investment selections primarily are
limited to bonds issued in Ohio. As such, we must consider bonds in all market
sectors, focusing on high-quality, full-coupon (at par or a slight premium
price), intermediate-term (maturing in nine to 15 years) securities with good
call structures. (Call refers to a bond issuer's right to repay, or "call," the
bond prior to its maturity date.) Bonds with these characteristics should
provide a higher level of income and better price protection if interest rates
begin to rise. These bonds also should experience some positive price
performance if rates decline modestly.
We also maintained our "buy and hold" strategy, which proved successful during
the year, as it was the older, higher-coupon bonds purchased in prior years that
strengthened the Fund's income return.
Furthermore, we slightly lengthened the Fund's duration to 5.7 years, from 5.1
years on June 30, 1997. This helped enhance the Fund's yield and kept the Fund's
price performance from lagging that of the general market. (Duration is a
measure of a fund's price sensitivity to interest rate changes. A longer
duration indicates greater price movement; a shorter duration indicates less.)
Finally, we attempted to remain nearly fully invested during the year, which
helped enhance the Fund's income stream and extend the Fund's duration.
Throughout the year, the portfolio's cash position generally was less than $1
million.
DID THE FUND'S MATURITY STRUCTURE CHANGE?
Despite the move in duration, the Fund's average maturity decreased slightly
during the year--from 10.5 years on June 30, 1997, to 10.3 years on June 30,
1998. This was due to our purchase of intermediate non-callable bonds, which
helped lengthen duration without extending maturity.
WHAT ABOUT QUALITY?
The Fund's average quality remained very high during the year, with 68% of the
portfolio rated AAA (the highest rating), approximately the same as a year ago.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect the current market volatility to continue over the coming months, as
the struggle between domestic growth and concerns over several important foreign
economies will continue to play out. This volatility likely will be accompanied
by a modest downward trend in interest rates over the near term. There are fears
that inflation may heat up, but evidence of this actually happening has not
surfaced.
11
<PAGE> 268
The One Group Ohio Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Given this outlook, we expect to maintain our current Fund strategies. We will
continue to focus on keeping the income stream as high as possible, because
overall price performance should be muted with rates as low as they are.
/s/ David M. Sivinski
David M. Sivinski, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
12
<PAGE> 269
The One Group Ohio Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (7/2/91)
<S> <C> <C> <C>
Fiduciary 7.13% 5.20% 6.84%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Fiduciary
<S> <C> <C> <C>
6/98 $ 16,162 $15,472 $15,883
6/97 15,057 14,467 14,825
6/96 14,069 13,592 13,827
6/95 13,330 12,931 13,083
6/94 12,317 12,112 12,334
6/93 12,163 12,192 12,325
6/92 10,983 10,913 11,061
7/91 $ 10,000 $10,000 $10,000
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 6.87% 4.97% 6.30%
Class A* 2.10% 4.01% 5.53%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class A* Class A
<S> <C> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,550 $10,000
6/92 10319 10,311 9,925 10,393
6/93 11428 11,331 11,056 11,577
6/94 11572 11,443 11,051 11,572
6/95 12525 12,218 11,691 12,242
6/96 13218 12,842 12,327 12,908
6/97 14,147 13,669 13,183 13,805
6/98 $15,185 $14,619 $14,082 $14,753
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 6.20% 4.05%
Class B** 2.20% 3.66%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10000 $10,000 $10,000 $10,000
6/94 9622 9,601 9,598 9,598
6/95 10413 10,251 10,095 10,095
6/96 10990 10,775 10,578 10,578
6/97 11762 11,469 11,241 11,241
6/98 $12625 $12,266 $11,739 $11,937
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The performance of the Ohio Municipal Bond Fund is measured against the Lehman
Brothers 7 Year Municipal Bond Index, an unmanaged index comprised of investment
grade municipal bonds with maturities close to seven years. Investors are unable
to purchase the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management. By
contrast, the performance of the fund reflects the deduction of these
value-added services as well as the deduction of sales charges on Class A Shares
and applicable contingent deferred sales charges on Class B Shares.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
13
<PAGE> 270
The One Group Louisiana Municipal Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Louisiana Municipal Bond Fund Fiduciary share class posted a total
return of 6.62% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 16.)
There was strong volatility during the first six months of 1998, and interest
rates ended the fiscal year modestly lower. The 30-day SEC yield on the Fund's
Fiduciary share class followed suit, declining to 3.90% on June 30, 1998,
compared to 4.16% on June 30, 1997. (For investors in the 39.6% federal income
tax bracket and the 6.0% Louisiana state bracket, the June 30, 1998, yield
translates into a 6.88% tax-equivalent yield.)
HOW DID INCOME AND PRICE APPRECIATION INFLUENCE TOTAL RETURN?
Price appreciation accounted for 1.58% of the Fund's one-year return, which
essentially matched the interest rate movement in the general market. But, the
major contributor to the Fund's strong performance was income, which accounted
for 5.04% of the Fund's total return. The Fund's older, higher-coupon bonds
contributed to the income return, while the non-callable, zero-coupon holdings
accounted for much of the price appreciation.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS
The supply of bonds available in Louisiana can be limited. Because of this, we
can't favor or exclude particular market sectors. We must consider bonds in all
market sectors, focusing on high-quality, full-coupon (at par or a slight
premium price), intermediate-term (maturing in nine to 15 years) securities with
good call structures. (Call refers to a bond issuer's right to repay, or "call,"
the bond prior to its maturity date.) Bonds with these characteristics should
provide a higher level of income and better price protection if interest rates
begin to rise. These bonds also should experience some positive price
performance if rates decline modestly.
We also maintained our "buy and hold" strategy, which proved successful during
the year, as it was the older, higher-coupon bonds purchased in prior years that
strengthened the Fund's income return.
Furthermore, we slightly lengthened the Fund's duration to 5.4 years, from 5.1
years on June 30, 1997. This helped enhance the Fund's yield and kept the Fund's
price performance from lagging that of the general market. (Duration is a
measure of a fund's price sensitivity to interest rate changes. A longer
duration indicates greater price movement; a shorter duration indicates less.)
Finally, we attempted to remain nearly fully invested during the year, which
helped enhance the Fund's income stream and extend the Fund's duration.
Throughout the year, the portfolio's cash position generally was less than $1
million.
DID THE FUND'S QUALITY CHANGE DURING THE YEAR?
The Fund's average quality remained high during the year, with 79% of the
portfolio rated AA or better, approximately the same as that of a year ago. This
good credit quality rating primarily was due to the fact that most of the Fund's
bonds were escrowed or insured.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect the current market volatility to continue over the coming months, as
the struggle between domestic growth and concerns over several important foreign
economies will continue to play out. This volatility likely will be accompanied
by a modest downward trend in interest rates over the near term. There are fears
that inflation may heat up, but evidence of this actually happening has not
surfaced.
14
<PAGE> 271
The One Group Louisiana Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Given this outlook, we expect to maintain our current Fund strategies. We will
continue to focus on keeping the income stream as high as possible, because
overall price performance should be muted with rates as low as they are.
/s/ David M. Sivinski
David M. Sivinski, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
15
<PAGE> 272
The One Group Louisiana Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (12/29/89)
<S> <C> <C> <C>
Fiduciary 6.62% 5.26% 6.81%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Fiduciary
<S> <C> <C> <C>
6/98 $18,262 $17,353 $17,509
6/97 17,013 16,225 16,422
6/96 15,896 15,244 15,375
6/95 15,062 14,503 14,584
6/94 13,917 13,584 13,685
6/93 13,743 13,450 13,550
6/92 12,410 12,239 12,295
6/91 11,187 11,098 11,182
6/90 10,274 10,248 10,339
12/89 $10,000 $10,000 $10,000
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (12/29/89)
<S> <C> <C> <C>
Class A 6.35% 5.14% 6.74%
Class A* 1.53% 4.18% 6.17%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class A* Class A
<S> <C> <C> <C> <C>
12/89 $10,000 $10,000 $ 9,550 $10,000
6/90 10,274 10,248 9,873 10,339
6/91 11,187 11,098 10,679 11,182
6/92 12,410 12,239 11,742 12,295
6/93 13,743 13,450 12,940 13,550
6/94 13,917 13,584 13,069 13,685
6/95 15,062 14,503 13,928 14,584
6/96 15,896 15,244 14,673 15,365
6/97 17,013 16,225 15,634 16,371
6/98 $18,262 $17,353 $16,629 $17,410
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (9/16/94)
<S> <C> <C>
Class B 5.69% 5.57%
Class B** 1.69% 4.88%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
9/94 $10,000 $10,000 $10,000 $10,000
6/95 10,824 10,735 10,482 10,482
6/96 11,424 11,283 10,970 10,970
6/97 12,226 12,010 11,614 11,614
6/98 $13,123 $12,845 $11,976 $12,276
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The above-quoted performance data includes the performance of the Paragon
Louisiana Tax-Free Fund for the period prior to the commencement of operations
of The One Group Louisiana Municipal Bond Fund on March 26, 1996. Performance
for the Fiduciary Shares is based on Class A Share performance adjusted to
reflect the absence of sales charges.
The performance of the Louisiana Municipal Bond Fund is measured against the
Lehman Brothers 7 Year Municipal Bond Index, an unmanaged index comprised of
investment grade municipal bonds with maturities close to seven years. Investors
are unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
16
<PAGE> 273
The One Group West Virginia Municipal Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
PERFORMANCE
The One Group West Virginia Municipal Bond Fund Fiduciary share class posted a
total return of 7.36% for the year ended June 30, 1998. (For information on
other share classes and performance comparisons to indexes, please see page 19.)
There was strong volatility during the first six months of 1998, and interest
rates ended the fiscal year modestly lower. The 30-day SEC yield on the Fund's
Fiduciary share class also fell, declining to 4.13% on June 30, 1998, compared
to 4.33% on June 30, 1997. (For investors in the 39.6% federal income tax
bracket and the 6.5% West Virginia state bracket, the June 30, 1998, yield
translates into a 7.31% tax-equivalent yield.)
HOW DID INCOME AND PRICE APPRECIATION INFLUENCE TOTAL RETURN?
The major contributor to the Fund's strong performance was income, which
accounted for 5.17% of the Fund's total return. Price appreciation accounted for
2.19% of the Fund's one-year return, a figure that slightly exceeded the
interest rate movement in the general market. The Fund's older, higher-coupon
bonds contributed to the income return, while the non-callable, zero-coupon
holdings accounted for much of the price appreciation.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Because this is a single-state fund, our investment selections primarily are
limited to bonds issued in West Virginia. And, because the supply of such bonds
is limited, we must consider alternatives in all market sectors. To help us
uncover the best candidates for investment, we focus on high-quality,
full-coupon (at par or a slight premium price), intermediate-term (maturing in
nine to 15 years) securities with good call structures. (Call refers to a bond
issuer's right to repay, or "call," the bond prior to its maturity date.) Bonds
with these characteristics should provide a higher level of income and better
price protection if interest rates begin to rise. These bonds also should
experience some positive price performance if rates decline modestly.
We also maintained our "buy and hold" strategy, which proved successful during
the year. It was the older, higher-coupon bonds purchased in prior years that
strengthened the Fund's income return.
Furthermore, we lengthened the Fund's duration to 5.9 years, from 5.0 years on
June 30, 1997. This helped enhance the Fund's yield and kept the Fund's price
performance from lagging that of the general market. (Duration is a measure of a
fund's price sensitivity to interest rate changes. A longer duration indicates
greater price movement; a shorter duration indicates less.)
Finally, we attempted to remain nearly fully invested during the year, which
helped enhance the Fund's income stream and extend the Fund's duration.
Throughout the year, the portfolio's cash position generally was less than $1
million.
DID THE FUND'S MATURITY CHANGE DURING THE YEAR?
Along with the duration, the Fund's average maturity increased during the
year--from 9.4 years on June 30, 1997, to 10.6 years on June 30, 1998.
WHAT ABOUT QUALITY?
The Fund's average quality remained high during the year, with 82% of the
portfolio rated AA or better, above the 76% level one year ago.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect the current market volatility to continue over the coming months, as
the struggle between domestic growth and concerns over several important foreign
economies will continue to play out. This volatility likely will be accompanied
by a modest downward trend in interest rates over the near term. There are fears
that inflation may heat up, but evidence of this actually happening has not
surfaced.
17
<PAGE> 274
The One Group West Virginia Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Given this outlook, we expect to maintain our current Fund strategies. We will
continue to focus on keeping the income stream as high as possible, because
overall price performance should be muted with rates as low as they are.
/s/ David M. Sivinski
David M. Sivinski, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
18
<PAGE> 275
The One Group West Virginia Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (12/31/83)
<S> <C> <C> <C> <C>
Fiduciary 7.36% 5.62% 6.69% 7.39%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Fiduciary
<S> <C> <C> <C>
6/98 $17,468 $19,444 $19,103
6/97 16,274 18,180 17,792
6/96 15,560 17,080 16,574
6/95 15,077 16,250 15,847
6/94 14,200 15,220 15,000
6/93 14,218 15,070 14,532
6/92 13,386 13,714 13,442
6/91 12,449 1,2435 12,370
6/90 11,761 11,482 11,505
6/89 11,139 10,813 10,761
6/88 $10,000 $10,000 $10,000
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (12/31/83)
<S> <C> <C> <C> <C>
Class A 6.98% 5.42% 6.45% 7.15%
Class A* 2.16% 4.45% 5.96% 6.82%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $0,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class A* Class A
<S> <C> <C> <C> <C>
6/88 $10,000 $10,000 $ 9,550 $10,000
6/89 11,139 10,813 10,246 10,728
6/90 11,761 11,482 10,942 11,457
6/91 12,449 12,435 11,735 12,288
6/92 13,386 13,714 12,722 13,322
6/93 14,218 15,070 13,709 14,355
6/94 14,200 15,220 14,114 14,779
6/95 15,077 16,250 14,875 15,576
6/96 15,560 17,080 15,522 16,254
6/97 16,274 18,180 16,684 17,470
6/98 $17,468 $19,444 $17,850 $18,691
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Inception
1 Year 5 Year 10 Year (12/31/83)
<S> <C> <C> <C> <C>
Class B 6.57% 4.76% 5.79% 6.47%
Class B** 2.57% 4.59% 5.79% 6.47%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Intermediate
Measurement Period BrYear Municipal Bond
(Fiscal Year Covered) MBond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
6/88 $10,000 $10,000 $10,000 $10,000
6/89 11,139 10,813 10,674 10,674
6/90 11,761 11,482 11,316 11,316
6/91 12,449 12,435 12,070 12,070
6/92 13,386 13,714 13,001 13,001
6/93 14,218 15,070 13,916 13,916
6/94 14,200 15,220 14,237 14,237
6/95 15,077 16,250 14,895 14,895
6/96 15,560 17,080 15,457 15,457
6/97 16,274 18,180 16,475 16,475
6/98 $17,468 $19,444 $17,557 $17,557
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The above-quoted performance data includes the performance of the West Virginia
Municipal Bond Collective Trust Fund for the period prior to the commencement of
operations of The West Virginia Municipal Bond Fund on January 20, 1997,
adjusted to reflect the deduction of fees and expenses (absent any waivers)
applicable to the Fiduciary, Class A and Class B shares of the West Virginia
Municipal Bond Fund. The West Virginia Municipal Bond Collective Trust Fund was
not registered under the Investment Company Act of 1940 ("1940 Act") and,
therefore, was not subject to certain investment restrictions, limitations and
diversification requirements imposed by the 1940 Act and the Internal Revenue
Code. If the West Virginia Municipal Bond Collective Trust Fund had been
registered under the 1940 Act, its performance may have been adversely affected.
The performance of the West Virginia Municipal Bond Fund is measured against the
Lehman Brothers 7 Year Municipal Bond Index, an unmanaged index comprised of
investment grade municipal bonds with maturities close to seven years. Investors
are unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lehman Brothers 7 Year Municipal Bond Index for all classes consists of the
average monthly returns of the Lehman Brothers Municipal Bond Index from June
1988 through December 1989. Thereafter, the data are from the Lehman Brothers 7
Year Municipal Bond Index which corresponds with the initiation of the Index on
January 1, 1990.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
19
<PAGE> 276
The One Group Arizona Municipal Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Arizona Municipal Bond Fund Fiduciary share class offered a total
return of 6.58% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 21.)
The municipal market continued to take a back seat to the equity and taxable
bond markets during the past 12 months. Nevertheless, municipal securities
showed marginal improvement during the year, as yields declined due to the
favorable inflation and monetary policy scenarios. As a result, prices on
municipal bonds generally increased, and the Fund's net asset value (NAV)
increased by 0.89%.
The Fund's Fiduciary share class 30-day SEC yield declined from 4.36% on June
30, 1997, to 3.82% on June 30, 1998. (For investors in the 39.6% federal income
tax bracket and the 5.2% Arizona state bracket, the June 30 yield translates
into a 6.67% tax-equivalent yield.)
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
In a declining interest rate environment, the call date on portfolio securities
takes on added importance. (The call date refers to the first date on which the
bond issuer can redeem outstanding bonds before the maturity date.) When rates
are falling, bond issuers want to "call" their bonds in order to refinance their
debt at lower interest rates. As such, shorter call dates can inhibit a
security's price improvement when interest rates are declining.
Because of this, we took steps to improve the Fund's call protection. We
increased the Fund's average life from 7.0 years to 7.8 years, and we extended
the Fund's duration from 5.4 years to 6.0 years. (Average life refers to the
average period for which the individual bonds held in a fund mature or repay
their face amounts. Duration is a measure of a fund's sensitivity to interest
rate changes. A longer duration indicates greater sensitivity; a shorter
duration indicates less.) We accomplished this by selling short-maturity, high-
coupon bonds and using the proceeds to purchase 12-to 15-year maturities at
small discounts and with better call protection. Having a slightly longer
duration allowed the Fund to capture additional price appreciation in the
declining rate environment. In addition, we added higher yielding
mortgage-backed and hospital-related bonds to maintain the Fund's income flow.
DID THE FUND'S QUALITY CHANGE DURING THE YEAR?
The Fund's overall quality remained unchanged during the year, with nearly 50%
of the securities insured and approximately 90% rated AA or better.
WHAT IS YOUR OUTLOOK FOR THE FUND?
While we expect the general trend of lower interest rates to continue, we do not
anticipate making substantial changes to the portfolio. We will continue to
maintain a portfolio of quality issues with a maturity structure that seeks to
reduce credit risk and price fluctuations.
We expect the U.S. economy to continue growing, but at a slower pace. This
should alleviate the threat of tighter monetary policy from the Federal Reserve.
As such, we see a continuation of the pattern established two years ago--modest
price appreciation on the Fund's NAV, with the substantial portion of return
coming from income.
/s/ Todd Curtis
Todd Curtis, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
20
<PAGE> 277
The One Group Arizona Municipal Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (11/30/79)
<S> <C> <C> <C> <C>
Fiduciary 6.58% 5.28% 7.01% 7.34%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Fiduciary
<S> <C> <C> <C>
6/98 $17,468 $19,444 $19,688
6/97 16,274 18,180 18,473
6/96 15,560 17,080 17,217
6/95 15,077 16,250 16,552
6/94 14,200 15,220 15,475
6/93 14,218 15,070 15,224
6/92 13,386 13,714 13,877
6/91 12,449 12,435 12,531
6/90 11,761 11,482 11,597
6/89 11,139 10,813 10,951
6/88 $10,000 $10,000 $10,000
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (11/30/79)
<S> <C> <C> <C> <C>
Class A 6.30% 4.72% 6.60% 6.99%
Class A* 1.52% 3.76% 6.10% 6.73%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class A* Class A
<S> <C> <C> <C> <C>
6/88 $10,000 $10,000 $ 9,550 $10,000
6/89 11,139 10,813 10,439 10,931
6/90 11,761 11,482 11,010 11,529
6/91 12,449 12,435 11,882 12,442
6/92 13,386 13,714 13,124 13,743
6/93 14,218 15,070 14,366 15,043
6/94 14,200 15,220 14,551 15,237
6/95 15,077 16,250 15,525 16,256
6/96 15,560 17,080 16,129 16,889
6/97 16,274 18,180 17,018 17,819
6/98 $17,468 $19,444 $18,089 $18,941
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (11/30/79)
<S> <C> <C> <C> <C>
Class B 2.67% 3.41% 5.60% 6.13%
Class B** -1.33% 3.24% 5.60% 6.13%
<CAPTION>
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Measurement Period Brothers 7 Year Municipal Bond
(Fiscal Year Covered) Municipal Bond Funds Index Class B** Class B
<S> <C> <C> <C> <C>
6/88 $10,000 $10,000 $10,000 $10,000
6/89 11,139 10,813 10,865 10,865
6/90 11,761 11,482 11,381 11,381
6/91 12,449 12,435 12,212 12,212
6/92 13,386 13,714 13,410 13,410
6/93 14,218 15,070 14,575 14,575
6/94 14,200 15,220 14,675 14,675
6/95 15,077 16,250 15,557 15,557
6/96 15,560 17,080 16,039 16,039
6/97 16,274 18,180 16,788 16,788
6/98 $17,468 $19,444 $17,237 $17,237
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The fund's income may be subject to the federal alternative minimum tax.
The above-quoted performance data includes the performance of the Arizona
Municipal Bond Collective Trust Fund for the period prior to the commencement of
operations of the Arizona Municipal Bond Fund on January 20, 1997, adjusted to
reflect the deduction of fees and expenses (absent any waivers) applicable to
the Fiduciary, Class A and Class B shares of the Arizona Municipal Bond Fund.
The Arizona Municipal Bond Collective Trust Fund was not registered under the
Investment Company Act of 1940 ("1940 Act") and, therefore, was not subject to
certain investment restrictions, limitations and diversification requirements
imposed by the 1940 Act and the Internal Revenue Code. If the Arizona Municipal
Bond Collective Trust Fund had been registered under the 1940 Act, its
performance may have been adversely affected.
The performance of the Arizona Municipal Bond Fund is measured against the
Lehman Brothers 7 Year Municipal Bond Index, an unmanaged index comprised of
investment grade municipal bonds with maturities close to seven years. Investors
are unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lehman Brothers 7 Year Municipal Bond Index for all classes consists of the
average monthly returns of the Lehman Brothers Municipal Bond Index from June
1988 through December 1989. Thereafter, the data are from the Lehman Brothers 7
Year Municipal Bond Index which corresponds with the initiation of the Index on
January 1, 1990.
The Lipper Intermediate Municipal Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
21
<PAGE> 278
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS (97.9%):
Alaska (0.2%):
$ 1,000 Anchorage, GO, 6.00%, 10/1/10,
FGIC............................... $ 1,130
--------
Arizona (2.5%):
1,000 Educational Loan Marketing Corp.,
AMT, 7.30%, 9/1/03, Callable 9/1/99
@ 102, MBIA........................ 1,053
1,000 Educational Loan Marketing Corp.,
AMT, 7.35%, 9/1/04, Callable 9/1/99
@ 102, MBIA........................ 1,054
775 Educational Loan Marketing Corp.,
AMT, 7.38%, 9/1/05, Callable 9/1/99
@ 102, MBIA........................ 817
1,385 Maricopa City Industrial Development
Revenue, Coral Apartments Project
Bg, AMT, 5.10%, 3/1/28, Callable
3/1/06 @ 101....................... 1,379
1,105 Maricopa County Development
Authority, Multi-Family Housing,
5.65%, 1/1/09, Callable 1/1/07
@ 101.............................. 1,136
1,280 Maricopa County Development
Authority, Multi-Family Housing,
6.05%, 7/1/17, Callable 1/1/07
@ 101.............................. 1,325
2,835 Phoenix Airport Revenue, AMT, Series
D, 6.00%, 7/1/06, MBIA............. 3,101
700 Phoenix Industrial Development
Authority, 6.00%, 12/1/10, Callable
12/1/03 @ 102...................... 738
2,060 Pima County, Industrial Development
Authority, 5.45%, 4/1/10, Callable
4/1/07 @ 102, MBIA................. 2,188
--------
12,791
--------
Arkansas (0.6%):
1,000 Jefferson County, Pollution Control
Revenue, 5.60%, 10/1/17, Callable
12/1/02 @ 102...................... 1,012
1,060 Sebastian County, Community Junior
College, 5.35%, 4/1/10, Callable
4/1/07 @ 101, AMBAC................ 1,117
1,000 State Capital Appreciation, Series
97A, 0.00%, 6/1/14................. 447
300 State Development Authority, Single
Family Mortgage Revenue, Series G,
5.50%, 1/1/10...................... 310
--------
2,886
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
California (5.8%):
$ 2,000 ABAG Finance Authority for Nonprofit
Corp., 5.75%, 10/1/17, Callable
10/1/07 @ 102...................... $ 2,067
2,000 ABAG Finance Authority for Nonprofit
Corp., Multi-Family Housing
Revenue, AMT, 5.70%, 11/1/26,
Callable 11/1/06 @ 100............. 2,114
1,945 ABAG Finance Authority, Multi-Family
Housing Revenue, AMT, 6.75%,
4/20/07, GNMA...................... 2,135
500 Castaic Lake Water Agency,
Certificates Partnership, Water
System Improvement Project, 7.00%,
8/1/04, Callable 8/1/00 @ 102,
MBIA............................... 541
3,500 Long Beach Harbor, Series A, AMT,
6.00%, 5/15/12, FGIC............... 3,922
1,750 Riverside County, 5.75%, 6/1/09...... 1,939
3,000 Sacramento Municipal Utility
District, 5.40%, 11/15/06, Callable
11/15/03 @ 102, FSA................ 3,192
1,000 San Francisco City & County Airports,
Common International Airport
Revenue, 6.30%, 5/1/11, Callable
5/1/02 @ 102, AMBAC................ 1,084
1,000 Southern Public Power Authority,
Transmission Project, Revenue,
0.00%, 7/1/15, MBIA................ 424
1,000 State, 7.00%, 10/1/07, GO............ 1,194
1,400 Statewide Community Development,
2.40%, 1/1/09, Callable 1/1/04 @
102, AMBAC......................... 1,389
1,270 Statewide Community Development
Authority, Multi-Family Revenue,
Cudahy Gardens Project, Series I,
AMT, 5.10%, 10/1/12, Callable
4/1/03 @ 102, LOC: Swiss Bank...... 1,275
2,100 Statewide Community Development
Authority, Multi-Family Revenue,
Riverside Gardens Project, Series
J, AMT, 5.10%, 10/1/12, Callable
4/1/03 @ 102, LOC: Swiss Bank...... 2,108
4,390 Statewide Community Development
Authority, SeriesA-2, Revenue,
4.90%, 5/15/25, GO................. 4,418
2,000 Statewide Community Development
Authority, Series A-3, Revenue,
5.10%, 5/15/25, Callable 7/1/08 @
101, GO............................ 2,015
--------
29,817
--------
</TABLE>
Continued
22
<PAGE> 279
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Colorado (9.1%):
$ 3,290 Arapahoe County, Capital
Improvements, Project E-470, 0.00%,
8/31/03............................ $ 2,638
1,135 Arapahoe County, School District #001
Englewood, 0.00%, 11/1/09.......... 677
885 Denver City & County, Airport
Revenue, AMT, 6.75%, 11/15/03,
Callable 11/15/02 @ 102, MBIA...... 971
2,000 Denver City & County, Airport
Revenue, Series B, AMT, 5.75%,
11/15/09, Callable 11/15/06 @ 102,
MBIA............................... 2,166
9,750 Denver City & County, School District
#1, GO, 0.00%, 12/1/06............. 6,693
1,000 Denver City & County, School
District, #001, GO Refunding,
6.50%,
12/1/10............................ 1,182
3,000 El Paso County, School District,
7.13%, 12/1/19, Callable 12/1/07 @
125................................ 3,844
1,135 Health Facilities Authority Revenue,
6.40%, 1/1/10, Callable 1/1/07
@ 101.............................. 1,193
4,255 Highlands Ranch Metro District #004,
GO, 5.25%, 12/1/15, Callable
12/1/08 @ 101, AMBAC............... 4,322
1,320 Housing Finance Authority Single
Family Program, Series C-2,
Revenue, 5.15%, 11/1/16, Callable
5/1/08 @ 102....................... 1,320
240 Housing Finance Authority, AMT,
5.63%, 5/1/04...................... 250
3,220 Housing Finance Authority, GO, Series
A, 6.40%, 8/1/06, Callable 8/1/02 @
102, MBIA.......................... 3,418
4,000 Housing Finance Authority,
Multi-Family Program, 5.65%,
10/1/15............................ 4,103
565 Housing Finance Authority, Refunding,
Single Family, Series D, 5.65%,
12/1/04, Callable 5/1/03 @ 100..... 585
3,250 Housing Finance Authority, Series 97
B-3, 6.80%, 11/1/28, Callable
5/1/07 @ 105....................... 3,647
505 Housing Finance Authority, Single
Family Program, Series F, AMT,
6.75%, 12/1/04..................... 526
500 Jefferson County, Partnership, 6.45%,
12/1/04, Callable 12/1/02 @ 102,
MBIA............................... 554
4,000 Meridian Metropolitan District,
7.50%, 12/1/11, Callable 12/1/01 @
101................................ 4,365
325 Mountain Village Metropolitan
District, San Miguel County, 8.10%,
12/1/11, Callable 12/1/02 @ 101.... 372
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Colorado, continued:
$ 675 Mountain Village Metropolitan
District, San Miguel County, 8.10%,
12/1/11, Prerefunded 12/1/02 @
101................................ $ 787
980 Pueblo County, Single Family Mortgage
Revenue, 6.40%, 11/1/13, Callable
11/1/04 @ 102...................... 1,026
1,250 Summit County, School District #1,
Refunding, 6.75%, 12/1/04, FGIC.... 1,422
--------
46,061
--------
Connecticut (1.6%):
1,000 Bridgeport, Refunding, 6.50%, 9/1/08,
AMBAC.............................. 1,167
1,015 State Health & Educational
Facilities, Series 97E, 5.50%,
7/1/09, Callable 7/1/07 @ 102...... 1,074
1,695 State Housing Finance Authority,
6.70%, 11/15/12, Callable 11/15/02
@ 102.............................. 1,833
1,575 State, GO, Series A, 5.30%, 5/15/10,
Callable 5/15/06 @ 101............. 1,655
2,475 State, GO, Series B, 6.00%,
10/1/05............................ 2,737
--------
8,466
--------
Florida (7.1%):
1,220 Broward County, Housing Authority,
5.55%, 7/1/09, Callable 7/1/06
@ 102.............................. 1,269
1,500 Cape Coral, Special Obligation
Revenue, Water Improvements,
Special Assessment--Water Utility,
6.38%, 6/1/09, Callable 6/1/02 @
102, FSA........................... 1,645
1,270 Clay County, Housing Finance
Authority Revenue, Single Family
Mortgage, AMT, 6.20%, 9/1/11,
Callable 3/1/05 @ 102.............. 1,342
990 Clay County, Housing Finance
Authority Revenue, Single Family
Mortgage, AMT, 6.25%, 9/1/13,
Callable 3/1/05 @ 102.............. 1,047
1,750 Clay County, Housing Financial
Authority, AMT, 5.25%, 10/1/07,
Callable 4/1/07 @ 102.............. 1,806
1,000 Dade County, Aviation Revenue, Series
A, 6.00%, 10/1/08, Callable 10/1/05
@ 102, AMBAC....................... 1,112
1,155 Department of Corrections, Okeechobee
Correctional Facilities, 6.00%,
3/1/06, Callable 3/1/05 @ 102,
AMBAC.............................. 1,279
2,000 Escambia County, Housing Finance
Authority, Multi-Family Housing
Revenue, 5.75%, 4/1/04, Callable
12/30/03 @ 100, GNMA............... 2,053
</TABLE>
Continued
23
<PAGE> 280
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Florida, continued:
$ 3,635 Hialeah Housing Authority Revenue,
5.80%, 6/20/33, Callable 6/20/08 @
105, GNMA.......................... $ 3,819
1,185 Indian River County, Hospital
Revenue, 5.95%, 10/1/09, Callable
1/1/07 @ 102, FSA.................. 1,317
1,285 Indian River County, Hospital
Revenue, 6.00%, 10/1/10, Callable
1/1/07 @ 102, FSA.................. 1,415
180 Manatee County, Housing Finance
Authority, Mortgage Revenue, 6.38%,
11/1/05............................ 185
3,000 Miami-Dade County, Housing Finance
Authority, Single Family Revenue,
5.90%, 6/1/25, Callable 6/1/08 @
103, FHLMC......................... 3,150
4,850 Miami-Dade County Housing, Revenue,
5.80%, 10/1/12..................... 5,171
1,000 Orlando Water & Electricity Revenue,
8.00%, 4/1/03...................... 1,165
2,830 Pinellas County Housing Authority,
Revenue, AMT, 6.30%, 3/1/29,
Callable 9/1/07 @ 102, GNMA/FNMA... 3,036
1,060 Santa Rosa Bay Bridge Authority,
Revenue, 0.00%, 7/1/16............. 405
4,270 Santa Rosa Bay Bridge Authority,
Revenue, 0.00%, 7/1/19............. 1,369
2,255 Santa Rosa Bay Bridge Authority,
Revenue, 0.00%, 7/1/20............. 685
4,265 Santa Rosa Bay Bridge Authority,
Revenue, 0.00%, 7/1/22............. 1,154
2,920 Tampa Water & Sewer Revenue, ETM,
0.00%, 10/1/05..................... 2,232
--------
36,656
--------
Georgia (1.2%):
1,500 Atlanta Airport Facilities, 6.50%,
1/1/08, AMBAC...................... 1,736
1,000 Atlanta Airport Facilities Revenue,
Series A, 6.50%, 1/1/07, AMBAC..... 1,145
2,000 Burke County Development Authority,
Revenue, 3.95%, 7/01/24, Georgia
Power Company...................... 2,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Georgia, continued:
$ 1,215 Columbus Water & Sewer Revenue,
6.30%, 5/1/06, Callable 11/1/02 @
102, FGIC.......................... $ 1,333
--------
6,214
--------
Hawaii (1.0%):
1,000 Honolulu City & County, GO, Series A,
5.60%, 4/1/07, FSA................. 1,083
3,500 Honolulu City & County, GO, Series A,
7.35%, 7/1/08...................... 4,276
--------
5,359
--------
Idaho (2.6%):
2,200 Health Facilities Authority Holy
Cross Health System, Revenue,
5.00%, 12/1/18, Callable 6/1/08 @
101, MBIA.......................... 2,154
1,600 Southern Idaho Regional Solid Waste
District, 5.45%, 11/1/13, Callable
11/1/03 @ 101, LOC: Credit Local de
France............................. 1,660
1,285 Student Loan Fund Marketing
Association, Inc., 6.40%, 10/1/99,
GSL................................ 1,313
1,000 Student Loan Fund Marketing
Association, Inc., AMT, 5.10%,
4/1/02, GSL........................ 1,009
4,500 Student Loan Fund Marketing
Association, Inc., Series C, AMT,
5.60%, 4/01/07, Callable, 10/01/03
@ 102, GSL......................... 4,708
1,300 University Revenue, 5.75%, 4/1/06,
FSA................................ 1,415
1,060 University Revenue, 5.50%, 4/1/13,
Callable 4/1/07 @ 101, MBIA........ 1,115
--------
13,374
--------
Illinois (7.2%):
1,000 Chicago Metro Water Reclamation
District--Greater Chicago Capital
Improvements, GO, Pre-Refunded,
7.25%, 12/1/12..................... 1,256
4,245 Chicago Metro Water Reclamation
District--Greater Chicago Capital
Improvements, GO, Pre-Refunded,
6.25%, 12/1/14, Callable 12/1/05 @
100................................ 4,780
3,045 Chicago Park District, GO, 6.35%,
11/15/08, Callable 11/15/05 @ 102,
MBIA............................... 3,429
2,585 Chicago Water Revenue, 6.50%,
11/1/10, FGIC...................... 3,039
1,450 Chicago, Single Family Mortgage
Revenue, 0.00%, 10/1/09, Callable
10/1/05 @ 78.60, MBIA.............. 729
</TABLE>
Continued
24
<PAGE> 281
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Illinois, continued:
$ 1,380 Chicago, Single Family Mortgage
Revenue, 0.00%, 10/1/09, MBIA...... $ 641
705 Decatur Economic Development, 7.75%,
6/1/07, Callable 6/1/02 @ 102...... 794
7,225 Development Finance Authority,
Pollution Control Revenue, 7.25%,
6/1/11, Callable 6/1/01 @ 102...... 7,832
810 Evanston Residential Mortgage, 6.38%,
1/1/09, Callable 7/1/02 @ 102,
AMBAC.............................. 858
1,645 Health Facilities Authority Revenue,
6.13%, 11/15/07, Callable 11/15/04
@ 102, MBIA........................ 1,840
1,500 Health Facilities Authority Revenue,
6.75%, 1/1/10, Callable 1/1/00 @
102, FGIC.......................... 1,582
1,280 McHenry County, High School #157, GO,
0.00%, 12/1/11, FSA................ 668
1,370 McHenry County, High School #157, GO,
0.00%, 12/1/12, FSA................ 666
1,620 McHenry County, High School #157, GO,
0.00%, 12/1/13, FSA................ 743
2,500 Student Assistance, Student Loan
Revenue, Series M, AMT, 6.60%,
3/1/07, Callable 3/1/02 @ 102...... 2,669
1,500 Winnebago County, School District
#122, GO, 0.00%, 1/1/13, FSA....... 727
2,500 Winnebago County, School District
#122, GO, 0.00%, 1/1/15, FSA....... 1,078
2,500 Winnebago County, School District
#122, GO, 0.00%, 1/1/16, FSA....... 1,016
3,500 Winnebago County, School District
#122, GO, 0.00%, 1/1/17, FSA....... 1,344
1,350 Winnebago County, School District
#122, Harlem-Loves Park, Refunding,
6.35%, 6/1/07, FGIC................ 1,539
--------
37,230
--------
Indiana (2.9%):
2,150 Brownsburg Industrial Building Corp.,
Revenue, 5.50%, 2/1/15, Callable
2/1/07 @ 102, MBIA................. 2,226
1,000 Fort Wayne Hospital Authority,
Parkview Memorial Hospital Project,
Series A, 7.50%, 11/15/11, Callable
11/15/99 @ 102, FGIC............... 1,061
3,260 Health Facilities Financing
Authority, Hospital Revenue, 6.00%,
8/15/10, Callable 8/15/06 @ 102.... 3,489
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Indiana, continued:
$ 2,820 Indianapolis Economic Development
Revenue, Knob-in-the-Woods Project,
6.38%, 12/1/04, Mandatory Put
12/1/04 @ 100...................... $ 3,120
500 Lawrence Township School District,
6.75%, 1/5/05...................... 564
1,500 New Albany Floyd County, School
Building, 6.20%, 7/1/03............ 1,634
1,500 New Albany Floyd County, School
Building, 6.20%, 7/1/04............ 1,650
1,000 State Vocational Technical College
Building Facilities Fee, 6.50%,
7/1/07, Callable 1/1/05 @ 102,
AMBAC.............................. 1,136
--------
14,880
--------
Iowa (0.8%):
700 Des Moines Water Revenue, Series B,
5.50%, 12/1/04, Callable 12/1/01 @
100................................ 726
1,550 Finance Authority, 6.35%, 7/1/09,
Callable 1/1/03 @ 102, AMBAC....... 1,639
1,000 Finance Authority, Private College
Revenue, 5.75%, 12/1/08, MBIA...... 1,107
795 Finance Authority, Single Family
Mortgage Revenue, Series F, 6.15%,
7/1/04, Callable 1/1/03 @ 102,
AMBAC.............................. 822
--------
4,294
--------
Kansas (1.0%):
2,220 Sedgwick & Shawnee, Single Family
Revenue, 5.50%, 6/1/29, Step
Coupon, 6.70% after 10/1/98........ 2,493
850 Sedgwick County, Family Mortgage
Revenue, Series A-1, 6.50%,
12/1/16, Callable 12/1/07 @ 105,
GNMA............................... 918
1,750 Wichita Hospital Revenue, St. Francis
Regional Hospital, 6.25%, 10/1/10,
Callable 10/1/02 @ 102, MBIA....... 1,904
--------
5,315
--------
Kentucky (1.5%):
800 Campbell & Kenton Counties,
Sanitation District #1, 6.50%,
8/1/05, ETM........................ 884
3,000 Economic Development Financial
Authority, Revenue, 5.00%, 12/1/18,
Callable 6/1/08 @ 101.............. 2,946
1,000 Kenton County, Public Properties
Corp., 5.63%, 12/1/12, Callable
12/1/06 @ 101...................... 1,057
1,000 Martin County Mortgage Section 8,
Revenue, 6.25%, 7/1/23, FHA........ 1,039
</TABLE>
Continued
25
<PAGE> 282
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 1,310 Owensboro Electric Light & Power
Revenue, 0.00%, 1/1/09, BIG........ $ 471
1,000 Winchester Industrial Building,
7.75%, 7/1/12, Callable 7/1/02 @
102................................ 1,128
--------
7,525
--------
Louisiana (1.0%):
233 Housing Agency Mortgage Revenue,
7.80%, 12/1/09, Callable 6/1/04 @
105, GNMA.......................... 261
915 Housing Agency Mortgage Revenue,
Single Family, Series D-2, AMT,
8.00%, 6/1/27, Callable 12/1/06 @
102, GNMA/FNMA..................... 1,008
1,550 Public Facilities Authority Revenue,
AMT, 6.75%, 9/1/06, Callable 9/1/02
@ 102.............................. 1,638
2,000 St. Charles Parish Pollution Control,
8.25%, 6/1/14, Callable 6/1/99 @
103................................ 2,125
--------
5,032
--------
Maryland (0.2%):
1,150 Anne Arundel County, GO, Series B,
AMT, 7.70%, 3/15/06, Callable
3/15/99 @ 102...................... 1,203
--------
Massachusetts (1.2%):
1,650 Beverly, 6.60%, 3/15/09, Callable
3/15/04 @ 102, FSA................. 1,863
20 Education Loan Authority, AMT, 7.25%,
1/1/09, Callable 1/1/01 @ 102...... 21
2,400 State, GO, Series C, 6.00%, 8/1/09... 2,715
1,465 Worcester, GO, Series A, 6.10%,
5/1/08, Callable 5/1/05 @ 102,
MBIA............................... 1,645
--------
6,244
--------
Michigan (2.2%):
2,845 Lapeer Tax Increment Finance
Authority, Revenue, 5.50%, 6/1/12,
Callable 6/1/08 @ 100.............. 2,889
4,000 Pittsfield Township Housing Corp
Revenue, Series A, 6.00%, 1/1/22,
Callable 7/1/04 @ 103.............. 4,190
2,000 State Hospital Finance Authority
Revenue, Mercy Mount Clemens Corp.,
6.25%, 5/15/11, Callable 5/15/01 @
102................................ 2,127
1,500 State Hospital Finance Authority,
Series A, 8.10%, 10/1/13, Callable
10/1/05 @ 102...................... 1,871
--------
11,077
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Minnesota (0.3%):
$ 1,500 Northern Municipal Power Agency,
Minnesota Electric, Series A,
5.90%, 1/1/07, Callable 1/1/03 @
102, AMBAC......................... $ 1,633
--------
Mississippi (0.3%):
1,475 Home Corp., Single Family, Series D,
5.25%, 7/1/12, Callable 7/1/07 @
105, FNMA/GNMA..................... 1,607
--------
Missouri (2.8%):
1,895 Carthage Waterworks & Wastewater
Treatment Systems, 6.30%, 7/1/09,
Callable 7/1/04 @ 101, MBIA........ 2,118
1,520 Fort Zumwalt School District, 5.20%,
3/1/09, Callable 3/1/07 @ 100,
AMBAC.............................. 1,585
1,735 Fort Zumwalt School District, 5.30%,
3/1/10, Callable 3/1/07 @ 100,
AMBAC.............................. 1,810
1,345 Kansas City Industrial Development
Authority, Multi-Family Housing
Revenue, Series A, AMT, 5.63%,
7/1/05............................. 1,415
1,430 Kansas City Municipal Corp. Revenue,
5.40%, 1/15/08, Callable 1/15/06 @
101, AMBAC......................... 1,521
2,500 St. Louis Convention & Sports
Complex, 5.50%, 8/15/13, Callable
8/15/03 @ 102, MBIA................ 2,582
2,955 St. Louis Land Clearance
Redevelopment Authority Housing
Revenue, 5.95%, 7/1/22, Mandatory
Put 4/1/07 @ 100, FNMA............. 3,179
--------
14,210
--------
Montana (1.1%):
1,000 Health Facilities Authority Revenue,
5.00%, 12/1/13, Callable 6/1/08 @
101, MBIA.......................... 998
1,500 University Revenue, Facilities
Improvement, Series E, 5.00%,
5/15/21, Callable 5/15/08 @ 102,
MBIA............................... 1,485
1,000 University Revenue, Facilities
Improvement, Series F, 4.15%,
11/15/03, AMBAC.................... 999
1,075 University Revenue, Facilities
Improvement, Series F, 4.20%,
11/15/04, AMBAC.................... 1,073
1,020 University Revenue, Facilities
Improvement, Series F, 4.30%,
11/15/05, AMBAC.................... 1,019
--------
5,574
--------
</TABLE>
Continued
26
<PAGE> 283
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Nevada (2.5%):
$ 5,000 Clark County, Pollution Control
Revenue, 5.30%, 10/1/11, Callable
1/1/03 @ 102, ACA.................. $ 5,105
1,025 Douglas County, School District,
Series A, 5.90%, 6/1/08, Callable
6/1/02 @ 101, FGIC................. 1,100
2,000 Las Vegas, Sewer Revenue, 6.60%,
10/1/12, Callable 4/1/02 @ 102,
FGIC............................... 2,208
1,000 Municipal Bond Bank Project #20-23A,
7.00%, 7/1/01, ETM................. 1,039
3,010 Washoe County, School District, GO,
6.13%, 8/1/07, Callable 8/1/02 @
101, MBIA.......................... 3,247
--------
12,699
--------
New Hampshire (0.3%):
1,225 Higher Education & Health Facilities
Authority Revenue, 6.25%, 1/1/06,
Callable 7/1/04 @ 102.............. 1,351
--------
New Jersey (1.1%):
3,500 Sayreville Housing Development Corp.,
Revenue, 6.00%, 2/1/23, Callable
8/1/03 @ 100, FHA.................. 3,679
1,630 South Brunswick Township, 6.40%,
8/1/07, Callable 8/1/05 @ 100,
FGIC............................... 1,841
--------
5,520
--------
New Mexico (1.4%):
30 Albuquerque, 7.65%, 8/15/07, FGIC.... 32
1,000 Albuquerque Airport Revenue, AMT,
6.50%, 7/1/11, Callable 7/1/00 @
105, AMBAC......................... 1,088
5,455 Educational Assistance Foundation,
Student Loan Revenue, Series A,
AMT, 6.85%, 4/1/05, Callable 4/1/02
@ 102, AMBAC....................... 5,947
--------
7,067
--------
New York (4.4%):
3,100 Long Island Power Agency Authority,
Revenue, 5.13%, 12/1/22, Callable
6/1/08 @ 101, FSA.................. 3,066
1,500 Metropolitan Transportation
Authority, 6.38%, 7/1/10, Callable
7/1/02 @ 102, FGIC................. 1,655
1,395 Nassau County, 5.63%, 8/1/03, FGIC... 1,486
1,980 Radisson Senior Citizens Housing
Corp. Revenue, Series A, 5.63%,
8/1/11............................. 2,059
1,500 State Dorm Authority, Series A,
5.50%, 7/1/04...................... 1,579
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
New York, continued:
$ 2,950 State Dorm Authority, Series A,
5.50%, 7/1/05...................... $ 3,111
1,500 State Dorm Authority, Series A,
5.50%, 7/1/06...................... 1,583
3,000 State, GO, Series B, 5.25%, 8/1/12,
Callable 8/1/07 @ 101.............. 3,054
5,000 State, GO, Series F, 5.13%, 8/1/11,
Callable 2/1/08 @ 101.............. 5,066
--------
22,659
--------
North Carolina (0.5%):
2,500 Educational Facilities, Wake Forest,
5.00%, 11/1/12, Callable 11/1/07 @
102................................ 2,529
--------
North Dakota (2.5%):
3,050 Grand Forks Sales Tax Revenue Bond,
5.10%, 12/15/10, Callable 12/15/07
@ 100.............................. 3,154
160 Housing Finance Agency, AMT, 6.25%,
7/1/09, Callable 7/1/04 @ 102...... 166
3,500 Mercer County, Pollution Control
Revenue, 6.65%, 6/1/22, Callable
6/1/02 @ 102, FGIC................. 3,829
2,910 State Building Authority Lease
Revenue, Series A, 5.13%, 12/1/18,
Callable 12/1/08 @ 100, AMBAC...... 2,888
1,505 State Building Authority Revenue,
Series B, 5.00%, 12/1/10, Callable
12/1/08 @ 100, AMBAC............... 1,535
1,270 Water Development, 5.70%, 7/1/17,
Callable 7/1/07 @ 100, AMBAC....... 1,342
--------
12,914
--------
Ohio (2.7%):
2,000 Butler County Sewer Systems Revenue,
4.70%, 12/1/11, Callable 12/1/08 @
101, AMBAC......................... 1,984
2,000 Butler County Sewer Systems Revenue,
4.80%, 12/1/12, Callable 12/1/08 @
101, AMBAC......................... 1,982
2,100 Mount Vernon, Industrial Development
Revenue, 5.90%, 3/1/03............. 2,105
2,500 Northeast Regional Sewer District,
5.60%, 11/15/13, Callable 11/15/05
@ 101, AMBAC....................... 2,645
2,470 State, Economic Development, 7.50%,
9/1/10, Callable 9/1/02 @ 102...... 2,772
2,500 State, Higher Educational Facilities,
0.00%, 7/1/07...................... 2,531
--------
14,019
--------
</TABLE>
Continued
27
<PAGE> 284
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Oklahoma (1.8%):
$ 2,500 Baptist Health Center, IDR, 6.25%,
8/15/12, Callable 8/15/05 @ 102,
AMBAC.............................. $ 2,797
1,000 Housing Finance Agency, PG-B-1,
5.60%, 3/1/28, Callable 9/1/07 @
102................................ 1,021
5,500 Water Reservoir Bridge State Loan
Program Revenue, Series A-Conv,
5.00%, 9/1/17, Callable 9/1/08
@ 102.............................. 5,443
--------
9,261
--------
Oregon (2.8%):
2,350 Jackson County, School District #5
Ashland, GO, 5.70%, 6/1/07, FSA.... 2,576
2,580 Lane County, School District #019,
6.00%, 10/15/11, FGIC.............. 2,924
1,000 Lane County, School District #52
Bethel, GO, 6.00%, 6/1/06, FSA..... 1,111
3,630 Marion County, Oregon, 5.50%,
10/1/05, AMBAC..................... 3,892
1,435 Port of Portland Airport Revenue,
Series 7-A, 6.75%, 7/1/09, Callable
7/1/01 @ 101, MBIA................. 1,555
2,075 Washington County, School District
#88, GO, 6.10%, 6/1/05, Callable
12/15/04 @ 100, FSA................ 2,298
--------
14,356
--------
Pennsylvania (3.2%):
3,200 Dauphin County, Industrial
Development Authority, Pollution
Control Revenue, 6.00%, 1/1/08,
MBIA............................... 3,205
1,085 Delaware County, Hospital Authority,
6.00%, 12/15/20, Callable 12/1/03 @
102................................ 1,144
1,500 Hospital Revenue Bond, 6.40%, 1/1/06,
Callable 1/1/05 @ 102, AMBAC....... 1,682
2,750 Indiana County, Industrial
Development Authority, Pollution
Control Revenue, 6.00%, 6/1/06,
MBIA............................... 3,040
2,350 Philadelphia Airport Revenue, Series
A, AMT, 5.50%, 6/15/05, AMBAC...... 2,484
2,500 Philadelphia Water & Waste, 5.65%,
6/15/12, Callable 6/15/03 @ 102,
FGIC............................... 2,612
2,000 State Financial Authority Revenue,
6.60%, 11/1/09, Callable 11/1/03 @
102, LOC: Societe Generale......... 2,218
--------
16,385
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Puerto Rico (1.0%):
$ 5,000 Commonwealth Infrastructure, Series
A, 5.25%, 7/1/10, Callable 7/1/08 @
101, AMBAC......................... $ 5,292
--------
Rhode Island (0.2%):
1,000 Housing & Mortgage Financial Corp.,
Series 15-B, 6.20%, 10/1/06,
Callable 4/1/04 @ 102, MBIA........ 1,069
--------
South Carolina (0.8%):
1,760 Greenville School Public Facilities,
5.60%, 3/1/10...................... 1,885
1,045 Hilton Head Island, GO, 5.50%,
8/1/09, MBIA....................... 1,137
20 Jobs Economic Development Authority
Hospital Facilities Revenue, 5.00%,
11/1/18, Callable 5/1/08 @ 101,
AMBAC.............................. 20
250 Piedmont, Municipal Power Agency,
Electric Revenue, Series A, 6.55%,
1/1/16............................. 250
1,000 York County, School District #3, GO,
5.40%, 3/1/08, Callable 3/1/06 @
101, FSA........................... 1,064
--------
4,356
--------
South Dakota (0.8%):
3,675 Health & Educational Facilities
Authority Revenue, St. Luke's,
6.63%, 7/1/11, Callable 7/1/01 @
102, MBIA.......................... 3,968
--------
Tennessee (1.1%):
1,050 Chattanooga-Hamilton County, Hospital
Authority, Hospital Revenue, 5.63%,
10/1/09, FSA....................... 1,153
1,460 Dyer County, Industrial Development
Revenue, 6.00%, 2/1/07, Callable
2/1/04 @ 102....................... 1,560
2,000 Housing Development, 6.20%, 7/1/18,
Callable 7/1/05 @ 102.............. 2,123
1,000 Trenton Industrial Development
Revenue, Series A, 5.40%,
10/1/02............................ 1,002
--------
5,838
--------
Texas (7.7%):
2,800 Austin Housing Finance Corp., Single
Family Mortgage Revenue, AMT, ETM,
0.00%, 12/1/11..................... 1,379
1,000 Austin Utility Systems Revenue,
0.00%, 5/15/08, MBIA............... 634
1,130 Carroll Independent School District,
GO, 0.00%, 2/15/11, PSFG........... 604
</TABLE>
Continued
28
<PAGE> 285
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Texas, continued:
$ 1,365 Carroll Independent School District,
GO, 0.00%, 2/15/12, Callable
2/15/08 @ 82.259, PSFG............. $ 683
1,420 Carroll Independent School District,
GO, 0.00%, 2/15/13, PSFG........... 667
1,435 Carroll Independent School District,
GO, 0.00%, 2/15/14, PSFG........... 633
5,125 Cass County, Industrial Development
Revenue, Series A, 5.30%, 7/1/09... 5,372
1,215 Castleberry Independent School
District, Public Facilities Corp.,
5.00%, 8/15/08..................... 1,220
5,000 Coastal Bend Health Facilities,
Incarnate Word Health Services,
5.93%, 11/15/13, Callable 11/15/02
@ 102, AMBAC....................... 5,357
3,600 Grand Prairie Health Facilities
Refunding, Dallas/Fort Worth
Medical Center Project, 6.50%,
11/1/04, AMBAC..................... 4,017
3,300 Grand Prairie Health Facilities
Refunding, Dallas/Fort Worth
Medical Center Project, 6.88%,
11/1/10, AMBAC..................... 3,750
5,000 Harris County, Capital Appreciation,
Toll Road, Sub-Lien A, GO, 0.00%,
8/15/03, MBIA...................... 4,002
3,700 Harris County, Capital Appreciation,
Toll Road, Sub-Lien A, GO, 0.00%,
8/15/05, MBIA...................... 2,695
1,455 Health Facilities Development Corp.,
Hospital Revenue, All Saints
Episcopal Hospital, 6.25%, 8/15/12,
Callable 8/15/03 @ 102, MBIA....... 1,594
1,000 Housing Agency Residential
Development Revenue, Series D, AMT,
8.40%, 1/1/21, Callable 7/1/99 @
102................................ 1,039
1,000 San Antonio Electric & Gas, Series B,
7.00%, 2/1/09, Callable 2/1/99 @
101.5.............................. 1,034
1,145 State Higher Education Coordinating
Board, Student Loan, AMT, 7.45%,
10/1/06, Callable 10/1/01 @ 102.... 1,233
1,020 Tech University Revenues, 5.95%,
2/15/13, Callable 2/15/05 @ 100,
AMBAC.............................. 1,087
2,200 United Independent School District,
5.25%, 8/15/14, Callable 8/15/06 @
100................................ 2,240
--------
39,240
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Utah (1.1%):
$ 2,095 Clearfield City, GO, 5.13%, 2/1/18,
Callable 2/1/08 @ 100, MBIA........ $ 2,080
2,000 Intermountain Power Agency, Power
Supply Revenue, Series B, 6.50%,
7/1/09, MBIA....................... 2,333
1,280 State Housing Finance Authority, AMT,
6.35%, 7/1/12, Callable 1/1/05 @
102................................ 1,356
--------
5,769
--------
Vermont (0.3%):
1,430 University & State Agricultural
College, Series 73 A, 5.80%,
7/1/13............................. 1,445
--------
Virginia (0.7%):
1,340 State Housing Development Authority,
Commonwealth Mortgage, Series J,
6.65%, 7/1/10, Callable 1/1/05 @
102................................ 1,435
2,000 State Housing Development Authority,
Series B Sub B2, 6.70%, 1/1/15,
Callable 1/1/06 @ 102.............. 2,143
--------
3,578
--------
Washington (2.7%):
1,830 Chelan County, Public Utilities
Revenue, 5.90%, 7/1/13, Mandatory
Put 7/1/03 @ 102................... 1,926
1,360 King County, School District #400,
GO, 6.50%, 12/1/08................. 1,596
1,084 Kitsap County, Consolidated Housing,
7.00%, 8/20/08, GNMA............... 1,216
1,000 Seattle Light & Power Revenue, 6.00%,
8/1/13, Callable 8/1/02 @ 102...... 1,072
1,000 Seattle Solid Waste, Series B, 7.00%,
5/1/03, Callable 5/1/99
@ 102, BIG......................... 1,046
3,000 Snohomish County, Public Utility
District #001, Electric Revenue,
6.00%, 1/1/13, Callable 1/1/03 @
102, FGIC.......................... 3,224
3,500 State Nuclear Project #1, Series A,
6.00%, 7/1/08, AMBAC............... 3,891
--------
13,971
--------
West Virginia (2.9%):
1,320 Board of Regents Revenue, Series A,
5.90%, 4/1/04, ETM................. 1,386
2,495 Harrison County, Community Split
Obligation, Series A, 6.25%,
5/15/10............................ 2,870
3,630 Randolph County Community Health,
Revenue, 5.20%, 11/1/21, Callable
11/1/13 @ 100, FSA................. 3,617
</TABLE>
Continued
29
<PAGE> 286
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 3,500 School Building Authority, Series B,
5.40%, 7/1/17, Callable 7/1/07 @
102, FSA........................... $ 3,599
1,150 State College Revenue, 6.00%, 4/1/12,
Callable 4/1/03 @ 102, AMBAC....... 1,239
1,960 State Housing Development Fund,
Housing Finance, AMT, 7.20%,
11/1/20, Callable 5/1/02 @ 102..... 2,114
--------
14,825
--------
Wisconsin (0.3%):
500 Mukwonago School District, 5.80%,
3/1/07, Prerefunded 3/1/02 @ 100,
AMBAC.............................. 529
1,000 State, Series A, 6.30%, 5/1/07,
Prerefunded 5/1/02 @ 100........... 1,078
--------
1,607
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Wyoming (0.9%):
$ 875 Community Development Authority
Single Family Mortgage, Series A,
7.25%, 6/1/07, Callable 6/1/01
@ 102.............................. $ 915
2,000 Sweetwater County Solid Waste
Disposal Revenue, Series A, AMT,
7.00%, 6/1/24...................... 2,231
1,395 Sweetwater County, School District
#2, Green River, GO, 7.00%, 6/1/04,
MBIA............................... 1,589
--------
4,735
--------
Total Municipal Bonds 503,031
--------
DAILY DEMAND NOTES (0.2%):
New York (0.2%):
1,000 Long Island Power Authority Electric
Revenue, Series 6, 3.75%, 5/1/33... 1,000
--------
Total Daily Demand Notes 1,000
--------
MONTHLY DEMAND NOTES (1.5%):
California (0.4%):
2,000 Educational Loan Marketing Corp.,
Revenue, Series IV-C-1, 4.00%,
1/1/33............................. 2,000
--------
Florida (1.1%):
5,800 Educational Loan Marketing Corp.,
Revenue, Series A, 4.00%,
12/1/18............................ 5,800
--------
Total Monthly Demand Notes 7,800
--------
Total (Cost $487,954) (a) $511,831
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $513,860.
Continued
30
<PAGE> 287
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $23,972
Unrealized depreciation..................................... (95)
-------
Net unrealized appreciation................................. $23,877
=======
</TABLE>
* Variable rate securities having liquidity sources through bank letters of
credit or other cards and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of
market rates. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect at June 30, 1998.
<TABLE>
<S> <C>
ACA American Capital Access
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
BIG Insured by Bond Insurance Guarantee
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FNMA Insured by Federal National Mortgage Association
FSA Insured by Federal Security Assurance
GNMA Insured by Government National Mortgage Association
GO General Obligation
GSL Guaranteed Student Loans
IDR Industrial Development Revenue
LOC Letters of Credit
MBIA Insured by Municipal Bond Insurance Association
PSFG Permanent School Funding Guarantee
</TABLE>
See notes to financial statements.
31
<PAGE> 288
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS (98.3%):
Alabama (0.2%):
$ 540 Housing Finance Authority, Series
A-1, 5.80%, 10/1/08, Callable
4/1/05 @ 102, GNMA................. $ 569
1,540 Mobile Refunding & Improvement, GO,
0.00%, 2/15/14, Callable 2/15/08 @
76.49, MBIA........................ 688
1,500 Mobile Refunding & Improvement, GO,
0.00%, 8/15/14, Callable 2/15/08 @
74.5, MBIA......................... 652
--------
1,909
--------
Alaska (1.8%):
755 Anchorage, Series A, 5.40%, 4/1/07,
Callable 4/1/06 @ 100, MBIA........ 800
3,570 Energy Authority, Utility Revenue,
5.20%, 7/1/17, Callable 7/1/08 @
100, FSA........................... 3,585
1,005 Home Mortgage Revenue Refunding,
8.00%, 3/1/09, Callable 3/1/02 @
102, FNMA.......................... 1,079
8,440 State Housing Finance Corp., 0.00%,
12/1/17, Callable 6/1/07 @ 54,
MBIA............................... 2,653
30,000 State Housing Finance Corp., Series
A-2, AMT, 0.00%, 6/1/37, Callable
12/1/07 @ 17.74.................... 3,069
2,750 Student Loan Corp., Series A, AMT,
5.75%, 7/1/14, Callable 7/1/07 @
100, AMBAC......................... 2,943
--------
14,129
--------
Arizona (2.7%):
11,705 Maricopa County, Industrial
Development Authority Revenue,
Coral Point Apartments, Series A,
4.95%, 3/1/28, Callable 3/1/06 @
101................................ 11,747
325 Maricopa County, Industrial
Development, Multi-Family Housing
Revenue, 7.25%, 7/1/17, Callable
7/1/07 @ 101....................... 343
1,500 Maricopa County, Industrial
Development, Multi-Family Housing
Revenue, Series A, 6.25%, 7/1/27,
Callable 1/1/07 @ 101.............. 1,563
3,000 Phoenix Industrial Development
Authority, Single Family Mortgage,
6.60%, 12/1/29, Callable 12/1/07 @
101.5, GNMA/FNMA/FHLMC............. 3,292
1,210 Pima County Industrial Development
Authority Revenue, Wester, 5.38%,
6/1/10............................. 1,208
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 1,000 Show Low Industrial Development
Authority Hospital Revenue, 5.50%,
12/1/17, Callable 12/1/07 @ 102,
ACA................................ $ 1,011
2,040 Yuma, Individual & Multi-Family
Apartments, Series A, 5.40%,
12/20/17, Callable 12/20/04 @ 100,
GNMA............................... 2,059
--------
21,223
--------
Arkansas (2.0%):
280 Drew County, Public Facilities Board,
7.90%, 8/1/11, Callable 8/1/03 @
103, FNMA.......................... 303
122 Drew County, Public Facilities Board,
7.75%, 8/1/11, Callable 2/1/04 @
100................................ 130
468 Jacksonville, Residential Housing
Facilities Board, Single Family
Mortgage Revenue, 7.90%, 1/1/11,
Callable 7/1/03 @ 103.............. 511
212 Jacksonville, Residential Housing
Facilities Board, Single Family
Mortgage Revenue, 7.75%, 1/1/11,
Callable 7/1/05 @ 103.............. 231
195 Lonoke County, Residential Housing
Facilities Board, Single Family
Mortgage Revenue, 7.38%, 4/1/11,
Callable 4/1/03 @ 103.............. 212
564 Lonoke County, Residential Housing
Facilities Board, Single Family
Mortgage Revenue, Series A-2,
7.90%, 4/1/11, FNMA................ 616
1,000 Paragould, Hospital Revenue, 6.38%,
10/1/17, Callable 10/1/06 @ 102.... 1,075
953 Pope County, Residential Facilities,
Housing Board Mortgage Revenue,
Series B, 7.75%, 9/1/11, Callable
8/1/02 @ 102, FHA.................. 1,022
1,500 State Capital Appreciation, College
Savings, Series 97A, 0.00%,
6/1/16............................. 596
2,000 State Capital Appreciation, College
Savings, Series A, 0.00%, 6/1/15... 843
1,810 State Development Authority Revenue
Refunding, 8.00%, 8/15/11, Callable
8/15/01 @ 103...................... 1,939
3,650 State Development Finance Authority
Revenue, 0.00%, 6/1/15............. 1,424
845 State Development Finance Authority
Revenue, Single Family Housing,
7.75%, 4/1/21, Callable 4/1/99 @
102, GNMA.......................... 871
</TABLE>
Continued
32
<PAGE> 289
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arkansas, continued:
$ 5,000 State Development Finance Authority,
Multi-Family Mortgage Revenue,
Series A, 5.45%, 7/1/24, Callable
7/2/98 @ 100, MBIA................. $ 5,000
440 Stuttgart Public Facilities Board
Revenue, Series A-2, 7.90%, 9/1/11,
Callable 9/1/03 @ 103.............. 480
244 Stuttgart Public Facilities Board
Revenue, Series B, 7.75%, 9/1/11,
Callable 3/1/06 @ 103.............. 267
--------
15,520
--------
California (3.1%):
430 ABAG Finance Authority for Nonprofit
Corp., 5.85%, 10/1/27, Callable
10/1/07 @ 102...................... 445
4,749 Contra Costa County, Multi-Family
Mortgage Revenue, Crescent Park,
Series B, 7.80%, 6/20/34, Callable
6/20/04 @ 105, GNMA................ 5,392
1,255 Fairfield, Water Revenue, 0.00%,
4/1/15, Callable 4/1/05 @ 56.7,
AMBAC.............................. 521
1,690 Fresno Housing Authority, Project B,
AMT, 5.60%, 8/1/30, Callable 8/1/07
@ 102.............................. 1,742
1,080 Housing Finance Agency Revenue, Home
Mortgage, AMT, 7.50%, 2/1/23,
Callable 8/1/05 @ 102, FHA......... 1,187
15 Housing Finance Agency Revenue, Home
Mortgage, Series C, AMT, 7.45%,
8/1/11, Callable 8/1/01 @ 102...... 15
680 Housing Finance Agency Revenue, Local
or Guaranteed Housing, Series B,
8.63%, 8/1/15, Callable 8/1/00 @
100, MBIA.......................... 706
210 Housing Finance Agency Revenue,
Series H, AMT, 6.80%, 8/1/19,
Callable 8/1/04 @ 102, FHA......... 220
780 Housing Finance Agency Revenue,
Single Family Housing, Series F,
7.88%, 8/1/19, Callable 8/1/98 @
102................................ 797
1,460 Los Angeles Housing Authority, Multi-
Family Mortgage Revenue, The Pal,
5.30%, 7/1/18, Callable 7/1/08 @
102, FNMA.......................... 1,460
100 Los Angeles, Water & Power Electric
Revenue, 4.50%, 8/15/98............ 100
1,000 Oakland, Revenue Refunding, Series A,
7.60%, 8/1/21, Callable 8/1/98 @
102, FGIC.......................... 1,023
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
California, continued:
$ 700 Redondo Beach, Redevelopment Agency,
Residential Mortgage Revenue,
Series B, 6.25%, 6/1/11, Callable
6/1/03 @ 100....................... $ 717
810 Rural Home Mortgage Financing
Authority, AMT, 7.55%, 11/1/26..... 939
805 Rural Home Mortgage Financing
Authority, AMT, 7.75%, 5/1/27...... 934
1,180 San Joaquin Hills Toll Road,
Prerefunded, 0.00%, 1/1/14......... 550
4,435 San Joaquin Hills Toll Road,
Prerefunded, 0.00%, 1/1/16......... 1,846
1,350 San Marcos Public Facilities, 0.00%,
9/1/19............................. 465
3,725 Santa Clara County Housing Authority
Revenue, Cedar Glen Apartments,
0.00%, 4/1/26, Callable 10/1/98 @
5.52, MBIA, FHA.................... 203
1,820 Statewide Community Development
Authority Multi-Family Revenue,
Cudahy Gardens, Series I, AMT,
5.60%, 4/1/29, Callable 4/1/03 @
102, LOC: Swiss Bank............... 1,827
3,400 Statewide Community Development
Authority Multi-Family Revenue,
Cudahy Gardens, Series J, AMT,
5.60%, 4/1/29, Callable 4/1/03 @
102, LOC: Swiss Bank............... 3,413
--------
24,502
--------
Colorado (15.4%):
5,250 Arapahoe County, Highway Revenue,
Series C, 0.00%, 8/31/15, Callable
8/31/05 @ 48.6..................... 1,859
4,920 Aurora, Industrial Development,
McKesson Corp., Series A, 5.38%,
12/1/11, Callable 12/1/02 @ 102.... 5,050
5,030 Aurora, Single Family Mortgage
Revenue, Series A2, 0.00%, 9/1/15,
Prerefunded 3/1/13 @ 75.2.......... 1,840
2,205 Brush Creek Metropolitan District,
GO, Refunding, 6.70%, 11/15/09,
Callable 11/15/03 @ 101............ 2,388
400 Central City Water Revenue, GO, Water
Utility Improvements, 8.63%,
9/15/11, Prerefunded 9/15/02 @
100................................ 468
655 Central City Water Revenue, GO, Water
Utility Improvements, 7.50%,
12/1/12, Prerefunded 12/1/02 @
100................................ 742
3,700 Colorado Springs Airport Revenue,
AMT, 6.90%, 1/1/12, Callable 1/1/03
@ 102, MBIA........................ 4,081
</TABLE>
Continued
33
<PAGE> 290
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Colorado, continued:
$ 1,100 Cordillera Metropolitan District,
Eagle County, GO, 5.40%, 12/1/12,
Callable 12/1/08 @ 101............. $ 1,097
1,625 Cordillera Metropolitan District,
Eagle County, GO, 5.50%, 12/1/17,
Callable 12/1/08 @ 101............. 1,607
1,000 Denver Housing Corp., Series A,
5.35%, 10/1/12, Callable 10/1/07 @
101................................ 1,021
2,500 Denver, City & County Airport
Revenue, AMT, 5.63%, 11/15/08,
Callable 11/15/06 @ 102, MBIA...... 2,702
885 Denver, City & County Airport
Revenue, AMT, 6.75%, 11/15/13,
Callable 11/15/02 @ 102, MBIA...... 971
20,610 Denver, City & County Mortgage, AMT,
0.00%, 8/1/29...................... 3,252
1,000 Denver, City & County Residual
Revenue, Single Family, Series A,
0.00%, 7/1/10, Callable 7/1/08 @
91.87.............................. 534
9,850 Denver, City & County Residual
Revenue, Single Family, Series A,
0.00%, 7/1/14, Callable 7/1/08 @
73.66.............................. 4,133
2,910 Denver, City & County, Single Family
Mortgage Revenue, Metro Mayors,
6.00%, 4/1/22, Callable 4/1/08 @
101, GNMA/FNMA..................... 3,094
3,535 Denver, City & County, Single Family
Mortgage Revenue, Metro Mayors,
0.00%, 10/1/30..................... 568
1,475 Douglas County, Multi-Family Housing
Revenue, Parker Hilltop, AMT,
5.35%, 8/1/18, FHA................. 1,478
1,250 Eagle's Nest Metropolitan District,
GO, Refunding, 6.50%, 11/15/17,
Callable 9/1/10 @ 100.............. 1,330
198 El Paso County, Home Mortgage, Series
C, 8.30%, 9/20/18.................. 220
1,145 El Paso County, Single Family
Mortgage Revenue, 0.00%, 9/1/15,
ETM................................ 485
8,700 El Paso County, Single Family
Mortgage Revenue, Series A, AMT,
0.00%, 12/1/30, Callable 6/1/08 @
102, GNMA/FNMA..................... 1,447
2,500 Englewood, Multi-Family Housing,
Marks Apartment Revenue, 6.65%,
12/1/26, Callable 12/1/06 @ 102.... 2,711
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Colorado, continued:
$ 1,415 Englewood, Multi-Family Housing,
Marks Apartment Revenue, Series B,
6.00%, 12/15/18, Callable 12/15/03
@ 100, LOC: Citibank............... $ 1,441
2,500 Health Facilities Authority Revenue,
Steamboat Springs, 5.75%, 9/15/22,
Callable 9/15/08 @ 101............. 2,555
1,685 Housing Finance Authority, GO, 6.80%,
8/1/14, Callable 8/1/02 @ 102...... 1,787
165 Housing Finance Authority,
Multi-Family Mortgage Revenue, AMT,
5.75%, 10/1/06, Callable 4/1/06 @
102................................ 175
1,445 Housing Finance Authority,
Multi-Family Mortgage Revenue,
Series A, 9.00%, 10/1/25, Callable
10/1/00 @ 100, FHA................. 1,450
1,095 Housing Finance Authority,
Multi-Family Mortgage Revenue,
Series A-2, AMT, 5.35%, 10/1/18,
Callable 10/1/09 @ 100............. 1,097
2,000 Housing Finance Authority,
Multi-Family Mortgage Revenue,
Series A-2, AMT, 5.45%, 10/1/29,
Callable 10/1/08 @ 101............. 2,003
2,560 Housing Finance Authority,
Multi-Family Mortgage Revenue,
Series B, 6.00%, 10/1/25, Callable
2/11/98 @ 100.5, FHA............... 2,141
1,500 Housing Finance Authority,
Multi-Family Mortgage Revenue,
Series B-2, AMT, 5.80%, 10/1/28,
Callable 4/1/07 @ 101.5, FHA....... 1,544
3,000 Housing Finance Authority,
Multi-Family Mortgage Revenue,
Series C-3, 5.70%, 10/1/21,
Callable 11/1/98 @ 100, FHA........ 3,040
2,500 Housing Finance Authority, Series
B-2, AMT, 7.00%, 5/1/26, Callable
5/1/07 @ 105....................... 2,786
2,500 Housing Finance Authority, Series
C-2, AMT, 6.88%, 11/1/28, Callable
11/1/07 @ 105...................... 2,798
3,550 Housing Finance Authority, Single
Family Mortgage Revenue, 7.45%,
11/1/27, Callable 5/1/06 @ 105..... 4,069
10,250 Housing Finance Authority, Single
Family Mortgage Revenue, AMT,
7.25%, 5/1/27, Callable 5/1/07 @
105................................ 11,580
860 Housing Finance Authority, Single
Family Mortgage Revenue, Series
95C, 7.45%, 6/1/17, Callable 6/1/05
@ 105.............................. 973
</TABLE>
Continued
34
<PAGE> 291
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Colorado, continued:
$ 490 Housing Finance Authority, Single
Family Mortgage Revenue, Series A,
0.00%, 9/1/14, FHA................. $ 94
2,000 Housing Finance Authority, Single
Family Mortgage Revenue, Series
A-2, AMT, 6.60%, 5/1/28, Callable
5/1/08 @ 105....................... 2,208
1,000 Housing Finance Authority, Single
Family Mortgage Revenue, Series
A-3, 6.50%, 5/1/16, Callable 5/1/08
@ 105.............................. 1,100
345 Housing Finance Authority, Single
Family Mortgage Revenue, Series
A-3, 6.50%, 11/1/23, Callable
5/1/02 @ 102....................... 358
500 Housing Finance Authority, Single
Family Mortgage Revenue, Series
A-3, 6.50%, 11/1/29, Callable
5/1/08 @ 105....................... 555
3,500 Housing Finance Authority, Single
Family Mortgage Revenue, Series
C-1, 7.55%, 11/1/27, Callable
11/1/06 @ 102...................... 3,969
7,695 Housing Finance Authority, Single
Family Mortgage Revenue, Series
PG-C-1, AMT, 0.00%, 11/1/29,
Callable 5/1/08 @ 30.95............ 1,345
6,730 Housing Finance Authority, Single
Family Mortgage Revenue, Series
PG-C-SR, AMT, 0.00%, 11/1/29,
Callable 5/1/08 @ 31.77............ 1,222
755 Housing Finance Authority, Single
Family Program, Series B, 6.13%,
5/1/13, Callable 11/1/04 @ 103,
FHA................................ 786
700 Housing Finance Authority, Single
Family Program, Series B, 7.50%,
11/1/24, Callable 11/1/04 @ 105,
FHA................................ 779
360 Housing Finance Authority, Single
Family Program, Series D-1, 6.60%,
8/1/17, Callable 8/1/01 @ 102,
FHA................................ 369
2,000 Housing Finance Authority, Single
Family Program, Series D-1, 7.38%,
6/1/26, Callable 12/1/05 @ 105..... 2,247
605 Housing Finance Authority, Single
Family Program, Series E, AMT,
6.25%, 12/1/09, Callable 12/1/04 @
103................................ 640
310 Housing Finance Authority, Single
Family Program, Sub Series A, AMT,
6.50%, 12/1/02..................... 323
880 Jefferson County, Single Family
Mortgage Revenue, Refunding, Series
A, 8.88%, 10/1/13, Callable 4/1/01
@ 103, MBIA........................ 940
7,525 Meridian Metropolitan District,
7.50%, 12/1/11, Callable 12/1/01 @
101................................ 8,211
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Colorado, continued:
$ 1,500 Mesa County, Residual Revenue
Refunding, 0.00%, 12/1/11, ETM..... $ 792
1,720 Mountain Village Metropolitan
District, 8.10%, 12/1/11,
Prerefunded 12/1/02 @ 101.......... 2,005
890 Mountain Village Metropolitan
District, San Miguel County, 7.95%,
12/1/03, Callable 12/1/02 @ 101.... 994
835 Mountain Village Metropolitan
District, San Miguel County, 8.10%,
12/1/11, Callable 12/1/02 @ 101.... 957
2,630 Mountain Village Metropolitan
District, San Miguel County, 5.15%,
12/1/13, Callable 12/1/07 @ 101.... 2,677
3,700 Mountain Village Metropolitan
District, San Miguel County, 5.20%,
12/1/17, Callable 12/1/07 @ 101.... 3,724
--------
118,812
--------
Connecticut (1.9%):
4,350 Stamford, Connecticut Housing
Authority, Rippowam Project, 6.25%,
10/1/19, Callable 10/1/08 @ 103.... 4,658
9,200 Stamford, Connecticut Housing
Authority, Rippowam Project, 6.38%,
10/1/29, Callable 10/1/08 @ 103.... 9,833
175 State Housing Mortgage, Series A,
7.63%, 11/15/17, Callable 11/15/99
@ 100.............................. 178
--------
14,669
--------
Delaware (1.8%):
8,588 Greystone Tax-Exempt Asset Trust,
Series 98-1, Class A-1, 4.30%,
6/20/00............................ 8,623
5,490 Greystone Tax-Exempt Asset Trust,
Series 98-1, Class A-3, 4.40%,
11/2/04............................ 5,472
680 New Castle County, Single Family
Mortgage Revenue, 0.00%, 11/1/16,
FGIC............................... 112
--------
14,207
--------
Florida (5.2%):
690 Brevard County, Housing Finance
Authority, Single Family Mortgage
Revenue, AMT, 6.13%, 9/1/09,
Callable 9/1/04 @ 102.............. 714
490 Clearwater Housing Authority Revenue,
Hamptons At Clearwater, 5.30%,
5/1/18, Callable 5/1/13 @ 100,
ACA................................ 492
4,510 Duval County, Housing Finance
Authority, Single Family Mortgage
Revenue, Series C, 7.35%, 7/1/24,
Callable 9/1/00 @ 103, FGIC........ 4,800
</TABLE>
Continued
35
<PAGE> 292
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Florida, continued:
$ 175 Escambia County, Housing Finance
Authority, Single Family Revenue,
AMT, 6.60%, 10/1/12, Callable
4/1/05 @ 102, GNMA................. $ 182
1,250 Halifax Hospital Medical Center,
Florida Health Care Facilities
Revenue, 5.20%, 4/1/18, Callable
4/1/08 @ 101, ACA.................. 1,240
430 Housing Finance Authority, Home
Ownership Revenue, 7.50%, 9/1/14,
Callable 9/1/00 @ 102, GNMA........ 453
3,000 Lee County, Housing Finance
Authority, Single Family Mortgage
Revenue, 5.05%, 3/1/28, Callable
3/1/08 @ 102....................... 2,986
1,000 Lee County, Housing Finance
Authority, Single Family Mortgage
Revenue, 6.40%, 3/1/29, Callable
3/1/08 @ 105....................... 1,104
1,000 Lee County, Housing Finance
Authority, Single Family Mortgage
Revenue, 6.30%, 3/1/29, Callable
3/1/08 @ 102....................... 1,105
2,000 Lee County, Housing Finance
Authority, Series A, AMT, 6.85%,
3/1/29, Callable 9/1/07 @ 105,
FNMA............................... 2,258
2,680 Lee County, Housing Finance
Authority, Single Family Mortgage
Revenue, 7.20%, 3/1/27, Callable
3/1/07 @ 105....................... 3,026
705 Leon County, Housing Finance
Authority, Multi-County Program,
Series B, AMT, 7.30%, 1/1/28....... 802
1,445 Manatee County, Housing Finance
Authority, Mortgage Revenue, 8.38%,
5/1/25, Callable 5/1/04 @ 105...... 1,664
2,250 Manatee County, Housing Finance
Authority, Mortgage Revenue, AMT,
7.20%, 5/1/28, Callable 3/1/07 @
105, GNMA.......................... 2,545
1,495 Manatee County, Housing Finance
Authority, Single Family Mortgage
Revenue, Sub Series One, AMT,
6.30%, 11/1/28, Callable 5/1/08 @
107.25, GNMA/FNMA.................. 1,657
790 Orange County, Housing Finance
Authority, Mortgage Revenue, Series
A, AMT, 7.25%, 9/1/19, Callable
3/1/01 @ 103....................... 836
800 Orange County, Housing Finance
Authority, Mortgage Revenue, Series
A, AMT, 7.38%, 9/1/24, Callable
3/1/01 @ 103, FHA.................. 849
1,000 Palm Beach County, Housing Finance
Authority, Revenue, Windsor Park,
Series A, AMT, 5.80%, 12/1/28,
Callable 6/1/08 @ 102.............. 1,009
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Florida, continued:
$ 530 Palm Beach County, Housing Finance
Authority, Single Family Mortgage
Revenue, Series A, AMT, 6.38%,
10/1/06, Callable 10/1/04 @ 102.... $ 555
1,555 Pinellas County, Housing Finance
Authority, Single Family Mortgage
Revenue, Multi-County, Series A,
6.35%, 2/1/17, Callable 2/1/05 @
102................................ 1,625
2,450 Pinellas County, Housing Finance
Authority, Single Family Mortgage
Revenue, Series 95-A, AMT, 6.25%,
8/1/12, Callable 2/1/05 @ 102...... 2,597
2,030 Polk County, Housing Finance
Authority, Single Family Mortgage
Revenue, Series A, AMT, 7.88%,
9/1/22, Callable 3/1/00 @ 103...... 2,138
1,175 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/16...................... 449
4,380 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/18...................... 1,483
410 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/19...................... 131
1,320 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/08, ACA................. 812
1,625 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/09, ACA................. 942
1,535 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/12, ACA................. 741
1,035 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/14, ACA................. 447
1,080 Santa Rosa Bay Bridge Authority,
0.00%, 7/1/16, ACA................. 419
500 State Finance Department, 6.25%,
7/1/09, Callable 7/1/02 @ 101,
MBIA............................... 544
--------
40,605
--------
Georgia (1.1%):
785 De Kalb County, Housing Authority
Revenue, 6.40%, 5/1/05, Callable
5/1/04 @ 100....................... 820
5,000 De Kalb County, Housing Authority
Revenue, Multi-Family Housing,
7.05%, 1/1/39, Callable 1/1/08 @
104, FHA........................... 5,545
575 De Kalb County, Housing Authority
Revenue, Single Family Housing,
AMT, 7.65%, 6/1/18, Callable 6/1/04
@ 100, GNMA........................ 610
</TABLE>
Continued
36
<PAGE> 293
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Georgia, continued:
$ 1,765 Fulton County, Housing Authority
Revenue, Multi-Family Housing,
Series A, AMT, 6.30%, 7/1/16,
Callable 7/1/06 @ 102.............. $ 1,861
--------
8,836
--------
Idaho (1.4%):
1,010 Boise State University Student Union
And Housing Revenue, 5.00%, 4/1/12,
Callable 4/1/08 @ 101, FSA......... 1,015
1,055 Boise State University Student Union
And Housing Revenue, 5.05%, 4/1/13,
Callable 4/1/08 @ 101, FSA......... 1,060
1,115 Boise State University Student Union
And Housing Revenue, 5.10%, 4/1/14,
Callable 4/1/08 @ 101, FSA......... 1,120
1,360 Housing & Financial Assistance,
Single Family Mortgage Revenue,
Series D, AMT, 6.45%, 7/1/14,
Callable 1/1/06 @ 102, FHA......... 1,464
2,155 Housing & Financial Assistance,
Single Family Mortgage Revenue,
Series H, AMT, 6.05%, 7/1/14,
Callable 1/1/07 @ 102, FHA......... 2,274
230 Housing Agency, Single Family
Mortgage Revenue, AMT, 6.30%,
7/1/24, Callable 1/1/03 @ 102...... 238
1,075 Housing Finance Assistance,
Single Family Mortgage Revenue,
Series 97E-2, AMT, 5.95%, 7/1/14,
Callable 1/1/07 @ 101.5............ 1,127
1,520 Power County, PCR, 5.63%, 10/1/14.... 1,553
1,250 Student Loan Marketing Association
Revenue, Series C, AMT, 5.15%,
4/1/03............................. 1,264
--------
11,115
--------
Illinois (6.2%):
5,890 Addison Alton Electric Public
Improvements Revenue, Sub Series 1,
0.00%, 7/1/11, Callable 7/1/04 @
62................................. 2,731
12,410 Aurora, Illinois Fox Valley
Apartments, 5.3%, 11/1/27, Callable
11/1/05 @ 101...................... 12,661
310 Aurora, Single Family Mortgage
Revenue Refunding, Series B, AMT,
8.05%, 9/1/25, Callable 9/1/04 @
105................................ 353
2,355 Bolingbrook Mortgage Revenue, Capital
Appreciation, Sub Series 1, 0.00%,
1/1/11, Callable 1/1/00 @ 48.6..... 955
2,000 Chicago, Single Family Mortgage
Revenue, AMT, 6.95%, 9/1/28,
Callable 9/1/07 @ 105, AMBAC....... 2,253
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Illinois, continued:
$ 7,250 Chicago, Single Family Mortgage
Revenue, Series A-1, AMT, 6.45%,
9/1/29, Callable 9/1/08 @ 105,
GNMA/FNMA/FHLMC.................... $ 7,937
1,375 Chicago, Residential Mortgage
Revenue, 0.00%, 10/1/09, MBIA...... 639
1,415 Chicago, Single Family Mortgage
Revenue, AMT, 7.63%, 9/1/27,
Callable 6/15/06 @ 105, GNMA....... 1,616
2,000 Chicago, Single Family Mortgage
Revenue, Series 97-A, AMT, 7.25%,
9/1/28, Callable 9/1/07 @ 105,
GNMA............................... 2,263
3,355 Chicago, Single Family Mortgage
Revenue, Series A, AMT, 7.00%,
9/1/27, Callable 3/1/06 @ 105...... 3,736
695 Clay County Hospital Revenue, 5.70%,
12/1/18, Callable 12/1/08 @ 102.... 692
1,070 Clay County Hospital Revenue, 5.90%,
12/1/28, Callable 12/1/08 @ 102.... 1,076
2,265 Cook County High School District
#200, Oak Park, GO, 0.00%, 12/1/12,
FSA................................ 1,100
640 Danville, Single Family Mortgage
Revenue Refunding, 7.30%, 11/1/10,
Callable 11/1/03 @ 102............. 683
3,530 Freeport, Single Family Mortgage
Revenue, 0.00%, 8/1/10, Callable
10/1/01 @ 49....................... 1,344
1,875 Health Care Facilities Authority
Revenue, Victory Health Services,
Series A, 5.75%, 8/15/27, Callable
8/15/07 @ 101...................... 1,928
730 Housing Development Authority,
Residential Mortgage Revenue,
Series A, AMT, 7.35%, 8/1/10,
Callable 8/1/01 @ 102.............. 769
1,280 Lake and McHenry Counties, School
District, GO, 0.00%, 2/1/11,
FGIC............................... 695
4,685 Moline, Mortgage Revenue, Capital
Appreciation, Sub Series 1, 0.00%,
5/1/11, Callable 5/1/05 @ 65....... 1,893
815 Quincy, Single Family Mortgage
Revenue Refunding, 6.88%, 3/1/10,
Callable 3/1/04 @ 102.............. 868
355 Rock Island, Residential Mortgage
Revenue Refunding, 7.70%, 9/1/08,
Callable 9/1/02 @ 102.............. 380
300 State, 4.40%, 12/1/03, MBIA.......... 303
1,000 State Sales Tax, Series S, 4.80%,
6/15/06, OID @ 99.52............... 1,028
--------
47,903
--------
</TABLE>
Continued
37
<PAGE> 294
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Indiana (1.3%):
$ 2,250 Marion County, Hospital Authority
Revenue, 6.50%, 9/1/13, Callable
9/1/99 @ 102, ETM.................. $ 2,479
3,500 State Housing Finance Authority,
Single Family Mortgage Revenue,
Series A-2, AMT, 6.45%, 7/1/14,
Callable 7/1/05 @ 102, FHA......... 3,737
660 State Housing Finance Authority,
Single Family Mortgage Revenue,
Series B-2, AMT, 7.80%, 1/1/22,
Callable 7/1/00 @ 102, GNMA........ 692
3,130 State Toll Finance Authority, Toll
Road Revenue, 6.00%, 7/1/15,
Callable 7/1/98 @ 100.............. 3,135
--------
10,043
--------
Iowa (0.9%):
585 Davenport, Home Ownership Mortgage
Revenue Refunding, 7.90%, 3/1/10,
Callable 9/1/04 @ 102.............. 625
910 Finance Authority, Multi-Family
Mortgage Revenue, AMT, 7.15%,
12/1/09............................ 990
10,295 Finance Authority, Single Family
Mortgage Revenue, 0.00%, 9/1/16,
AMBAC.............................. 1,363
550 Finance Authority, Single Family
Mortgage Revenue, AMT, 7.90%,
11/1/22, Callable 11/1/99 @ 102,
GNMA............................... 579
2,315 Finance Authority, Single Family
Mortgage Revenue, Mortgage Backed
Securities Program, Series C,
6.40%, 7/1/19, Callable 1/1/05 @
102, GNMA.......................... 2,457
850 Salix, PCR, Gas & Electric Project,
5.75%, 6/1/03, Callable 12/1/98 @
100................................ 855
--------
6,869
--------
Kansas (2.1%):
290 Finney County, Single Family Mortgage
Revenue, 8.95%, 10/1/09, Callable
10/1/98 @ 100...................... 291
675 Ford County, Single Family Mortgage
Revenue, 7.90%, 8/1/10, Callable
8/1/02 @ 103, FHA.................. 727
1,930 Johnson County, Single Family
Mortgage Revenue, 7.10%, 5/1/12,
Callable 5/1/04 @ 103.............. 2,103
435 Labette County, Single Family
Mortgage Revenue, Series A, 8.40%,
12/1/11, Callable 6/1/03 @ 103..... 467
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kansas, continued:
$ 270 Olathe & Labette County, Single
Family Mortgage Revenue, Series
A-I, AMT, 8.10%, 8/1/23, Callable
2/1/05 @ 105....................... $ 303
2,505 Olathe County, Multi-Family Housing
Project, Series A, 5.75%, 7/1/12,
Callable 7/1/07 @ 101.............. 2,566
1,005 Olathe County, Multi-Family Housing,
Project B, AMT, 5.80%, 7/1/12,
Callable 7/1/07 @ 101.............. 1,030
2,400 Reno & Labette County, Single Family
Mortgage Revenue, Series A, 0.00%,
12/1/15, ETM, FGIC................. 1,003
440 Reno County, Single Family Mortgage
Revenue, Series B, 8.70%, 9/1/11,
Callable 9/1/01 @ 103.............. 480
2,500 Sedgwick & Shawnee County, Series
A-1, AMT, 5.50%, 6/1/29, GNMA...... 2,762
400 Sedgwick & Shawnee County, Single
Family Mortgage Revenue, Series B,
8.05%, 5/1/14, GNMA................ 442
440 Sedgwick & Shawnee County, Single
Family Mortgage Revenue, Series
B-2, 7.80%, 5/1/14, Callable
11/1/04 @ 103...................... 483
460 Sedgwick & Shawnee County, Single
Family Mortgage Revenue, Series
C-2, 7.80%, 11/1/24, Callable
11/1/04 @ 105, GNMA................ 513
1,940 Sedgwick County, Mortgage Loan
Revenue, Series B, AMT, 7.80%,
6/1/22, Callable 6/1/00 @ 103,
AMBAC, GNMA........................ 2,047
2,120 Shawnee County, Single Family
Mortgage Revenue, 0.00%, 10/1/16,
Callable 10/1/01 @ 23, MBIA........ 342
860 Wichita, Single Family Mortgage
Revenue, Series A, 7.10%, 9/1/09,
Callable 3/1/03 @ 103.............. 913
--------
16,472
--------
Kentucky (0.3%):
460 Housing Corp. Revenue, Series D, AMT,
6.13%, 7/1/22, Callable 7/1/04 @
102................................ 474
1,605 Meade County, PCR, Olin Corp.
Project, 6.00%, 7/1/07, Callable
9/4/98 @ 100....................... 1,618
--------
2,092
--------
Louisiana (2.1%):
900 Calcasieu Parish, Single Family
Mortgage Revenue, Series 92B,
0.00%, 5/1/13, Callable 11/1/02 @
49................................. 331
</TABLE>
Continued
38
<PAGE> 295
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 1,390 Greater Baton Rouge Parking Authority
Sales & Use Tax, 6.38%, 7/1/03,
Callable 7/1/98 @ 100.............. $ 1,393
2,250 Housing Finance Agency, Series B-2,
AMT, 6.75%, 12/1/28, Callable
6/1/07 @ 102, GNMA................. 2,455
1,895 Housing Finance Agency, Single Family
Mortgage Revenue, 6.65%, 6/1/15,
Callable 12/1/07 @ 104,
GNMA/FNMA.......................... 2,099
795 Iberia Home Mortgage Authority,
Single Family Mortgage Revenue
Refunding, 7.38%, 1/1/11, Callable
1/1/01 @ 100....................... 861
5,000 New Orleans, 0.00%, 9/1/14, AMBAC.... 2,170
72 Public Facilities Authority, Single
Family Mortgage Revenue, 7.50%,
10/1/15, Callable 6/1/05 @ 100..... 77
1,156 Public Facilities Authority, Single
Family Mortgage Revenue, Series C,
8.45%, 12/1/12, Callable 10/1/01 @
101, FHA........................... 1,231
112 St. Mary Public Finance Authority,
Single Family Mortgage Revenue,
Series A, 7.63%, 3/25/12, Callable
10/25/98 @ 100..................... 125
5,745 St. Tammany Public Trust Financing
Authority Revenue, Christwood
Project, 5.70%, 11/15/18, Callable
11/15/08 @ 102..................... 5,706
--------
16,448
--------
Maine (1.0%):
1,750 State Housing Authority, AMT, 6.10%,
11/15/16, Callable 11/15/06 @
102................................ 1,838
810 State Housing Authority, Housing
Finance Revenue, Series I, AMT,
0.00%, 11/1/10, Callable 11/1/06 @
80.2............................... 437
535 State Housing Authority, Housing
Finance Revenue, Series I, AMT,
0.00%, 11/1/11, Callable 11/1/06 @
75.3............................... 269
5,000 State Housing Authority, Mortgage
Revenue, Series D-2, AMT, 5.80%,
11/15/16, Callable 9/1/07 @
101.5.............................. 5,178
--------
7,722
--------
Maryland (0.5%):
1,140 Baltimore County Mortgage Revenue,
Series A, 0.00%, 9/1/24, Callable
9/1/07 @ 40.55..................... 271
1,240 Maryland Community Development,
Multi-Family Housing Revenue,
Series E, AMT, 6.85%, 5/15/25,
Callable 5/15/04 @ 102, GNMA....... 1,334
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Maryland, continued:
$ 8,485 Prince Georges County Housing
Authority Revenue, Foxglenn
Apartments, Series A, AMT, 0.00%,
5/20/22, Callable 5/20/00 @ 28.73,
GNMA............................... $ 2,237
--------
3,842
--------
Massachusetts (1.9%):
3,370 Boston Industrial Development, North
End Community, Series A, 6.45%,
2/1/24, Callable 8/1/07 @ 105,
FHA................................ 3,722
2,185 Dartmouth Housing Development Corp.,
Crossroads Apartments, Series A,
5.45%, 7/1/24, Callable 7/1/03 @
100, MBIA.......................... 2,216
1,020 State Housing Finance Agency, Single
Family Mortgage Revenue, AMT,
7.13%, 6/1/25, Callable 6/1/02 @
102................................ 1,092
1,590 State Industrial Finance Agency
Revenue, University Commons, 6.55%,
8/1/18, Callable 2/1/08 @ 105,
FHA................................ 1,770
3,720 State Industrial Finance Agency
Revenue, University Commons, 6.65%,
8/1/38, Callable 2/1/08 @ 105,
FHA................................ 4,140
2,000 State Industrial Pollution Control,
5.88%, 8/1/08, Callable 8/1/03 @
102................................ 2,083
--------
15,023
--------
Michigan (1.3%):
6,500 Detroit Development, Series A, 5.38%,
5/1/18, Callable 5/1/07 @ 101.5.... 6,596
1,000 Michigan State Building, Series I,
5.10%, 10/1/07, Callable 10/1/03 @
102, AMBAC......................... 1,041
1,640 State Housing Development Authority,
Home Improvement, Series B, AMT,
7.65%, 12/1/12, Callable 12/1/99 @
102, FHA........................... 1,708
505 State Housing Development Authority,
Single Family Mortgage Revenue,
Series A, 7.70%, 12/1/16, Callable
6/1/99 @ 102....................... 518
--------
9,863
--------
Minnesota (0.2%):
2,950 Minneapolis Mortgage Revenue, 0.00%,
10/1/12, Callable 10/1/05 @ 100.... 1,201
--------
</TABLE>
Continued
39
<PAGE> 296
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Mississippi (1.3%):
$ 1,000 Higher Education Assistance Corp.,
Student Loan Revenue, AMT, 6.60%,
1/1/05, Callable 7/1/02 @ 102...... $ 1,066
1,440 Higher Education Assistance Corp.,
Student Loan Revenue, Series 92C,
AMT, 6.50%, 7/1/04, Callable 7/1/02
@ 102.............................. 1,558
825 Higher Education Assistance Corp.,
Student Loan Revenue, Series C,
AMT, 6.05%, 9/1/07, Callable 9/1/02
@ 102.............................. 868
1,140 Home Corp., Single Family Mortgage
Revenue, AMT, 7.10%, 12/1/10,
Callable 12/1/04 @ 103............. 1,206
1,875 Home Corp., Single Family Mortgage
Revenue, Series B, AMT, 7.90%,
3/1/25, Callable 3/1/05 @ 106,
GNMA............................... 2,098
1,985 Home Corp., Single Family Mortgage
Revenue, Series F, AMT, 7.55%,
12/1/27, Callable 12/1/06 @ 105,
GNMA, FNMA......................... 2,257
1,220 Housing Finance Corp., Single Family
Mortgage Revenue, AMT, 8.25%,
10/15/18, Callable 10/15/99 @ 102,
FGIC............................... 1,281
--------
10,334
--------
Missouri (2.4%):
620 Grandview Industrial Development
Authority, Multi-Family Housing
Revenue, 9.25%, 5/15/08, Callable
5/15/04 @ 103...................... 620
1,000 Jefferson City, Missouri School
District, Series A, 6.70%,
3/1/11............................. 1,198
1,750 Kanasas City Industrial Development
Authority, Multi-Family, 6.25%,
4/1/30, Callable 4/1/08 @ 102...... 1,754
3,080 Kansas City Industrial Development
Authority, Multi-Family, 5.60%,
9/20/23, Callable 3/20/06 @ 101,
GNMA............................... 3,112
1,500 St. Louis County Industrial
Development Authority,
Multi-Family, 5.35%, 7/1/18,
Callable 1/1/08 @ 100, FNMA........ 1,511
1,365 State Housing Development, Common
Mortgage Revenue, Single Family,
AMT, 7.38%, 8/1/23, Callable 2/1/01
@ 102, GNMA........................ 1,442
910 State Housing Development, Common
Mortgage Revenue, Single Family,
AMT, 7.25%, 9/1/26, Callable 3/1/06
@ 105, GNMA........................ 1,023
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Missouri, continued:
$ 1,970 State Housing Development, Common
Mortgage Revenue, Single Family,
Series A, AMT, 7.20%, 9/1/26,
Callable 9/1/06 @ 105, GNMA........ $ 2,219
1,770 State Housing Development, Common
Mortgage Revenue, Single Family,
Series D, AMT, 7.10%, 9/1/27,
Callable 1/1/07 @ 102, GNMA........ 1,935
2,750 State Housing Development,
Multi-Family Mortgage Revenue, AMT,
5.30%, 12/1/18, Callable 6/1/08 @
100, MBIA, FHA..................... 2,758
1,100 State Housing Development, Single
Family Mortgage Revenue, Series
B-2, 6.40%, 3/1/29, Callable 3/1/08
@ 105, GNMA/FNMA................... 1,207
--------
18,779
--------
Montana (1.1%):
1,000 Butte Silver Bow, City and County
Water Revenue, 5.00%, 11/1/13,
Callable 11/1/08 @ 100, FGIC....... 1,002
1,538 Greenwood Plaza Housing, Inc.,
10.43%, 1/1/22, Callable 7/1/98 @
102.5, FHA......................... 1,586
3,000 Lewis & Clark County Metropolitan
Environment, Asarco Inc. Project,
5.60%, 1/1/27, Callable 1/1/08 @
102................................ 3,048
1,000 Montana State University Revenue,
Higher Education, Series E, 5.00%,
11/15/17, Callable 11/15/08 @ 100,
AMBAC.............................. 990
1,650 Montana State University Revenue,
Higher Education, Series E, 5.00%,
11/15/21, Callable 11/15/08 @ 100,
AMBAC.............................. 1,633
--------
8,259
--------
Nebraska (0.1%):
1,245 Finance Authority, Single Family
Mortgage Revenue, 0.00%, 12/15/13,
FHA................................ 269
215 Finance Authority, Single Family
Mortgage Revenue, AMT, 6.35%,
3/15/06, Callable 9/15/02 @ 102.... 225
--------
494
--------
Nevada (2.2%):
1,825 Housing Division, Issue C, AMT,
6.35%, 10/1/13, Callable 4/1/05 @
102, FHA........................... 1,941
1,480 Housing Division, Single Family
Mortgage Revenue, Series C, AMT,
6.60%, 4/1/14, Callable 4/1/06 @
102................................ 1,575
</TABLE>
Continued
40
<PAGE> 297
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Nevada, continued:
$ 430 Housing Division, Single Family
Program, Series B-1, 6.20%,
10/1/15, Callable 4/1/04 @ 102..... $ 451
1,100 Housing Division, Single Family
Program, Series B-2, AMT, 7.90%,
10/1/21, Callable 4/1/00 @ 102..... 1,148
890 Housing Finance Authority, Single
Family Mortgage Revenue, Series Sub
B-1, AMT, 6.00%, 4/1/10, Callable
4/1/07 @ 102....................... 937
10,000 Washoe County, Water Facilities
Revenue, Sierra Pacific Power, AMT,
6.65%, 6/1/17, Callable 12/1/02 @
102, MBIA.......................... 10,964
--------
17,016
--------
New Hampshire (0.9%):
7,000 Higher Educational & Health
Facilities, 6.13%, 10/1/13,
Callable 10/1/03 @ 102............. 7,281
--------
New Jersey (0.2%):
935 State Housing & Mortgage Finance
Agency Revenue, 7.38%, 10/1/17,
Callable 10/1/99 @ 102, MBIA....... 979
710 State Housing & Mortgage Finance
Agency, Home Mortgage Revenue,
8.38%, 4/1/17, Callable 10/1/99 @
100, MBIA.......................... 735
--------
1,714
--------
New Mexico (1.5%):
165 Bernalillo County, Multi-Family
Housing Revenue, Sub Series A2,
7.00%, 11/1/08, Callable 11/1/03 @
103................................ 169
1,000 Educational Assistance Foundation,
Student Loan Program, AMT, 6.20%,
11/1/08, Callable 11/01/06 @ 102... 1,098
600 Educational Assistance Foundation,
Student Loan Program, AMT, 6.30%,
11/1/09, Callable 11/1/06 @ 102.... 662
550 Hobbs, Single Family Mortgage Revenue
Refunding, 8.75%, 7/1/11, Callable
11/1/98 @ 100...................... 612
155 Las Cruces, Housing Development
Corp., Multi-Family Mortgage
Revenue, 9.00%, 10/1/03............ 160
1,140 Las Cruces, Housing Development
Corp., Multi-Family Mortgage
Revenue, 6.40%, 10/1/19, Callable
4/1/02 @ 102....................... 1,200
1,000 Mortgage Finance Authority Revenue,
Series G-3, 5.20%, 7/1/17, Callable
7/1/07 @ 102....................... 1,003
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
New Mexico, continued:
$ 380 Mortgage Finance Authority, Single
Family Mortgage Refunding, Series
A-2, 6.85%, 7/1/12, Callable 7/1/02
@ 102.............................. $ 404
1,615 Mortgage Finance Authority, Single
Family Mortgage Refunding, Series
A-2, 6.90%, 7/1/24, Callable 7/1/02
@ 102.............................. 1,714
2,790 Mortgage Finance Authority, Single
Family Mortgage Revenue, Series
A-2, AMT, 6.00%, 1/1/29, Callable
1/1/08 @ 102, FNMA/GNMA/FHLMC...... 2,992
1,000 Mortgage Finance Authority, Single
Family Mortgage Revenue, AMT,
6.05%, 7/1/16, Callable 7/1/07
@102, GNMA......................... 1,053
770 Mortgage Finance Authority, Single
Family Mortgage Revenue, Series 95,
AMT, 6.45%, 7/1/25, Callable 1/1/06
@ 102, GNMA........................ 801
--------
11,868
--------
New York (0.7%):
2,400 New York City, Industrial Development
Agency Revenue, Japan Airlines,
AMT, 6.00%, 11/1/15, Callable
11/1/04 @ 102, FHA................. 2,573
3,000 New York, Series A, 5.25%, 8/1/10,
Callable 8/1/07 @ 101.............. 3,095
--------
5,668
--------
North Carolina (0.4%):
2,155 Eastern Municipal Power Agency
Revenue, Series-A, 6.00%, 1/1/26,
Callable 1/1/99 @ 100.............. 2,155
270 Municipal Power Agency #1, Catawba
Electric Revenue, Prerefunded
Series B, 6.00%, 1/1/20,
Prerefunded 7/1/98 @ 100........... 270
430 Municipal Power Agency #1, Catawba
Electric Revenue, Series B, 6.00%,
1/1/20, Callable 1/1/99 @ 100...... 431
475 Municipal Power Agency, Series B,
6.00%, 1/1/20, Callable 1/1/99 @
100, MBIA.......................... 476
--------
3,332
--------
North Dakota (0.6%):
1,570 State Housing Finance Agency, Housing
Finance Program, Series A, AMT,
6.00%, 7/1/17, Callable 1/1/07 @
102................................ 1,651
</TABLE>
Continued
41
<PAGE> 298
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
North Dakota, continued:
$ 470 State Housing Finance Agency, Single
Family Mortgage Revenue, Series
95A, AMT, 7.40%, 7/1/15, Callable
1/1/05 @ 102....................... $ 503
1,045 State Housing Finance Agency, Single
Family Mortgage Revenue, Series A,
AMT, 8.38%, 7/1/21, Callable 7/1/99
@ 103, FHA......................... 1,090
1,280 State Municipal Financing Project
Series H, 5.13%, 6/1/17, Callable
6/1/07 @ 100, FSA.................. 1,282
300 Student Loan, Series D, AMT, 6.15%,
7/1/09, Callable 7/1/06 @ 100,
AMBAC.............................. 325
--------
4,851
--------
Ohio (4.6%):
1,000 Akron, Bath, Copley, Hospital
Revenue, 7.00%, 1/1/12, ETM........ 1,183
4,500 Akron, Municipal Baseball Stadium,
0.00%, 12/1/16, Callable 12/1/06 @
102................................ 4,146
75 Capital Corp., Multi-Family Housing
Revenue, 7.45%, 11/1/03, Callable
11/1/98 @ 100, FNMA................ 79
2,000 Cleveland, Waterworks Revenue, Series
E, 6.00%, 1/1/17, Callable 1/1/99 @
100................................ 2,001
1,000 Cuyahoga County Health Care
Facilities Revenue, Benjamin Rose
Institute, 5.50%, 12/1/17, Callable
12/1/08 @ 101...................... 992
1,500 Cuyahoga County Health Care
Facilities Revenue, Benjamin Rose
Institute, 5.50%, 12/1/28, Callable
12/1/08 @ 101...................... 1,467
500 Cuyahoga County Hospital Revenue,
5.00%, 1/1/23, Callable 7/1/08 @
101, AMBAC......................... 487
1,000 Dayton, Special Facilities Revenue,
Emery Air Freight Corp., 6.05%,
10/1/09............................ 1,089
1,120 Dublin City School District Capital
Appreciation, GO, 0.00%, 12/1/11,
FGIC............................... 591
650 East Liverpool, Hospital Authority,
Series 91B, 8.13%, 10/1/11,
Callable 10/1/01 @ 102............. 713
1,600 Forest Hills, Local School District,
GO, 6.25%, 12/1/20, Callable
12/1/06 @ 102, MBIA................ 1,794
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 1,355 Housing Financial Agency, Single
Family Mortgage Revenue, Series D,
7.00%, 9/1/11, GNMA................ $ 1,437
850 Housing Financial Agency, Single
Family Mortgage Revenue, Series D,
7.05%, 9/1/16, Callable 9/1/01 @
102, GNMA.......................... 900
5,250 Mahoning District Water Revenue,
7.75%, 5/15/14, Callable 5/15/04 @
102................................ 5,872
2,000 Montgomery County, Hospital Revenue,
5.60%, 12/1/11, Callable 12/1/07 @
102................................ 2,077
1,000 North Canton City Schools, GO, 0.00%,
12/1/08, FGIC...................... 623
1,000 North Canton City Schools, GO, 0.00%,
12/1/10, FGIC...................... 560
1,885 North Royalton City Schools, GO,
6.63%, 12/1/06..................... 2,179
2,000 Scioto County Marine Terminal,
Norfolk Southern Corp. Project
Revenue, 5.30%, 8/15/13, Callable
5/19/06 @ 102...................... 2,012
2,500 State Educational Loan Revenue,
Series A-1, AMT, 5.55%, 12/1/11,
Callable 6/1/07 @ 102, AMBAC....... 2,626
1,000 Student Loan Funding Corp., Sub
Series A, AMT, 6.10%, 8/1/07,
Callable 8/1/03 @ 100.............. 1,046
650 Washington County, Health Care
Facilities, 6.35%, 10/1/27,
Callable 10/1/03 @ 102............. 666
1,200 Westlake, City School District,
5.90%, 12/1/16, Callable 12/1/06 @
102................................ 1,307
--------
35,847
--------
Oklahoma (2.2%):
1,000 Development Finance Authority, 5.45%,
7/1/10, Callable 7/1/05 @ 101,
FSA................................ 1,056
8,885 Grand River Dam Authority, 5.00%,
6/1/12, Callable 6/1/99 @ 100...... 8,886
390 Grand River Dam Authority Revenue,
5.00%, 6/1/12, Callable 6/1/99 @
100, MBIA.......................... 390
2,730 Housing Finance Agency, Single Family
Mortgage Revenue, AMT, 7.05%,
9/1/26, Callable 9/1/06 @ 105...... 3,045
3,000 Housing Finance Agency, Single Family
Mortgage Revenue, Series B-2, A,
7.63%, 9/1/26, Callable 3/1/06 @
105................................ 3,347
500 Tulsa Metropolitan Water, Series A,
5.50%, 11/1/03..................... 530
--------
17,254
--------
</TABLE>
Continued
42
<PAGE> 299
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Oregon (0.6%):
$ 720 Eugene, Trojan Nuclear Project
Revenue, 5.90%, 9/1/09, Callable
9/1/98 @ 100....................... $ 721
1,545 Portland, Housing Authority,
Multi-Family Housing Revenue, AMT,
6.13%, 5/1/17, Callable 5/1/00 @
100................................ 1,619
1,240 Portland, Housing Authority, Series
A, 5.60%, 1/1/18, Callable 1/1/08 @
100................................ 1,261
1,055 State Housing & Community Services,
Single Family Mortgage Revenue,
Series 92G, AMT, 6.80%, 7/1/27,
Callable 11/18/02 @ 102............ 1,116
--------
4,717
--------
Pennsylvania (1.4%):
2,000 Harrisburg Capital Appreciation,
Series F, GO, 0.00%, 3/15/11,
AMBAC.............................. 1,092
1,280 Housing Finance Agency, Single Family
Mortgage, AMT, 6.75%, 10/1/08,
Callable 10/1/05 @ 102............. 1,492
4,250 Northumberland County, Commonwealth
Lease Revenue, 0.00%, 10/15/12..... 2,122
2,550 Philadelphia, Gas Works Revenue,
Series A, 6.38%, 7/1/14, Callable
7/1/03 @ 102....................... 2,757
1,380 Pittsburgh, Urban Redevelopment
Authority, Mortgage Revenue, Series
A, AMT, 8.35%, 10/1/14, Callable
4/1/99 @ 102....................... 1,415
705 Pittsburgh, Urban Redevelopment
Authority, Mortgage Revenue, Sidney
Square, Project A, AMT, 6.10%,
9/1/10, Callable 9/1/06 @ 102...... 753
560 Pittsburgh, Urban Redevelopment
Authority, Single Family Mortgage
Revenue, Series C, AMT, 7.88%,
12/1/16, Callable 12/1/98 @ 102,
GNMA............................... 576
1,515 Shaler Area School District, Series
B, 0.00%, 11/15/11................. 796
--------
11,003
--------
Puerto Rico (0.1%):
700 Puerto Rico Commonwealth, 6.00%,
7/1/07, MBIA....................... 784
--------
Rhode Island (0.6%):
2,630 Housing & Mortgage Financial Corp.,
Home Ownership Opportunity, AMT,
6.15%, 4/1/17, Callable 10/1/06 @
102................................ 2,775
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Rhode Island, continued:
$ 500 Housing & Mortgage Financial Corp.,
Home Ownership Opportunity, Series
15-B, 6.00%, 10/1/04, Callable
4/1/04 @ 102, MBIA................. $ 529
1,000 Housing & Mortgage Financial Corp.,
Home Ownership Opportunity, Series
3A, 7.85%, 10/1/16, Callable
10/1/00 @ 102...................... 1,056
515 Housing & Mortgage Financial Corp.,
Home Ownership Opportunity, Series
C-1, AMT, 6.80%, 10/1/23, Callable
10/1/01 @ 102...................... 532
--------
4,892
--------
South Carolina (3.3%):
1,200 Jobs, Economic Development Authority
Revenue, 5.00%, 11/1/18, Callable
5/1/08 @ 101, AMBAC................ 1,177
6,580 Jobs, Economic Development Authority
Revenue, 5.00%, 11/1/23, Callable
5/1/08 @ 101, AMBAC................ 6,373
1,000 Jobs, Economic Development Authority,
Hospital Facilities Revenue, Tuomey
Healthcare Systems, 5.00%, 11/1/18,
Callable 11/1/08 @ 101, AMBAC...... 981
3,000 Piedmont, Municipal Power Agency,
Electric Revenue Refunding, Series
A, 6.60%, 1/1/21, Callable 1/1/99 @
100................................ 3,004
6,975 Piedmont, Municipal Power Agency,
Electric Revenue, Series A, 6.55%,
1/1/16, Callable 1/1/99 @ 100...... 6,984
3,655 Piedmont, Municipal Power Agency,
South Carolina Electric Revenue,
Series A, 5.75%, 1/1/24, Callable
1/1/99 @ 100....................... 3,655
1,000 Resource Authority, Local Government
Program Revenue, Series A, 7.25%,
6/1/20, Callable 6/1/00 @ 102...... 1,066
2,500 State Housing Authority, Single
Family Mortgage, Series B, 7.00%,
7/1/11, Callable 7/1/02 @ 100, FHA,
VA................................. 2,536
--------
25,776
--------
South Dakota (0.2%):
1,370 Housing Development Authority
Revenue, AMT, 5.40%, 5/1/20,
Callable 5/1/08 @ 102.............. 1,376
</TABLE>
Continued
43
<PAGE> 300
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
South Dakota, continued:
$ 400 Housing Development Authority,
Homeowner Mortgage, Series D-1,
AMT, 6.80%, 5/1/12, Callable 5/1/03
@ 102.............................. $ 429
--------
1,805
--------
Tennessee (1.0%):
910 Bristol, Multi-Family Home Revenue,
Shelby Heights Project, Series 97,
6.10%, 3/1/12, Callable 3/1/07 @
101................................ 960
2,000 Housing Development Agency,
Homeownership Program, AMT, 7.38%,
7/1/23, Callable 7/1/01 @ 102...... 2,111
825 Housing Development Agency,
Homeownership Program, Series P,
7.70%, 7/1/16, Callable 7/1/00 @
103................................ 865
1,205 Housing Development Agency,
Homeownership Program, Series V,
AMT, 7.65%, 7/1/22, Callable 7/1/01
@ 102.............................. 1,276
665 La Follette, Housing Development
Corp., Mortgage Revenue Refunding,
Series A, 6.25%, 1/1/16, Callable
7/1/05 @ 102, MBIA, FHA............ 716
380 La Follette, Housing Development
Corp., Mortgage Revenue Refunding,
Series A, 6.37%, 1/1/20, Callable
7/1/05 @ 102, MBIA, FHA............ 411
1,274 Memphis, Health, Educational &
Housing Revenue Refunding, 7.37%,
1/20/27, Callable 1/20/02 @ 103,
GNMA, FHA.......................... 1,367
--------
7,706
--------
Texas (11.7%):
1,385 Beaumont, Housing Finance Corp.,
Single Family Mortgage Revenue
Refunding, 9.20%, 3/1/12, Callable
9/1/01 @ 103....................... 1,550
1,765 Bexar County, Housing Finance Corp.,
Residual Revenue, GO, 0.00%,
3/1/15, Callable 1/1/99 @ 35.2..... 621
1,895 Castleberry Independent School
District, Public Facilities
Revenue, 5.00%, 8/15/13, Callable
8/15/08 @ 102...................... 1,846
2,430 Castleberry Independent School
District, Public Facilities
Revenue, 5.25%, 8/15/18, Callable
8/15/08 @ 102...................... 2,377
2,500 Central Housing Finance Corp., Single
Family Mortgage Revenue, Series A,
0.00%, 9/1/16, ETM................. 998
1,845 Cleburne Capital Appreciation, GO,
0.00%, 2/15/16, Callable 2/15/08 @
64.29, FSA......................... 709
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Texas, continued:
$ 4,000 Dallas--Fort Worth, Regulation
Airport Revenue, 6.10%, 11/1/07,
Callable 7/1/98 @ 100.............. $ 4,008
3,100 Dallas County, Housing Finance Corp.,
Single Family Mortgage Revenue,
0.00%, 1/1/17, FGIC................ 519
1,000 Dallas County, Improvement &
Refunding, Series A, 6.50%,
8/15/09, Callable 8/15/01 @ 100.... 1,073
550 El Paso, Housing Finance Corp.,
Single Family Mortgage Revenue
Refunding, Series A, AMT, 8.75%,
10/1/11, Callable 10/1/00 @ 100,
FHA................................ 613
440 El Paso, Housing Finance Corp.,
Single Family Mortgage Revenue,
AMT, 8.20%, 3/1/21, Callable 3/1/99
@ 103.............................. 457
3,125 Fort Worth, Housing Finance Corp.,
Home Mortgage Revenue Refunding,
Series A, 8.50%, 10/1/11, Callable
10/1/00 @ 100...................... 3,360
1,305 Galveston, Property Finance
Authority, Single Family Mortgage
Revenue Refunding, Series A, 8.50%,
9/1/11, Callable 9/1/01 @ 103...... 1,411
2,000 Hereford Independent School District,
Public Facilities Revenue, 5.25%,
8/15/18, Callable 8/15/08 @ 102.... 1,974
2,365 Houston, Housing Financial Corp.,
Single Family Mortgage Revenue
Refunding, Series B-2, 0.00%,
6/1/14, Callable 12/1/06 @ 58...... 726
700 Houston, Series D, 5.25%, 3/1/08,
Callable 3/1/03 @ 100.............. 721
2,500 Houston, Single Family Mortgage
Revenue, Series B-1, 8.00%, 6/1/14,
Callable 12/1/06 @ 102............. 2,697
1,000 Katy, Independent School District
Series B, 5.00%, 2/15/07, Callable
8/15/02 @ 102, PSFG................ 1,021
855 Laredo, Housing Finance Corp., Single
Family Mortgage Revenue, AMT,
6.20%, 10/1/19, Callable 4/1/04 @
103, GNMA.......................... 886
1,560 Lewisville Housing Finance,
Multi-Family Mortgage Revenue, AMT,
5.50%, 6/1/17, Callable 12/1/07 @
100, FSA........................... 1,592
</TABLE>
Continued
44
<PAGE> 301
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Texas, continued:
$ 500 Lewisville Independent School
District, 5.25%, 8/15/06, Callable
8/15/04 @ 100, PSFG................ $ 523
625 Lubbock, Housing Finance Corp.,
Single Family Mortgage Revenue,
8.00%, 12/1/20, Callable 1/1/99 @
100, GNMA.......................... 630
915 Lufkin, Health Facilities Development
Corp., Health Systems Revenue
Refunding, 6.50%, 2/15/06.......... 990
520 Manor, Independent School District,
8.00%, 8/1/05, PSFG................ 633
1,045 Municipal Power Agency, 0.00%,
9/1/08............................. 653
9,000 Nueces County, Port Corpus Christi
Authority, Pollution Control
Revenue, AMT, 6.88%, 4/1/17,
Callable 4/1/02 @ 102.............. 9,819
8,100 Red River Authority, Pollution
Control Revenue, AMT, 6.88%,
4/1/17, Callable 4/1/02 @ 102...... 8,838
8,630 Richardson Independent School
District, Series A, GO, 0.00%,
2/15/06............................ 6,127
4,580 Richardson Independent School
District, Series A, GO, 0.00%,
2/15/07............................ 3,096
5,565 Rockwall Independent School District,
GO, 0.00%, 8/15/13, Callable
8/15/09 @ 81.34, PSFG.............. 2,554
1,565 Rockwall Independent School District,
GO, 0.00%, 8/15/14, Callable
8/15/09 @ 76.87, PSFG.............. 675
7,260 Rockwall Independent School District,
GO, 0.00%, 8/15/15, Callable
8/15/09 @ 72.72, PSFG.............. 2,950
6,060 Rockwall Independent School District,
GO, 0.00%, 8/15/16, Callable
8/15/09 @ 68.73, PSFG.............. 2,320
2,000 Rockwall Independent School District,
GO, 0.00%, 8/15/17, Callable
8/15/09 @ 64.89, PSFG.............. 721
1,000 San Angelo, Independent School
District, 5.50%, 2/15/09, Callable
2/15/06 @ 100, PSFG................ 1,059
1,500 San Antonio, Hotel Occupancy, 5.30%,
8/15/08, Callable 8/15/06 @ 102,
FGIC............................... 1,591
2,000 San Antonio, Hotel Occupancy Revenue,
0.00%, 8/15/17, FGIC............... 749
1,555 Southeast Housing Finance Corp.,
Residual Revenue, Series A, ETM,
0.00%, 11/1/14..................... 617
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Texas, continued:
$ 1,600 Southside Independent School
District, Public Facilities
Revenue, 5.25%, 2/15/18, Callable
2/15/08 @ 100...................... $ 1,577
1,500 State Department of Housing &
Community Affairs, Multi-Family
Housing Revenue, Series A, 6.30%,
1/1/16, Callable 1/1/07 @ 102...... 1,603
510 State Department of Housing &
Community Affairs, Multi-Family
Revenue, Series A, 5.90%, 7/1/06... 527
8,675 State Department of Housing &
Community Affairs, Single Family
Revenue Refunding, Series A, 0.00%,
3/1/15, Callable 9/1/04 @ 49.53.... 2,838
2,985 State Higher Education Coordinating
Board, Student Loan Revenue, AMT,
0.00%, 10/1/25, Callable 10/1/01 @
100................................ 3,145
5,000 State Turnpike Authority, Dallas
Northway Revenue, 5.00%, 1/1/16,
Callable 1/1/06 @ 102, MBIA........ 4,951
525 State Veterans Housing Assistance,
AMT, 6.05%, 12/1/12, Callable
12/1/02 @ 102...................... 539
65 Travis County, Housing Finance Corp.,
Single Family Mortgage Revenue
Refunding, Series A, 6.25%, 4/1/19,
Callable 4/1/99 @ 100, GNMA........ 68
1,140 Winter Garden Housing Finance Corp.,
Single Family Mortgage Revenue,
AMT, 6.20%, 10/1/19, Callable
4/1/99 @ 100, GNMA................. 1,178
--------
90,130
--------
Utah (1.1%):
1,000 Intermountain Power Agency, Utah
Power Supply, Series B, 6.00%,
7/1/16, Callable 7/1/98 @ 100...... 1,005
1,000 State Housing Finance Agency, Single
Family Mortgage, AMT, 5.95%,
7/1/09, Callable 1/1/07 @ 102,
FHA................................ 1,036
1,125 State Housing Finance Agency, Single
Family Mortgage, AMT, 6.25%,
7/1/14, Callable 1/1/07 @ 102,
FHA................................ 1,190
2,240 State Housing Finance Agency, Single
Family Mortgage, Issue A-1, 6.00%,
7/1/14, Callable 1/1/07 @ 102,
FHA................................ 2,354
</TABLE>
Continued
45
<PAGE> 302
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Utah, continued:
$ 2,750 Tooele County, Hazardous Waste
Disposal Revenue, AMT, 6.75%,
8/1/10, Callable 8/1/05 @ 102...... $ 3,038
--------
8,623
--------
Virginia (0.3%):
1,170 Arlington County, Industrial
Development Authority Revenue,
Whitefield, Series A, 5.50%,
7/1/25, Callable 7/1/00 @ 100,
MBIA, FHA.......................... 1,171
500 State Housing Development, Series H,
5.60%, 11/1/06, Callable 5/1/05 @
102................................ 526
735 Virginia Beach Development Authority,
Multi-Family Housing Revenue, 2nd
Mortgage, Series B, 8.75%, 1/15/09,
Callable 7/15/98 @ 100............. 736
--------
2,433
--------
Washington (2.6%):
3,000 Chelan Public Utilities, Series D,
AMT, 6.35%, 7/1/28, Callable 7/1/07
@ 102, MBIA........................ 3,329
670 King County, Housing Authority Rural
Preservation Project, AMT, 5.60%,
1/1/18, Callable 1/1/08 @ 100...... 668
800 King County, Housing Authority Rural
Preservation Project, AMT, 5.75%,
1/1/28, Callable 1/1/08 @ 100...... 797
1,000 Spokane Housing Authority Revenue,
Valley 206 Apartments, Junior Lien
B, 5.75%, 4/1/28, LOC: Washington
Trust Bank......................... 1,001
1,025 Spokane Housing Authority Revenue,
Valley 206 Apartments, Senior Lien
A, 5.40%, 4/1/18, Callable 4/1/08 @
100................................ 1,000
1,300 Spokane Housing Authority Revenue,
Valley 206 Apartments, Senior Lien
A, 5.63%, 4/1/28, Callable 4/1/08 @
100................................ 1,271
3,000 State Housing Community Revenue,
Crista Ministries, Series A, 5.35%,
7/1/14, Callable 7/1/08 @ 100, LOC:
U.S. Bank.......................... 3,007
1,000 State Housing Multi-Family Mortgage,
5.95%, 7/1/20, Callable 1/1/08 @
103, GNMA.......................... 1,058
2,000 State Housing Multi-Family Mortgage
Revenue, 6.00%, 7/1/30, Callable
1/1/08 @ 103, GNMA................. 2,116
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Washington, continued:
$ 1,950 State Public Power Supply, 0.00%,
7/1/15............................. $ 804
2,750 State Public Power Supply, Nuclear
Project No. 2, Revenue Refunding,
Series B, 5.63%, 7/1/12, Callable
7/1/03 @ 102, FSA.................. 2,890
2,000 Vancouver Housing Authority Revenue,
Pooled Housing, Series A, 5.40%,
3/1/18, Callable 3/1/08 @ 100...... 2,009
--------
19,950
--------
West Virginia (1.8%):
1,000 Charleston Community Parking
Facilities Revenue, 0.00%,
12/1/20............................ 259
1,595 Charleston Community Parking
Facilities Revenue, 0.00%,
12/1/21............................ 387
1,630 Charleston Community Parking
Facilities Revenue, 0.00%,
12/1/22............................ 372
1,665 Charleston Community Parking
Facilities Revenue, 0.00%,
12/1/23............................ 356
3,175 Charleston Community Parking
Facilities, Sub-C, 0.00%,
12/1/26............................ 565
8,370 Kanawha-Putnam County, Single Family
Mortgage, Series A, ETM, 0.00%,
12/1/16, AMBAC..................... 3,298
2,600 Monongalia County, Series A, 6.00%,
11/15/27, Callable 11/15/02 @
102................................ 2,617
1,475 State Housing Development Fund,
Housing Finance, AMT, 7.20%,
11/1/20, Callable 5/1/02 @ 102,
FHA................................ 1,591
2,785 Various Forty Four Municipalities,
Single Family Mortgage, Series A,
5.20%, 8/1/17, Callable 8/1/07 @
102................................ 2,830
10,800 Various Forty Four Municipalities,
Single Family Mortgage, Series B,
0.00%, 8/1/30, Callable 8/1/07 @
26.78.............................. 1,766
--------
14,041
--------
Wisconsin (0.7%):
690 Housing & Economic Development, Home
Ownership Revenue, AMT, 8.00%,
3/1/21, Callable 9/1/00 @ 102,
FHA................................ 707
3,000 State Health & Educational Facilities
Revenue, Community Memorial
Hospital, 6.00%, 4/1/18, Callable
4/1/02 @ 102....................... 3,155
</TABLE>
Continued
46
<PAGE> 303
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Wisconsin, continued:
$ 440 State, Series A, 7.50%, 1/1/15,
Callable 1/1/00 @ 100.............. $ 446
1,000 State, Series A, AMT, 7.50%, 1/1/21,
Callable 7/1/00 @ 100.............. 1,051
--------
5,359
--------
Wyoming (0.3%):
1,550 Community Development Authority
Revenue, Series 4, AMT, 5.70%,
6/1/17, Callable 8/1/07 @ 102...... 1,599
500 Community Development Authority,
Series E, 5.70%, 6/1/13, Callable
12/1/03 @ 102, FHA................. 512
370 Community Development Authority,
Single Family Mortgage, Series A,
6.88%, 6/1/14, Callable 6/1/01 @
102, FHA........................... 381
135 Community Development Authority,
Single Family Mortgage, Series E,
AMT, 7.75%, 6/1/09, Callable
11/30/98 @ 100.9................... 140
--------
2,632
--------
Total Municipal Bonds 765,553
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MONTHLY DEMAND NOTES (2.9%):
California (1.0%):
$ 8,000 Student Educational Loan Marketing,
Corporate Revenue, Series IV-C-1,
AMT, 4.00%, 1/1/33................. $ 8,000
--------
Florida (1.5%):
11,700 Educational Loan Marketing Corp.,
Series A, 3.97%, 12/1/18........... 11,700
--------
New York (0.4%):
3,065 State Job Development Authority
Revenue, Series A-1-A-42, AMT,
4.00%, 3/1/05...................... 3,065
--------
Total Monthly Demand Notes 22,765
--------
Total (Cost $764,609) (a) $788,318
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $778,817.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $67. Cost for federal income tax purposes differ from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $24,195
Unrealized depreciation..................................... (553)
-------
Net unrealized appreciation................................. $23,642
=======
</TABLE>
* Variable rate securities having liquidity sources through bank letters of
credit or other cards and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of
market rates. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect at June 30, 1998.
Continued
47
<PAGE> 304
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Municipal Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
<TABLE>
<S> <C>
ACA Insured by American Capital Access
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
BIG Insured by Bond Insurance Guarantee
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FHA Insured by Federal Housing Administration
FNMA Insured by Federal National Mortgage Association
FSA Insured by Federal Security Assurance
GNMA Insured by Government National Mortgage Association
GO General Obligation
GSL Guaranteed Student Loan
MBIA Insured by Municipal Bond Insurance Association
PCR Pollution Control Revenue
PSFG Permanent School Fund Guarantee
VA Veterans Administration
</TABLE>
See notes to financial statements.
48
<PAGE> 305
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS (99.5%):
Arizona (0.9%):
$1,850 Maricopa County, Industrial
Development, Single Family
Mortgage Revenue, 0.00%, 12/31/14,
ETM............................... $ 816
1,000 Tucson & Pima County, Single Family
Mortgage Revenue, 0.00%, 12/1/14,
ETM............................... 443
--------
1,259
--------
California (0.4%):
1,500 San Marcos, Public Facilities,
Revenue, 0.00%, 9/1/19, ETM....... 517
--------
Colorado (0.6%):
2,000 El Paso County, Single Family
Mortgage Revenue, 0.00%, 9/1/15,
ETM............................... 847
--------
Kansas (1.9%):
1,600 Kansas City, Single Family Mortgage
Revenue, Series 1983 A, 0.00%,
12/1/14, ETM...................... 709
3,225 Labette County, Single Family
Mortgage Revenue, 0.00%, 12/1/14,
ETM............................... 1,429
1,000 Saline County, Single Family
Mortgage Revenue, Series 1983 A,
0.00%, 12/1/15, ETM............... 418
--------
2,556
--------
Kentucky (93.8%):
225 Ashland Utility Revenue, 6.65%,
4/1/04............................ 231
1,500 Berea College Utility Revenue, AMT,
5.90%, 6/1/17, Callable 6/1/07 @
102............................... 1,605
200 Boone County, Certificates of
Participation, Public Golf, 6.35%,
11/15/02.......................... 218
200 Boone County, Certificates of
Participation, Public Golf, 6.40%,
11/15/03, Callable 11/15/02 @
102............................... 221
250 Boone County, School District
Finance Corp., School Building
Revenue, 6.70%, 9/1/06,
Prerefunded 9/1/01 @ 103.......... 276
310 Boone County, School District
Finance Corp., School Building
Revenue, 7.10%, 8/1/07,
Prerefunded 8/1/00 @ 103.......... 338
1,000 Boone County, School District
Finance Corp., School Building
Revenue, 6.70%, 9/1/07,
Prerefunded 9/1/01 @ 103.......... 1,105
395 Boone County, School District
Finance Corp., School Building
Revenue, 7.10%, 8/1/08,
Prerefunded 8/1/00 @ 103.......... 430
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 230 Bowling Green, Key Municipal
Projects Corp., Lease Revenue,
7.20%, 10/1/01, Prerefunded 4/1/99
@ 102............................. $ 240
280 Bowling Green, Key Municipal
Projects Corp., Lease Revenue,
7.40%, 10/1/04, Prerefunded 4/1/99
@ 102............................. 293
1,000 Bowling Green-Warren County,
Hospital Facilities Revenue,
5.00%, 4/1/17, Callable 4/1/08 @
101, FSA.......................... 983
280 Campbell & Kenton Counties,
Sanitation District #1, Sanitation
District Revenue, 6.38%, 8/1/03,
Callable 8/1/98 @ 102, ETM........ 295
580 Campbell & Kenton Counties,
Sanitation District #1, Sanitation
District Revenue, 7.13%, 8/1/05,
Callable 8/2/98 @ 102, ETM........ 636
415 Clinton County, School District
Finance Corp., School Building
Revenue, 6.10%, 6/1/09, Callable
6/1/02
@ 102............................. 449
445 Clinton County, School District
Finance Corp., School Building
Revenue, 6.10%, 6/1/10, Callable
6/1/02
@ 102............................. 482
325 Clinton County, School District
Finance Corp., School Building
Revenue, 6.10%, 6/1/11, Callable
6/1/02
@ 102............................. 352
510 Clinton County, School District
Finance Corp., School Building
Revenue, 6.10%, 6/1/12, Callable
6/1/02
@ 102............................. 551
345 Danville, Hospital Revenue, Esphraim
McDowell Region, 6.40%, 4/1/00,
FGIC.............................. 359
100 Danville, Multi-City Lease Revenue,
Metro Sewer District, 6.35%,
2/1/02, Prerefunded 2/1/01 @ 102,
MBIA.............................. 108
225 Danville, Multi-City Lease Revenue,
Metro Sewer District, 6.50%,
2/1/04, Prerefunded 2/1/01 @ 102,
MBIA.............................. 243
500 Daviess County, Hospital Revenue,
Owensboro-Daviess County, 6.00%,
8/1/04, Callable 8/1/02
@ 102, MBIA....................... 539
</TABLE>
Continued
49
<PAGE> 306
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$4,500 Development Finance Authority,
Hospital Revenue, Elizabeth,
Med-A, 6.00%, 11/1/10, Callable
11/1/01 @ 100, FGIC............... $ 4,746
250 Eastern Kentucky University,
Revenues Construction, Educational
Buildings, Series 0, 6.70%,
5/1/07, Prerefunded 5/1/01 @ 102,
AMBAC............................. 273
655 Fayette County, School District
Finance Corp., School Building
Revenue, 6.00%, 5/1/02, Callable
5/1/00 @ 102...................... 690
1,000 Fayette County, School District
Finance Corp., School Building
Revenue, 5.38%, 1/1/17, Callable
1/1/07 @ 102...................... 1,030
1,255 Fayette County, School District
Finance Corp., School Building
Revenue, Series A, 5.35%, 1/1/13,
Callable 1/1/07 @ 102............. 1,303
200 Hardin County, Water District #1,
Waterworks Revenue, 6.70%, 9/1/05,
Callable 3/1/01 @ 102............. 217
155 Henderson Electric Light & Power
Revenue, 5.70%, 3/1/03, Callable
8/6/98 @ 100...................... 155
1,025 Higher Education Student Loan Corp.,
Insured Student Loan Revenue,
Series C, 6.50%, 6/1/02, GSL...... 1,107
1,500 Higher Education Student Loan Corp.,
Insured Student Loan Revenue,
Series C, AMT, 5.45%, 6/1/03,
GSL............................... 1,571
1,705 Higher Education Student Loan Corp.,
Insured Student Loan Revenue,
Series D, AMT, 7.00%, 12/1/06,
Callable 12/1/01 @ 102, GSL....... 1,865
500 Housing Corp. Revenue, Series A,
5.40%, 1/1/05, Callable 7/1/03 @
102, FHA, VA...................... 529
500 Housing Corp. Revenue, Series A,
5.50%, 1/1/06, Callable 7/1/03 @
102, FHA, VA...................... 529
500 Housing Corp. Revenue, Series A,
5.60%, 1/1/07, Callable 7/1/03 @
102, FHA, VA...................... 527
760 Housing Corp. Revenue, Series A,
7.40%, 1/1/10, Callable 7/1/00 @
102, FHA, VA...................... 807
400 Housing Corp. Revenue, Series B,
5.85%, 7/1/00, FHA, VA............ 412
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 275 Housing Corp. Revenue, Series B,
6.20%, 7/1/03, Callable 7/1/02 @
102, FHA, VA...................... $ 291
1,745 Housing Corp. Revenue, Series D,
5.80%, 7/1/13, Callable 7/1/06 @
102............................... 1,857
30 Infrastructure Authority Revenue,
Government Agencies Program
Revenue, 6.00%, 8/1/11,
Prerefunded 8/1/01 @ 100.......... 32
80 Infrastructure Authority Revenue,
Government Agencies Program
Revenue, 6.00%, 8/19/11, Callable
8/1/01 @ 100...................... 83
410 Infrastructure Authority Revenue,
Governmental Agencies Program
Revenue, 5.25%, 8/1/04, Callable
8/1/03 @ 102...................... 430
500 Infrastructure Authority Revenue,
Governmental Agencies Program
Revenue, 5.40%, 8/1/06, Callable
8/1/03 @ 102...................... 529
500 Infrastructure Authority Revenue,
Governmental Agencies Program
Revenue, 5.75%, 8/1/13, Callable
8/1/03 @ 102...................... 533
1,000 Infrastructure Authority Revenue,
Revolving Fund Program, Series E,
6.40%, 6/1/04, Callable 6/1/01
@ 102............................. 1,078
710 Infrastructure Authority Revenue,
Revolving Fund Program, Series E,
6.50%, 6/1/05, Callable 6/1/01
@ 102............................. 768
250 Infrastructure Authority Revenue,
Revolving Fund Program, Series G,
6.10%, 6/1/02..................... 268
250 Interlocal School Transportation
Assoc., Equipment Lease Revenue,
6.00%, 3/1/01..................... 262
405 Interlocal School Transportation
Assoc., Equipment Lease Revenue,
6.00%, 3/1/02..................... 430
135 Jefferson County, Capital Projects,
7.70%, 6/1/01, Callable 12/1/98
@ 101, ETM........................ 148
500 Jefferson County, Capital Projects,
First Mortgage Revenue, 6.38%,
12/1/07, Callable 12/1/98 @ 101,
ETM............................... 561
</TABLE>
Continued
50
<PAGE> 307
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 725 Jefferson County, Capital Projects,
Revenue, Series A, 6.10%, 8/15/07,
Callable 2/15/03 @ 102............ $ 789
1,000 Jefferson County, Capital Projects,
Revenue, Series A, 5.50%, 4/1/10,
Callable 4/1/06 @ 102, AMBAC...... 1,066
1,000 Jefferson County, Capital Projects,
Revenue, Series A, 5.50%, 4/1/11,
Callable 4/1/06 @ 102, AMBAC...... 1,060
1,500 Jefferson County, Health Facilities
Revenue, Alliant Hospital, 5.00%,
10/1/13, Callable 10/1/07 @ 101,
MBIA.............................. 1,499
500 Jefferson County, Health Facilities
Revenue, Jewish Hospital
Healthcare Services, Inc., 6.05%,
5/1/02, AMBAC..................... 534
1,000 Jefferson County, Health Facilities
Revenue, Jewish Hospital
Healthcare Services, Inc., 6.10%,
5/1/03, Callable 5/1/02 @ 102,
AMBAC............................. 1,083
300 Jefferson County, Health Facilities
Revenue, Jewish Hospital
Healthcare Services, Inc., 6.20%,
5/1/04, Callable 5/1/02 @ 102,
AMBAC............................. 326
500 Jefferson County, Health Facilities
Revenue, Jewish Hospital
Healthcare Services, Inc., 6.38%,
5/1/08, Callable 5/1/02 @ 102,
AMBAC............................. 547
930 Jefferson County, Health Facilities
Revenue, Jewish Hospital
Healthcare Services, Inc., 5.65%,
1/1/10, Callable 1/1/07 @ 102..... 995
1,500 Jefferson County, Health Facilities
Revenue, University Medical
Center, 5.50%, 7/1/17, Callable
7/1/07 @ 101, MBIA................ 1,564
2,000 Jefferson County, Hospital Revenue,
Alliant Hospital Systems, 6.20%,
10/1/04, Callable 10/1/02 @ 102,
MBIA.............................. 2,189
550 Jefferson County, Pollution Control
Revenue, Louisville Gas & Electric
Co., 7.45%, 6/15/15, Callable
6/15/00 @ 102..................... 594
1,000 Jefferson County, School District
Finance Corp., School Building
Revenue, 6.00%, 1/1/04, Callable
7/1/02 @ 102, MBIA................ 1,083
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 625 Jefferson County, School District
Finance Corp., School Building
Revenue, 7.15%, 9/1/04,
Prerefunded 9/1/00 @ 103.......... $ 684
675 Jefferson County, School District
Finance Corp., School Building
Revenue, 7.20%, 9/1/05,
Prerefunded 9/1/00 @ 103.......... 740
1,430 Jefferson County, School District
Finance Corp., School Building
Revenue, 5.25%, 7/1/07, Callable
7/1/05 @ 102, MBIA................ 1,515
2,315 Junction City, College Revenue,
Centre College Project, 5.70%,
4/1/12, Callable 4/1/07 @ 102..... 2,501
500 Kenton County, Airport Revenue,
International, Series AR-A, AMT,
6.10%, 3/1/04, Callable 3/1/02 @
101, FSA.......................... 534
1,000 Kenton County, Airport Revenue,
International, Series AR-A, AMT,
6.20%, 3/1/05, Callable 3/1/02 @
101, FSA.......................... 1,069
500 Kenton County, Airport Revenue,
International, Series B, AMT,
5.75%, 3/1/07, Callable 3/1/03 @
102, FSA.......................... 534
500 Kenton County, Airport Revenue,
International, Series B, AMT,
5.75%, 3/1/08, Callable 3/1/03 @
102, FSA.......................... 533
380 Kenton County, Public Properties
Corp. Revenue, Community Health
Care Facilities Project, 7.00%,
10/1/06, Prerefunded 10/1/99 @
102............................... 403
200 Kenton County, School District
Finance Corp., School Building
Revenue, 6.30%, 12/1/00........... 211
100 Kenton County, School District
Finance Corp., School Building
Revenue, 6.50%, 12/1/02,
Prerefunded 12/1/01 @ 102......... 110
325 Kenton County, School District
Finance Corp., School Building
Revenue, 5.25%, 7/1/07, Callable
7/1/03 @ 102...................... 341
495 Kenton County, Water District,
Waterworks Revenue, District #001,
6.30%, 2/1/02, FGIC............... 531
</TABLE>
Continued
51
<PAGE> 308
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$1,015 Kenton County, Water District,
Waterworks Revenue, District #001,
6.38%, 2/1/04, Callable 2/1/02 @
103, FGIC......................... $ 1,115
240 Lexington-Fayette Urban County
Government, Economic Development
Revenue, 7.54%, 12/1/03........... 247
300 Lexington-Fayette Urban County
Government, Educational Facilities
Revenue, Transylvania University,
7.15%, 2/1/00, Callable 2/1/99 @
102, MBIA......................... 312
250 Lexington-Fayette Urban County
Government, Educational Facilities
Revenue, Transylvania University,
7.25%, 2/1/02, Callable 2/1/99 @
102, MBIA......................... 260
335 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Capital Projects Mortgage
Revenue, 6.20%, 4/1/05,
Prerefunded 4/1/02 @ 102.......... 365
355 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Capital Projects Mortgage
Revenue, 6.30%, 4/1/06,
Prerefunded 4/1/02 @ 102.......... 388
380 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Capital Projects Mortgage
Revenue, 6.40%, 4/1/07,
Prerefunded 4/1/02 @ 102.......... 417
405 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Capital Projects Mortgage
Revenue, 6.40%, 4/1/08,
Prerefunded 4/1/02 @ 102.......... 445
425 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Capital Projects Mortgage
Revenue, 6.40%, 4/1/09,
Prerefunded 4/1/02 @ 102.......... 466
425 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Greenspace Project Revenue,
6.75%, 12/1/05, Prerefunded
12/1/00 @ 102..................... 461
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 240 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Greenspace Project Revenue,
6.75%, 12/1/07, Prerefunded
12/1/00 @ 102..................... $ 260
350 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Mortgage Revenue, 6.70%,
2/1/02, Prerefunded 2/1/00 @
102............................... 372
210 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Mortgage Revenue, 6.88%,
2/1/06, Prerefunded 2/1/00 @
102............................... 224
430 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Mortgage Revenue, 6.75%,
7/1/07, Prerefunded 7/1/00 @
102............................... 462
500 Lexington-Fayette Urban County
Government, Public Facilities
Corp., Sewer System Revenue,
6.35%, 7/1/07, Callable 7/1/02 @
102, MBIA......................... 548
935 Lexington-Fayette Urban County
Government, Revenue, University of
Kentucky Alumni Assoc., Inc.,
6.50%, 11/1/07, Prerefunded
11/1/04 @ 102, MBIA............... 1,068
1,500 Lexington-Fayette Urban County
Government, Revenue, University of
Kentucky Alumni Assoc., Inc.,
5.00%, 11/1/14, Callable 11/01/08
@ 102, MBIA....................... 1,503
250 Lexington-Fayette Urban County
Government, School Building
Revenue, 6.85%, 6/1/01,
Prerefunded 12/1/99 @ 103......... 268
625 Lexington-Fayette Urban County
Government, School Building
Revenue, 7.00%, 6/1/04,
Prerefunded 12/1/99 @ 103......... 671
1,930 Lexington-Fayette Urban County
Government, Sewer System Revenue,
6.35%, 7/1/09, Callable 7/1/02 @
102, MBIA......................... 2,119
1,420 Louisville & Jefferson County,
Airport Authority Revenue, AMT,
6.00%, 7/1/10, Callable 7/1/07 @
102, MBIA......................... 1,568
</TABLE>
Continued
52
<PAGE> 309
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 200 Louisville & Jefferson County,
Metropolitan Sewer District, Sewer
Revenue, 6.25%, 6/1/99, Callable
12/1/98 @ 100, ETM................ $ 205
1,375 Louisville & Jefferson County,
Metropolitan Sewer District, Sewer
Revenue, 5.00%, 5/15/13, Callable
5/15/08 @ 101, FGIC............... 1,378
1,000 Louisville & Jefferson County,
Metropolitan Sewer District, Sewer
Revenue, 5.00%, 5/15/14, Callable
5/15/08 @ 101..................... 999
825 Louisville & Jefferson County, Sewer
& Drain System Revenue, 6.40%,
5/15/08, Prerefunded 11/15/04 @
102, AMBAC........................ 938
205 Louisville Parking Authority
Revenue, 6.60%, 12/1/03,
Prerefunded 6/1/01 @ 103.......... 225
300 Louisville Public Properties Corp.
Revenue, 6.00%, 4/1/04, Callable
4/1/99 @ 102...................... 310
300 Louisville Public Properties Corp.
Revenue, 6.00%, 4/1/05, Callable
4/1/99 @ 102...................... 311
295 Louisville Public Properties Corp.,
First Mortgage Revenue, 6.15%,
12/1/05, Prerefunded 12/1/02 @
102............................... 324
200 Louisville Public Properties Corp.,
First Mortgage Revenue, 6.40%,
12/1/07, Prerefunded 12/1/02 @
102............................... 221
1,000 Louisville Water Works Board, Water
System Revenue, Louisville Water
Co., 5.40%, 11/15/04, Callable
11/15/00 @ 102.................... 1,047
500 Louisville Water Works Board, Water
System Revenue, Louisville Water
Co., 5.63%, 11/15/07, Callable
11/15/00 @ 102.................... 528
1,540 Louisville Water Works Board, Water
System Revenue, Louisville Water
Co., 5.75%, 11/15/09, Callable
11/15/00 @ 102.................... 1,629
1,530 Louisville Water Works Board, Water
System Revenue, Louisville Water
Co., 5.75%, 11/15/10, Callable
11/15/00 @ 102.................... 1,618
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$1,000 McCracken County, Hospital Revenue,
Mercy Health System, Series A,
6.20%, 11/1/05, Callable 11/1/04 @
102, MBIA......................... $ 1,117
2,090 McCracken County, Hospital Revenue,
Mercy Health System, Series A,
6.40%, 11/1/07, Callable 11/1/04 @
102, MBIA......................... 2,359
505 McCreary County, School District
Finance Corp., School Building
Revenue, 6.60%, 10/1/08, Callable
10/1/01 @ 103..................... 557
215 Mercer County, School District
Finance Corp., School Building
Revenue, 6.38%, 12/1/07, Callable
12/1/01 @ 102..................... 232
300 Morehead State University, Housing &
Dining System Revenue, Series I,
6.10%, 11/1/05, Callable 11/1/01 @
102, AMBAC........................ 322
200 Morehead State University, Housing &
Dining System Revenue, Series M,
6.30%, 11/1/08, Callable 11/1/01 @
102, AMBAC........................ 217
215 Muhlenberg County, School District
Finance Corp., School Building
Revenue, 5.85%, 8/1/09, Callable
8/1/02 @ 102...................... 231
750 Muhlenberg County, School District
Finance Corp., School Building
Revenue, Second Series, 5.85%,
8/1/10, Callable 8/1/02 @ 102..... 805
240 Murray State University Revenues,
Series G, Second Series, 5.60%,
5/1/06, Callable 5/1/03 @ 102..... 256
460 Murray State University Revenues,
Series G, Second Series, 5.60%,
5/1/07, Callable 5/1/03 @ 102..... 489
530 Northern Kentucky University,
Educational Buildings Revenue,
6.10%, 5/1/06, Callable 5/1/02 @
102, AMBAC........................ 575
300 Owensboro, Electric Light & Power
Revenue, 6.75%, 1/1/03, Callable
1/1/99 @ 100, ETM................. 318
205 Paducah Electric Plant Board
Revenue, 6.30%, 1/1/08, Callable
1/1/01 @ 102, AMBAC............... 220
300 Paducah Waterworks Revenue, 6.10%,
7/1/00, MBIA...................... 313
</TABLE>
Continued
53
<PAGE> 310
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 300 Paducah Waterworks Revenue, 6.60%,
7/1/05, Prerefunded 7/1/01 @ 102,
MBIA.............................. $ 327
1,085 Perry County, School District
Finance Corp., School Building
Revenue, 6.25%, 7/1/09, Callable
7/1/02 @ 100...................... 1,169
355 Richmond Water, Gas & Sewer Revenue,
5.00%, 7/1/14, Callable 7/1/08 @
102, MBIA......................... 356
330 Scott County, School District
Finance Corp., School Building
Revenue, 7.10%, 12/1/02,
Prerefunded 12/1/98 @ 103......... 345
545 Shelby County, School District
Finance Corp., School Building
Revenue, 6.10%, 9/1/02, Callable
9/1/01 @ 103...................... 585
100 Shelby County, School District
Finance Corp., School Building
Revenue, 6.25%, 9/1/03, Callable
9/1/01 @ 103...................... 108
500 Shelby County, School District
Finance Corp., School Building
Revenue, 6.50%, 9/1/05, Callable
9/1/01 @ 103...................... 549
200 Shelby County, School District
Finance Corp., School Building
Revenue, 6.50%, 9/1/07, Callable
9/1/01 @ 103...................... 219
1,000 State Economic Development Finance
Authority, Hospital Revenue,
Appalachian Regulatory Hospital,
5.50%, 10/1/07.................... 1,034
1,000 State Economic Development Finance
Authority, Hospital Revenue,
Catholic Health Initiatives
Hospital, 5.38%, 12/1/11, Callable
6/1/08 @ 101...................... 1,047
1,245 State Economic Development Finance
Authority, Hospital Revenue,
Southern Central Nursing Homes,
6.00%, 7/1/27, Callable 1/1/08 @
105, FHA, MBIA.................... 1,335
1,000 State Property & Buildings
Commission Revenues, Project #26,
7.40%, 6/1/00, Callable 12/1/98 @
102............................... 1,034
2,300 State Property & Buildings
Commission Revenues, Project #50,
6.00%, 2/1/10, Prerefunded 2/1/01
@ 100............................. 2,414
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$1,475 State Property & Buildings
Commission Revenues, Project #53,
6.25%, 10/1/02, Callable 10/1/01
@102.............................. $ 1,594
1,000 State Property & Buildings
Commission Revenues, Project #54,
5.90%, 9/1/07, Callable 9/1/02 @
102............................... 1,071
1,000 State Property & Buildings
Commission Revenues, Project #56,
5.70%, 9/1/06, Callable 9/1/04 @
102............................... 1,083
1,000 State Property & Buildings
Commission Revenues, Project #56,
5.80%, 9/1/07, Callable 9/1/04 @
102............................... 1,085
1,000 State Property & Buildings
Commission Revenues, Project #59,
5.30%, 5/1/07, Callable 11/1/05 @
102............................... 1,059
1,000 State Property & Buildings
Commission Revenues, Project #59,
5.38%, 11/1/09, Callable 11/1/05 @
102............................... 1,056
275 State Property & Buildings
Commission Revenues, Toyota Corp.,
6.40%, 11/1/01.................... 295
235 State Turnpike Authority, Economic
Development, Recovery Road
Revenue, 6.13%, 7/1/07, Callable
8/6/98 @ 100, ETM................. 253
500 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 7.13%,
5/15/01, Prerefunded 5/15/00
@101.5............................ 536
750 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 5.70%,
1/1/03............................ 795
1,000 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 5.20%,
7/1/03, AMBAC..................... 1,045
1,000 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 5.40%,
7/1/05, AMBAC..................... 1,064
1,000 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 7.38%,
5/15/07, Prerefunded 5/15/00 @
101.5............................. 1,077
1,000 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 6.50%,
7/1/08, AMBAC..................... 1,164
</TABLE>
Continued
54
<PAGE> 311
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$2,750 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 5.50%,
7/1/08, AMBAC..................... $ 2,978
1,000 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 5.50%,
7/1/09, AMBAC..................... 1,086
1,000 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 0.00%,
1/1/10, FGIC...................... 588
2,600 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 5.63%,
7/1/10, Callable 7/1/05 @ 102,
AMBAC............................. 2,796
500 State Turnpike Authority, Economic
Development, Road Revenue,
Revitalization Project, 5.75%,
7/1/11, Callable 7/1/05 @ 102,
AMBAC............................. 541
500 State Turnpike Authority, Resource
Recovery Revenue, 6.63%, 7/1/08,
Callable 7/1/98 @ 100, ETM........ 553
1,000 State Turnpike Authority, Resource
Recovery Revenue, 1985 Series A,
6.00%, 7/1/09, Callable 8/6/98
@ 100............................. 1,002
215 State Turnpike Authority, Toll Road
Revenue Refunding, 6.13%, 7/1/08,
Callable 7/1/98 @ 100, ETM........ 231
1,000 University of Kentucky Revenues,
Community Colleges, Educational
Buildings Revenue, 6.60%,
5/1/01............................ 1,067
535 University of Kentucky Revenues,
Community Colleges, Educational
Buildings Revenue, 6.30%, 5/1/02,
Callable 11/1/01 @ 102............ 575
475 University of Kentucky Revenues,
Community Colleges, Educational
Buildings Revenue, Southeast,
6.30%, 5/1/05, Callable 11/1/01 @
102............................... 516
1,000 University of Louisville Revenues,
Construction of Educational
Buildings, Series I, 5.38%,
5/1/06, Callable 5/1/03 @ 102..... 1,058
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------ --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Kentucky, continued:
$ 500 University of Louisville Revenues,
Construction of Educational
Buildings, Series I, 5.40%,
5/1/07, Callable 5/1/03 @ 102..... $ 528
500 University of Louisville Revenues,
Construction of Educational
Buildings, Series I, 5.40%,
5/1/08, Callable 5/1/03 @ 102..... 526
500 University of Louisville Revenues,
Construction of Educational
Buildings, Series I, 5.40%,
5/1/09, Callable 5/1/03 @ 102..... 524
330 Versailles County, Water & Sewer,
6.30%, 12/1/09, Callable 12/1/01 @
103............................... 360
305 Warren County, Water District
Revenue, 7.13%, 1/1/03,
Prerefunded 7/1/99 @ 103, MBIA.... 324
950 Winchester Utilities Revenue, 5.30%,
7/1/09, Callable 7/1/03 @ 102..... 991
--------
127,246
--------
Louisiana (1.0%):
3,000 Public Facilities Authority Revenue,
Multi-Family, Series A, 0.00%,
2/1/20, ETM....................... 997
1,000 Public Facilities Authority Revenue,
Series B, 0.00%, 12/1/19, ETM..... 335
--------
1,332
--------
Mississippi (0.6%):
2,500 Home Corp., Single Family Mortgage
Revenue, 0.00%, 9/15/16, Callable
3/15/04 @ 41.7, ETM............... 822
--------
Texas (0.3%):
1,000 Central Housing Finance Corp.,
Single Family Mortgage Revenue,
Series A, 0.00%, 9/1/16, ETM,
VA................................ 399
--------
Total Municipal Bonds 134,978
--------
INVESTMENT COMPANIES (0.5%):
723 The One Group Municipal Money Market
Fund, Fiduciary Class............. 723
--------
Total Investment Companies 723
--------
Total (Cost $127,271) (a) $135,701
========
</TABLE>
Continued
55
<PAGE> 312
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Kentucky Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
- ------------
Percentages indicated are based on net assets of $135,700.
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $8,430
Unrealized depreciation..................................... --
------
Net unrealized appreciation................................. $8,430
======
</TABLE>
<TABLE>
<S> <C>
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FHA Insured by Federal Housing Administration
FNMA Insured by Federal National Mortgage Association
FSA Insured by Federal Security Assurance
GSL Guaranteed Student Loans
MBIA Insured by Municipal Bond Insurance Association
VA Veterans Administration
</TABLE>
See notes to financial statements.
Continued
56
<PAGE> 313
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS (99.4%):
Colorado (1.2%):
$ 2,810 El Paso County, Single Family
Mortgage Revenue, Series A,
0.00%, 5/1/15, ETM............. $ 1,210
2,350 Housing Finance Authority, Single
Family Mortgage Revenue, 0.00%,
9/1/14, ETM.................... 1,054
--------
2,264
--------
Kansas (0.5%):
1,000 Kansas City, Single Family
Mortgage Revenue, Series 1983
A, 0.00%, 12/1/14, ETM......... 443
1,390 Saline County, Single Family
Mortgage Revenue, Series 1983
A, 0.00%, 12/1/15, ETM......... 581
--------
1,024
--------
Louisiana (1.1%):
3,260 Jefferson, Sales Tax Revenue,
0.00%, 12/1/11, FSA............ 1,700
1,380 New Orleans, GO, 0.00%, 9/1/17,
AMBAC.......................... 501
--------
2,201
--------
Massachusetts (0.6%):
360 State GO, Series C, 6.75%,
8/1/09, Callable 8/1/01 @ 102,
AMBAC.......................... 394
640 State GO, Series C, 6.75%,
8/1/09, Prerefunded 8/1/01 @
102, AMBAC..................... 702
--------
1,096
--------
Mississippi (0.5%):
3,000 Home Corp., Single Family
Mortgage Revenue, 0.00%,
9/15/16, Callable 3/15/04 @
41.7, ETM...................... 987
--------
Missouri (0.6%):
1,000 State Health, Series AA, 6.40%,
6/1/10, MBIA................... 1,165
--------
Ohio (93.8%):
1,000 Adams County, GO, School
District, 5.45%, 12/1/08,
Callable 12/1/05 @ 102, MBIA... 1,076
1,045 Akron Sewer Systems, Sewer
Revenue, 5.30%, 12/1/05,
MBIA........................... 1,110
1,000 Akron Sewer Systems, Sewer
Revenue, 5.65%, 12/1/08,
Callable 12/1/06 @ 101, MBIA... 1,090
1,030 Akron Sewer Systems, Sewer
Revenue, 5.38%, 12/1/13,
FGIC........................... 1,084
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 1,000 Akron, Bath, Copley Ohio Hospital
Revenue, 7.45%, 11/15/20,
Prerefunded 11/15/00 @ 102,
AMBAC.......................... $ 1,097
1,000 Allen County, Justice Center, GO,
7.00%, 12/1/15, Prerefunded
12/1/01 @ 101, AMBAC........... 1,104
1,280 Belmont County, Health System
Revenue, Ohio Regional
Hospital, 5.25%, 1/1/08........ 1,321
3,000 Bexley School District, GO,
6.50%, 12/1/16, Prerefunded
12/1/01 @ 102.................. 3,288
1,000 Big Walnut School District, GO,
7.30%, 6/1/15, Prerefunded
6/1/01 @ 102, AMBAC............ 1,108
250 Big Walnut School District, GO,
5.10%, 12/1/15, Callable
12/1/07 @ 101, AMBAC........... 251
725 Bowling Green State University,
5.65%, 6/1/11, Callable 6/1/06
@ 101, AMBAC................... 778
1,000 Butler County, Hospital
Facilities Revenue, 6.75%,
11/15/10, Callable 11/15/01 @
102, FGIC...................... 1,096
750 Cincinnati, GO, 6.75%, 12/1/00... 799
2,775 Clermont County Waterworks, Water
Revenue, 6.63%, 12/1/15,
Prerefunded 12/1/01 @102,
AMBAC.......................... 3,055
1,000 Cleveland Airport Systems
Revenue, Series A, AMT, 5.13%,
1/1/13, Callable 1/1/08 @ 101,
FSA............................ 1,001
4,500 Cleveland Public Power System,
Power Revenue, 6.40%, 11/15/06,
Callable 11/15/04 @ 102,
MBIA........................... 5,070
3,000 Cleveland Public Power System,
Power Revenue, 0.00%, 11/15/11,
MBIA........................... 1,587
1,000 Cleveland Stadium Project, 5.25%,
11/15/12, Callable 11/15/07 @
102, AMBAC..................... 1,032
1,850 Cleveland Waterworks, Water
Revenue, Series F-92B, 6.25%,
1/1/06, Callable 1/1/02 @ 102,
AMBAC.......................... 2,007
50 Cleveland Waterworks, Water
Revenue, Series F-92B, 6.50%,
1/1/11, Prerefunded 1/1/02 @
102, AMBAC..................... 55
</TABLE>
Continued
57
<PAGE> 314
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 3,750 Cleveland Waterworks, Water
Revenue, Series F-92B, 6.50%,
1/1/11, Callable 1/1/02 @ 102,
AMBAC.......................... $ 4,075
2,000 Cleveland Waterworks, Water
Revenue, Series G, 5.50%,
1/1/13, MBIA................... 2,152
500 Cleveland, GO, 7.50%, 8/1/07,
Prerefunded 2/1/03 @ 100,
AMBAC.......................... 569
1,000 Cleveland, GO, 6.88%, 7/1/09,
Prerefunded 7/1/99 @ 102,
MBIA........................... 1,051
1,000 Cleveland, GO, 6.38%, 7/1/12,
Prerefunded 7/1/02 @ 102,
MBIA........................... 1,101
1,225 Columbus Municipal Airport No.
30-E-U, GO, 6.20%, 4/15/04,
Callable 4/15/01 @ 100......... 1,296
1,000 Columbus Sewer Improvements, GO,
6.75%, 9/15/06, Callable
9/15/01 @ 100.................. 1,091
2,285 Columbus Waterworks Enlargement
No. 44, GO, 6.00%, 5/1/11,
Prerefunded 5/1/03 @ 102....... 2,507
1,000 Columbus Waterworks Enlargement
No. 44, GO, 6.00%, 5/1/12,
Prerefunded 5/1/03 @ 102....... 1,097
1,000 Columbus, GO, 6.40%, 1/1/07,
Callable 1/1/02 @ 102.......... 1,089
1,000 Columbus, GO, 5.00%, 06/15/12,
Callable 6/15/08 @ 101......... 1,018
2,000 Columbus, GO, 5.00%, 6/15/16,
Callable 6/15/08 @ 101......... 2,001
1,000 Cuyahoga County, Health Care
Facilities, Benjamin Rose
Institute, 5.50%, 12/1/17,
Callable 12/1/08 @ 101......... 992
1,000 Cuyahoga County, Hospital
Revenue, Metrohealth System,
Series A, 5.13%, 2/15/13,
Callable 2/15/07 @ 102, MBIA... 1,007
1,000 Cuyahoga County, Hospital
Revenue, Series A, 5.50%,
1/15/10, Callable 1/15/06 @
102, MBIA...................... 1,058
1,000 Cuyahoga County, Hospital
Revenue, W.O. Walker Center,
5.25%, 1/1/13, Callable 7/1/08
@ 101, AMBAC................... 1,031
1,000 Cuyahoga County, Jail Facilities,
GO, 7.00%, 10/1/13, Prerefunded
10/1/01 @ 102.................. 1,105
1,500 Dayton Special Facilities
Revenue, Air Freight-E, 6.05%,
10/1/09........................ 1,629
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 1,000 Delaware County, Library
District, GO, 7.25%, 11/1/10,
Prerefunded 11/1/00 @ 102...... $ 1,093
1,000 Delaware County, Sewer, GO,
5.60%, 12/1/10, Callable
12/1/05 @ 101.................. 1,076
2,165 Dublin City School District, GO,
0.00%, 12/1/09, MBIA........... 1,279
2,150 Dublin City School District, GO,
0.00%, 12/1/10, MBIA........... 1,205
1,650 Dublin City School District, GO,
0.00%, 12/1/11, MBIA........... 871
1,185 Dublin City School District, GO,
5.00%, 12/1/12, Callable
12/1/07 @ 101, MBIA............ 1,196
1,000 Fairfield County, Hospital
Improvement Revenue, Lancaster-
Fairfield Community Hospital,
7.10%, 6/15/21, Prerefunded
6/15/01 @ 102, MBIA............ 1,102
1,500 Franklin County, Health Care
Facilities Revenue, 5.50%,
11/1/16, Callable 11/1/02 @
102............................ 1,513
1,000 Franklin County, Health Care
Facilities Revenue, 5.50%,
7/1/17, Callable 7/1/08 @
101............................ 994
1,290 Franklin County, Hospital
Revenue, Children's Hospital,
5.65%, 11/1/08, Callable
11/1/06
@ 101.......................... 1,397
1,065 Franklin County, Hospital
Revenue, Children's Hospital,
5.75%, 11/1/09, Callable
11/1/06
@ 101.......................... 1,154
800 Franklin County, Hospital
Revenue, Children's Hospital,
5.80%, 11/1/10, Callable
11/1/06
@ 101.......................... 865
2,000 Franklin County, Hospital
Revenue, Children's Hospital
Project, Series A, 6.50%,
5/1/07, Callable 11/1/02 @
102............................ 2,213
1,000 Franklin County, Hospital
Revenue, Children's Hospital
Project, Series A, 6.60%,
11/1/11, Callable 11/1/01 @
102............................ 1,096
1,000 Franklin County, Hospital
Revenue, Holy Cross Health,
7.65%, 6/1/10, Prerefunded
6/1/00 @ 102, AMBAC............ 1,087
</TABLE>
Continued
58
<PAGE> 315
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 1,000 Franklin County, Hospital
Revenue, Riverside United,
Series B, 7.60%, 5/15/20,
Prerefunded 5/15/00 @ 102...... $ 1,085
1,000 Greater Cleveland Regional
Transportation Authority, GO,
5.60%, 12/1/11, Callable
12/1/06 @ 101, FGIC............ 1,070
1,600 Greene County, GO, 6.25%,
12/1/09, Callable 12/1/02 @
102,
AMBAC.......................... 1,759
1,000 Greene County, Water System
Revenue, 6.85%, 12/1/11,
Callable 12/1/01 @ 102,
AMBAC.......................... 1,100
1,500 Hamilton County, Building
Improvement, Museum Center, GO,
6.50%, 12/1/09, Callable
12/1/01 @ 102.................. 1,632
1,500 Hamilton County, Economic
Development, Housing Revenue,
AMT, 5.50%, 1/1/12, Callable
1/1/07 @ 102, FNMA............. 1,547
1,500 Hamilton County, Electric Systems
Revenue, 6.13%, 10/15/08,
Callable 10/15/02 @ 102,
FGIC........................... 1,636
1,500 Hamilton County, Hospital
Facilities Revenue, Bethesda
Hospital, Series A, 6.25%,
1/1/12, Callable 1/1/03 @
102............................ 1,624
1,265 Hamilton County, Hospital
Facilities Revenue, Christ
Hospital, Series B, 6.63%,
1/1/06, Prerefunded 1/1/01 @
100, FGIC...................... 1,343
380 Hamilton County, Sewer System
Revenue, 6.30%, 12/1/01,
Prerefunded 6/1/01 @ 102....... 410
1,000 Hamilton Waterworks, Water
Utility Improvement Revenue,
Series A, 6.40%, 10/15/07,
Callable 10/15/01 @ 102,
MBIA........................... 1,089
1,000 Huron County, Correctional
Facility, Issue I, GO, 5.70%,
12/1/11, Callable 12/1/07 @
102, MBIA...................... 1,094
1,000 Kent State University, General
Receipts Revenue, 6.45%,
5/1/12, Prerefunded 5/1/02 @
102, AMBAC..................... 1,101
1,000 Kent State University, General
Receipts Revenue, Series A,
5.00%, 5/1/14, Callable 5/1/08
@ 101, AMBAC................... 996
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 3,000 Lakewood Sanitation Sewer System,
Special Obligation, 6.40%,
12/1/11, Prerefunded 12/1/01 @
102............................ $ 3,279
1,000 Lakota School District, GO,
0.00%, 12/1/11, FGIC........... 524
570 Liberty Benton School District,
GO, 0.00%, 12/1/11, AMBAC...... 305
570 Liberty Benton School District,
GO, 0.00%, 12/1/12, AMBAC...... 288
1,000 Logan County School District, GO,
7.10%, 12/1/12, Prerefunded
12/1/01 @ 101, AMBAC........... 1,107
1,000 Lorain County, Hospital Revenue,
Catholic Healthcare Partners,
6.00%, 9/1/05, MBIA............ 1,101
1,000 Lorain County, Hospital Revenue,
Catholic Healthcare Partners,
5.63%, 9/1/12, Callable 9/1/07
@ 102, MBIA.................... 1,072
1,000 Marysville School District, GO,
7.20%, 12/1/10, Prerefunded
12/1/00 @ 102, AMBAC........... 1,094
1,000 Miami County, GO, 5.25%, 12/1/17,
Callable 12/1/7 @ 102.......... 1,017
2,500 Middleburg Heights Hospital,
5.70%, 8/15/10, Callable
8/15/08 @ 102, FSA............. 2,736
1,000 Montgomery County Hospital,
5.35%, 12/1/08, Callable
12/1/07
@ 102.......................... 1,034
1,575 Montgomery County Hospital,
5.65%, 12/1/12, Callable
12/1/07
@ 102.......................... 1,632
2,000 Montgomery County, Sisters of
Charity, Series A, 6.50%,
5/15/08, Callable 5/15/01 @
102, MBIA...................... 2,166
1,000 North Royalton, GO, 7.50%,
12/1/11, Callable 12/1/00 @
102............................ 1,094
1,000 Northeast Ohio Regional Sewer
District Wastewater, Sewer
Revenue, 6.50%, 11/15/08,
Prerefunded 11/15/01 @ 101,
AMBAC.......................... 1,087
900 Ohio Capital Corp. for Housing,
5.60%, 1/1/07, Callable 7/1/03
@ 102, MBIA.................... 938
500 Olentangy Local School District,
GO, 7.75%, 12/1/11, BIG........ 654
1,250 Olmsted Falls School District,
GO, 0.00%, 12/15/10, AMBAC..... 703
</TABLE>
Continued
59
<PAGE> 316
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 565 Olmsted Falls School District,
GO, 6.85%, 12/15/11,
Prerefunded 12/15/04 @ 102,
FGIC........................... $ 657
1,000 Ottawa County, GO, 7.00%, 9/1/11,
Callable 9/1/01 @ 102, AMBAC... 1,098
1,000 Pickerington School District, GO,
7.00%, 12/1/13, Prerefunded
12/1/00 @ 102, AMBAC........... 1,089
1,000 Piqua School District, GO, 5.20%,
12/1/15, Callable 12/1/07 @
102, FGIC...................... 1,015
2,600 Portage County, Robinson Memorial
Hospital Project, 5.63%,
11/15/07, Callable 11/15/04 @
102, MBIA...................... 2,803
2,220 Rocky River School District,
School Improvements, GO, 6.90%,
12/1/11, Prerefunded 2/1/00 @
102............................ 2,411
1,000 Saint Mary's Electric Systems
Mortgage Revenue, 7.15%,
12/1/10, Callable 2/1/00 @ 102,
AMBAC.......................... 1,092
1,000 Sandusky County, Hospital
Facility Revenue, Memorial
Hospital, 5.10%, 1/1/09,
Callable 1/1/08 @ 102.......... 999
1,000 Sandusky School District, GO,
7.30%, 12/1/10, Callable
12/1/00
@ 102.......................... 1,091
1,000 Shaker Heights City Schools,
GO, 7.10%, 12/15/10............ 1,196
1,710 Springfield County, School
District, GO, 0.00%, 12/1/12,
AMBAC.......................... 848
1,000 Springfield, GO, 6.88%, 9/1/06,
Callable 9/1/01 @ 102, AMBAC... 1,102
1,000 State Air Quality Development
Authority, Pollution Control
Revenue, Ohio Edison, 7.45%,
3/1/16, Callable 3/1/00 @ 102,
FGIC........................... 1,069
1,000 State Building Authority, 7.35%,
4/1/09, Prerefunded 4/1/00 @
102, MBIA...................... 1,077
2,000 State Building Authority, Adult
Correctional Building, Series
A, 6.13%, 10/1/09, Callable
10/1/03 @ 102.................. 2,207
1,000 State Building Authority, Adult
Correctional Building, Series
A, 5.50%, 4/1/13, Callable
4/1/07 @ 101, AMBAC............ 1,054
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 1,000 State Building Authority, Highway
Safety Building, 5.38%,
10/1/09, Callable 4/1/07 @ 101,
AMBAC.......................... $ 1,064
1,000 State Building Authority, State
Correctional Facilities, Series
A, 6.50%, 10/1/01.............. 1,074
1,000 State Building Authority, State
Facilities, Administration
Building Funds, Series A,
5.75%, 10/1/06, Callable
10/1/04 @ 102, MBIA............ 1,089
1,000 State Building Authority, State
Facilities, Adult Correctional
Building, Series A, 5.25%,
4/1/13, Callable 4/1/08 @
101............................ 1,028
1,000 State Building Authority, State
Facilities, Adult Correctional
Building, Series A, 5.00%,
4/1/15, Callable 4/1/08 @
101............................ 995
2,000 State Building Authority, State
Facilities, J. Rhodes, Series
A, 6.38%, 6/1/07, Callable
6/1/01 @ 102................... 2,159
1,165 State Building Authority, State
Facilities, Transportation
Building Fund, Series A, 6.50%,
9/1/09, Callable 9/1/04 @ 102,
AMBAC.......................... 1,318
1,750 State Elementary & Secondary
Education, 5.63%, 12/1/06...... 1,900
2,510 State Fresh Water Development,
Water Revenue, 5.80%, 6/1/11,
Callable 6/1/05 @ 102, AMBAC... 2,794
800 State Higher Educational
Facilities, 7.25%, 12/1/12,
Prerefunded 12/1/00 @ 102,
FGIC........................... 876
200 State Higher Educational
Facilities, 7.25%, 12/1/12,
Callable 12/1/00 @ 102, FGIC... 218
1,000 State Higher Educational
Facilities, Case Western
Reserve University, Series B,
7.13%, 10/1/14, Prerefunded
10/1/00 @ 102.................. 1,088
1,200 State Higher Educational
Facilities, Case Western
Reserve University, Series C,
5.25%, 10/1/12, Callable
10/1/07 @ 101.................. 1,231
1,000 State Higher Educational
Facilities, Denison University,
5.40%, 11/1/11, Callable
11/1/06
@ 101.......................... 1,047
</TABLE>
Continued
60
<PAGE> 317
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 1,000 State Higher Educational
Facilities, Denison University,
5.25%, 11/1/16, Callable
11/1/06
@ 101.......................... $ 1,013
1,150 State Higher Educational
Facilities, Series D, 0.00%,
7/1/10......................... 1,171
1,000 State Higher Educational Loan
Revenue, Series A-1, AMT,
5.40%, 12/1/09, Callable 6/1/07
@ 102, AMBAC................... 1,049
1,200 State Housing Finance Agency,
Mortgage, Series A-1, 6.20%,
9/1/14, Callable 3/1/05 @ 102,
GNMA........................... 1,287
885 State Housing Finance Agency,
Multifamily Housing Mortgage
Revenue, 5.30%, 9/1/18,
Callable 3/1/08 @ 102, FHA..... 886
620 State Housing Finance Agency,
Single Family Mortgage Revenue,
Series F, 7.50%, 9/1/10,
Callable 9/1/00 @ 102, GNMA.... 658
1,545 State Housing Finance, Mortgage
Revenue, Series B-3, AMT,
5.25%, 9/1/10, Callable 9/1/07
@ 102, GNMA.................... 1,582
1,000 State Liquor Profits Revenue,
6.85%, 9/1/00, BIG, ETM........ 1,060
1,000 State Water Development
Authority, Pollution Control
Facilities, 5.50%, 12/1/09,
Callable 6/1/05 @ 101, MBIA.... 1,062
1,500 State Water Development
Authority, Water Development
Revenue, 7.00%, 12/1/09,
Callable 6/1/00 @ 102, ETM,
AMBAC.......................... 1,763
1,000 Strongsville, GO, 6.70%, 12/1/11,
Callable 12/1/06 @ 102......... 1,165
1,335 Strongsville, GO, 5.05%, 12/1/14,
Callable 12/1/07 @ 101......... 1,350
800 Toledo Sewer Revenue, 6.20%,
11/15/02, AMBAC................ 866
1,000 Toledo Sewer System Revenue,
7.38%, 11/15/10, Callable
11/15/98 @ 102, MBIA........... 1,033
1,000 Toledo, GO, 5.63%, 12/1/11,
Callable 12/1/06 @ 102,
AMBAC.......................... 1,080
1,000 Toledo, GO, Series B, 0.00%,
12/1/11, FGIC.................. 528
1,000 University of Cincinnati, 7.30%,
6/1/09, Prerefunded 6/1/99 @
100............................ 1,033
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- ---------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Ohio, continued:
$ 1,000 University of Cincinnati,
Certificates of Participation,
University & College
Improvements, 6.75%, 12/1/09,
Callable 12/1/01 @ 102, MBIA... $ 1,105
1,000 University of Cincinnati, General
Receipts, 5.75%, 6/1/13,
Callable 6/1/06 @ 101.......... 1,082
1,000 University of Cincinnati, General
Receipts, Health & Hospital
Improvements, 7.10%, 6/1/10,
Prerefunded 6/1/99 @ 102....... 1,051
1,000 University of Cincinnati, General
Receipts, University & College
Improvements, 7.00%, 6/1/11,
Callable 6/1/01 @ 102.......... 1,093
1,000 University of Cincinnati,
Revenue, Series R2, 6.25%,
6/1/09, Callable 12/1/02 @
102............................ 1,102
1,000 Wadsworth School District, 5.13%,
12/1/15, Callable 12/1/08 @
101, FGIC...................... 1,008
1,000 Westerville, Minerva Park &
Blendon Joint Township, Saint
Ann's Hospital, Series B,
6.80%, 9/15/06, Callable
9/15/01 @ 102, AMBAC, ETM...... 1,131
2,750 Westerville, Minerva Park &
Blendon Joint Township, Saint
Ann's Hospital, Series B,
7.00%, 9/15/12, Callable
9/15/01 @ 102, AMBAC, ETM...... 3,182
1,000 Worthington City School District,
GO, 7.45%, 12/1/12, Prerefunded
12/1/99 @ 102, MBIA............ 1,070
--------
181,435
--------
Texas (0.5%):
2,500 Southeast Texas Housing Financial
Corp., 0.00%, 9/1/17, ETM,
MBIA........................... 949
--------
Washington (0.6%):
1,000 State, Series A & AT-6, GO,
6.25%, 2/1/11.................. 1,151
--------
Total Municipal Bonds 192,272
--------
INVESTMENT COMPANIES (0.5%):
278 Fidelity Ohio Tax Free Money
Market Fund.................... 278
673 The One Group Ohio Municipal
Money Market Fiduciary Class... 674
--------
Total Investment Companies 952
--------
Total (Cost $180,818) (a) $193,224
========
</TABLE>
Continued
61
<PAGE> 318
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ohio Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
- ------------
Percentages indicated are based on net assets of $193,325.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $38. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $12,383
Unrealized depreciation..................................... (15)
-------
Net unrealized appreciation................................. $12,368
=======
</TABLE>
* Variable rate securities having liquidity sources through bank letters of
credit or other cards and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of
market rates. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect at June 30, 1998.
<TABLE>
<S> <C>
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
BIG Insured by Bond Insurance Guarantee
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FHA Insured by Federal Housing Administration
FNMA Insured by Federal National Mortgage Association
FSA Insured by Federal Security Assurance
GNMA Insured by Government National Mortgage Association
GO General Obligation
MBIA Insured by Municipal Bond Insurance Association
</TABLE>
See notes to financial statements.
62
<PAGE> 319
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Louisiana Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS (99.9%):
Louisiana (99.9%):
$ 1,165 Ascension Parish, Gravity Drain,
Sales & Use Tax, 5.40%, 12/1/07,
Callable 12/1/06 @100, FGIC........ $ 1,239
1,230 Ascension Parish, Gravity Drain,
Sales & Use Tax, 5.50%, 12/1/08,
Callable 12/1/06 @ 100, FGIC....... 1,311
2,500 Bastrop, Industrial Development
Board, Pollution Control Revenue,
International Paper Co. Project,
6.90%, 3/1/07, Callable 3/1/02 @
102................................ 2,751
700 Baton Rouge, Public Improvements,
Sales & Use Tax, 6.85%, 8/1/00,
Callable 8/1/99 @ 102, AMBAC....... 735
800 Baton Rouge, Public Improvements,
Sales & Use Tax, 6.90%, 8/1/01,
Callable 8/1/99 @ 102, AMBAC....... 842
765 Baton Rouge, Public Improvements,
Sales & Use Tax, 6.38%, 8/1/09,
Callable 8/1/01 @ 101.5, FSA....... 827
700 Bossier City, Public Improvements,
Sales & Use Tax, Revenue, 5.05%,
11/1/11, Callable 11/1/07 @ 100,
FGIC............................... 711
805 Bossier City, Public Improvements,
Sales & Use Tax, Revenue, Series
ST, 6.20%, 11/1/07, Callable
11/1/01 @ 102, AMBAC............... 872
400 Bossier City, Public Improvements,
Sales & Use Tax, Series ST-1989,
6.88%, 11/1/06, Callable 11/1/99 @
101.5, FGIC........................ 422
400 Bossier City, Public Improvements,
Sales & Use Tax, Series ST-1989,
6.88%, 11/1/07, Callable 11/1/99 @
101.5, FGIC........................ 422
550 Bossier City, Public Improvements,
Sales & Use Tax, Series ST-1989,
6.88%, 11/1/08, Callable 11/1/99 @
101.5, FGIC........................ 581
1,415 Caddo Parish, GO, 5.25%, 2/1/06,
Callable 2/1/05 @ 100, MBIA........ 1,483
750 Caddo Parish, GO, 5.25%, 2/1/08,
Callable 2/1/05 @ 100, MBIA........ 782
470 Caddo Parish, Industrial Development
Board, Wal-Mart Stores, Inc.
Project, 5.95%, 11/1/07, Callable
11/1/98 @ 101...................... 476
500 Calcasieu Parish, School District
#22, Ward 3, Series A, GO, 7.10%,
2/1/01, Callable 2/1/99 @ 100,
BIG................................ 510
500 East Baton Rouge Parish, Sales & Use
Tax, 7.10%, 2/1/00, Callable 2/1/99
@ 101.5, MBIA...................... 518
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 500 East Baton Rouge Parish, Sales & Use
Tax, Series ST, 5.80%, 2/1/07,
Callable 2/1/05 @ 101.5, FGIC...... $ 543
845 East Baton Rouge Parish, Sales & Use
Tax, Series ST, 5.80%, 2/1/08,
Callable 2/1/05 @ 101.5, FGIC...... 914
910 East Baton Rouge Parish, Sales & Use
Tax, Series ST, 5.80%, 2/1/09,
Callable 2/1/05 @ 101.5, FGIC...... 981
1,085 East Baton Rouge Parish, Series ST,
5.15%, 2/1/05, Callable 2/1/03 @
101.5.............................. 1,128
1,000 East Baton Rouge Parish, Series ST,
5.10%, 2/1/07, Callable 2/1/06 @
101.5, FGIC........................ 1,043
2,280 East Baton Rouge Parish, Series ST-A,
8.00%, 2/1/02, FGIC................ 2,565
1,560 Houma Utilities Revenue, 6.13%,
1/1/07, Callable 1/1/02 @ 102,
FGIC............................... 1,686
485 Housing Finance Agency, Mortgage
Revenue, Series D-2, AMT, 6.10%,
12/1/11, Callable 12/1/06 @ 102.... 520
1,000 Housing Finance Agency, Mortgage
Revenue, Single Family, 6.65%,
6/1/15, Callable 12/1/07 @ 104,
GNMA/FNMA.......................... 1,108
515 Housing Finance Agency, Mortgage
Revenue, Single Family A-1, 5.70%,
6/1/15, Callable 6/1/05 @ 102...... 532
1,115 Iberia Home Mortgage Authority,
Single Family Mortgage Revenue,
7.38%, 1/1/11, Callable 7/1/03 @
103................................ 1,207
400 Jefferson Parish, Construction
Waterworks, District #2, 7.25%,
1/15/00, Callable 1/15/99 @ 100.... 407
1,680 Jefferson Parish, Drain Sales Tax
Revenue, 6.50%, 11/1/06,
Prerefunded 11/1/01 @ 100, AMBAC... 1,811
500 Jefferson Parish, School Board Sales
& Use Tax Revenue, 6.05%, 2/1/02,
MBIA............................... 531
1,100 Jefferson Parish, School Board Sales
& Use Tax Revenue, 6.15%, 2/1/03,
Callable 2/1/02 @ 102, MBIA........ 1,187
2,760 Jefferson Parish, School Board Sales
& Use Tax Revenue, 6.25%, 2/1/08,
Callable 2/1/02 @ 102, MBIA........ 2,997
2,070 Jefferson Parish, School Board Sales
& Use Tax Revenue, 0.00%, 9/1/09,
FSA................................ 1,225
1,000 Jefferson, Sales Tax District
Special, Tax Revenue, 0.00%,
12/1/13, FSA....................... 463
</TABLE>
Continued
63
<PAGE> 320
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Louisiana Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 4,670 Jefferson, Sales Tax District
Special, Tax Revenue, Series A,
6.75%, 12/1/06, Callable 12/1/02 @
100, FGIC.......................... $ 5,150
755 Kenner, Sales & Use Tax Revenue,
5.75%, 6/1/06, Callable 6/1/02 @
103, FGIC.......................... 809
1,000 Lafayette Parish, GO, 7.80%, 3/1/01,
Callable 7/30/98 @ 102, FGIC....... 1,023
750 Lafourche Parish, Hospital Service,
District #3, Hospital Revenue,
5.50%, 10/1/04, Callable 10/1/03 @
102................................ 786
1,525 Lafourche Parish, School District #1,
Parish Wide, GO, 5.00%, 2/1/13,
Callable 2/1/08 @ 100, FSA......... 1,523
650 Lafourche Parish, Water District #1,
Water Revenue, 5.63%, 1/1/01....... 672
500 Lincoln Parish, School District #1,
GO, Ruston, 6.20%, 3/1/03, Callable
3/1/01 @ 100, MBIA................. 527
1,465 Lincoln Parish, School District #1,
GO, Ruston, 6.40%, 3/1/05, Callable
3/1/01 @ 100, MBIA................. 1,551
1,000 Louisiana State University,
Agricultural & Mechanical College,
University Revenues, 6.00%, 7/1/07,
Callable 7/1/06 @ 102, MBIA........ 1,111
1,120 Louisiana State University,
Agricultural & Mechanical College,
University Revenues, 5.50%, 7/1/13,
Callable 7/1/06 @ 102, MBIA........ 1,173
1,220 Monroe Parish, Special School
District, GO, 8.00%, 3/1/01,
MBIA............................... 1,339
1,300 Monroe Parish, Special School
District, GO, 7.00%, 3/1/02,
MBIA............................... 1,423
1,390 Monroe Parish, Special School
District, GO, 7.00%, 3/1/03,
MBIA............................... 1,550
1,230 Monroe Parish, Special School
District, GO, 5.35%, 3/1/05,
FGIC............................... 1,299
1,320 Monroe Parish, Special School
District, GO, 5.35%, 3/1/06,
Callable 3/1/05 @ 100, FGIC........ 1,389
1,000 New Orleans, Audubon Park, Revenue,
5.00%, 4/1/12, Callable 4/1/07 @
101, MBIA.......................... 1,004
1,000 New Orleans, GO, 5.88%, 10/1/11,
Callable 10/1/05 @ 101, AMBAC...... 1,090
2,000 New Orleans, GO, 0.00%, 9/1/16,
AMBAC.............................. 769
3,555 New Orleans, GO, 0.00%, 9/1/17,
AMBAC.............................. 1,290
550 New Orleans, GO, Public Improvement,
5.85%, 11/1/07, Callable 11/1/05 @
100, FGIC.......................... 595
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 1,000 New Orleans, GO, Series B, 5.00%,
12/1/12, Callable 12/1/08 @ 102,
FSA................................ $ 997
1,000 Orleans Parish School District, GO,
Series A, 5.13%, 9/1/13, Callable
3/1/08 @ 100, MBIA................. 1,010
1,000 Ouachita Parish, Hospital Service
District #1, Glenwood Regional
Medical Center, 5.70%, 5/15/16,
Callable 5/15/10 @ 100, FSA........ 1,063
2,525 Ouachita Parish, Hospital Service
District #1, Glenwood Regional
Medical Center, Health Care
Revenue, 7.50%, 7/1/06, Callable
7/1/01 @ 102....................... 2,810
2,000 Ouachita Parish, West School
District, Series A, 6.50%, 3/1/03,
Callable 3/1/01 @ 102, FSA......... 2,160
1,440 Plaquemines Parish, GO, 6.40%,
8/1/04, Callable 8/1/01 @ 102,
AMBAC.............................. 1,562
420 Plaquemines Parish, Sales & Use Tax,
6.70%, 12/1/08, Prerefunded 12/1/01
@ 102.............................. 462
410 Plaquemines Parish, Sales & Use Tax,
6.70%, 12/1/09, Prerefunded 12/1/01
@ 102.............................. 451
605 Plaquemines Parish, School Board,
Sales & Use Tax, 6.65%, 3/1/05,
Prerefunded 3/1/02 @ 102........... 667
2,180 Public Facilities Authority Revenue,
Alton Ochsner Medical Foundation,
Series A, 6.30%, 5/15/04, Callable
5/15/02 @ 102, MBIA................ 2,381
1,000 Public Facilities Authority Revenue,
Alton Ochsner Medical Project,
Series B, 5.75%, 5/15/11, Callable
5/15/02 @ 100, MBIA................ 1,054
1,000 Public Facilities Authority Revenue,
Dillard University, 5.00%, 2/1/18,
Callable 2/10/08 @ 102, AMBAC...... 980
1,000 Public Facilities Authority Revenue,
Franciscan Missionaries Foundation,
Series C, 5.38%, 7/1/13, Callable
7/1/08 @ 101, MBIA................. 1,031
1,000 Public Facilities Authority Revenue,
Indexed Caps, 5.88%, 2/15/11,
Callable 2/15/03 @ 102, FGIC....... 1,078
500 Public Facilities Authority Revenue,
Lafayette General Medical Center
Project, Hospital Revenue, 6.05%,
10/1/04, Callable 10/1/02 @ 102,
FSA................................ 541
</TABLE>
Continued
64
<PAGE> 321
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Louisiana Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 1,960 Public Facilities Authority Revenue,
Loyola University, 6.60%, 4/1/05,
Callable 4/1/02 @ 102.............. $ 2,158
2,525 Public Facilities Authority Revenue,
Loyola University, 5.63%, 10/1/10,
Callable 10/1/07 @ 102, MBIA....... 2,731
500 Public Facilities Authority Revenue,
Loyola University, Series A, 7.20%,
10/1/00, Callable 10/1/99 @ 102.... 529
1,135 Public Facilities Authority Revenue,
Mary Bird Perkins Cancer Center,
5.50%, 1/1/04, FSA................. 1,199
5,000 Public Facilities Authority Revenue,
Multi-Family, Series A, 0.00%,
2/1/20, ETM........................ 1,661
500 Public Facilities Authority Revenue,
Our Lady of Lake Regional Center,
Series C, Health Care Revenue,
5.70%, 12/1/04, Callable 12/1/01 @
102, MBIA.......................... 529
1,000 Public Facilities Authority Revenue,
Pendelton Memorial Methodist
Hospital, 5.00%, 6/1/08............ 994
7,500 Public Facilities Authority Revenue,
Series B, 0.00%, 12/1/19, ETM...... 2,513
110 Public Facilities Authority Revenue,
Sisters of Mercy, 7.38%, 6/1/09,
Callable 6/1/99 @ 102.............. 115
2,145 Public Facilities Authority Revenue,
Tulane University, 6.25%, 7/15/06,
Callable 7/15/01 @ 102............. 2,306
735 Public Facilities Authority Revenue,
Tulane University, 5.55%, 10/1/07,
Callable 10/1/06 @ 102, AMBAC...... 794
1,605 Public Facilities Authority Revenue,
Tulane University, 5.75%, 10/1/09,
Callable 10/1/06 @ 102, AMBAC...... 1,752
300 Public Facilities Authority Revenue,
Tulane University, Series A, 7.50%,
5/15/00, Callable 5/15/99 @ 101.... 307
225 Public Facilities Authority Revenue,
Tulane University, Series A-1,
5.80%, 2/15/04, Callable 2/15/03 @
102, FGIC.......................... 242
1,235 Public Facilities Authority Revenue,
Women's Hospital Foundation, Health
Care Revenue, 6.85%, 10/1/05,
Callable 10/1/02 @ 102............. 1,383
730 Public Facilities Authority Revenue,
Women's Hospital Foundation, Health
Care Revenue, 5.40%, 10/1/05,
Callable 10/1/04 @ 102, FGIC....... 772
1,715 Public Facilities Authority Revenue,
Women's Hospital Foundation, Health
Care Revenue, 5.50%, 10/1/06,
Callable 10/1/04 @ 102, FGIC....... 1,833
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 500 Public Facilities Authority Revenue,
Women's Hospital Foundation, Health
Care Revenue, 6.00%, 10/1/10,
FSA................................ $ 560
2,000 Public Facilities Authority Revenue,
Xavier University of Louisiana,
5.13%, 9/1/12, Callable 9/1/07 @
102, MBIA.......................... 2,033
500 Rapides Parish, Consolidated School
District #62, GO, 7.25%, 4/1/00,
Callable 4/1/99 @ 100, MBIA........ 513
1,475 Rapides Parish, School District #11,
Rigolette-Series 1990, GO, 6.95%,
2/1/02, Prerefunded 2/1/00 @ 100,
FGIC............................... 1,543
1,000 Shreveport, Certificates of
Indebtedness Revenue, Series A,
5.50%, 10/1/12, Callable 10/1/09 @
102, AMBAC......................... 1,054
480 Shreveport, GO, 6.20%, 3/1/02,
Callable 3/1/01 @ 100, AMBAC....... 505
500 Shreveport, GO, 6.70%, 2/1/03,
Prerefunded 2/1/00 @ 100, AMBAC.... 522
480 Shreveport, GO, 5.90%, 2/1/07,
Callable 2/1/03 @ 100.............. 510
930 Shreveport, Water & Sewer Revenue,
Series A, 7.75%, 12/1/02, FGIC..... 1,062
500 Shreveport, Water & Sewer Revenue,
Series A, 6.25%, 12/1/03, FGIC..... 549
1,000 South Port Community, Port Revenue,
Cargill, Inc. Project, 5.85%,
4/1/17, Callable 4/1/07 @ 102...... 1,060
750 St. Charles Parish, Public
Improvements Sales Tax, 6.60%,
11/1/07, Callable 11/1/99 @ 102.... 791
2,350 St. Charles Parish, School District
#1, GO, 6.45%, 3/1/06, Callable
3/1/02 @ 100, AMBAC................ 2,530
870 St. John Baptist Parish, School
District #1, GO, 6.25%, 3/1/05,
Callable 3/1/02 @ 100.............. 920
1,815 St. Tammany Parish, Hospital Service,
District #1, Hospital Revenue,
6.30%, 7/1/07, Callable 7/1/02 @
102................................ 1,952
1,000 St. Tammany Parish, Justice Complex
Sales Tax, 5.00%, 4/1/13, Callable
4/1/08 @ 102, FGIC................. 998
1,225 St. Tammany Parish, Public Financing
Authority Revenue, Christwood
Project, 5.25%, 11/15/08........... 1,199
</TABLE>
Continued
65
<PAGE> 322
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Louisiana Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 1,000 St. Tammany Parish, Sales & Use Tax,
District #3, Series A, 6.50%,
12/1/02, Callable 12/1/99 @ 102,
FGIC............................... $ 1,055
750 St. Tammany Parish, Sales & Use Tax,
District #3, Series A, 6.50%,
12/1/05, Callable 12/1/99 @ 102,
FGIC............................... 792
400 St. Tammany Parish, School District
#12, GO, 6.50%, 3/1/04, Callable
3/1/01 @ 100, FGIC................. 424
1,665 Stadium & Exposition District, Hotel
Occupancy Tax & Stadium Revenue,
Series A, 5.65%, 7/1/07, Callable
7/1/04 @ 102, FGIC................. 1,792
1,500 State Gas & Fuels Tax Revenue, Series
A, 7.25%, 11/15/04, Callable
11/15/99 @ 102..................... 1,591
1,000 State GO, 7.10%, 9/1/03, Prerefunded
9/1/00 @ 102, FSA.................. 1,084
3,000 State GO, Series A, 6.50%, 4/15/06,
FGIC............................... 3,404
430 State GO, Series A, 6.00%, 5/1/08,
Prerefunded 5/1/04 @ 102, AMBAC.... 476
2,875 State GO, Series A, 5.80%, 8/1/10,
MBIA............................... 3,185
500 State GO, Series A, 6.10%, 5/1/11,
Prerefunded 5/1/04 @ 102, AMBAC.... 556
3,000 State GO, Series B, 5.63%, 8/1/13,
MBIA............................... 3,263
500 State Offshore Terminal Authority,
Deepwater Port Revenue, 1st Stage,
Series B, 6.10%, 9/1/02............ 533
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ------------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Louisiana, continued:
$ 1,325 State Offshore Terminal Authority,
Deepwater Port Revenue, 1st Stage,
Series B, 6.25%, 9/1/04............ $ 1,444
1,435 Tangipahoa Parish, Consolidated
School District #1, GO, 6.15%,
12/1/07, Callable 12/1/02 @ 100.... 1,532
1,250 Tangipahoa Parish, Hospital Service
District #1, Hospital Revenue,
6.13%, 2/1/14, Callable 2/1/04 @
102, AMBAC......................... 1,371
1,000 Terrebonne Parish, Hospital Service
District #1, 5.20%, 4/1/13,
Callable 4/1/08 @ 102, AMBAC....... 1,009
690 Terrebonne Parish, Waterworks
District #1, Water Revenue, 5.70%,
11/1/06, Callable 11/1/03 @ 102,
FGIC............................... 742
500 Terrebonne Parish, Waterworks
District #1, Water Revenue, 5.75%,
11/1/08, Callable 11/1/03 @ 102,
FGIC............................... 541
555 Vermilion Parish, Hospital Service,
District #2, Health Care Revenue,
Series A, 6.35%, 5/1/00, MBIA...... 578
--------
Total Municipal Bonds 145,141
--------
INVESTMENT COMPANIES (0.3%):
383 The One Group Municipal Money Market
Fund, Fiduciary Class.............. 383
--------
Total Investment Companies 383
--------
Total (Cost $137,584) (a) $145,524
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $145,242.
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $7,962
Unrealized depreciation..................................... (22)
------
Net unrealized appreciation................................. $7,940
======
</TABLE>
<TABLE>
<S> <C>
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
BIG Insured by Bond Insurance Guarantee
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FSA Insured by Federal Security Assurance
GNMA Insured by Government National Mortgage Association
GO General Obligation
MBIA Insured by Municipal Bond Insurance Association
</TABLE>
See notes to financial statements.
66
<PAGE> 323
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
West Virginia Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS (99.0%):
Arizona (0.4%):
$ 1,000 Maricopa County, Individual
Development Single Family
Mortgage, Revenue, 0.00%,
12/31/14, ETM.................... $ 441
--------
Hawaii (0.4%):
400 State GO, Series BT, 8.13%,
2/1/00........................... 426
--------
Maryland (0.7%):
3,000 Prince Georges County Housing
Authority Revenue, Foxglenn
Apts., Series A, AMT, 0.00%,
5/20/22, Callable 7/22/98 @
26.42, GNMA...................... 791
--------
Ohio (0.8%):
500 Columbus, GO, 8.13%, 5/1/04........ 600
250 Public Community Facilities, Higher
Education Cap, Revenue, Series
II-B, 5.38%, 11/1/00, AMBAC...... 258
--------
858
--------
Puerto Rico (1.0%):
1,000 Puerto Rico Industrial Tourist
Educational, Medical and
Environmental Control Facilities,
Auxilio Mutuo Hospital Obligation
Group, 5.80%, 7/1/06, Callable
1/1/05 @ 102, MBIA............... 1,096
--------
Virginia (0.2%):
200 State Public School Authority
Revenue, Series A, 6.30%,
8/1/01........................... 213
--------
West Virginia (95.5%):
170 Bath & Waterworks Revenue, 5.80%,
9/1/19, Callable 9/1/07 @ 102.... 175
200 Berkeley County, Building
Community, Hospital Revenue, City
Hospital Project, 5.40%,
11/1/98.......................... 201
1,000 Berkeley County, Building
Community, Hospital Revenue, City
Hospital Project, 6.50%, 11/1/09,
Callable 11/1/02 @ 102........... 1,082
1,000 Berkeley County, Education Board,
GO, 5.50%, 4/1/01................ 1,037
800 Berkeley County, Education Board,
GO, 5.55%, 4/1/02................ 839
900 Berkeley County, Education Board,
GO, 5.60%, 4/1/03................ 953
500 Berkeley County, Education Board,
GO, 5.00%, 6/1/08, Callable
6/1/05 @ 100, FGIC............... 516
1,525 Brooke Pleasants Tyler Wetzed
Counties, Single Family Mortgage
Revenue, 7.40%, 8/15/10, ETM..... 1,903
225 Cabell County, Education Board, GO,
6.10%, 5/1/99, MBIA, ETM......... 230
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 150 Cabell County, Education Board, GO,
6.20%, 5/1/00, MBIA, ETM......... $ 156
1,670 Cabell County, Education Board, GO,
6.60%, 5/1/04, MBIA, ETM......... 1,874
1,500 Cabell County, Education Board, GO,
6.00%, 5/1/06, MBIA, ETM......... 1,667
80 Charles Town Residential Mortgage,
Revenue, Series A, 5.40%,
9/1/02........................... 83
80 Charles Town Residential Mortgage,
Revenue, Series A, 5.56%,
3/1/03........................... 84
75 Charles Town Residential Mortgage,
Revenue, Series A, 5.70%, 9/1/04,
Callable 3/1/03 @ 102............ 79
1,555 Charleston Building Community,
Parking Facility Revenue, Capital
Appreciation, 0.00%, 12/1/17..... 496
1,570 Charleston Building Community,
Parking Facility Revenue, Capital
Appreciation, 0.00%, 12/1/18..... 469
1,570 Charleston Building Community,
Parking Facility Revenue, Capital
Appreciation, 0.00%, 12/1/19..... 437
400 Charleston Building Community,
Parking Facility Revenue, Capital
Appreciation, 0.00%, 12/1/20..... 104
1,010 Charleston Parking Revenue, Series
B, 6.75%, 6/1/08, Callable
12/1/04 @ 102.................... 1,162
1,020 Clarksburg Water Revenue, Capital
Appreciation, Asset Guaranty,
0.00%, 9/1/08, FSA............... 640
1,000 Clarksburg Water Revenue, Capital
Appreciation, Asset Guaranty,
0.00%, 9/1/11, FSA............... 531
1,000 Clarksburg Water Revenue, Capital
Appreciation, Asset Guaranty,
0.00%, 9/1/12, FSA............... 499
1,270 Fairmont General Hospital Revenue,
5.15%, 11/1/07................... 1,288
790 Fairmont Waterworks Revenue, 5.30%,
7/1/09, Callable 7/1/07 @ 102,
MBIA............................. 839
925 Fairmont Waterworks Revenue, 5.50%,
7/1/12, Callable 7/1/07 @ 102,
MBIA............................. 980
2,500 Harrison County, Board of
Education, GO, 6.40%, 5/1/07,
FGIC............................. 2,857
2,000 Harrison County, Community Special
Obligation, Revenue, Series A,
6.25%, 5/15/10, ETM.............. 2,300
1,500 Harrison County, Education Board,
GO, 6.30%, 5/1/05, FGIC.......... 1,674
</TABLE>
Continued
67
<PAGE> 324
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
West Virginia Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 505 Harrison County, Healthcare
Building Revenue, Maplewood
Retirement Center, 5.00%, 4/1/12,
Callable 4/1/08 @ 102, AMBAC..... $ 506
500 Harrison County, Healthcare
Building Revenue, Maplewood
Retirement Center, 5.10%, 4/1/13,
Callable 4/1/08 @ 102, AMBAC..... 503
95 Huntington Residential Mortgage
Revenue, 6.30%, 9/1/98........... 95
735 Jackson County, Residential
Mortgage Revenue, 7.38%, 6/1/10,
Callable 12/1/98 @ 100, FGIC,
ETM.............................. 922
1,000 Kanawha County, Community Building
Revenue, Charleston Hospital,
7.50%, 11/1/08, Prerefunded
11/1/99 @ 102, AMBAC............. 1,068
3,910 Kanawha Mercer Nicholas Counties,
Single Family Mortgage Revenue,
0.00%, 2/1/15, Prerefunded 2/1/14
@ 89.8........................... 1,622
4,435 Kanawha-Putnam County, Single
Family Mortgage Revenue, Series
A, 0.00%, 12/1/16, AMBAC, ETM.... 1,748
1,668 Keyser Housing Corp. Mortgage
Revenue, 7.25%, 4/1/21, Callable
8/6/98 @ 101, FHA................ 1,687
1,065 Marion County, Single Family
Mortgage Revenue, 7.38%, 8/1/11,
FGIC, ETM........................ 1,327
500 Marshall County, Special
Obligation, 6.50%, 5/15/10,
ETM.............................. 570
1,000 Monongalia County, Board of
Education, GO, 7.00%, 4/1/03,
MBIA............................. 1,120
440 Monongalia County, Board of
Education, GO, 7.00%, 4/1/04,
MBIA............................. 501
300 Monongalia County, Board of
Education, GO, 7.00%, 4/1/05,
MBIA............................. 346
1,000 Monongalia County, Building
Community, Healthcare Revenue,
5.75%, 11/15/14, Callable
11/15/02 @ 102................... 1,009
1,725 Ohio County, Board of Education,
GO, 5.00%, 6/1/13, Callable
6/1/08 @ 102..................... 1,719
1,295 Parkersburg Waterworks & Sewer
System Revenue, 5.50%, 3/1/10,
Callable 9/1/06 @ 102, FSA....... 1,388
1,335 Parkersburg Waterworks & Sewer
System Revenue, 5.50%, 9/1/10,
Callable 9/1/06 @ 102, FSA....... 1,431
900 Parkersburg Waterworks & Sewer
System Revenue, 5.70%, 9/1/13,
Callable 9/1/06 @ 102, FSA....... 968
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 1,000 Pleasants County, Pollution Control
Revenue, Potomac Power, 6.15%,
5/1/15, Callable 5/1/05 @ 102,
MBIA............................. $ 1,090
1,000 Pleasants County, Pollution Control
Revenue, Potomac Power, 6.15%,
5/1/15, Callable 5/1/05 @ 102,
AMBAC............................ 1,090
1,750 Pleasants County, Pollution Control
Revenue, West Penn Power, 6.15%,
5/1/15, Callable 5/1/05 @ 102,
AMBAC............................ 1,908
1,015 Putnam County, Pollution Control
Revenue, FMC Corp., 5.63%,
10/1/13, Callable 10/1/07 @
102.............................. 1,050
2,000 Randolph County, Health Systems
Revenue, Davis Health Systems,
Inc., 5.20%, 11/1/15, Callable
11/1/13 @ 100, FSA............... 2,019
1,500 School Building Authority Revenue
Capital Improvement, 5.25%,
7/1/99, MBIA..................... 1,525
1,750 School Building Authority Revenue
Capital Improvement, 6.25%,
7/1/01, MBIA..................... 1,861
1,000 School Building Authority Revenue
Capital Improvement, 5.50%,
7/1/11, Callable 7/1/07 @ 102,
AMBAC............................ 1,066
800 School Building Authority Revenue
Capital Improvement, Series B,
6.80%, 7/1/00, MBIA.............. 844
1,000 School Building Authority Revenue
Capital Improvement, Series B,
6.90%, 7/1/02, Callable 7/1/00 @
102, MBIA........................ 1,076
500 School Building Authority Revenue
Capital Improvement, Series B,
6.95%, 7/1/03, Prerefunded 7/1/00
@ 102, MBIA...................... 539
200 School Building Authority Revenue
Capital Improvement, Series B,
6.75%, 7/1/06, MBIA.............. 232
1,000 School Building Authority Revenue
Capital Improvement, Series B,
6.00%, 7/1/12, Callable 7/1/02 @
100, MBIA........................ 1,062
500 State Building Common Lease
Revenue, 6.70%, 7/1/02, Callable
7/1/00 @ 102, MBIA............... 536
</TABLE>
Continued
68
<PAGE> 325
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
West Virginia Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 1,000 State Building, Lottery Commission
Revenue, Series A, 5.25%, 7/1/08,
Callable 7/1/07 @ 102, MBIA...... $ 1,056
1,000 State Building, Lottery Commission
Revenue, Series A, 5.25%, 7/1/09,
Callable 7/1/07 @ 102, MBIA...... 1,053
250 State GO, 5.25%, 3/1/01, Callable
8/6/98 @ 100..................... 250
200 State GO, 5.70%, 6/1/01, Callable
8/6/98 @ 100..................... 201
1,200 State GO, 6.10%, 6/1/03, Callable
8/6/98 @ 100.5................... 1,208
250 State GO, Series A, 5.20%,
2/1/99........................... 252
300 State GO, Series A, 5.30%,
2/1/00........................... 307
600 State GO, Series A, 5.40%,
2/1/01........................... 620
2,500 State GO, Series A, 5.50%,
2/1/02........................... 2,614
1,000 State GO, Series B, AMT, 5.80%,
11/1/11, Callable 11/1/06 @ 102,
FGIC............................. 1,094
1,000 State GO, Series B, AMT, 5.85%,
11/1/12, Callable 11/1/06 @ 102,
FGIC............................. 1,094
1,160 State GO, Series B, AMT, 5.10%,
11/1/15, Callable 11/1/08 @ 102,
FGIC............................. 1,158
625 State Hospital Finance Authority,
Hospital Revenue, 5.50%, 1/1/02,
MBIA............................. 652
500 State Hospital Finance Authority,
Hospital Revenue, 5.70%, 1/1/04,
Callable 1/1/02 @ 102, MBIA...... 531
500 State Hospital Finance Authority,
Hospital Revenue, 7.00%, 8/1/04,
Prerefunded 8/1/99 @ 102, FSA.... 527
2,350 State Hospital Finance Authority,
Hospital Revenue, 5.10%, 6/1/06,
Callable 6/1/03 @ 102, MBIA...... 2,442
1,000 State Hospital Finance Authority,
Hospital Revenue, 5.13%, 9/1/06,
Callable 9/1/05 @ 102, MBIA...... 1,047
1,000 State Hospital Finance Authority,
Hospital Revenue, 7.00%, 8/1/09,
Prerefunded 8/1/99 @ 102, FSA.... 1,055
1,000 State Hospital Finance Authority,
Hospital Revenue, 5.75%, 9/1/13,
Callable 9/1/05 @ 102, MBIA...... 1,070
140 State Housing Development, 5.50%,
11/1/98, FHA..................... 141
450 State Housing Development, 7.00%,
5/1/99, Callable 8/6/98 @ 102,
FHA.............................. 460
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 190 State Housing Development, 6.30%,
11/1/03, Callable 5/1/02 @ 103,
FHA.............................. $ 203
195 State Housing Development, 6.40%,
5/1/04, Callable 5/1/02 @ 103,
FHA.............................. 210
205 State Housing Development, 6.40%,
11/1/04, Callable 5/1/02 @ 103,
FHA.............................. 221
500 State Housing Development, 7.38%,
11/1/05, Callable 8/6/98 @ 102,
FHA.............................. 517
245 State Housing Development, 6.75%,
11/1/10, Callable 5/1/02 @ 103,
FHA.............................. 265
315 State Housing Development, 6.75%,
5/1/11, Callable 5/1/02 @ 103,
FHA.............................. 341
1,000 State Housing Development, 7.40%,
11/1/11, Callable 8/6/98 @ 102,
FHA.............................. 1,032
320 State Housing Development, 6.75%,
11/1/11, Callable 5/1/02 @ 103,
FHA.............................. 346
1,000 State Housing Development, 7.40%,
11/1/13, Callable 8/6/98 @ 102,
FHA.............................. 1,033
500 State Housing Development, 7.40%,
11/1/13, Callable 8/6/98 @ 102,
FHA, AMBAC....................... 517
1,000 State Housing Development, 5.05%,
11/1/14, Callable 5/1/08 @
101.5............................ 990
1,000 State Housing Development, 5.10%,
11/1/15, Callable 5/1/08 @
101.5............................ 992
1,000 State Housing Development, 5.80%,
5/1/17, Callable 5/1/07 @ 102.... 1,047
655 State Housing Development, AMT,
5.65%, 11/1/15, Callable 11/1/07
@ 102............................ 677
1,520 State Single Family Housing
Mortgage Revenue, 5.30%, 8/1/13,
Callable 8/1/07 @ 102,
GNMA/FNMA........................ 1,565
1,500 State University Revenue, 5.75%,
4/1/03, AMBAC.................... 1,601
1,500 State University Revenue, 5.75%,
4/1/04, Callable 4/1/03 @ 102,
AMBAC............................ 1,615
1,000 State University Revenue, 6.00%,
4/1/07, Callable 4/1/03 @ 102,
AMBAC............................ 1,089
1,000 State University Revenue, 6.00%,
4/1/12, Callable 4/1/03 @ 102,
AMBAC............................ 1,084
</TABLE>
Continued
69
<PAGE> 326
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
West Virginia Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 100 State Water Development Authority
Revenue, Loan Program, Series A,
7.30%, 11/1/99................... $ 104
100 State Water Development Authority
Revenue, Loan Program, Series A,
7.40%, 11/1/00................... 107
130 State Water Development Authority
Revenue, Loan Program, Series A,
6.90%, 11/1/01................... 141
160 State Water Development Authority
Revenue, Loan Program, Series A,
7.10%, 11/1/04, Callable 11/1/01
@ 102............................ 176
2,000 State Water Development Authority
Revenue, Loan Program, Series A,
7.00%, 11/1/11, Callable 11/1/01
@ 102, FSA....................... 2,205
225 University Dormitory Revenue,
Series A, 5.60%, 5/1/99, MBIA.... 229
750 University Revenues, State
University System, Marshall
University Library, 5.60%,
4/1/11, Callable 4/1/06 @ 101,
AMBAC............................ 800
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
$ 1,715 West Virginia University, Revenue,
Series A, 5.30%, 5/1/12, Callable
11/1/07 @ 101, AMBAC............. $ 1,783
1,125 West Virginia University, Revenue,
Series A, 5.25%, 4/1/13, Callable
4/1/08 @ 102, AMBAC.............. 1,158
1,000 Wheeling Waterworks & Sewer System
Revenue, 5.40%, 6/1/11, Callable
6/1/07 @ 100, FGIC............... 1,047
1,200 Wheeling Waterworks & Sewer System
Revenue, Series C, 6.60%, 6/1/12,
Prerefunded 6/1/02 @ 100, FGIC... 1,309
--------
102,819
--------
Total Municipal Bonds 106,644
--------
INVESTMENT COMPANIES (0.1%):
126 The One Group Municipal Money
Market Fund, Fiduciary Class..... 126
--------
Total Investment Companies 126
--------
Total (Cost $100,248) (a) $106,770
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $107,789.
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $6,536
Unrealized depreciation..................................... (14)
------
Net unrealized appreciation................................. $6,522
======
</TABLE>
<TABLE>
<S> <C>
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FHA Insured by Federal Housing Administration
FSA Insured by Federal Security Assurance
GO General Obligation
GNMA Insured by Government National Mortgage Association
MBIA Insured by Municipal Bond Insurance Association
</TABLE>
See notes to financial statements.
70
<PAGE> 327
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Arizona Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS (98.8%):
Arizona (97.6%):
$ 1,175 Apache County, Public Finance
Corp., Certificates of
Participation, 5.25%, 5/1/04,
Callable 5/1/00 @ 102............ $ 1,197
500 Apache County, Public Finance
Corp., Certificates of
Participation, 5.50%, 5/1/10,
Callable 5/1/00 @ 102............ 516
1,000 Arizona State University Revenues
Refunding System, Series A,
5.60%, 7/1/05, Callable 7/1/02 @
101.............................. 1,055
1,000 Arizona State University Revenues
System, 6.90%, 7/1/04, Callable
7/1/02 @ 101, AMBAC.............. 1,107
1,950 Arizona State University Revenues,
Series A, 5.85%, 7/1/08, Callable
7/1/02 @ 101..................... 2,064
1,820 Arizona State University Revenues,
Series A, 5.90%, 7/1/09, Callable
7/1/02 @ 101..................... 1,949
725 Casa Grande, Excise Tax Revenue,
5.90%, 4/1/09, Callable 4/1/04 @
100, FGIC........................ 781
750 Central Arizona Water Conservation
District, Contract Revenue,
7.15%, 11/1/99................... 783
1,000 Central Arizona Water Conservation
District, Contract Revenue,
7.65%, 11/1/09, Prerefunded
11/1/00 @ 102.................... 1,101
3,300 Central Arizona Water Conservation
District, Contract Revenue,
7.13%, 11/1/11, Prerefunded
11/1/00 @ 102.................... 3,595
2,875 Central Arizona Water Conservation
District, Contract Revenue,
Central Arizona Project, 4.75%,
11/1/07, Callable 5/1/04 @ 102,
MBIA............................. 2,934
1,460 Central Arizona Water Conservation
District, Contract Revenue,
Central Arizona Project--Series
A, 5.20%, 11/1/03................ 1,529
4,000 Central Arizona Water Conservation
District, Contract Revenue,
Central Arizona Project--Series
A, 5.40%, 11/1/05................ 4,257
4,750 Central Arizona Water Conservation
District, Contract Revenue,
Central Arizona Project--Series
A, 5.40%, 11/1/06................ 5,079
5,000 Chandler, Capital Appreciation, GO,
0.00%, 7/1/07, FGIC.............. 3,329
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 625 Coconino & Yavapai Counties
Arizona, School District #9,
Sedona Oak Creek Project of
1992-C, GO, 5.60%, 7/1/06,
Callable 7/1/02 @ 101, FGIC...... $ 658
2,400 Coconino County, Arizona
University, School District #001,
Flagstaff, GO, 5.50%, 7/1/08,
Callable 7/1/05 @ 101, AMBAC..... 2,567
1,455 Coconino County, Jail Distribution
Revenue, 4.50%, 7/1/12, Callable
7/1/07 @ 101, AMBAC.............. 1,394
2,500 East Valley Institute of
Technology, District #401,
Project of 1994, Series B, GO,
6.00%, 7/1/05, AMBAC............. 2,751
1,000 East Valley Institute of
Technology, District #401, Series
A, GO, 6.00%, 7/1/04, Callable
7/1/00 @ 101, AMBAC.............. 1,048
2,000 Gila County Industrial Development
Authority Revenue, Asarco Inc.,
5.55%, 1/1/27, Callable 1/1/08, @
102.............................. 2,046
1,000 Gilbert Improvement District #011,
GO, 7.60%, 1/1/04, Callable
7/1/98 @ 102.5, FGIC............. 1,039
1,000 Glendale Municipal Property Corp.,
7.00%, 7/1/05, Callable 7/1/99 @
101, MBIA........................ 1,041
1,000 Glendale Municipal Property Corp.,
7.00%, 7/1/09, Callable 7/1/99 @
101, MBIA........................ 1,042
4,000 Glendale University High School,
District #205, Projects of
1993--Series A, GO, 5.30%,
7/1/07, Callable 7/1/03 @ 101.... 4,177
2,900 Glendale University High School,
District #205, Projects of
1993--Series B, GO, 5.45%,
7/1/09, Callable 7/1/05 @ 101,
FGIC............................. 3,071
2,000 Maricopa County, Community College
District, 5.00%, 7/1/13, Callable
7/1/06 @ 101..................... 2,021
1,570 Maricopa County, Community College
District, Building Revenue,
5.10%, 7/15/05, MBIA............. 1,642
1,000 Maricopa County, Community College
District, Series A, 6.00%,
7/1/07, Callable 7/1/03 @ 101.... 1,086
</TABLE>
Continued
71
<PAGE> 328
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Arizona Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 500 Maricopa County, Industrial
Development Authority, Hospital
Facility Revenue, St. Joseph's
Hospital & Medical Centers
Project, 6.20%, 11/1/11, Putable
11/1/98 @ 100, ETM............... $ 504
1,500 Maricopa County, School District
#001, Phoenix Elementary Project
of 1998--Series A, GO, 5.00%,
7/1/14, Callable 7/1/08 @ 100,
FSA.............................. 1,493
1,000 Maricopa County, School District
#001, Phoenix Elementary, GO,
5.50%, 7/1/10, Callable 7/1/07 @
101, MBIA........................ 1,069
900 Maricopa County, School District
#006, Washington Elementary,
Series A, GO, 5.75%, 7/1/06,
Callable 7/1/02 @ 101, AMBAC..... 963
2,000 Maricopa County, School District
#038, Madison Elementary Project
of 1995--Series B, GO, 5.80%,
7/1/15, Callable 7/1/06 @ 101,
MBIA............................. 2,142
1,015 Maricopa County, School District
#038, Madison Elementary, GO,
5.30%, 7/1/08, Callable 7/1/03 @
101, AMBAC....................... 1,060
1,000 Maricopa County, School District
#097, Deer Valley Project of
1986--Series F, GO, 5.90%,
7/1/03, Callable 7/1/02 @ 101,
FGIC............................. 1,071
750 Maricopa County, School District
#097, Deer Valley Project of
1996--Series C, GO, 5.35%,
7/1/09, Callable 7/1/07 @ 100,
FSA.............................. 792
2,000 Maricopa County, School District
#11, 5.00%, 7/1/09, Callable
7/1/07 @ 101, AMBAC.............. 2,068
2,000 Maricopa County, School District
#210, Phoenix, GO, 5.25%, 7/1/04,
Callable 7/1/03 @ 101............ 2,108
2,000 Maricopa County, School District
#210, Project of 1995 -Series B,
GO, 5.38%, 7/1/13................ 2,077
1,200 Maricopa County, School District
#210, Series A, GO, 5.60%,
7/1/13, Callable 7/1/05 @ 101.... 1,267
1,000 Maricopa County, School District
#210, Series E, GO, 7.10%,
7/1/03........................... 1,130
1,250 Maricopa County, School District
#4, GO, 5.25%, 7/1/03, FGIC...... 1,310
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 2,000 Maricopa County, School District
#4, GO, 5.50%, 7/1/09, Callable
7/1/05 @ 102, FGIC............... $ 2,135
2,500 Maricopa County, School District
#4, GO, 5.00%, 7/1/10, Callable
7/1/06 @ 101, FGIC............... 2,560
750 Maricopa County, School District
#4, GO, 5.65%, 7/1/11, Callable
7/1/05 @ 102, FGIC............... 803
2,500 Maricopa County, School District
#48, Scottsdale School
Improvements, GO, 5.00%, 7/1/14,
Callable 7/1/04 @ 101............ 2,514
1,000 Maricopa County, School District
#48, Scottsdale, GO, 5.20%,
7/1/06, Callable 7/1/03 @ 101.... 1,048
1,475 Maricopa County, School District
#48, Scottsdale, GO, 4.90%,
7/1/06, Callable 7/1/02 @ 101.... 1,520
1,000 Maricopa County, School District
#48, Scottsdale, GO, 5.25%,
7/1/08, Callable 7/1/03 @ 101.... 1,046
1,500 Maricopa County, School District
#48, Scottsdale, GO, 6.75%,
7/1/09, Prerefunded 7/1/01 @
101.............................. 1,629
2,000 Maricopa County, School District
#48, Scottsdale, Series B, GO,
6.10%, 7/1/02.................... 2,149
1,000 Maricopa County, School District
#48, Scottsdale, Series B, GO,
6.30%, 7/1/04.................... 1,110
3,100 Maricopa County, School District
#69, Paradise Valley, GO, 5.80%,
7/1/09, AMBAC.................... 3,451
2,400 Maricopa County, School District
#69, Paradise Valley, GO, 5.00%,
7/1/09, Callable 7/1/03 @ 102,
AMBAC............................ 2,456
1,000 Maricopa County, School District
#69, Paradise Valley, GO, 6.35%,
7/1/10, MBIA..................... 1,165
1,500 Maricopa County, School District
#69, Paradise Valley, Series E,
GO, 4.00%, 7/1/16, Callable
7/1/07 @ 101, FSA................ 1,300
1,000 Maricopa County, School District
#80, Chandler Projects of
1995--Series C, GO, 5.10%,
7/1/08, FGIC..................... 1,056
1,000 Maricopa County, School District
#80, Chandler, GO, 5.80%, 7/1/08,
Callable 7/1/05 @ 101, FGIC...... 1,084
</TABLE>
Continued
72
<PAGE> 329
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Arizona Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 920 Maricopa County, School District
#9, Wickenburg, GO, 5.50%,
7/1/13, Callable 7/1/07 @ 100,
AMBAC............................ $ 963
2,345 Mesa Arizona Street & Highway,
5.00%, 7/1/15, Callable 7/1/07 @
100, FGIC........................ 2,336
1,625 Mesa, GO, 6.00%, 7/1/02, AMBAC..... 1,739
1,000 Mesa, GO, 5.70%, 7/1/03, FGIC...... 1,068
3,000 Mesa, GO, 5.00%, 7/1/18, Callable
7/1/08 @ 100, FGIC............... 2,953
2,040 Mesa, Project of 1987, GO, 9.00%,
7/1/01, ETM, MBIA................ 2,327
2,000 Mesa, Project of 1987, GO, 5.70%,
7/1/08, Callable 7/1/03 @ 101.5,
MBIA............................. 2,166
2,000 Mesa, Utility System Revenue,
5.38%, 7/1/12, Callable 7/1/05 @
101, FGIC........................ 2,081
1,205 Mohave County, Elementary School
District #16, GO, 5.25%, 7/1/09,
Callable 7/1/07 @ 100, MBIA...... 1,263
1,200 Mohave County, School District # 1,
Lake Havasu, GO, 5.20%, 7/1/09,
Callable 7/1/03 @ 101, AMBAC..... 1,242
1,000 Mohave County, School District #1,
Lake Havasu, GO, 4.75%, 7/1/12,
FGIC............................. 987
2,050 Navajo County, School District #10,
5.13%, 7/1/12, Callable 7/1/07 @
101, FGIC........................ 2,072
1,000 Northern Arizona University,
Revenues, 7.50%, 6/1/03,
Prerefunded 6/1/99 @ 100......... 1,035
2,750 Northern Arizona University,
Revenues, 6.40%, 6/1/07, Callable
6/1/02 @ 101, FGIC............... 2,991
1,535 Northern Arizona University,
Revenues, 5.00%, 6/1/15, Callable
6/1/07 @ 101, FGIC............... 1,529
1,215 Northern Arizona University,
Revenues, Series A, 5.60%,
6/1/05, Callable 6/1/02 @ 102,
AMBAC............................ 1,291
1,000 Oro Valley Municipal Property
Corp., Municipal Water System
Revenue, Canada Hills, 5.45%,
7/1/14, Callable 7/1/08 @ 101,
MBIA............................. 1,050
2,000 Phoenix Arizona Civic Improvement
Corp., Series B, 6.00%, 7/1/08,
Callable 7/1/04 @ 102............ 2,208
2,000 Phoenix Civic Improvement Corp.,
Water System Revenue, 5.63%,
7/1/09, Callable 7/1/06 @ 100.... 2,173
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 725 Phoenix Street & Highway User
Revenue, 6.25%, 7/1/06, Callable
7/1/02 @ 102..................... $ 792
2,000 Phoenix Street & Highway User
Revenue, 6.50%, 7/1/09, ETM...... 2,291
1,255 Phoenix Street & Highway User
Revenue, Series A, 5.80%, 7/1/05,
Callable 7/1/02 @ 102, FGIC...... 1,344
3,950 Phoenix, GO, 6.38%, 7/1/13,
Callable 7/1/02 @ 102............ 4,326
1,125 Phoenix, GO, Series A, 5.10%,
7/1/04........................... 1,180
2,500 Phoenix, GO, Series A, 5.20%,
7/1/05........................... 2,646
1,000 Phoenix, GO, Series A, 5.40%,
7/1/07........................... 1,079
1,000 Phoenix, Individual Development
Authority, Single Family Mortgage
Revenue, Series A, AMT, 5.35%,
6/1/20, Callable 12/1/07 @ 101.5,
GNMA/FNMA/FHLMC.................. 1,004
1,000 Pima County, Arizona College
District, Certificates of
Participation, Series B, 6.00%,
7/1/07, Callable 7/1/01 @ 101,
AMBAC............................ 1,063
725 Pima County, GO, 5.60%, 7/1/07,
Callable 7/1/03 @ 101............ 769
555 Pima County, GO, 6.20%, 7/1/08,
Callable 7/1/02 @ 101............ 600
1,500 Pima County, Industrial Development
Authority, HealthPartners--Series
A, 5.30%, 4/1/07, MBIA........... 1,588
1,000 Pima County, Industrial Development
Authority, Single Family Mortgage
Revenue Refunding, Series B, AMT,
6.15%, 11/1/23, Callable 5/1/07 @
102, GNMA........................ 1,085
1,090 Pima County, Industrial Development
Authority, Single Family Mortgage
Revenue, Series A, 6.40%, 8/1/11,
Callable 8/1/05 @ 102............ 1,161
245 Pima County, Industrial Development
Authority, Single Family Mortgage
Revenue, Series A, 7.63%, 2/1/12,
Callable 2/1/01 @ 101............ 257
1,585 Pima County, Sewer Revenue, Series
A, 4.90%, 7/1/08, Callable 7/1/04
@ 102, FGIC...................... 1,629
</TABLE>
Continued
73
<PAGE> 330
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Arizona Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 1,000 Pima County, Union School District
#1, Project of 1989 -Series G,
GO, 5.00%, 7/1/06, Callable
7/1/05 @ 101, MBIA............... $ 1,043
2,205 Pima County, Union School District
#1, Project of 1989 -Series G,
GO, 5.00%, 7/1/07, Callable
7/1/05 @ 101, MBIA............... 2,300
1,000 Pima County, Union School District
#1, Series B, GO, 7.20%, 7/1/09,
Prerefunded 7/1/00 @ 101......... 1,072
1,500 Pima County, Union School District
#1, Series C, GO, 6.88%, 7/1/10,
Prerefunded 7/1/01 @ 101, MBIA... 1,635
2,000 Pima County, United School
District, 5.38%, 7/1/09, FGIC.... 2,153
1,200 Pinal County, School District #004,
Casa Grande Elementary School
Improvement, GO, 6.00%, 7/1/04,
Callable 7/1/01 @ 101, AMBAC..... 1,289
1,000 Prescott Property Corp. Facilities,
5.13%, 1/1/18, Callable 1/1/08 @
101, FGIC........................ 998
2,015 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, 6.00%,
1/1/07........................... 2,239
1,270 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, Series
A, 5.40%, 1/1/04................. 1,342
2,000 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, Series
A, 5.63%, 1/1/06................. 2,160
1,000 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, Series
A, 6.50%, 1/1/07, Callable 1/1/01
@ 102............................ 1,075
1,000 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, Series
A, 5.00%, 1/1/20, Callable 1/1/08
@ 101............................ 990
3,250 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, Series
B, 5.20%, 1/1/08................. 3,449
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 2,500 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, Series
B, 5.38%, 1/1/09, Callable 1/1/03
@ 102............................ $ 2,611
3,000 Salt River Project, Agriculture,
Improvement & Power District,
Electric Systems Revenue, Series
D, 6.00%, 1/1/13, Callable 1/1/02
@ 102............................ 3,200
2,815 Santa Cruz County Industrial
Development, Citizens Utility
Co., 4.75%, 8/1/20............... 2,817
2,085 Scottsdale Municipal Property
Corp., Excise Tax Revenue, 5.38%,
7/1/05........................... 2,215
1,000 Scottsdale Municipal Property
Corp., Lease Revenue, Excise Tax
Revenue, 6.38%, 5/1/05, Callable
11/1/02 @ 100.................... 1,086
1,900 Scottsdale Project of 1989, Series
E, GO, 5.50%, 7/1/14, Callable
7/1/02 @ 101..................... 1,965
1,065 Scottsdale Street & Highway User
Revenue, 5.50%, 7/1/07........... 1,150
2,000 Scottsdale Water & Sewer, A989--
Series D, 5.00%, 7/1/19, Callable
7/1/08 @ 101, FSA................ 1,983
1,700 Scottsdale, GO, 5.25%, 7/1/06...... 1,811
500 Scottsdale, GO, 5.50%, 7/1/09...... 545
500 Scottsdale, GO, 5.00%, 7/1/09,
Callable 7/1/03 @ 101............ 515
1,615 Scottsdale, GO, Series A, 4.80%,
7/1/08, Callable 7/1/03 @ 101.... 1,656
2,500 Scottsdale, Industrial Development
Authority, Hospital Revenue,
Scottsdale Memorial Hospitals,
Series A, 6.13%, 9/1/17, Callable
9/1/07 @ 102, AMBAC.............. 2,730
1,000 Show Low, Industrial Development
Authority, Hospital Revenue,
Navapache Regulated Medical
Center, Series A, 5.50%, 12/1/17,
Callable 12/1/07 @ 100, ACA...... 1,011
2,500 State Certificates of
Participation, 6.63%, 9/1/08,
Callable 9/1/01 @ 102, FSA....... 2,731
1,000 State Municipal Financing Program,
Certificates of Participation,
Series 20, 7.70%, 8/1/10, ETM,
BIG.............................. 1,253
</TABLE>
Continued
74
<PAGE> 331
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Arizona Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 1,000 State Municipal Financing Program,
Certificates of Participation,
Series 27, 7.00%, 8/1/04,
Callable 8/1/98 @ 101, BIG....... $ 1,013
1,250 State Power Authority Resource
Revenue, Hoover Uprating Project,
4.80%, 10/1/01, MBIA............. 1,283
2,035 State Power Authority Resource
Revenue, Hoover Uprating Project,
5.40%, 10/1/07, Callable 10/1/03
@ 102, MBIA...................... 2,156
3,000 State Transportation Board Highway
Revenue, 5.25%, 7/1/07, Callable
7/1/03 @ 102..................... 3,162
1,635 Tempe, GO, 5.00%, 7/1/10, Callable
7/1/06 @ 101..................... 1,681
1,815 Tempe, GO, 4.90%, 7/1/12, Callable
7/1/08 @ 100..................... 1,827
1,000 Tempe, GO, Series A, 5.10%,
7/1/05........................... 1,051
580 Tempe, GO, Series B, 6.00%, 7/1/06,
Callable 7/1/02 @ 101............ 625
2,235 Tempe, Union High School District
#213, Project of 1989--Series B,
GO, 5.90%, 7/1/04, Callable
7/1/01 @ 101 .................... 2,372
2,500 Tucson, 5.00%, 7/1/19, Callable
7/1/07 @ 100..................... 2,489
1,000 Tucson Street & Highway User
Revenue, 5.30%, 7/1/05, Callable
7/1/03 @ 102, MBIA............... 1,058
2,000 Tucson Water Revenue Refunding,
Series A, 5.75%, 7/1/12, Callable
7/1/02 @ 102, MBIA............... 2,131
1,000 Tucson Water System, 5.13%, 7/1/20,
Callable 7/1/07 @ 100............ 992
700 University of Arizona, Foundation
Certificates of Participation,
Series 8, 4.90%, 8/1/09, MBIA.... 725
1,000 University of Arizona, University
Revenues, 6.25%, 6/1/11, Callable
6/1/02 @ 102..................... 1,085
2,250 Water Infrastructure Financial
Authority, Water Quality
Financial Asset, Series A, 5.00%,
7/1/17, Callable 7/1/08 @ 100,
MBIA............................. 2,221
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Arizona, continued:
$ 1,100 Yavapai County, Industrial
Development Authority, Hospital
Facility Revenue, Yavapai
Regional Medical Center--Series
A, 5.13%, 12/1/13, Callable
6/1/07 @ 102, FSA................ $ 1,112
1,750 Yuma County, GO, 6.13%, 7/1/12,
Callable 7/1/03 @ 101, AMBAC..... 1,921
1,305 Yuma County, GO, Elementary School
District #1, 5.25%, 7/1/10,
Callable 7/1/07 @ 101, MBIA...... 1,366
1,000 Yuma County, Industrial Development
Authority, Hospital Revenue
Refunding, Yuma Regional Medical
Center, 5.50%, 8/1/09, Callable
8/1/07 @ 102, MBIA............... 1,069
1,000 Yuma County, Municipal Property
Corp. Revenue, Series A, 5.20%,
7/1/09, Callable 7/1/03 @ 101,
AMBAC............................ 1,035
1,575 Yuma County, Union High School,
District #70, GO, 5.00%, 7/1/06,
Callable 7/1/02 @ 101, FGIC...... 1,623
--------
244,248
--------
Illinois (0.4%):
845 Du Page County, School District
#041, Glen Ellyn Capital
Appreciation, GO, 0.00%, 2/1/08,
FGIC............................. 542
910 Du Page County, School District
#041, Glen Ellyn Capital
Appreciation, GO, 0.00%, 2/1/09,
FGIC............................. 554
--------
1,096
--------
Tennessee (0.8%):
2,985 Housing Development Agency, Issue
3A, Revenue, GO, AMT, 0.00%,
7/1/06........................... 2,003
--------
Total Municipal Bonds 247,347
--------
INVESTMENT COMPANIES (0.3%):
680 The One Group Municipal Money
Market Fund, Fiduciary Class..... 680
--------
Total Investment Companies 680
--------
Total (Cost $234,848) (a) $248,027
========
</TABLE>
Continued
75
<PAGE> 332
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Arizona Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
- ------------
Percentages indicated are based on net assets of $250,201.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $17. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $13,284
Unrealized depreciation..................................... (122)
-------
Net unrealized appreciation................................. $13,162
=======
</TABLE>
<TABLE>
<S> <C>
ACA American Capital Access
AMBAC Insured by AMBAC Indemnity Corp.
AMT Alternative Minimum Tax
BIG Insured by Bond Insurance Guarantee
ETM Escrowed to Maturity
FGIC Insured by Federal Guarantee Insurance Corp.
FSA Insured by Federal Security Assurance
GNMA Insured by Government National Mortgage Association
GO General Obligation
MBIA Insured by Municipal Bond Insurance Association
</TABLE>
See notes to financial statements.
76
<PAGE> 333
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL KENTUCKY OHIO
TAX-FREE BOND INCOME MUNICIPAL BOND MUNICIPAL BOND
FUND FUND FUND FUND
--------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $487,954; $764,609;
$127,271; $180,818; respectively).............. $511,831 $788,318 $135,701 $193,224
Cash............................................. 5 -- -- 3
Interest receivable.............................. 6,855 10,608 2,114 1,989
Receivable from brokers for investments sold..... 9,946 6,035 -- --
Receivable for capital shares issued............. 12 1,561 11 83
Prepaid expenses and other assets................ 3 3 1 2
-------- -------- -------- --------
TOTAL ASSETS..................................... 528,652 806,525 137,827 195,301
-------- -------- -------- --------
LIABILITIES:
Cash overdraft................................... -- 228 -- --
Dividends payable................................ 1,942 3,074 538 766
Payable to brokers for investments purchased..... 12,545 23,797 1,500 1,022
Payable for capital shares redeemed.............. -- 104 1 37
Accrued expenses and other payables:
Investment advisory fees..................... 162 221 40 49
Administration fees.......................... 71 106 19 27
12b-1 fees................................... 7 63 6 23
Other........................................ 65 115 23 52
-------- -------- -------- --------
TOTAL LIABILITIES................................ 14,792 27,708 2,127 1,976
-------- -------- -------- --------
NET ASSETS:
Capital.......................................... 486,040 761,142 128,950 184,798
Undistributed net investment income.............. 233 18 -- 5
Accumulated undistributed net realized gains
(losses) from investment transactions.......... 3,710 (6,052) (1,680) (3,884)
Net unrealized appreciation from investments..... 23,877 23,709 8,430 12,406
-------- -------- -------- --------
NET ASSETS....................................... $513,860 $778,817 $135,700 $193,325
======== ======== ======== ========
NET ASSETS:
Fiduciary.................................... $493,686 $617,885 $122,220 $149,890
Class A...................................... 14,515 101,805 7,899 17,297
Class B...................................... 5,659 56,911 5,581 26,138
Class C...................................... -- 2,216 -- --
-------- -------- -------- --------
Total............................................ $513,860 $778,817 $135,700 $193,325
======== ======== ======== ========
OUTSTANDING UNITS OF BENEFICIAL INTEREST
(SHARES):
Fiduciary.................................... 44,290 61,137 11,750 13,533
Class A...................................... 1,303 10,043 759 1,557
Class B...................................... 508 5,634 539 2,337
Class C...................................... -- 220 -- --
-------- -------- -------- --------
Total............................................ 46,101 77,034 13,048 17,427
======== ======== ======== ========
Net Asset Value:
Fiduciary
Offering and redemption price per
share.................................. $ 11.15 $ 10.11 $ 10.40 $ 11.08
======== ======== ======== ========
Class A
Redemption price per share............... $ 11.14 $ 10.14 $ 10.41 $ 11.11
======== ======== ======== ========
Maximum sales charge..................... 4.50% 4.50% 4.50% 4.50%
======== ======== ======== ========
Maximum offering price per share
(100%/(100%-maximum sales charge) of
net asset value adjusted to nearest
cent).................................. $ 11.66 $ 10.62 $ 10.90 $ 11.63
======== ======== ======== ========
Class B
Offering price per share (a)............. $ 11.16 $ 10.10 $ 10.35 $ 11.18
======== ======== ======== ========
Class C
Offering price per share (a)............. $ -- $ 10.09 $ -- $ --
======== ======== ======== ========
</TABLE>
- ------------
(a) Redemption price per Class B and Class C share varies based on length of
time shares are held.
See notes to financial statements.
77
<PAGE> 334
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
LOUISIANA WEST VIRGINIA ARIZONA
MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL BOND
FUND FUND FUND
---------------- ---------------- ----------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $137,584; $100,248; $234,848;
respectively)............................................. $145,524 $106,770 $248,027
Cash........................................................ -- 12 9
Interest receivable......................................... 2,341 1,447 5,556
Receivable for capital shares issued........................ 76 72 --
Prepaid expenses and other assets........................... 1 1 1
-------- -------- --------
TOTAL ASSETS................................................ 147,942 108,302 253,593
-------- -------- --------
LIABILITIES:
Dividends payable........................................... 563 431 962
Payable to brokers for investments purchased................ 2,023 -- 2,239
Accrued expenses and other payables:
Investment advisory fees................................ 44 33 85
Administration fees..................................... 21 13 34
12b-1 fees.............................................. 14 3 --
Other................................................... 35 33 72
-------- -------- --------
TOTAL LIABILITIES........................................... 2,700 513 3,392
-------- -------- --------
NET ASSETS:
Capital..................................................... 137,009 101,202 234,287
Accumulated undistributed net realized gains (losses) from
investment transactions................................... 293 65 2,735
Net unrealized appreciation from investments................ 7,940 6,522 13,179
-------- -------- --------
NET ASSETS.................................................. $145,242 $107,789 $250,201
======== ======== ========
NET ASSETS:
Fiduciary............................................... $ 92,690 $102,413 $248,590
Class A................................................. 47,078 2,024 1,321
Class B................................................. 5,474 3,352 290
-------- -------- --------
Total................................................... $145,242 $107,789 $250,201
======== ======== ========
OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES):
Fiduciary............................................... 9,035 9,966 24,487
Class A................................................. 4,589 195 131
Class B................................................. 534 324 29
-------- -------- --------
Total....................................................... 14,158 10,485 24,647
======== ======== ========
Net Asset Value:
Fiduciary
Offering and redemption price per share............. $ 10.26 $ 10.28 $ 10.15
======== ======== ========
Class A
Redemption price per share.......................... $ 10.26 $ 10.36 $ 10.08
======== ======== ========
Maximum sales charge................................ 4.50% 4.50% 4.50%
======== ======== ========
Maximum offering price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to
nearest cent)..................................... $ 10.74 $ 10.85 $ 10.55
======== ======== ========
Class B
Offering price per share (a)........................ $ 10.26 $ 10.35 $ 10.16
======== ======== ========
</TABLE>
- ------------
(a) Redemption price per Class B share varies based on length of time shares are
held.
See notes to financial statements.
78
<PAGE> 335
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL KENTUCKY OHIO
TAX-FREE BOND INCOME MUNICIPAL BOND MUNICIPAL BOND
FUND FUND FUND FUND
-------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................ $25,820 $35,129 $7,173 $ 9,907
Dividend income........................ 85 138 52 64
------- ------- ------ -------
Total Income........................... 25,905 35,267 7,225 9,971
------- ------- ------ -------
EXPENSES:
Investment advisory fees............... 2,931 2,809 587 1,063
Administration fees.................... 800 1,022 214 290
12b-1 fees (Class A)................... 38 248 22 57
12b-1 fees (Class B)................... 46 460 36 190
12b-1 fees (Class C)................... -- 8 -- --
Custodian and accounting fees.......... 54 87 24 27
Legal and audit fees................... 14 20 6 8
Trustees' fees and expenses............ 6 9 1 2
Transfer agent fees.................... 39 65 31 44
Registration and filing fees........... 98 114 34 34
Printing costs......................... 22 33 5 8
Other.................................. 6 10 2 3
------- ------- ------ -------
Total expenses before waivers.......... 4,054 4,885 962 1,726
Less waivers........................... (1,041) (742) (127) (552)
------- ------- ------ -------
Net Expenses........................... 3,013 4,143 835 1,174
------- ------- ------ -------
Net Investment Income.................. 22,892 31,124 6,390 8,797
------- ------- ------ -------
REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS:
Net realized gains (losses) from
investment transactions.............. 5,307 2,557 119 257
Net change in unrealized appreciation
(depreciation) from investments...... 7,769 12,210 2,318 2,911
------- ------- ------ -------
Net realized/unrealized gains (losses)
from investments..................... 13,076 14,767 2,437 3,168
------- ------- ------ -------
Change in net assets resulting from
operations........................... $35,968 $45,891 $8,827 $11,965
======= ======= ====== =======
</TABLE>
See notes to financial statements.
79
<PAGE> 336
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
LOUISIANA WEST VIRGINIA ARIZONA
MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL BOND
FUND FUND FUND
---------------- ---------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income................................ $8,410 $5,716 $13,821
Dividend income................................ 20 42 63
------ ------ -------
Total Income................................... 8,430 5,758 13,884
------ ------ -------
EXPENSES:
Investment advisory fees....................... 928 469 1,162
Administration fees............................ 253 171 423
12b-1 fees (Class A)........................... 170 4 4
12b-1 fees (Class B)........................... 43 15 --
Custodian and accounting fees.................. 22 20 22
Legal and audit fees........................... 7 6 7
Trustees' fees and expenses.................... 2 1 2
Transfer agent fees............................ 42 31 18
Registration and filing fees................... 25 47 65
Printing costs................................. 7 4 8
Other.......................................... 3 2 4
------ ------ -------
Total expenses before waivers.................. 1,502 770 1,715
Less waivers................................... (409) (131) (184)
------ ------ -------
Net Expenses................................... 1,093 639 1,531
------ ------ -------
Net Investment Income.......................... 7,337 5,119 12,353
------ ------ -------
REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS:
Net realized gains (losses) from investment
transactions................................. 968 126 3,573
Net change in unrealized appreciation
(depreciation) from investments.............. 1,590 2,009 550
------ ------ -------
Net realized/unrealized gains (losses) from
investments.................................. 2,558 2,135 4,123
------ ------ -------
Change in net assets resulting from
operations................................... $9,895 $7,254 $16,476
====== ====== =======
</TABLE>
See notes to financial statements.
80
<PAGE> 337
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL KENTUCKY
TAX-FREE BOND INCOME MUNICIPAL BOND
FUND FUND FUND
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................... $22,892 $16,901 $31,124 $20,002 $ 6,390 $ 3,914
Net realized gains (losses) from investment
transactions.......................................... 5,307 1,738 2,557 (530) 119 16
Net change in unrealized appreciation (depreciation)
from investments...................................... 7,769 5,870 12,210 7,608 2,318 1,197
-------- -------- -------- -------- -------- --------
Change in net assets resulting from operations.............. 35,968 24,509 45,891 27,080 8,827 5,127
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income.............................. (22,232) (16,473) (25,751) (17,054) (5,949) (3,488)
From net realized gains from investment transactions.... (3,217) (414) -- -- -- --
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income.............................. (487) (322) (3,418) (1,627) (293) (346)
From net realized gains from investment transactions.... (68) (11) -- -- -- --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income.............................. (173) (106) (1,923) (1,321) (148) (80)
From net realized gains from investment transactions.... (31) (4) -- -- -- --
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net investment income.............................. -- -- (32) -- -- --
-------- -------- -------- -------- -------- --------
Change in net assets from shareholder distributions......... (26,208) (17,330) (31,124) (20,002) (6,390) (3,914)
-------- -------- -------- -------- -------- --------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................. 122,240 103,061 323,602 194,651 27,438 19,089
Proceeds from shares issued in conversion............... -- 182,568 46,179 55,269 -- 78,683
Dividends reinvested.................................... 2,765 603 4,009 2,256 314 244
Cost of shares redeemed................................. (83,758) (56,820) (96,404) (62,696) (19,272) (14,381)
-------- -------- -------- -------- -------- --------
Change in net assets from share transactions................ 41,247 229,412 277,386 189,480 8,480 83,635
-------- -------- -------- -------- -------- --------
Change in net assets........................................ 51,007 236,591 292,153 196,558 10,917 84,848
NET ASSETS:
Beginning of period..................................... 462,853 226,262 486,664 290,106 124,783 39,935
-------- -------- -------- -------- -------- --------
End of period........................................... $513,860 $462,853 $778,817 $486,664 $135,700 $124,783
======== ======== ======== ======== ======== ========
SHARE TRANSACTIONS:
Issued.................................................. 11,002 9,528 32,215 19,945 2,650 1,892
Issued in conversion.................................... -- 16,858 4,581 5,680 -- 7,752
Reinvested.............................................. 249 56 399 231 30 24
Redeemed................................................ (7,543) (5,252) (9,602) (6,436) (1,862) (1,415)
-------- -------- -------- -------- -------- --------
Change in shares............................................ 3,708 21,190 27,593 19,420 818 8,253
======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
81
<PAGE> 338
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
OHIO LOUISIANA
MUNICIPAL BOND MUNICIPAL BOND
FUND FUND
------------------- -------------------
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................... $ 8,797 $ 6,661 $ 7,337 $ 8,667
Net realized gains (losses) from investment
transactions.......................................... 257 (175) 968 (79)
Net change in unrealized appreciation (depreciation)
from investments...................................... 2,911 2,389 1,590 3,224
-------- -------- -------- --------
Change in net assets resulting from operations.............. 11,965 8,875 9,895 11,812
-------- -------- -------- --------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income.............................. (7,209) (5,336) (4,929) (6,174)
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income.............................. (794) (810) (2,237) (2,349)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income.............................. (794) (515) (171) (144)
-------- -------- -------- --------
Change in net assets from shareholder distributions......... (8,797) (6,661) (7,337) (8,667)
-------- -------- -------- --------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................. 57,251 39,896 15,023 10,148
Proceeds from shares issued in conversion............... -- 39,137 -- --
Dividends reinvested.................................... 1,266 1,160 1,558 1,612
Cost of shares redeemed................................. (31,962) (24,777) (39,568) (41,977)
-------- -------- -------- --------
Change in net assets from share transactions................ 26,555 55,416 (22,987) (30,217)
-------- -------- -------- --------
Change in net assets........................................ 29,723 57,630 (20,429) (27,072)
NET ASSETS:
Beginning of period..................................... 163,602 105,972 165,671 192,743
-------- -------- -------- --------
End of period........................................... $193,325 $163,602 $145,242 $165,671
======== ======== ======== ========
SHARE TRANSACTIONS:
Issued.................................................. 5,175 3,691 1,468 1,013
Issued in conversion.................................... -- 3,617 -- --
Reinvested.............................................. 114 107 152 161
Redeemed................................................ (2,889) (2,289) (3,865) (4,190)
-------- -------- -------- --------
Change in shares............................................ 2,400 5,126 (2,245) (3,016)
======== ======== ======== ========
</TABLE>
See notes to financial statements.
82
<PAGE> 339
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
WEST VIRGINIA ARIZONA
MUNICIPAL BOND MUNICIPAL BOND
FUND FUND
---------------------- ----------------------
<S> <C> <C> <C> <C>
JANUARY 17, JANUARY 17,
YEAR 1997 YEAR 1997
ENDED THROUGH ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(A) 1998 1997(A)
-------- ------- -------- --------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................... $ 5,119 $ 2,113 $12,353 $ 5,890
Net realized gains (losses) from investment
transactions.......................................... 126 (28) 3,573 982
Net change in unrealized appreciation (depreciation)
from investments...................................... 2,009 627 550 511
-------- ------- -------- --------
Change in net assets resulting from operations.............. 7,254 2,712 16,476 7,383
-------- ------- -------- --------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income.............................. (4,999) (2,097) (12,296) (5,879)
From net realized gains from investment transactions.... (33) -- (1,813) --
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income.............................. (60) (11) (56) (11)
From net realized gains from investment transactions.... --(b) -- (7) --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income.............................. (60) (5) (1) --(b)
From net realized gains from investment transactions.... --(b) -- --(b) --
-------- ------- -------- --------
Change in net assets from shareholder distributions......... (5,152) (2,113) (14,173) (5,890)
-------- ------- -------- --------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................. 23,999 10,842 34,060 11,134
Proceeds from shares issued in conversion............... -- 91,179 -- 263,882
Dividends reinvested.................................... 114 9 41 5
Cost of shares redeemed................................. (16,118) (4,937) (43,458) (19,259)
-------- ------- -------- --------
Change in net assets from share transactions................ 7,995 97,093 (9,357) 255,762
-------- ------- -------- --------
Change in net assets........................................ 10,097 97,692 (7,054) 257,255
NET ASSETS:
Beginning of period..................................... 97,692 -- 257,255 --
-------- ------- -------- --------
End of period........................................... $107,789 $97,692 $250,201 $257,255
======== ======= ======== ========
SHARE TRANSACTIONS:
Issued.................................................. 2,345 1,081 3,350 1,116
Issued in conversion.................................... -- 9,118 -- 26,388
Reinvested.............................................. 11 1 4 1
Redeemed................................................ (1,579) (492) (4,282) (1,930)
-------- ------- -------- --------
Change in shares............................................ 777 9,708 (928) 25,575
======== ======= ======== ========
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Amount less than $1,000.
See notes to financial statements.
83
<PAGE> 340
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998
1. ORGANIZATION:
The One Group (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company
established as a Massachusetts business trust. The accompanying financial
statements and financial highlights are those of 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, and the Arizona Municipal Bond Fund,
(individually a "Fund", collectively the "Funds") only. Each Fund is a
non-diversified mutual fund, except for the Intermediate Tax-Free Bond Fund
and the Municipal Income Fund, which are diversified.
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
Intermediate Tax-Free Bond Fund Current income exempt from Federal income taxes
consistent with prudent investment management and the
preservation of capital.
Municipal Income Fund Current income exempt from Federal income taxes.
Kentucky Municipal Bond Fund Current income exempt from Federal income tax and
Kentucky personal income tax consistent with the
preservation of principal.
Ohio Municipal Bond Fund Current income exempt from Federal income tax and Ohio
personal income tax consistent with the preservation of
principal.
Louisiana Municipal Bond Fund Current income both consistent with the preservation of
principal and exempt from Federal income tax and
Louisiana income tax.
West Virginia Municipal Bond Fund Current income exempt from Federal income tax and West
Virginia personal income tax consistent with the
preservation of principal.
Arizona Municipal Bond Fund Current income exempt from Federal income tax and Arizona
personal income tax consistent with the preservation of
principal.
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
SECURITY VALUATION
Debt securities (other than short-term investments maturing in 60 days or
less), including municipal securities, are valued on the basis of valuations
provided by dealers or by an independent pricing service approved by the
Board of Trustees. Short-term investments maturing in 60 days or less are
valued at amortized cost, which approximates market value. Futures contracts
are valued at the settlement price established each day by the board of trade
or an exchange on which they are traded. Options traded on an exchange are
valued using the last sale price or, in the absence of a sale, the last
offering price. Options traded over-the-counter are valued using
dealer-supplied valuations. Investments for which there are no
Continued
84
<PAGE> 341
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
such quotations or valuations are valued at fair value as determined in good
faith by the Fair Value Committee, which is comprised of members from Banc
One Investment Advisors Corporation (the "Advisor") and the The One Group
Services Company (the "Administrator"), under the direction of the Board of
Trustees.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements with institutions that are
deemed by the Advisor to be of good standing and creditworthy under
guidelines established by the Board of Trustees. Each repurchase agreement is
recorded at cost. The Fund requires that the securities purchased in a
repurchase agreement transaction be transferred to the custodian in a manner
sufficient to enable the Fund to obtain those securities in the event of a
counterparty default. The seller, under the repurchase agreement, is required
to maintain the value of the securities held at not less than the repurchase
price, including accrued interest. Repurchase agreements are considered to be
loans by a fund under the 1940 Act.
WRITTEN OPTIONS
The Funds may write covered call or secured put options for which premiums
received are recorded as liabilities and are subsequently adjusted to the
current value of the options written. Premiums received from writing options
which expire are treated as realized gains. Premiums received from writing
options, which are either exercised or closed, are offset against the
proceeds received or amount paid on the transaction to determine realized
gains or losses.
FUTURES CONTRACTS
The Funds may enter into futures contracts for the delayed delivery of
securities at a fixed price at some future date or for the change in the
value of a specified financial index over a predetermined time period. Cash
or securities are deposited with brokers in order to maintain a position.
Subsequent payments made or received by the Fund based on the daily change in
the market value of the position are recorded as unrealized appreciation or
depreciation until the contract is closed out, at which time the appreciation
or depreciation is realized.
INDEXED SECURITIES
The Funds may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may
be more volatile than the referenced instrument itself, but any loss is
limited to the amount of the original investment.
SECURITIES LENDING
To generate additional income, the Funds may lend up to 33% of securities
in which they are invested pursuant to agreements requiring that the loan be
continuously secured by cash, U.S. Government or U.S. Government Agency
securities, shares of an investment trust or mutual fund, or any combination
of cash and such securities as collateral equal at all times to at least 100%
of the market value plus accrued interest on the securities lent. The Funds
continue to earn interest on securities lent while simultaneously seeking to
earn interest on the investment of collateral. Collateral is marked to market
daily to provide a level of collateral at least equal to the market value of
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 be made only to borrowers deemed by the
Advisor to be of good standing and creditworthy under guidelines established
by the Board of Trustees and when, in the judgment of the Advisor, the
consideration which can be earned currently from such securities loans
justifies the attendant
Continued
85
<PAGE> 342
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
risks. Loans are subject to termination by the Funds or the borrower at any
time, and are, therefore, not considered to be illiquid investments. As of
June 30, 1998 the Funds had no securities on loan.
SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are accounted for on a trade date basis. Net realized
gains or losses from sales of securities are determined on the specific
identification cost method. Interest income and expenses are recognized on
the accrual basis. Dividends are recorded on the ex-dividend date. Interest
income, including any discount or premium, is accrued as earned using the
effective interest method.
EXPENSES
Expenses directly attributable to a Fund are charged directly to that Fund,
while the expenses which are attributable to more than one fund of the Trust
are allocated among the respective Funds. Each class of shares bears its
pro-rata portion of expenses attributable to its series, except that each
class separately bears expenses related specifically to that class, such as
distribution fees.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly for
the Funds. Net realized capital gains, if any, are distributed at least
annually. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are due
to differences in separate class expenses.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to differing treatments for mortgage-backed securities, expiring capital loss
carryforwards, and deferrals of certain losses. Permanent book and tax basis
differences have been reclassified among the components of net assets.
FEDERAL INCOME TAXES
The Trust treats each Fund as a separate entity for Federal income tax
purposes. Each Fund intends to continue to qualify as a regulated investment
company by complying with the provisions available to certain investment
companies as defined in applicable sections of the Internal Revenue Code, and
to make distributions from net investment income and from net realized
capital gains sufficient to relieve it from all, or substantially all,
Federal income taxes.
3. SHARES OF BENEFICIAL INTEREST:
The Trust has an unlimited number of shares of beneficial interest, with no
par value, which may, without shareholder approval, be divided into an
unlimited number of series of such shares and any series may be classified or
reclassified into one or more classes. The Trust is registered to offer forty
series and five classes of shares: Fiduciary Class, Class A, Class B, Class C
and Service Class. Currently, the Trust consists of thirty-three active
funds. The Funds are each authorized to issue Fiduciary Class, Class A, Class
B, and Class C Shares. Class A Shares are subject to initial sales charges,
imposed at the time of purchase, in accordance with the Funds' prospectus.
Certain redemptions of Class B and Class C Shares are subject to contingent
deferred sales charges in accordance with the Funds' prospectus. As of June
30, 1998, there were no shareholders in Class C of the Funds except for the
Municipal Income Fund. Shareholders are entitled to one vote for each full
share held and will vote in the aggregate and not by class or series, except
as otherwise expressly required by law or when the Board of Trustees has
determined that the matter to be voted on affects only the interest of
shareholders of a particular class or series. The following is a summary of
transactions in Fund shares for the fiscal years ended June 30, 1998 and
1997:
Continued
86
<PAGE> 343
-----------------------------------------------------------------------------
The One Group Family of Mutual Funds
-----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
INTERMEDIATE TAX-FREE MUNICIPAL INCOME KENTUCKY MUNICIPAL
BOND FUND FUND BOND FUND
------------------------ ------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued.............. $111,699 $ 98,433 $220,026 $155,470 $ 21,000 $ 17,564
Proceeds from shares issued in
conversion............................. -- 182,568 46,179 55,269 -- 78,683
Dividends reinvested..................... 2,191 267 44 198 11 11
Cost of shares redeemed.................. (80,781) (54,356) (69,016) (49,425) (17,905) (10,777)
-------- -------- -------- -------- -------- --------
Change in net assets from Fiduciary Share
transactions........................... $ 33,109 $226,912 $197,233 $161,512 $ 3,106 $ 85,481
======== ======== ======== ======== ======== ========
CLASS A SHARES:
Proceeds from shares issued.............. $ 7,828 $ 2,964 $ 77,150 $ 24,091 $ 3,088 $ 425
Dividends reinvested..................... 408 245 2,621 1,160 217 191
Cost of shares redeemed.................. (2,369) (1,518) (21,365) (9,801) (1,062) (3,370)
-------- -------- -------- -------- -------- --------
Change in net assets from Class A Share
transactions........................... $ 5,867 $ 1,691 $ 58,406 $ 15,450 $ 2,243 $ (2,754)
======== ======== ======== ======== ======== ========
CLASS B SHARES:
Proceeds from shares issued.............. $ 2,713 $ 1,664 $ 24,239 $ 15,090 $ 3,350 $ 1,100
Dividends reinvested..................... 166 91 1,319 898 86 42
Cost of shares redeemed.................. (608) (946) (6,014) (3,470) (305) (234)
-------- -------- -------- -------- -------- --------
Change in net assets from Class B Share
transactions........................... $ 2,271 $ 809 $ 19,544 $ 12,518 $ 3,131 $ 908
======== ======== ======== ======== ======== ========
CLASS C SHARES: (A)
Proceeds from shares issued.............. 2,187
Dividends reinvested..................... 25
Cost of shares redeemed.................. (9)
========
Change in net assets from Class C Shares
transactions........................... $ 2,203
========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued................................... 10,053 9,103 21,915 15,939 2,029 1,740
Issued in conversion..................... -- 16,858 4,581 5,680 -- 7,752
Reinvested............................... 197 25 4 20 1 1
Redeemed................................. (7,275) (5,024) (6,882) (5,078) (1,730) (1,061)
-------- -------- -------- -------- -------- --------
Change in Fiduciary Shares............... 2,975 20,962 19,618 16,561 300 8,432
======== ======== ======== ======== ======== ========
CLASS A SHARES:
Issued................................... 705 272 7,666 2,459 297 42
Reinvested............................... 37 23 260 119 21 19
Redeemed................................. (214) (141) (2,120) (1,002) (103) (331)
-------- -------- -------- -------- -------- --------
Change in Class A Shares................. 528 154 5,806 1,576 215 (270)
======== ======== ======== ======== ======== ========
CLASS B SHARES:
Issued................................... 244 153 2,416 1,547 324 110
Reinvested............................... 15 8 132 92 8 4
Redeemed................................. (54) (87) (599) (356) (29) (23)
-------- -------- -------- -------- -------- --------
Change in Class B Shares................. 205 74 1,949 1,283 303 91
======== ======== ======== ======== ======== ========
CLASS C SHARES: (A)
Issued................................... 218
Reinvested............................... 3
Redeemed................................. (1)
========
Change in Class C Shares................. 220
========
</TABLE>
- ------------
(a) Period from commencement of operations November 4, 1997.
Continued
87
<PAGE> 344
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
OHIO MUNICIPAL LOUISIANA MUNICIPAL
BOND FUND BOND FUND
----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued............................... $ 37,277 $ 28,385 $ 7,654 $ 5,386
Proceeds issued in conversion............................. -- 39,137 -- --
Dividends reinvested...................................... 41 93 7 --
Cost of shares redeemed................................... (23,179) (16,829) (30,030) (30,290)
-------- -------- -------- --------
Change in net assets from Fiduciary Share transactions.... $ 14,139 $ 50,786 $(22,369) $(24,904)
======== ======== ======== ========
CLASS A SHARES:
Proceeds from shares issued............................... $ 5,696 $ 5,044 $ 5,295 $ 4,042
Dividends reinvested...................................... 637 675 1,436 1,510
Cost of shares redeemed................................... (5,438) (6,371) (8,929) (11,414)
-------- -------- -------- --------
Change in net assets from Class A Share transactions...... $ 895 $ (652) $ (2,198) $ (5,862)
======== ======== ======== ========
CLASS B SHARES:
Proceeds from shares issued............................... $ 14,278 $ 6,467 $ 2,074 $ 720
Dividends reinvested...................................... 588 392 115 102
Cost of shares redeemed................................... (3,345) (1,577) (609) (273)
-------- -------- -------- --------
Change in net assets from Class B Share transactions...... $ 11,521 $ 5,282 $ 1,580 $ 549
======== ======== ======== ========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued.................................................... 3,381 2,635 747 538
Issued in conversion...................................... -- 3,617 -- --
Reinvested................................................ 4 9 1 --
Redeemed.................................................. (2,097) (1,556) (2,934) (3,023)
-------- -------- -------- --------
Change in Fiduciary Shares................................ 1,288 4,705 (2,186) (2,485)
======== ======== ======== ========
CLASS A SHARES:
Issued.................................................... 513 464 519 403
Reinvested................................................ 57 62 140 151
Redeemed.................................................. (491) (588) (872) (1,140)
-------- -------- -------- --------
Change in Class A Shares.................................. 79 (62) (213) (586)
======== ======== ======== ========
CLASS B SHARES:
Issued.................................................... 1,281 592 202 72
Reinvested................................................ 53 36 11 10
Redeemed.................................................. (301) (145) (59) (27)
-------- -------- -------- --------
Change in Class B Shares.................................. 1,033 483 154 55
======== ======== ======== ========
</TABLE>
Continued
88
<PAGE> 345
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
WEST VIRGINIA MUNICIPAL BOND FUND ARIZONA MUNICIPAL BOND FUND
--------------------------------- ------------------------------
JANUARY 17, 1997 JANUARY 17, 1997
YEAR ENDED THROUGH YEAR ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(A) 1998 1997(A)
----------- ------------------ ---------- -----------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued................... $ 19,752 $ 9,442 $ 32,085 $ 9,187
Proceeds from shares issued in conversion..... -- 91,179 -- 263,882
Dividends reinvested.......................... 38 --(b) -- --
Cost of shares redeemed....................... (15,715) (4,937) (41,541) (18,791)
-------- ------- -------- --------
Change in net assets from Fiduciary Share
transactions................................ $ 4,075 $95,684 $ (9,456) $254,278
======== ======= ======== ========
CLASS A SHARES:
Proceeds from shares issued................... $ 1,552 $ 795 $ 1,686 $ 1,947
Dividends reinvested.......................... 48 7 41 5
Cost of shares redeemed....................... (398) -- (1,917) (468)
-------- ------- -------- --------
Change in net assets from Class A Share
transactions................................ $ 1,202 $ 802 $ (190) $ 1,484
======== ======= ======== ========
CLASS B SHARES:
Proceeds from shares issued................... $ 2,695 $ 605 $ 289 $ --(b)
Dividends reinvested.......................... 28 2 -- --
Cost of shares redeemed....................... (5) -- -- --
-------- ------- -------- --------
Change in net assets from Class B Share
transactions................................ $ 2,718 $ 607 $ 289 $ --(b)
======== ======= ======== ========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued........................................ 1,933 941 3,154 920
Issued in conversion.......................... -- 9,118 -- 26,388
Reinvested.................................... 4 1 -- --
Redeemed...................................... (1,539) (492) (4,092) (1,883)
-------- ------- -------- --------
Change in Fiduciary Shares.................... 398 9,568 (938) 25,425
======== ======= ======== ========
CLASS A SHARES:
Issued........................................ 150 79 167 196
Reinvested.................................... 5 -- 4 1
Redeemed...................................... (39) -- (190) (47)
-------- ------- -------- --------
Change in Class A Shares...................... 116 79 (19) 150
======== ======= ======== ========
CLASS B SHARES:
Issued........................................ 262 61 29 --(b)
Reinvested.................................... 2 -- -- --
Redeemed...................................... (1) -- -- --
-------- ------- -------- --------
Change in Class B Shares...................... 263 61 29 --(b)
======== ======= ======== ========
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Amount is less than 1,000.
Continued
89
<PAGE> 346
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
4. INVESTMENT ADVISORY, ADMINISTRATIVE, AND DISTRIBUTION AGREEMENTS:
The Trust and the Advisor are parties to an investment advisory agreement
under which the Advisor is entitled to receive an annual fee, computed daily
and paid monthly, equal to the following percentages of the Funds' average
net assets: 0.60% of the Intermediate Tax-Free Bond Fund, the Ohio Municipal
Bond Fund and the Louisiana Municipal Bond Fund; and 0.45% of the Municipal
Income Fund, the Kentucky Municipal Bond Fund, the West Virginia Municipal
Bond Fund and the Arizona Municipal Bond Fund.
The Trust and the Administrator, a wholly-owned subsidiary of The BISYS
Group, Inc., are parties to an administrative agreement under which the
Administrator provides services for a fee that is computed daily and paid
monthly, at an annual rate of 0.20% on the first $1.5 billion of Trust net
assets (excluding the Investor Growth Fund, the Investor Growth & Income
Fund, the Investor Conservative Fund, and the Investor Balanced Fund, the
"Investor Funds" and the Treasury Only Money Market Fund and the Government
Money Market Fund, the "Institutional Money Market Funds"); 0.18% on the next
$0.5 billion of Trust net assets (excluding the Investor Funds and the
Institutional Money Market Funds); and 0.16% of Trust net assets (excluding
the Investor Funds and the Institutional Money Market Funds) over $2 billion.
The Advisor also serves as Sub-Administrator to each fund of the Trust,
pursuant to an agreement between the Administrator and the Advisor. Pursuant
to this agreement, the Advisor performs many of the Administrator's duties,
for which the Advisor receives a fee paid by the Administrator.
The Trust and The One Group Services Company (the "Distributor") are parties
to a distribution agreement under which shares of the Funds are sold on a
continuous basis. Class A, Class B, and Class C Shares are subject to
distribution and shareholder services plans (the "Plans") pursuant to Rule
12b-1 under the 1940 Act. As provided in the Plans, the Trust will pay the
Distributor a fee of 0.35% of the average daily net assets of Class A Shares
of each of the Funds and 1.00% of the average daily net assets of the Class B
and Class C Shares of each of the Funds. Currently, the Distributor has
voluntarily agreed to limit payments under the Plans to 0.25%, 0.90% and
0.90% of average daily net assets of the Class A , Class B and Class C
Shares, respectively, of each Fund. Up to 0.25% of the fees payable under the
Plans may be used as compensation for shareholder services by the Distributor
and/or financial institutions and intermediaries. Fees paid under the Plans
may be applied by the Distributor toward (i) compensation for its services in
connection with distribution assistance or provision of shareholder services;
or (ii) payments to financial institutions and intermediaries such as banks
(including affiliates of the Advisor), brokers, dealers and other
institutions, including the Distributor's affiliates and subsidiaries as
compensation for services or reimbursement of expenses incurred in connection
with distribution assistance or provision of shareholder services. Fiduciary
Class Shares of each Fund are offered without distribution fees. For the year
ended June 30, 1998, the Distributor received $2,573,908 from commissions
earned on sales of Class A Shares and redemptions of Class B and Class C
Shares, of which the Distributor reallowed $2,569,574 to affiliated
broker/dealers of the Funds.
Certain officers of the Trust are affiliated with the Administrator. Such
officers receive no compensation from the Funds for serving in their
respective roles.
Continued
90
<PAGE> 347
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
The Advisor, the Administrator and the Distributor voluntarily agreed to
waive a portion of their fees. For the year ended June 30, 1998, fees in the
following amounts were waived (amounts in thousands):
<TABLE>
<CAPTION>
12B-1 FEES
INVESTMENT WAIVED
ADVISORY FEES ADMINISTRATION ------------------------------
WAIVED FEES WAIVED CLASS A CLASS B CLASS C
------------- --------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Intermediate Tax-Free Bond Fund... $1,026 $-- $11 $ 4 $--
Municipal Income Fund............. 624 -- 71 46 1
Kentucky Municipal Bond Fund...... 117 -- 6 4 --
Ohio Municipal Bond Fund.......... 517 -- 16 19 --
Louisiana Municipal Bond Fund..... 356 -- 49 4 --
West Virginia Municipal Bond
Fund............................ 104 25 1 1 --
Arizona Municipal Bond Fund....... 155 28 1 -- --
</TABLE>
5. SECURITIES TRANSACTIONS:
The cost of security purchases and the proceeds from the sale of securities
(excluding short-term securities and purchased options) during the year ended
June 30, 1998 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
PURCHASES SALES
--------- --------
<S> <C> <C>
Intermediate Tax-Free Bond Fund....................... $574,646 $539,941
Municipal Income Fund................................. 667,809 418,288
Kentucky Municipal Bond Fund.......................... 16,577 7,445
Ohio Municipal Bond Fund.............................. 47,866 18,285
Louisiana Municipal Bond Fund......................... 18,508 39,598
West Virginia Municipal Bond Fund..................... 25,215 17,123
Arizona Municipal Bond Fund........................... 53,187 65,164
</TABLE>
6. FINANCIAL INSTRUMENTS:
Investing in financial instruments such as written options, futures,
structured notes and indexed securities involves risks in excess of the
amounts reflected in the Statement of Assets and Liabilities. The face or
contract amounts reflect the extent of the involvement the Funds have in the
particular class of instrument. Risks associated with these instruments
include an imperfect correlation between the movements in the price of the
instruments and the price of the underlying securities and interest rates, an
illiquid secondary market for the instruments or inability of counterparties
to perform under the terms of the contract. The Funds enter into these
contracts primarily as a means to hedge against adverse fluctuation in
securities.
7. CONCENTRATION OF CREDIT RISK:
The Kentucky, Ohio, Louisiana, Arizona and West Virginia Municipal Bond Funds
invest primarily in debt obligations issued by the respective States and
their political subdivisions, agencies and public authorities to obtain funds
for various public purposes. The Funds are more susceptible to economic and
political factors adversely affecting issuers of the state's specific
municipal securities than are municipal bond funds that are not concentrated
in these issuers to the same extent.
8. CONVERSION OF COMMON TRUST FUNDS:
On December 19, 1997, the net assets of certain common trust funds managed by
the Advisor were exchanged in a tax-free conversion for shares of the
corresponding One Group Funds. The transaction was accounted for by a method
followed for tax purposes in a tax-free business combination. The following
is a summary of shares
Continued
91
<PAGE> 348
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
issued, net assets converted, net asset value per share issued and unrealized
appreciation of assets acquired as of the conversion date (amounts in
thousands except per share amounts):
<TABLE>
<CAPTION>
NET ASSET
NET VALUE PER
ASSETS SHARES UNREALIZED
SHARES CONVERTED ISSUED APPRECIATION
------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
Municipal Income Fund.......................... 4,581 $ 46,179 $10.08 $ 1,820
</TABLE>
On January 20, 1997, the net assets of certain common trust funds managed by
the Advisor were exchanged in a tax-free conversion for shares of the
corresponding One Group Funds. The transaction was accounted for by a method
followed for tax purposes in a tax-free business combination. The following
is a summary of shares issued, net assets converted, net asset value per
share issued and unrealized appreciation of assets acquired as of the
conversion date (amounts in thousands except per share amounts):
<TABLE>
<CAPTION>
NET ASSET
NET VALUE PER
ASSETS SHARES UNREALIZED
SHARES CONVERTED ISSUED APPRECIATION
------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
Intermediate Tax-Free Bond Fund..................... 16,858 $182,568 $10.83 $ 7,412
Municipal Income Fund............................... 5,680 55,269 9.73 1,784
Kentucky Municipal Bond Fund........................ 7,752 78,683 10.15 4,545
Ohio Municipal Bond Fund............................ 3,617 39,137 10.82 2,826
West Virginia Municipal Bond Fund................... 9,118 91,179 10.00 3,886
Arizona Municipal Bond Fund......................... 26,388 263,882 10.00 12,118
</TABLE>
9. FEDERAL TAX INFORMATION:
The accompanying table below details distributions from long-term capital
gains for the following funds for the fiscal year ended June 30, 1998
(amounts in thousands):
<TABLE>
<CAPTION>
20% 28%
DISTRIBUTIONS DISTRIBUTIONS
------------- -------------
<S> <C> <C>
Intermediate Tax-Free Bond Fund........................... $ 725 $ 507
West Virginia Municipal Bond Fund......................... 19 --
Arizona Municipal Bond Fund............................... 1,265 519
</TABLE>
Continued
92
<PAGE> 349
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
At June 30, 1998, the following Funds have capital loss carry forwards which
are available to offset future capital gains, if any (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRES
------------ -------
<S> <C> <C>
Municipal Income Fund................................. $3,424 2003
Municipal Income Fund................................. 2,561 2005
Kentucky Municipal Bond Fund.......................... 1,197 2003
Kentucky Municipal Bond Fund.......................... 483 2004
Ohio Municipal Bond Fund.............................. 2,166 2003
Ohio Municipal Bond Fund.............................. 1,463 2004
Ohio Municipal Bond Fund.............................. 217 2005
</TABLE>
The Funds designate the following exempt-interest dividends for the taxable
year ended June 30, 1998 (amounts in thousands):
<TABLE>
<CAPTION>
TAX-EXEMPT
DISTRIBUTION
------------
<S> <C>
Intermediate Tax-Free Bond Fund............................. $22,760
Municipal Income Fund....................................... 29,900
Kentucky Municipal Bond Fund................................ 6,321
Ohio Municipal Bond Fund.................................... 8,682
Louisiana Municipal Bond Fund............................... 7,435
West Virginia Municipal Bond Fund........................... 5,008
Arizona Municipal Bond Fund................................. 12,399
</TABLE>
10. SUBSEQUENT EVENTS:
On May 21, 1998, the Board of Trustees approved an agreement and plan of
reorganization and liquidation ("the Plan") with the Marquis Family of Funds
(the "Marquis Funds"). Under the Plan, the assets and liabilities of each
Marquis fund were transferred to a comparable One Group fund. Shares of the
comparable One Group fund were distributed to the Marquis shareholders in a
complete liquidation of each Marquis fund. A special Shareholder Meeting to
approve the plan was held on July 30, 1998. In a tax-free exchange on August
10, 1998, $51,579,111 of the Marquis Louisiana Tax-Free Income Fund net
assets were exchanged for 5,037,023 shares of the One Group Louisiana
Municipal Bond Fund.
93
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE TAX-FREE BOND FUND
----------------------------------------------------------------
FIDUCIARY
----------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 10.92 $ 10.67 $ 10.64 $ 10.49 $ 11.15
-------- -------- -------- -------- --------
Investment Activities:
Net investment income............................. 0.52 0.54 0.52 0.54 0.52
Net realized and unrealized gains (losses) from
investments..................................... 0.31 0.27 0.04 0.15 (0.52)
-------- -------- -------- -------- --------
Total from Investment Activities................ 0.83 0.81 0.56 0.69 0.00
-------- -------- -------- -------- --------
Distributions:
Net investment income............................. (0.52) (0.54) (0.51) (0.54) (0.53)
In excess of net investment income................ -- -- -- -- (0.01)
Net realized gains................................ (0.08) (0.02) (0.02) -- (0.01)
In excess of net realized gains................... -- -- -- -- (0.11)
-------- -------- -------- -------- --------
Total Distributions............................. (0.60) (0.56) (0.53) (0.54) (0.66)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 11.15 $ 10.92 $ 10.67 $ 10.64 $ 10.49
======== ======== ======== ======== ========
Total Return........................................ 7.74% 7.76% 5.39% 6.75% (0.11)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................. $493,686 $451,089 $217,201 $211,229 $182,611
Ratio of expenses to average net assets........... 0.60% 0.58% 0.54% 0.53% 0.48%
Ratio of net investment income to average net
assets.......................................... 4.70% 5.05% 4.87% 5.17% 4.78%
Ratio of expenses to average net assets*.......... 0.81% 0.81% 0.87% 0.88% 0.84%
Ratio of net investment income to average net
assets*......................................... 4.49% 4.82% 4.54% 4.82% 4.42%
Portfolio turnover (a)............................ 109.03% 86.89% 111.58% 199.76% 105.98%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
94
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE TAX-FREE BOND FUND
-----------------------------------------------------------
CLASS A
-----------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 10.91 $ 10.67 $ 10.63 $ 10.48 $ 11.14
------- ------- ------- ------- -------
Investment Activities:
Net investment income.................................. 0.50 0.51 0.50 0.51 0.50
Net realized and unrealized gains (losses) from
investments.......................................... 0.31 0.26 0.05 0.15 (0.52)
------- ------- ------- ------- -------
Total from Investment Activities..................... 0.81 0.77 0.55 0.66 (0.02)
------- ------- ------- ------- -------
Distributions:
Net investment income.................................. (0.50) (0.51) (0.49) (0.49) (0.52)
In excess of net investment income..................... -- -- -- (0.02) (0.01)
Net realized gains..................................... (0.08) (0.02) (0.02) -- --
In excess of net realized gains........................ -- -- -- -- (0.11)
------- ------- ------- ------- -------
Total Distributions.................................. (0.58) (0.53) (0.51) (0.51) (0.64)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................... $ 11.14 $ 10.91 $ 10.67 $ 10.63 $ 10.48
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)..................... 7.50% 7.39% 5.28% 6.49% (0.33)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)...................... $14,515 $ 8,457 $ 6,622 $ 5,614 $ 5,556
Ratio of expenses to average net assets................ 0.85% 0.83% 0.79% 0.78% 0.73%
Ratio of net investment income to average net assets... 4.45% 4.75% 4.62% 4.91% 4.57%
Ratio of expenses to average net assets*............... 1.16% 1.15% 1.22% 1.23% 1.19%
Ratio of net investment income to average net
assets*.............................................. 4.14% 4.43% 4.19% 4.46% 4.11%
Portfolio turnover (a)................................. 109.03% 86.89% 111.58% 199.76% 105.98%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
95
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- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE TAX-FREE BOND FUND
------------------------------------------------------------
CLASS B
------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996 1995 1994(A)
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 10.93 $ 10.68 $ 10.65 $ 10.50 $ 11.18
------- ------- ------- ------- -------
Investment Activities:
Net investment income.................................. 0.43 0.45 0.43 0.46 0.17
Net realized and unrealized gains (losses) from
investments.......................................... 0.31 0.27 0.04 0.14 (0.67)
------- ------- ------- ------- -------
Total from Investment Activities..................... 0.74 0.72 0.47 0.60 (0.50)
------- ------- ------- ------- -------
Distributions:
Net investment income.................................. (0.43) (0.45) (0.42) (0.45) (0.17)
Net realized gains..................................... (0.08) (0.02) (0.02) -- --
In excess of net realized gains........................ -- -- -- -- (0.01)
------- ------- ------- ------- -------
Total Distributions.................................. (0.51) (0.47) (0.44) (0.45) (0.18)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................... $ 11.16 $ 10.93 $ 10.68 $ 10.65 $ 10.50
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)..................... 6.81% 6.82% 4.48% 5.89% (4.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)...................... $ 5,659 $ 3,307 $ 2,439 $ 1,116 $ 549
Ratio of expenses to average net assets................ 1.50% 1.47% 1.44% 1.43% 1.40%(c)
Ratio of net investment income to average net assets... 3.80% 4.09% 3.97% 4.29% 4.08%(c)
Ratio of expenses to average net assets*............... 1.81% 1.78% 1.87% 1.88% 1.85%(c)
Ratio of net investment income to average net
assets*.............................................. 3.49% 3.78% 3.54% 3.84% 3.63%(c)
Portfolio turnover (d)................................. 109.03% 86.89% 111.58% 199.76% 105.98%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
96
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- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MUNICIPAL INCOME FUND
----------------------------------------------------------------
FIDUCIARY
----------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 9.84 $ 9.66 $ 9.69 $ 9.66 $ 10.11
-------- -------- -------- -------- --------
Investment Activities:
Net investment income............................. 0.51 0.53 0.56 0.57 0.56
Net realized and unrealized gains (losses) from
investments..................................... 0.27 0.18 (0.03) 0.03 (0.42)
-------- -------- -------- -------- --------
Total from Investment Activities................ 0.78 0.71 0.53 0.60 0.14
-------- -------- -------- -------- --------
Distributions:
Net investment income............................. (0.51) (0.53) (0.56) (0.57) (0.56)
Net realized gains................................ -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Total Distributions............................. (0.51) (0.53) (0.56) (0.57) (0.59)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 10.11 $ 9.84 $ 9.66 $ 9.69 $ 9.66
======== ======== ======== ======== ========
Total Return........................................ 8.09% 7.49% 5.54% 6.46% 1.36%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................. $617,885 $408,577 $241,115 $185,916 $152,763
Ratio of expenses to average net assets........... 0.57% 0.57% 0.56% 0.56% 0.54%
Ratio of net investment income to average net
assets.......................................... 5.08% 5.38% 5.70% 6.02% 5.61%
Ratio of expenses to average net assets*.......... 0.67% 0.68% 0.76% 0.74% 0.71%
Ratio of net investment income to average net
assets*......................................... 4.98% 5.27% 5.50% 5.84% 5.44%
Portfolio turnover (a)............................ 69.76% 62.83% 83.17% 66.02% 101.48%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
97
<PAGE> 354
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MUNICIPAL INCOME FUND
------------------------------------------------------------
CLASS A
------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 9.87 $ 9.69 $ 9.72 $ 9.67 $ 10.12
-------- ------- ------- ------- -------
Investment Activities:
Net investment income................................. 0.49 0.51 0.55 0.55 0.55
Net realized and unrealized gains (losses)
from investments.................................... 0.27 0.18 (0.04) 0.05 (0.43)
-------- ------- ------- ------- -------
Total from Investment Activities.................... 0.76 0.69 0.51 0.60 0.12
-------- ------- ------- ------- -------
Distributions:
Net investment income................................. (0.49) (0.51) (0.54) (0.55) (0.54)
Net realized gains.................................... -- -- -- -- (0.03)
-------- ------- ------- ------- -------
Total Distributions................................. (0.49) (0.51) (0.54) (0.55) (0.57)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.......................... $ 10.14 $ 9.87 $ 9.69 $ 9.72 $ 9.67
======== ======= ======= ======= =======
Total Return (Excludes Sales Charge).................... 7.84% 7.24% 5.35% 6.21% 1.34%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..................... $101,805 $41,829 $25,787 $11,462 $10,725
Ratio of expenses to average net assets............... 0.82% 0.82% 0.81% 0.81% 0.79%
Ratio of net investment income to average net
assets.............................................. 4.83% 5.13% 5.45% 5.76% 5.44%
Ratio of expenses to average net assets*.............. 1.02% 1.03% 1.11% 1.09% 1.06%
Ratio of net investment income to average net
assets*............................................. 4.63% 4.92% 5.15% 5.48% 5.17%
Portfolio turnover (a)................................ 69.76% 62.83% 83.17% 66.02% 101.48%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
98
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MUNICIPAL INCOME FUND
------------------------------------------------------------
CLASS B
------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996 1995 1994(A)
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 9.84 $ 9.66 $ 9.69 $ 9.62 $ 10.10
------- ------- ------- ------- -------
Investment Activities:
Net investment income.................................. 0.42 0.44 0.47 0.49 0.24
Net realized and unrealized gains (losses) from
investments.......................................... 0.26 0.18 (0.03) 0.07 (0.48)
------- ------- ------- ------- -------
Total from Investment Activities..................... 0.68 0.62 0.44 0.56 (0.24)
------- ------- ------- ------- -------
Distributions:
Net investment income.................................. (0.42) (0.44) (0.47) (0.49) (0.24)
------- ------- ------- ------- -------
Total Distributions.................................. (0.42) (0.44) (0.47) (0.49) (0.24)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................... $ 10.10 $ 9.84 $ 9.66 $ 9.69 $ 9.62
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)..................... 7.04% 6.55% 4.65% 5.58% (1.98)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)...................... $56,911 $36,258 $23,204 $ 8,326 $ 4,855
Ratio of expenses to average net assets................ 1.47% 1.47% 1.46% 1.46% 1.41%(c)
Ratio of net investment income to average net assets... 4.18% 4.48% 4.80% 5.14% 4.95%(c)
Ratio of expenses to average net assets*............... 1.67% 1.67% 1.76% 1.74% 1.62%(c)
Ratio of net investment income to average net
assets*.............................................. 3.98% 4.28% 4.50% 4.86% 4.74%(c)
Portfolio turnover (d)................................. 69.76% 62.83% 83.17% 66.02% 101.48%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Class B Shares commenced offering on January 14, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
99
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MUNICIPAL
INCOME FUND
------------
<S> <C>
CLASS C
------------
<CAPTION>
NOVEMBER 4,
1997 TO
JUNE 30,
1998(A)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.96
------
Investment Activities:
Net investment income..................................... 0.68
Net realized and unrealized gains (losses) from
investments 0.13
------
Total from Investment Activities....................... 0.81
------
Distributions:
Net investment income..................................... (0.68)
------
Total Distributions.................................... (0.68)
------
NET ASSET VALUE, END OF PERIOD.............................. $10.09
======
Total Return (Excludes Sales Charge)........................ 8.28%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $2,216
Ratio of expenses to average net assets................... 1.47%(c)
Ratio of net investment income to average net assets...... 4.18%(c)
Ratio of expenses to average net assets*.................. 1.67%(c)
Ratio of net investment income to average net assets*..... 3.98%(c)
Portfolio turnover (d).................................... 69.76%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
100
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
KENTUCKY MUNICIPAL BOND FUND
-------------------------------------------------------------------------------
FIDUCIARY
----------------------------------------------
JANUARY 20, FEBRUARY 1, MARCH 12,
YEAR ENDED JUNE 30, 1995 TO 1994, TO 1993, TO
------------------------------- JUNE 30, JANUARY 19, JANUARY 31,
1998 1997 1996 1995(A) 1995(B) 1994(B)(C)
-------- -------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................ $ 10.20 $ 10.04 $ 9.92 $ 9.49 $ 10.45 $ 10.00
-------- -------- ------- ------- ------- -------
Investment Activities:
Net investment income.............. 0.51 0.50 0.50 0.20 0.41 0.36
Net realized and unrealized gains
(losses) from investments........ 0.20 0.16 0.12 0.43 (0.95) 0.43
-------- -------- ------- ------- ------- -------
Total from Investment
Activities.................... 0.71 0.66 0.62 0.63 (0.54) 0.79
-------- -------- ------- ------- ------- -------
Distributions:
Net investment income.............. (0.51) (0.50) (0.50) (0.20) (0.42) (0.34)
-------- -------- ------- ------- ------- -------
Total Distributions.............. (0.51) (0.50) (0.50) (0.20) (0.42) (0.34)
-------- -------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD...................... $ 10.40 $ 10.20 $ 10.04 $ 9.92 $ 9.49 $ 10.45
======== ======== ======= ======= ======= =======
Total Return......................... 7.11% 6.74% 6.35% 6.56%(d) (5.17)%(d) 8.05%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)............................ $122,220 $116,830 $30,300 $32,520 $41,953 $64,663
Ratio of expenses to average
net assets....................... 0.60% 0.59% 0.68% 0.65%(e) 1.03% (e) 0.70%(e)
Ratio of net investment income to
average net assets............... 4.94% 5.12% 4.60% 4.70%(e) 4.27% (e) 4.19%(e)
Ratio of expenses to average net
assets*.......................... 0.69% 0.72% 1.02% 0.97%(e) 1.05% (e) 0.91%(e)
Ratio of net investment income to
average net assets*.............. 4.85% 4.99% 4.26% 4.38%(e) 4.25% (e) 3.98%(e)
Portfolio turnover (f)............. 5.81% 13.30% 16.78% 19.75% 10.00% 5.00%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from date reorganized as a fund of The One Group.
(b) Prior to reorganizing as a fund of The One Group, the Fund offered only one
class of shares.
(c) Period from commencement of operations.
(d) Not annualized.
(e) Annualized.
(f) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing among the classes of shares issued.
See notes to financial statements.
101
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
KENTUCKY MUNICIPAL BOND FUND
---------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
---------------------------------------------
<CAPTION>
JANUARY 20,
YEAR ENDED JUNE 30, 1995 TO
---------------------------- JUNE 30,
1998 1997 1996 1995(A)
------- ------ ------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.21 $10.05 $ 9.93 $ 9.49
------- ------ ------- -------
Investment Activities:
Net investment income..................................... 0.49 0.48 0.44 0.19
Net realized and unrealized gains (losses) from
investments............................................. 0.20 0.16 0.12 0.44
------- ------ ------- -------
Total from Investment Activities........................ 0.69 0.64 0.56 0.63
------- ------ ------- -------
Distributions:
Net investment income..................................... (0.49) (0.48) (0.44) (0.19)
------- ------ ------- -------
Total Distributions..................................... (0.49) (0.48) (0.44) (0.19)
------- ------ ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.41 $10.21 $ 10.05 $ 9.93
======= ====== ======= =======
Total Return (Excludes Sales Charge)........................ 6.86% 6.46% 5.70% 5.66%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 7,899 $5,554 $ 8,178 $ 8,818
Ratio of expenses to average net assets................... 0.85% 0.84% 0.93% 0.90%(c)
Ratio of net investment income to average net assets...... 4.69% 4.66% 4.35% 4.44%(c)
Ratio of expenses to average net assets*.................. 1.04% 1.04% 1.37% 1.33%(c)
Ratio of net investment income to average net assets*..... 4.50% 4.46% 3.91% 4.01%(c)
Portfolio turnover (d).................................... 5.81% 13.30% 16.78% 19.75%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from date reorganized as a fund of The One Group.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
102
<PAGE> 359
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
KENTUCKY MUNICIPAL BOND FUND
----------------------------------------------
<S> <C> <C> <C> <C>
CLASS B
----------------------------------------------
<CAPTION>
MARCH 16,
YEAR ENDED JUNE 30, 1995 TO
----------------------------- JUNE 30,
1998 1997 1996 1995(A)
------- ------- ------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.15 $ 9.99 $ 9.87 $ 9.75
------- ------- ------- -------
Investment Activities:
Net investment income..................................... 0.42 0.41 0.38 0.14
Net realized and unrealized gains (losses) from
investments............................................. 0.20 0.16 0.13 0.12
------- ------- ------- -------
Total from Investment Activities........................ 0.62 0.57 0.51 0.26
------- ------- ------- -------
Distributions:
Net investment income..................................... (0.42) (0.41) (0.39) (0.14)
------- ------- ------- -------
Total Distributions..................................... (0.42) (0.41) (0.39) (0.14)
------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.35 $ 10.15 $ 9.99 $ 9.87
======= ======= ======= =======
Total Return (Excludes Sales Charge)........................ 6.20% 5.81% 5.16% 2.63%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 5,581 $ 2,399 $ 1,457 $ 79
Ratio of expenses to average net assets................... 1.51% 1.47% 1.58% 1.58%(c)
Ratio of net investment income to average net assets...... 4.04% 4.05% 3.70% 3.89%(c)
Ratio of expenses to average net assets*.................. 1.70% 1.70% 2.02% 2.21%(c)
Ratio of net investment income to average net
assets*................................................. 3.85% 3.82% 3.26% 3.25%(c)
Portfolio turnover (d).................................... 5.81% 13.30% 16.78% 19.75%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
103
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
OHIO MUNICIPAL BOND FUND
-------------------------------------------------------------
FIDUCIARY
-------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 10.88 $ 10.69 $ 10.65 $ 10.58 $ 11.11
-------- -------- ------- ------- -------
Investment Activities:
Net investment income................................ 0.56 0.56 0.56 0.55 0.51
Net realized and unrealized gains (losses) from
investments........................................ 0.20 0.19 0.04 0.07 (0.50)
-------- -------- ------- ------- -------
Total from Investment Activities................... 0.76 0.75 0.60 0.62 0.01
-------- -------- ------- ------- -------
Distributions:
Net investment income................................ (0.56) (0.56) (0.56) (0.55) (0.52)
In excess of net realized gains...................... -- -- -- -- (0.02)
-------- -------- ------- ------- -------
Total Distributions................................ (0.56) (0.56) (0.56) (0.55) (0.54)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD......................... $ 11.08 $ 10.88 $ 10.69 $ 10.65 $ 10.58
======== ======== ======= ======= =======
Total Return........................................... 7.13% 7.22% 5.69% 6.07% 0.07%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................... $149,890 $133,172 $80,611 $79,993 $93,261
Ratio of expenses to average net assets.............. 0.54% 0.54% 0.57% 0.58% 0.53%
Ratio of net investment income to average net
assets............................................. 5.09% 5.24% 5.17% 5.29% 4.76%
Ratio of expenses to average net assets*............. 0.83% 0.84% 0.95% 0.91% 0.86%
Ratio of net investment income to average net
assets*............................................ 4.80% 4.94% 4.79% 4.96% 4.43%
Portfolio turnover (a)............................... 10.49% 7.45% 24.61% 77.69% 16.77%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
104
<PAGE> 361
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
OHIO MUNICIPAL BOND FUND
-----------------------------------------------------------
CLASS A
-----------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 10.91 $ 10.72 $ 10.68 $ 10.61 $ 11.13
------- ------- ------- ------- -------
Investment Activities:
Net investment income.................................. 0.54 0.54 0.55 0.53 0.50
Net realized and unrealized gains (losses) from
investments.......................................... 0.20 0.19 0.03 0.07 (0.48)
------- ------- ------- ------- -------
Total from Investment Activities..................... 0.74 0.73 0.58 0.60 0.02
------- ------- ------- ------- -------
Distributions:
Net investment income.................................. (0.54) (0.54) (0.54) (0.51) (0.50)
In excess of net investment income..................... -- -- -- (0.02) (0.02)
In excess of net realized gains........................ -- -- -- -- (0.02)
------- ------- ------- ------- -------
Total Distributions.................................. (0.54) (0.54) (0.54) (0.53) (0.54)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................... $ 11.11 $ 10.91 $ 10.72 $ 10.68 $ 10.61
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)..................... 6.87% 6.95% 5.44% 5.79% (0.05)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)...................... $17,297 $16,114 $16,507 $12,006 $14,883
Ratio of expenses to average net assets................ 0.79% 0.79% 0.82% 0.82% 0.78%
Ratio of net investment income to average net assets... 4.83% 4.96% 4.92% 5.01% 4.63%
Ratio of expenses to average net assets*............... 1.18% 1.19% 1.30% 1.25% 1.21%
Ratio of net investment income to average net
assets*.............................................. 4.44% 4.56% 4.44% 4.58% 4.20%
Portfolio turnover (a)................................. 10.49% 7.45% 24.61% 77.69% 16.77%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
105
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
OHIO MUNICIPAL BOND FUND
-----------------------------------------------------------------
CLASS B
-----------------------------------------------------------------
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
---------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(A)
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 10.98 $ 10.79 $ 10.75 $ 10.68 $ 11.31
------- ------- ------- ------- -------
Investment Activities:
Net investment income............................. 0.47 0.47 0.48 0.43 0.17
Net realized and unrealized gains (losses) from
investments..................................... 0.20 0.19 0.03 0.07 (0.62)
------- ------- ------- ------- -------
Total from Investment Activities................ 0.67 0.66 0.51 0.50 (0.45)
------- ------- ------- ------- -------
Distributions:
Net investment income............................. (0.47) (0.47) (0.47) (0.43) (0.17)
In excess of net investment income................ -- -- -- -- (0.01)
------- ------- ------- ------- -------
Total Distributions............................. (0.47) (0.47) (0.47) (0.43) (0.18)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD...................... $ 11.18 $ 10.98 $ 10.79 $ 10.75 $ 10.68
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)................ 6.20% 6.26% 4.79% 5.17% (4.02)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................. $26,138 $14,316 $ 8,854 $ 3,209 $ 2,043
Ratio of expenses to average net assets........... 1.44% 1.44% 1.47% 1.48% 1.28% (c)
Ratio of net investment income to average net
assets.......................................... 4.19% 4.33% 4.27% 4.40% 4.23% (c)
Ratio of expenses to average net assets*.......... 1.83% 1.84% 1.95% 1.91% 1.68% (c)
Ratio of net investment income to average net
assets*......................................... 3.80% 3.93% 3.79% 3.97% 3.83% (c)
Portfolio turnover (d)............................ 10.49% 7.45% 24.61% 77.69% 16.77%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
106
<PAGE> 363
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LOUISIANA MUNICIPAL BOND FUND
-----------------------------------
<S> <C> <C> <C>
FIDUCIARY
-----------------------------------
<CAPTION>
MARCH
26, 1996
YEAR ENDED JUNE 30, THROUGH
--------------------- JUNE 30,
1998 1997 1996(A)
------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.10 $ 9.93 $ 10.00
------- -------- --------
Investment Activities:
Net investment income..................................... 0.50 0.49 0.13
Net realized and unrealized gains (losses) from
investments............................................ 0.16 0.17 (0.07)
------- -------- --------
Total from Investment Activities....................... 0.66 0.66 0.06
------- -------- --------
Distributions:
Net investment income..................................... (0.50) (0.49) (0.13)
------- -------- --------
Total Distributions.................................... (0.50) (0.49) (0.13)
------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.26 $ 10.10 $ 9.93
======= ======== ========
Total Return................................................ 6.62% 6.81% 0.90%(b)(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $92,690 $113,338 $136,041
Ratio of expenses to average net assets................... 0.60% 0.62% 0.71%(d)
Ratio of net investment income to average net assets...... 4.85% 4.91% 4.76%(d)
Ratio of expenses to average net assets*.................. 0.83% 0.84% 0.86%(d)
Ratio of net investment income to average net assets*..... 4.62% 4.69% 4.61%(d)
Portfolio turnover (e).................................... 12.03% 17.39% 16.72%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from date reorganized as a fund of The One Group.
(b) Not annualized.
(c) Represents total return for Class A Shares from December 1, 1995 through
March 25, 1996 plus total return for Fiduciary Shares for the period March
26, 1996 through June 30, 1996.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
107
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LOUISIANA MUNICIPAL BOND FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
---------------------------------------------------------------------------
<CAPTION>
SEVEN MONTHS
YEAR ENDED JUNE 30, ENDED YEAR ENDED NOVEMBER 30,
--------------------- JUNE 30, ----------------------------------
1998 1997 1996(A) 1995 1994 1993
------- ------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................. $ 10.10 $ 9.93 $ 10.09 $ 9.38 $ 10.27 $ 9.92
------- ------- ------- -------- -------- --------
Investment Activities:
Net investment income............... 0.47 0.47 0.24 0.50 0.49 0.52
Net realized and unrealized gains
(losses) from investments......... 0.16 0.17 (0.16) 0.71 (0.79) 0.42
------- ------- ------- -------- -------- --------
Total from Investment
Activities..................... 0.63 0.64 0.08 1.21 (0.30) 0.94
------- ------- ------- -------- -------- --------
Distributions:
Net investment income............... (0.47) (0.47) (0.24) (0.50) (0.49) (0.52)
Net realized gains.................. -- -- -- -- (0.10) (0.07)
------- ------- ------- -------- -------- --------
Total Distributions............... (0.47) (0.47) (0.24) (0.50) (0.59) (0.59)
------- ------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD........ $ 10.26 $ 10.10 $ 9.93 $ 10.09 $ 9.38 $ 10.27
======= ======= ======= ======== ======== ========
Total Return (Excludes Sales
Charge)............................. 6.35% 6.55% 0.84%(b) 13.11% (2.97)% 9.65%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)... $47,078 $48,498 $53,479 $206,119 $196,820 $196,534
Ratio of expenses to average
net assets........................ 0.85% 0.87% 0.69%(c) 0.62% 0.65% 0.62%
Ratio of net investment income to
average net assets................ 4.60% 4.66% 4.71%(c) 5.07% 4.97% 5.07%
Ratio of expenses to average net
assets*........................... 1.18% 1.19% 0.86%(c) 0.77% 0.80% 0.78%
Ratio of net investment income to
average net assets*............... 4.27% 4.34% 4.54%(c) 4.92% 4.82% 4.91%
Portfolio turnover (d).............. 12.03% 17.39% 16.72% 28.00% 24.00% 25.00%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Upon reorganizing as a fund of The One Group, the Paragon Louisiana Tax-Free
Fund became the Louisiana Municipal Bond Fund. Financial highlights for the
periods prior to March 26, 1996 represents the Paragon Louisiana Tax-Free
Fund. The per share data for the periods prior to March 26, 1996 have been
restated to reflect the impact of restatement of net asset value from $10.67
to $10.00 effective March 26, 1996.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
108
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LOUISIANA MUNICIPAL BOND FUND
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B
------------------------------------------------------------------------
<CAPTION>
SEVEN MONTHS YEAR SEPTEMBER 16,
YEAR ENDED JUNE 30, ENDED ENDED 1994 THROUGH
----------------------- JUNE 30, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A) 1995 1994(B)
------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..................... $ 10.10 $ 9.93 $ 10.09 $ 9.36 $ 9.73
------- ------- ------- ------- -------
Investment Activities:
Net investment income................... 0.41 0.40 0.21 0.42 0.08
Net realized and unrealized gains
(losses)
from investments...................... 0.16 0.17 (0.16) 0.73 (0.37)
------- ------- ------- ------- -------
Total from Investment Activities...... 0.57 0.57 0.05 1.15 (0.29)
------- ------- ------- ------- -------
Distributions:
Net investment income................... (0.41) (0.40) (0.21) (0.42) (0.08)
------- ------- ------- ------- -------
Total Distributions................... (0.41) (0.40) (0.21) (0.42) (0.08)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............ $ 10.26 $ 10.10 $ 9.93 $ 10.09 $ 9.36
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)...... 5.69% 5.87% 0.48%(c) 12.52% (2.94)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)....... $ 5,474 $ 3,835 $ 3,223 $ 2,115 $ 204
Ratio of expenses to average net
assets................................ 1.50% 1.51% 1.50%(d) 1.37% 1.41% (d)
Ratio of net investment income to
average net assets.................... 3.95% 4.02% 3.98%(d) 4.27% 4.45% (d)
Ratio of expenses to average net
assets*............................... 1.83% 1.85% 1.70%(d) 1.52% 1.56% (d)
Ratio of net investment income to
average net assets*................... 3.62% 3.68% 3.78%(d) 4.12% 4.30% (d)
Portfolio turnover (e).................. 12.03% 17.39% 16.72% 28.00% 24.00%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Upon reorganizing as a fund of The One Group, the Paragon Louisiana Tax-Free
Fund became the Louisiana Municipal Bond Fund. Financial highlights for the
periods prior to March 26, 1996 represents the Paragon Louisiana Tax-Free
Fund. The per share data for the periods prior to March 26, 1996 have been
restated to reflect the impact of restatement of net asset value from $10.70
to $10.00 effective March 26, 1996.
(b) Period from commencement of operations.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
109
<PAGE> 366
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
WEST VIRGINIA MUNICIPAL BOND FUND
-----------------------------------
<S> <C> <C>
FIDUCIARY
-----------------------------------
<CAPTION>
YEAR JANUARY 20, 1997
ENDED THROUGH
JUNE 30, JUNE 30,
1998 1997(A)
-------- -------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.06 $ 10.00
-------- -------
Investment Activities:
Net investment income..................................... 0.50 0.22
Net realized and unrealized gains (losses) from
investments............................................. 0.22 0.06
-------- -------
Total from Investment Activities........................ 0.72 0.28
-------- -------
Distributions:
Net investment income..................................... (0.50) (0.22)
-------- -------
Total Distributions..................................... (0.50) (0.22)
-------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.28 $ 10.06
======== =======
Total Return................................................ 7.36% 2.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $102,413 $96,270
Ratio of expenses to average net assets................... 0.60% 0.59%(c)
Ratio of net investment income to average net assets...... 4.93% 5.04%(c)
Ratio of expenses to average net assets*.................. 0.72% 0.67%(c)
Ratio of net investment income to average net assets*..... 4.81% 4.96%(c)
Portfolio turnover (d).................................... 16.69% 6.21%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
110
<PAGE> 367
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
WEST VIRGINIA MUNICIPAL BOND FUND
-----------------------------------
<S> <C> <C>
CLASS A
-----------------------------------
<CAPTION>
YEAR JANUARY 20, 1997
ENDED THROUGH
JUNE 30, JUNE 30,
1998 1997(A)
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.15 $ 10.00
------- -------
Investment Activities:
Net investment income..................................... 0.48 0.16
Net realized and unrealized gains (losses) from
investments............................................. 0.21 0.15
------- -------
Total from Investment Activities........................ 0.69 0.31
------- -------
Distributions:
Net investment income..................................... (0.48) (0.16)
------- -------
Total Distributions..................................... (0.48) (0.16)
------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.36 $ 10.15
======= =======
Total Return (Excludes Sales Charge)........................ 6.98% 3.08%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 2,024 $ 808
Ratio of expenses to average net assets................... 0.85% 0.84%(c)
Ratio of net investment income to average net assets...... 4.68% 4.94%(c)
Ratio of expenses to average net assets*.................. 1.07% 0.97%(c)
Ratio of net investment income to average net assets*..... 4.46% 4.81%(c)
Portfolio turnover (d).................................... 16.69% 6.21%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
111
<PAGE> 368
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
WEST VIRGINIA MUNICIPAL BOND FUND
-----------------------------------
<S> <C> <C>
CLASS B
-----------------------------------
<CAPTION>
YEAR JANUARY 20, 1997
ENDED THROUGH
JUNE 30, JUNE 30,
1998 1997(A)
------ -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.12 $ 10.00
------ -------
Investment Activities:
Net investment income..................................... 0.42 0.14
Net realized and unrealized gains (losses) from
investments............................................. 0.23 0.12
------ -------
Total from Investment Activities........................ 0.65 0.26
------ -------
Distributions:
Net investment income..................................... (0.42) (0.14)
------ -------
Total Distributions..................................... (0.42) (0.14)
------ -------
NET ASSET VALUE,
END OF PERIOD............................................. $10.35 $ 10.12
====== =======
Total Return (Excludes Sales Charge)........................ 6.57% 2.64%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $3,352 $ 614
Ratio of expenses to average net assets................... 1.50% 1.49%(c)
Ratio of net investment income to average net assets...... 4.05% 4.08%(c)
Ratio of expenses to average net assets*.................. 1.72% 1.62%(c)
Ratio of net investment income to average net assets*..... 3.83% 3.95%(c)
Portfolio turnover (d).................................... 16.69% 6.21%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
112
<PAGE> 369
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ARIZONA MUNICIPAL BOND FUND
----------------------------
<S> <C> <C>
FIDUCIARY
----------------------------
<CAPTION>
JANUARY 20,
YEAR 1997
ENDED THROUGH
JUNE 30, JUNE 30,
1998 1997(A)
-------- --------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.06 $ 10.00
-------- --------
Investment Activities:
Net investment income..................................... 0.49 0.23
Net realized and unrealized gains (losses) from
investments............................................ 0.16 0.06
-------- --------
Total from Investment Activities....................... 0.65 0.29
-------- --------
Distributions:
Net investment income..................................... (0.49) (0.23)
Net realized gains........................................ (0.07) --
-------- --------
Total Distributions.................................... (0.56) (0.23)
-------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.15 $ 10.06
======== ========
Total Return................................................ 6.58% 2.90%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $248,590 $255,755
Ratio of expenses to average net assets................... 0.59% 0.59%(c)
Ratio of net investment income to average net assets...... 4.79% 5.09%(c)
Ratio of expenses to average net assets*.................. 0.65% 0.66%(c)
Ratio of net investment income to average net assets*..... 4.73% 5.02%(c)
Portfolio turnover (d).................................... 20.89% 5.66%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
113
<PAGE> 370
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ARIZONA MUNICIPAL BOND FUND
-----------------------------
<S> <C> <C>
CLASS A
-----------------------------
<CAPTION>
YEAR JANUARY 20,
ENDED 1997
JUNE THROUGH
30, JUNE 30,
1998 1997(A)
------ ------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.99 $10.00
------ ------
Investment Activities:
Net investment income..................................... 0.46 0.15
Net realized and unrealized gains (losses) from
investments............................................ 0.16 (0.01)
------ ------
Total from Investment Activities....................... 0.62 0.14
------ ------
Distributions:
Net investment income..................................... (0.46) (0.15)
Net realized gains........................................ (0.07) --
------ ------
Total Distributions.................................... (0.53) (0.15)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $10.08 $ 9.99
====== ======
Total Return (Excludes Sales Charge)........................ 6.30% 1.40%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $1,321 $1,500
Ratio of expenses to average net assets................... 0.84% 0.85%(c)
Ratio of net investment income to average net assets...... 4.53% 4.90%(c)
Ratio of expenses to average net assets*.................. 1.01% 0.96%(c)
Ratio of net investment income to average net assets*..... 4.36% 4.79%(c)
Portfolio turnover (d).................................... 20.89% 5.66%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
114
<PAGE> 371
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ARIZONA MUNICIPAL BOND FUND
----------------------------
<S> <C> <C>
CLASS B
----------------------------
<CAPTION>
JANUARY 20,
YEAR 1997
ENDED THROUGH
JUNE 30, JUNE 30,
1998 1997(A)
------ ------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $10.09 $10.00
------ ------
Investment Activities:
Net investment income..................................... 0.13 0.00
Net realized and unrealized gains (losses) from
investments............................................ 0.14 0.09
------ ------
Total from Investment Activities....................... 0.27 0.09
------ ------
Distributions:
Net investment income..................................... (0.13) --
Net realized gains........................................ (0.07) --
------ ------
Total Distributions.................................... (0.20) --
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $10.16 $10.09
====== ======
Total Return (Excludes Sales Charge)........................ 2.67% 0.90%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 290 $ --(c)
Ratio of expenses to average net assets................... 1.50% --(d)
Ratio of net investment income to average net assets...... 3.88% --(d)
Ratio of expenses to average net assets*.................. 1.64% --(d)
Ratio of net investment income to average net assets*..... 3.74% --(d)
Portfolio turnover (e).................................... 20.89% 5.66%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Amount is less than $1,000.
(d) Since net assets are less than $1,000, ratios have not been presented.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
115
<PAGE> 372
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
To the Shareholders and Board of Trustees of
The One Group Family of Mutual Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of 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 and the Arizona Municipal Bond Fund (seven series of The One
Group Family of Mutual Funds) at June 30, 1998, the results of each of their
operations for the period then ended, the changes in each of their net assets
for the periods presented and the financial highlights for each of the periods
presented (other than those financial highlights that have been audited by other
independent accountants), in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of The One Group
Family of Mutual Funds' management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The Kentucky Municipal Bond Fund's financial
highlights for the two periods ended January 19, 1995 and January 31, 1994,
respectively, were audited by other independent accountants whose report dated
April 6, 1995 expressed an unqualified opinion on those financial highlights.
PricewaterhouseCoopers LLP
August 18, 1998
116
<PAGE> 373
Important Customer Information.
Please Read:
Shares of The One Group:
- - are not deposits or obligations
of, or guaranteed by, BANC One
CORPORATION or its affiliates
- - are not insured or guaranteed by the
FDIC or by any other governmental
agency or government-sponsored
agency of the federal government
or any state
- - are subject to investment risks,
including possible loss of the
principal amount invested.
Banc One Investment Advisors
Corporation, a registered investment
advisor and an indirect subsidiary of
BANC ONE CORPORATION, serves
as an investment advisor to The One
Group, for which it receives advisory
fees. The One Group is distributed by
The One Group Services Company,
3435 Stelzer Road, Columbus,
Ohio 43219, which is not affiliated
with BANC ONE CORPORATION and
is not a bank. Contact us at our web
site address: www.onegroup.com or
e-mail us at [email protected]
For more complete information on
any of The One Group Funds, includ-
ing management fees and expenses,
you may obtain a prospectus from
The One Group Services Company.
Read the prospectus carefully
before investing.
BANC ONE
INVESTMENT
ADVISORS
CORPORATION
[BANC ONE LOGO]
<PAGE> 374
Income Funds
Annual Report
For the year ended June 30, 1998
Ultra Short-Term Income Fund
Limited Volatility Bond Fund
Intermediate Bond Fund
Government Bond Fund
Income Bond Fund
Treasury & Agency Fund
THE ONE GROUP
----------------------
FAMILY OF MUTUAL FUNDS
<PAGE> 375
IMPORTANT CUSTOMER INFORMATION. INVESTMENT PRODUCTS:
- are not deposits or obligations of, or guaranteed by,
BANC ONE CORPORATION or any of its affiliates, [FDIC LOGO
WITH SLASH
- are not insured by the FDIC, and THOUGH IT]
- are subject to investment risks, including possible
loss of the principal amount invested.
<PAGE> 376
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
Portfolio Performance Review...................................................2
Schedules of Portfolio Investments............................................14
Statements of Assets and Liabilities..........................................34
Statements of Operations......................................................36
Statements of Changes in Net Assets...........................................38
Statements of Cash Flows......................................................40
Notes to Financial Statements.................................................41
Financial Highlights..........................................................52
Report of Independent Accountants.............................................71
1
<PAGE> 377
The One Group Ultra Short-Term Income Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, the One Group Ultra Short-Term Income Fund
Fiduciary share class posted a total return of 6.00%. (For information on other
share classes and performance comparisons to indexes, please see page 3.)
WHAT HAPPENED WITH INTEREST RATES?
Interest rates declined during the year, as expectations of higher inflation and
tighter monetary policy quickly gave way to disinflationary and credit-quality
concerns due to the events in Asia. But, more important for the Fund, the U.S.
yield curve flattened dramatically, causing significant refinancings of
adjustable-rate mortgage (ARM) securities. For example, at the beginning of the
year, the yields on the one-year Treasury bill and the 10-year Treasury note
were 5.65% and 6.49%, respectively. By the end of the year, the yields had
dropped to 5.37% and 5.45%, for a difference of only eight basis points (one
basis point equals 1/100th of a percent.)
With interest rates falling and residential mortgage refinancings hitting
all-time highs during the fiscal year, the Fund's SEC yield declined somewhat.
On June 30, 1998, the Fund's SEC yield for the Fiduciary share class was 5.85%,
compared to 6.08% a year earlier.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The increase in refinancings has caused a decline in the market value of most
conventional ARMs. Within the ARM sector, certain COFI (Cost of Funds Index)
ARMs were the only securities that outperformed because they exhibited more
stable and predictable prepayment behavior. Asset-backed securities and
commercial mortgages suffered somewhat in the fall of 1997, but they quickly
rebounded and finished the year relatively strong.
As such, our primary efforts during the year were to reduce the Fund's exposure
to conventional one-year ARMs and increase exposure to COFI ARMs, asset-backed
securities, commercial mortgage-backed securities and corporate securities. This
strategy helped us minimize share price volatility and enhance the Fund's yield.
We also chose to maintain the Fund's duration at 0.85 year throughout most of
the year. (Duration is a measure of a fund's price sensitivity to interest rate
changes. A longer duration indicates greater price movement; a shorter duration
indicates less.) While this is within our targeted duration range, the heavy
prepayments experienced in the ARM market caused the Fund to behave as if it had
a shorter duration. As a result, the Fund lost some price appreciation it would
have captured if strong prepayments were not a factor.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The current level of U.S. economic growth probably would have led the Federal
Reserve to raise interest rates. Nevertheless, the developing recessions in Asia
and Eastern Europe have led to significant declines in commodity prices and have
created the potential for disinflation in the United States. Therefore, the U.S.
yield curve is likely to remain flat until Asia shows signs of recovery or the
U.S. economy slows down. But, if the economy slows down and Asia deteriorates,
the yield curve could invert, meaning yields on shorter-term securities would be
greater than yields on longer-term securities.
In this scenario, mortgage-backed and corporate spreads would likely be under
some near-term pressure. In the mortgage market, refinancings could increase
temporarily, and in the corporate market, Asian troubles could cause earnings to
decline. Furthermore, any reduction in U.S. economic growth is likely to
negatively affect corporate earnings and consumer spending. Therefore, we view
any widening of spreads as opportunities.
/s/ Michael J. Sais
Michael J. Sais, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
2
<PAGE> 378
The One Group Ultra Short-Term Income Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/2/93)
<S> <C> <C> <C>
Fiduciary 6.00% 5.20% 5.18%
</TABLE>
VALUE OF $10,00 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3
Year
Measurement Period Government Lipper ARM
(Fiscal Year Covered) Index Funds Index Fiduciary
<S> <C> <C> <C>
2/93 $10,000 $10,000 $10,000
6/93 10,142 10,134 10,201
6/94 10,297 10,190 10,421
6/95 11,086 10,499 10,957
6/96 11,693 10,961 11,571
6/97 12,462 11,668 12,397
6/98 $13,307 $12,289 $13,141
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/10/93)
<S> <C> <C> <C>
Class A 5.75% 4.98% 4.97%
Class A* 2.52% 4.34% 4.37%
</TABLE>
* Reflects 3.00% Sales Charge.
VALUE OF $10,00 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3
Year
Measurement Period Government Lipper ARM
(Fiscal Year Covered) Index Funds Index Class A* Class A
<S> <C> <C> <C> <C>
3/93 $10,000 $10,000 $ 9,700 $10,000
6/93 10,111 10,109 9,842 10,146
6/94 10,265 10,166 10,033 10,344
6/95 11,052 10,474 10,519 10,845
6/96 11,657 10,935 11,089 11,432
6/97 12,423 11,640 11,866 12,233
6/98 $13,265 $12,259 $12,548 $12,935
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 5.32% 4.66%
Class B** 2.32% 4.66%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,00 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3
Year
Measurement Period Government Lipper ARM
(Fiscal Year Covered) Index Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,889 9,905 9,991 9,991
6/95 10,648 10,206 10,468 10,468
6/96 11,231 10,654 10,953 10,953
6/97 11,969 11,342 11,634 11,634
6/98 $12,780 $11,945 $12,252 $12,252
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Ultra Short Term Income Fund is measured against the
Lehman Brothers 1 to 3 Year Government Index, an unmanaged index comprised of US
Government and agency securities with maturities of one to three years.
Investors are unable to purchase the index directly, although they can invest in
the underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper ARM Funds Index consists of the equally weighted average monthly
return of the largest funds within the universe of all funds in the category.
3
<PAGE> 379
The One Group Limited Volatility Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Limited Volatility Bond Fund
Fiduciary share class posted a total return of 6.59%. (For information on other
share classes and performance comparisons to indexes, please see page 5.)
HOW DID INTEREST RATES INFLUENCE PERFORMANCE?
Interest rates among five-year securities (the area of the yield curve where the
Fund is most heavily invested) declined 0.91 percentage points during the fiscal
year. The Fund's Fiduciary share class 30-day SEC yield also declined, dropping
from 6.18% on June 30, 1997, to 5.75% on June 30, 1998.
Because interest rates declined during the year, prices on most of the Fund's
bonds appreciated and, therefore, added to the Fund's total return. (Bond prices
and interest rates move inversely of each other. When rates fall, bond prices
rise, and vice versa.) The only exceptions were the few Asian bonds in the
Fund's portfolio, which declined in value when the Asian market crisis hit in
1997.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund's strategy included investing in securities that offered attractive
yields within our maturity and high credit-quality guidelines. As such, we
continued to emphasize government agency mortgage pass-through securities
because they offered yield advantages over other government securities. And, we
focused on 15-year, current coupon issues because they are less likely to be
refinanced even if interest rates fall further. We also invested in asset-backed
securities and high-grade corporate bonds, which provided an excellent
combination of yield, total return and relative safety.
With interest rates declining, we maintained the Fund's duration in a range of
2.3 years to 2.5 years. (Duration is a measure of a fund's price sensitivity to
interest rate changes. A longer duration indicates greater sensitivity; a
shorter duration indicates less.) This, coupled with the Fund's emphasis on
yield, contributed to the Fund's solid return.
DID THE FUND'S OVERALL QUALITY CHANGE DURING THE YEAR?
Because the majority of the Fund's assets always are invested in U.S.
government-related securities (69% of the portfolio at year-end), the Fund's
average quality remains high. On June 30, 1998, 80% of the Fund's securities
were rated AAA (the highest rating), 18% were rated A, and 2% were rated Baa,
giving the Fund an overall quality rating of AA.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect positive economic growth to continue, but at a slower pace. This
should help keep inflation low for the near-term, which should perpetuate the
current interest-rate trading range and market status quo. In the corporate
sector, though, a potential negative influence is the steady slowdown in
corporate earnings growth, which could cause corporate yield spreads to widen.
(Corporate spreads refer to the difference in yield between corporate bonds and
comparable-maturity Treasury bonds. When spreads widen, prices on corporate
bonds decline, and vice versa.) We believe a strong offset to this, though, is
the healthy economy, which gives us reason not to abandon the corporate sector.
As a precaution, we will focus on corporate bonds with maturities of five years
or less.
/s/ Roger Craig
Roger Craig
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
4
<PAGE> 380
The One Group Limited Volatility Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (9/4/90)
<S> <C> <C> <C>
Fiduciary 6.59% 5.41% 7.03%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3 Lipper Short US
Year Government
Measurement Period Government Bond Funds
(Fiscal Year Covered) Index Index Fiduciary
<S> <C> <C> <C>
9/90 $10,000 $10,000 $10,000
6/91 10,768 10,710 10,799
6/92 11,881 11,730 12,068
6/93 12,659 12,515 13,066
6/94 12,852 12,668 13,170
6/95 13,837 13,604 14,218
6/96 14,595 14,309 14,947
6/97 15,554 15,153 15,957
6/98 $16,609 $16,136 $17,008
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 6.32% 5.13% 5.86%
Class A* 3.16% 4.49% 5.35%
</TABLE>
* Reflects 3.00% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3 Lipper Short US
Year Government
Measurement Period Government Bond Funds
(Fiscal Year Covered) Index Index Class A* Class A
<S> <C> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,700 $10,000
6/92 10,284 10,274 10,045 10,356
6/93 10,957 10,962 10,853 11,188
6/94 11,123 11,096 10,906 11,243
6/95 11,976 11,916 11,742 12,105
6/96 12,632 12,534 12,314 12,694
6/97 13,462 13,273 13,110 13,515
6/98 $14,375 $14,134 $13,935 $14,368
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C> <C>
Class B 5.98% 4.75%
Class B** 2.98% 4.75%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers 1-3 Lipper Short US
Year Government
Measurement Period Government Bond Funds
(Fiscal Year Covered) Index Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,889 9,874 9,819 9,819
6/95 10,648 10,603 10,524 10,524
6/96 11,231 11,153 10,974 10,974
6/97 11,969 11,811 11,604 11,604
6/98 $12,780 $12,578 $12,297 $12,297
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Limited Volatility Bond Fund is measured against the
Lehman Brothers 1 to 3 Year Government Index, an unmanaged index comprised of US
Government and agency securities with maturities of one to three years.
Investors are unable to purchase the index directly, although they can invest in
the underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper Short US Government Bond Funds Index consists of the equally weighted
average monthly return of the largest funds within the universe of all funds in
the category.
5
<PAGE> 381
The One Group Intermediate Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Intermediate Bond Fund Fiduciary share class offered a total
return of 8.71% for the year ended June 30, 1998. (For information on other
share classes and performance comparisons to indexes, please see page 7.)
HOW DID MARKET DEVELOPMENTS INFLUENCE PERFORMANCE?
Throughout the year, three key trends developed in the bond market:
1. Interest rates, in general, declined, resulting in gains for most bonds and
an overall increase in the Fund's net asset value (NAV).
2. Lower interest rates led to a rise in homeowner refinancing activity, which
caused the performance on many higher-rate mortgage-backed bonds to suffer.
3. Many foreign economies, especially those in Asia, fell into recession, and
prices declined on many Yankee bonds (U.S. dollar-denominated foreign bonds)
associated with these markets.
Overall, the positive influence from the drop in interest rates had a greater
impact on the Fund's performance than the negative influence from holding select
mortgage and Yankee bonds.
While the Fund enjoyed a solid total return and an approximately 2.0% gain in
NAV for the one year period, the declining interest rate environment pushed the
Fund's yield slightly lower-from 6.35% on June 30, 1997, to 5.90% on June 30,
1998.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Once again, duration management remained a key strategy in generating return and
controlling risk. (Duration is a measure of a fund's price sensitivity to
interest rate changes. A longer duration indicates greater sensitivity; a
shorter duration indicates less.) We managed the Fund's duration within a tight,
shorter-than-market-average range during the year, which limited some of the
price gains that occurred mid-year when interest rates fell. While we do manage
the Fund's exposure to changes in interest rates, we also purposely limit the
degree to which we alter duration. We believe these risk-control guidelines
protect us from making ill-timed "bets" on the magnitude and direction of
possible interest rate movements.
Nevertheless, the Fund's strong yield helped make up for the effects of our
shorter duration. Furthermore, the Fund's holdings in long-duration U.S.
Treasury and corporate bonds and select commercial mortgage-backed securities
helped overall performance during the year.
Another key move during the Fund's fiscal year occurred in early 1998, when we
reduced the Fund's small exposure to Asian Yankee bonds, which deteriorated
along with many Asian economies. By fiscal year-end, the Fund held about 1.5% of
its assets in Asian-based Yankee bonds, all of which maintained investment-grade
quality ratings (rated BBB or better).
WHAT IS YOUR OUTLOOK FOR THE FUND?
Our forecast calls for the U.S. economy to maintain its steady, albeit slower,
growth pattern over the next year. As a result, inflation should remain tame and
interest rates stable to lower.
At the same time, the prospect for unfavorable developments has risen. For
example, the economy is operating at employment levels that typically lead to
increasing rates of inflation. This, however, is being offset by economic
recession in many Asian countries. While we remain optimistic, unexpected
changes in these or other important economic dynamics could lead to
greater-than-expected volatility in the U.S. financial markets.
/s/ James A. Sexton
James A. Sexton, CFA
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
6
<PAGE> 382
The One Group Intermediate Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/29/92)
<S> <C> <C> <C>
Fiduciary 8.71% 6.08% 6.96%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Inertmediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Index Fiduciary
<S> <C> <C> <C>
2/92 $10,000 $10,000 $10,000
6/92 10,355 10,307 10,300
6/93 11,442 11,357 11,400
6/94 11,413 11,162 11,315
6/95 12,597 12,260 12,463
6/96 13,228 12,786 13,080
6/97 14,182 13,670 14,084
6/98 $15,394 $14,959 $15,310
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (11/30/94)
<S> <C> <C> <C>
Class A 8.47% 8.66%
Class A* 3.58% 7.26%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Intermediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Index Class A* Class A
<S> <C> <C> <C> <C>
11/94 $10,000 $10,000 $ 9,550 $10,000
6/95 10,999 10,984 10,533 11,029
6/96 11,550 11,480 11,036 11,556
6/97 12,383 12,274 11,853 12,411
6/98 $13,441 $13,431 $12,850 $13,462
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (11/30/94)
<S> <C> <C> <C>
Class B 7.78% 7.59%
Class B** 3.78% 6.90%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Intermediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Class B** Class B
<S> <C> <C> <C> <C>
11/94 $10,000 $10,000 $10,000 $10,000
6/95 10,999 10,984 10,845 10,845
6/96 11,550 11,480 11,290 11,290
6/97 12,383 12,274 12,061 12,061
6/98 $13,441 $13,431 $12,699 $12,999
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
(11/4/97)
<S> <C>
Class C 8.20%
Class C** 7.20%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
Lehman Lipper
Brothers Intermediate US
Intermediate Government
Measurement Period Government/Corporate Bond Funds
(Fiscal Year Covered) Bond Index Class C** Class C
<S> <C> <C> <C> <C>
11/97 $10,000 $10,000 $10,000 $10,000
6/98 $10,430 $10,455 $10,719 $10,819
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Intermediate Bond Fund is measured against the Lehman
Brothers Intermediate Government/Corporate Bond Index, an unmanaged index
comprised of US Government agency and Treasury securities and investment grade
corporate bonds. Investors are unable to purchase the index directly, although
they can invest in the underlying securities. The performance of the index does
not reflect the deduction of expenses associated with a mutual fund, such as
investment management. By contrast, the performance of the fund reflects the
deduction of these value-added services as well as the deduction of sales
charges on Class A Shares and applicable contingent deferred sales charges on
Class B and Class C Shares.
The Lipper Intermediate US Government Bond Funds Index consists of the equally
weighted average monthly return of the largest funds within the universe of all
funds in the category.
7
<PAGE> 383
The One Group Government Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
The One Group Government Bond Fund Fiduciary share class posted a total return
of 10.81% for the year ended June 30, 1998. (For information on other share
classes and performance comparisons to indexes, please see page 9.)
WHAT HAPPENED TO INTEREST RATES?
Interest rates declined significantly during the year, as demonstrated by the
yield on 10-year Treasury notes, which dropped from 6.49% to 5.45%, and
five-year Treasury notes, which fell from 6.37% to 5.47%. The Fund's Fiduciary
share class 30-day SEC yield also declined, from 6.24% on June 30, 1997, to
5.88% on June 30, 1998.
In addition, the yield curve flattened during the year, as the difference in
yield between one- and 10-year Treasuries went from 85 basis points at the
beginning of the year to only eight basis points at the end of the year. (One
basis point equals 1/100th of a percent.)
WHAT AFFECT DID THE RATE DECLINE HAVE ON THE FUND'S INVESTMENTS?
The decline in interest rates put pressure on mortgage spreads, as fear of
increasing supply due to refinancings and record interest rate volatility
permeated the market. (The trading of fixed-rate mortgages is based on spreads,
or the difference in yield between mortgage-backed securities and Treasury
securities with the same average life.) The mortgage prepayment surge had the
effect of rapidly shortening duration on the Fund's mortgage-backed securities,
which forced us to frequently readjust the Fund's mortgage holdings. (Duration
is a measure of price sensitivity to interest rate changes. A shorter duration
indicates less sensitivity; a longer duration indicates greater sensitivity.)
Despite the level of prepayments, mortgage-backed securities returned 8.93% for
the year. The Fund's return surpassed this, without making an extraordinary
duration or asset-mix commitment.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
Throughout the year we maintained investments in U.S. Treasuries, agency
securities and agency-issued mortgage-backed securities. Thus, the impact of the
Asian crisis on the Fund was realized in the strong performance of Treasury
securities, which benefited from the flight-to-quality environment.
We maintained the Fund's duration in a tight band around our five-year target,
which limited price movements caused by interest-rate volatility. This strategy
is a reflection of the Fund's greater emphasis on yield than price appreciation.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect the economy to moderate eventually and yields to decline further.
Nevertheless, we don't foresee this having a significant effect on the Fund's
overall strategy. We may focus on different types of mortgage-backed securities
in response to economic and market conditions, but we plan to largely maintain
the Fund's current sector allocations. Any changes should be tactical in nature,
rather than strategic or stylistic. We believe that the Fund's emphasis on yield
and tight duration should continue to serve investors well.
/s/ Michael J. Sais
Michael J. Sais, CFA
Fund Manager
/s/ Thomas E. Donne
Thomas E. Donne, CFA
Fund Co-Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
8
<PAGE> 384
The One Group Government Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/8/93)
<S> <C> <C> <C>
Fiduciary 10.81% 6.27% 6.48%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Salomon Lipper US
Brothers 3-7 Government
Measurement Period Year Bond Funds
(Fiscal Year Covered) Treasury Index Index Fiduciary
<S> <C> <C> <C>
3/93 $10,000 $10,000 $10,000
6/93 10,275 10,289 10,351
6/94 10,174 9,973 10,068
6/95 11,275 11,028 11,281
6/96 11,790 11,440 11,710
6/97 12,623 12,256 12,659
6/98 $13,701 $13,477 $14,027
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (3/5/93)
<S> <C> <C> <C>
Class A 10.54% 5.98% 5.95%
Class A* 5.53% 5.01% 5.03%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Salomon Lipper US
Brothers 3-7 Government
Measurement Period Year Treasury Bond Funds
(Fiscal Year Covered) Index Index Class A* Class A
<S> <C> <C> <C> <C>
3/93 $10,000 $10,000 $ 9,550 $10,000
6/93 10,237 10,252 9,713 10,171
6/94 10,136 9,937 9,406 9,849
6/95 11,233 10,989 10,519 11,015
6/96 11,746 11,399 10,896 11,410
6/97 12,576 12,212 11,749 12,303
6/98 $13,650 $13,428 $12,986 $13,598
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 9.86% 5.70%
Class B** 5.86% 5.33%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Salomon Lipper US
Brothers 3-7 Government
Measurement Period Year Treasury Bond Funds
(Fiscal Year Covered) Index Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,560 9,377 9,501 9,501
6/95 10,595 10,369 10,566 10,566
6/96 11,079 10,757 10,877 10,877
6/97 11,862 11,524 11,654 11,654
6/98 $12,875 $12,672 $12,602 $12,802
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Government Bond Fund is measured against the Salomon
Brothers 3 to 7 Year Treasury Index, an unmanaged index comprised of US
Government agency and Treasury securities and agency mortgaged-backed
securities. Investors are unable to purchase the index directly, although they
can invest in the underlying securities. The performance of the index does not
reflect the deduction of expenses associated with a mutual fund, such as
investment management. By contrast, the performance of the fund reflects the
deduction of these value-added services as well as the deduction of sales
charges on Class A Shares and applicable contingent deferred sales charges on
Class B Shares.
The Lipper US Government Bond Funds Index consists of the equally weighted
average monthly return of the largest funds within the universe of all funds in
the category.
9
<PAGE> 385
The One Group Income Bond Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Income Bond Fund Fiduciary share
class posted a total return of 7.97%. (For information on other share classes
and performance comparisons to indexes, please see page 11.)
In general, interest rates declined by approximately one percentage point during
the fiscal year. The Fund's Fiduciary share class 30-day SEC yield also
declined, dropping from 6.70% on June 30, 1997, to 6.13% on June 30, 1998.
WAS THERE A PARTICULAR TYPE OF SECURITY THAT AFFECTED PERFORMANCE?
Even though the Fund's yield fell, it remained attractive due to the Fund's
emphasis on higher-yielding investment-grade securities. Included among those
securities are Yankee bonds (U.S. dollar-denominated foreign bonds), which
performed well and contributed greatly to the Fund's total return until the
fourth quarter of 1997. As the financial crisis overtook Asia, the value of the
Fund's Asian Yankee bonds declined rapidly and, at 10% of Fund assets, caused
significant underperformance. Once prices stabilized and began to improve, we
implemented a control strategy for these bonds, reducing them to only 1.5% of
Fund assets. This measured reduction caused the Fund's performance to return to
above-average.
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
The Fund's strategy is to try to maintain a relatively stable duration of
approximately 4.6 years and to enhance yield through a widely diversified
portfolio of corporate bonds and mortgage securities. (Duration is a measure of
a fund's price sensitivity to interest rate changes. A longer duration indicates
greater sensitivity; a shorter duration indicates less.) We purposely avoid
making significant changes to the Fund's duration, because we manage the Fund
primarily to maximize income, rather than to seek capital gains by making "bets"
on interest rate movements. We try to maintain a neutral duration and position
the Fund to earn a relatively good rate of interest income.
This strategy has worked well, as the Fund has been able to generate incremental
returns without incurring additional interest rate risk. At the same time, the
strategy involves some exposure to credit risk, which, for short periods of
time, may adversely affect returns, as witnessed in late-1997. But, over full
interest rate and credit cycles, the strategy has proven successful to date.
DID THE FUND'S OVERALL QUALITY CHANGE DURING THE YEAR?
In April 1997, shareholders approved a measure that allows the Fund to invest up
to 30% of its assets in high-yield securities, or those rated BB or B. As
outlined at that time, the Fund's entry into this sector will be slow and
measured. Since then, we have added a 4% exposure to BB-rated bonds.
The Fund maintained a good quality profile during the fiscal year, with 52% of
its assets invested in securities rated AAA; 5% in those rated AA; 16% in
A-rated; 23% in BBB-rated; and 4% in BB-rated. The Fund's overall quality rating
was A+ at the end of the year.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Moving forward, we expect economic growth to continue, but at a slower pace. We
also expect inflation to remain low for the near term. The bond market
environment is likely to be characterized as a "trading range," which is a
market that doesn't change much. In such a climate, higher-yielding securities
typically produce better results.
In the corporate sector, a potential negative influence is the steady decline in
corporate earnings growth, which could cause corporate yield spreads to widen.
(Corporate spreads refer to the difference in yield between corporate bonds and
comparable-maturity Treasury bonds. When spreads widen, prices on corporate
bonds decline, and vice versa.) A strong offset to this, though, is the healthy
economy, which gives us reason not to abandon this sector. As a precaution, we
will focus on corporate bonds with maturities of five years or less. In the
mortgage market, most of the Fund's recent purchases have been 15-year, current
coupon issues, which we believe are less likely to be refinanced even if
interest rates fall further.
/s/ Roger Craig
Roger Craig
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
10
<PAGE> 386
The One Group Income Bond Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (7/2/87)
<S> <C> <C> <C> <C>
Fiduciary 7.97% 5.85% 7.63% 7.30%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Inertmediate
Brothers Investment
Measurement Period Aggregate Bond Grade Bond
(Fiscal Year Covered) Index Funds Index Fiduciary
<S> <C> <C> <C>
6/88 $10,000 $10,000 $10,000
6/89 11,222 11,005 10,732
6/90 12,103 11,632 11,417
6/91 13,397 12,632 12,467
6/92 15,278 14,394 14,193
6/93 17,079 16,087 15,701
6/94 16,857 15,872 15,352
6/95 18,972 17,634 17,086
6/96 19,923 18,492 17,876
6/97 21,547 19,901 19,324
6/98 $23,818 $21,817 $20,864
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (2/18/92)
<S> <C> <C> <C>
Class A 7.82% 5.60% 6.64%
Class A* 3.00% 4.63% 5.87%
</TABLE>
* Reflects 4.50% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Brothers Investment
Measurement Period Aggregate Bond Grade Bond
(Fiscal Year Covered) Index Funds Index Class A* Class A
<S> <C> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,550 $10,000
6/92 10,345 10,356 9,901 10,368
6/93 11,564 11,574 10,948 11,464
6/94 11,413 11,420 10,693 11,197
6/95 12,845 12,688 11,859 12,418
6/96 13,490 13,305 12,365 12,947
6/97 14,589 14,319 13,335 13,964
6/98 $16,127 $15,702 $14,381 $15,052
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year (1/14/94)
<S> <C> <C>
Class B 7.13% 5.07%
Class B** 3.13% 4.70%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lipper
Lehman Intermediate
Brothers Investment
Measurement Period Aggregate Bond Grade Bond
(Fiscal Year Covered) Index Funds Index Class B** Class B
<S> <C> <C> <C> <C>
1/94 $10,000 $10,000 $10,000 $10,000
6/94 9,485 9,488 9,471 9,471
6/95 10,675 10,542 10,478 10,478
6/96 11,211 11,055 10,860 10,860
6/97 12,124 11,897 11,637 11,637
6/98 $13,402 $13,046 $12,274 $12,466
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The performance of the Income Bond Fund is measured against the Lehman Brothers
Aggregate Bond Index, an unmanaged index comprised of US Government, mortgage,
corporate and asset-backed securities. Investors are unable to purchase the
index directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management. By contrast, the performance
of the fund reflects the deduction of these value-added services as well as the
deduction of sales charges on Class A Shares and applicable contingent deferred
sales charges on Class B Shares.
The Lipper Intermediate Investment Grade Bond Funds Index consists of the
equally weighted average monthly return of the largest funds within the universe
of all funds in the category.
11
<PAGE> 387
The One Group Treasury & Agency Fund
Portfolio Performance Review
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
HOW DID THE FUND PERFORM?
For the year ended June 30, 1998, The One Group Treasury & Agency Fund Fiduciary
share class returned 7.91%. (For information on other share classes and
performance comparisons to indexes, please see page 13.)
In response to the weakening global economy led by the turmoil in Asia, market
yields generally declined during the year and bond prices increased. Following
suit, the Fund's share price increased by approximately 1%, and the Fund's
30-day SEC yield declined from 6.04% on June 30, 1997, to 5.37% on June 30, 1998
(Fiduciary share class).
WHAT WERE YOUR PRIMARY STRATEGIES AND TACTICS?
With a focus on Treasuries, our primary strategy during the year was to select
those Treasury securities that offered the highest potential return. To do this,
we analyzed the yield differentials and possible future dynamics for Treasury
securities of different maturities. Our research indicated that Treasuries in
the one- to two-year, four-year and seven- to eight-year maturity ranges were
the most attractive, and we subsequently purchased those securities.
We also invested in select federal agency securities, which provided some yield
advantage over Treasuries. In addition, we invested in certain callable
securities when our analysis indicated that the return potential more than
compensated for any chance that the security may be "called" prior to maturity.
(The call feature refers to the bond issuer's right to repay, or "call," the
bond before the scheduled maturity date. Securities that have this feature
typically offer higher yields in return for the call risk.) In fact, the best
relative performance came from callable federal agency bonds. The Fund benefited
from the relatively higher yields on these securities, and, because interest
rates only moved down modestly, the securities were not called.
We maintained the Fund's duration close to its target of 2.9 years, except
during the fourth quarter of 1997, when concerns about events in Asia caused us
to lower duration to 2.6 years. (Duration is a measure of a fund's sensitivity
to interest rate changes. A longer duration indicates greater sensitivity; a
shorter duration indicates less.) As it turned out, Asia had a greater impact on
slowing the U.S. economy than we originally expected, so we brought the Fund's
duration back to 2.9 years. This enabled the Fund to experience greater benefits
from the declining rate environment.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect market yields and bond prices to fluctuate, but not to change
significantly from today's levels. As such, we plan to maintain the Fund's
duration of 2.9 years into fiscal year 1999. It's likely that we will increase
the Fund's agency holdings to capture yield advantages over Treasuries. In
addition, we will continue to invest in callable securities, as we do not expect
dramatic fluctuations in the bond market.
/s/ Scott E. Grimshaw
Scott E. Grimshaw
Fund Manager
/s/ Gary J. Madich
Gary J. Madich, CFA
Senior Managing Director of Fixed-Income Securities
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
12
<PAGE> 388
The One Group Treasury & Agency Fund
Portfolio Performance Review, continued
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (4/30/88)
<S> <C> <C> <C> <C>
Fiduciary 7.91% 6.30% 7.42% 7.39%
</TABLE>
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
(Fiscal Year Covered) Treasury Index Lipper Mix Fiduciary
<S> <C> <C> <C>
6/88 $10,000 $10,000 $10,000
6/89 11,005 11,005 10,904
6/90 11,844 11,834 11,715
6/91 13,082 12,876 12,804
6/92 14,767 14,104 14,132
6/93 16,263 15,048 15,073
6/94 16,232 15,232 15,313
6/95 17,809 16,356 17,047
6/96 18,679 17,205 17,730
6/97 19,961 18,219 18,962
6/98 $21,642 $19,402 $20,462
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (4/30/88)
<S> <C> <C> <C> <C>
Class A 8.10% 6.16% 7.21% 7.18%
Class A* 4.85% 5.53% 6.88% 6.86%
</TABLE>
* Reflects 3.00% Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
(Fiscal Year Covered) Treasury Index Lipper Mix Class A* Class A
<S> <C> <C> <C> <C>
6/88 $10,000 $10,000 $ 9,700 $10,000
6/89 11,005 11,005 10,540 10,866
6/90 11,844 11,834 11,310 11,660
6/91 13,082 12,876 12,326 12,707
6/92 14,767 14,104 13,569 13,989
6/93 16,263 15,048 14,427 14,873
6/94 16,232 15,232 14,637 15,090
6/95 17,809 16,356 16,230 16,732
6/96 18,679 17,205 16,843 17,364
6/97 19,961 18,219 17,994 18,551
6/98 $21,642 $19,402 $19,452 $20,054
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10 Year (4/30/88)
<S> <C> <C> <C> <C>
Class B 7.33% 5.59% 6.66% 6.63%
Class B** 4.33% 5.59% 6.66% 6.63%
</TABLE>
** Reflects Applicable Contingent Deferred Sales Charge.
VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Lehman
Brothers
Measurement Period Intermediate
(Fiscal Year Covered) Treasury Index Lipper Mix Class B** Class B
<S> <C> <C> <C> <C>
6/88 $10,000 $10,000 $10,000 $10,000
6/89 11,005 11,005 10,813 10,813
6/90 11,844 11,834 11,539 11,539
6/91 13,082 12,876 12,525 12,525
6/92 14,767 14,104 13,719 13,719
6/93 16,263 15,048 14,515 14,515
6/94 16,232 15,232 14,636 14,636
6/95 17,809 16,356 16,176 16,176
6/96 18,679 17,205 16,695 16,695
6/97 19,961 18,219 17,747 17,747
6/98 $21,642 $19,402 $19,048 $19,048
</TABLE>
The performance data quoted represents past performance and is not an indication
of future results. Investment return and NAV will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The total return set forth may reflect the waiver of a portion of the
fund's fees for certain periods since the inception date, without the waiver,
total return would have been lower.
The above-quoted performance data includes the performance of the Treasury &
Agency Collective Trust Fund for the period prior to the commencement of
operations of the Treasury & Agency Fund on January 20, 1997, adjusted to
reflect the deduction of fees and expenses (absent any waivers) applicable to
the Fiduciary, Class A and Class B shares of the Treasury & Agency Fund. The
Treasury & Agency Collective Trust Fund was not registered under the Investment
Company Act of 1940 ("1940 Act") and, therefore, was not subject to certain
investment restrictions, limitations and diversification requirements imposed by
the 1940 Act and the Internal Revenue Code. If the Treasury & Agency Collective
Trust Fund had been registered under the 1940 Act, its performance may have been
adversely affected.
The performance of the Treasury & Agency Fund is measured against the Lehman
Brothers Intermediate Treasury Index, an unmanaged index comprised of US
Treasury-issued securities with maturities of one to ten years. Investors are
unable to purchase the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management. By contrast, the performance of the fund reflects the deduction of
these value-added services as well as the deduction of sales charges on Class A
Shares and applicable contingent deferred sales charges on Class B Shares.
The Lipper Mix for all the classes consists of the average monthly returns of
the Lipper Intermediate Treasury Bond Funds Index from April 1988 through
December 1989. Thereafter, the data is from the Lipper Short US Government Bond
Funds Index which corresponds with the initiation of the Index on January 1,
1989. The Lipper Indices consist of the equally weighted average monthly return
of the largest funds within the universe of all funds in the category.
13
<PAGE> 389
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ultra Short-Term Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- --------
<C> <S> <C>
ASSET BACKED SECURITIES (20.1%):
$ 718 Auto Finance Group, Inc., Series
1997-B, Class B, 6.40%,
2/15/03........................ $ 719
1,437 Auto Finance Group, Inc., Series
1997-B, Class C, 7.00%,
2/15/03........................ 1,418
1,897 Countrywide Home Equity, Series
1997-D, Class A, 5.86%,
12/15/23*...................... 1,897
4,157 Greentree Financial Home Equity
Loan, Series 1997-D, 5.88%,
9/15/28*....................... 4,157
4,776 Greentree Financial Home Equity
Loan, Series 1998-B, Class A1B,
ARM, 5.88%, 11/15/29*.......... 4,774
2,732 Hyundai Auto Receivables Trust,
Series 1998-A, Class A1, 5.90%,
4/15/01........................ 2,730
2,000 Loop Funding Master Trust I,
Series 1997-A144, Class C1,
6.44%, 12/26/07*............... 2,000
5,000 MBNA Master Credit Card Trust,
Series 1997-E, Class B, 5.94%,
9/15/04*....................... 5,000
2,242 Merrill Lynch Home Equity Loan,
Series 1997-1, Class A, 5.83%,
9/25/27*....................... 2,242
747 Morgan Stanley Capital Issue,
Series 1997-C1, Class A2,
6.05%, 2/15/20*................ 745
3,000 People's Bank Credit Card Master
Trust, Series 1997-2, Class B,
5.98%, 4/15/05*................ 2,999
1,283 Structured Asset Securities
Corp., Series 1997-1, Class B2,
6.52%, 11/15/26*............... 1,291
886 Structured Asset Securities
Corp., Series 1997-C1, Class D,
6.26%, 8/25/00*................ 886
1,942 Structured Asset Securities
Corp., Series 1998-C2A, Class
C, 6.09%, 1/25/01*............. 1,941
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- --------
<C> <S> <C>
ASSET BACKED SECURITIES, CONTINUED:
$ 1,969 Structured Asset Securities
Corp., Series 1998-C2A, Class
D, 6.26%, 1/25/01*............. $ 1,968
5,000 Student Loan Marketing Assoc.,
Series 1997-3, 6.02%,
10/25/12*...................... 5,007
3,697 The Money Store Home Equity
Trust, Series 1993-D, Series
A2, 5.08%, 2/15/18............. 3,655
286 UCFC Home Equity Loan, Series
1993-B2, Class A2, 6.20%,
7/25/14........................ 285
--------
Total Asset Backed Securities 43,714
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (14.8%):
3,543 AMAC, Series 1998-1, Class A5,
6.50%, 4/25/28................. 3,560
2,058 American Housing Trust, Series
VII, Class D, 9.25%,
11/25/20....................... 2,357
1,103 Chemical Mortgage Acceptance
Corp., Series 1988-2, Class A,
7.46%, 5/25/18*................ 1,131
3,276 Citicorp Mortgage Securities,
Series 1988-17, Class A1,
7.29%, 11/25/18*............... 3,328
2,007 First Boston Mortgage Securities,
Series 1992-5, Class 2A, 7.67%,
1/25/23*....................... 2,056
5,000 GE Capital Mortgage Services,
Inc., Series 1998-10, Class
1A2, 6.50%, 5/25/28............ 5,021
2,679 Glendale Federal Bank, Series
1990-1, Class A, 7.11%,
10/25/29*...................... 2,727
2,000 Nomura Depositor Trust, Series
1998-ST1, Class A2, 6.08%,
1/15/03*....................... 2,002
1,595 Nomura Mortgage Capital Corp.,
Series 1990-1, Class H, 7.00%,
6/17/20........................ 1,621
510 Prudential Home Mortgage
Securities, Series 1992-45,
Class A4, 6.50%, 1/25/00....... 512
</TABLE>
Continued
14
<PAGE> 390
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ultra Short-Term Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- --------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS, CONTINUED:
$ 2,882 Salomon Brothers Mortgage
Securities, Series 1987-2,
Class A, 7.09%, 12/25/17*...... $ 2,932
3,926 Salomon Brothers Mortgage
Securities, Series 1988-2,
Class A, 6.70%, 6/25/18*....... 3,907
1,105 Sears Mortgage Securities Corp.
Services, Series 1992-18A,
Class A3, 7.78%, 9/25/22*...... 1,125
--------
Total Collateralized Mortgage Obligations 32,279
--------
CORPORATE BONDS (3.2%):
Financial Services (3.2%):
2,000 Lehman Brothers Holdings, 6.21%,
6/3/02*........................ 1,987
5,000 MBNA Corp., 6.29%, 5/23/03*...... 5,015
--------
Total Corporate Bonds 7,002
--------
U.S. GOVERNMENT AGENCY MORTGAGES (61.2%):
Federal Home Loan Mortgage Corp. (16.6%):
1,934 6.00%, 10/1/00, Gold Pool
#G50424........................ 1,950
971 7.50%, 7/15/06, Series 1106,
Class E........................ 995
2,000 6.50%, 5/15/09, Series 1628 LC... 2,072
3,393 8.00%, 12/1/09, Pool #G10314..... 3,509
95 8.00%, 1/1/10, Pool #E00355...... 98
2,671 8.00%, 1/1/10, Pool #G10307...... 2,762
358 8.00%, 4/1/10, Pool #E00371...... 370
2,229 7.86%, 5/1/18, Pool #840160, 1
Year CMT ARM*.................. 2,305
7,380 3.50%, 11/15/21, Series 1584
HA............................. 6,481
413 6.91%, 12/1/21, Pool #645083, 1
Year CMT ARM*.................. 415
3,943 7.79%, 2/1/23, Pool #845297...... 4,089
4,894 6.14%, 12/15/23, Series 1637 LG,
CMO*........................... 4,839
2,110 9.00%, 2/1/25, Pool #C00387...... 2,248
4,014 6.44%, 6/1/26, Pool #785586, 1
Year CMT ARM*.................. 4,051
--------
36,184
--------
Federal National Mortgage Assoc. (32.6%):
295 6.50%, 11/1/03, Pool #44174...... 302
1,281 5.75%, 9/1/06, Pool #411526...... 1,271
1,804 6.50%, 4/1/16, Pool #344051...... 1,814
908 6.75%, 3/1/17, Pool #47109, 1
Year CMT ARM*.................. 921
1,501 7.01%, 5/1/18, Pool #75505, 6
Month T-Bill ARM*.............. 1,548
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Federal National Mortgage Assoc., continued:
$ 421 6.82%, 6/1/18, Pool #70793, 6
Month T-Bill ARM*.............. $ 436
2,542 7.12%, 1/1/20, Pool #90031, 1
Year CMT ARM*.................. 2,600
1,828 6.25%, 1/25/20, Series 1993-102
G.............................. 1,840
1,676 7.70%, 5/1/20, Pool #96195*...... 1,725
5,346 7.18%, 7/1/20, Pool #133558, 1
Year CMT ARM* (b).............. 5,466
2,428 7.35%, 12/1/20, Pool #116590, 1
Year CMT ARM*.................. 2,501
2,689 6.60%, 12/25/20, Series 1990-145,
Class A, CMO*.................. 2,705
1,519 7.30%, 4/1/21, Pool #70983, 1
Year CMT ARM*.................. 1,554
957 9.00%, 8/1/21, Pool #348983...... 1,001
878 7.81%, 11/1/21, Pool #124510, 1
Year CMT ARM*.................. 919
421 7.75%, 11/1/22, Pool #193013, 1
Year CMT ARM*.................. 434
2,309 7.31%, 3/1/23, Pool #202670,
6 Month CD ARM*................ 2,397
1,352 7.54%, 11/1/23, Pool #241828,
6 Month CD ARM*................ 1,396
578 8.50%, 7/1/24, Pool #342036...... 606
1,056 8.50%, 10/1/24, Pool #345876..... 1,105
1,265 9.00%, 4/1/25, Pool #370122...... 1,323
778 7.63%, 7/1/25, Pool #326092, 1
Year CMT ARM*.................. 806
1,190 9.00%, 8/1/25, Pool #361354...... 1,245
4,784 7.63%, 6/1/26, Pool #313555*..... 4,897
1,315 7.48%, 11/1/26, Pool #363030, 1
Year CMT ARM*.................. 1,346
3,081 6.29%, 3/18/27, Series 1997-7 FB,
CMO*........................... 3,084
3,725 7.27%, 7/1/27, Pool #70179, 1
Year CMT ARM*.................. 3,841
4,600 7.00%, 12/1/25, Pool #315687,
COFI ARM TBA................... 4,629
4,101 6.22%, 10/1/28, Pool #67694, COFI
ARM*........................... 4,130
4,567 6.20%, 8/1/29, Pool #303742*..... 4,598
3,981 7.66%, 1/1/31, Pool #124945, 1
Year CMT ARM*.................. 4,155
4,146 6.22%, 5/1/36, Pool #313600*..... 4,175
--------
70,770
--------
Government National Mortgage Assoc. (12.0%):
1,830 9.00%, 11/15/24, Pool #780029.... 1,988
45 6.88%, 2/20/27, Pool #80045...... 46
</TABLE>
Continued
15
<PAGE> 391
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Ultra Short-Term Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Government National Mortgage Assoc., continued:
$13,883 6.00%, 7/20/27, Pool #80094, 1
Year CMT ARM................... $ 14,143
4,864 8.00%, 10/15/27, Pool #412336.... 5,043
4,754 6.00%, 11/20/27, Pool #80136*.... 4,831
--------
26,051
--------
Total U.S. Government Agency Mortgages 133,005
--------
YANKEE & EURODOLLAR (1.0%):
1,275 BHN, Series 1997-1, Class A1,
7.10%, 3/25/11*................ 1,264
1,000 Poland (Discount Brady), 6.69%,
10/27/24*...................... 980
--------
Total Yankee & Eurodollar 2,244
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- --------------------------------- --------
<C> <S> <C>
REPURCHASE AGREEMENTS (1.7%):
$ 3,724 Prudential Securities, 6.10%,
7/1/98 (Collateralized by
$3,833 U.S. Treasury Bills,
9/3/98, market value $3,799)... $ 3,724
--------
Total Repurchase Agreements 3,724
--------
Total (Cost $221,196) (a) $221,968
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $217,411.
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $1,206
Unrealized depreciation..................................... (434)
------
Net unrealized appreciation................................. $ 772
======
</TABLE>
(b) Serves as collateral for futures contracts.
At June 30, 1998, the Portfolio's open futures contracts were as follows:
<TABLE>
<CAPTION>
CURRENT
NUMBER OPENING MARKET
OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE (000) (000)
--------- ------------- ----- -----
<C> <S> <C> <C>
50 Short U.S. 5 Year Note March, 1998 Futures $ (5,463) $ (5,484)
75 Short U.S. 2 Year Note March, 1998 Futures (15,605) (15,628)
-------- --------
$(21,068) $(21,112)
======== ========
</TABLE>
* The interest rate, for this variable rate note, which will change
periodically, is based upon prime rates or an index of market rates. The rate
reflected on the Schedule of Portfolio Investments is the rate in effect at
June 30, 1998.
<TABLE>
<S> <C>
ARM Adjustable Rate Mortgage
CD Certificate of Deposit
CMO Collateralized Mortgage Obligation
CMT Collateralized Mortgage Trust
COFI Cost of Funds Index
TBA To be announced
</TABLE>
See notes to financial statements.
16
<PAGE> 392
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Limited Volatility Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
ASSET BACKED SECURITIES (13.1%):
$ 1,488 Bay View Auto Trust, Series 97-RA1,
Class A1, 6.29%, 12/15/01........ $ 1,488
2,985 Case Equipment Loan Trust, Series
96-A, Class A2, 5.50%, 2/15/03... 2,981
5,000 CIT RV Trust, Series 1998-A, Class
B, 6.29%, 1/15/17................ 5,003
5,000 Citibank Credit Card Master Trust,
Series 1998-1, Class B, 5.88%,
1/15/03.......................... 4,987
7,750 Citibank, Master Trust, Series
97-9, Class A, 0.00%, 8/15/06.... 5,370
3,700 Consumer Portfolio Services, Series
1997-2 A, 6.65%, 10/15/02........ 3,730
2,073 Countrywide Asset-Backed
Certificate, 6.53%, 2/25/14...... 2,077
5,045 DVI Equipment Receivables Trust,
Series 1997-A, Class A, 6.45%,
1/15/04.......................... 5,069
3,909 Fifth Third Auto Grantor Trust,
1996-A, Class A, 6.20%,
9/15/01.......................... 3,923
3,320 Fifth Third Auto Grantor Trust,
1996-B, Class A, 6.45%,
3/15/02.......................... 3,338
5,000 Ford Motor Credit Auto Loan Master,
Series 1995-1, Class A, 6.50%,
8/15/02.......................... 5,061
5,000 Ford Motor Credit Auto Owner Trust,
Series 1998-B, Class B, 6.15%,
9/15/02.......................... 5,024
6,500 Metris Mastertrust, 7.11%,
10/1/05.......................... 6,764
7,569 Newcourt Receivables Trust, Series
1996-3, Class A, 6.24%,
12/20/04......................... 7,572
1,067 Olympic Automobile Receivables
Trust, Series 1996-D, Class A2,
5.75%, 4/15/00................... 1,066
4,425 Olympic Automobile Receivables
Trust, Series 1996-D, Class A3,
5.95%, 6/15/01................... 4,428
7,000 Proffitt's Credit Card Master
Trust, Series 1997-2, Class B,
6.69%, 12/15/05.................. 7,172
5,000 Ryder Vehicle Lease, Series 1998-A,
Class A, 6.10%, 9/15/08.......... 5,009
--------
Total Asset Backed Securities 80,062
--------
COMMERCIAL MORTGAGE BACKED SECURITIES (0.9%):
5,281 CMC Securities Corp. III, Series
1994-D, Class M, 6.00%,
3/25/24.......................... 5,217
--------
Total Commercial Mortgage Backed Securities 5,217
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
CORPORATE BONDS (16.0%):
Banking, Finance & Insurance (13.5%):
$ 3,000 Avco Financial Services, 7.25%,
7/15/99.......................... $ 3,045
5,000 Bear Stearns, 6.13%, 2/1/03........ 4,950
1,000 Caterpillar Financial Services,
6.35%, 4/1/99.................... 1,004
3,000 Citicorp, 8.00%, 2/1/03............ 3,221
1,000 Dean Witter Discover & Co., 6.25%,
3/15/00.......................... 1,006
7,000 Ford Motor Credit Corp., 8.38%,
1/15/00.......................... 7,254
1,850 Ford Motor Credit Corp., 7.45%,
4/13/00.......................... 1,899
2,650 GMAC, 7.13%, 5/10/00............... 2,703
5,000 GMAC, 6.75%, 2/7/02................ 5,106
7,000 Goldman Sachs Group, 7.80%,
7/15/02, 144A.................... 7,420
5,000 Goldman Sachs Group, 6.65%, 8/1/03,
144A............................. 5,088
10,000 Greenwich Capital, 7.04%, 12/13/99,
144A............................. 9,997
3,250 HSBC Financial, 7.40%, 4/15/03..... 3,372
4,871 J.P. Morgan Commercial Mortgage
Financial Corp., 6.37%,
1/15/30.......................... 4,916
5,000 Lehman Brothers Holdings, Inc.,
7.63%, 8/1/98.................... 5,005
4,500 Lehman Brothers Holdings, Inc.,
8.88%, 11/1/98................... 4,540
3,000 Lehman Brothers Holdings, Inc.,
10.00%, 5/15/99.................. 3,100
4,000 Lehman Brothers Holdings, Inc.,
9.88%, 10/15/00.................. 4,320
5,000 Visa International, 6.72%, 2/4/02,
144A............................. 5,059
--------
83,005
--------
Industrial Goods & Services (2.5%):
5,000 Avon Products, 6.25%, 5/1/03,
144A............................. 5,038
5,000 Carpenter Technology, 6.28%,
4/7/03........................... 5,019
5,000 Sears Roebuck Co., 6.69%,
8/13/01.......................... 5,087
--------
15,144
--------
Total Corporate Bonds 98,149
--------
OTHER MORTGAGE BACKED SECURITIES (1.5%):
5,150 Evans Withycombe Finance Trust,
Series 1, Class A1, 7.98%,
8/1/01........................... 5,423
3,987 Nomura Mortgage Capital Corp.,
Series 90-1, Class H, 7.00%,
6/17/20.......................... 4,052
--------
Total Other Mortgage Backed Securities 9,475
--------
</TABLE>
Continued
17
<PAGE> 393
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Limited Volatility Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES (36.6%):
Federal Home Loan Mortgage Corp. (15.6%):
$ 1,628 6.50%, 1/1/01, Pool #M8038......... $ 1,644
8,348 7.00%, 1/1/02, Pool #G50415........ 8,481
9,026 6.50%, 5/1/02, Pool #G50444........ 9,116
289 9.00%, 12/1/05, Pool #G00005....... 302
281 9.00%, 1/1/06, Pool #G00012........ 294
559 8.00%, 10/1/06, Pool #G00052....... 577
1,807 7.00%, 3/1/07, Pool #G34594........ 1,847
2,162 7.50%, 4/1/07, Pool #G00084........ 2,229
1,665 7.00%, 4/1/07, Pool #G00087........ 1,701
2,667 7.50%, 11/1/07, Pool #E00165....... 2,749
3,519 8.50%, 2/1/08, Gold Pool #10133.... 3,667
1,852 7.00%, 12/1/08, Pool #E20065....... 1,895
1,900 8.00%, 1/1/10, Pool #G00355........ 1,960
5,766 8.00%, 2/1/10, Pool #G10328........ 5,950
8,236 7.00%, 10/1/10, Gold Pool
#E61709.......................... 8,416
11,633 7.00%, 5/1/11, Pool #E20241........ 11,898
9,967 6.50%, 5/1/13, Pool #E70383........ 10,036
5,404 5.25%, 9/15/15, REMIC/CMO, Series
1638, Class BC................... 5,392
13,209 8.25%, 12/15/16, REMIC/CMO, Series
1770, Class PD................... 13,455
3,780 6.68%, 10/1/26, Pool #785652....... 3,860
--------
95,469
--------
Federal National Mortgage Assoc. (15.5%):
8,390 6.50%, 8/1/01, Pool #190976........ 8,463
14,156 7.00%, 7/17/05, Series 97-26 Gd.... 14,521
166 9.00%, 9/1/05, Pool #50340......... 174
20,079 6.60%, 10/18/05, Series 97-26 B.... 20,340
171 9.00%, 11/1/05, Pool #50361........ 179
172 8.50%, 4/1/06, Pool #116875........ 179
13,804 7.42%, 9/1/06, Pool #73618......... 14,978
6,150 7.00%, 6/1/10, Pool #315928........ 6,282
5,542 6.50%, 9/1/10, Pool #325479........ 5,598
4,422 6.50%, 10/1/10, Pool #250377....... 4,466
2,692 7.00%, 11/1/10, Pool #250387....... 2,750
2,947 7.50%, 2/1/11, Pool #303755........ 3,037
9,732 6.50%, 4/1/13, Pool #425396........ 9,790
5,000 6.50%, 6/25/13, Series 94-1 K...... 5,064
--------
95,821
--------
Government National Mortgage Assoc. (2.1%):
2 8.00%, 2/15/02, Pool #192917....... 2
17 8.00%, 3/15/02, Pool #209172....... 18
3 9.00%, 6/15/02, Pool #229311....... 3
43 9.00%, 10/15/02, Pool #229569...... 45
12 8.00%, 6/15/05, Pool #28827........ 12
9 9.00%, 9/15/05, Pool #292569....... 9
53 9.00%, 10/15/05, Pool #292589...... 56
14 8.00%, 5/15/06, Pool #303851....... 14
5 8.00%, 7/15/06, Pool #307231....... 5
38 8.00%, 8/15/06, Pool #311166....... 39
36 8.00%, 9/15/06, Pool #311301....... 37
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Government National Mortgage Assoc., continued:
$ 272 8.00%, 10/15/06, Pool #316915...... $ 282
77 8.00%, 11/15/06, Pool #315078...... 80
224 8.00%, 11/15/06, Pool #313528...... 233
97 8.00%, 11/15/06, Pool #316671...... 101
41 8.00%, 11/15/06, Pool #311131...... 42
353 8.00%, 11/15/06, Pool# 312210...... 366
143 8.00%, 12/15/06, Pool #311384...... 149
97 8.00%, 1/15/07, Pool #317663....... 100
258 8.00%, 2/15/07, Pool #316086....... 268
68 8.00%, 3/15/07, Pool #178684....... 71
164 8.00%, 3/15/07, Pool #318825....... 170
128 8.00%, 4/15/07, Pool #316441....... 133
7,567 6.88%, 11/20/25, Pool #8746 ARM.... 7,723
3,013 7.00%, 1/20/26, Pool #8790......... 3,073
--------
13,031
--------
U.S. Government Agencies (3.4%):
20,000 Tennessee Valley Authority, 8.38%,
10/1/99.......................... 20,600
--------
Total U.S. Government Agency Mortgages 224,921
--------
U.S. GOVERNMENT AGENCY SECURITIES (14.5%):
Federal Home Loan Bank (5.8%):
750 5.99%, 8/27/98..................... 750
1,000 5.97%, 8/27/98..................... 1,001
2,000 5.64%, 11/9/98..................... 2,000
4,000 6.60%, 4/13/99 (b)................. 4,030
17,000 5.58%, 2/23/01 (b)................. 16,900
10,000 7.78%, 10/19/01 (b)................ 10,619
--------
35,300
--------
Federal National Mortgage Assoc. (8.7%):
2,000 5.55%, 3/12/99..................... 1,999
4,000 6.35%, 4/8/99...................... 4,022
22,000 5.72%, 3/8/01 (b).................. 22,014
10,000 6.16%, 3/29/01 (b)................. 10,117
15,000 6.50%, 7/16/07..................... 15,687
--------
53,839
--------
Total U.S. Government Agency Securities 89,139
--------
U.S. TREASURY OBLIGATIONS (15.1%):
U.S. Treasury Notes (8.3%):
1,500 6.38%, 1/15/99 (b)................. 1,506
3,000 6.50%, 4/30/99 (b)................. 3,025
16,300 5.88%, 11/15/99 (b)................ 16,377
3,500 8.50%, 2/15/00 (b)................. 3,660
4,000 8.88%, 5/15/00 (b)................. 4,239
1,250 6.13%, 9/30/00 (b)................. 1,266
15,000 6.38%, 9/30/01 (b)................. 15,361
5,000 6.25%, 8/31/02 (b)................. 5,130
--------
50,564
--------
</TABLE>
Continued
18
<PAGE> 394
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Limited Volatility Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS, CONTINUED:
U.S. Treasury STRIPS (6.8%):
$17,500 2/15/00 (b)........................ $ 16,040
18,500 11/15/01 (b)....................... 15,422
15,500 7/15/05............................ 10,486
--------
41,948
--------
Total U.S. Treasury Obligations 92,512
--------
YANKEE & EURODOLLAR (0.8%):
5,000 Peoples Republic of China, 7.38%,
7/3/01 (b)....................... 5,031
--------
Total Yankee & Eurodollar 5,031
--------
REPURCHASE AGREEMENTS (0.8%):
4,688 Prudential Securities, 6.10%,
7/1/98, (Collateralized by $4,825
U.S. Treasury Bills, 9/3/98,
market value $4,782)............. 4,688
--------
Total Repurchase Agreements 4,688
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (9.0%):
Master Notes (1.5%):
2,527 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*.................. 2,527
1,684 Danaher Corp., 6.68%, 10/9/98*..... 1,684
2,527 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................. 2,527
2,274 NationsBanc Capital Markets, 6.70%,
7/1/98*.......................... 2,274
--------
9,012
--------
Put Bonds (1.0%):
2,527 Citicorp, 5.94%, 8/3/98*........... 2,527
1,684 GMAC, 5.85%, 11/10/99*............. 1,687
1,684 Greenwich Capital, 6.11%,
12/13/99*........................ 1,684
--------
5,898
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements (6.5%):
$ 9,264 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$9,472 various Corporate and
Government Securities,
2.85% - 17.25%, 10/15/02 -
4/15/35, market value $9,621).... $ 9,264
8,422 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $8,977 various
Corporate Bonds, 0.00%, 7/7/98 -
9/18/98, market value $8,944).... 8,422
18,530 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $18,993
various Corporate Bonds,
0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$19,880)......................... 18,530
1,735 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $1,822 Media
One Group Bonds, 0.00%, 10/5/98,
market value $1,822)............. 1,735
2,190 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $13,709
various Government Securities,
0.00% - 10.00%, 12/1/18 - 5/1/24,
market value $2,254)............. 2,190
--------
40,141
--------
Total Short-Term Securities Held as
Collateral 55,051
--------
Total (Cost $654,845) (a) $664,245
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $613,102.
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $9,537
Unrealized depreciation..................................... (137)
------
Net unrealized appreciation................................. $9,400
======
</TABLE>
(b) A portion of this security was loaned as of June 30, 1998.
* The interest rate, for this variable rate note, which will change
periodically, is based upon prime rates or an index of market rates. The rate
reflected on the Schedule of Portfolio Investments is the rate in effect at
June 30, 1998.
ARM Adjustable Rate Mortgage
CMO Collateralized Mortgage Obligation
REMIC Real Estate Mortgage Investment Conduit
See notes to financial statements.
19
<PAGE> 395
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
ASSET BACKED SECURITIES (8.7%):
$ 1,000 Advanta Credit Card Master Trust,
Series 96-A, 6.00%, 11/15/05..... $ 1,025
309 Advanta Mortgage Loan Trust, Series
94-4, Class A1, 8.55%,
11/25/12......................... 314
5,000 Aesop Funding II, Series 97-1,
Class A2, 6.40%, 10/20/03........ 5,041
2,622 Aircraft Lease Portfolio
Securitization Ltd., Series 94-1,
Class A2, 7.15%, 9/15/04......... 2,639
552 Chase Manhattan Guarantor Trust,
Series 96-A, Class A, 5.20%,
2/15/02.......................... 550
5,440 Circuit City Credit Card Master
Trust, Series 95-1, Class A,
6.38%,
8/15/05.......................... 5,505
6,000 EQCC Home Equity Loan Trust, Series
96-4, Class A6, 6.88%,
7/15/14.......................... 6,180
2,000 First Bank Corporate Card Master
Trust, Series 97-1, Class B,
6.55%, 2/15/03................... 2,054
4,000 Greentree Financial Corp., Series
93-2, Class B, 8.00%, 7/15/18.... 4,200
3,000 Greentree Financial Home
Improvement Corp., Series 97-D,
Class HIA2, 6.45%, 10/15/23...... 3,030
5,000 Greentree Home Improvement Loan
Trust, Series 95-D, 6.95%,
9/15/25.......................... 5,075
10,000 KeyCorp Auto, Series 97-2A4, 6.15%,
10/15/01......................... 10,041
750 Prime Credit Card Master Trust,
Series 96-1, 6.70%, 7/15/04...... 767
5,000 Rental Car Finance, Series 97-1,
Class A2, 6.45%, 8/25/04......... 5,063
467 Sears Credit Account Master Trust,
Series 95-4, Class A, 6.25%,
1/15/03.......................... 468
4,000 Team Fleet Financing Corp., Series
97-1, Class A, 7.35%, 5/15/03.... 4,139
350 UFSB, Series 94-B, Class B, 6.43%,
7/10/00.......................... 350
2,296 Union Acceptance Corp., Series
95-D, 6.03%, 1/7/03.............. 2,296
6,000 World Financial Network Credit
Card, Series 96-1, Class A,
6.70%,
2/15/04.......................... 6,138
--------
Total Asset Backed Securities 64,875
--------
CORPORATE BONDS (20.0%):
Banking, Finance & Insurance (8.8%):
5,000 Bankers' Trust, 7.25%, 1/15/03..... 5,206
4,000 Capital One Bank, 6.61%, 6/22/99... 4,010
3,000 First Hawaiian, Inc., 6.25%,
8/15/00.......................... 3,008
1,000 Ford Motor Credit Corp., 6.63%,
6/30/03.......................... 1,023
4,000 General Motors Acceptance Corp.,
5.88%, 1/22/03................... 3,940
10,000 Goldman Sachs Group, 6.38%,
6/15/00.......................... 10,074
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Banking, Finance & Insurance, continued:
$ 5,000 Greenwich Capital, 7.04%, 12/13/99,
Private Placement................ $ 4,999
5,000 International Lease, 6.38%,
8/1/02........................... 5,063
3,000 Lehman Brothers Holdings, Inc.,
9.88%, 10/15/00.................. 3,240
5,000 Lehman Brothers Holdings, Inc.,
8.88%, 3/1/02.................... 5,431
3,000 Lehman Brothers Holdings, Inc.,
7.25%, 4/15/03................... 3,124
6,000 Liberty Mutual Insurance, 8.20%,
5/4/07........................... 6,697
5,000 MBNA Corp., 6.29%, 5/23/03*........ 5,015
4,000 Metropolitan Life, 7.00%,
11/1/05.......................... 4,130
--------
64,960
--------
Gas & Electric Utility (1.4%):
2,500 Duke Power Co., 7.00%, 6/1/00...... 2,550
1,931 Kern River Fund, 6.42%, 3/31/01
(b).............................. 1,942
6,000 Ohio Power, 6.73%, 11/1/04......... 6,172
--------
10,664
--------
Industrial Goods & Services (5.1%):
5,000 Atlas Copco AB, 6.50%, 4/1/08...... 5,025
5,000 Cox Radio, Inc., 6.38%, 5/15/05,
Series 144A...................... 5,038
5,000 Excel Paralubes Funding, 7.13%,
11/1/11.......................... 5,255
2,000 Limited, Inc., 8.88%, 8/15/99...... 2,055
600 Lockheed Martin Corp., 9.38%,
10/15/99......................... 625
4,000 Oracle Corp., 6.72%, 2/15/04....... 4,105
5,000 Sears Roebuck Acceptance, Series
MTN3, 7.07%, 9/18/01............. 5,143
5,000 Thomas & Betts, Series MTN, 6.29%,
2/13/03.......................... 5,000
5,000 Tyco International Group SA, 6.25%,
6/15/03.......................... 4,988
650 VF Corp., 6.63%, 3/15/03........... 663
--------
37,897
--------
Real Estate (1.2%):
5,000 Meditrust, 7.60%, 7/15/01.......... 5,150
4,000 Prime Properties Funding, 6.80%,
8/15/02.......................... 4,080
--------
9,230
--------
Telecommunications (0.5%):
4,000 Cable & Wire Communications, 6.63%,
3/6/05........................... 4,045
--------
Yankee & Eurodollar (3.0%):
5,000 Avon Energy Partners, 7.05%,
12/11/07, Series 144A............ 5,200
3,000 D.R. Investments, 7.10%, 5/15/02... 3,090
4,000 Dao Heng Bank, 7.75%, 1/24/07...... 3,245
2,000 Kingdom of Thailand, 7.75%,
4/15/07 (b)...................... 1,788
</TABLE>
Continued
20
<PAGE> 396
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Yankee & Eurodollar, continued:
$ 500 Nippon Telephone & Telegraph,
9.50%, 7/27/98................... $ 501
6,225 Petronas, 6.88%, 7/1/03 (b)........ 5,517
3,000 Ras Laffan Gas, 7.63%, 9/15/06..... 2,906
--------
22,247
--------
Total Corporate Bonds 149,043
--------
OTHER MORTGAGE BACKED SECURITIES (3.7%):
1,657 BHN, Series 97-1, Class A2, 7.92%,
7/25/09.......................... 1,641
4,000 Equitable, Series 174, Class A1,
7.24%, 5/15/06, Private
Placement........................ 4,258
2,000 J.P. Morgan & Co., Series 97, Class
C4, 7.47%, 12/26/28.............. 2,134
5,000 JPMC, Series 96-C2, Class B, 6.80%,
11/25/27......................... 5,113
5,000 MLMI, Series 97-C2 A2, 6.54%,
12/10/29......................... 5,140
4,000 Mortgage Capital Funding Inc.,
Series 96-MC2, Class A3, 7.08%,
9/20/06.......................... 4,188
1,740 Prudential Home Mortgage
Securities, 6.50%, 5/25/00....... 1,737
3,022 Wells Fargo Capital Markets, Series
96-1, Class A1, 6.56%,
12/29/05......................... 3,056
--------
Total Other Mortgage Backed Securities 27,267
--------
U.S. GOVERNMENT AGENCY MORTGAGES (40.4%):
Federal Home Loan Mortgage Corp. (15.5%):
9,294 6.50%, 10/1/04, Gold Pool
#M80495.......................... 9,384
2,000 7.00%, 6/15/06, Series #1457-PH,
CMO.............................. 2,035
49 8.00%, 4/1/07, Pool #160022........ 51
806 7.50%, 8/1/08, Gold Pool #G10117... 831
9,622 6.00%, 12/15/08, Series #1624,
CMO.............................. 9,595
2,897 8.50%, 1/1/10, Gold Pool #G10305... 3,019
1,450 8.50%, 1/1/10, Gold Pool #E00356... 1,511
203 7.00%, 8/1/10, Gold Pool #E20187... 208
3,165 7.00%, 9/1/10, Gold Pool #E00393... 3,237
2,873 7.50%, 7/1/11, Gold Pool #E20253... 2,964
8,733 7.00%, 9/1/12, Gold Pool #E00506... 8,896
6,753 6.50%, 1/1/13, Pool #E68904........ 6,799
9,798 6.50%, 4/1/13, Gold Pool #E69986... 9,865
5,029 6.50%, 4/1/13, Pool #E00542........ 5,064
8,000 8.00%, 2/15/20, Gold Series
#1770-PE, CMO.................... 8,185
3,000 6.00%, 4/15/20, Series #1534-F,
CMO.............................. 2,970
540 8.00%, 7/1/20, Gold Pool #A01047... 564
9,440 6.50%, 10/15/21, Series #1590-GA,
CMO.............................. 9,596
25 7.00%, 4/1/22, Pool #D17544........ 26
2,187 8.00%, 8/1/24, Pool #G00245........ 2,270
1,934 8.00%, 11/1/24, Gold Pool
#C00376.......................... 2,007
3,206 7.50%, 8/1/25, Gold Pool #C00414... 3,297
3,362 7.00%, 4/1/26, Pool #C00452........ 3,423
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED
Federal Home Loan Mortgage Corp., continued:
$ 3,107 6.98%, 7/1/26, Pool #785618........ $ 3,127
7,038 7.50%, 1/15/27, Series 1927, CMO... 7,544
9,968 6.50%, 3/1/28, Pool #D87734........ 9,938
--------
116,406
--------
Federal National Mortgage Assoc. (11.4%):
2 6.50%, 12/1/02, Pool #6345......... 2
1,511 8.00%, 9/25/04, Series 91-155G..... 1,544
1,504 6.75%, 12/25/04, Series 93-6C,
CMO.............................. 1,511
10,944 6.88%, 9/1/05, Pool #73192......... 11,408
7,613 6.95%, 4/1/06, Pool #73429......... 8,013
1,500 7.05%, 6/25/06, Series 93-11, Class
G................................ 1,516
515 7.00%, 1/1/07, Pool #145771........ 526
2,500 7.50%, 8/25/07, Series G92-48,
Class H, CMO..................... 2,553
189 7.50%, 11/1/09, Pool #158.......... 195
2,152 7.00%, 6/1/10, Pool #312903........ 2,198
3,741 6.50%, 12/1/10, Pool #322598....... 3,778
1,481 6.50%, 4/1/11, Pool #337903........ 1,496
199 7.50%, 5/1/14, Pool #57930......... 207
513 5.70%, 8/25/16, Series G93-39,
Class A, CMO..................... 508
91 7.00%, 4/1/17, Pool #44696......... 93
459 7.95%, 8/25/19, Series 90-14,
CMO.............................. 468
500 6.25%, 11/25/19, Series G93-32,
Class PG......................... 501
87 8.00%, 3/1/21, Pool #70825......... 91
2,000 5.00%, 5/25/22, Series G93-10,
Class G, CMO..................... 1,911
2,721 7.50%, 11/1/22, Pool #189190....... 2,807
9,700 6.00%, 3/25/23, Series 93-41....... 9,736
1,756 8.00%, 5/1/24, Pool #250066........ 1,825
3,232 8.50%, 7/1/24, Pool #250103........ 3,386
2,245 7.50%, 10/1/24, Pool #303031....... 2,312
754 8.50%, 5/1/25, Pool #308499........ 791
153 7.50%, 5/1/25, Pool #293928........ 158
664 7.50%, 5/1/25, Pool #311810........ 684
930 8.50%, 6/1/25, Pool #315277........ 976
2,763 7.00%, 7/1/25, Pool #290387........ 2,812
3,263 7.00%, 7/1/25, Pool #312931........ 3,321
3,931 7.13%, 6/1/26, Pool #341503........ 4,012
4,611 7.00%, 9/1/27, Pool #313687........ 4,698
9,000 6.00%, 11/1/27, Series 97-79,
Class PE......................... 8,806
--------
84,843
--------
Government National Mortgage Assoc. (13.5%):
3 11.00%, 6/15/99, Pool #110948...... 3
4 11.00%, 3/15/00, Pool #123750...... 4
5 10.00%, 12/15/00, Pool #136214..... 5
44 10.00%, 1/15/01, Pool #145167...... 46
33 10.00%, 1/15/01, Pool #145328...... 34
7 9.00%, 6/15/01, Pool #166985....... 7
1 9.00%, 6/15/01, Pool #164431....... 1
4 9.00%, 6/15/01, Pool #161443....... 4
3 8.50%, 6/15/01, Pool #162447....... 4
32 8.50%, 6/15/01, Pool #137056....... 33
57 6.50%, 6/15/01, Pool #1305......... 57
</TABLE>
Continued
21
<PAGE> 397
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED
Government National Mortgage Assoc., continued:
$ 7 9.00%, 7/15/01, Pool #155822....... $ 7
36 9.00%, 8/15/01, Pool #173460....... 37
49 8.50%, 8/15/01, Pool #164207....... 52
5 9.00%, 9/15/01, Pool #177121....... 5
48 9.00%, 10/15/01, Pool #179852...... 51
6 9.00%, 10/15/01, Pool #185596...... 6
3 9.00%, 10/15/01, Pool #177634...... 4
69 9.00%, 11/15/01, Pool #191819...... 72
8 9.00%, 11/15/01, Pool #174365...... 9
3 8.50%, 11/15/01, Pool #183462...... 3
43 8.50%, 12/15/01, Pool #199182...... 45
35 8.50%, 12/15/01, Pool #199837...... 37
9 8.50%, 12/15/01, Pool #182959...... 10
7 9.00%, 1/15/02, Pool #205001....... 8
40 8.00%, 3/15/02, Pool #210065....... 42
56 8.00%, 3/15/02, Pool #205933....... 59
39 8.50%, 5/15/02, Pool #213776....... 41
23 8.00%, 5/15/02, Pool #203042....... 24
51 8.00%, 5/15/02, Pool #180296....... 53
68 8.50%, 6/15/02, Pool #2297......... 71
30 9.00%, 8/15/02, Pool #232424....... 31
36 9.00%, 10/15/02, Pool #246307...... 38
9 9.00%, 11/15/02, Pool #235553...... 9
3 9.00%, 6/15/03, Pool #247863....... 3
31 8.50%, 9/15/04, Pool #274390....... 32
74 9.00%, 10/15/04, Pool #281655...... 77
47 9.00%, 10/15/04, Pool #229506...... 49
45 8.50%, 10/15/04, Pool #277469...... 47
90 8.50%, 11/15/04, Pool #253471...... 94
70 9.00%, 5/15/05, Pool #288771....... 74
26 9.00%, 6/15/05, Pool #283904....... 27
36 9.00%, 8/15/05, Pool #297031....... 38
29 9.50%, 10/15/05, Pool #291846...... 31
12 9.00%, 10/15/05, Pool #292589...... 12
75 9.00%, 11/15/05, Pool #292610...... 79
33 9.00%, 11/15/05, Pool #299161...... 35
30 9.00%, 12/15/05, Pool #299569...... 32
61 7.50%, 2/15/06, Pool #7855......... 64
70 8.50%, 4/15/06, Pool #307487....... 73
46 7.50%, 6/15/06, Pool #7855......... 48
29 8.00%, 10/15/06, Pool #11503....... 30
55 8.00%, 1/15/07, Pool #14709........ 58
25 7.50%, 4/15/07, Pool #16991........ 26
222 7.50%, 5/15/07, Pool #329528....... 230
62 7.50%, 7/15/07, Pool #17316........ 64
119 7.50%, 8/15/07, Pool #19015........ 124
21 9.00%, 1/15/09, Pool #26076........ 23
111 9.00%, 4/15/09, Pool #30352........ 120
72 8.00%, 5/15/09, Pool #385676....... 74
4,030 6.50%, 7/15/09, Pool #780316....... 4,097
19 8.00%, 8/15/09, Pool #372143....... 20
37 9.50%, 10/15/09, Pool #36582....... 40
543 8.00%, 10/15/09, Pool #380639...... 563
1,249 7.50%, 2/15/12, Pool #393363....... 1,291
1,875 7.50%, 3/15/12, Pool #399163....... 1,938
1,217 7.50%, 3/15/12, Pool #441145....... 1,258
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED
Government National Mortgage Assoc., continued:
$ 39 10.50%, 2/15/13, Pool #6507........ $ 43
2 12.00%, 1/15/15, Pool #112920...... 2
61 9.00%, 8/15/16, Pool #164502....... 66
36 9.50%, 9/15/16, Pool #158201....... 40
15 9.00%, 9/15/16, Pool #168987....... 16
15 9.00%, 9/15/16, Pool #175362....... 16
46 9.00%, 9/15/16, Pool #179044....... 50
57 9.00%, 12/15/16, Pool #198652...... 62
44 9.50%, 1/15/17, Pool #185619....... 48
114 8.50%, 1/15/17, Pool #203625....... 122
23 9.00%, 3/15/17, Pool #180330....... 25
8 8.50%, 3/15/17, Pool #196700....... 8
190 8.50%, 5/15/17, Pool #217536....... 203
9 8.50%, 6/15/17, Pool #188545....... 10
2,179 8.50%, 11/15/17, Pool #780086...... 2,340
141 9.00%, 7/15/18, Pool #226769....... 153
7 9.50%, 9/15/18, Pool #258627....... 8
37 9.50%, 12/15/18, Pool #229531...... 40
27 9.50%, 10/15/19, Pool # 279630..... 29
60 9.00%, 11/15/19, Pool #279649...... 65
129 9.50%, 2/15/20, Pool #281655....... 140
36 9.00%, 2/15/20, Pool #286315....... 39
46 9.50%, 9/15/20, Pool #292918....... 51
37 9.00%, 7/15/21, Pool #311256....... 40
145 8.00%, 4/15/22, Pool #325461....... 151
226 8.00%, 5/15/22, Pool #317346....... 237
77 8.00%, 5/15/22, Pool #320675....... 80
11 8.00%, 5/15/22, Pool #317358....... 12
2,300 8.00%, 7/15/22, Pool #426612....... 2,390
366 8.00%, 7/15/22, Pool #183670....... 382
451 7.50%, 8/15/22, Pool #333881....... 467
1,592 7.00%, 8/15/23, Pool #352108....... 1,625
6,595 7.00%, 9/15/23, Pool #363030....... 6,735
2,240 7.00%, 11/15/23, Pool #352022...... 2,288
8,362 6.50%, 1/15/24, Pool #366706....... 8,406
10,346 7.00%, 2/15/24, Pool #371281....... 10,562
2,917 9.00%, 11/15/24, Pool #780029...... 3,170
1,722 7.50%, 1/15/26, Pool #416874....... 1,778
1,655 7.50%, 3/15/26, Pool #422292....... 1,708
2,487 7.50%, 4/15/26, Pool #426059....... 2,565
1,587 8.00%, 7/15/26, Pool #428509....... 1,649
2,644 7.50%, 11/15/26, Pool #442119...... 2,723
9,615 7.00%, 6/15/27, Pool #780584....... 9,804
3,768 7.50%, 7/15/27, Pool #442119....... 3,876
4,793 7.50%, 7/15/27, Pool #411829....... 4,931
9,975 6.00%, 3/20/28, Pool #2562......... 9,700
10,000 7.00%, 4/15/28, Pool # 426691...... 10,158
--------
100,696
--------
Total U.S. Government Agency Mortgages 301,945
--------
U.S. GOVERNMENT AGENCY SECURITIES (0.1%):
Federal Home Loan Bank (0.1%):
800 7.06%, 2/12/99..................... 807
--------
Total U.S. Government Agency Securities 807
--------
</TABLE>
Continued
22
<PAGE> 398
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (24.7%):
U.S. Treasury Bonds (6.5%):
$ 3,000 10.75%, 5/15/03 (b)................ $ 3,656
13,000 7.50%, 11/15/16 (b)................ 15,608
3,000 8.75%, 5/15/17 (b)................. 4,041
11,000 8.13%, 8/15/19 (b)................. 14,186
10,000 6.25%, 8/15/23 (b)................. 10,715
--------
48,206
--------
U.S. Treasury Inflation Protected Bonds (1.3%):
10,256 3.38%, 1/15/07 (b)................. 9,935
--------
U.S. Treasury Notes (15.9%):
5,000 8.25%, 7/15/98 (b)................. 5,006
4,000 4.75%, 8/31/98 (b)................. 3,998
3,000 8.88%, 11/15/98 (b)................ 3,038
3,000 5.88%, 3/31/99..................... 3,009
6,000 8.00%, 8/15/99 (b)................. 6,163
10,000 7.50%, 10/31/99 (b)................ 10,250
1,000 7.88%, 11/15/99 (b)................ 1,031
16,000 5.63%, 11/30/99 (b)................ 16,027
5,000 7.75%, 1/31/00 (b)................. 5,167
3,000 6.75%, 4/30/00 (b)................. 3,064
6,000 5.88%, 6/30/00 (b)................. 6,044
3,000 6.13%, 7/31/00 (b)................. 3,036
1,000 8.75%, 8/15/00..................... 1,064
5,000 7.75%, 2/15/01 (b)................. 5,268
5,000 6.25%, 10/31/01 (b)................ 5,105
7,000 7.50%, 11/15/01 (b)................ 7,414
7,000 6.25%, 2/28/02 (b)................. 7,159
11,000 5.75%, 8/15/03 (b)................. 11,121
6,000 7.25%, 5/15/04 (b)................. 6,511
5,000 7.25%, 8/15/04 (b)................. 5,438
4,000 7.88%, 11/15/04 (b)................ 4,493
--------
119,406
--------
U.S. Treasury STRIPS (1.0%):
20,000 5/15/16............................ 7,249
--------
Total U.S. Treasury Obligations 184,796
--------
REPURCHASE AGREEMENTS (1.5%):
10,855 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $11,011
various U.S. Government
Securities, 5.63% - 6.10%,
11/30/99 - 6/26/03, market value
$11,073)......................... 10,855
--------
Total Repurchase Agreements 10,855
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL (16.5%):
Master Notes (2.7%):
$ 5,638 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*.................. $ 5,638
3,759 Danaher Corp., 6.68%, 10/9/98*..... 3,759
5,639 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*.................. 5,639
5,075 NationsBanc Capital Markets, 6.70%,
7/1/98*.......................... 5,075
--------
20,111
--------
Put Bonds (1.8%):
5,639 Citicorp, 5.94%, 8/3/98*........... 5,639
3,759 GMAC, 5.85%, 11/10/99*............. 3,764
3,759 Greenwich Capital, 6.11%,
12/13/99*........................ 3,759
--------
13,162
--------
Repurchase Agreements (12.0%):
20,674 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$21,137 various Corporate and
Government Securities,
2.85% - 17.25%, 10/15/02 -
4/15/35, market value $21,470)... 20,674
18,795 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $20,032
various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value
$19,960)......................... 18,795
41,349 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $42,384
various Corporate Bonds,
0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$44,363)......................... 41,349
3,872 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $4,067 Media
One Group Bonds, 0.00%, 10/5/98,
market value $4,067)............. 3,872
4,887 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $30,592
various Government Securities,
0.00% - 10.00%, 12/1/18 - 5/1/24,
market value $5,030)............. 4,887
--------
89,577
--------
Total Short-Term Securities Held as
Collateral 122,850
--------
Total (Cost $848,429) (a) $862,438
========
</TABLE>
Continued
23
<PAGE> 399
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Intermediate Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
- ------------
Percentages indicated are based on net assets of $746,159.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $98. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 16,730
Unrealized depreciation..................................... (2,819)
--------
Net unrealized appreciation................................. $ 13,911
========
</TABLE>
(b) A portion of this security was loaned as of June 30, 1998.
* The interest rate, for this variable rate note, which will change
periodically, is based upon prime rates or an index of market rates. The rate
reflected on the Schedule of Portfolio Investments is the rate in effect at
June 30, 1998.
<TABLE>
<S> <C>
CMO Collateralized Mortgage Obligation
</TABLE>
See notes to financial statements.
24
<PAGE> 400
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Government Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES (73.0%):
Federal Home Loan Mortgage Corp. (27.1%):
$ 7,389 6.00%, 4/15/01, Gold Balloon, Pool
#G50347.......................... $ 7,393
1,000 7.00%, 10/15/06, Series 1150, Class
I................................ 1,023
4,508 7.50%, 4/1/09, Gold Pool #E00315... 4,650
16,500 6.50%, 9/15/09, Series 1838 G,
CMO.............................. 16,723
3,090 8.50%, 1/1/10, Gold Pool #G10305... 3,220
9,849 6.50%, 3/1/13, Pool #E00538........ 9,917
31,272 6.50%, 4/1/13, Pool #E00542........ 31,486
11,912 6.00%, 4/1/13, Pool# E00543........ 11,801
211 9.00%, 10/1/17, Gold Pool
#A00756.......................... 225
169 9.00%, 4/1/18, Gold Pool #A01143... 180
44 9.00%, 10/1/20, Gold Pool
#A01134.......................... 47
55 9.00%, 1/1/21, Gold Pool #A00948... 59
500 7.25%, 2/15/21, Series 1464, CMO... 509
54 9.00%, 4/1/21, Gold Pool #D04193... 58
83 9.00%, 6/1/21, Gold Pool #A01017... 88
86 9.00%, 7/1/21, Gold Pool #A01093... 92
45 9.00%, 9/1/21, Gold Pool #D32271... 48
85 9.00%, 11/1/21, Gold Pool
#D11191.......................... 91
89 9.00%, 11/1/21, Gold Pool
#D11866.......................... 95
52 9.00%, 11/1/21, Gold Pool
#C00078.......................... 56
172 9.00%, 5/1/22, Gold Pool #D19203... 184
75 9.00%, 5/1/22, Gold Pool #D19142... 80
900 7.00%, 8/25/22, Series 13, Class
PL............................... 933
10,000 5.50%, 9/15/22, Series 1367-K...... 9,480
3,729 7.00%, 4/15/23, Pool #348645....... 3,809
6,272 10.00%, 10/15/23, Series 1591 E,
CMO.............................. 7,096
8,837 6.00%, 10/15/23, Series 1785A...... 8,613
17,851 5.00%, 11/15/23, Series 1686 PG,
CMO.............................. 17,161
9,268 6.50%, 1/1/24, Gold Pool #C80091... 9,280
3,636 8.50%, 5/1/24, Gold Pool #G00229... 3,836
3,088 8.50%, 7/1/24, Gold Pool #C00354... 3,235
4,545 7.50%, 9/1/24, Gold Pool #D56307... 4,674
4,835 8.00%, 11/1/24, Gold Pool
#C00376.......................... 5,018
3,206 7.50%, 8/1/25, Gold Pool #C00414... 3,297
3,991 7.00%, 8/1/25, Gold Pool #C00418... 4,066
3,691 8.00%, 9/1/25, Gold Pool #D63705... 3,831
3,823 7.00%, 9/1/25, Gold Pool #D63303... 3,894
8,578 6.50%, 2/1/26, Gold Pool #D68098... 8,578
8,730 6.50%, 3/1/26, Gold Pool #G00453... 8,730
10,733 7.00%, 4/1/26, Gold Pool #D69811... 10,928
4,539 6.50%, 6/1/26, Pool #250575........ 4,532
10,000 6.50%, 10/17/26, Series 1985,
Class PL......................... 10,250
14,975 6.50%, 4/1/28, Gold Pool #D89085... 14,928
10,000 6.50%, 6/1/28, #C10103............. 9,969
--------
244,163
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Federal National Mortgage Assoc. (19.9%):
$ 8,222 6.00%, 3/1/01, Pool #50783......... $ 8,199
6,494 7.00%, 4/1/03, Pool #303876........ 6,585
758 7.50%, 5/1/03, Pool #347175........ 771
1,838 7.50%, 7/1/03, Pool #250656........ 1,870
6,360 7.00%, 7/17/05, Series 97-26 GD.... 6,524
3,227 7.00%, 4/1/08, Pool #211750........ 3,297
8,000 6.00%, 6/25/09, Series 1994-86 PJ,
CMO.............................. 7,975
3,186 7.00%, 7/1/10, Pool #250326........ 3,255
2,172 6.50%, 12/1/10, Pool #332301....... 2,194
12,215 6.00%, 3/1/11, Pool #340683........ 12,147
9,394 6.00%, 1/17/13, Series 98-37 VB,
CMO.............................. 9,256
10,000 6.50%, 6/25/13, Series 94-1 K...... 10,129
3,596 6.35%, 8/25/13, Series 1993-225B
VG, CMO.......................... 3,622
3,429 7.50%, 6/1/14, Pool #250081........ 3,532
2,761 7.50%, 7/1/14, Pool #250082........ 2,844
124 10.00%, 10/1/16, Pool #70110....... 135
5,963 10.00%, 9/1/17, Pool #303969....... 6,477
342 10.00%, 10/1/19, Pool #231675...... 372
8,169 7.00%, 5/25/20, Series 1990-57..... 8,330
216 10.00%, 7/1/20, Pool #050318....... 235
5,584 6.50%, 5/25/21, Series 1992-205 K,
CMO.............................. 5,618
5,000 7.00%, 9/25/21, Series G92-64 K,
CMO.............................. 5,045
374 10.00%, 11/1/21, Pool #208374...... 407
523 10.00%, 11/1/21, Pool #208372...... 569
5,000 6.55%, 12/25/21, Pool #1993-137 PH,
CMO.............................. 5,046
1,000 7.25%, 5/25/22, Series G93-9, Class
K................................ 1,022
800 7.50%, 7/25/22, Series G92-35,
CMO.............................. 823
10,785 6.50%, 2/17/23, Series #G94-12 C,
CMO.............................. 10,545
5,000 6.50%, 5/25/23, Series 1994-110 H,
CMO.............................. 4,985
9,094 6.35%, 12/25/23, Series 1994-43 PJ,
CMO.............................. 9,085
5,042 7.00%, 1/25/24, Series 1994-62 PJ,
CMO.............................. 5,205
7,453 7.00%, 2/1/24, Pool #190257........ 7,590
2,525 9.00%, 12/1/24, Pool #353898....... 2,671
3,905 7.00%, 8/1/25, Pool #315500........ 3,975
19,867 6.50%, 3/1/28, Pool #251613........ 19,786
--------
180,121
--------
Government National Mortgage Assoc. (26.0%):
9 10.00%, 9/15/00, Pool #138814...... 10
7 10.00%, 12/15/00, Pool #136214..... 7
28 8.50%, 6/15/01, Pool #166491....... 29
3 8.50%, 7/15/01, Pool #161997....... 3
</TABLE>
Continued
25
<PAGE> 401
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Government Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Government National Mortgage Assoc., continued:
$ 41 9.50%, 9/15/01, Pool #180786....... $ 43
4 9.00%, 9/15/01, Pool #174330....... 4
52 9.00%, 9/15/01, Pool #166928....... 55
8 9.50%, 11/15/01, Pool #182995...... 9
48 8.50%, 11/15/01, Pool #179383...... 50
37 9.00%, 12/15/01, Pool #187723...... 39
35 8.50%, 12/15/01, Pool #199837...... 37
56 8.00%, 3/15/02, Pool #205933....... 59
133 9.00%, 5/15/03, Pool #154134....... 139
105 9.00%, 6/15/05, Pool #283904....... 110
41 9.00%, 8/15/05, Pool #291836....... 43
37 9.00%, 9/15/05, Pool #292898....... 39
16 9.00%, 9/15/05, Pool #295227....... 17
54 8.00%, 7/15/06, Pool #11337........ 57
26 7.50%, 7/15/07, Pool #17316........ 27
63 8.00%, 8/15/07, Pool #18677........ 66
41 8.00%, 8/15/07, Pool #18539........ 43
209 7.50%, 12/15/07, Pool #338189...... 216
46 9.00%, 11/15/08, Pool #27932....... 49
83 9.00%, 4/15/09, Pool #30352........ 90
13 9.00%, 5/15/09, Pool #32214........ 14
4 9.50%, 7/15/09, Pool #34487........ 4
107 9.50%, 9/15/09, Pool #34878........ 116
32 9.50%, 10/15/09, Pool #36804....... 35
19 11.00%, 11/15/09, Pool #37615...... 21
1 12.00%, 4/15/15, Pool #125262...... 1
12 11.00%, 6/15/15, Pool #130125...... 14
64 9.00%, 5/15/16, Pool #149877....... 70
61 9.00%, 6/15/16, Pool #166130....... 67
12 9.50%, 7/15/16, Pool #166772....... 13
83 9.00%, 7/15/16, Pool #158921....... 90
74 9.50%, 8/15/16, Pool #177531....... 81
129 9.00%, 9/15/16, Pool #179044....... 140
17 9.50%, 1/15/17, Pool #185619....... 18
238 9.00%, 2/15/17, Pool #195058....... 259
237 9.00%, 6/15/17, Pool #219079....... 257
45 9.50%, 8/15/17, Pool #218841....... 49
42 9.50%, 8/15/17, Pool #224015....... 46
20 9.00%, 8/15/17, Pool #225825....... 21
88 9.00%, 6/15/18, Pool #238161....... 95
57 9.50%, 8/15/18, Pool #248390....... 62
19 9.00%, 10/15/18, Pool #253188...... 20
113 9.50%, 12/15/18, Pool #263400...... 123
3 9.00%, 10/15/19, Pool #267676...... 3
54 9.00%, 11/15/19, Pool #162768...... 58
65 9.00%, 1/15/20, Pool #283138....... 70
44 9.00%, 2/15/20, Pool #276157....... 48
123 9.00%, 3/15/20, Pool #285283....... 133
46 9.50%, 9/15/20, Pool #292918....... 51
72 9.50%, 12/15/20, Pool #291865...... 79
242 9.00%, 6/15/21, Pool #307120....... 263
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Government National Mortgage Assoc., continued:
$11,908 9.00%, 8/15/21, Pool #306081....... $ 12,937
3,522 9.00%, 12/15/21, Pool #780284...... 3,783
28 7.50%, 2/15/22, Pool #324025....... 29
402 8.00%, 7/15/22, Pool #321560....... 420
709 7.50%, 8/15/22, Pool #337141....... 733
31 7.00%, 10/15/22, Pool #337175...... 32
191 7.00%, 11/15/22, Pool #323008...... 195
30 7.00%, 12/15/22, Pool #339969...... 31
405 7.00%, 1/15/23, Pool #332022....... 414
388 7.00%, 1/15/23, Pool #342248....... 396
38 7.00%, 1/15/23, Pool #321675....... 38
233 7.00%, 1/15/23, Pool #346214....... 238
372 7.00%, 1/15/23, Pool #341536....... 380
47 7.00%, 3/15/23, Pool #350110....... 48
734 7.00%, 5/15/23, Pool #346572....... 750
692 7.00%, 5/15/23, Pool #351041....... 707
729 7.00%, 5/15/23, Pool #342348....... 744
55 7.00%, 5/15/23, Pool #338005....... 57
615 7.00%, 5/15/23, Pool #221604....... 628
320 6.50%, 5/15/23, Pool #343208....... 321
360 6.50%, 6/15/23, Pool #348677....... 362
50 6.50%, 6/15/23, Pool #358250....... 50
51 6.50%, 6/15/23, Pool #349788....... 51
75 6.50%, 6/15/23, Pool #346624....... 76
491 7.00%, 7/15/23, Pool #360697....... 501
405 7.00%, 7/15/23, Pool #360889....... 414
410 7.00%, 7/15/23, Pool #358382....... 418
787 7.00%, 7/15/23, Pool #346673....... 804
230 7.00%, 7/15/23, Pool #325977....... 235
23 7.00%, 7/15/23, Pool #350709....... 23
173 7.00%, 7/15/23, Pool #357782....... 176
794 7.00%, 7/15/23, Pool #362982....... 811
313 7.00%, 7/15/23, Pool #353569....... 320
28 7.00%, 7/15/23, Pool #354538....... 28
265 6.50%, 7/15/23, Pool #322200....... 266
272 6.50%, 8/15/23, Pool #360738....... 274
144 6.50%, 8/15/23, Pool #360713....... 145
159 6.50%, 8/15/23, Pool #359027....... 160
383 6.50%, 8/15/23, Pool #353137....... 385
544 6.50%, 8/15/23, Pool #356717....... 547
308 6.50%, 8/15/23, Pool #344505....... 309
687 6.50%, 9/15/23, Pool #345375....... 691
49 6.50%, 9/15/23, Pool #339041....... 50
3,278 8.00%, 10/15/23, Pool #354681...... 3,414
206 6.50%, 10/15/23, Pool #345391...... 207
420 6.00%, 10/15/23, Pool #364717...... 413
33 6.00%, 10/15/23, Pool #370006...... 33
388 6.00%, 10/15/23, Pool #345389...... 382
571 6.50%, 11/15/23, Pool #369356...... 574
18 6.50%, 11/15/23, Pool #370927...... 18
569 6.50%, 12/15/23, Pool #369830...... 572
</TABLE>
Continued
26
<PAGE> 402
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Government Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Government National Mortgage Assoc., continued:
$ 134 6.50%, 12/15/23, Pool #349944...... $ 135
32 6.50%, 12/15/23, Pool #370289...... 32
925 6.50%, 12/15/23, Pool #349265...... 930
97 6.50%, 12/15/23, Pool #365740...... 98
556 6.50%, 1/15/24, Pool #379127....... 559
19,918 6.50%, 2/15/24, Pool #354747....... 20,025
341 6.50%, 2/15/24, Pool #389200....... 343
1,165 6.50%, 2/15/24, Pool #362341....... 1,172
271 6.50%, 2/15/24, Pool #370338....... 272
161 6.50%, 2/15/24, Pool #380818....... 162
343 6.50%, 2/15/24, Pool #371999....... 345
933 7.00%, 2/16/24, Series 1996-21,
CMO.............................. 950
371 7.50%, 6/15/24, Pool #388747....... 383
79 7.50%, 6/15/24, Pool #389827....... 81
296 8.00%, 9/15/24, Pool #393908....... 308
2,990 8.00%, 9/15/24, Pool #403212....... 3,113
7,293 9.00%, 11/15/24, Pool #780029...... 7,924
924 7.25%, 12/15/25, Pool #411361...... 948
3,947 7.50%, 3/15/26, Pool #422308....... 4,072
7,845 8.00%, 7/15/26, Pool #412644....... 8,149
10,963 8.00%, 12/20/26, Pool #2344........ 11,329
14,500 6.50%, 6/20/27, Series 1997-19
PJ............................... 14,561
9,209 6.00%, 7/20/27, Pool #80094........ 9,381
15,000 6.25%, 8/20/27, Series 98-1 PD..... 14,939
14,592 8.00%, 10/15/27, Pool# 412336...... 15,130
9,900 7.00%, 12/15/27, Pool # 449494..... 10,065
9,664 7.50%, 1/15/28, Pool #461625....... 9,936
9,905 7.00%, 1/15/28, Pool #462495....... 10,066
14,794 7.50%, 2/15/28, Pool #462562....... 15,205
9,968 6.50%, 3/15/28, Pool #467705....... 9,947
9,990 7.00%, 6/15/28, Pool #472679....... 10,149
15,000 7.50%, 7/1/28...................... 15,389
--------
235,250
--------
Total U.S. Government Agency Mortgages 659,534
--------
U.S. GOVERNMENT AGENCY SECURITIES (16.9%):
Federal Farm Credit Bank (0.6%):
5,000 6.88%, 5/1/00...................... 5,105
--------
Federal Home Loan Bank (2.5%):
2,000 9.25%, 11/25/98.................... 2,029
2,000 9.30%, 1/25/99..................... 2,041
3,000 8.60%, 6/25/99..................... 3,084
10,000 5.91%, 12/23/02.................... 10,076
5,000 6.27%, 1/14/04 (b)................. 5,000
--------
22,230
--------
Federal Home Loan Mortgage Corp. (0.7%):
2,000 6.44%, 1/28/00..................... 2,023
4,500 7.13%, 11/18/02.................... 4,744
--------
6,767
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY SECURITIES, CONTINUED:
Federal National Mortgage Assoc. (6.8%):
$15,000 5.43%, 7/21/98..................... $ 14,955
4,000 8.70%, 6/10/99..................... 4,111
3,000 8.90%, 6/12/00..................... 3,177
3,000 6.20%, 11/12/03.................... 2,994
15,000 7.16%, 5/11/05..................... 16,183
10,000 5.88%, 2/2/06...................... 10,033
10,000 6.70%, 6/19/07..................... 10,593
--------
62,046
--------
Resolution Funding Corp. (3.4%):
25,000 Principal STRIPS, 7/15/20.......... 6,881
50,000 Principal STRIPS, 7/15/20.......... 13,762
25,000 Principal STRIPS, 10/15/20......... 6,781
15,000 Principal STRIPS, 4/15/28.......... 2,692
5,000 Principal STRIPS, 4/15/30 (b)...... 800
--------
30,916
--------
Tennessee Valley Authority (2.9%):
25,000 6.24%, 7/15/45, Putable on 7/15/01
@ 100............................ 25,906
--------
Total U.S. Government Agency Securities 152,970
--------
U.S. TREASURY OBLIGATIONS (11.0%):
U.S. Treasury Bonds (4.7%):
25,000 8.13%, 8/15/19..................... 32,241
10,000 6.13%, 11/15/27 (b)................ 10,721
--------
42,962
--------
U.S. Treasury Notes (4.6%):
1,350 6.75%, 4/30/00..................... 1,379
1,500 6.25%, 5/31/00..................... 1,520
4,500 6.13%, 7/31/00..................... 4,554
2,800 6.25%, 4/30/01..................... 2,853
1,000 7.88%, 8/15/01..................... 1,066
500 6.38%, 8/15/02..................... 515
5,000 5.63%, 12/31/02 (b)................ 5,021
250 6.25%, 2/15/03..................... 257
2,500 6.50%, 8/15/05..................... 2,638
20,700 6.50%, 10/15/06 (b)................ 21,975
--------
41,778
--------
U.S. Treasury STRIPS (1.7%):
5,000 8/15/02 (b)........................ 4,003
50,000 2/15/25 (b)........................ 11,111
--------
15,114
--------
Total U.S. Treasury Obligations 99,854
--------
REPURCHASE AGREEMENTS (0.6%):
5,215 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $5,368
U.S. Treasury Bills, 9/3/98,
market value $5,320)............. 5,215
--------
Total Repurchase Agreements 5,215
--------
</TABLE>
Continued
27
<PAGE> 403
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Government Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL (5.5%):
Repurchase Agreements (5.5%):
$49,499 Paine Webber, 6.15%, 7/1/98
(Collateralized by $49,680
various U.S. Government
Securities, 0.00% - 9.35%,
9/25/98 - 9/18/27, market value
$50,527)......................... $ 49,499
--------
Total Short-Term Securities Held as
Collateral 49,499
--------
Total (Cost $933,275) (a) $967,072
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $903,987.
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows
(amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $34,016
Unrealized depreciation..................................... (219)
-------
Net unrealized appreciation................................. $33,797
=======
</TABLE>
(b) A portion of this security was loaned as of June 30, 1998.
CMO Collateralized Mortgage Obligation
See notes to financial statements.
28
<PAGE> 404
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Income Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
ASSET BACKED SECURITIES (6.4%):
$ 4,927 Advanta Mortgage Loan Trust,
Series 1995-1, Class A5, 8.32%,
12/25/19........................ $ 5,201
5,000 Advanta Mortgage Loan Trust,
Series 1997-2, Class A4, 7.60%,
6/25/27......................... 5,280
4,195 Aircraft Lease Portfolio
Securitization Ltd., Series
1994-1, Class A2, 7.15%,
9/15/04......................... 4,222
1,796 Auto Finance Group, Inc., Series
1997-B, Class C, 7.00%,
2/15/03......................... 1,772
5,000 EQCC Home Loan Trust, Series
1998-2, Class A3F, 6.23%,
3/15/13......................... 5,001
5,000 Greentree Financial Corp., Series
1993-2, Class B, 8.00%,
7/15/18......................... 5,249
5,000 Greentree Financial Corp., Series
1995-10, Class B1, 7.05%,
2/15/27......................... 4,961
4,350 Greentree Financial Corp., Series
1995-2, Class B1, 8.60%,
5/15/26......................... 4,535
5,000 Greentree Home Improvement Loan
Trust, Series 1995-D, Class M1,
6.95%, 9/15/25.................. 5,075
3,000 MBNA, Series 1998-C, 6.35%,
11/15/05........................ 3,000
3,073 Olympic Automobile Receivables
Trust, Series 1994-B, Class A2,
6.85%, 6/15/01.................. 3,132
3,919 Olympic Automobile Receivables
Trust, Series 1995-B, Class A2,
7.35%, 10/15/01................. 3,958
3,000 Team Fleet Financial Corp., Series
1998-2A, Class C, 6.53%,
7/25/02......................... 2,998
5,000 World Omni, Series 1997, Class A7,
6.48%, 12/12/08................. 5,017
----------
Total Asset Backed Securities 59,401
----------
COLLATERALIZED BOND OBLIGATIONS (0.6%):
5,000 Merrill Lynch, 1996 PM1, 7.87%,
12/17/06........................ 5,167
----------
Total Collateralized Bond Obligations 5,167
----------
CORPORATE BONDS (39.3%):
Banking, Finance & Insurance (13.3%):
2,000 American Health Properties, 7.50%,
1/15/07......................... 2,143
9,000 Associates Corp., 8.34%,
11/25/99........................ 9,292
6,000 Associates Corp., 8.15%, 8/1/09... 6,878
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Banking, Finance & Insurance, continued:
$ 5,000 BankAmerica Corp., 9.50%,
4/1/01.......................... $ 5,431
5,000 Bear Stearns Co., Inc., 8.25%,
2/1/02.......................... 5,338
5,000 Bradley Operating, 7.20%,
1/15/08......................... 5,038
6,500 Corestates Capital, 8.00%,
12/15/26........................ 7,141
5,000 Cullen Frost Bank Capital Trust,
8.42%, 2/1/27................... 5,638
5,000 First Chicago Capital Trust,
7.95%, 12/1/26.................. 5,500
2,000 Fleet Financial Group, Inc.,
8.13%, 7/1/04................... 2,190
3,500 Ford Capital BV, 10.13%,
11/15/00........................ 3,815
1,500 Ford Motor Credit Corp., 6.38%,
10/6/00......................... 1,515
3,000 General Motors Acceptance Corp.,
8.40%, 10/15/99................. 3,094
8,000 General Motors Acceptance Corp.,
7.00%, 3/1/00................... 8,129
10,000 Lehman Brothers Holdings, Inc.,
8.88%, 3/1/02................... 10,862
5,000 Lehman Brothers Holdings, Inc.,
11.63%, 5/15/05................. 6,450
5,000 Lehman Brothers Holdings, Inc.,
8.80%, 3/1/15................... 5,969
6,000 Massachusetts Mutual Life
Insurance, 7.50%, 3/1/24,
144A............................ 6,563
5,000 MIC Financial Trust, 8.38%,
2/1/27.......................... 5,525
6,000 Morgan Stanley Dean Witter & Co.,
6.13%, 10/1/03.................. 5,993
5,000 Principal Mutual, 7.88%, 3/1/24... 5,381
5,000 Sun Life Capital Trust, 8.53%,
5/29/49......................... 5,706
----------
123,591
----------
Food Products & Services (0.3%):
2,500 RJR Nabisco Corp., 8.75%,
8/15/05......................... 2,666
----------
Industrial Goods & Services (9.7%):
1,500 Advanced Micro Devices, Inc.,
11.00%, 8/1/03 (b).............. 1,594
5,000 Atlas Copco AB, 6.50%, 4/1/08..... 5,025
5,000 Avon Products Inc., Series 144A,
6.25%, 5/1/03................... 5,038
3,000 Boise Cascade Co., 9.45%,
11/1/09......................... 3,630
4,000 Comcast Cable, 8.38%, 5/1/07,
144A............................ 4,490
1,500 Comcast Cellular Holdings, 9.50%,
5/1/07.......................... 1,569
1,500 D.R. Horton, Inc., 8.38%,
6/15/04......................... 1,511
2,500 Fred Meyer, Inc., 7.38%, 3/1/05... 2,519
2,000 Freeport McMoran, Copper & Gold,
7.50%, 11/15/06................. 1,628
5,000 General Motors Corp., 9.13%,
7/15/01......................... 5,424
3,000 Golden State Petroleum, 8.04%,
2/1/19, 144A.................... 3,191
</TABLE>
Continued
29
<PAGE> 405
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Income Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Industrial Goods & Services, continued:
$ 5,000 Hilton Hotels Corp., 7.95%,
4/15/07......................... $ 5,231
2,500 Loewen Group, Inc., 8.25%,
4/15/03, Callable 4/15/00 @
104.13.......................... 2,591
2,500 Mississippi Chemical Corp., 7.25%,
11/15/17........................ 2,538
4,640 Newmont Gold Co., 8.91%, 1/5/09... 5,185
1,500 Nine West Group, Inc., 8.38%,
8/15/05......................... 1,474
2,500 Northrop-Grumman Corp., 7.00%,
3/1/06.......................... 2,594
4,604 Oslo Seismic Service, 8.28%,
6/1/11, 144A.................... 5,027
2,500 Owens-Illinois, Inc., 7.15%,
5/15/05......................... 2,528
9,000 Penske Truck Leasing, 8.25%,
11/1/99......................... 9,269
1,500 Pride Petroleum Services, Inc.,
9.38%, 5/1/07................... 1,584
5,000 Tele-Commun, Inc., 7.38%,
2/15/00......................... 5,100
1,500 Tenet Healthcare Corp., 8.00%,
1/15/05......................... 1,560
1,500 Terra Industries, 10.50%, 6/15/05,
Callable 6/15/00 @ 105.25 (b)... 1,622
1,500 Trico Marine Services, Inc.,
8.50%, 8/1/05................... 1,470
5,000 U.S. Filter Corp., 6.38%,
5/15/01......................... 5,006
2,000 Wyman-Gordon Co., 8.00%,
12/15/07........................ 2,050
----------
90,448
----------
Real Estate (5.9%):
2,000 Avalon Properties, Inc., 7.38%,
9/15/02......................... 2,070
1,500 Dynex Capital, Inc., 7.88%,
7/15/02......................... 1,524
4,750 Meditrust, Inc., 7.77%, 8/16/02... 4,952
3,000 Meditrust, Inc., 7.82%, 9/10/26... 3,431
3,500 MEPC Finance, Inc., 7.50%,
5/1/03.......................... 3,745
5,000 Security Capital Pacific Trust,
6.95%, 10/15/02................. 5,113
2,500 Security Capital Pacific Trust,
7.15%, 10/15/03................. 2,566
5,000 Security Pacific Corp., 11.00%,
3/1/01.......................... 5,600
5,000 Spieker Properties, Inc., 6.65%,
12/15/00........................ 5,044
4,000 Spieker Properties, Inc., 8.00%,
7/19/05......................... 4,300
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Real Estate, continued:
$ 8,000 Taubman Realty Group, 7.00%,
10/1/03......................... $ 8,109
3,000 Wellsford Residential Property,
7.25%, 8/15/00.................. 3,064
5,000 Western Banktrust REIT, 7.88%,
2/15/04......................... 5,300
----------
54,818
----------
Transportation & Shipping (1.3%):
5,000 Enterprise Rental-A-Car, 6.38%,
5/15/03......................... 5,000
5,000 Union Pacific Co., 9.63%,
12/15/02........................ 5,638
1,500 Viking Star Shipping, 9.63%,
7/15/03......................... 1,571
----------
12,209
----------
Utilities (1.1%):
7,000 NRG Energy Corp., 7.63%, 2/1/06... 7,411
2,819 Salton Sea Funding Corp., 6.69%,
5/30/00......................... 2,847
----------
10,258
----------
Yankee & Eurodollar (7.7%):
5,000 BCH Cayman Islands, 8.25%,
6/15/04 (b)..................... 5,456
4,000 BCH Cayman Islands, 7.50%,
6/15/05......................... 4,240
5,000 Celulosa Arauco, 6.75%,
12/15/03........................ 4,869
12,302 Centra Gas, 10.65%, 12/1/10,
144A............................ 12,702
5,000 China International Trust &
Investing, 9.00%, 10/15/06
(b)............................. 5,056
5,000 China Light & Power Ltd., 7.50%,
4/15/06......................... 4,906
5,000 Coca-Cola Femsa, 8.95%, 11/1/06... 5,056
2,000 Kansalis-Osake Pankki, 9.75%,
12/15/98........................ 2,030
2,000 Petroleos Mexicanos, 8.85%,
9/15/07......................... 1,973
2,500 Petroliam Nasional Berhad, 7.13%,
10/18/06 (b).................... 2,122
4,250 Ras Laffan Gas, 7.63%, 9/15/06,
144A............................ 4,117
5,000 Scotland International Finance,
8.80%, 1/27/04, 144A............ 5,588
4,000 Scotland International Finance,
8.85%, 11/1/06, 144A............ 4,630
</TABLE>
Continued
30
<PAGE> 406
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Income Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Yankee & Eurodollar, continued:
$ 4,000 Termoemcali Funding Corp., 10.13%,
12/15/14, 144A.................. $ 3,770
2,400 Yanacocha, 8.40%, 6/15/04......... 2,381
2,426 Ypf Sociedad Anomima, 7.00%,
10/26/02........................ 2,435
----------
71,331
----------
Total Corporate Bonds 365,321
----------
EQUIPMENT TRUST CERTIFICATES (2.6%):
4,886 Federal Express, Series A-1,
7.85%,
1/30/15......................... 5,313
10,966 Northwest Air Trust, Series 2,
Class A, 9.25%, 12/21/12........ 13,064
4,569 Northwest Air Trust, Series B,
10.23%, 12/21/12................ 5,523
----------
Total Equipment Trust Certificates 23,900
----------
OTHER MORTGAGED BACKED SECURITIES (1.1%):
2,485 BHN, Series 1997-1, Class A2,
7.92%, 7/25/09.................. 2,462
2,750 BHN, Series 1997-2, Class A2,
7.54%, 5/31/17.................. 2,742
5,000 Residential Funding Corp., Series
1996-HS2, Class A4, 7.55%,
9/25/12......................... 5,210
----------
Total Other Mortgaged Backed Securities 10,414
----------
U.S. GOVERNMENT AGENCY MORTGAGES (23.8%):
Federal Home Loan Mortgage Corp. (13.1%):
5,000 7.13%, 7/21/99.................... 5,074
18,000 0.00%, 8/15/02 (b)................ 14,277
3,684 7.00%, 6/1/09, Pool #E00313....... 3,765
6,722 7.50%, 5/1/11, Pool #E00438....... 6,934
6,853 7.00%, 5/1/11, Pool #E00434....... 7,003
6,423 7.00%, 6/1/11, Pool #E64220....... 6,563
19,794 6.50%, 4/1/13, Gold Pool
#E69986......................... 19,931
9,969 6.50%, 5/1/13, Gold Pool
#E70312......................... 10,037
9,967 6.50%, 5/1/13, Pool #E70383....... 10,036
9,506 6.50%, 1/1/24, Gold Pool
#C80091......................... 9,518
965 7.50%, 6/1/24, Pool #C80161....... 993
13,594 7.00%, 9/1/24, Pool #G00271....... 13,849
5,472 7.50%, 10/1/24, Pool #C80245...... 5,627
8,284 7.00%, 11/1/24, Pool #G00278...... 8,439
----------
122,046
----------
Federal National Mortgage Assoc. (7.5%):
6,494 7.00%, 4/1/03, Pool #303865....... 6,585
15,747 8.00%, 12/1/09, Pool #250168...... 16,294
9,903 6.50%, 5/1/13, Pool #251700....... 9,961
15,000 6.00%, 6/1/13, Pool #423196....... 14,841
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGES, CONTINUED:
Federal National Mortgage Assoc., continued:
$ 2,000 8.20%, 3/10/16 (b)................ $ 2,488
8,871 7.50%, 9/1/25, Pool #324179....... 9,137
9,972 6.50%, 4/1/28, Pool #420165....... 9,931
----------
69,237
----------
Government National Mortgage Assoc. (3.2%):
2,552 9.00%, 11/15/24, Pool #780029..... 2,773
7,780 7.50%, 7/15/26, Pool #430999...... 8,018
8,543 7.50%, 7/20/27, Pool #2457........ 8,751
9,860 6.50%, 2/15/28, Pool #460759...... 9,839
----------
29,381
----------
Total U.S. Government Agency Mortgages 220,664
----------
U.S. GOVERNMENT AGENCY SECURITIES (0.6%):
Government Trust Certificate (0.2%):
1,768 Israel, 9.40%, 5/15/02............ 1,830
----------
Tennessee Valley Authority (0.4%):
3,200 8.63%, 11/15/29................... 3,536
----------
Total U.S. Government Agency Securities 5,366
----------
U.S. TREASURY OBLIGATIONS (24.1%):
U.S. Treasury Bonds (8.5%):
2,250 13.38%, 8/15/01 (b)............... 2,751
9,600 11.88%, 11/15/03 (b).............. 12,376
14,000 9.00%, 11/15/18................... 19,460
11,250 8.13%, 8/15/21 (b)................ 14,660
7,125 8.00%, 11/15/21 (b)............... 9,182
17,600 7.13%, 2/15/23 (b)................ 20,817
----------
79,246
----------
U.S. Treasury Notes (13.0%):
15,000 6.25%, 8/31/00 (b)................ 15,222
34,800 6.63%, 6/30/01 (b)................ 35,819
15,000 6.25%, 6/30/02 (b)................ 15,377
30,000 6.25%, 2/15/03 (b)................ 30,880
11,500 6.25%, 2/15/07 (b)................ 12,045
10,000 6.63%, 5/15/07 (b)................ 10,737
----------
120,080
----------
U.S. Treasury STRIPS (2.6%):
85,000 10/15/19.......................... 24,496
----------
Total U.S. Treasury Obligations 223,822
----------
REPURCHASE AGREEMENTS (0.3%):
3,102 Prudential Securities, 6.10%,
7/1/98 (Collateralized by $3,193
U.S. Treasury Bills, 9/3/98,
market value $3,165)............ 3,102
----------
Total Repurchase Agreements 3,102
----------
</TABLE>
Continued
31
<PAGE> 407
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Income Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL (16.0%):
Master Notes (2.6%):
$ 6,835 Bear Stearns Mortgage Capital,
6.77%, 10/9/98*................. $ 6,835
4,557 Danaher Corp., 6.68%, 10/9/98*.... 4,557
6,835 Merrill Lynch Mortgage Capital,
6.75%, 7/23/98*................. 6,835
6,151 NationsBanc Capital Markets,
6.70%, 7/1/98*.................. 6,151
----------
24,378
----------
Put Bonds (1.7%):
6,835 Citicorp, 5.94%, 8/3/98*.......... 6,835
4,557 GMAC, 5.85%, 11/10/99*............ 4,563
4,557 Greenwich Capital, 6.11%,
12/13/99*....................... 4,557
----------
15,955
----------
Repurchase Agreements (11.7%):
25,061 Donaldson, Lufkin & Jenrette,
6.65%, 7/1/98 (Collateralized by
$25,622 various Corporate and
Government Securities,
2.85% - 17.25%,
10/15/02 - 4/15/35, market value
$26,025)........................ 25,061
22,783 Goldman Sachs, 6.65%, 7/1/98
(Collateralized by $24,283
various Corporate Bonds, 0.00%,
7/7/98 - 9/18/98, market value
$24,195)........................ 22,783
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ---------------------------------- ----------
<C> <S> <C>
SHORT-TERM SECURITIES HELD AS COLLATERAL, CONTINUED:
Repurchase Agreements, continued:
$50,121 Lehman Brothers, 6.65%, 7/1/98
(Collateralized by $51,377
various Corporate Bonds,
0.00% - 10.13%,
9/15/99 - 10/17/96, market value
$53,776)........................ $ 50,121
4,694 Lehman Brothers, 6.47%, 7/1/98
(Collateralized by $4,929 Media
One Group Bonds, 0.00%, 10/5/98,
market value $4,929)............ 4,694
5,924 Lehman Brothers, 6.00%, 7/1/98
(Collateralized by $37,083
various Government Securities,
0.00% - 10.00%,
12/1/18 - 5/1/24, market value
$6,098)......................... 5,924
----------
108,583
----------
Total Short-Term Securities Held as
Collateral 148,916
----------
Total (Cost $1,021,032) (a) $1,066,073
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $928,512.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $79. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $46,870
Unrealized depreciation..................................... (1,908)
-------
Net unrealized appreciation................................. $44,962
=======
</TABLE>
(b) A portion of this security was loaned as of June 30, 1998.
* The interest rate for this variable rate note, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect at June 30, 1998.
<TABLE>
<S> <C>
REIT Real Estate Investment Trust
</TABLE>
See notes to financial statements.
32
<PAGE> 408
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
Treasury & Agency Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY (28.2%):
Federal Farm Credit Bank (9.1%):
$ 7,000 7.16%, 5/15/06..................... $ 7,580
3,100 7.60%, 7/24/06..................... 3,447
2,000 5.93%, 7/6/10...................... 2,017
--------
13,044
--------
Federal Home Loan Bank (4.9%):
5,000 6.66%, 6/3/03...................... 5,006
2,000 6.26%, 11/26/03.................... 1,998
--------
7,004
--------
Other U.S. Agencies (14.2%):
4,000 Student Loan Marketing Association,
7.20%, 11/9/00................... 4,132
6,000 Student Loan Marketing Association,
6.00%, 3/5/01.................... 6,000
10,000 Tennessee Valley Authority, 6.13%,
7/15/03.......................... 10,087
--------
20,219
--------
Total U.S. Government Agency 40,267
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
- --------- ----------------------------------- --------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (68.3%):
U.S. Treasury Inflation Protected Bonds (3.5%):
$ 5,128 3.38%, 1/15/07..................... $ 4,968
--------
U.S. Treasury Notes (64.8%):
27,000 7.75%, 11/30/99.................... 27,809
36,000 6.63%, 6/30/01..................... 37,054
8,500 6.25%, 2/28/02 (b)................. 8,694
13,000 7.88%, 11/15/04 (b)................ 14,602
4,000 6.88%, 5/15/06..................... 4,331
--------
92,490
--------
Total U.S. Treasury Obligations 97,458
--------
INVESTMENT COMPANIES (2.5%):
3,627 The One Group Treasury Only Money
Market Fund...................... 3,627
--------
Total Investment Companies 3,627
--------
SHORT-TERM SECURITIES HELD AS COLLATERAL (12.1%):
Repurchase Agreements (12.1%):
$17,229 Paine Webber, 6.15%, 7/1/98
(Collateralized by $17,292
various U.S. Government
Securities, 0.00% - 9.35%,
9/25/98 - 9/18/27, market value
$17,587)......................... 17,229
--------
Total Short-Term Securities Held as
Collateral 17,229
--------
Total (Cost $155,725) (a) $158,581
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $142,769.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $34. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation..................................... $2,894
Unrealized depreciation..................................... (72)
------
Net unrealized appreciation................................. $2,822
======
</TABLE>
(b) A portion of this security was loaned as of June 30, 1998.
See notes to financial statements.
33
<PAGE> 409
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
ULTRA SHORT- LIMITED VOLATILITY INTERMEDIATE
TERM INCOME BOND BOND
FUND FUND FUND
------------ ------------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments, at value....................................... $218,244 $619,416 $762,006
Repurchase agreements, at cost.............................. 3,724 44,829 100,432
-------- -------- --------
Total (cost $221,196; $654,845; $848,429, respectively)..... 221,968 664,245 862,438
Cash........................................................ -- 1 --
Interest receivable......................................... 1,278 6,935 7,536
Receivable from brokers for investments sold................ 401 290 3,001
Receivable for capital shares issued........................ 15 37 311
Prepaid expenses and other assets........................... 1 4 3
-------- -------- --------
TOTAL ASSETS................................................ 223,663 671,512 873,289
-------- -------- --------
LIABILITIES:
Dividends payable........................................... 1,016 2,991 3,821
Payable to brokers for investments purchased................ 5,113 -- --
Payable for capital shares redeemed......................... 6 24 11
Payable for return of collateral received for securities on
loan...................................................... -- 55,051 122,850
Net payable for variation margin on futures contracts....... 15 -- --
Accrued expenses and other payables:
Investment advisory fees.................................. 39 162 209
Administration fees....................................... -- 87 104
12b-1 fees................................................ 10 7 24
Other..................................................... 53 88 111
-------- -------- --------
TOTAL LIABILITIES........................................... 6,252 58,410 127,130
-------- -------- --------
NET ASSETS:
Capital..................................................... 221,218 617,555 736,895
Undistributed (distributions in excess of) net investment
income.................................................... (411) (194) 76
Accumulated undistributed net realized gains (losses) from
investment and futures transactions....................... (4,124) (13,659) (4,821)
Net unrealized appreciation (depreciation) from investments
and futures............................................... 728 9,400 14,009
-------- -------- --------
NET ASSETS.................................................. $217,411 $613,102 $746,159
======== ======== ========
NET ASSETS:
Fiduciary............................................... $188,133 $592,669 $680,800
Class A................................................. 24,747 15,582 44,567
Class B................................................. 4,531 4,851 19,924
Class C................................................. -- -- 868
-------- -------- --------
Total....................................................... $217,411 $613,102 $746,159
======== ======== ========
OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES):
Fiduciary............................................... 19,053 56,405 67,296
Class A................................................. 2,507 1,483 4,392
Class B................................................. 462 459 1,969
Class C................................................. -- -- 86
-------- -------- --------
Total....................................................... 22,022 58,347 73,743
======== ======== ========
Net asset value
Fiduciary Offering and redemption price per share......... $ 9.87 $ 10.51 $ 10.12
======== ======== ========
Class A Redemption price per share........................ $ 9.87 $ 10.50 $ 10.15
======== ======== ========
Maximum sales charge.................................... 3.00% 3.00% 4.50%
======== ======== ========
Maximum offering price (100%/(100%--maximum sales
charge) of net asset value adjusted to nearest cent)
per share............................................. $ 10.18 $ 10.82 $ 10.63
======== ======== ========
Class B Offering price per share (a)...................... $ 9.81 $ 10.57 $ 10.12
======== ======== ========
Class C Offering price per share (a)...................... $ -- $ -- $ 10.14
======== ======== ========
</TABLE>
- ------------
(a) Redemption price per Class B and Class C shares varies based on length of
time shares are held.
See notes to financial statements.
34
<PAGE> 410
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
GOVERNMENT INCOME TREASURY &
BOND BOND AGENCY
FUND FUND FUND
---------- -------- ----------
<S> <C> <C> <C>
ASSETS:
Investments, at value....................................... $912,358 $954,388 $141,352
Repurchase agreements, at cost.............................. 54,714 111,685 17,229
-------- -------- --------
Total (cost $933,275; $1,021,032; $155,725, respectively)... 967,072 1,066,073 158,581
Interest receivable......................................... 6,759 11,508 1,432
Receivable from brokers for investment sold................. -- 5,340 2,165
Receivable for capital shares issued........................ 192 23 579
Deferred organization costs................................. -- -- 2
Prepaid expenses and other assets........................... 5 5 1
-------- -------- --------
TOTAL ASSETS................................................ 974,028 1,082,949 162,760
-------- -------- --------
LIABILITIES:
Dividends payable........................................... 4,401 4,852 679
Payable to brokers for investments purchased................ 15,417 -- 1,999
Payable for capital shares redeemed......................... 6 65 --
Payable for return of collateral received for securities on
loan...................................................... 49,499 148,916 17,229
Accrued expenses and other payables:
Investment advisory fees.................................. 335 305 23
Administration fees....................................... 99 130 8
12b-1 fees................................................ 22 14 14
Other..................................................... 262 155 39
-------- -------- --------
TOTAL LIABILITIES........................................... 70,041 154,437 19,991
-------- -------- --------
NET ASSETS:
Capital..................................................... 884,829 951,477 139,823
Undistributed (distributions in excess of) net investment
income.................................................... (100) 296 --
Accumulated undistributed net realized gains (losses) from
investment and
futures transactions...................................... (14,539) (68,302) 90
Net unrealized appreciation (depreciation) from investments
and futures............................................... 33,797 45,041 2,856
-------- -------- --------
NET ASSETS.................................................. $903,987 $928,512 $142,769
======== ======== ========
NET ASSETS:
Fiduciary............................................... $851,517 $898,263 $ 95,073
Class A................................................. 31,548 14,738 35,213
Class B................................................. 20,922 15,511 12,483
-------- -------- --------
Total....................................................... $903,987 $928,512 $142,769
======== ======== ========
OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES):
Fiduciary............................................... 84,263 94,421 9,425
Class A................................................. 3,122 1,550 3,490
Class B................................................. 2,070 1,617 1,238
-------- -------- --------
Total....................................................... 89,455 97,588 14,153
======== ======== ========
Net asset value
Fiduciary Offering and redemption price per share......... $ 10.11 $ 9.51 $ 10.09
======== ======== ========
Class A Redemption price per share........................ $ 10.11 $ 9.51 $ 10.09
======== ======== ========
Maximum sales charge.................................... 4.50% 4.50% 3.00%
======== ======== ========
Maximum offering price (100%/(100%--maximum sales
charge) of net asset value adjusted to nearest cent)
per share............................................. $ 10.59 $ 9.96 $ 10.40
======== ======== ========
Class B Offering price per share (a)...................... $ 10.11 $ 9.59 $ 10.08
======== ======== ========
</TABLE>
- ------------
(a) Redemption price per Class B and Class C shares varies based on length of
time shares are held.
See notes to financial statements.
35
<PAGE> 411
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
ULTRA SHORT- LIMITED VOLATILITY INTERMEDIATE
TERM INCOME BOND BOND
FUND FUND FUND
------------ ------------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................................ $12,689 $38,915 $45,357
Income from securities lending............................. -- 144 287
------- ------- -------
Total Income............................................... 12,689 39,059 45,644
------- ------- -------
EXPENSES:
Investment advisory fees................................... 1,124 3,580 3,951
Administration fees........................................ 335 977 1,078
12b-1 fees (Class A)....................................... 128 63 110
12b-1 fees (Class B)....................................... 34 49 147
12b-1 fees (Class C)....................................... -- -- 3
Custodian and accounting fees.............................. 32 74 96
Legal and audit fees....................................... 10 24 21
Organization costs......................................... 3 -- --
Trustees' fees and expenses................................ 3 11 10
Transfer agent fees........................................ 47 88 78
Registration and filing fees............................... 67 48 157
Printing costs............................................. 10 36 32
Other...................................................... 4 25 10
------- ------- -------
Total expenses before waivers.............................. 1,797 4,975 5,693
Less waivers............................................... (1,079) (1,730) (1,773)
------- ------- -------
Net Expenses............................................... 718 3,245 3,920
------- ------- -------
Net Investment Income...................................... 11,971 35,814 41,724
------- ------- -------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND
FUTURES:
Net realized gains (losses) from investment and futures
transactions............................................. (446) (2,526) 467
Net change in unrealized appreciation (depreciation) from
investments and futures.................................. 200 4,699 11,026
------- ------- -------
Net realized/unrealized gains (losses) from investments and
futures.................................................. (246) 2,173 11,493
------- ------- -------
Change in net assets resulting from operations............. $11,725 $37,987 $53,217
======= ======= =======
</TABLE>
See notes to financial statements.
36
<PAGE> 412
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
GOVERNMENT INCOME TREASURY &
BOND BOND AGENCY
FUND FUND FUND
---------- ------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................................. $56,100 $61,807 $7,390
Dividend income............................................. -- -- 159
Income from securities lending.............................. 127 280 13
------- ------- ------
Total Income................................................ 56,227 62,087 7,562
------- ------- ------
EXPENSES:
Investment advisory fees.................................... 3,795 5,074 465
Administration fees......................................... 1,381 1,385 190
12b-1 fees (Class A)........................................ 116 51 38
12b-1 fees (Class B)........................................ 152 138 39
Custodian and accounting fees............................... 125 74 8
Legal and audit fees........................................ 34 27 5
Organization costs.......................................... 2 -- 1
Trustees' fees and expenses................................. 17 13 1
Transfer agent fees......................................... 122 80 25
Registration and filing fees................................ 67 114 55
Printing costs.............................................. 55 62 4
Other....................................................... 38 17 2
------- ------- ------
Total expenses before waivers............................... 5,904 7,035 833
Less waivers................................................ (454) (1,720) (374)
------- ------- ------
Net Expenses................................................ 5,450 5,315 459
------- ------- ------
Net Investment Income....................................... 50,777 56,772 7,103
------- ------- ------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND
FUTURES:
Net realized gains (losses) from investment and futures
transactions.............................................. 6,626 (13,587) 430
Net change in unrealized appreciation (depreciation) from
investments and futures................................... 27,673 21,151 1,288
------- ------- ------
Net realized/unrealized gains (losses) from investments and
futures................................................... 34,299 7,564 1,718
------- ------- ------
Change in net assets resulting from operations.............. $85,076 $64,336 $8,821
======= ======= ======
</TABLE>
See notes to financial statements.
37
<PAGE> 413
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
ULTRA SHORT-TERM LIMITED VOLATILITY
INCOME FUND BOND FUND
----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................................. $ 11,971 $ 5,647 $ 35,814 $ 36,887
Net realized gains (losses) from investment and futures
transactions........................................ (446) (269) (2,526) (2,851)
Net change in unrealized appreciation (depreciation)
from investments and futures........................ 200 1,032 4,699 5,502
-------- -------- -------- ---------
Change in net assets resulting from operations........... 11,725 6,410 37,987 39,538
-------- -------- -------- ---------
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income............................. (9,591) (4,769) (34,511) (35,406)
From net realized gains from investment transactions... -- -- -- --
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income............................. (2,049) (761) (1,040) (1,219)
From net realized gains from investment transactions... -- -- -- --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income............................. (177) (94) (263) (262)
From net realized gains from investment transactions... -- -- -- --
DISTRIBUTIONS TO CLASS C SHAREHOLDERS:
From net investment income............................. -- -- -- --
-------- -------- -------- ---------
Change in net assets from shareholder distributions...... (11,817) (5,624) (35,814) (36,887)
-------- -------- -------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................ 210,232 109,550 120,557 117,648
Proceeds from shares issued in conversion.............. 1,303 -- 41,843 --
Dividends reinvested................................... 1,953 790 2,149 3,251
Cost of shares redeemed................................ (142,859) (26,641) (142,574) (165,778)
-------- -------- -------- ---------
Change in net assets from share transactions............. 70,629 83,699 21,975 (44,879)
-------- -------- -------- ---------
Change in net assets..................................... 70,537 84,485 24,148 (42,228)
NET ASSETS:
Beginning of period.................................... 146,874 62,389 588,954 631,182
-------- -------- -------- ---------
End of period.......................................... $217,411 $146,874 $613,102 $ 588,954
======== ======== ======== =========
SHARE TRANSACTIONS:
Issued................................................. 21,267 11,129 11,459 11,253
Issued in conversion................................... 132 -- 3,970 --
Reinvested............................................. 198 81 204 311
Redeemed............................................... (14,453) (2,708) (13,545) (15,866)
-------- -------- -------- ---------
Change in shares......................................... 7,144 8,502 2,088 (4,302)
======== ======== ======== =========
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Amount is less than 1,000.
See notes to financial statements.
38
<PAGE> 414
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND GOVERNMENT BOND FUND INCOME BOND FUND TREASURY & AGENCY FUND
- ----------------------- ----------------------- ----------------------- -----------------------------
JANUARY 20, 1997
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997 1998 1997 (A)
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 41,724 $ 26,017 $ 50,777 $ 46,994 $ 56,772 $ 44,089 $ 7,103 $ 3,196
467 (935) 6,626 (894) (13,587) (280) 430 178
11,026 3,378 27,673 10,875 21,151 6,049 1,288 (341)
- --------- -------- -------- --------- -------- --------- -------- --------
53,217 28,460 85,076 56,975 64,336 49,858 8,821 3,033
- --------- -------- -------- --------- -------- --------- -------- --------
(38,981) (24,622) (48,072) (44,081) (55,018) (42,737) (6,265) (3,196)
-- -- -- -- -- -- (474) --
(1,927) (940) (1,922) (2,290) (951) (828) (626) --(b)
-- -- -- -- -- -- (32) --
(802) (455) (783) (623) (803) (524) (212) --(b)
-- -- -- -- -- -- (12) --
(14) -- -- -- -- -- -- --
- --------- -------- -------- --------- -------- --------- -------- --------
(41,724) (26,017) (50,777) (46,994) (56,772) (44,089) (7,621) (3,196)
- --------- -------- -------- --------- -------- --------- -------- --------
244,229 187,226 252,076 229,453 296,548 224,558 54,786 6,409
55,814 207,582 26,687 -- -- 132,470 -- 113,243
3,150 1,664 2,675 3,881 2,610 4,757 897 --(b)
(119,865) (98,172) (182,629) (199,344) (134,162) (148,078) (24,372) (9,231)
- --------- -------- -------- --------- -------- --------- -------- --------
183,328 298,300 98,809 33,990 164,996 213,707 31,311 110,421
- --------- -------- -------- --------- -------- --------- -------- --------
194,821 300,743 133,108 43,971 172,560 219,476 32,511 110,258
551,338 250,595 770,879 726,908 755,952 536,476 110,258 --
- --------- -------- -------- --------- -------- --------- -------- --------
$746,159 $551,338 $903,987 $ 770,879 $928,512 $ 755,952 $142,769 $110,258
========= ======== ======== ========= ======== ========= ======== ========
24,230 18,923 25,308 23,794 31,146 23,912 5,441 644
5,521 20,926 2,663 -- -- 14,063 -- 11,324
312 169 268 404 274 508 89 --(b)
(11,889) (9,913) (18,328) (20,680) (14,088) (15,750) (2,418) (927)
- --------- -------- -------- --------- -------- --------- -------- --------
18,174 30,105 9,911 3,518 17,332 22,733 3,112 11,041
========= ======== ======== ========= ======== ========= ======== ========
</TABLE>
See notes to financial statements.
39
<PAGE> 415
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS For the Year Ended June 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE
VOLATILITY BOND INCOME BOND
BOND FUND FUND FUND
---------- ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Total investment income.................................. $ 39,059 $ 45,644 $ 62,087
Net expenses............................................. (3,245) (3,920) (5,315)
---------- ----------- -----------
Net investment income (loss).......................... 35,814 41,724 56,772
Adjustments to reconcile net investment income to net cash
provided (used) by operating activities:
(Amortization)/accretion of discount/premium............. (2,611) (1,104) (1,407)
Change in interest and dividends receivable.............. (659) (1,144) (131)
Change in accrued expenses and other payables............ 109 159 168
---------- ----------- -----------
Total adjustments........................................ (3,161) (2,089) (1,370)
---------- ----------- -----------
Net cash provided (used) by operating activities...... 32,653 39,635 55,402
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments............ 2,964,519 5,141,279 5,185,917
Proceeds from sales of long-term investments............. 355,314 383,504 252,284
Purchases of short-term investments...................... (3,004,791) (5,193,473) (5,185,936)
Purchases of long-term investments....................... (333,519) (512,683) (416,548)
Purchases of short-term investments with cash received as
collateral from securities lending.................... (55,051) (122,850) (148,916)
Mark to market of futures................................ -- 30 32
---------- ----------- -----------
Net cash provided (used) by investing activities...... (73,528) (304,193) (313,167)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares issued.............................. 162,120 299,301 296,540
Cost of shares redeemed.................................. (142,553) (119,859) (134,122)
Distributions paid to shareholders....................... (35,891) (40,884) (56,179)
Dividends reinvested..................................... 2,149 3,150 2,610
Collateral received from securities lending.............. 55,051 122,850 148,916
---------- ----------- -----------
Net cash provided (used) by financing activities...... 40,876 264,558 257,765
Net increase (decrease) in cash............................ 1 -- --
Cash at beginning of period................................ -- -- --
---------- ----------- -----------
Cash at end of period...................................... $ 1 $ -- $ --
========== =========== ===========
</TABLE>
See notes to financial statements.
40
<PAGE> 416
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998
1. ORGANIZATION:
The One Group (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company
established as a Massachusetts business trust. The accompanying financial
statements and financial highlights are those of the Ultra Short-Term Income
Fund, the Limited Volatility Bond Fund, the Intermediate Bond Fund, the
Government Bond Fund, the Income Bond Fund, and the Treasury & Agency Fund
(individually a "Fund," collectively the "Funds") only. Each Fund is a
diversified mutual fund.
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
Ultra Short-Term Income Fund A high level of current income consistent with low
volatility of principal by investing in a diversified
portfolio of short-term investment grade securities.
Limited Volatility Bond Fund Current income consistent with the preservation of capital
through investment in high and medium-grade fixed-income
securities.
Intermediate Bond Fund Current income consistent with the preservation of capital
through investments in high and medium-grade fixed-income
securities with intermediate maturities.
Government Bond Fund A high level of current income with liquidity and safety of
principal.
Income Bond Fund A high level of current income by investing primarily in a
diversified portfolio of high, medium and low grade debt
securities.
Treasury & Agency Fund A high level of current income by investing in U.S. Treasury
and other U.S. Agency obligations with a primary, but not
exclusive, focus on issues that produce income exempt from
state income taxes.
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Trust in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
SECURITY VALUATION
Debt securities (other than short-term investments maturing in 60 days or
less), including municipal securities, are valued on the basis of
valuations provided by dealers or by an independent pricing service
approved by the Board of Trustees. Short-term investments maturing in
60 days or less are valued at amortized cost, which approximates market
value. Futures contracts are valued at the settlement price established
each day by the board of trade or an exchange on which they are traded.
Options traded on an exchange are valued using the last sale price or,
in the absence of a sale, the last offering price. Options traded
over-the-counter are valued using dealer-supplied valuations. Invest-
ments for which there are no such quotations or valuations are carried
at fair value as determined by the Fair Value Committee which is
Continued
41
<PAGE> 417
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
comprised of members from Banc One Investment Advisors Corporation (the
"Advisor") and The One Group Services Company (the "Administrator")
under the direction of the Board of Trustees.
REPURCHASE AGREEMENTS
The Funds (except for the Treasury & Agency Fund) may invest in
repurchase agreements with institutions that are deemed by the Advisor
to be of good standing and creditworthy under guidelines established
by the Board of Trustees. Each repurchase agreement is recorded at cost.
The Fund requires that the securities purchased in a repurchase
agreement transaction be transferred to the custodian in a manner
sufficient to enable the Fund to obtain those securities in the event of
a counterparty default. The seller, under the repurchase agreement, is
required to maintain the value of the securities held at not less
than the repurchase price, including accrued interest. Repurchase
agreements are considered to be loans by a fund under the 1940 Act.
WRITTEN OPTIONS
The Funds (except for the Limited Volatility Bond Fund and the Treasury
& Agency Fund) may write covered call or secured put options for
which premiums received are recorded as liabilities and are subsequently
adjusted to the current value of the options written. Premiums received
from writing options which expire are treated as realized gains.
Premiums received from writing options, which are either exercised or
closed, are offset against the proceeds received or amount paid on the
transaction to determine realized gains or losses.
FUTURES CONTRACTS
The Funds (except for the Limited Volatility Bond Fund and the Treasury
& Agency Fund) may enter into futures contracts for the delayed
delivery of securities at a fixed price at some future date or for the
change in the value of a specified financial index over a predetermined
time period. Cash or securities are deposited with brokers in order to
maintain a position. Subsequent payments made or received by the Fund
based on the daily change in the market value of the position are
recorded as unrealized appreciation or depreciation until the contract
is closed out, at which time the appreciation or depreciation is
realized.
INDEXED SECURITIES
The Funds (except for the Limited Volatility Bond Fund and the Treasury
& Agency Fund) may invest in indexed securities whose value is
linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices or other reference instruments.
Indexed securities may be more volatile than the referenced instrument
itself, but any loss is limited to the amount of the original
investment.
MORTGAGE ROLLS
The Funds (except for the Treasury & Agency Fund) may enter into
mortgage "dollar rolls" in which the Fund sells mortgage-backed
securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar securities on a specified
future date. During the roll period, the Fund forgoes principal and
interest paid on the mortgage-backed securities. The Fund is compensated
by fee income or the difference between the current sales price and the
lower forward price for the future purchase.
Continued
42
<PAGE> 418
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
SECURITIES LENDING
To generate additional income, the Funds may lend up to 33% of
securities in which they are invested pursuant to agreements requiring
that the loan be continuously secured by cash, U.S. Government or U.S.
Government Agency securities, shares of an investment trust or mutual
fund, or any combination of cash and such securities as collateral equal
at all times to at least 100% of the market value plus accrued interest
on the securities lent. The Funds continue to earn interest on
securities lent while simultaneously seeking to earn interest on the
investment of collateral. Collateral is marked to market daily to
provide a level of collateral at least equal to the market value of
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 be made only to
borrowers deemed by the Advisor to be of good standing and creditworthy
under guidelines established by the Board of Trustees and when, in the
judgment of the Advisor, the consideration which can be earned currently
from such securities loans justifies the attendant risks. Loans are
subject to termination by the Funds or the borrower at any time, and
are, therefore, not considered to be illiquid investments. As of June
30, 1998, the following Funds had securities with the following market
values on loan (amounts in thousands):
<TABLE>
<CAPTION>
MARKET VALUE MARKET VALUE MARKET VALUE
OF CASH OF NON-CASH OF LOANED
COLLATERAL COLLATERAL SECURITIES
------------ ------------ ------------
<S> <C> <C> <C>
Limited Volatility Bond Fund................ $ 55,051 $85,299 $135,236
Intermediate Bond Fund...................... 122,850 55,018 172,710
Government Bond Fund........................ 49,499 -- 48,395
Income Bond Fund............................ 148,916 58,526 201,185
Treasury & Agency Fund...................... 17,229 -- 16,847
</TABLE>
The loaned securities were fully collateralized by cash, U.S. Government
securities, and commercial paper as of June 30, 1998.
SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are accounted for on a trade date basis. Net
realized gains or losses from sales of securities are determined on the
specific identification cost method. Interest income and expenses are
recognized on the accrual basis. Dividends are recorded on the
ex-dividend date. Interest income, including any discount or premium, is
accrued as earned using the effective interest method.
EXPENSES
Expenses directly attributable to a Fund are charged directly to that
Fund, while the expenses which are attributable to more than one fund of
the Trust are allocated among the respective Funds. Each class of shares
bears its pro-rata portion of expenses attributable to its series, except
that each class separately bears expenses related specifically to that
class, such as distribution fees.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly
for the Funds. Net realized capital gains, if any, are distributed at
least annually. Dividends are declared separately for each class. No
class has preferential dividend rights; differences in per share dividend
rates are due to differences in separate class expenses.
Continued
43
<PAGE> 419
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for mortgage-backed securities,
expiring capital loss carryforwards, and deferrals of certain losses.
Permanent book and tax basis differences have been reclassified among the
components of net assets.
ORGANIZATION COSTS
Costs incurred by the Trust in connection with its organization,
including the fees and expenses of registering and qualifying its shares
for distribution have been deferred and are being amortized using the
straight-line method over a period of five years beginning with the
commencement of each Fund's operations. All such costs, which are
attributable to more than one fund of the Trust, have been allocated
among the respective funds pro-rata, based on the relative net assets of
each Fund. In the event that any of the initial shares are redeemed
during such period by any holder thereof, the related fund will be
reimbursed by such holder for any unamortized organization costs in the
proportion as the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of redemption.
FEDERAL INCOME TAXES
The Trust treats each Fund as a separate entity for Federal income tax
purposes. Each Fund intends to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies as defined in applicable sections of the Internal
Revenue Code, and to make distributions from net investment income and
from net realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
3. SHARES OF BENEFICIAL INTEREST:
The Trust has an unlimited number of shares of beneficial interest, with no
par value, which may, without shareholder approval, be divided into an
unlimited number of series of such shares and any series may be classified or
reclassified into one or more classes. The Trust is registered to offer forty
series and five classes of shares: Fiduciary Class, Class A, Class B, Class C
and Service Class. Currently, the Trust consists of thirty-three active
funds. The Funds are each authorized to issue Fiduciary Class, Class A, Class
B and Class C Shares. Class A Shares are subject to initial sales charges,
imposed at the time of purchase, in accordance with the Funds' prospectus.
Certain redemptions of Class B and Class C Shares are subject to contingent
deferred sales charges in accordance with the Funds' prospectus. As of June
30, 1998, no shareholders were in Class C of the Funds except for the
Intermediate Bond Fund. Shareholders are entitled to one vote for each full
share held and will vote in the aggregate and not by class or series, except
as otherwise expressly required by law or when the Board of Trustees has
determined that the matter to be voted on affects only the interest of
shareholders of a particular class or series. The following is a summary of
transactions in Fund shares for the fiscal years ending June 30, 1998 and
1997.
Continued
44
<PAGE> 420
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
ULTRA SHORT-TERM INCOME FUND LIMITED VOLATILITY BOND FUND
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued........................ $ 185,046 $ 77,614 $ 116,789 $ 111,732
Proceeds from shares issued in conversion.......... 1,303 -- 41,843 --
Dividends reinvested............................... 28 148 1,189 2,151
Cost of shares redeemed............................ (112,580) (21,314) (133,214) (157,344)
--------- -------- --------- ---------
Change in net assets from Fiduciary Share
transactions.................................... $ 73,797 $ 56,448 $ 26,607 $ (43,461)
========= ======== ========= =========
CLASS A SHARES:
Proceeds from shares issued........................ $ 22,649 $ 29,729 $ 2,909 $ 5,026
Dividends reinvested............................... 1,798 578 722 870
Cost of shares redeemed............................ (29,331) (4,720) (8,184) (7,282)
--------- -------- --------- ---------
Change in net assets from Class A Share
transactions.................................... $ (4,884) $ 25,587 $ (4,553) $ (1,386)
========= ======== ========= =========
CLASS B SHARES:
Proceeds from shares issued........................ $ 2,537 $ 2,207 $ 859 $ 890
Dividends reinvested............................... 127 64 238 230
Cost of shares redeemed............................ (948) (607) (1,176) (1,152)
--------- -------- --------- ---------
Change in net assets from Class B Share
transactions.................................... $ 1,716 $ 1,664 $ (79) $ (32)
========= ======== ========= =========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued............................................. 18,717 7,886 11,101 10,686
Issued in conversion............................... 132 -- 3,970 --
Reinvested......................................... 3 15 113 206
Redeemed........................................... (11,387) (2,166) (12,655) (15,059)
--------- -------- --------- ---------
Change in Fiduciary Shares......................... 7,465 5,735 2,529 (4,167)
========= ======== ========= =========
CLASS A SHARES:
Issued............................................. 2,292 3,018 276 482
Reinvested......................................... 182 59 69 83
Redeemed........................................... (2,970) (480) (779) (697)
--------- -------- --------- ---------
Change in Class A Shares........................... (496) 2,597 (434) (132)
========= ======== ========= =========
CLASS B SHARES:
Issued............................................. 258 225 82 85
Reinvested......................................... 13 7 22 22
Redeemed........................................... (96) (62) (111) (110)
--------- -------- --------- ---------
Change in Class B Shares........................... 175 170 (7) (3)
========= ======== ========= =========
</TABLE>
Continued
45
<PAGE> 421
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND GOVERNMENT BOND FUND
--------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued........................... $ 201,043 $172,698 $ 234,966 $ 217,351
Proceeds from shares issued in conversion............. 55,814 207,582 26,687 --
Dividends reinvested.................................. 963 661 720 1,826
Cost of shares redeemed............................... (110,226) (91,579) (167,601) (181,374)
--------- -------- --------- ---------
Change in net assets from Fiduciary Share
transactions....................................... $ 147,594 $289,362 $ 94,772 $ 37,803
========= ======== ========= =========
CLASS A SHARES:
Proceeds from shares issued........................... $ 30,840 $ 9,430 $ 6,410 $ 9,184
Dividends reinvested.................................. 1,554 671 1,363 1,575
Cost of shares redeemed............................... (7,067) (5,173) (12,344) (15,371)
--------- -------- --------- ---------
Change in net assets from Class A Share
transactions....................................... $ 25,327 $ 4,928 $ (4,571) $ (4,612)
========= ======== ========= =========
CLASS B SHARES:
Proceeds from shares issued........................... $ 11,110 $ 5,098 $ 10,700 $ 2,918
Dividends reinvested.................................. 622 332 592 480
Cost of shares redeemed............................... (2,193) (1,420) (2,684) (2,599)
--------- -------- --------- ---------
Change in net assets from Class B Share
transactions....................................... $ 9,539 $ 4,010 $ 8,608 $ 799
========= ======== ========= =========
CLASS C SHARES:
Proceeds from shares issued........................... $ 1,236 $ -- $ -- $ --
Dividends reinvested.................................. 11 -- -- --
Cost of shares redeemed............................... (379) -- -- --
--------- -------- --------- ---------
Change in net assets from Class C Share
transactions....................................... $ 868 $ -- $ -- $ --
========= ======== ========= =========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued................................................ 19,955 17,457 23,598 22,536
Issued in conversion.................................. 5,521 20,926 2,663 --
Reinvested............................................ 95 67 72 190
Redeemed.............................................. (10,935) (9,247) (16,821) (18,817)
--------- -------- --------- ---------
Change in Fiduciary Shares............................ 14,636 29,203 9,512 3,909
========= ======== ========= =========
CLASS A SHARES:
Issued................................................ 3,051 951 640 956
Reinvested............................................ 154 68 137 164
Redeemed.............................................. (699) (522) (1,238) (1,593)
--------- -------- --------- ---------
Change in Class A Shares.............................. 2,506 497 (461) (473)
========= ======== ========= =========
CLASS B SHARES:
Issued................................................ 1,102 515 1,070 302
Reinvested............................................ 62 34 59 50
Redeemed.............................................. (218) (144) (269) (270)
--------- -------- --------- ---------
Change in Class B Shares.............................. 946 405 860 82
========= ======== ========= =========
CLASS C SHARES:
Issued................................................ 122 -- -- --
Reinvested............................................ 1 -- -- --
Redeemed.............................................. (37) -- -- --
--------- -------- --------- ---------
Change in Class C Shares.............................. 86 -- -- --
========= ======== ========= =========
</TABLE>
Continued
46
<PAGE> 422
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
INCOME BOND FUND TREASURY & AGENCY FUND
---------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 20, 1997 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997(A)
------------ ------------ ------------- -------------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
FIDUCIARY SHARES:
Proceeds from shares issued.............. $ 282,984 $ 210,985 $ 7,487 $ 6,235
Proceeds from shares issued in
conversion............................ -- 132,470 -- 113,243
Dividends reinvested..................... 1,242 3,766 373 --(b)
Cost of shares redeemed.................. (124,033) (142,285) (23,978) (9,231)
--------- --------- -------- --------
Change in net assets from Fiduciary Share
transactions.......................... $ 160,193 $ 204,936 $(16,118) $110,247
========= ========= ======== ========
CLASS A SHARES:
Proceeds from shares issued.............. $ 6,801 $ 7,637 $ 34,752 $ 94
Dividends reinvested..................... 770 647 417 --(b)
Cost of shares redeemed.................. (7,302) (4,192) (121) --
--------- --------- -------- --------
Change in net assets from Class A Share
transactions.......................... $ 269 $ 4,092 $ 35,048 $ 94
========= ========= ======== ========
CLASS B SHARES:
Proceeds from shares issued.............. $ 6,763 $ 5,936 $ 12,547 $ 80
Dividends reinvested..................... 598 344 107 --(b)
Cost of shares redeemed.................. (2,827) (1,601) (273) --(b)
--------- --------- -------- --------
Change in net assets from Class B Share
transactions.......................... $ 4,534 $ 4,679 $ 12,381 $ 80
========= ========= ======== ========
SHARE TRANSACTIONS:
FIDUCIARY SHARES:
Issued................................... 29,726 22,470 743 627
Issued in conversion..................... -- 14,063 -- 11,324
Reinvested............................... 131 403 37 --(b)
Redeemed................................. (13,025) (15,133) (2,379) (927)
--------- --------- -------- --------
Change in Fiduciary Shares............... 16,832 21,803 (1,599) 11,024
========= ========= ======== ========
CLASS A SHARES:
Issued................................... 715 814 3,452 9
Reinvested............................... 81 69 41 --(b)
Redeemed................................. (768) (448) (12) --
--------- --------- -------- --------
Change in Class A Shares................. 28 435 3,481 9
========= ========= ======== ========
CLASS B SHARES:
Issued................................... 705 628 1,246 8
Reinvested............................... 62 36 11 --(b)
Redeemed................................. (295) (169) (27) --(b)
--------- --------- -------- --------
Change in Class B Shares................. 472 495 1,230 8
========= ========= ======== ========
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) Amounts are less than 1,000.
Continued
47
<PAGE> 423
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
4. INVESTMENT ADVISORY, ADMINISTRATIVE, AND DISTRIBUTION AGREEMENTS:
The Trust and the Advisor are parties to an investment advisory agreement
under which the Advisor is entitled to receive an annual fee, computed daily
and paid monthly, equal to the following percentages of the Funds' average
net assets: 0.60% of the Income Bond Fund, the Intermediate Bond Fund and the
Limited Volatility Bond Fund; 0.55% of the Ultra Short-Term Income Fund;
0.45% of the Government Bond Fund; and 0.40% of the Treasury & Agency Fund.
The Trust and the Administrator, a wholly-owned subsidiary of The BISYS
Group, Inc., are parties to an administrative agreement under which the
Administrator provides services for a fee that is computed daily and paid
monthly, at an annual rate of 0.20% on the first $1.5 billion of Trust net
assets (excluding the Investor Growth Fund, the Investor Growth & Income
Fund, the Investor Conservative Growth Fund and the Investor Balanced Fund
(the "Investor Funds") and the Treasury Only Money Market Fund and the
Government Money Market Fund (the "Institutional Money Market Funds"); 0.18%
on the next $0.5 billion of Trust net assets (excluding the Investor Funds
and the Institutional Money Market Funds); and 0.16% of Trust net assets
(excluding the Investor Funds and the Institutional Money Market Funds) over
$2 billion. The Advisor also serves as Sub-Administrator to each fund of the
Trust, pursuant to an agreement between the Administrator and the Advisor.
Pursuant to this agreement, the Advisor performs many of the Administrator's
duties, for which the Advisor receives a fee paid by the Administrator.
The Trust and The One Group Services Company (the "Distributor") are parties
to a distribution agreement under which shares of the Funds are sold on a
continuous basis. Class A, Class B, and Class C Shares are subject to a
distribution and shareholder services plan (the "Plans") pursuant to Rule
12b-1 under the 1940 Act. As provided in the Plans, the Trust will pay the
Distributor a fee of 0.35% of the average daily net assets of Class A Shares
of each of the Funds and 1.00% of the average daily net assets of the Class B
and Class C Shares of each of the Funds. Currently, the Distributor has
voluntarily agreed to limit payments under the Plans to 0.25% of average
daily net assets of the Class A Shares of each Fund, 0.75% of average daily
net assets of the Class B Shares of the Ultra Short-Term Income Fund, the
Limited Volatility Bond Fund and the Treasury & Agency Fund, 0.90% of average
daily net assets of the Class B Shares of the Intermediate Bond Fund, the
Government Bond Fund and the Income Bond Fund and 0.90% of the average daily
net assets of the Class C Shares of the Intermediate Bond Fund. Up to 0.25%
of the fees payable under the Plans may be used as compensation for
shareholder services by the Distributor and/or financial institutions and
intermediaries. Fees paid under the Plans may be applied by the Distributor
toward (i) compensation for its services in connection with distribution
assistance or provision of shareholder services; or (ii) payments to
financial institutions and intermediaries such as banks (including affiliates
of the Advisor), brokers, dealers and other institutions, including the
Distributor's affiliates and subsidiaries as compensation for services or
reimbursement of expenses incurred in connection with distribution assistance
or provision of shareholder services. Fiduciary Class Shares of each Fund are
offered without distribution fees. For the year ended June 30, 1998, the
Distributor received $1,877,779 from commissions earned on sales of Class A
Shares and redemptions of Class B and Class C Shares, of which the
Distributor re-allowed $1,866,957 to affiliated broker-dealers of the Funds.
Certain officers of the Trust are affiliated with the Administrator. Such
officers receive no compensation from the Funds for serving in their
respective roles.
Continued
48
<PAGE> 424
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
The Advisor, the Administrator and the Distributor voluntarily agreed to
waive a portion of their fees. For the year ended June 30, 1998, fees in the
following amounts were waived (amounts in thousands):
<TABLE>
<CAPTION>
INVESTMENT 12B-1 FEES
ADVISORY WAIVED
FEES ADMINISTRATION -----------------
WAIVED FEES WAIVED CLASS A CLASS B
------ ----------- ------- -------
<S> <C> <C> <C> <C>
Ultra Short-Term Income Fund.................... $ 698 $335 $37 $ 9
Limited Volatility Bond Fund.................... 1,700 -- 18 12
Intermediate Bond Fund.......................... 1,726 -- 32 15
Government Bond Fund............................ 80 326 33 15
Income Bond Fund................................ 1,691 -- 15 14
Treasury & Agency Fund.......................... 232 121 11 10
</TABLE>
5. SECURITIES TRANSACTIONS:
The cost of security purchases and the proceeds from the sale of securities
(excluding short-term securities and purchased options) during the year ended
June 30, 1998 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
PURCHASES SALES
--------- --------
<S> <C> <C> <C> <C>
Ultra Short-Term Income Fund...................... $162,771 $ 79,715
Limited Volatility Bond Fund...................... 333,519 355,314
Intermediate Bond Fund............................ 512,683 383,504
Government Bond Fund.............................. 839,328 761,985
Income Bond Fund.................................. 416,548 252,284
Treasury & Agency Fund............................ 78,500 51,034
</TABLE>
6. FINANCIAL INSTRUMENTS:
Investing in financial instruments such as written options, futures,
structured notes and indexed securities involves risks in excess of the
amounts reflected in the Statement of Assets and Liabilities. The face or
contract amounts reflect the extent of the involvement the Funds have in the
particular class of instrument. Risks associated with these instruments
include an imperfect correlation between the movements in the price of the
instruments and the price of the underlying securities and interest rates, an
illiquid secondary market for the instruments or inability of counterparties
to perform under the terms of the contract. The Funds enter into these
contracts primarily as a means to hedge against adverse fluctuations in
securities.
7. CONVERSION OF COMMON TRUST FUNDS:
On December 19, 1997, the net assets of certain common trust funds managed by
the Advisor were exchanged in a tax-free conversion for shares of the
corresponding One Group Funds. The transaction was accounted for by a method
followed for tax purposes in a tax-free business combination. The following
is a summary of shares
Continued
49
<PAGE> 425
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
issued, net assets converted, net asset value per share issued and unrealized
appreciation of assets acquired as of the conversion date (amounts in
thousands except per share amounts):
<TABLE>
<CAPTION>
NET ASSET
VALUE
SHARES NET ASSETS PER SHARE UNREALIZED
ISSUED CONVERTED ISSUED APPRECIATION
------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Ultra Short-Term Income Fund..................... 132 $ 1,303 $ 9.89 $ --
Limited Volatility Bond Fund..................... 3,970 41,843 10.54 254
Intermediate Bond Fund........................... 5,521 55,814 10.11 639
Government Bond Fund............................. 2,663 26,687 10.02 127
</TABLE>
On January 20, 1997, the net assets of certain common trust funds managed by
the Advisor were exchanged in a tax-free conversion for shares of the
corresponding One Group Funds. The transaction was accounted for by a method
followed for tax purposes in a tax-free business combination. The following is
a summary of shares issued, net assets converted, net asset value per share
issued and unrealized appreciation of assets acquired as of the conversion
date (amounts in thousands except per share amounts):
<TABLE>
<CAPTION>
NET ASSET
VALUE
SHARES NET ASSETS PER SHARE UNREALIZED
ISSUED CONVERTED ISSUED APPRECIATION
------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Income Bond Fund................................. 14,063 $132,470 $ 9.42 $4,511
Intermediate Bond Fund........................... 20,926 207,582 9.92 1,740
Treasury & Agency Fund........................... 11,324 113,243 10.00 1,909
</TABLE>
8. FEDERAL TAX INFORMATION (UNAUDITED):
The accompanying table below details distributions from long-term capital
gains for the following funds for the fiscal year ended June 30, 1998
(amounts in thousands):
<TABLE>
<CAPTION>
20% 28%
FUND DISTRIBUTION DISTRIBUTIONS
---- ------------ -------------
<S> <C> <C>
Treasury & Agency Fund.................................. $241 $37
</TABLE>
Continued
50
<PAGE> 426
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 1998
At June 30, 1998 the following funds have capital loss carryforwards which are
available to offset future capital gains, if any (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARDS EXPIRES
------------- -------
<S> <C> <C>
Ultra Short-Term Income Fund................................ $ 2,283 2003
Ultra Short-Term Income Fund................................ 1,065 2004
Ultra Short-Term Income Fund................................ 682 2005
Ultra Short-Term Income Fund................................ 139 2006
Limited Volatility Bond Fund................................ 197 2000
Limited Volatility Bond Fund................................ 165 2001
Limited Volatility Bond Fund................................ 443 2002
Limited Volatility Bond Fund................................ 2,720 2003
Limited Volatility Bond Fund................................ 3,301 2004
Limited Volatility Bond Fund................................ 651 2005
Limited Volatility Bond Fund................................ 2,646 2006
Intermediate Bond Fund...................................... 47 2000
Intermediate Bond Fund...................................... 845 2001
Intermediate Bond Fund...................................... 1,321 2002
Intermediate Bond Fund...................................... 1,980 2003
Intermediate Bond Fund...................................... 530 2005
Government Bond Fund........................................ 9,225 2003
Government Bond Fund........................................ 5,314 2004
Income Bond Fund............................................ 50,654 2003
Income Bond Fund............................................ 1,963 2004
Income Bond Fund............................................ 2,229 2006
</TABLE>
Capital losses incurred after October 31 within the Fund's fiscal year may be
deferred and treated as occurring on the first day of the following fiscal
year. The following deferred losses will be treated as arising on the first
day of the fiscal year ended June 30, 1999 (amounts in thousands):
<TABLE>
<CAPTION>
FUND AMOUNT
---- -------
<S> <C>
Limited Volatility Bond Fund................................ $ 3,536
Income Bond Fund............................................ 13,376
</TABLE>
9. SUBSEQUENT EVENTS:
On May 21, 1998, the Board of Trustees approved an agreement and plan of
reorganization and liquidation ("the Plan") with the Marquis Family of Funds
(the "Marquis Funds"). Under the Plan, the assets and liabilities of each
Marquis fund were transferred to a comparable One Group fund. Shares of the
comparable One Group fund were distributed to the Marquis shareholders in a
complete liquidation of each Marquis fund. A special Shareholder Meeting to
approve the plan was held on July 30, 1998. In a tax-free exchange on August
10, 1998, net assets of the Marquis funds were exchanged for shares of a
corresponding fund of The One Group as follows (amounts in thousands):
<TABLE>
<CAPTION>
SHARES NET ASSETS
ONE GROUP FUND ISSUED MARQUIS FUND CONVERTED
-------------- ------- --------------------------- -----------
<S> <C> <C> <C>
Government Bond................... 14,229 Government Securities Fund $144,002
Income Bond....................... 1,784 Strategic Income Bond Fund 16,989
</TABLE>
51
<PAGE> 427
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ULTRA SHORT-TERM INCOME FUND
-------------------------------------------------------
FIDUCIARY
-------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.87 $ 9.79 $ 9.84 $ 9.85 $ 10.03
-------- -------- ------- -------- --------
Investment Activities:
Net investment income..................................... 0.59 0.62 0.62 0.55 0.36
Net realized and unrealized gains (losses) from
investments and futures................................. (0.01) 0.05 (0.07) (0.05) (0.15)
-------- -------- ------- -------- --------
Total from Investment Activities........................ 0.58 0.67 0.55 0.50 0.21
-------- -------- ------- -------- --------
Distributions:
Net investment income..................................... (0.58) (0.59) (0.60) (0.48) (0.37)
In excess of net investment income........................ -- -- -- (0.03) (0.02)
-------- -------- ------- -------- --------
Total Distributions..................................... (0.58) (0.59) (0.60) (0.51) (0.39)
-------- -------- ------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................. $ 9.87 $ 9.87 $ 9.79 $ 9.84 $ 9.85
======== ======== ======= ======== ========
Total Return................................................ 6.00% 7.14% 5.71% 5.14% 2.16%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $188,133 $114,413 $57,276 $ 51,050 $139,593
Ratio of expenses to average net assets................... 0.30% 0.35% 0.45% 0.61% 0.65%
Ratio of net investment income to average net assets...... 5.92% 6.02% 6.20% 5.18% 3.70%
Ratio of expenses to average net assets*.................. 0.81% 0.81% 1.06% 1.01% 0.81%
Ratio of net investment income to average net assets*..... 5.41% 5.56% 5.59% 4.78% 3.54%
Portfolio Turnover (a).................................... 41.15% 70.36% 67.65% 2.91% 242.20%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
52
<PAGE> 428
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ULTRA SHORT-TERM INCOME FUND
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
-------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.87 $ 9.78 $ 9.83 $ 9.84 $ 10.03
------- ------- ------ ------ -------
Investment Activities:
Net investment income..................................... 0.56 0.58 0.58 0.52 0.36
Net realized and unrealized gains (losses) from
investments and futures................................. (0.01) 0.09 (0.06) (0.06) (0.17)
------- ------- ------ ------ -------
Total from Investment Activities........................ 0.55 0.67 0.52 0.46 0.19
------- ------- ------ ------ -------
Distributions:
Net investment income..................................... (0.55) (0.58) (0.57) (0.46) (0.34)
In excess of net investment income........................ -- -- -- (0.01) (0.04)
------- ------- ------ ------ -------
Total Distributions..................................... (0.55) (0.58) (0.57) (0.47) (0.38)
------- ------- ------ ------ -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 9.87 $ 9.87 $ 9.78 $ 9.83 $ 9.84
======= ======= ====== ====== =======
Total Return (Excludes Sales Charge)........................ 5.75% 7.00% 5.42% 4.84% 1.95%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $24,747 $29,643 $3,969 $4,631 $19,053
Ratio of expenses to average net assets................... 0.54% 0.61% 0.70% 0.86% 0.89%
Ratio of net investment income to average net assets...... 5.66% 5.78% 5.95% 4.88% 3.54%
Ratio of expenses to average net assets*.................. 1.15% 1.17% 1.41% 1.36% 1.14%
Ratio of net investment income to average net assets*..... 5.05% 5.22% 5.24% 4.38% 3.29%
Portfolio Turnover (a).................................... 41.15% 70.36% 67.65% 2.91% 242.20%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
53
<PAGE> 429
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ULTRA SHORT-TERM INCOME FUND
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B
----------------------------------------------------
<CAPTION>
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(A)
------ ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.81 $ 9.76 $ 9.84 $ 9.86 $ 9.98
------ ------ ------ ------- -------
Investment Activities:
Net investment income..................................... 0.52 0.54 0.52 0.47 0.12
Net realized and unrealized gains (losses) from
investments and futures................................. (0.01) 0.05 (0.07) (0.04) (0.11)
------ ------ ------ ------- -------
Total from Investment Activities........................ 0.51 0.59 0.45 0.43 0.01
------ ------ ------ ------- -------
Distributions:
Net investment income..................................... (0.51) (0.54) (0.53) (0.45) (0.12)
In excess of net investment income........................ -- -- -- -- (0.01)
------ ------ ------ ------- -------
Total Distributions..................................... (0.51) (0.54) (0.53) (0.45) (0.13)
------ ------ ------ ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 9.81 $ 9.81 $ 9.76 $ 9.84 $ 9.86
====== ====== ====== ======= =======
Total Return (Excludes Sales Charge)........................ 5.32% 6.22% 4.63% 4.77% (0.09%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $4,531 $2,818 $1,144 $ 160 $ 15
Ratio of expenses to average net assets................... 0.99% 1.07% 1.20% 1.31% 1.41%(c)
Ratio of net investment income to average net assets...... 5.23% 5.18% 5.45% 4.91% 3.49%(c)
Ratio of expenses to average net assets*.................. 1.75% 1.81% 2.06% 1.96% 1.83%(c)
Ratio of net investment income to average net assets*..... 4.47% 4.44% 4.59% 4.26% 3.07%(c)
Portfolio Turnover (d).................................... 41.15% 70.36% 67.65% 2.91% 242.20%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
54
<PAGE> 430
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIMITED VOLATILITY BOND FUND
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDUCIARY
--------------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...................................... $ 10.47 $ 10.42 $ 10.53 $ 10.33 $ 10.87
-------- -------- -------- -------- --------
Investment Activities:
Net investment income.................................... 0.63 0.63 0.64 0.60 0.54
Net realized and unrealized gains (losses) from
investments and futures................................ 0.04 0.05 (0.11) 0.19 (0.45)
-------- -------- -------- -------- --------
Total from Investment Activities....................... 0.67 0.68 0.53 0.79 0.09
-------- -------- -------- -------- --------
Distributions:
Net investment income.................................... (0.63) (0.63) (0.64) (0.59) (0.55)
In excess of net investment income....................... -- -- -- -- (0.02)
Net realized gains....................................... -- -- -- -- (0.06)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.63) (0.63) (0.64) (0.59) (0.63)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................ $ 10.51 $ 10.47 $ 10.42 $ 10.53 $ 10.33
======== ======== ======== ======== ========
Total Return............................................... 6.59% 6.75% 5.13% 7.96% 0.79%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................ $592,669 $563,979 $604,916 $410,746 $447,394
Ratio of expenses to average net assets.................. 0.53% 0.51% 0.51% 0.52% 0.50%
Ratio of net investment income to average net assets..... 6.01% 6.06% 6.06% 5.82% 5.10%
Ratio of expenses to average net assets*................. 0.82% 0.81% 0.82% 0.85% 0.85%
Ratio of net investment income to average
net assets*............................................ 5.72% 5.76% 5.75% 5.49% 4.75%
Portfolio Turnover (a)................................... 56.99% 66.61% 75.20% 76.43% 30.61%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
55
<PAGE> 431
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIMITED VOLATILITY BOND FUND
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
---------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 10.46 $ 10.41 $ 10.52 $ 10.32 $ 10.87
------- ------- ------- ------- -------
Investment Activities:
Net investment income..................................... 0.61 0.61 0.63 0.56 0.52
Net realized and unrealized gains (losses) from
investments and futures................................. 0.04 0.05 (0.13) 0.21 (0.46)
------- ------- ------- ------- -------
Total from Investment Activities........................ 0.65 0.66 0.50 0.77 0.06
------- ------- ------- ------- -------
Distributions:
Net investment income..................................... (0.61) (0.61) (0.61) (0.56) (0.51)
In excess of net investment income........................ -- -- -- (0.01) (0.04)
Net realized gains........................................ -- -- -- -- (0.06)
------- ------- ------- ------- -------
Total Distributions..................................... (0.61) (0.61) (0.61) (0.57) (0.61)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.50 $ 10.46 $ 10.41 $ 10.52 $ 10.32
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)........................ 6.32% 6.47% 4.86% 7.67% 0.49%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $15,582 $20,055 $21,343 $12,516 $15,216
Ratio of expenses to average net assets................... 0.78% 0.76% 0.76% 0.77% 0.75%
Ratio of net investment income to average net assets...... 5.77% 5.81% 5.81% 5.57% 4.92%
Ratio of expenses to average net assets*.................. 1.17% 1.16% 1.17% 1.20% 1.20%
Ratio of net investment income to average
net assets*............................................. 5.38% 5.41% 5.40% 5.14% 4.47%
Portfolio Turnover (a).................................... 56.99% 66.61% 75.20% 76.43% 30.61%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
56
<PAGE> 432
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIMITED VOLATILITY BOND FUND
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B
---------------------------------------------------
<CAPTION>
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
------------------------------------ JUNE 30,
1998 1997 1996 1995 1994(A)
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $10.53 $10.49 $10.60 $10.40 $10.78
------ ------ ------ ------ ------
Investment Activities:
Net investment income..................................... 0.58 0.55 0.55 0.53 0.17
Net realized and unrealized gains (losses) from
investments
and futures............................................. 0.04 0.04 (0.10) 0.19 (0.37)
------ ------ ------ ------ ------
Total from Investment Activities........................ 0.62 0.59 0.45 0.72 (0.20)
------ ------ ------ ------ ------
Distributions:
Net investment income..................................... (0.58) (0.55) (0.56) (0.52) (0.15)
In excess of net realized gains........................... -- -- -- -- (0.03)
------ ------ ------ ------ ------
Total Distributions..................................... (0.58) (0.55) (0.56) (0.52) (0.18)
------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD............................................. $10.57 $10.53 $10.49 $10.60 $10.40
====== ====== ====== ====== ======
Total Return (Excludes Sales Charge)........................ 5.98% 5.74% 4.28% 7.18% (1.81%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $4,851 $4,920 $4,923 $2,906 $1,974
Ratio of expenses to average net assets................... 1.11% 1.20% 1.26% 1.28% 1.26%(c)
Ratio of net investment income to average net assets...... 5.44% 5.21% 5.31% 5.10% 4.39%(c)
Ratio of expenses to average net assets*.................. 1.64% 1.81% 1.82% 1.86% 1.86%(c)
Ratio of net investment income to average net assets*..... 4.91% 4.60% 4.75% 4.52% 3.79%(c)
Portfolio Turnover (d).................................... 56.99% 66.61% 75.20% 76.43% 30.61%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
57
<PAGE> 433
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDUCIARY
-------------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.92 $ 9.84 $ 10.01 $ 9.72 $ 10.51
-------- -------- -------- -------- -------
Investment Activities:
Net investment income..................................... 0.64 0.65 0.66 0.66 0.60
Net realized and unrealized gains (losses) from
investments and futures................................. 0.20 0.08 (0.17) 0.29 (0.67)
-------- -------- -------- -------- -------
Total from Investment Activities........................ 0.84 0.73 0.49 0.95 (0.07)
-------- -------- -------- -------- -------
Distributions:
Net investment income..................................... (0.64) (0.65) (0.66) (0.66) (0.60)
In excess of net investment income........................ -- -- -- -- (0.02)
Net realized gains........................................ -- -- -- -- (0.10)
-------- -------- -------- -------- -------
Total Distributions..................................... (0.64) (0.65) (0.66) (0.66) (0.72)
-------- -------- -------- -------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.12 $ 9.92 $ 9.84 $ 10.01 $ 9.72
======== ======== ======== ======== =======
Total Return................................................ 8.71% 7.68% 4.95% 10.15% (0.74%)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $680,800 $522,423 $230,812 $191,216 $98,483
Ratio of expenses to average net assets................... 0.56% 0.54% 0.54% 0.56% 0.32%
Ratio of net investment income to average net assets...... 6.37% 6.63% 6.56% 6.88% 6.04%
Ratio of expenses to average net assets*.................. 0.83% 0.81% 0.87% 0.99% 0.87%
Ratio of net investment income to average net assets*..... 6.10% 6.36% 6.23% 6.45% 5.49%
Portfolio Turnover (a).................................... 60.08% 55.91% 101.06% 99.71% 85.62%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
58
<PAGE> 434
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
---------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
---------------------------------------------
<CAPTION>
NOVEMBER 30,
YEAR ENDED JUNE 30, 1994 TO
----------------------------- JUNE 30,
1998 1997 1996 1995(A)
------- ------- ------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.95 $ 9.87 $ 10.04 $ 9.45
------- ------- ------- ------
Investment Activities:
Net investment income..................................... 0.62 0.63 0.64 0.37
Net realized and unrealized gains (losses) from
investments and futures................................. 0.20 0.08 (0.17) 0.59
------- ------- ------- ------
Total from Investment Activities........................ 0.82 0.71 0.47 0.96
------- ------- ------- ------
Distributions:
Net investment income..................................... (0.62) (0.63) (0.64) (0.37)
------- ------- ------- ------
Total Distributions..................................... (0.62) (0.63) (0.64) (0.37)
------- ------- ------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.15 $ 9.95 $ 9.87 $10.04
======= ======= ======= ======
Total Return (Excludes Sales Charge)........................ 8.47% 7.40% 4.77% 10.29%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $44,567 $18,763 $13,706 $4,941
Ratio of expenses to average net assets................... 0.81% 0.78% 0.79% 0.83%(c)
Ratio of net investment income to average net assets...... 6.12% 6.35% 6.31% 6.64%(c)
Ratio of expenses to average net assets*.................. 1.18% 1.16% 1.22% 1.66%(c)
Ratio of net investment income to average net assets*..... 5.75% 5.97% 5.88% 5.81%(c)
Portfolio Turnover (d).................................... 60.08% 55.91% 101.06% 99.71%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
59
<PAGE> 435
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
---------------------------------------------
<S> <C> <C> <C> <C>
CLASS B
---------------------------------------------
<CAPTION>
NOVEMBER 30,
YEAR ENDED JUNE 30, 1994 TO
----------------------------- JUNE 30,
1998 1997 1996 1995(A)
------- ------- ------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.92 $ 9.83 $ 10.01 $ 9.45
------- ------- ------- ------
Investment Activities:
Net investment income..................................... 0.55 0.56 0.58 0.23
Net realized and unrealized gains (losses) from
investments and futures................................. 0.20 0.09 (0.18) 0.56
------- ------- ------- ------
Total from Investment Activities........................ 0.75 0.65 0.40 0.79
------- ------- ------- ------
Distributions:
Net investment income..................................... (0.55) (0.56) (0.58) (0.23)
------- ------- ------- ------
Total Distributions..................................... (0.55) (0.56) (0.58) (0.23)
------- ------- ------- ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.12 $ 9.92 $ 9.83 $10.01
======= ======= ======= ======
Total Return (Excludes Sales Charge)........................ 7.78% 6.83% 4.10% 8.22%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $19,924 $10,152 $ 6,077 $ 266
Ratio of expenses to average net assets................... 1.46% 1.44% 1.44% 1.51%(c)
Ratio of net investment income to average net assets...... 5.47% 5.71% 5.66% 6.15%(c)
Ratio of expenses to average net assets*.................. 1.83% 1.81% 1.87% 2.34%(c)
Ratio of net investment income to average net assets*..... 5.10% 5.34% 5.23% 5.31%(c)
Portfolio Turnover (d).................................... 60.08% 55.91% 101.06% 99.71%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
60
<PAGE> 436
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
----------------------
CLASS C
----------------------
NOVEMBER 4,
1997 TO
JUNE 30,
1998(A)
----------------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $10.07
------
Investment Activities:
Net investment income..................................... 0.73
Net realized and unrealized gains (losses) from
investments and futures................................. 0.07
------
Total from Investment Activities........................ 0.80
------
Distributions:
Net investment income..................................... (0.73)
------
Total Distributions..................................... (0.73)
------
NET ASSET VALUE,
END OF PERIOD............................................. $10.14
======
Total Return (Excludes Sales Charge)........................ 8.20%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $ 868
Ratio of expenses to average net assets................... 1.46%(c)
Ratio of net investment income to average net assets...... 5.44%(c)
Ratio of expenses to average net assets*.................. 1.82%(c)
Ratio of net investment income to average net assets*..... 5.08%(c)
Portfolio Turnover (d).................................... 60.08%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
61
<PAGE> 437
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDUCIARY
--------------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...................................... $ 9.69 $ 9.56 $ 9.81 $ 9.35 $ 10.15
-------- -------- -------- -------- --------
Investment Activities:
Net investment income.................................... 0.60 0.62 0.62 0.62 0.51
Net realized and unrealized gains (losses) from
investments and futures................................ 0.42 0.13 (0.25) 0.46 (0.77)
-------- -------- -------- -------- --------
Total from Investment Activities....................... 1.02 0.75 0.37 1.08 (0.26)
-------- -------- -------- -------- --------
Distributions:
Net investment income.................................... (0.60) (0.62) (0.62) (0.61) (0.50)
In excess of net investment income....................... -- -- -- (0.01) (0.02)
In excess of net realized gains.......................... -- -- -- -- (0.02)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.60) (0.62) (0.62) (0.62) (0.54)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................ $ 10.11 $ 9.69 $ 9.56 $ 9.81 $ 9.35
======== ======== ======== ======== ========
Total Return............................................... 10.81% 8.10% 3.81% 12.04% (2.73%)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................ $851,517 $724,423 $677,326 $379,826 $209,692
Ratio of expenses to average net assets.................. 0.62% 0.62% 0.68% 0.71% 0.68%
Ratio of net investment income to average net assets..... 6.05% 6.45% 6.34% 6.65% 5.13%
Ratio of expenses to average net assets*................. 0.67% 0.68% 0.69% 0.73% 0.71%
Ratio of net investment income to average net assets*.... 6.00% 6.39% 6.33% 6.63% 5.10%
Portfolio Turnover (a)................................... 91.49% 60.53% 62.70% 106.14% 377.78%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
62
<PAGE> 438
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
-------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1998 1997 1995 1994 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.69 $ 9.56 $ 9.81 $ 9.35 $10.17
------- ------- ------- ------ ------
Investment Activities:
Net investment income..................................... 0.58 0.60 0.60 0.61 0.48
Net realized and unrealized gains (losses) from
investments and futures................................. 0.42 0.13 (0.25) 0.45 (0.79)
------- ------- ------- ------ ------
Total from Investment Activities........................ 1.00 0.73 0.35 1.06 (0.31)
------- ------- ------- ------ ------
Distributions:
Net investment income..................................... (0.58) (0.60) (0.60) (0.59) (0.47)
In excess of net investment income........................ -- -- -- (0.01) (0.02)
In excess of net realized gains........................... -- -- -- -- (0.02)
------- ------- ------- ------ ------
Total Distributions..................................... (0.58) (0.60) (0.60) (0.60) (0.51)
------- ------- ------- ------ ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.11 $ 9.69 $ 9.56 $ 9.81 $ 9.35
======= ======= ======= ====== ======
Total Return (Excludes Sales Charge)........................ 10.54% 7.83% 3.58% 11.84% (3.16%)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $31,548 $34,727 $38,800 $8,130 $1,690
Ratio of expenses to average net assets................... 0.87% 0.87% 0.93% 0.97% 0.92%
Ratio of net investment income to average net assets...... 5.80% 6.20% 6.09% 6.46% 4.84%
Ratio of expenses to average net assets*.................. 1.02% 1.03% 1.04% 1.09% 1.05%
Ratio of net investment income to average net assets*..... 5.65% 6.04% 5.98% 6.34% 4.71%
Portfolio Turnover (a).................................... 91.49% 60.53% 62.70% 106.14% 377.78%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
63
<PAGE> 439
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B
------------------------------------------------------
<CAPTION>
JANUARY 14,
YEAR ENDED JUNE 30, 1994 TO
--------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(A)
------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.69 $ 9.56 $ 9.81 $ 9.35 $10.04
------- ------- ------- ------ ------
Investment Activities:
Net investment income..................................... 0.52 0.54 0.54 0.55 0.18
Net realized and unrealized gains (losses) from
investments and futures................................. 0.42 0.13 (0.25) 0.46 (0.69)
------- ------- ------- ------ ------
Total from Investment Activities........................ 0.94 0.67 0.29 1.01 (0.51)
------- ------- ------- ------ ------
Distributions:
Net investment income..................................... (0.52) (0.54) (0.54) (0.55) (0.16)
In excess of net investment income........................ -- -- -- -- (0.02)
------- ------- ------- ------ ------
Total Distributions..................................... (0.52) (0.54) (0.54) (0.55) (0.18)
------- ------- ------- ------ ------
NET ASSET VALUE,
END OF PERIOD............................................. $ 10.11 $ 9.69 $ 9.56 $ 9.81 $ 9.35
======= ======= ======= ====== ======
Total Return (Excludes Sales Charge)........................ 9.86% 7.14% 2.95% 11.20% (4.99%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $20,922 $11,729 $10,782 $2,513 $ 656
Ratio of expenses to average net assets................... 1.52% 1.52% 1.58% 1.62% 1.52%(c)
Ratio of net investment income to average net assets...... 5.14% 5.55% 5.44% 5.76% 4.60%(c)
Ratio of expenses to average net assets*.................. 1.67% 1.68% 1.69% 1.74% 1.63%(c)
Ratio of net investment income to average net assets*..... 4.99% 5.39% 5.33% 5.64% 4.49%(c)
Portfolio Turnover (d).................................... 91.49% 60.53% 62.70% 106.14% 377.78%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
64
<PAGE> 440
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME BOND FUND
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDUCIARY
--------------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...................................... $ 9.42 $ 9.33 $ 9.54 $ 9.23 $ 10.43
-------- -------- -------- -------- --------
Investment Activities:
Net investment income 0.64 0.64 0.65 0.64 0.54
Net realized and unrealized gains (losses) from
investments and futures................................ 0.09 0.09 (0.21) 0.35 (0.74)
-------- -------- -------- -------- --------
Total from Investment Activities....................... 0.73 0.73 0.44 0.99 (0.20)
-------- -------- -------- -------- --------
Distributions:
Net investment income.................................... (0.64) (0.64) (0.65) (0.64) (0.57)
Net realized gains....................................... -- -- -- (0.04) (0.43)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.64) (0.64) (0.65) (0.68) (1.00)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD............................................ $ 9.51 $ 9.42 $ 9.33 $ 9.54 $ 9.23
======== ======== ======== ======== ========
Total Return............................................... 7.97% 8.10% 4.62% 11.29% (2.54%)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................ $898,263 $730,754 $520,239 $474,124 $560,071
Ratio of expenses to average net assets.................. 0.61% 0.60% 0.59% 0.59% 0.53%
Ratio of net investment income to average net assets..... 6.73% 6.85% 6.76% 6.94% 5.35%
Ratio of expenses to average net assets*................. 0.81% 0.80% 0.81% 0.86% 0.85%
Ratio of net investment income to average net assets*.... 6.53% 6.65% 6.54% 6.67% 5.03%
Portfolio Turnover (a)................................... 30.83% 55.18% 95.52% 262.25% 131.04%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
65
<PAGE> 441
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME BOND FUND
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
---------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.41 $ 9.32 $ 9.54 $ 9.22 $ 10.43
------- ------- ------- ------- -------
Investment Activities:
Net investment income..................................... 0.62 0.62 0.63 0.61 0.52
Net realized and unrealized gains (losses) from
investments and futures................................. 0.10 0.09 (0.23) 0.36 (0.75)
------- ------- ------- ------- -------
Total from Investment Activities........................ 0.72 0.71 0.40 0.97 (0.23)
------- ------- ------- ------- -------
Distributions:
Net investment income..................................... (0.62) (0.62) (0.62) (0.60) (0.55)
In excess of net investment income........................ -- -- -- (0.01) --
Net realized gains........................................ -- -- -- (0.04) (0.43)
------- ------- ------- ------- -------
Total Distributions..................................... (0.62) (0.62) (0.62) (0.65) (0.98)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 9.51 $ 9.41 $ 9.32 $ 9.54 $ 9.22
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge)........................ 7.82% 7.85% 4.26% 10.90% (2.33%)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $14,738 $14,325 $10,127 $ 6,796 $ 5,347
Ratio of expenses to average net assets................... 0.86% 0.85% 0.84% 1.01% 0.78%
Ratio of net investment income to average net assets...... 6.49% 6.59% 6.51% 6.57% 5.25%
Ratio of expenses to average net assets*.................. 1.16% 1.15% 1.16% 1.38% 1.20%
Ratio of net investment income to average net assets*..... 6.19% 6.29% 6.19% 6.20% 4.83%
Portfolio Turnover (a).................................... 30.83% 55.18% 95.52% 262.25% 131.04%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
66
<PAGE> 442
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME BOND FUND
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B
------------------------------------------------------
<CAPTION>
JANUARY 17,
YEAR ENDED JUNE 30, 1994 TO
--------------------------------------- JUNE 30,
1998 1997 1996 1995 1994(A)
------- ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.49 $ 9.40 $ 9.62 $ 9.29 $ 9.97
------- ------- ------ ------- -------
Investment Activities:
Net investment income..................................... 0.56 0.56 0.56 0.56 0.17
Net realized and unrealized gains (losses) from
investments and futures................................. 0.10 0.09 (0.21) 0.38 (0.70)
------- ------- ------ ------- -------
Total from Investment Activities........................ 0.66 0.65 0.35 0.94 (0.53)
------- ------- ------ ------- -------
Distributions:
Net investment income..................................... (0.56) (0.56) (0.57) (0.57) (0.15)
Net realized gains........................................ -- -- -- (0.04) --
------- ------- ------ ------- -------
Total Distributions..................................... (0.56) (0.56) (0.57) (0.61) (0.15)
------- ------- ------ ------- -------
NET ASSET VALUE,
END OF PERIOD............................................. $ 9.59 $ 9.49 $ 9.40 $ 9.62 $ 9.29
======= ======= ====== ======= =======
Total Return (Excludes Sales Charge)........................ 7.13% 7.15% 3.65% 10.63% (5.29%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $15,511 $10,873 $6,110 $ 1,887 $ 723
Ratio of expenses to average net assets................... 1.51% 1.50% 1.49% 1.49% 1.45%(c)
Ratio of net investment income to average net assets...... 5.83% 5.95% 5.86% 6.16% 5.20%(c)
Ratio of expenses to average net assets*.................. 1.81% 1.80% 1.81% 1.86% 1.84%(c)
Ratio of net investment income to average net assets*..... 5.53% 5.65% 5.54% 5.80% 4.81%(c)
Portfolio Turnover (d).................................... 30.83% 55.18% 95.52% 262.25% 131.04%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
67
<PAGE> 443
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TREASURY & AGENCY FUND
----------------------------
FIDUCIARY
----------------------------
YEAR JANUARY 20, 1997
ENDED TO
JUNE 30, JUNE 30,
1998 1997(A)
-------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.99 $ 10.00
------- --------
Investment Activities:
Net investment income..................................... 0.62 0.28
Net realized and unrealized gains (losses) from
investments and futures................................. 0.15 (0.01)
------- --------
Total from Investment Activities........................ 0.77 0.27
------- --------
Distributions:
Net investment income..................................... (0.62) (0.28)
Net realized gains........................................ (0.05) --
------- --------
Total Distributions..................................... (0.67) (0.28)
------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.09 $ 9.99
======= ========
Total Return................................................ 7.91% 2.78%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $95,073 $110,084
Ratio of expenses to average net assets................... 0.35% 0.45%(c)
Ratio of net investment income to average net assets...... 6.16% 6.44%(c)
Ratio of expenses to average net assets*.................. 0.65% 0.78%(c)
Ratio of net investment income to average net assets*..... 5.86% 6.11%(c)
Portfolio Turnover (d).................................... 41.60% 54.44%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
68
<PAGE> 444
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TREASURY & AGENCY FUND
----------------------------
CLASS A
----------------------------
YEAR JANUARY 20, 1997
ENDED TO
JUNE 30, JUNE 30,
1998 1997(A)
-------- ----------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................................... $ 9.98 $10.00
------- ------
Investment Activities: Net investment income................ 0.63 0.29
Net realized and unrealized gains (losses) from
investments and futures................................. 0.16 (0.02)
------- ------
Total from Investment Activities........................ 0.79 0.27
------- ------
Distributions:
Net investment income..................................... (0.63) (0.29)
Net realized gains........................................ (0.05) --
------- ------
Total Distributions..................................... (0.68) (0.29)
------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.09 $ 9.98
======= ======
Total Return (Excludes Sales Charge)........................ 8.10% 2.78%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $35,213 $ 94
Ratio of expenses to average net assets................... 0.58% 0.71%(c)
Ratio of net investment income to average net assets...... 5.87% 6.47%(c)
Ratio of expenses to average net assets*.................. 0.98% 1.15%(c)
Ratio of net investment income to average net assets*..... 5.47% 6.03%(c)
Portfolio Turnover (d).................................... 41.60% 54.44%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
69
<PAGE> 445
- --------------------------------------------------------------------------------
The One Group Family of Mutual Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TREASURY & AGENCY FUND
----------------------------
CLASS B
----------------------------
YEAR JANUARY 20, 1997
ENDED TO
JUNE 30, JUNE 30,
1998 1997(A)
-------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.99 $10.00
------- ------
Investment Activities:
Net investment income..................................... 0.58 0.26
Net realized and unrealized gains (losses) from
investments and futures................................. 0.14 (0.01)
------- ------
Total from Investment Activities........................ 0.72 0.25
------- ------
Distributions:
Net investment income..................................... (0.58) (0.26)
Net realized gains........................................ (0.05) --
------- ------
Total Distributions..................................... (0.63) (0.26)
------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.08 $ 9.99
======= ======
Total Return (Excludes Sales Charge)........................ 7.33% 2.58%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $12,483 $ 80
Ratio of expenses to average net assets................... 1.08% 1.23%(c)
Ratio of net investment income to average net assets...... 5.39% 6.30%(c)
Ratio of expenses to average net assets*.................. 1.63% 1.81%(c)
Ratio of net investment income to average net assets*..... 4.84% 5.72%(c)
Portfolio Turnover (d).................................... 41.60% 54.44%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
See notes to financial statements.
70
<PAGE> 446
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
THE ONE GROUP FAMILY OF MUTUAL FUNDS JUNE 30, 1998
To the Shareholders and Board of Trustees of
The One Group Family of Mutual Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and related statements of operations, of changes
in net assets and of cash flows and the financial highlights present fairly, in
all material respects, the financial position of the Ultra Short-Term Income
Fund, the Limited Volatility Bond Fund, the Intermediate Bond Fund, the
Government Bond Fund, the Income Bond Fund, and the Treasury & Agency Fund (six
series of The One Group Family of Mutual Funds), at June 30, 1998, the results
of each of their operations for the period then ended, the changes in each of
their net assets, and the cash flows of the Limited Volatility Bond Fund, the
Intermediate Bond Fund and the Income Bond Fund for the periods presented and
the financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of The One Group Family of Mutual Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
August 18, 1998
71
<PAGE> 447
Important Customer Information.
Please Read:
Shares of The One Group:
- - are not deposits or obligations
of, or guaranteed by BANC ONE
CORPORATION or its affiliates
- - are not insured or guaranteed by the
FDIC or by any other governmental
agency or government-sponsored
agency of the federal government
or any state
- - are subject to investment risks,
including possible loss of the
principal amount invested.
Banc One Investment Advisors
Corporation, a registered investment
advisor and an indirect subsidiary of
BANC ONE CORPORATION, serves
as an investment advisor to The One
Group, for which it receives advisory
fees. The One Group is distributed by
The One Group Services Company,
3435 Stelzer Road, Columbus,
Ohio 43219, which is not affiliated
with BANC ONE CORPORATION and
is not a bank. Contact us at our web
site address: www.onegroup.com or
e-mail us at [email protected]
For more complete information on
any of The One Group Funds, includ-
ing management fees and expenses,
you may obtain a prospectus from
The One Group Services Company.
Read the prospectus carefully
before investing.
BANC ONE
INVESTMENT
ADVISORS
CORPORATION
[BANC ONE LOGO]
<PAGE> 1
Exhibit 17(f)
Table of Contents
1 Letter to Shareholders
3 Statements of Assets and Liabilities
4 Statements of Operations
5 Statements of Changes in Net Assets
6 Portfolios of Investments
19 Notes to Financial Statements
26 Financial Highlights
SHARES OF THE TRUST ARE NOT
BANK DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED
OR OTHERWISE SUPPORTED BY,
FIRST CHICAGO NBD CORPORATION
OR ITS AFFILIATES, AND ARE NOT
FEDERALLY INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, FEDERAL
DEPOSIT INSURANCE CORPORATION,
OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST
INVOLVES RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO
MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE.
PEGASUS FUNDS
(800) 688-3350
INVESTMENT ADVISER
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, MS 0334
Chicago, IL 60670-0334
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
Pegasus Funds
I
<PAGE> 2
June 30, 1998
Dear Pegasus Shareholder,
We are pleased to present your Semi-Annual Report for the Pegasus Money Market
Funds dated June 30, 1998. As of June 30, 1998 the seven-day annualized SEC
yields for the following Pegasus Funds (A shares) were:
<TABLE>
<CAPTION>
A SHARES
--------
<S> <C>
Money Market Fund................................................... 4.98%
Treasury Money Market Fund.......................................... 4.85%
Municipal Money Market Fund*........................................ 2.89%
Michigan Municipal Money Market Fund*............................... 2.80%
</TABLE>
This report contains the portfolios and financial statements for the Pegasus
Money Market Funds. All of the Funds purchase high quality money market
securities in accordance with their investment objectives and respective
management policies.
The investment adviser to the Pegasus Funds, First Chicago NBD Investment
Management Company, brings you the expertise and heritage of an institution
that has been managing money for over 100 years. We thank you for the
confidence you have expressed by investing in the Pegasus Funds. We will
continue to earn your trust by pursuing an investment strategy which seeks to
provide competitive yields while protecting the value of your principal.
LOGO
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
*The fund's income may be subject to the federal alternative minimum tax.
<PAGE> 3
A MESSAGE FROM THE INVESTMENT ADVISER
June 30, 1998
Dear Pegasus Funds Shareholder,
The year has proven both exciting and rewarding thus far:
Both the stock and bond markets continue to provide excellent returns with the
S&P 500* advancing almost 18 percent, the foreign markets, as measured by the
Morgan Stanley EAFE Index**, advancing 16 percent and Lehman Brothers Aggregate
Index*** (bonds) providing a 4% return. We believe the domestic economic
picture remains healthy as does the European outlook. The primary dark cloud
remains the troubled Asian arena. We look for a continued positive domestic
environment although we do not expect the market to advance as sharply in the
second half of the year.
The Pegasus Family continues to grow with the recent launch of the Short
Municipal Bond Fund and the launch of an extended index fund in August of this
year. At that time the family will offer 9 equity funds, 10 fixed income funds,
9 money market funds, 3 managed asset funds (balanced funds) as well as a fixed
annuity and a group of variable annuity funds.
In May of this year, the parent of the adviser, First Chicago NBD Corp.,
announced plans to merge with BANC ONE CORPORATION. BANC ONE also has a strong
and proven investment management organization which, when combined with your
adviser, should provide an increased variety of investment options supported by
a stronger, more experienced combined organization. As the merger progresses we
will provide you with more information.
The investment adviser to the Pegasus Funds, First Chicago NBD Investment
Management Company, brings to you the expertise and heritage of an institution
that has been managing money for over 100 years. Our investment philosophy is a
simple one: a disciplined investment approach that seeks above average
performance over time while maintaining average risk.
I would like to thank you for the opportunity to serve your investment needs,
we appreciate that there are few greater trusts than the granting of ones'
investment funds to an adviser.
LOGO
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
* The S&P 500 Index is an unmanaged index generally representative of the
U.S. stock market as a whole.
** The Morgan Stanley EAFE Index is an unmanaged index generally
representative of the foreign equity market as a whole.
*** The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
<PAGE> 4
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
----------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $2,680,634,278 $1,060,701,211 $ 797,529,929 $107,175,438
- ------------------------------------------------------------------------------------------
At amortized cost $2,686,224,319 $1,060,324,694 $ 797,027,046 $106,928,580
Cash 148,650 522 340,224 78,181
Receivable for funds
shares sold 8,067,534 -- -- --
Interest receivable 21,421,341 5,753,915 5,623,437 962,806
Prepaids and other 346,829 17,614 -- 26,421
- ------------------------------------------------------------------------------------------
TOTAL ASSETS 2,716,208,673 1,066,096,745 802,990,707 107,995,988
- ------------------------------------------------------------------------------------------
LIABILITIES:
Payable for shares re-
deemed 673,723 -- 1,282,334 --
Payable for securities
purchased -- -- 35,087,500 --
Accrued administration
fees 334,476 123,490 99,691 13,695
Shareholder services
fees payable 709,002 138,125 127,360 20,369
Accrued investment advi-
sory fees 619,104 246,946 199,381 27,391
Accrued transfer agent
fees 77,740 124 985 520
Accrued custodial fees 4,406 733 2,459 827
Dividends payable 5,238,003 3,001,477 1,485,408 184,019
Other payables and ac-
crued expenses -- -- 40,886 --
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 7,656,454 3,510,895 38,326,004 246,821
- ------------------------------------------------------------------------------------------
NET ASSETS $2,708,552,219 $1,062,585,850 $ 764,664,703 $107,749,167
- ------------------------------------------------------------------------------------------
NET ASSET VALUE AND RE-
DEMPTION PRICE PER
SHARE:
CLASS A SHARES:
Net assets $1,167,246,199 $ 219,101,494 $ 209,296,247 $ 37,229,831
Capital shares 1,167,243,404 219,118,222 209,350,372 37,230,395
- ------------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------
CLASS B SHARES:
Net assets $ 1,180,010 $ -- $ -- $ --
Capital shares 1,180,010 -- -- --
- ------------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ -- $ -- $ --
- ------------------------------------------------------------------------------------------
CLASS I SHARES:
Net assets $1,540,126,010 $ 843,484,356 $ 555,368,456 $ 70,519,336
Capital shares 1,540,126,011 843,484,356 555,370,081 70,519,759
- ------------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital shares (unlim-
ited number of shares
authorized, par value
$.10 per share) $ 270,854,942 $ 106,260,258 $ 76,472,045 $ 10,775,015
Additional paid-in capi-
tal 2,437,694,483 956,342,320 688,248,408 96,975,139
Accumulated undistrib-
uted net realized gains
(losses) 2,794 (16,728) (55,750) (987)
- ------------------------------------------------------------------------------------------
TOTAL NET ASSETS $2,708,552,219 $1,062,585,850 $ 764,664,703 $107,749,167
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
3
<PAGE> 5
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME $71,917,199 $27,406,551 $14,588,121 $1,866,367
- -----------------------------------------------------------------------------------
EXPENSES:
Investment advisory
fees 3,505,908 1,369,250 1,213,690 157,388
Administration fees 1,880,394 736,283 606,845 78,694
Transfer agent fees 755,866 47,559 40,585 4,495
Shareholder service
fees (Class A shares) 1,348,770 270,760 259,617 39,892
Shareholder service
fees (Class B shares) 633 -- -- --
12b-1 fees (Class B
shares) 1,900 -- -- --
Professional fees 47,521 24,382 23,795 12,637
Custodial fees 21,841 4,782 12,538 4,038
Registration, filing
fees and other expenses 305,233 66,787 17,694 14,307
Less: Expense reim-
bursement (248,482) -- -- (9,245)
- -----------------------------------------------------------------------------------
NET EXPENSES 7,619,584 2,519,803 2,174,764 302,206
- -----------------------------------------------------------------------------------
NET INVESTMENT INCOME $64,297,615 $24,886,748 $12,413,357 $1,564,161
- -----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
4
<PAGE> 6
PEGASUS MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TREASURY
MONEY MARKET MONEY MARKET
FUND FUND
--------------------------------------------------------------------------
Six Months Six Months
Ended June 30, 1998 Year Ended Ended June 30, 1998 Year Ended
(Unaudited) Dec. 31, 1997 (Unaudited) Dec. 31, 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income.......... $ 64,297,615 $ 123,162,205 $ 24,886,748 $ 53,563,614
Net realized
losses on in-
vestments....... -- -- -- --
- ---------------------------------------------------------------------------------------------
Net increase in
net assets from
operations...... 64,297,615 123,162,205 24,886,748 53,563,614
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME (NOTE 2):
INVESTMENT INCOME
(Note 2):
Class A shares.. (26,909,141) (40,816,984) (5,281,100) (9,126,231)
Class B shares.. (10,730) (15,474) -- --
Class I shares.. (37,377,744) (82,329,747) (19,605,648) (44,437,383)
- ---------------------------------------------------------------------------------------------
Total distribu-
tions to share-
holders......... (64,297,615) (123,162,205) (24,886,748) (53,563,614)
- ---------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold..... 5,154,636,324 9,687,488,060 2,592,778,989 4,728,247,544
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders. 35,568,504 59,792,177 6,966,494 13,617,762
- ---------------------------------------------------------------------------------------------
5,190,204,828 9,747,280,237 2,599,745,483 4,741,865,306
Less: payments
for shares re-
deemed.......... (4,673,684,709) (9,999,101,019) (2,516,882,325) (5,032,144,249)
- ---------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions.... 516,520,119 (251,820,782) 82,863,158 (290,278,943)
- ---------------------------------------------------------------------------------------------
NET INCREASE (DE-
CREASE) IN NET
ASSETS........... 516,520,119 (251,820,782) 82,863,158 (290,278,943)
NET ASSETS:
Beginning of pe-
riod............ 2,192,032,100 2,443,852,882 979,722,692 1,270,001,635
- ---------------------------------------------------------------------------------------------
End of period... $ 2,708,552,219 $ 2,192,032,100 $ 1,062,585,850 $ 979,722,692
- ---------------------------------------------------------------------------------------------
<CAPTION>
MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET
FUND FUND
Six Months Six Months
Ended June 30, 1998 Year Ended Ended June 30, 1998 Year Ended
(Unaudited) Dec. 31, 1997 (Unaudited) Dec. 31, 1997
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income.......... $ 12,413,357 $ 26,737,246 $ 1,564,161 $ 3,911,361
Net realized
losses on in-
vestments....... -- (2,098) -- --
- ---------------------------------------------------------------------------------------------
Net increase in
net assets from
operations...... 12,413,357 26,735,148 1,564,161 3,911,361
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME (NOTE 2):
INVESTMENT INCOME
(Note 2):
Class A shares.. (2,990,748) (5,495,113) (447,240) (1,691,184)
Class B shares.. -- -- -- --
Class I shares.. (9,422,609) (21,242,133) (1,116,921) (2,220,177)
- ---------------------------------------------------------------------------------------------
Total distribu-
tions to share-
holders......... (12,413,357) (26,737,246) (1,564,161) (3,911,361)
- ---------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold..... 933,635,071 2,227,511,937 176,852,564 385,607,333
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders. 3,291,009 6,014,147 447,142 1,688,415
- ---------------------------------------------------------------------------------------------
936,926,080 2,233,526,084 177,299,706 387,295,748
Less: payments
for shares re-
deemed.......... (901,580,522) (2,318,368,395) (173,640,151) (404,815,670)
- ---------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions.... 35,345,558 (84,842,311) 3,659,555 (17,519,922)
- ---------------------------------------------------------------------------------------------
NET INCREASE (DE-
CREASE) IN NET
ASSETS........... 35,345,558 (84,844,409) 3,659,555 (17,519,922)
NET ASSETS:
Beginning of pe-
riod............ 729,319,145 814,163,554 104,089,612 121,609,534
- ---------------------------------------------------------------------------------------------
End of period... $ 764,664,703 $ 729,319,145 $ 107,749,167 $ 104,089,612
- ---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
5
<PAGE> 7
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 8.67%
Allstate Life Insurance Co. Master Note, 5.87%,
7/1/98........................................... $ 10,000,000 $ 10,000,000
Commonwealth Life Insurance Co. Master Note,
5.86%, 7/1/98.................................... 5,000,000 5,000,000
General American Life Funding Agr. Master Note,
5.85%, 7/1/98.................................... 35,500,000 35,500,000
Paccar Leasing, Master Note, 5.93%, 7/1/98........ 15,000,000 15,000,000
Peoples Security Life Insurance Co. Master Note,
5.86%, 7/1/98.................................... 10,000,000 10,000,000
Sunamerica Life Insurance Co. Master Note, 5.83%,
7/1/98........................................... 14,000,000 14,000,000
Sun Life Insurance Co. of America Master Note,
5.79%, 7/1/98.................................... 25,000,000 25,000,000
Lehman Brothers, Revolving Repurchase Agreement,
6.10%, 7/1/98 (secured by various U.S.
Obligations with maturities ranging from 7/1/98
through 5/12/04 at various interest rates ranging
from 0.00% to 9.05%, all held at Chase Bank)..... 36,075,000 36,075,000
Smith Barney, Inc., Revolving Repurchase
Agreement, 6.10%, 7/1/98 (secured by U.S.
Treasury & Agency Obligations with maturities
ranging from 7/7/98 through 4/25/08 at various
interest rates ranging from 0.00% to 9.00%, all
held at The Bank of New York).................... 82,382,000 82,382,000
--------------
232,957,000
--------------
COMMERCIAL PAPER -- 42.17%
Aesop Funding Corp., 5.60%, 8/20/98............... 10,000,000 9,922,222
Akzo Nobel Inc., 5.50%, 7/9/98.................... 10,000,000 9,987,778
Aspen Funding Corp., 6.50%, 7/1/98................ 110,000,000 110,000,000
Atlantic Richfield Corp., 5.55%, 9/14/98.......... 15,000,000 14,826,563
Avnet Inc., 5.50%, 7/24/98........................ 5,000,000 4,982,430
Banca Serfin S.A., 5.65%, 8/31/98................. 30,000,000 29,712,792
Banco Buenos Aires S.A., 5.47%, 9/17/98........... 13,150,000 12,994,151
Banco Real S.A., 5.54%, 8/14/98................... 12,500,000 12,415,361
Barton Capital Corp., 5.55%, 7/17/98.............. 25,573,000 25,509,920
Block Financial Corp.:
5.53%, 7/22/98.................................. 16,762,000 16,707,929
5.53%, 8/27/98.................................. 14,000,000 13,877,418
Cargill Inc., 6.10%, 7/1/98....................... 50,000,000 50,000,000
Cassle Des Depots Et Cosignations, 6.25%, 7/1/98.. 36,000,000 36,000,000
Cendant Residential Inc., 5.60%, 7/27/98.......... 25,000,000 24,898,889
Centre Square Funding Corp. 5.65%, 7/27/98........ 19,595,000 19,515,042
Centric Capital Corp.:
5.55%, 7/20/98.................................. 32,242,000 32,147,558
5.71%, 9/2/98................................... 13,000,000 12,870,098
Commercial Credit Co.:
5.56%, 7/21/98.................................. 15,000,000 14,953,667
5.56%, 7/24/98.................................. 15,000,000 14,946,717
Dairy Investments LTD.:
5.55%, 7/29/98.................................. 10,000,000 9,956,833
5.55%, 8/11/98.................................. 10,000,000 9,936,792
Equipment Funding Inc.:
5.56%, 7/2/98................................... 10,000,000 9,998,456
5.56%, 7/7/98................................... 12,000,000 11,988,880
Explorer Pipeline Co., 5.55%, 7/22/98............. 20,000,000 19,935,250
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
6
<PAGE> 8
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
Glencore Asset Funding:
5.65%, 7/23/98.................................. $ 18,000,000 $ 17,937,850
5.70%, 7/24/98.................................. 9,000,000 8,967,225
Great Lakes Chemical Corp., 5.53%, 8/14/98........ 15,000,000 14,898,617
Greenwich Funding Corp., 5.50%, 7/15/98........... 10,000,000 9,978,611
Greyhawk Funding LLC, 5.75%, 7/23/98.............. 40,000,000 39,859,444
KZH Holding Corp.:
5.65%, 7/17/98.................................. 22,107,000 22,051,487
5.58%, 8/18/98.................................. 24,054,000 23,875,038
5.56%, 9/1/98................................... 15,986,000 15,832,925
Mont Blanc Capital Corp., 5.60%, 7/30/98.......... 23,000,000 22,896,244
Monte Rosa Capital Corp., 5.59%, 8/14/98.......... 10,000,000 9,931,678
Prudential Funding Corp., 6.00%, 7/1/98........... 95,000,000 95,000,000
Sheffield Receivables Corp., 5.56%, 8/25/98....... 17,000,000 16,855,594
Siebe PLC:
5.55%, 7/23/98.................................. 25,000,000 24,915,208
5.54%, 7/28/98.................................. 22,000,000 21,908,590
Sigma Finance Inc., 5.56%, 8/13/98................ 23,000,000 22,847,254
Special Purpose Account Receivable Coop Corp.:
5.50%, 7/8/98................................... 29,000,000 28,968,986
5.55%, 7/16/98.................................. 21,000,000 20,951,438
Sun Belt Dix, Inc.:
5.55%, 7/21/98.................................. 10,400,000 10,367,933
5.55%, 8/25/98.................................. 27,000,000 26,771,062
5.55%, 9/1/98................................... 20,000,000 19,808,833
TI Group, Inc., 5.45%, 7/7/98..................... 13,000,000 12,988,192
Twin Towers Inc., 5.55%, 7/20/98.................. 18,186,000 18,132,730
Unum Corp., 5.60%, 7/21/98........................ 9,000,000 8,972,000
Volkswagen of America:
5.53%, 7/14/98.................................. 20,000,000 19,960,061
5.55%, 7/16/98.................................. 20,000,000 19,953,750
Windmill Funding Corp., 5.50%, 7/13/98............ 20,000,000 19,963,333
Wood Street Funding Inc.:
5.57%, 7/6/98................................... 14,000,000 13,989,169
5.56%, 7/13/98.................................. 16,000,000 15,970,347
--------------
1,132,638,345
--------------
BANKERS ACCEPTANCE NOTES -- 0.75%:
Abbey National Treasury Bank Note, 5.72%, 6/11/99. 8,000,000 7,994,207
National Australia Bank Note, 6.00%, 3/26/99...... 12,200,000 12,222,312
--------------
20,216,519
--------------
CORPORATE NOTES -- 20.12%
CIT Group Holdings, Medium Term Note, 5.875%,
12/15/98......................................... 30,000,000 30,027,751
GE Engine Receivables Trust, (A/R), 5.73%,
2/14/00.......................................... 17,208,378 17,208,378
Morgan Guaranty Trust Co.:
5.93%, 8/31/98.................................. 20,000,000 20,001,948
Key Bank, Senior Note, 5.63%, 2/24/99............. 7,000,000 6,996,863
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
7
<PAGE> 9
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
Key Auto Finance, 5.835%, 1/5/99.................. $ 4,612,565 $ 4,612,565
Merrill Lynch Inc., (A/R), 6.85%.................. 125,000,000 125,000,000
Providian life Insurance Co., Funding Agreement,
5.89%............................................ 40,000,000 40,000,000
Sigma Finance, Medium Term Note:
5.84%, 8/4/98................................... 20,000,000 20,000,000
5.95%, 10/20/98................................. 15,000,000 15,000,000
Strats Trust 1998-C, (A/R), 5.77%, 4/13/99........ 35,000,000 34,999,857
Transamerica Life Insurance Co., Funding
Agreement, 5.85%, 12/9/02........................ 50,000,000 50,000,000
Travelers Life Ins & Annuity Co., Funding
Agreement
5.85%, 11/6/98.................................. 25,000,000 25,000,000
Wachovia Bank, Medium Term Note, 5.895%, 10/2/98.. 10,000,000 9,998,157
Western & Southern Insurance Co., Funding
Agreement, (A/R), 1/29/03........................ 25,000,000 25,000,000
Wheels Inc., Master Note, (A/R), 5.78%, 8/15/98... 75,000,000 75,000,000
Wilmington Trust Co.:
Amtrak 93-A, (A/R), 1/1/11...................... 8,592,429 8,592,429
Amtrak 93-I, (A/R), 1/1/11...................... 10,101,919 10,101,919
Amtrak 93-B, (A/R), 1/1/13...................... 22,977,508 22,977,508
--------------
540,517,375
--------------
CERTIFICATES OF DEPOSIT -- 17.49%
Banque Nationale De Paris:
5.815%, 10/5/98................................. 15,500,000 15,494,903
5.65%, 2/26/99.................................. 27,000,000 26,991,478
Bayerische Wechsel Bank, 5.94%, 10/22/98.......... 20,000,000 19,996,449
Canadian Imperial Bank of Commerce, 5.94%,
10/21/98......................................... 18,000,000 17,996,833
Commerzbank AG:
5.89%, 7/9/98................................... 27,000,000 27,000,018
5.94%, 10/23/98................................. 14,000,000 13,997,492
5.65%, 2/26/99.................................. 7,000,000 6,997,791
5.67%, 3/5/99................................... 15,000,000 14,994,430
Credit Agricole Indosuez, 5.75%, 4/26/99.......... 30,000,000 29,988,237
Crestar Bank, 5.55%, 7/8/98....................... 10,000,000 10,000,000
Deutsche Bank:
5.80%, 9/5/98................................... 22,000,000 21,998,990
5.66%, 4/14/99.................................. 15,000,000 14,987,573
Generale Bank, 6.015%, 12/16/98................... 38,500,000 38,502,541
Norddeutsche Landesbank Girozentrale:
5.9175%, 10/21/98............................... 26,000,000 25,995,996
5.72%, 4/16/99.................................. 23,000,000 22,985,071
Royal Bank of Canada, 5.955%, 8/13/98............. 14,000,000 13,999,291
Societe Generale:
5.945%, 8/28/98................................. 19,000,000 18,998,413
5.92%, 10/21/98................................. 20,000,000 19,996,480
5.58%, 1/22/99 ................................. 10,000,000 9,991,882
Standard Charter Bank, 5.58%, 7/10/98............. 25,000,000 25,000,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
8
<PAGE> 10
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
Swiss Bank Corp.:
5.88%, 11/19/98.................................. $ 32,000,000 $ 31,997,635
5.74%, 6/11/99................................... 19,000,000 18,989,682
Westpac Banking Corp., 5.73%, 4/16/99.............. 23,000,000 22,993,895
--------------
469,895,080
--------------
TIME DEPOSITS -- 10.80%
ABN-Amro Bank N.V., 6.375%, 7/1/98................. 40,000,000 40,000,000
Bank of Tokyo-Mitsubishi, 6.75%, 7/1/98............ 40,000,000 40,000,000
BHF Bank AG, 6.25%, 7/1/98......................... 100,000,000 100,000,000
National Australia Bank, 5.8125%, 7/2/98........... 25,000,000 25,000,000
Norddeutsche Girozentrale Bank, 6.25%, 7/1/98...... 20,000,000 20,000,000
Republic National Bank NY, 6.50%, 7/1/98........... 65,000,000 65,000,000
--------------
290,000,000
--------------
TOTAL INVESTMENTS................................... $2,686,224,319
==============
</TABLE>
A/R -- Adjustable Rate
See Notes to Financial Statements.
Pegasus Funds
9
<PAGE> 11
PEGASUS TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 86.72%
Aubrey Langston Revolving Repurchase Agreement,
5.50%, 7/1/98 (secured by various U.S. Treasury
Notes with maturities ranging from 1/31/00 through
10/31/00 at various interest rates ranging from
5.375% to 7.75%, all held at Chase Bank)............ $30,000,000 $30,000,000
Barclays Inc., Revolving Repurchase Agreement, 5.50%,
7/1/98 (secured by various U.S. Treasury Notes with
maturities ranging from 6/30/99 through 7/31/00 at
various interest rates ranging from 6.125% to 6.75%,
all held at The Bank Of New York)................... 30,000,000 30,000,000
Bear Stearns & Co., Inc., Revolving Repurchase Agree-
ment, 5.90% 7/1/98 (secured by various U.S. Treasury
Obligations with maturities ranging from 8/15/98
through 5/15/08 at various interest rates ranging
from 0.00% to 8.875% all held at the Custodial Trust
Company)............................................ 168,000,000 168,000,000
Dresdner Inc., Revolving Repurchase Agreement, 5.40%,
7/1/98 (secured by U.S. Treasury Note maturing
9/30/98 at an interest of 4.75%, held at Chase
Bank)............................................... 36,000,000 36,000,000
First Union Capital Markets, Revolving Repurchase
Agreement, 6.00%, 7/1/98 (secured by various U.S.
Treasury Notes with maturities ranging from 12/31/98
through 2/15/07 at various interest rates ranging
from 5.75% to 6.25%, all held at Bankers Trust Com-
pany)............................................... 47,000,000 47,000,000
Goldman Sachs Agency, Revolving Repurchase Agreement,
5.50%, 7/1/98 (secured by U.S. Treasury Note matur-
ing 5/15/03 at an interest rate of 5.625%, held at
The Bank of New York)............................... 47,000,000 47,000,000
Greenwich Capital Markets, Inc., Revolving Repurchase
Agreement, 5.80%, 7/1/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
8/15/98 through 2/15/08 at an interest rate of
0.00%, all held at Chase Bank)...................... 48,000,000 48,000,000
H.S.B.C. Treasury, Revolving Repurchase Agreement,
5.70%, 7/1/98 (secured by U.S. Treasury Notes with
maturities ranging from 8/31/98 to 3/31/00 at inter-
est rates ranging from 5.875% to 6.875%, all held at
Chase Bank)......................................... 241,000,000 241,000,000
Morgan Stanley Government Collateralized, Revolving
Repurchase Agreement, 5.70%, 7/1/98 (secured by U.S.
Treasury Bill with a maturity of 12/10/98 at an in-
terest rate of 0.00%, held at The Bank of New York). 24,000,000 24,000,000
Nomura Revolving Repurchase Agreement, 6.00%, 7/1/98
(secured by various U.S. Treasury Obligations with
maturities ranging from 2/15/00 through 2/15/08 at
various interest rates ranging from 0.00% to 6.25%,
all held at The Bank of New York)................... 47,000,000 47,000,000
NationsBank Capital Markets, Inc., Revolving Repur-
chase Agreement, 5.90%, 7/1/98 (secured by various
U.S. Treasury Obligations with maturities ranging
from 8/15/03 through 5/15/08, at various interest
rates ranging from 0.00% to 12.00%, all held at
Chase Bank)......................................... 47,000,000 47,000,000
Prudential Revolving Repurchase Agreement, 5.45%,
7/1/98 (secured by U.S. Treasury Note with a matu-
rity of 8/15/01 at an interest rate of 7.875%, held
at The Bank of New York)............................ 2,085,000 2,085,000
Salomon Brothers, Inc., Revolving Repurchase Agree-
ment, 5.95%, 7/1/98 (secured by various U.S. Trea-
sury Obligations with maturities ranging from
8/15/98 through 5/15/08 at various interest rates
ranging from 0.00% to 12.00%, all held at Chase
Bank)............................................... 47,000,000 47,000,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
10
<PAGE> 12
PEGASUS TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
Societe Generale Treasury, Revolving Repurchase
Agreement, 6.00% 7/1/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
7/1/98 through 5/12/04 at various interest rates
ranging from 0.00% to 9.05%, all held at Chase
Bank)............................................ $45,000,000 $ 45,000,000
--------------
859,085,000
--------------
U.S. GOVERNMENT OBLIGATIONS -- 13.28%
U.S. Treasury Notes:
6.250%, 07/31/98................................. 20,000,000 20,009,329
4.750%, 09/30/98................................. 10,000,000 9,975,624
5.125%, 11/30/98................................. 40,000,000 39,906,696
8.875%, 02/15/99................................. 40,000,000 40,799,367
6.500%, 04/30/99................................. 40,000,000 40,303,235
6.000%, 06/30/99................................. 50,000,000 50,245,443
--------------
201,239,694
--------------
TOTAL INVESTMENTS................................... $1,060,324,694
==============
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
11
<PAGE> 13
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ALABAMA -- 1.77%
Chatam Air Pollution Control, IDR,
CP, AMT, 10/9/98.................... VMIG 1 3.65% $ 9,600,000 $ 9,600,000
Decatur Industrial Development
Revenue, AMT, 1/1/27................ VMIG 1 3.65% 4,500,000 4,500,000
------------
14,100,000
------------
ALASKA -- 4.25%
Valdez Marine Revenue, Series C, CP,
7/9/98.............................. VMIG 1 3.70% 14,000,000 14,000,000
Valdez Marine Revenue, CP, 9/11/98... VMIG 1 3.65% 11,900,000 11,900,000
Valdez Marine Revenue, Series B,
5/1/31.............................. VMIG 1 3.60% 8,000,000 8,000,000
------------
33,900,000
------------
ARIZONA -- 0.75%
Chandler IDR-Parsons Municipal
Services, 12/15/09.................. **N/R 3.70% 4,500,000 4,500,000
Farmington PCR, Arizona Public
Services, AMT, 9/1/24............... P 1 4.30% 1,500,000 1,500,000
------------
6,000,000
------------
CALIFORNIA -- 0.96%
California State Veterans Revenue,
Series A, AMT, 8/1/98............... AA 2 8.30% 7,625,000 7,689,276
------------
COLORADO -- 0.88%
Fayette County Development Authority,
IDR, 8/15/07........................ VMIG 1 4.15% 7,000,000 7,000,000
------------
DELAWARE -- 2.91%
Delaware State Economic Development,
AMT, 8/1/29......................... **N/R 3.65% 23,200,000 23,200,000
------------
DISTRICT OF COLUMBIA -- 3.14%
District of Columbia TRAN, Series B,
9/30/98............................. MIG 1 4.50% 12,000,000 12,018,120
District of Columbia TRAN, Series C,
9/30/98............................. MIG 1 5.00% 9,500,000 9,526,340
District of Columbia American
University, 10/1/15................. VMIG 1 3.60% 3,500,000 3,500,000
------------
25,044,460
------------
FLORIDA -- 2.16%
Orange County Health Facilities
Revenue, 11/15/26................... **N/R 3.50% 2,750,000 2,750,000
St. Lucie County Power and Light, CP,
8/13/98............................. VMIG 1 3.60% 10,000,000 10,000,000
Sarasota Public Hospital, Series A,
CP, 10/8/98......................... VMIG 1 3.65% 4,500,000 4,500,000
------------
17,250,000
------------
GEORGIA -- 2.28%
Burke County Development Authority,
PCR, 7/1/24......................... VMIG 1 3.75% 6,295,000 6,295,000
Georgia Municipal Gas, Series A, AMT,
11/1/06............................. **N/R 3.40% 2,300,000 2,300,000
Gwinnett County Hospital Authority,
9/1/27.............................. **N/R 3.55% 5,000,000 5,000,000
Macon-Bibb County Hospital Revenue,
8/1/18.............................. Aa 3 3.60% 4,550,000 4,550,000
------------
18,145,000
------------
IDAHO -- 0.87%
Idaho Health Facilities, St. Lukes
Medical Center, 5/1/22.............. VMIG 1 3.75% 6,900,000 6,900,000
------------
ILLINOIS -- 7.00%
Carol Stream Multifamily Revenue,
AMT, 3/15/27........................ **N/R 3.65% 5,000,000 5,000,000
Chicago General Obligation, 2/4/99... VMIG 1 3.55% 20,000,000 20,000,000
Illinois Development Authority
Revenue, MBIA, 11/15/27............. VMIG 1 3.55% 15,000,000 15,000,000
Illinois Development Authority
Environment, AMT, 5/1/32............ **N/R 3.65% 14,325,000 14,325,000
Southwestern Development Authority,
AMT, 4/1/22......................... VMIG 1 3.90% 1,500,000 1,500,000
------------
55,825,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
12
<PAGE> 14
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
INDIANA -- 4.40%
Burns Harbor IDR, AMT, 3/1/16........ **N/R 3.70% $ 9,000,000 $ 9,000,000
Indiana DFA Solid Waste, CP, AMT,
7/10/98............................. VMIG 1 3.60% 15,000,000 15,000,000
Indiana Development Finance
Authority, PCR, AMT, 3/1/99......... VMIG 1 3.70% 11,100,000 11,100,000
------------
35,100,000
------------
IOWA -- 1.00%
Iowa Finance Authority Revenue,
6/1/19.............................. **N/R 3.65% 7,960,000 7,960,000
------------
KANSAS -- 0.72%
Burlington PCR, CP, AMT, 8/12/98..... P 1 3.60% 4,000,000 4,000,000
Butler County Solid Waste Disposal,
AMT, 8/1/24......................... A 1 4.00% 1,700,000 1,700,000
------------
5,700,000
------------
KENTUCKY -- 6.01%
Carroll County Solid Waste Disposal
Rev, AMT, 11/2/24................... VMIG 1 3.95% 3,800,000 3,800,000
Henderson Co. Solid Waste Disposal
Rev, AMT, 3/1/15.................... VMIG 1 3.60% 9,000,000 9,000,000
Kentucky Interlocal School
Transportation, TRAN, 6/30/99....... SP 1+ 3.90% 35,087,500 35,087,500
------------
47,887,500
------------
LOUISIANA -- 2.99%
Calcasieu Parish Sales Tax Revenue,
9/1/98.............................. **N/R 3.50% 3,770,000 3,770,000
Louisiana State General Obligation,
CP, 8/10/98......................... VMIG 1 3.45% 7,500,000 7,500,000
Plaquemines Parish, Environmental
Rev, AMT, 5/1/25.................... P 1 3.95% 2,900,000 2,900,000
South Louisiana Port Revenue, 1/1/27. VMIG 1 3.65% 6,900,000 6,900,000
St. Charles Pollution Control
Revenue, AMT, 11/1/21............... VMIG 1 3.90% 2,800,000 2,800,000
------------
23,870,000
------------
MICHIGAN -- 5.53%
Grand Rapids Water Supply Revenue,
1/1/20.............................. VMIG 1 3.30% 1,350,000 1,350,000
Jackson Co. Economic Development
Corp., Limited Obligation Revenue,
6/1/17.............................. **N/R 3.70% 100,000 100,000
Kent Hospital Finance Authority
Revenue, Ser A, 1/15/20............. VMIG 1 3.50% 400,000 400,000
Meridian Limited Obligation, EDC,
11/15/14............................ **N/R 3.70% 3,000,000 3,000,000
Michigan State General Obligation
Notes, 9/30/98...................... MIG 1 4.50% 15,000,000 15,035,993
Michigan State Housing Development
Authority, Series A, AMT, 2/25/99... **N/R 3.80% 4,200,000 4,200,000
Michigan State Hospital Finance
Authority, 6/1/01................... VMIG 1 3.45% 700,000 700,000
Michigan State Hospital Finance
Authority, 11/1/11.................. VMIG 1 3.40% 3,300,000 3,300,000
Michigan Higher Education Student
Loan Revenue, AMT, 10/1/15.......... VMIG 1 3.55% 100,000 100,000
Michigan State Strategic Fund Limited
Obligation, Petoskey Plastics, Inc.,
AMT, 8/1/16......................... **N/R 3.70% 2,100,000 2,100,000
Michigan State Strategic Fund Limited
Obligation, Saginaw Products Corp.,
AMT, 9/1/17......................... **N/R 3.70% 700,000 700,000
Michigan State Strategic Fund Limited
Obligation, Autocam Corp., AMT,
12/1/17............................. **N/R 3.70% 3,000,000 3,000,000
Michigan State Strategic Fund Limited
Obligation, AMT, 12/1/22............ **N/R 3.70% 2,200,000 2,200,000
Michigan State Hospital Finance
Authority, 12/1/23.................. VMIG 1 3.60% 800,000 800,000
Regents of University of Michigan,
CP, 9/9/98.......................... **N/R 3.60% 3,400,000 3,400,000
Wayne Charter County Airport Revenue,
AMT, 12/1/16........................ VMIG 1 3.60% 3,150,000 3,150,000
Wayne Charter County Airport Revenue,
Ser B, AMT, 12/1/16................. VMIG 1 3.50% 500,000 500,000
------------
44,035,993
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
13
<PAGE> 15
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
MINNESOTA -- 0.60%
Minneapolis Minnesota General
Obligation, 12/1/27................. VMIG 1 3.40% $ 4,750,000 $ 4,750,000
------------
MISSISSIPPI -- 1.63%
Claiborne County Pollution Control
Revenue, CP, 8/7/98................. VMIG 1 3.55% 13,000,000 13,000,000
------------
MISSOURI -- 1.62%
Missouri State Health & Educational
Facilities, 8/17/98................. Aaa 3.85% 4,900,000 4,900,000
Missouri State Development Finance
Board, 12/1/98...................... Aa 3 3.80% 8,000,000 8,000,000
------------
12,900,000
------------
NEBRASKA -- 1.94%
Nebraska Investment Finance Authority
Revenue Series C, AMT, 7/1/98....... **N/R 3.95% 15,500,000 15,500,000
------------
NEVADA -- 2.53%
Clark County Airport Revenue, Series
B, AMT, 7/8/98...................... VMIG 1 3.875% 8,500,000 8,500,000
Clark County Industrial Revenue, AMT,
12/1/22............................. VMIG 1 3.95% 8,700,000 8,700,000
Washoe County Water Facilities
Revenue, AMT, 12/1/20............... P 1 3.90% 3,000,000 3,000,000
------------
20,200,000
------------
NEW YORK -- 4.77%
New York City Municipal Water
Authority, CP, 7/10/98.............. P 1 3.90% 20,000,000 20,000,000
New York City Water, CP, 7/15/98..... P 1 3.60% 7,000,000 7,000,000
New York State Electric & Gas
Revenue, 12/1/98.................... Aaa 3.80% 11,000,000 11,000,000
------------
38,000,000
------------
NORTH CAROLINA -- 2.08%
Charlotte Airport Revenue, MBIA,
7/1/17.............................. VMIG 1 3.50% 7,000,000 7,000,000
Charlotte Mecklenberg Hospital
Authority, 1/15/26.................. VMIG 1 3.50% 3,085,000 3,085,000
North Carolina Community Hospital
Revenue, 8/15/18.................... **N/R 3.50% 6,500,000 6,500,000
------------
16,585,000
------------
OHIO -- 1.64%
Ohio State Air Quality Development
Revenue, AMT, 4/1/28................ VMIG 1 3.65% 6,200,000 6,200,000
Ohio Water Development Authority, CP,
AMT, 8/11/98........................ **N/R 3.70% 6,850,000 6,850,000
------------
13,050,000
------------
OREGON -- 2.40%
Oregon State Housing & Community
Services, 5/13/99................... MIG 1 3.75% 15,000,000 15,000,000
Port Morrow Environmental Revenue,
AMT, 12/1/31........................ VMIG 1 4.00% 4,100,000 4,100,000
------------
19,100,000
------------
PENNSYLVANIA -- 7.36%
Allegheny Co. IDR, VRDB, United
Jewish Federation, 10/1/25.......... VMIG 1 3.60% 1,600,000 1,600,000
Carbon County, CP, AMT, 8/6/98....... P 1 3.60% 5,000,000 5,000,000
Carbon County, Panther Creek, IDA,
CP, 10/9/98......................... P 1 3.55% 8,285,000 8,285,000
Indiana County Individual Development
Authority, PCR, AMT, 6/1/27......... VMIG 1 3.65% 25,000,000 25,000,000
Pennsylvania State Higher Educational
Facilities, 4/1/17.................. VMIG 1 3.60% 200,000 200,000
Temple University Obligation, Series
A, 5/14/99.......................... **N/R 3.78% 4,500,000 4,500,000
Venango Individual Development
Authority, CP, AMT, 8/7/98.......... **N/R 3.60% 14,050,000 14,050,000
------------
58,635,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
14
<PAGE> 16
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
PUERTO RICO -- 3.14%
Puerto Rico Commonwealth, TRAN,
Series A, 7/30/98................... MIG 1 4.50% $25,000,000 $ 25,014,591
------------
SOUTH CAROLINA -- 2.65%
Berkley County Industrial Development
Revenue, AMT, 4/1/28................ VMIG 1 3.90% 3,000,000 3,000,000
Florence County Solid Waste Disposal
Revenue, 4/1/28..................... **N/R 3.90% 3,100,000 3,100,000
Piedmont Municipal Power Agency
Revenue, 1/1/19..................... VMIG 1 3.50% 3,000,000 3,000,000
Spartanburg County Health Services
Revenue, 4/15/23.................... Aaa 3.65% 12,000,000 12,000,000
------------
21,100,000
------------
SOUTH DAKOTA -- 1.19%
South Dakota Housing Development
Authority Revenue, Series E, AMT,
12/14/00............................ VMIG 1 3.80% 9,500,000 9,500,000
------------
TENNESSEE -- 2.13%
Marion County Environmental
Authority, AMT, 8/1/98.............. **N/R 3.65% 7,000,000 7,000,000
Oak Ridge Individual Development
Revenue, AMT, 1/1/06................ Aa 3 3.70% 10,000,000 10,000,000
------------
17,000,000
------------
TEXAS -- 8.44%
Austin Combined Utilities, Series A,
CP, 7/14/98......................... P 1 3.50% 10,000,000 10,000,000
Austin Utilities, CP, 7/14/98........ P 1 3.55% 8,700,000 8,700,000
Austin Utility Systems, CP, 9/3/98... **N/R 3.65% 4,075,000 4,075,000
Brazos River Revenue, AMT, 4/1/32.... P 1 4.30% 9,000,000 9,000,000
Gulf Coast Waste Disposal Authority,
AMT, 5/1/23......................... VMIG 1 3.90% 1,400,000 1,400,000
Gulf Coast, IDA, AMT, 5/1/25......... VMIG 1 4.00% 10,700,000 10,700,000
North Central Health Facility
Revenue, CP, 6/1/21................. VMIG 1 3.90% 5,150,000 5,150,000
Panhandle Plan Higher Education
Authority Revenue, Series A, AMT,
6/1/21.............................. VMIG 1 3.50% 6,000,000 6,000,000
Texas Higher Education Authority,
MBIA, AMT, 12/1/27.................. VMIG 1 3.55% 6,200,000 6,200,000
Texas State Revenue, TRAN, Series A,
8/31/98............................. MIG 1 4.75% 6,000,000 6,010,226
------------
67,235,226
------------
UTAH -- 2.55%
Intermountain Power Agency, CP,
9/11/98............................. VMIG 1 3.45% 8,300,000 8,300,000
Intermountain Power Agency Revenue,
Series E, 9/15/98................... VMIG 1 3.45% 12,000,000 12,000,000
------------
20,300,000
------------
VERMONT -- 1.93%
Vermont Educational Health Building
Agency Revenue
11/1/98............................. Aa 3.85% 6,000,000 6,000,000
5/1/99.............................. Aa 3.75% 5,500,000 5,500,000
Vermont Student Assistance Revenue,
1/1/04.............................. VMIG 1 3.70% 3,900,000 3,900,000
------------
15,400,000
------------
VIRGINIA -- 1.71%
King George County Individual
Development Authority, AMT
11/1/25............................. **N/R 3.95% 6,700,000 6,700,000
3/1/27.............................. **N/R 3.95% 2,200,000 2,200,000
Roanoke Memorial Hospital, IDA,
Series C, 7/1/19.................... VMIG 1 3.50% 4,750,000 4,750,000
------------
13,650,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
15
<PAGE> 17
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
WASHINGTON -- 1.13%
Port Seattle Revenue, AMT, 9/1/22.... VMIG 1 3.65% $ 1,100,000 $ 1,100,000
Seattle Municipal Light & Power
Revenue, CP, 8/21/98................ VMIG 1 3.45% 7,900,000 7,900,000
------------
9,000,000
------------
WEST VIRGINIA -- 0.75%
West Virginia Public Energy, CP,
7/8/98.............................. Aaa 3.65% 6,000,000 6,000,000
------------
WYOMING -- 0.19%
Converse County Environment Revenue,
11/1/25............................. VMIG 1 4.15% 1,500,000 1,500,000
------------
TOTAL INVESTMENTS.................... $797,027,046
============
</TABLE>
INVESTMENT ABBREVIATIONS
AMBAC-- AMBAC Indemnity Corp.
AMT-- Alternate Minimum Tax
BIGI-- Bond Investors Guaranty Insurance Co.
CP-- Commercial Paper
EDC-- Economic Development Corporation
FGIC-- Financial Guaranty Insurance Company
FSA-- Financial Securities Assurance Corp.
GO-- General Obligation
HCF-- Health Care Facilities
HR-- Housing Revenue
HDA-- Housing Development Authority
HFA-- Housing Finance Authority
IDA-- Individual Development & Export Authority
IDR-- Industrial Development Revenue
MBIA-- Municipal Bond Insurance Association
PCR-- Pollution Control Revenue
PFA-- Public Facilities Authority
TAN-- Tax Anticipation Note
TRAN-- Tax Revenue Anticipation Note
UPDATE-- Unit Priced Daily Adjustable Tax Exempt Securities
VRDB-- Variable Rate Demand Bond
VRDN-- Variable Rate Demand Note
* Rating -- Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standards & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
June 30, 1998. The interest rate for all securities with maturity greater
than thirteen months has an automatic reset feature resulting in an
effective maturity of thirteen months or less.
See Notes to Financial Statements.
Pegasus Funds
16
<PAGE> 18
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
MICHIGAN -- 100%
Ann Arbor ECD, Ltd. Obligation,
5/1/00.............................. **NR 3.60% $ 385,000 $ 385,000
Cornell Twp EDC, IDR, 7/17/98........ NR 3.75% 3,600,000 3,600,000
Delta Co. Econ Dev Corp Env Rv,
9/10/98............................. P 1 3.60% 3,810,000 3,810,000
Detroit Sewer Disposal, MBIA, Ser B,
7/1/98.............................. Aaa 5.00% 6,000,000 6,000,000
Grand Rapids Water Supply, RFD,
1/1/20.............................. VMIG 1 3.30% 4,100,000 4,100,000
Jackson Co EDC LTD OBL Rev, "AMT",
06/1/17............................. NR 3.70% 1,200,000 1,200,000
Kalamazoo Co. Econ Dev Corp Rev,
9/1/15.............................. NR 4.00% 1,000,000 1,000,000
Kalamazoo Econ Dev Corp Rev, 5/15/27. NR 3.55% 4,000,000 4,000,000
Kalamazoo Hosp Fin Auth Rev, 5/15/99. Aaa 3.85% 1,395,000 1,395,000
Kent Hospital, VRDB-Butterworth
Hospital, 1/15/20................... VMIG 1 3.65% 3,800,000 3,800,000
Michigan Comprehensive Transportation
RV RFD ESC State of Refunding Series
1988-1, 9/1/98...................... NR 7.625% 3,000,000 3,031,012
Michigan Higher Education Student
Loan, "AMT", AMBAC, Series XII-D,
10/1/15............................. VMIG 1 3.55% 3,000,000 3,000,000
Michigan Municipal Bond Authority
Revenue Series A, 7/31/98........... NR 4.25% 3,500,000 3,502,264
Michigan Municipal Bond Authority
Revenue, 9/18/98.................... NR 4.50% 1,400,000 1,401,748
Michigan State Building Authority
Revenue Series III, 10/15/98........ AA2 4.50% 5,000,000 5,009,560
Michigan State General Obligation
Notes Unlimited Tax, 9/30/98........ MIGI 4.50% 10,000,000 10,023,995
Michigan State Hospital VRDB-Hospital
Equipment Loan Program, Series A,
12/1/23............................. VMIG 1 3.60% 4,800,000 4,800,000
Michigan State Hospital Financial
Authority Revenue Hospital Charity
Obligation E, 11/01/11.............. VMIG 1 3.40% 4,700,000 4,700,000
Michigan State HDA, Ltd. Obligation
VRDB:
Laurel Valley, 12/1/07.............. VMIG 1 3.55% 3,600,000 3,600,000
Woodland Meadows, 3/1/13............ VMIG 1 3.55% 2,000,000 2,000,000
Michigan State HDA, "AMT", 7/9/98.... VMIG 1 3.80% 5,000,000 5,000,000
Michigan State HDA, Series B, 4/1/19. VMIG 1 3.50% 1,100,000 1,100,000
Michigan State HDA, Muni Family
Series A, "AMT", 2/25/99............ VMIG 1 3.80% 5,000,000 5,000,000
Michigan State Strategic Fund Ltd.
Obligation, 10/1/01................. Aa3 3.70% 1,500,000 1,500,000
Michigan State Strategic Fund Ltd.
Obligation AMT:
VRDB-Dennenlease LC, 4/1/10......... **N/R 3.70% 1,815,000 1,815,000
VRDB-Ironwood Plastics, Inc.,
11/1/11............................ **N/R 3.70% 1,155,000 1,155,000
VRDB-Petoskey Plastics, Inc.,
8/1/16............................. **N/R 3.70% 2,000,000 2,000,000
VRDB-Saginaw Products Corp., 9/1/17. **N/R 3.70% 2,300,000 2,300,000
VRDB-Quincy Str. Inc., 12/1/22...... **N/R 3.70% 800,000 800,000
Michigan State Strategic Fund PCR
VRDN-Consumers Power Co., 9/1/00.... A 1+ 3.55% 3,000,000 3,000,000
Michigan Underground, CP, 8/10/98.... P 1 3.70% 5,000,000 5,000,000
Regents of the University of
Michigan, CP, 8/07/98............... NR 3.63% 4,500,000 4,500,000
Wayne Charter Co. Airport AMT VRDB
Series A, 12/1/16................... VMIG 1 3.60% 3,200,000 3,200,000
Series B, 12/1/16................... VMIG 1 3.50% 200,000 200,000
------------
TOTAL INVESTMENTS.................... $106,928,580
============
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
17
<PAGE> 19
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS
AMT -- Alternative Minimum Tax
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCFA -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
RFD -- Pre-Refunded Bond
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax-Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Rating (not covered by the report of independent public accountants.) --
Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
June 30, 1998. The interest rate for all securities with maturity greater
than thirteen months has an automatic reset feature resulting in an
effective maturity of thirteen months or less.
See Notes to Financial Statements.
Pegasus Funds
18
<PAGE> 20
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(1)GENERAL
The Pegasus Funds (Pegasus) was organized as a Massachusetts business trust
on April 21, 1987 and registered under the Investment Company Act of 1940 (the
Act), as amended, as an open-end investment company. As of June 30, 1998,
Pegasus consisted of thirty separate portfolios of which there were four money
market funds (the Money Market Funds or the Funds), as described below.
PEGASUS MONEY MARKET FUND
PEGASUS TREASURY MONEY MARKET FUND
PEGASUS MUNICIPAL MONEY MARKET FUND
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
The Money Market Funds commenced operations on January 4, 1988, except for the
Michigan Municipal Money Market Fund and the Treasury Money Market Fund, which
commenced operations on January 23, 1991 and January 1, 1993, respectively.
The Pegasus Money Market Funds (except for the Money Market Fund which offers
Class A, Class B, and Class I shares) each offer Class A shares and Class I
shares. Class A shares, Class B shares and Class I shares in a fund are
substantially the same except that Class A shares are subject to a shareholder
services fee pursuant to the Shareholder Services Plan and Class B shares are
subject to a contingent deferred sales charge imposed at the time of redemption
and are subject to fees charged pursuant to a distribution plan adopted
pursuant to Rule 12b-1 under the Act and fees charged pursuant to the
Shareholder Services Plan. Class I shares are not subject to any shareholder
service fees or distribution 12b-1 fees.
(2)SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Money Market Funds in preparation of the financial statements. The policies are
in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
Pursuant to Rule 2a-7 of the Act, the Money Market Funds utilize the
amortized cost method to determine the carrying value of investment securities.
Under this method, investment securities are valued for both financial
reporting and federal tax purposes at amortized cost and any discount or
premium is amortized from the date of acquisition to maturity. The use of this
method results in carrying value which approximates market value. Market value
is determined based upon quoted market prices or dealer quotes.
Investment security purchases and sales are accounted for on the trade date.
Realized gains or losses from security transactions are recorded on the
identified cost basis.
Pegasus invests in securities subject to repurchase agreements. First Chicago
NBD Investment Management Company (FCNIMCO), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Pegasus' investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by FCNIMCO to assure
its value remains at least equal to 102% of the repurchase agreement amount;
and 3) funds are not disbursed by Pegasus or its agent unless collateral is
presented or acknowledged by the collateral custodian.
The Municipal and Michigan Municipal Money Market Funds invest in a majority
of instruments whose stated maturity is greater than one year, but whose rate
of interest is readjusted no less frequently than annually, or which possess
demand features and may therefore be deemed to have a maturity equal to the
period remaining until the next interest adjustment date or the demand date,
whichever is longer.
Pegasus Funds
19
<PAGE> 21
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code, as amended (the
Code), and generally accepted accounting principles.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Code applicable to regulated investment companies and to distribute net
investment income and realized gains to its shareholders. Therefore, no federal
income tax provision is required in the accompanying Financial Statements.
As of December 31, 1997 the Funds have capital loss carryforwards and related
expiration dates as follows:
<TABLE>
<CAPTION>
FUND 1999 2001 2002 2003 2004 2005 TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury Money Market Fund $ -- $ -- $16,000 $ -- $ 1,000 $ -- $17,000
Municipal Money Market Fund 1,000 2,000 1,000 36,000 14,000 2,000 56,000
Michigan Municipal Money Market Fund -- -- -- -- 1,000 -- 1,000
</TABLE>
Shareholder Dividends
On each business day except holidays the New York Stock Exchange (Exchange),
FCNIMCO or its bank affiliates observe, net investment income is declared as a
dividend, at the close of the Exchange, to shareholders of record at such
close. Such dividends are paid monthly.
Distributions from net realized capital gains, if any, are normally declared
annually and paid annually, but each Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Code. To the
extent that net realized capital gains can be offset by capital loss
carryforwards, it is the policy of each Fund not to distribute such gains.
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations; expenses which are applicable to all Funds are allocated among them
on the basis of relative net assets. Fund expenses directly attributable to a
class of shares are charged to that class; expenses which are applicable to all
classes are allocated among them. Pegasus monitors the rate at which expenses
are charged to ensure that a proper amount of expense is charged to income each
year. This percentage is subject to revision if there is a change in the
estimate of the future net assets of the Funds or a change in expectations as
to the level of actual expenses.
Multiple Classes of Capital Shares of Beneficial Interest
Each class of shares has equal rights as to earnings, assets and voting
privileges except that each class bears different distribution and shareholder
service expenses. Each class of shares has exclusive voting rights with respect
to matters that affect just that class. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Class B shares of the Pegasus Money Market Fund are available only to the
holders of Class B shares in the Pegasus non-money market funds who wish to
exchange their shares in such funds for shares in the Pegasus Money Market
Fund. Class B shares of the Pegasus Money Market Fund will automatically
convert to Class A shares at the time the exchanged shares would have
converted.
(3) INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Pegasus has an Investment Advisory Agreement with FCNIMCO pursuant to which
FCNIMCO has agreed to provide the day-to-day management of each of the Money
Market Fund's investments for a monthly fee computed daily and payable monthly,
expressed as a percentage of each Money Market Fund's average daily net
Pegasus Funds
20
<PAGE> 22
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
assets, of 0.30% of the first $1.0 billion, 0.275% of the next $1.0 billion and
0.25% of each such Money Market Fund's average daily net assets in excess of
$2.0 billion.
Pegasus has a Co-Administration Agreement with FCNIMCO and BISYS Fund Services
(BISYS or Distributor) (collectively the Co-Administrators) pursuant to which
the Co-Administrators have agreed to assist in all aspects of each Money Market
Fund's operations for an administration fee, at an annual rate of 0.15% of each
Money Market Fund's average daily net assets.
BISYS serves as Pegasus' principal underwriter and distributor of the Funds'
shares. NBD Bank (an affiliate of FCNIMCO) is also compensated for its services
as Pegasus' custodian and is reimbursed for certain out-of- pocket expenses
incurred on behalf of Pegasus. See Note 4 for a summary of fee rates and
expenses pursuant to these agreements.
On April 10, 1998, First Chicago NBD Investment Management Company's parent
company, First Chicago NBD Corporation, entered into an agreement and plan of
merger with BANC ONE CORPORATION pursuant to which First Chicago NBD
Corporation will merge with and into BANC ONE CORPORATION. The merger is
conditioned upon, among other things, approval by holders of a majority of the
BANC ONE CORPORATION common stock, approval by holders of a majority of the
First Chicago NBD Corporation common stock, and receipt of certain regulatory
and governmental approvals.
(4) EXPENSES
For the period ended June 30, 1998, FCNIMCO voluntarily agreed to reimburse a
portion of the operating expenses of the Funds to the extent that the Funds'
expenses exceeded the following amounts (as a percentage of each Fund's average
daily net assets):
<TABLE>
<CAPTION>
MICHIGAN
TREASURY MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares 0.75% .075% 0.75% 0.75%
Class B Shares 1.50% N/A N/A N/A
Class I Shares 0.50% 0.50% 0.50% 0.50%
</TABLE>
Pegasus maintains an unfunded, nonqualified deferred compensation plan. This
plan allows an individual Trustee to elect to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
The Funds' Class A shares and Class B shares have a Shareholder Services Plan
(the "Plan") pursuant to which the Funds pay the Distributor a fee, at an
annual rate of 0.25% of the average daily net assets of the outstanding Class A
shares and Class B shares. Pursuant to the terms of the Plan, the Distributor
has agreed to provide certain shareholder services to the holders of these
shares. Additionally, under the terms of the Plan, the Distributor may make
payments to other shareholder service agents which may include FCNIMCO and
their affiliates. For the period ended June 30, 1998, the Money Market Funds
paid the following amounts under the Plan:
<TABLE>
<CAPTION>
AMOUNTS PAID
- ------------------------------------------------
<S> <C>
Money Market Fund $1,349,403
Treasury Money Market Fund 270,760
Municipal Money Market Fund 259,617
Michigan Municipal Money
Market Fund 39,892
</TABLE>
The Money Market Fund's Class B shares have a distribution plan adopted
pursuant to Rule 12b-1 under the Act (the "12b-1 Plan") pursuant to which the
Money Market Fund has agreed to pay the Distributor for advertising, marketing
and distributing Class B shares of the Money Market Fund at an annual rate of
0.75% of the average net assets of the Money Market Fund's outstanding Class B
shares. Under the terms of the 12b-1 Plan, the Distributor may make payments to
FCNIMCO and their affiliates with respect to these services. For the period
ended June 30, 1998, the Money Market Fund paid $1,900 under the 12b-1 Plan
which was retained by the Distributor.
Pegasus Funds
21
<PAGE> 23
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(5)CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds are summarized below:
<TABLE>
<CAPTION>
MONEY MARKET FUND
<S> <C> <C> <C> <C>
<CAPTION>
TREASURY MONEY MARKET FUND
<S> <C> <C> <C> <C>
----------------------------------------------------------------
<CAPTION>
Six Months Ended For the year ended
June 30, 1998 (Unaudited) December 31, 1997
<S> <C> <C> <C> <C>
<CAPTION>
Amount Shares Amount Shares
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 2,825,495,116 2,825,495,116 $ 4,662,663,756 4,662,663,756
Dividends Reinvested 25,317,312 25,317,312 39,487,594 39,487,594
Shares Redeemed (2,657,387,032) (2,657,387,032) (4,456,727,929) (4,456,727,929)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) $ 193,425,396 193,425,396 $ 245,423,421 245,423,421
- --------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares Issued $ 1,711,204 1,711,204 $ 3,505,576 3,505,576
Dividends Reinvested 10,351 10,351 24,606 24,606
Shares Redeemed (879,808) (879,808) (3,334,960) (3,334,960)
- --------------------------------------------------------------------------------------------------
Net increase $ 841,747 841,747 $ 195,222 195,222
- --------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 2,327,430,004 2,327,430,004 $ 5,021,318,728 5,021,318,728
Dividends Reinvested 10,240,841 10,240,841 20,279,977 20,279,977
Shares Redeemed (2,015,417,869) (2,015,417,869) (5,539,038,130) (5,539,038,130)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) $ 322,252,976 322,252,976 $ (497,439,425) (497,439,425)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ 516,520,119 516,520,119 $ (251,820,782) (251,820,782)
- --------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended For the year ended
June 30, 1998 (Unaudited) December 31, 1997
<S> <C> <C> <C> <C>
----------------------------------------------------------------
<CAPTION>
Amount Shares Amount Shares
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 546,356,776 546,356,776 $ 1,093,249,460 1,093,249,460
Dividends Reinvested 5,039,733 5,039,733 8,689,041 8,689,041
Shares Redeemed (566,344,821) (566,344,821) (1,082,286,729) (1,082,286,729)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) $ (14,948,312) (14,948,312) $ 19,651,772 19,651,772
- --------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares Issued -- -- -- --
Dividends Reinvested -- -- -- --
Shares Redeemed -- -- -- --
- --------------------------------------------------------------------------------------------------
Net increase -- -- -- --
- --------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $2,046,422,213 2,046,422,213 $ 3,634,998,084 3,634,998,084
Dividends Reinvested 1,926,761 1,926,761 4,928,721 4,928,721
Shares Redeemed (1,950,537,504) (1,950,537,504) (3,949,857,520) (3,949,857,520)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) $ 97,811,470 97,811,470 $ (309,930,715) (309,930,715)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ 82,863,158 82,863,158 $ (290,278,943) (290,278,943)
- --------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
22
<PAGE> 24
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(5)CAPITAL SHARE TRANSACTIONS
TRANSACTIONS IN SHARES OF THE FUNDS ARE SUMMARIZED BELOW:
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
<S> <C> <C> <C> <C>
<CAPTION>
MICHIGAN MUNICIPAL MONEY MARKET FUND
<S> <C> <C> <C> <C>
---------------------------------------------------------
<CAPTION>
Six Months Ended For the year ended
June 30,1998 (Unaudited) December 31, 1997
<S> <C> <C> <C> <C>
<CAPTION>
Amount Shares Amount Shares
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 361,630,041 361,630,041 $ 489,667,505 489,667,505
Dividends Reinvested 2,927,813 2,927,813 5,398,206 5,398,206
Shares Redeemed (359,788,237) (359,788,237) (472,764,413) (472,764,413)
- --------------------------------------------------------------------------------------
Net increase (decrease) $ 4,769,617 4,769,617 $ 22,301,298 22,301,298
- --------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 572,005,030 572,005,030 $ 1,737,844,432 1,737,844,432
Dividends Reinvested 363,196 363,196 615,941 615,941
Shares Redeemed (541,792,285) (541,792,285) (1,845,603,982) (1,845,603,982)
- --------------------------------------------------------------------------------------
Net increase (decrease) $ 30,575,941 30,575,941 $ (107,143,609) (107,143,609)
- --------------------------------------------------------------------------------------
Net increase (decrease)
in Fund $ 35,345,558 35,345,558 $ (84,842,311) (84,842,311)
- --------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended For the year ended
June 30,1998 (Unaudited) December 31, 1997
<S> <C> <C> <C> <C>
---------------------------------------------------------
<CAPTION>
Amount Shares Amount Shares
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 47,754,865 47,754,865 $ 151,616,093 151,616,093
Dividends Reinvested 421,207 421,207 1,604,993 1,604,993
Shares Redeemed (40,148,067) (40,148,067) (196,108,154) (196,108,154)
- --------------------------------------------------------------------------------------
Net increase (decrease) $ 8,028,005 8,028,005 $ (42,887,068) (42,887,068)
- --------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 129,097,699 129,097,699 $ 233,991,240 233,991,240
Dividends Reinvested 25,935 25,935 83,422 83,422
Shares Redeemed (133,492,084) (133,492,084) (208,707,516) (208,707,516)
- --------------------------------------------------------------------------------------
Net increase (decrease) $ (4,368,450) (4,368,450) $ 25,367,146 25,367,146
- --------------------------------------------------------------------------------------
Net increase (decrease)
in Fund $ 3,659,555 3,659,555 $ (17,519,922) (17,519,922)
- --------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
23
<PAGE> 25
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6)PORTFOLIO COMPOSITION
The Michigan Municipal Money Market Fund does not have a diversified portfolio
since 100% of its investments are within the State of Michigan. Such
concentrations within a particular state may subject the fund more
significantly to economic changes occurring within that state.
(7)ILLIQUID SECURITIES
The Pegasus Money Market Funds may invest not more than 10% of the value of
their net assets in securities that are illiquid. Illiquid investments may
include securities having legal or contractual restrictions on resale or no
readily available market. At June 30, 1998, the Pegasus Money Market Fund owned
the following restricted securities (constituting 6.6% of net assets) which may
not be publicly sold without registration under the Securities Act of 1933 (the
1933 Act). The Fund does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations supplied
by a pricing service or brokers or, if not available, in good faith by or at
the discretion of the Trustees. Certain of these securities may be offered and
sold to "qualified institutional buyers" under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
JUNE 30,
ACQUISITION PAR VALUE 1998 PERCENTAGE
SECURITY DATE VALUE PER UNIT VALUE OF NET ASSETS COST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allstate Life Insurance Company 4/18/95 $10,000,000 $1.00 $ 10,000,000 0.4% $ 10,000,000
Commonwealth Life Insurance Company 4/18/95 5,000,000 1.00 5,000,000 0.2 5,000,000
Travelers Life Insurance Company 11/06/97 25,000,000 1.00 25,000,000 0.9 25,000,000
Peoples Security Life Insurance
Company 04/18/95 10,000,000 1.00 10,000,000 0.4 10,000,000
Providian Life & Health Insurance
Company 5/13/98 40,000,000 1.00 40,000,000 1.5 40,000,000
SunAmerica Life Insurance Company 07/01/97 14,000,000 1.00 14,000,000 0.5 14,000,000
SunAmerica Life Insurance Company 4/18/95 25,000,000 1.00 25,000,000 0.9 25,000,000
Transamerica Life Insurance and
Annuity Company 12/09/96 50,000,000 1.00 50,000,000 1.8 50,000,000
- -------------------------------------------------------------------------------------------------------------
$179,000,000 6.6% $179,000,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
24
<PAGE> 26
[INTENTIONALLY LEFT BLANK]
Pegasus Funds
25
<PAGE> 27
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of net investment income
and distributions from net investment income for the Money Market Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Money Market Funds and other information for the periods presented.
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS
VALUE NET AND UNREALIZED TOTAL FROM FROM NET
BEGINNING INVESTMENT LOSSES ON INVESTMENT INVESTMENT TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME DISTRIBUTIONS
--------- ---------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
CLASS A
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $1.0000 0.0247 -- 0.0247 (0.0247) (0.0247)
December 31,
1997 $1.0000 0.0491 -- 0.0491 (0.0491) (0.0491)
December 31,
1996 $1.0000 0.0488 -- 0.0488 (0.0488) (0.0488)
December 31,
1995 $1.0000 0.0549 -- 0.0549 (0.0549) (0.0549)
December 31,
1994 $1.0000 0.0378 -- 0.0378 (0.0378) (0.0378)
December 31,
1993 $1.0000 0.0281 -- 0.0281 (0.0281) (0.0281)
CLASS B
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $1.0000 0.0209 -- 0.0209 (0.0209) (0.0209)
December 31,
1997 $1.0000 0.0421 -- 0.0421 (0.0421) (0.0421)
December 31,
1996(/1/) $1.0000 0.0117 -- 0.0117 (0.0117) (0.0117)
CLASS I
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $1.0000 0.0260 -- 0.0260 (0.0260) (0.0260)
December 31,
1997 $1.0000 0.0516 -- 0.0516 (0.0516) (0.0516)
December 31,
1996(/2/) $1.0000 0.0373 -- 0.0373 (0.0373) (0.0373)
- ----------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
CLASS A
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $0.9999 0.0242 -- 0.0242 (0.0242) (0.0242)
December 31,
1997 $0.9999 0.0481 -- 0.0481 (0.0481) (0.0481)
December 31,
1996 $1.0000 0.0474 (0.0001) 0.0473 (0.0474) (0.0474)
December 31,
1995 $1.0000 0.0539 -- 0.0539 (0.0539) (0.0539)
December 31,
1994 $1.0000 0.0370 -- 0.0370 (0.0370) (0.0370)
December 31,
1993 $1.0000 0.0273 -- 0.0273 (0.0273) (0.0273)
CLASS I
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $1.0000 0.0254 -- 0.0254 (0.0254) (0.0254)
December 31,
1997 $1.0000 0.0507 -- 0.0507 (0.0507) (0.0507)
December 31,
1996(/2/) $1.0000 0.0361 -- 0.0361 (0.0361) (0.0361)
- ----------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
CLASS A
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $0.0997 0.0143 -- 0.0143 (0.0143) (0.0143)
December 31,
1997 $0.9997 0.0296 -- 0.0296 (0.0296) (0.0296)
December 31,
1996 $1.0000 0.0295 (0.0003) 0.0292 (0.0295) (0.0295)
December 31,
1995 $1.0000 0.0335 -- 0.0335 (0.0335) (0.0335)
December 31,
1994 $1.0000 0.0242 -- 0.0242 (0.0242) (0.0242)
December 31,
1993 $1.0000 0.0196 -- 0.0196 (0.0196) (0.0196)
CLASS I
SHARES
SIX MONTHS
ENDED
6/30//98
(UUNAUDITED) $0.9999 0.0155 -- 0.0155 (0.0155) (0.0155)
December 31,
1997 $1.0000 0.0322 (0.0001) 0.0321 (0.0322) (0.0322)
December 31,
1996(/2/) $1.0000 0.0232 -- 0.0232 (0.0232) (0.0232)
- ----------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
CLASS A
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $1.0000 0.0139 -- 0.0139 (0.0139) (0.0139)
December 31,
1997 $1.0000 0.0296 -- 0.0296 (0.0296) (0.0296)
December 31,
1996 $1.0000 0.0289 -- 0.0289 (0.0289) (0.0289)
December 31,
1995 $1.0000 0.0329 -- 0.0329 (0.0329) (0.0329)
December 31,
1994 $1.0000 0.0235 -- 0.0235 (0.0235) (0.0235)
December 31,
1993 $1.0000 0.0181 -- 0.0181 (0.0181) (0.0181)
CLASS I
SHARES
SIX MONTHS
ENDED
6/30/98
(UNAUDITED) $1.0000 0.0152 -- 0.0152 (0.0152) (0.0152)
December 31,
1997 $1.0000 0.0321 -- 0.0321 (0.0321) (0.0321)
December 31,
1996(/2/) $1.0000 0.0225 -- 0.0225 (0.0225) (0.0225)
- ----------------------------------------------------------------------------------------
</TABLE>
(/1/For)the period September 14, 1996 (initial offering of Class B Shares)
through December 31, 1996.
(/2/For)the period March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
+ Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Pegasus Funds
26
<PAGE> 28
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES
RATIO OF INVESTMENT TO AVERAGE NET
NET ASSETS EXPENSES INCOME TO ASSETS (EXCLUDING
NET ASSET VALUE END OF PERIOD TO AVERAGE NET AVERAGE NET FEE WAIVERS AND
END OF PERIOD TOTAL RETURN (000'S OMITTED) ASSETS ASSETS REIMBURSEMENTS)
- --------------- ------------ --------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
$1.0000 5.00%+ $1,167,246 0.75%+ 4.95%+ 0.75%+
$1.0000 5.04% $ 973,821 0.74% 4.90% 0.74%
$1.0000 4.99% $ 728,397 0.63% 4.87% --
$1.0000 5.63% $1,639,695 0.51% 5.49% --
$1.0000 3.86% $1,323,040 0.47% 3.78% --
$1.0000 2.85% $1,326,693 0.49% 2.81% --
$1.0000 4.22%+ $ 1,180 1.50%+ 4.20%+ 1.50%+
$1.0000 4.29% $ 338 1.49% 4.15% 1.49%
$1.0000 4.70%+ $ 143 1.48%+ 3.99%+ --
$1.0000 5.26%+ $1,540,126 0.50%+ 5.20%+ 0.50%+
$1.0000 5.29% $1,217,873 0.49% 5.15% 0.49%
$1.0000 5.06%+ $1,715,313 0.51%+ 4.99%+ --
- -------------------------------------------------------------------------------------------
$0.9999 4.88%+ $ 219,101 0.70%+ 4.84%+ --
$0.9999 4.92% $ 234,050 0.70% 4.80% --
$0.9999 4.83% $ 214,398 0.56% 4.82% --
$1.0000 5.53% $ 927,696 0.53% 5.39% --
$1.0000 3.77% $ 785,694 0.50% 3.70% --
$1.0000 2.77% $ 854,873 0.50% 2.73% --
$1.0000 5.14%+ $ 843,484 0.45%+ 5.09%+ --
$1.0000 5.18% $ 745,673 0.45% 5.05% --
$1.0000 4.89%+ $1,055,604 0.53%+ 4.85%+ --
- -------------------------------------------------------------------------------------------
$0.9997 2.88%+ $ 209,296 0.72%+ 2.86%+ --
$0.9997 3.01% $ 204,527 0.73% 2.96% --
$0.9997 2.96% $ 182,226 0.60% 2.97% --
$1.0000 3.41% $ 564,413 0.53% 3.35% --
$1.0000 2.45% $ 550,736 0.51% 2.42% --
$1.0000 1.98% $ 498,706 0.51% 1.96% --
$0.9999 3.12%+ $ 555,368 0.47%+ 3.11%+ --
$0.9999 3.26% $ 524,793 0.48% 3.21% --
$1.0000 3.13%+ $ 631,938 0.51%+ 3.06%+ --
- -------------------------------------------------------------------------------------------
$1.0000 2.80%+ $ 37,230 0.75%+ 2.79%+ 0.76%+
$1.0000 3.00% $ 29,202 0.75% 2.95% 0.79%
$1.0000 2.93% $ 72,089 0.74% 2.87% 0.77%
$1.0000 3.32% $ 122,057 0.69% 3.30% 0.76%
$1.0000 2.38% $ 78,640 0.67% 2.35% 0.75%
$1.0000 1.83% $ 52,557 0.65% 1.81% --
$1.0000 3.06%+ $ 70,519 0.50%+ 3.04%+ 0.51%+
$1.0000 3.26% $ 74,888 0.50% 3.20% 0.54%
$1.0000 3.03%+ $ 49,521 0.59%+ 3.02%+ 0.62%+
- -------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
Pegasus Funds
27
<PAGE> 29
PEGASUS CASH MANAGEMENT FUNDS
Cash Management Fund
Treasury Cash Management Fund
Treasury Prime
Cash Management Fund
U.S. Government Securities
Cash Management Fund
Municipal Cash Management Fund
SEMI-ANNUAL REPORT
June 30, 1998
PLEASE READ CAREFULLY: THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. THERE CAN BE NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 30
PEGASUS CASH MANAGEMENT FUNDS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders............................. 1
Statements of Assets and Liabilities............... 3
Statements of Operations........................... 4
Statements of Changes in Net Assets................ 5
Portfolio of Investments........................... 7
Notes to Financial Statements...................... 20
Financial Highlights............................... 28
</TABLE>
INVESTMENT ADVISER
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, Chicago, IL 60670
----------------
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
<PAGE> 31
June 30, 1998
Dear Pegasus Shareholder,
We are pleased to present your Semi-Annual Report for the Pegasus Cash
Management Funds dated June 30, 1998. As of June 30, 1998 the seven-day
annualized SEC yields for the following Pegasus Funds were:
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
SHARES SHARES
------------- -------
<S> <C> <C>
Cash Management Fund................................... 5.42% 5.17%
Treasury Cash Management Fund.......................... 5.45% 5.20%
Treasury Prime Cash Management Fund.................... 4.87% 4.62%
U.S. Government Securities Cash Management Fund........ 5.52% 5.27%
Municipal Cash Management Fund*........................ 3.41% 3.16%
</TABLE>
This report contains the portfolios and financial statements for the Pegasus
Cash Management Funds. All of the Funds purchase high quality money market
securities in accordance with their investment objectives and respective
management policies.
As of June 30, 1998, the Pegasus Cash Management Fund, the Pegasus Treasury
Cash Management Fund, the Pegasus Treasury Prime Cash Management Fund, the
Pegasus U.S. Government Securities Cash Management Fund and the Municipal Cash
Management Fund were each assigned a "AAAm" rating by Standard & Poor's Rating
Group and a "Aaa" rating by Moody's Investors Service, Inc. These ratings
reflect the Funds' capacity to maintain principal and limit exposure to loss.
These ratings are historical and are based upon the Cash Management Funds'
credit quality, market price exposure and management. They signify that the
Cash Management Funds' safety is excellent and that they have a superior
capacity to maintain a $1.00 net asset value per share.
The investment adviser to the Pegasus Funds, First Chicago NBD Investment
Management Company, brings you the expertise and heritage of an institution
that has been managing money for over 100 years. We thank you for the
confidence you have expressed by investing in the Pegasus Funds. We will
continue to earn your trust by pursuing an investment strategy which seeks to
provide competitive yields while protecting the value of your principal.
LOGO
Deborah Edwards
Managing Director
First Chicago NBD Investment Management Company
*The fund's income may be subject to the federal alternative minimum tax.
<PAGE> 32
A MESSAGE FROM THE INVESTMENT ADVISER
June 30, 1998
Dear Pegasus Funds Shareholder,
The year has proven both exciting and rewarding thus far:
Both the stock and bond markets continue to provide excellent returns with the
S&P 500* advancing almost 18 percent, the foreign markets, as measured by the
Morgan Stanley EAFE Index**, advancing 16 percent and Lehman Brothers Aggregate
Index*** (bonds) providing a 4% return. We believe the domestic economic
picture remains healthy as does the European outlook. The primary dark cloud
remains the troubled Asian arena. We look for a continued good domestic
environment although we do not expect the market to advance as sharply in the
second half of the year.
The Pegasus Family continues to grow with the recent launch of the Short
Municipal Bond Fund and the launch of an extended index fund in August of this
year. At that time the family will offer 9 equity funds, 10 fixed income funds,
9 money market funds, 3 managed asset funds (balanced funds) as well as a fixed
annuity and a group of variable annuity funds.
In May of this year, the parent of the advisor, First Chicago NBD Corp.,
announced plans to merge with BANC ONE CORPORATION. BANC ONE also has a strong
and proven investment management organization which, when combined with your
adviser, should provide an increased variety of investment options supported by
a stronger, more experienced combined organization. As the merger progresses we
will provide you with more information.
The investment adviser to the Pegasus Funds, First Chicago NBD Investment
Management Company, brings to you the expertise and heritage of an institution
that has been managing money for over 100 years. Our investment philosophy is a
simple one: a disciplined investment approach that seeks above average
performance over time while maintaining average risk.
I would like to thank you for the opportunity to serve your investment needs,
we appreciate that there are few greater trusts than the granting of ones
investments funds to an advisor.
LOGO
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
* The S&P 500 Index is an unmanaged index generally representative of the
U.S. stock market as a whole.
** The Morgan Stanley EAFE Index is an unmanaged index generally
representative of the foreign equity market as a whole.
*** The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
<PAGE> 33
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY TREASURY PRIME
CASH CASH CASH U.S. GOVERNMENT MUNICIPAL CASH
MANAGEMENT MANAGEMENT MANAGEMENT SECURITIES CASH MANAGEMENT
FUND FUND FUND MANAGEMENT FUND FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securi-
ties:
At cost $2,114,400,253 $301,014,125 $439,334,900 $1,259,430,533 $419,690,964
- -----------------------------------------------------------------------------------------------------
At amortized cost $2,117,339,931 $309,896,236 $439,716,112 $1,259,645,464 $419,438,267
Cash 676 208 462 500 36,300
Interest receivable 9,582,253 1,801,228 5,117,257 4,635,545 2,296,680
Deferred organization
costs, net 54,225 15,838 24,469 49,950 15,040
Prepaids and other 210,697 22,136 38,445 27,499 18,189
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 2,127,187,782 311,735,646 444,896,745 1,264,358,958 421,804,476
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
Accrued investment advi-
sory fees 348,181 57,970 69,039 259,077 71,367
Accrued administration
fees 261,136 43,478 52,168 171,939 53,525
Shareholder service fees
payable (Service
Shares) 678,542 188,479 181,292 260,071 37,168
Accrued custodian fees 3,317 1,409 877 840 402
Dividends payable 8,532,927 1,449,582 1,500,060 5,807,903 1,131,523
Other payable and ac-
crued expenses 9,426 2,302 3,222 80,781 10,136
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,833,529 1,743,220 1,806,658 6,580,611 1,304,121
- -----------------------------------------------------------------------------------------------------
NET ASSETS $2,117,354,253 $309,992,426 $443,090,087 $1,257,778,347 $420,500,355
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE AND RE-
DEMPTION PRICE PER
SHARE:
INSTITUTIONAL SHARES:
Net Assets $ 928,341,028 $ 22,868,856 $ 92,324,603 $ 810,685,995 $352,314,800
Capital shares 928,500,029 22,868,856 92,323,956 811,092,142 352,314,800
- -----------------------------------------------------------------------------------------------------
Net asset value and re-
demption price per
share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------
SERVICE SHARES:
Net assets $1,189,013,225 $287,123,570 $350,765,484 $ 447,092,352 $ 68,185,555
Capital shares 1,189,056,122 287,123,570 350,757,019 447,193,168 68,185,555
- -----------------------------------------------------------------------------------------------------
Net asset value and re-
demption price per
share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital shares
(unlimited number of
shares authorized, par
value $.01 per share) $ 21,175,561 $ 3,099,924 $ 4,430,809 $ 12,582,853 $ 4,205,004
Additional paid-in cap-
ital 2,096,380,592 306,892,502 438,650,166 1,245,702,457 416,295,351
Accumulated
undistributed net
realized gains
(losses) (201,900) -- 9,112 (506,963) --
- -----------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $2,117,354,253 $309,992,426 $443,090,087 $1,257,778,347 $420,500,355
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
3
<PAGE> 34
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY TREASURY PRIME U.S. GOVERNMENT MUNICIPAL
CASH MANAGEMENT CASH MANAGEMENT CASH MANAGEMENT SECURITIES CASH CASH MANAGEMENT
FUND FUND FUND MANAGEMENT FUND FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME $55,390,037 $7,630,824 $8,478,172 $32,398,064 $6,258,664
- --------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee 1,932,803 273,502 323,595 1,106,548 346,324
Administration fees 1,449,603 205,126 242,696 861,304 259,743
Service plan fees
(Service Shares) 1,276,216 331,355 328,348 506,132 69,817
Custodial fees 20,842 183 3,969 4,630 167
Registration and filing
fees 59,533 8,782 11,528 36,727 10,371
Professional fees 35,818 14,406 14,774 25,536 14,720
Amortization of de-
ferred organization
costs 17,195 4,959 12,670 15,928 4,959
Transfer Agent Fee 89,106 3,738 4,336 18,203 4,577
Other expenses 102,055 11,205 22,624 20,707 18,689
Less: Expense reim-
bursements (324,469) (43,271) (69,905) (79,681) (52,111)
- --------------------------------------------------------------------------------------------------------
NET EXPENSES 4,658,702 809,985 894,635 2,516,034 677,256
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $50,731,335 $6,820,839 $7,583,537 $29,882,030 $5,581,408
- --------------------------------------------------------------------------------------------------------
NET REALIZED GAINS ON
INVESTMENTS -- -- 7,371 4,388 --
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS FROM OPERATIONS $50,731,335 $6,820,839 $7,590,908 $29,886,418 $5,581,408
</TABLE>
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
Pegasus Funds
4
<PAGE> 35
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY
CASH MANAGEMENT
CASH MANAGEMENT FUND FUND
-----------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, 1998 Year Ended June 30, 1998 Period Ended
(Unaudited) December 31, 1997 (Unaudited) December 31, 1997(a)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 50,731,335 $ 50,222,489 $ 6,820,839 $ 3,335,785
Net realized gains
(losses) on invest-
ments -- -- -- --
- ------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 50,731,335 50,222,489 6,820,839 3,335,785
- ------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM NET IN-
VESTMENT INCOME:
Institutional Shares (24,360,340) (25,209,373) (220,311) (25,600)
Service Shares (26,370,995) (25,013,116) (6,600,528) (3,310,185)
- ------------------------------------------------------------------------------------------------
Total distributions to
shareholders (50,731,335) (50,222,489) (6,820,839) (3,335,785)
- ------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 6,448,793,600 9,535,537,549 924,102,453 569,961,617
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 2,319,699 4,462,385 -- --
- ------------------------------------------------------------------------------------------------
6,451,113,299 9,539,999,934 924,102,453 569,961,617
Less: payments for
shares redeemed (6,031,791,884) (8,960,162,558) (820,682,032) (363,389,612)
- ------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital
share transactions 419,321,415 579,837,376 103,420,421 206,572,005
- ------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 419,321,415 579,837,376 103,420,421 206,572,005
NET ASSETS:
Beginning of period 1,698,032,838 1,118,195,462 206,572,005 --
- ------------------------------------------------------------------------------------------------
End of period $ 2,117,354,253 $ 1,698,032,838 $ 309,992,426 $ 206,572,005
</TABLE>
- --------------------------------------------------------------------------------
(a)For the period from September 12, 1997 (commencement of operations) through
December 31, 1997.
See accompanying Notes to Financial Statements.
Pegasus Funds
5
<PAGE> 36
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY PRIME U.S. GOVERNMENT SECURITIES MUNICIPAL CASH MANAGEMENT
CASH MANAGEMENT FUND CASH MANAGEMENT FUND FUND
------------------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Period Ended
June 30, 1998 December 31, June 30, 1998 December 31, June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited) 1997 (Unaudited) 1997(b)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 7,583,537 $ 11,652,050 $ 29,882,030 $ 37,744,030 $ 5,581,408 $ 2,483,210
Net realized gains
(losses) on
investments 7,371 (507) 4,388 4,536 -- --
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net
assets from operations 7,590,908 11,651,543 29,886,418 37,748,566 5,581,408 2,483,210
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM NET
INVESTMENT INCOME:
Institutional Shares (1,485,031) (1,457,277) (19,628,548) (24,156,026) (4,721,874) (1,845,036)
Service Shares (6,098,506) (10,194,773) (10,253,482) (13,588,004) (859,534) (638,174)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (7,583,537) (11,652,050) (29,882,030) (37,744,030) (5,581,408) (2,483,210)
- --------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 962,434,225 2,338,002,420 3,646,681,674 5,164,514,378 809,863,158 523,029,206
Net asset value of
shares issued in
reinvestment of
distributions to
shareholders 413,689 395,431 874,240 1,116,975 42,128 13,719
- --------------------------------------------------------------------------------------------------------------------------
962,847,914 2,338,397,851 3,647,555,914 5,165,631,353 809,905,286 523,042,925
Less: payments for
shares redeemed (844,168,160) (2,299,154,786) (3,281,809,475) (4,849,816,940) (647,643,686) (264,804,170)
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital
share transactions 118,679,754 39,243,065 365,746,439 315,814,413 162,261,600 258,238,755
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 118,687,125 39,242,558 365,750,827 315,818,949 162,261,600 258,238,755
NET ASSETS:
Beginning of period 324,402,962 285,160,404 892,027,520 576,208,571 258,238,755 --
- --------------------------------------------------------------------------------------------------------------------------
End of period $ 443,090,087 $ 324,402,962 $ 1,257,778,347 $ 892,027,520 $ 420,500,355 $ 258,238,755
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b)For the period from August 18, 1997 (commencement of operations) through
December 31, 1997.
See accompanying Notes to Financial Statements.
Pegasus Funds
6
<PAGE> 37
PEGASUS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ --------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 7.19%
Lehman Brothers Agency Revolving Repurchase
Agreement, 6.10%, 7/1/98 (secured by various U.S.
Treasury obligations with maturities ranging from
7/1/98 through 5/12/04 at various interest rates
ranging from 0.00% to 9.05%, all held at Chase
Bank.............................................. $56,882,000 $ 56,882,000
Nomura Agency Revolving Repurchase Agreement,
6.00%, 7/1/98 (secured by various U.S. Treasury
Notes with maturities ranging from 2/15/00 through
2/15/08 at various interest rates ranging from
0.00% to 6.25%, all held at The Bank of New York). 36,000,000 36,000,000
Prudential Revolving Repurchase Agreement, 5.45%,
7/1/98 (secured by U.S. Treasury Note with a
maturity of 8/15/01 at an interest rate of 7.875%,
held at The Bank of New York)..................... 7,279,000 7,279,000
Smith Barney Inc., Revolving Repurchase Agreement,
6.10%, 7/1/98%, (secured by U.S. Treasury & Agency
obligations with maturities ranging from 7/7/98
through 4/25/08 at various interest rates ranging
from 0.00% to 9.00%, all held at The Bank of New
York)............................................. 52,200,000 52,200,000
--------------
152,361,000
--------------
COMMERCIAL PAPER -- 38.00%
Apreco, Inc. 5.56%, 7/21/98........................ 25,000,000 24,922,778
Aspen Funding Corp., 6.50%, 7/1/98................. 90,000,000 90,000,000
Banca Serafin S.A., 5.65%, 8/31/98................. 20,000,000 19,808,528
Barton Capital Corp., 5.55%, 7/13/98............... 20,000,000 19,963,000
Bell Atlantic Network Funding Corp., 5.56%, 8/3/98. 18,000,000 17,908,260
Cassie Des Depots ET Cosignations, 6.25%, 7/1/98... 56,000,000 56,000,000
Centric Capital Corporation, 5.54%, 7/30/98........ 20,000,000 19,910,744
Centric Capital Corporation, 5.55%, 7/14/98........ 10,000,000 9,979,958
Charta Corporation, 5.55%, 7/10/98................. 35,000,000 34,951,438
Corporate Receivables Corp., 5.54%, 7/8/98......... 50,000,000 49,946,138
FPL Group Capital, Inc., 6.40%, 7/1/98............. 65,000,000 65,000,000
Glencore Asset Funding Corp., 5.55%, 7/7/98........ 30,871,000 30,842,444
Greenwich Funding Corporation, 5.50%, 7/15/98...... 25,000,000 24,946,528
Harris Trust and Savings Bank, 5.56%, 7/27/98...... 25,000,000 25,000,000
Kitty Hawk Funding Corp., 5.50%, 7/15/98........... 10,138,000 10,116,316
Market Street Funding Corp., 5.55%, 7/16/98........ 35,000,000 34,919,063
Mont Blanc Capital Corp., 5.60%, 7/21/98........... 25,000,000 24,922,222
Oyster Creek Fuel Corp., 5.60%, 7/2/98............. 20,045,000 20,041,882
Province of Quebec, 5.44%, 1/14/99................. 35,000,000 33,958,089
Ranger Funding Corporation, 5.53%, 7/15/98......... 10,000,000 9,978,494
San Paolo Financial Co., 6.25%, 7/1/98............. 90,000,000 90,000,000
</TABLE>
Pegasus Funds
7
<PAGE> 38
PEGASUS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ --------------
<S> <C> <C>
TMI-1 Fuel Corp., 5.55%, 7/9/98,................... $27,498,000 $ 27,464,086
Variable Funding Capital Corp., 6.40%, 7/1/98...... 39,000,000 39,000,000
Windmill Funding Corporation, 5.50%, 7/17/98....... 25,000,000 24,938,889
--------------
804,518,857
--------------
NOTES -- 15.37%
Abbey National Treasury Securities Bank Note,
5.72%, 6/11/9..................................... 25,000,000 24,981,898
Associates Corp. of North America, Senior Note,
6.50%, 9/9/98..................................... 8,000,000 8,008,621
CIT Group Holdings Medium Term Note, 5.875%,
12/15/98.......................................... 20,000,000 20,018,501
General American Life Funding Agreement, 5.93%,
7/31/98........................................... 30,000,000 30,000,000
GE Engine Receivable Trust, VR Note, 5.73%,
2/14/00........................................... 6,877,112 6,877,112
Key Auto Finance, 5.835%, 1/5/99................... 1,153,141 1,153,141
KBL Capital Funding, Series A, V/R, 5/1/27......... 2,935,000 2,935,000
North Jersey Health Care, Inc., V/R, 12/01/27...... 5,110,000 5,110,000
Pennsylvania Economic Devlopment Funding Authority
Revenue, V/R, 8/1/10.............................. 6,200,000 6,200,000
Providian Life and Health Insurance Co., 5.89%,
7/31/98........................................... 35,000,000 35,000,000
Saegertown Co. PA, V/R, 12/1/03.................... 4,815,000 4,815,000
Sigma Finance Medium Term Note, 5.84%, 8/4/98...... 2,000,000 2,000,000
Sigma Finance Medium Term Note, 5.95%, 10/20/98.... 15,000,000 15,000,000
Strats Trust 1998-C, 144A, V/R, 4/13/99............ 35,000,000 34,999,857
SunAmerica Life Insurance Company, 5.82%, 11/19/98. 25,000,000 25,000,000
Travelers Insurance Company, 5.85%, 11/6/98........ 25,000,000 25,000,000
Travelers Insurance Company, 5.75%, 12/11/98....... 25,000,000 25,000,000
Wachovia Bank, Medium Term Note, 5.895%, 10/2/98... 10,000,000 9,998,157
Western and Southern Life Insurance Co., 5.73%,
1/29/03........................................... 25,000,000 25,000,000
Wilmington Trust Co., Series B Amtrak 93-B, V/R,
1/1/13............................................ 18,403,050 18,403,050
--------------
325,500,337
--------------
CERTIFICATES OF DEPOSIT -- 9.44%
Bank of Nova Scotia, 5.65%, 3/23/99................ 20,000,000 19,982,823
Banque National De Paris, 5.65%, 2/26/99........... 20,000,000 19,993,688
Bayerische Landesbank Girozentrale, 5.635%,
3/15/99........................................... 15,000,000 14,992,782
Canadian Imperial Bank of Commerce, 5.65%, 2/4/99.. 25,000,000 25,000,000
Commerzbank AG , 5.89%, 7/9/98..................... 5,000,000 5,000,003
Credit Commercial De France, 5.90%, 9/17/98........ 20,000,000 19,997,957
Credit Suisse First Boston Bank, 5.80%, 6/11/99.... 10,000,000 10,000,000
Morgan Guaranty Trust, 5.80%, 7/28/98.............. 2,000,000 1,999,995
</TABLE>
Pegasus Funds
8
<PAGE> 39
PEGASUS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ --------------
<S> <C> <C>
Norddeutsche Landesbank Girozentrale, 5.9175%,
10/21/98......................................... $ 10,000,000 $ 9,998,460
Royal Bank of Canada, 5.88%, 9/17/98.............. 15,000,000 15,000,920
Societe Generale, 5.945%, 8/28/98................. 3,000,000 2,999,749
Societe Generale, 5.96%, 9/15/98.................. 20,000,000 20,003,510
Swiss Bank Corp., 5.88%, 11/19/98................. 10,000,000 9,999,262
Swiss Bank Corp., 5.74%, 6/11/99.................. 10,000,000 9,994,569
Westpac Banking Corp., 5.73%, 4/16/99............. 15,000,000 14,996,019
--------------
199,959,737
--------------
TIME DEPOSITS -- 30.00%
ABN-Amro Bank N. V., 6.375%, 7/1/98............... 90,000,000 90,000,000
Banco Bilbao Vizcaya, 6.75%, 7/1/98............... 45,000,000 45,000,000
Bank of Tokyo -- Mitsubishi, 6.75%, 7/1/98........ 35,000,000 35,000,000
Cassa Di Risparmio Delle Provincie Lomarde,
6.1875%, 7/1/98.................................. 90,000,000 90,000,000
Deutsche Bank, 6.00%, 7/1/98...................... 90,000,000 90,000,000
First National Bank of Boston, 7/1/98, 6.125%..... 90,000,000 90,000,000
National Australia Bank, 5.8125%, 7/2/98.......... 50,000,000 50,000,000
Norddeutsche Landesbank, 6.25%, 7/1/98............ 80,000,000 80,000,000
Republic National Bank of New York, 6.50%, 7/1/98. 65,000,000 65,000,000
--------------
635,000,000
--------------
TOTAL INVESTMENTS.................................. $2,117,339,931
==============
</TABLE>
V/R -- Variable Rate
Pegasus Funds
9
<PAGE> 40
PEGASUS TREASURY CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 85.40%
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 5.90%, 7/1/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
8/15/98 through 5/15/08 at various interest rates
ranging from 0.00% to 8.875%, all held at the
Custodial Trust Company)............................ $75,000,000 $ 75,000,000
Dresdner Inc., Revolving Repurchase Agreement, 5.40%,
7/1/98 (secured by U.S. Treasury Note maturing
9/30/98 at an interest rate of 4.75%, held at Chase
Bank)............................................... 14,000,000 14,000,000
First Union Capital Markets, Revolving Repurchase
Agreement, 6.00%, 7/1/98 (secured by various U.S.
Treasury Notes with maturities ranging from 12/31/98
through 2/15/07 at various interest rates ranging
from 5.75% to 6.25%, all held at the Bankers Trust
Company)............................................ 13,000,000 13,000,000
Goldman Sachs Agency, Revolving Repurchase Agreement,
5.50%, 7/1/98, (secured by U.S. Treasury Note
maturing 5/15/03 at an interest rate at 5.625%, held
at The Bank of New York)............................ 14,000,000 14,000,000
Greenwich Capital Markets, Inc., Revolving Repurchase
Agreement, 5.80%, 7/1/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
8/15/98 through 2/15/08 at an interest rate of
0.00%, all held at Chase Bank)...................... 13,000,000 13,000,000
H.S.B.C. Treasury, Revolving Repurchase Agreement,
5.70%, 7/1/98 (secured by various U.S. Treasury
Notes with maturities ranging from 8/31/98 to
3/31/00 at interest rates ranging from 5.875% to
6.875%, all held at Chase Bank)..................... 14,000,000 14,000,000
Morgan Stanley Government Collateralized, Revolving
Repurchase Agreement, 5.70%, 7/1/98 (secured by U.S.
Treasury Bill with a maturity of 12/10/98 at an
interest rate of 0.00%, held at The Bank of New
York)............................................... 14,000,000 14,000,000
Nationsbank Capital Markets, Inc., Revolving
Repurchase Agreement, 5.90%, 7/1/98 (secured by
various U.S. Treasury Obligations with maturities
ranging from 8/15/03 through 5/15/08, at various
interest rates ranging from 0.00% to 12.00%, all
held at Chase Bank)................................. 75,000,000 75,000,000
Nomura Revolving Repurchase Agreement, 6.00%, 7/1/98
(secured by various U.S. Treasury Obligations with
maturities ranging from 2/15/00 through 2/15/08, at
various interest rates ranging from 0.00% to 6.25%,
all held at the Bank of New York)................... 13,000,000 13,000,000
</TABLE>
Pegasus Funds
10
<PAGE> 41
PEGASUS TREASURY CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
Prudential Revolving Repurchase Agreement, 5.45%,
7/1/98 (secured by U.S. Treasury Note with a
maturity of 8/15/01 at an interest rate of 7.875%,
held at The Bank of New York)....................... $ 5,636,000 $ 5,636,000
Salomon Brothers, Inc., Revolving Repurchase
Agreement, 5.95%, 7/1/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
8/15/98 through 5/15/08, at various interest rates
ranging from 0.00% to 12.00%, all held at Chase
Bank)............................................... 14,000,000 14,000,000
------------
264,636,000
------------
U.S. GOVERNMENT OBLIGATIONS -- 14.60%
U.S. Treasury Notes -- 14.60%
8.875%, 2/15/99..................................... 10,000,000 10,199,842
6.50%, 4/30/99...................................... 10,000,000 10,074,543
6.125%, 08/31/98.................................... 5,000,000 5,003,082
6.00%, 09/30/98..................................... 10,000,000 10,005,492
5.125%, 11/30/98.................................... 10,000,000 9,977,277
------------
45,260,236
------------
TOTAL INVESTMENTS..................................... $309,896,236
============
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
11
<PAGE> 42
PEGASUS TREASURY PRIME CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
U.S. TREASURY SECURITIES -- 100.00%
U.S. Treasury Bills:
4.85%, 7/2/98........................................ 54,948,000 $ 54,940,653
4.78%, 7/9/98........................................ 35,376,000 35,339,305
5.16%, 7/23/98....................................... 71,980,000 71,766,488
4.91%, 8/6/98........................................ 20,773,000 20,670,381
4.97%, 8/20/98....................................... 5,021,000 4,985,504
4.91%, 9/3/98........................................ 10,000,000 9,912,711
------------
197,615,042
------------
U.S. Treasury Notes:
8.250%, 7/15/98...................................... 42,181,000 42,231,348
5.250%, 7/31/98...................................... 19,672,000 19,673,346
6.250%, 7/31/98...................................... 24,254,000 24,275,650
4.750%, 8/31/98...................................... 26,628,000 23,604,586
6.125%, 8/31/98...................................... 39,938,000 39,986,805
6.000%, 9/30/98...................................... 44,936,000 45,009,968
7.125%, 10/15/98..................................... 14,595,000 14,670,994
5.125%, 11/30/98..................................... 9,737,000 9,725,055
5.125%, 12/31/98..................................... 6,667,000 6,659,786
6.375%, 1/15/99...................................... 5,000,000 5,023,096
6.250%, 3/31/99...................................... 6,722,000 6,757,472
7.000%, 4/15/99...................................... 4,000,000 4,044,643
6.500%, 4/30/99...................................... 435,000 438,321
------------
242,101,070
------------
TOTAL INVESTMENTS...................................... $439,716,112
============
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
12
<PAGE> 43
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ --------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 67.30%
Barclays Inc., Revolving Repurchase Agreement,
5.50%, 7/1/98 (secured by various U.S. Treasury
Notes with maturities ranging from 6/30/99 through
7/31/00 at various interest rates ranging from
6.125% to 6.75%, all held at The Bank Of New
York)............................................. $30,000,000 $ 30,000,000
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 5.90% 7/1/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
8/15/98 through 5/15/08 at various interest rates
ranging from 0.00% to 8.875% all held at the
Custodial Trust Company).......................... 52,000,000 52,000,000
Donaldson Lufkin, Revolving Repurchase Agreement,
5.85%, 7/1/98, (secured by U.S. Treasury and
Agency Obligations with maturities ranging from
11/15/98 to 2/5/08 at various interest rates
ranging from 0.00 to 6.70%, all held at The Bank
of New York)...................................... 55,000,000 55,000,000
First Union Capital Markets, Revolving Repurchase
Agreement, 6.00%, 7/1/98 (secured by various U.S.
Treasury Notes with maturities ranging from
12/31/98 through 2/15/07 at various interest rates
ranging from 5.75% to 6.25%, all held at Bankers
Trust Company).................................... 100,000,000 100,000,000
Greenwich Capital Markets, Inc., Revolving
Repurchase Agreement, 5.80%, 7/1/98 (secured by
various U.S. Treasury Obligations with maturities
ranging from 8/15/98 through 2/15/08 at an
interest rate of 0.00%, all held at Chase Bank)... 49,000,000 49,000,000
H.S.B.C. Treasury, Revolving Repurchase Agreement,
5.70%, 7/1/98 (secured by U.S. Treasury Notes with
maturities ranging from 8/31/98 to 3/31/00 at
interest rates ranging from 5.875% to 6.875%, all
held at Chase Bank)............................... 55,000,000 55,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 5.90%, 7/1/98 (secured by
various U.S. Treasury Obligations with maturities
ranging from 8/15/03 through 5/15/08, at various
interest rates ranging from 0.00% to 12.00%, all
held at Chase Bank)............................... 27,000,000 27,000,000
Nomura Revolving Repurchase Agreement, 6.00%,
7/1/98 (secured by various U.S. Treasury
Obligations with maturities ranging from 2/15/00
through 2/15/08 at various interest rates ranging
from 0.00% to 6.25%, all held at The Bank of New
York)............................................. 269,000,000 269,000,000
Prudential Revolving Repurchase Agreement, 5.45%,
7/1/98 (secured by U.S. Treasury Note with a
maturity of 8/15/01 at an interest rate of 7.875%,
held at The Bank of New York)..................... 200,000,000 200,000,000
Societe Generale Treasury, Revolving Repurchase
Agreement, 6.00% 7/1/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
7/1/98 through 5/12/04 at various interest rates
ranging from 0.00% to 9.05%, all held at Chase
Bank)............................................. 55,000,000 55,000,000
</TABLE>
Pegasus Funds
13
<PAGE> 44
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ --------------
<S> <C> <C>
Smith Barney Inc., Revolving Repurchase Agreement,
6.10%, 7/1/98 (secured by U.S. Treasury and Agency
Obligations with maturities ranging from 7/7/98
through 4/25/08 at various interest rates ranging
from 0.00% to 9.00%, all held at The Bank of New
York)............................................. $20,618,000 $ 20,618,000
--------------
912,618,000
--------------
AGENCY OBLIGATIONS -- 32.70%
Federal Farm Credit Bank Medium Term Note, 5.625%,
08/03/98.......................................... 8,000,000 7,999,663
Federal Farm Credit Bank Note, 5.70%, 09/02/98..... 10,000,000 9,997,897
Federal Home Loan Bank Discount Notes:
07/01/98.......................................... 30,000,000 30,000,000
08/05/98.......................................... 38,315,000 38,112,542
Federal Home Loan Bank:
5.72%, 07/21/98................................... 10,000,000 9,999,807
5.73%, 09/08/98................................... 4,500,000 4,498,958
5.80%, 09/18/98................................... 6,000,000 6,000,432
5.04%, 10/01/98................................... 3,000,000 2,993,567
5.54% VR, 10/20/98................................ 26,000,000 25,997,699
5.30%, 11/18/98................................... 4,400,000 4,389,824
5.71%, 3/4/99..................................... 15,000,000 15,000,000
5.58%, VR, 3/26/99................................ 35,000,000 34,988,436
5.50%, 3/26/99.................................... 25,000,000 24,980,529
5.72%, 5/6/99..................................... 15,000,000 14,994,763
Federal Home Loan Mortgage Corp. 5.605%, 3/12/99... 20,000,000 19,997,216
Federal National Mortgage Assn. Discount Notes:
5.71%, 09/09/98................................... 6,000,000 5,998,493
08/31/98....................................... 31,000,000 30,713,724
Federal National Mortgage Assn. Medium Term Notes:
5.19%, 07/20/98................................... 1,000,000 999,672
4.875%, 10/15/98.................................. 13,450,000 13,413,190
5.23%, 11/25/98................................... 6,005,000 5,990,253
5.37%, 02/26/99................................... 20,000,000 19,969,718
5.63%, 05/05/99................................... 10,000,000 9,989,486
Student Loan Marketing Assn. Medium Term Notes:
5.82%, 09/16/98................................... $10,000,000 $ 10,001,595
--------------
347,027,464
--------------
TOTAL INVESTMENTS................................... $1,259,645,464
==============
</TABLE>
VR = Variable rate security, rate disclosed represents 6/30/98 rate.
Pegasus Funds
14
<PAGE> 45
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ALABAMA -- 1.55%
Decatur Industrial Development,
"AMT", 1/1/27...................... VMIG 1 3.65% $ 900,000 $ 900,000
Stevenson Industrial Development,
6/1/32............................. 4.05% 5,600,000 5,600,000
------------
6,500,000
------------
ALASKA -- 2.38%
City of Valdez, 9/10/98............. VMIG 1 3.60% 10,000,000 10,000,000
------------
ARIZONA -- 0.50%
Maricopa Pollution Central Corp.,
5/1/29............................. 3.80% 2,100,000 2,100,000
------------
DELAWARE -- 0.43%
Delaware State Education "AMT",
8/1/29............................. A1+ 3.65% 1,800,000 1,800,000
------------
DISTRICT OF COLUMBIA -- 0.33%
District of Columbia American Uni-
versity, 10/1/15................... VMIG 1 3.60% 900,000 900,000
District of Columbia General Obliga-
tion, 10/1/07...................... 3.99% 500,000 500,000
------------
1,400,000
------------
FLORIDA -- 7.31%
Florida State Municipal Power, C/P,
8/7/98............................. P1 3.55% 11,500,000 11,500,000
Sarasota County Public Hospital
Florida,10/8/98.................... VMIG 1 3.65% 4,500,000 4,500,000
Sarasota County Public Hospital
Florida,10/8/98.................... VMIG 1 3.65% 4,800,000 4,800,000
St. Lucie Co. Pollution Control Rev-
enue 94A, 9/9/98................... VMIG 1 3.55% 4,850,000 4,850,000
St. Lucie Co. FLA, C/P, 8/13/98..... 3.60% 5,000,000 5,000,000
------------
30,650,000
------------
GEORGIA -- 6.39%
Burke Co. Pollution Control, 7/1/24. Aaa 3.95% 10,000,000 10,000,000
Columbus GA Hospital, 1/1/18........ A1+ 3.60% 8,600,000 8,600,000
Georgia Muni Gas, 11/1/06........... 3.40% 5,200,000 5,200,000
Gwinett Co. Georgia Hospital,
9/1/27............................. 3.55% 3,000,000 3,000,000
------------
26,800,000
------------
ILLINOIS -- 6.47%
Chicago Illinois General Obligation,
2/4/99............................. VMIG 1 3.55% 10,000,000 10,000,000
Chicago Illinois General Obligation,
1/1/99............................. 4.40% 4,000,000 4,017,626
Illinois Health Facilities Authori-
ties Revenue, 1/1/16............... VMIG 1 3.60% 6,100,000 6,100,000
Madison County Revenue Illinois,
3/1/33............................. 3.90% 2,300,000 2,300,000
Southwestern Development Authority
"AMT", 11/1/25..................... 3.90% 4,700,000 4,700,000
------------
27,117,626
------------
</TABLE>
Pegasus Funds
15
<PAGE> 46
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C>
INDIANA -- 3.93%
Indiana DFA Solid Waste, 7/10/98.... VMIG 1 3.60% $ 5,000,000 $ 5,000,000
Jasper County PCR Series B, C/P,
8/13/98............................ P1 3.60% 7,000,000 7,000,000
Whiting Industrial Sewer & Solid
Revenue, 1/1/26.................... 3.90% 4,500,000 4,500,000
------------
16,500,000
------------
IOWA -- 1.45%
Iowa Finance Authority, 6/1/19...... 3.65% 2,200,000 2,200,000
Iowa Finance Authority MF & P,
12/1/17............................ 3.60% 3,900,000 3,900,000
------------
6,100,000
------------
KANSAS -- 3.55%
Butler County Solid Waste, KS "AMT",
8/1/24............................. VMIG 1 4.00% 3,900,000 3,900,000
Clark Co. Pollution Control,
10/15/98........................... VMIG 1 3.70% 11,000,000 11,000,000
------------
14,900,000
------------
LOUISIANA -- 5.38%
Louisiana Public Facilities,
12/1/15............................ P1 4.00% 3,065,000 3,065,000
Plaquiemines Parish "AMT", 5/1/25... P1 3.95% 3,800,000 3,800,000
St. Charles "AMT", 11/1/21.......... 3.90% 15,700,000 15,700,000
------------
22,565,000
------------
MASSACHUSETTS -- 2.58%
Massachusetts St Industrial Finance
Agency, 12/1/06.................... 3.40% 10,800,000 10,800,000
------------
MICHIGAN -- 6.91%
Jackson County Economic Development
"AMT", 6/1/17...................... A1 3.70% 3,300,000 3,300,000
Kent Hospital Financial Authority,
1/15/20............................ VMIG 1 3.65% 2,300,000 2,300,000
Michigan St. Hospital Financial Au-
thority, 11/1/11................... VMIG 1 3.40% 1,900,000 1,900,000
Michigan St. Hospital Financial Au-
thority, 12/1/23................... VMIG 1 3.60% 900,000 900,000
Michigan St. Housing Development Au-
thority, 7/9/98.................... VMIG 1 3.80% 5,000,000 5,000,000
Michigan Underground C/P, 8/10/98... P1 3.70% 6,250,000 6,250,000
Regents of the Univ. of Michigan,
9/9/98............................. A1+ 3.60% 4,200,000 4,200,000
Wayne Charter Co. "AMT", 12/1/16.... VMIG 1 3.50% 300,000 300,000
Wayne Charter Co. "AMT", 12/1/16.... 3.60% 4,850,000 4,850,000
------------
29,000,000
------------
</TABLE>
Pegasus Funds
16
<PAGE> 47
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C>
MINNESOTA -- 4.72%
Hennepin Co. Minnesota Series C,
12/1/02............................ VMIG 1 3.40% $ 5,300,000 $ 5,300,000
Minneapolis Convention Center,
12/1/17............................ NR 3.50% 3,500,000 3,500,000
Minneapolis MN General Obligation,
12/1/07............................ 3.40% 4,900,000 4,900,000
Minnesota St. Higher Education,
11/1/12............................ 3.40% 6,100,000 6,100,000
------------
19,800,000
------------
NEVADA -- 0.48%
Clark County Industrial Revenue
"AMT", 12/1/22..................... A1+ 3.95% 2,000,000 2,000,000
------------
NEW YORK -- 4.05%
New York City Muni Water C/P,
7/10/98............................ VMIG 1 3.90% 10,000,000 10,000,000
New York City Water C/P, 7/15/98.... 3.60% 7,000,000 7,000,000
------------
17,000,000
------------
NORTH CAROLINA -- 1.19%
Mecklenburg County General Obliga-
tion, 2/1/17....................... VMIG 1 3.50% 5,000,000 5,000,000
------------
OHIO -- 0.48%
Ohio St. Air Quality Development Au-
thority C/P, 2/1/99................ 3.65% 2,000,000 2,000,000
------------
OREGON -- 2.79%
Oregon St. Housing & Community Serv-
ices, 5/13/99...................... 3.75% 10,000,000 10,000,000
Port Morrow Environmental Impact
Revenue, "AMT", 12/1/31............ VMIG 1 4.00% 1,700,000 1,700,000
------------
11,700,000
------------
PENNSYLVANIA -- 7.22%
Alleghany County Hospital Develop-
ment Authority, 10/1/21............ VMIG 1 3.60% 6,900,000 6,900,000
Alleghany County IDA, Jewish Federa-
tion, 10/01/25..................... 3.60% 7,700,000 7,700,000
Carbon County IDA PA C/P, 9/9/98.... 3.70% 6,000,000 6,000,000
New Castle Area Hospital Authority,
7/1/26............................. 3.60% 6,890,000 6,890,000
Penn St. Higher Education Facility,
4/1/17............................. 3.60% 2,800,000 2,800,000
------------
30,290,000
------------
PUERTO RICO -- 2.39%
Puerto Rico Commonwealth, 7/30/98... MIG 1 4.50% 10,000,000 10,005,836
------------
SOUTH CAROLINA -- 2.77%
Florence Co. Solid Waste Disposal,
"AMT", 4/1/27...................... A1+ 3.90% 4,000,000 4,000,000
Florence Co. Solid Waste Disposal,
4/1/28............................. 3.90% 7,600,000 7,600,000
------------
11,600,000
------------
</TABLE>
Pegasus Funds
17
<PAGE> 48
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C>
TENNESSEE -- 1.29%
Metropolitan Gov't Nashville
Davison, 11/15/98.................. Aa2 5.13% $ 5,375,000 $ 5,401,315
------------
TEXAS -- 14.42%
Austin Combined Util. Series A, DTD
6/12/98, 7/14/98................... A1+ 3.65% 7,890,000 7,890,000
Austin Util. System, DTD 6/11/98,
9/3/98............................. A1+ 3.65% 9,000,000 9,000,000
Brazos River Authority TX "AMT", DTD
2/12/97, 2/1/32.................... VMIG 1 4.30% 5,600,000 5,600,000
Gulf Coast Waste, 6/1/20............ VMIG 1 3.80% 2,600,000 2,600,000
Gulf Coast, "AMT", 5/1/25........... VMIG 1 4.00% 1,500,000 1,500,000
Gulf Coast, "AMT", 4/1/28........... VMIG 1 3.90% 3,000,000 3,000,000
North Central Methodist, 7/10/98.... VMIG 1 3.40% 900,000 900,000
North Central Methodist Series A,
7/16/98............................ A1+ 3.65% 15,000,000 15,000,000
North Cent Hlth Fac Dev, 12/1/15.... VMIG 1 4.00% 8,700,000 8,700,000
Sabine River Auth PCR, 3/1/26....... VMIG 1 4.30% 3,000,000 3,000,000
South Texas High Ed Au Inc "AMT",
12/1/03............................ VMIG 1 3.55% 3,300,000 3,300,000
------------
60,490,000
------------
UTAH -- 4.78%
Intermountain Power Agency, 9/9/98.. VMIG 1 3.55% 9,800,000 9,800,000
Internmountain Power Agency, Rev,
9/15/98............................ VMIG 1 3.45% 5,000,000 5,000,000
Utah St. School District Financial,
8/15/98............................ Aaa 8.38% 5,225,000 5,253,490
------------
20,053,490
------------
VIRGINIA -- 2.47%
King George Co. IDA. Revenue, "AMT",
3/1/27............................. A1+ 3.95% 3,800,000 3,800,000
Peninsula Ports Auth Rev, 5/1/22.... A1+ 3.90% 2,000,000 2,000,000
Roanoke Indl Dev Auth Rev, 7/1/19... VMIG1 3.50% 4,565,000 4,565,000
------------
10,365,000
------------
WASHINGTON -- .0.53%
Port Seattle Revenue, "AMT", 9/1/22. VMIG 1 3.65% 500,000 500,000
Washington St. Hlth, 2/15/27........ VMIG 1 4.00% 1,700,000 1,700,000
------------
2,200,000
------------
WISCONSIN -- 1.19%
Wisconsin Trans Rev, 8/11/98........ A1+ 3.65% 5,000,000 5,000,000
------------
WYOMING -- 0.07%
Converse Co. "AMT", 11/1/25......... VMIG 1 4.15% 300,000 300,000
------------
TOTAL INVESTMENTS.................... $419,438,267
============
</TABLE>
Pegasus Funds
18
<PAGE> 49
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS
- ------------------------
AMBAC-- AMBAC Indemnity Corp.
AMT-- Alternative Minimum Tax
BIGI-- Bond Investors Guaranty Insurance Co.
CP-- Commercial Paper
DFA-- Development Finance Authority
EDC-- Economic Development Corporation
FGIC-- Financial Guaranty Insurance Company
FSA-- Financial Securities Assurance Corp.
GO-- General Obligation
HCF-- Health Care Facilities
HR-- Housing Revenue
HDA-- Housing Development Authority
HFA-- Housing Finance Authority
IDA-- Individual Development & Export Authority
IDR-- Industrial Development Revenue
MBIA-- Municipal Bond Insurance Association
PCR-- Pollution Control Revenue
PFA-- Public Facilities Authority
TAN-- Tax Anticipation Note
TRAN-- Tax Revenue Anticipation Note
UPDATE-- Unit Priced Daily Adjustable Tax Exempt Securities
VRDB-- Variable Rate Demand Bond
VRDN-- Variable Rate Demand Note
* Rating (not covered by the report of independent public accountants) --
Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations rated
AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1997. The interest rate for all securities with maturity
greater than thirteen months has an automatic reset feature resulting in an
effective maturity of thirteen months or less.
See accompanying Notes to Financial Statements.
Pegasus Funds
19
<PAGE> 50
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(1)GENERAL
The Pegasus Funds (Pegasus) was organized as a Massachusetts business trust on
April 21, 1987 and registered under the Investment Company Act of 1940 (the
Act), as amended, as an open-end investment company. As of June 30, 1998,
Pegasus consisted of thirty separate portfolios of which there were five cash
management funds (the Cash Management Funds or the Funds), as described below.
PEGASUS CASH MANAGEMENT FUND
PEGASUS TREASURY CASH MANAGEMENT FUND
PEGASUS TREASURY PRIME CASH MANAGEMENT FUND
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
The Cash Management Fund commenced operations on July 30, 1992, the Treasury
Cash Management Fund commenced operations on September 12, 1997, the Treasury
Prime Cash Management Fund commenced operations on March 22, 1995, the U.S.
Government Securities Cash Management Fund commenced operations on June 2, 1992
and the Municipal Cash Management Fund commenced operations on August 18, 1997.
The Cash Management Funds each offer two classes of shares, Institutional
Shares and Service Shares. Institutional Shares and Service Shares are
substantially the same except that Service Shares are subject to fees payable
under a Distribution and Service Plan adopted pursuant to Rule 12b-1 under the
Act (the Service Plan) at an annual rate of 0.25% of the average daily net
asset value of the outstanding Services Shares.
(2)SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Cash Management Funds in preparation of the financial statements. The policies
are in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Pegasus Funds
20
<PAGE> 51
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Investments
Pursuant to Rule 2a-7 of the Act, the Cash Management Funds utilize the
amortized cost method to determine the carrying value of investment securities.
Under this method, investment securities are valued for both financial
reporting and federal tax purposes at amortized cost and any discount or
premium is amortized from the date of acquisition to maturity. The use of this
method results in a carrying value which approximates market value. Market
value is determined based upon quoted market prices or dealer quotes.
Investment security purchases and sales are accounted for on the trade date.
Realized gains and losses from security transactions are recorded on the
identified cost basis.
Pegasus invests in securities subject to repurchase agreements. First Chicago
NBD Investment Management Company (FCNIMCO), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Pegasus' investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by FCNIMCO to assure
its value remains at least equal to 102% of the repurchase agreement amount;
and 3) funds are not disbursed by Pegasus or its agent unless collateral is
presented or acknowledged by the collateral custodian.
The Municipal Cash Management Fund invests in a majority of instruments whose
stated maturity is greater than one year, but whose rate of interest is
readjusted no less frequently than annually, or which possess demand features
and may therefore be deemed to have a maturity equal to the period remaining
until the next interest adjustment date or the demand date, whichever is
longer.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code, as amended (the
Code), and generally accepted accounting principles.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Code, applicable to regulated investment companies and to distribute net
investment income and realized gains to its shareholders. Therefore, no federal
income tax provision is required in the accompanying Financial Statements.
As of December 31, 1997, the Cash Management Funds had capital loss
carryforwards and related expiration dates as follows:
<TABLE>
<CAPTION>
FUND 2001 2002 2003 TOTAL
---- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
U.S. Government Securities
Cash Management Fund......... $ -- $453,000 $58,000 $511,000
Cash Management Fund.......... 19,000 151,000 32,000 202,000
</TABLE>
Pegasus Funds
21
<PAGE> 52
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Shareholder Dividends
On each business day except those holidays the New York Stock Exchange
(Exchange), FCNIMCO or its bank affiliates observe, net investment income is
declared as a dividend, at the close of the Exchange, to shareholders of record
at such close. Such dividends are paid monthly. Distributions from net realized
capital gains, if any, are normally declared and paid annually, but each Fund
may make distributions on a more frequent basis to comply with the distribution
requirements of the Code. To the extent that net realized capital gains can be
offset by capital loss carryforwards, it is the policy of each Fund not to
distribute such gains.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the five
year period beginning with the commencement of operations of each portfolio.
Expenses
Expenses directly attributable to a Cash Management Fund are charged to that
Cash Management Fund's operations; expenses which are applicable to all Cash
Management Funds are allocated among them on the basis of relative net assets.
Fund expenses directly attributable to a class of shares are charged to that
class; expenses which are applicable to all classes are allocated among them.
Pegasus monitors the rate at which expenses are charged to ensure that a proper
amount of expense is charged to income each year. This percentage is subject to
revision if there is a change in the estimate of the future net assets of the
Funds or a change in expectations as to the level of actual expenses.
(3)CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Cash Management Funds are summarized below (at
$1.00 per share):
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
-------------------------------
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) Dec. 31, 1997
---------------- --------------
<S> <C> <C>
Institutional Shares:
Shares issued........................... 3,878,101,885 6,087,058,701
Dividends reinvested.................... 2,319,221 4,462,385
Shares redeemed......................... (3,657,349,639) (6,272,197,824)
-------------- --------------
Net increase (decrease)................. 223,071,467 (180,676,738)
============== ==============
Service Shares:
Shares issued........................... 2,570,691,715 3,448,478,848
Dividends reinvested.................... 478 --
Shares redeemed......................... (2,374,442,245) (2,687,964,734)
-------------- --------------
Net increase............................ 196,249,948 760,514,114
============== ==============
Net increase in Fund..................... 419,321,415 579,837,376
============== ==============
</TABLE>
Pegasus Funds
22
<PAGE> 53
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY CASH MANAGEMENT FUND
--------------------------------------
Six Months Ended
June 30, 1998 Period Ended
(Unaudited) Dec. 31, 1997(a)
----------------- ------------------
<S> <C> <C>
Institutional Shares:
Shares issued................... 26,735,570 6,838,921
Dividends reinvested............ -- --
Shares redeemed................. (4,716,864) (5,988,771)
---------------- ------------------
Net increase.................... 22,018,706 850,150
================ ==================
Service Shares:
Shares issued................... 897,366,883 563,122,696
Dividends reinvested............ -- --
Shares redeemed................. (815,965,168) (357,400,841)
---------------- ------------------
Net increase.................... 81,401,715 205,721,855
================ ==================
Net increase in Fund............. 103,420,421 206,572,005
================ ==================
<CAPTION>
TREASURY PRIME CASH MANAGEMENT FUND
--------------------------------------
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) Dec. 31, 1997
----------------- ------------------
<S> <C> <C>
Institutional Shares:
Shares issued................... 220,718,447 686,151,852
Dividends reinvested............ 342,216 345,903
Shares redeemed................. (219,550,915) (665,804,296)
---------------- ------------------
Net increase.................... 1,509,748 20,693,459
================ ==================
Service Shares:
Shares issued................... 741,715,778 1,651,850,568
Dividends reinvested............ 71,473 49,528
Shares redeemed................. (624,617,245) (1,633,350,490)
---------------- ------------------
Net increase.................... 117,170,006 18,549,606
================ ==================
Net increase in Fund............. 118,679,754 39,243,065
================ ==================
</TABLE>
- --------
(a) For the period from September 12, 1997 (commencement of operations) through
December 31, 1997.
Pegasus Funds
23
<PAGE> 54
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES
CASH MANAGEMENT FUND
---------------------------------
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) Dec. 31, 1997
---------------- ----------------
<S> <C> <C>
Institutional Shares:
Shares issued.......................... 2,425,284,745 3,117,508,597
Dividends reinvested................... 806,549 1,026,989
Shares redeemed........................ (2,149,772,985) (2,953,336,804)
-------------- --------------
Net increase........................... 276,318,309 165,198,782
============== ==============
Service Shares:
Shares issued.......................... 1,221,396,929 2,047,005,781
Dividends reinvested................... 67,691 89,986
Shares redeemed........................ (1,132,036,490) (1,896,480,136)
-------------- --------------
Net increase........................... 89,428,130 150,615,631
============== ==============
Net increase in Fund.................... 365,746,439 315,814,413
============== ==============
<CAPTION>
MUNICIPAL CASH MANAGEMENT FUND
---------------------------------
Six Month Ended
June 30, 1998 Period Ended
(Unaudited) Dec. 31, 1997(b)
---------------- ----------------
<S> <C> <C>
Institutional Shares:
Shares issued.......................... 591,490,629 322,413,470
Dividends reinvested................... 42,128 13,719
Shares redeemed........................ (440,922,782) (120,722,364)
-------------- --------------
Net increase........................... 150,609,975 201,704,825
============== ==============
Service Shares:
Shares issued.......................... 218,372,529 200,615,736
Dividends reinvested................... -- --
Shares redeemed........................ (206,720,904) (144,081,806)
-------------- --------------
Net increase........................... 11,651,625 56,533,930
============== ==============
Net increase in Fund.................... 162,261,600 258,238,755
============== ==============
</TABLE>
- --------------
(b)For the period from August 18, 1997 (commencement of operations) through
December 31, 1997.
(4)MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pegasus has an Investment Advisory Agreement with FCNIMCO pursuant to which
FCNIMCO has agreed to provide the day-to-day management of each Cash Management
Fund for an advisory fee at a annual rate of 0.20% of each Cash Management
Fund's average daily net assets.
Pegasus Funds
24
<PAGE> 55
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Pegasus has entered into a Co-Administration Agreement with FCNIMCO and BISYS
Fund Services (BISYS) (collectively the Co-Administrators) pursuant to which
the Co-Administrators have agreed to assist in all aspects of each Cash
Management Fund's operations for an administration fee at an annual rate of
0.15% of each Cash Management Fund's average daily net assets.
For the period ended June 30, 1998, FCNIMCO agreed to limit each Cash
Management Fund's expenses to an annual amount not to exceed 0.35% of average
daily net assets for Institutional Shares and 0.60% of average daily net assets
for Service Shares. As a result, the Cash Management Fund, Treasury Cash
Management Fund, Treasury Prime Cash Management Fund, U.S. Government
Securities Cash Management Fund and the Municipal Cash Management Fund were
reimbursed for expenses of $324,469, $43,271, $69,905, $79,681, and $52,111,
respectively.
Pegasus has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the Act. Under the terms of such Plan, each Fund pays BISYS, the
Distributor, an annual fee of 0.25% of the average daily net assets of the
outstanding Service Shares for advertising, marketing, and distributing each
Cash Management Fund's Service Shares and for the provision of certain services
to the holders of Service Shares. The Distributor may make payments to others,
including FCNIMCO, First Chicago NBD (FCNBD) and their affiliates, for the
provision of these services. For the period ended June 30, 1998, the Cash
Management Fund, the Treasury Cash Management Fund, the Treasury Prime Cash
Management Fund, the U.S. Government Securities Cash Management Fund and the
Municipal Cash Management Fund paid fees under the Service Plan in the amount
of $1,276,216, $331,355, $328,348, $506,132, and $69,817, respectively.
NBD Bank (an affiliate of FCNIMCO) is also compensated for its services as
Pegasus' custodian, and is reimbursed for certain out of pocket expenses
incurred on behalf of Pegasus.
Pegasus maintains an unfunded, nonqualified deferred compensation plan. The
plan allows an individual trustee to elect to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
On April 10, 1998, First Chicago NBD Investment Management Company's parent
company, First Chicago NBD Corporation, entered into an agreement and plan of
merger with BANC ONE CORPORATION pursuant to which First Chicago NBD
Corporation will merge with and into BANC ONE CORPORATION. The merger is
conditioned upon, among other things, approval by holders of a majority of the
BANC ONE CORPORATION common stock, approval by holders of a majority of the
First Chicago NBD Corporation common stock, and receipt of certain regulatory
and governmental approvals.
(5)ILLIQUID SECURITIES
The Pegasus Cash Management Funds may invest not more than 10% of the value of
their respective net assets in securities that are illiquid. Illiquid
investments may include securities having legal or contractual restrictions on
resale or no readily available market. At June 30, 1998, the Pegasus Cash
Management Fund
Pegasus Funds
25
<PAGE> 56
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
owned the following restricted securities (constituting 2.4% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees. Certain of these securities
may be offered and sold to "qualified institutional buyers" under Rule 144A of
the 1933 Act.
<TABLE>
<CAPTION>
ACQUISITION PAR VALUE PER 6/30/98 PERCENTAGE OF
SECURITY DATE VALUE UNIT VALUE NET ASSETS COST
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SunAmerica Life Insur-
ance Company........... 11/19/97 $25,000,000 $1.00 $25,000,000 1.2% $25,000,000
Travelers Insurance Com-
pany................... 11/6/97 25,000,000 1.00 25,000,000 1.2 25,000,000
- -------------------------------------------------------------------------------------------------
$50,000,000 2.4% $50,000,000
- -------------------------------------------------------------------------------------------------
</TABLE>
(6)PORTFOLIO COMPOSITION
Although the Municipal Cash Management Fund has a diversified investment
portfolio, the fund has investments in excess of 10% of its total investments
in the State of Texas.
Pegasus Funds
26
<PAGE> 57
[INTENTIONALLY LEFT BLANK]
Pegasus Funds
27
<PAGE> 58
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
The Financial Highlights present a per share analysis of net investment income
and distributions from net investment income for the Cash Management Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Cash Management Funds and other information for the periods presented.
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS INCREASE DUE TO CAPITAL
NET ASSET VALUE NET GAINS TOTAL FROM FROM NET CONTRIBUTION FROM AN
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT INVESTMENT AFFILIATE OF THE TOTAL
PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENT ADVISER DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the period ended
6/30/98 (Unaudited) 0.9997 0.0264 0.0001 0.0265 (0.0264) -- (0.0264)
1997 0.9998 0.0528 (0.0001) 0.0527 (0.0528) -- (0.0528)
1996 0.9996 0.0508 0.0002 0.0510 (0.0508) -- (0.0508)
1995(/5/) 0.9994 0.0277 0.0002 0.0279 (0.0277) -- (0.0277)
1995(/6/)(/1//1/) 0.9993 0.0507 (0.0059) 0.0448 (0.0507) 0.0060 (0.0507)
1994(/1//1/) 0.9999 0.0333 (0.0006) 0.0327 (0.0333) -- (0.0333)
1993(/7/) 1.0000 0.0297 (0.0001) 0.0296 (0.0297) -- (0.0297)
SERVICE SHARES
For the period ended
6/30/98 (Unaudited) 0.9999 0.0252 -- 0.0252 (0.0252) -- (0.0252)
1997 0.9998 0.0503 0.0001 0.0504 (0.0503) -- (0.0503)
1996 0.9996 0.0484 0.0002 0.0486 (0.0484) -- (0.0484)
1995(/5/) 0.9994 0.0264 0.0002 0.0266 (0.0264) -- (0.0264)
1995(/8/) 1.0000 0.0245 (0.0006) 0.0239 (0.0245) -- (0.0245)
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the period ended
06/30/98 (Unaudited) 1.0000 0.0259 -- 0.0259 (0.0259) -- (0.0259)
1997(/1//0/) 1.0000 0.0159 -- 0.0159 (0.0159) -- (0.0159)
SERVICE SHARES
For the period ended
06/30/98 (Unaudited) 1.0000 0.0247 -- 0.0247 (0.0247) -- (0.0247)
1997(/1//0/) 1.0000 0.0152 -- 0.0152 (0.0152) -- (0.0152)
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY PRIME CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the period ended
6/30/98 (Unaudited) 0.9999 0.0243 0.0001 0.0244 (0.0243) -- (0.0243)
1997 0.9999 0.0479 -- 0.0479 (0.0479) -- (0.0479)
1996 1.0000 0.0474 (0.0001) 0.0473 (0.0474) -- (0.0474)
1995(/4/) 1.0000 0.0399 -- 0.0399 (0.0399) -- (0.0399)
SERVICE SHARES
For the period ended
6/30/98 (Unaudited) 1.0000 0.0230 -- 0.0230 (0.0230) -- (0.0230)
1997 1.0000 0.0454 -- 0.0454 (0.0454) -- (0.0454)
1996 1.0000 0.0449 -- 0.0449 (0.0449) -- (0.0449)
1995(/4/) 1.0000 0.0380 -- 0.0380 (0.0380) -- (0.0380)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the period ended
6/30/98 (Unaudited) 0.9992 0.0261 0.0002 0.0263 (0.0261) -- (0.0261)
1997 0.9988 0.0521 0.0004 0.0525 (0.0521) -- (0.0521)
1996 0.9990 0.0502 (0.0002) 0.0500 (0.0502) -- (0.0502)
1995(/1/) 0.9989 0.0320 0.0001 0.0321 (0.0320) -- (0.0320)
1995(/1//2/) 0.9999 0.0492 (0.0010) 0.0482 (0.0492) -- (0.0492)
1994(/1//2/) 1.0000 0.0302 (0.0001) 0.0301 (0.0302) -- (0.0302)
1993(/2/) 1.0000 0.0319 -- 0.0319 (0.0319) -- (0.0319)
SERVICE SHARES
For the period ended
6/30/98 (Unaudited) 0.9997 0.0249 -- 0.0249 (0.0249) -- (0.0249)
1997 0.9995 0.0496 0.0002 0.0498 (0.0496) -- (0.0496)
1996 0.9990 0.0478 0.0005 0.0483 (0.0478) -- (0.0478)
1995(/1/) 0.9989 0.0305 0.0001 0.0306 (0.0305) -- (0.0305)
1995(/3/) 1.0000 0.0199 (0.0011) 0.0188 (0.0199) -- (0.0199)
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the period ended
6/30/98 (Unaudited) 1.0000 0.0161 -- 0.0161 (0.0161) -- (0.0161)
1997(/9/) 1.0000 0.0125 -- 0.0125 (0.0125) -- (0.0125)
SERVICE SHARES
For the period ended
6/30/98 (Unaudited) 1.0000 0.0149 -- 0.0149 (0.0149) -- (0.0149)
1997(/9/) 1.0000 0.0116 -- 0.0116 (0.0116) -- (0.0116)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
28
<PAGE> 59
<TABLE>
<CAPTION>
NET ASSETS RATIO OF RATIO OF NET RATIO OF EXPENSES TO
NET ASSET END OF EXPENSES TO INVESTMENT INCOME AVERAGE NET ASSETS
VALUE END TOTAL PERIOD AVERAGE NET TO AVERAGE (EXCLUDING FEE WAIVERS
OF PERIOD RETURN (000) ASSETS NET ASSETS AND REIMBURSEMENTS)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.9998 5.36%+ $ 928,341 0.35%+ 5.29%+ 0.38%+
0.9997 5.41% $ 705,270 0.35% 5.36% 0.38%
0.9998 5.23% $ 885,946 0.35% 5.19% 0.42%
0.9996 2.80%++ $ 389,127 0.35%+ 5.51%+ 0.43%+
0.9994 5.19%(/6/) $ 319,214 0.35% 5.11% 0.44%
0.9993 3.38% $ 143,820 0.31% 3.33% 0.43%
0.9999 3.25%+ $ 175,713 0.05%+ 3.19%+ 0.56%+
0.9999 5.10%+ $1,189,013 0.60%+ 5.04%+ 0.63%+
0.9999 5.15% $ 992,763 0.60% 5.11% 0.63%
0.9998 4.98% $ 232,249 0.60% 4.94% 0.67%
0.9996 2.68%++ $ 121,750 0.60%+ 5.25%+ 0.69%+
0.9994 2.47%++ $ 11,372 0.60%+ 5.46%+ 0.71%+
- -------------------------------------------------------------------------------------
1.0000 5.24%+ $ 22,869 0.35%+ 5.22%+ 0.38%+
1.0000 5.29%+ $ 850 0.35%+ 5.28%+ 0.41%+
1.0000 5.00%+ $ 287,124 0.60%+ 4.97%+ 0.63%+
1.0000 5.04%+ $ 205,722 0.60%+ 5.03%+ 0.66%+
- -------------------------------------------------------------------------------------
1.0000 4.92%+ $ 92,325 0.35%+ 4.85%+ 0.39%+
0.9999 4.90% $ 90,813 0.35% 4.79% 0.40%
0.9999 4.86% $ 70,120 0.35% 4.84% 0.46%
1.0000 4.06%++ $ 14,008 0.35%+ 5.16%+ 1.23%+
1.0000 4.66%+ $ 350,765 0.60%+ 4.60%+ 0.64%+
1.0000 4.64% $ 233,590 0.60% 4.54% 0.65%
1.0000 4.60% $ 215,040 0.60% 4.59% 0.71%
1.0000 3.86%++ $ 130,559 0.60%+ 4.72%+ 0.74%+
- -------------------------------------------------------------------------------------
0.9994 5.30%+ $ 810,686 0.35%+ 5.23%+ 0.36%+
0.9992 5.34% $ 534,364 0.35% 5.27% 0.36%
0.9969 5.15% $ 369,163 0.35% 5.09% 0.43%
0.9990 3.24%++ $ 489,395 0.35%+ 5.46%+ 0.42%+
0.9989 5.03% $ 475,248 0.34% 4.94% 0.41%
0.9999 3.06% $ 413,634 0.30% 3.02% 0.41%
1.0000 3.25%+ $ 264,527 0.02%+ 3.10%+ 0.49%+
0.9997 5.04%+ $ 447.092 0.60%+ 4.98%+ 0.61%+
0.9997 5.08% $ 357,663 0.60% 5.02% 0.61%
0.9995 4.89% $ 207,046 0.60% 4.84% 0.68%
0.9990 3.09%++ $ 56,000 0.60%+ 5.17%+ 0.69%+
0.9989 2.01%++ $ 16,702 0.57%+ 5.48%+ 0.66%+
- -------------------------------------------------------------------------------------
1.0000 3.26%+ $ 352,315 0.35%+ 3.24%+ 0.38%+
1.0000 3.39%+ $ 201,705 0.35%+ 3.37%+ 0.41%+
1.0000 3.00%+ $ 68,186 0.60%+ 2.99%+ 0.63%+
1.0000 3.14%+ $ 56,534 0.60%+ 3.12%+ 0.66%+
- -------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
29
<PAGE> 60
NOTES TO FINANCIAL HIGHLIGHTS
(/1/)For the period June 1, 1995 through December 31, 1995. Effective June 1,
1995, the Fund changed its fiscal year end from May 31 to December 31.
(/2/)For the period June 2, 1992 (commencement of operations) through May 31,
1993.
(/3/)For the period January 17, 1995 (initial offering date of Service Shares)
through May 31, 1995.
(/4/)For the period March 22, 1995 (commencement of operations) through
December 31, 1995.
(/5/)For the period July 1, 1995 through December 31, 1995. Effective July 1,
1995 the Fund changed its fiscal year end from June 30 to December 31.
(/6/)If the Fund had not a capital contribution by an Affiliate of the
Investment Adviser during the period, the total return would have been
4.51%.
(/7/)For the period July 30, 1992 (commencement of operations) through June 30,
1993.
(/8/)For the period January 17, 1995 (initial offering date of Service Shares)
through June 30, 1995.
(/9/)For the period August 18, 1997 (commencement of operations) through
December 31, 1997.
(/1//0/)For the period September 12, 1997 (commencement of operations) through
December 31, 1997.
(/1//1/)For the year ended June 30.
(/1//2/)For the year ended May 31.
+Annualized.
++Not Annualized.
Pegasus Funds
30
<PAGE> 61
Table of Contents
1 Letter to Shareholders
2 Statements of Assets and Liabilities
10 Statements of Operations
14 Statements of Changes in Net Assets
21 Portfolios of Investments
129 Notes to Financial Statements
148 Financial Highlights
Pegasus Funds are not bank
deposits or obligations of, or
guaranteed or endorsed by First
Chicago NBD Corporation or any
of its affiliates, and are not
federally insured or guaranteed
by the U.S. government, FDIC,
or any governmental agency.
Investment in the Funds
involves risks, including the
possible loss of principal.
PEGASUS FUNDS
(800) 688-3350
INVESTMENT ADVISER
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, MS 0334
Chicago, IL 60670-0334
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
Pegasus Funds
I
<PAGE> 62
A MESSAGE FROM THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
JUNE 30, 1998
DEAR PEGASUS FUNDS SHAREHOLDER,
The year has proven both exciting and rewarding thus far:
Both the stock and bond markets continue to provide excellent returns with the
S&P 500* advancing almost 18 percent, the foreign markets, as measured by the
Morgan Stanley EAFE Index, advancing 16 percent and Lehman Brothers Aggregate
Index*** (bonds) providing a 4% return. We believe the domestic economic
picture remains healthy as does the European outlook. The primary dark cloud
remains the troubled Asian arena. We look for a continued positive domestic
environment although we do not expect the market to advance as sharply in the
second half of the year.
The Pegasus Family continues to grow with the recent launch of the Short
Municipal Bond Fund and the launch of an extended index fund in August of this
year. At that time the family will offer 9 equity funds, 10 fixed income funds,
9 money market funds, 3 managed asset funds (balanced funds) as well as a fixed
annuity and a group of variable funds.
In May of this year, the parent of the adviser, First Chicago NBD Corp.,
announced plans to merge with BANC ONE Corporation. BANC ONE also has a strong
and proven investment management organization which, when combined with your
adviser, should provide an increased variety of investment options supported by
a stronger, more experienced combined organization. As the merger progresses we
will provide you with more information.
The investment adviser to the Pegasus Funds, First Chicago NBD Investment
Management Company, brings to you the expertise and heritage of an institution
that has been managing money for over 100 years. Our investment philosophy is a
simple one: a disciplined investment approach that seeks above average
performance over time while maintaining average risk.
I would like to thank you for the opportunity to serve your investment needs.
We appreciate that there are few greater trusts than the granting of one's
investment funds to an adviser.
LOGO
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
* The S&P Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
** Morgan Stanley EAFE Index is an unmanaged index generally representative of
the foreign equity market as a whole.
*** The Lehman Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
<PAGE> 63
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MANAGED ASSETS MANAGED ASSETS EQUITY GROWTH MID-CAP SMALL-CAP
CONSERVATIVE FUND BALANCED FUND GROWTH FUND INCOME FUND FUND OPPORTUNITY FUND OPPORTUNITY FUND
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in
securities:
At cost $ 131,234,165 $ 269,667,298 $ 21,591,028 $ 268,676,272 $ 483,674,314 $ 775,778,748 $279,186,699
- -------------------------------------------------------------------------------------------------------------------------------
At value (Note
2) $ 135,152,771 $ 277,312,258 $ 21,877,936 $ 325,742,844 $ 846,249,295 $1,141,146,409 $328,144,452
Cash 374 90 -- -- -- 947 --
Receivable for
securities sold -- -- -- 2,129,354 1,461,381 13,585,027 26,523
Receivable for
fund shares sold 229,814 297,396 100,990 6,223 235,200 176,376 150,172
Income receiv-
able -- -- -- 553,690 360,245 644,528 116,359
Deferred organi-
zation costs,
net (Note 2) 31,496 4,857 -- 22,571 26,699 -- 22,914
Prepaids and
other assets 58,538 154,562 43,881 113,229 155,746 308,678 59,427
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 135,472,993 277,769,163 22,022,807 328,567,911 848,488,566 1,155,861,965 328,519,847
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for se-
curities pur-
chased 116,722 137,126 58,754 28,269 144,976 8,840,454 611,237
Payable for
variation margin
on futures
contracts -- -- -- -- 43,250 110,490 6,450
Accrued invest-
ment advisory
fees 71,062 146,301 11,155 129,135 348,738 546,881 182,301
Accrued transfer
and dividend
disbursing agent
fees 11,962 14,065 1,915 904 2,514 14,318 1,481
Accrued custo-
dial fees 1,735 7,121 26 5,665 4,376 5,581 3,984
Administration
fees payable 16,399 33,762 2,574 38,740 87,233 136,720 39,115
Shareholder
services fees
payable (Class A
Shares) 54,503 99,203 5,371 8,405 70,180 186,893 19,615
Shareholder
services fees
payable (Class B
Shares) 13,174 9,277 6,208 2,346 2,211 3,871 2,136
12b-1 fees pay-
able (Class B
Shares) 40,248 27,831 18,613 6,983 7,749 11,611 7,021
Dividends pay-
able 19,096 5,812 846 10,680 -- -- --
Payable for fund
shares redeemed 135,157 51,148 13,463 4,264 50,747 27,013 27,028
Other payables
and accrued ex-
penses 7,018 8,842 3,924 11,896 11,410 21,714 5,118
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILI-
TIES 487,076 540,488 122,849 247,287 773,384 9,905,546 905,486
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 134,985,917 $ 277,228,675 $ 21,899,958 $ 328,320,624 $ 847,715,182 $1,145,956,419 $327,614,361
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
2
<PAGE> 64
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MID-CAP SMALL CAP
CONSERVATIVE MANAGED ASSETS MANAGED ASSETS EQUITY GROWTH OPPORTUNITY OPPORTUNITY
FUND BALANCED FUND GROWTH FUND INCOME FUND FUND FUND FUND
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, OF-
FERING PRICE AND RE-
DEMPTION PRICE PER
SHARE:
CLASS A SHARES:
Net Assets $100,507,996 $169,028,463 $ 9,404,036 $ 13,397,091 $109,752,170 $ 296,264,467 $ 33,523,431
Shares of beneficial
interest issued and
outstanding, $0.10 par
value, unlimited num-
ber of shares autho-
rized 6,814,414 14,298,714 787,670 1,074,534 6,471,853 14,048,016 2,008,892
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 14.75 $ 11.82 $ 11.94 $ 12.47 $ 16.96 21.09 16.69
Maximum sales charge
per share(1) 0.78 0.62 0.63 0.66 0.89 1.11 0.88
- -----------------------------------------------------------------------------------------------------------------------------
Maximum offering price
per share $ 15.53 $ 12.44 $ 12.57 $ 13.13 $ 17.85 $ 22.20 $ 17.57
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 22,223,117 $ 15,874,569 $10,912,932 $ 3,637,767 $ 4,353,084 $ 6,632,015 $ 3,843,342
Shares of beneficial
interest issued and
outstanding, $0.10 par
value, unlimited num-
ber of shares autho-
rized 1,505,363 1,198,186 928,030 291,641 261,575 662,182 235,473
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 14.76 $ 13.25 $ 11.76 $ 12.47 $ 16.64 $ 10.02 $ 16.32
- -----------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $ 12,254,804 $ 92,325,643 $ 1,582,990 $311,285,766 $733,609,928 $ 843,059,937 $290,247,588
Shares of beneficial
interest issued and
outstanding, $0.10 par
value, unlimited num-
ber of shares autho-
rized 827,727 7,823,748 131,935 25,036,361 43,204,399 39,827,125 17,165,059
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 14.81 $ 11.80 $ 12.00 $ 12.43 $ 16.98 $ 21.17 $ 16.91
- -----------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET AS-
SETS:
Shares of beneficial
interest, at par $ 914,750 $ 2,332,065 $ 184,764 $ 2,640,254 $ 4,993,783 $ 5,453,732 $ 1,940,942
Additional paid-in
capital 127,711,838 258,228,574 20,889,820 264,996,537 476,214,546 768,971,471 265,866,386
Accumulated undistrib-
uted net investment
income (loss) (50,152) (67,181) (6,770) 105,566 (643,890) (1,087,529) (691,121)
Accumulated undistrib-
uted net realized
gains on investments
and financial futures 2,490,875 9,090,257 545,236 3,511,695 4,602,262 6,643,274 11,379,261
Net unrealized appre-
ciation on investments
and financial futures 3,918,606 7,644,960 286,908 57,066,572 362,548,481 365,975,471 49,118,893
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $134,985,917 $277,228,675 $21,899,958 $328,320,624 $847,715,182 $1,145,956,419 $327,614,361
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Maximum sales charges are 5.00% of Maximum Offering Price per share unless
otherwise noted.
See accompanying Notes to Financial Statements.
Pegasus Funds
3
<PAGE> 65
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTRINSIC VALUE GROWTH AND VALUE EQUITY INDEX INTERNATIONAL
FUND FUND FUND EQUITY FUND
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $558,528,597 $ 863,311,278 $537,820,412 $473,864,548
- -------------------------------------------------------------------------------------
At value (Note 2) $683,535,550 $1,231,148,642 $981,305,822 $605,266,393
Cash 4,147 -- -- --
Receivable for variation
margin on futures con-
tracts -- -- -- 302,445
Unrealized appreciation
on foreign exchange con-
tracts -- -- -- 5,176,242
Receivable for securi-
ties sold -- -- -- 11,100
Receivable for fund
shares sold 205,286 553,881 223,565 180,237
Income receivable 754,773 888,021 1,033,433 1,201,539
Reclaim receivable -- -- -- 770,214
Deferred organization
costs, net (Note 2) -- -- -- 17,836
Prepaids and other as-
sets 90,260 226,665 245,141 117,249
- -------------------------------------------------------------------------------------
TOTAL ASSETS 684,590,016 1,232,817,209 982,807,961 613,043,255
- -------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities
purchased 935,807 4,130,521 1,104,217 13,443,490
Payable for variation
margin on futures con-
tracts 79,410 204,206 -- --
Accrued investment advi-
sory fees 336,945 590,067 80,760 388,552
Accrued transfer and
dividend disbursing
agent fees 2,182 1,496 8,516 1,393
Accrued custodial fees 4,047 4,864 4,950 16,305
Administration fees pay-
able 84,236 147,517 121,141 72,853
Shareholder services
fees payable (Class A
Shares) 81,344 162,730 162,372 25,899
Shareholder services
fees payable (Class B
Shares) 3,012 5,465 1,498 1,461
12b-1 fees payable
(Class B Shares) 9,038 16,397 4,493 4,384
Withholding tax payable -- -- -- 28,447
Dividends payable 11,829 7,442 2,371 11,257
Payable for fund shares
redeemed 21,994 151,213 13,083 17,224
Other payables and ac-
crued expenses 9,556 24,504 14,267 5,351
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,579,400 5,446,422 1,517,668 14,016,616
- -------------------------------------------------------------------------------------
NET ASSETS $683,010,616 $1,227,370,787 $981,290,293 $599,026,639
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
4
<PAGE> 66
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTRINSIC
VALUE GROWTH AND VALUE EQUITY INDEX INTERNATIONAL
FUND FUND FUND EQUITY FUND
--------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, OFFER-
ING PRICE AND REDEMPTION
PRICE PER SHARE:
CLASS A SHARES:
Net Assets $132,278,364 $ 264,449,804 $281,046,761 $ 43,279,818
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 8,254,937 15,604,881 11,332,956 3,173,445
- --------------------------------------------------------------------------------------
Net asset value per
share $ 16.02 $ 16.95 $ 24.80 $ 13.64
Maximum sales charge per
share(1) 0.84 0.89 0.77(2) .72
- --------------------------------------------------------------------------------------
Maximum offering price
per share $ 16.86 $ 17.84 $ 25.57 $ 14.36
- --------------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 5,341,678 $ 9,612,670 $ 2,821,942 $ 2,455,836
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 469,782 938,778 188,271 191,940
- --------------------------------------------------------------------------------------
Net asset value per
share $ 11.37 $ 10.24 $ 14.99 $ 12.79
- --------------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $545,390,574 $ 953,308,313 $697,421,590 $553,870,240
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 34,019,695 56,215,982 28,108,761 40,467,425
- --------------------------------------------------------------------------------------
Net asset value per
share $ 16.03 $ 16.96 $ 24.81 $ 13.67
- --------------------------------------------------------------------------------------
COMPOSITION OF NET AS-
SETS:
Shares of beneficial in-
terest, at par $ 4,274,441 $ 7,275,964 $ 3,962,999 $ 4,383,281
Additional paid-in capi-
tal 536,475,198 820,536,740 517,428,905 485,870,239
Accumulated undistrib-
uted net investment in-
come (loss) (50,472) 171,187 208,288 444,303
Accumulated undistrib-
uted net realized gains
(losses) on investments
and financial futures 16,999,296 31,083,710 16,204,691 (22,695,869)
Net unrealized apprecia-
tion on investments and
financial futures 125,312,153 368,303,186 443,485,410 131,694,564
Net unrealized deprecia-
tion of assets and lia-
bilities denominated in
foreign currencies -- -- -- (669,879)
- --------------------------------------------------------------------------------------
TOTAL NET ASSETS $683,010,616 $1,227,370,787 $981,290,293 $599,026,639
- --------------------------------------------------------------------------------------
</TABLE>
(1)Maximum sales charges are 5.00% of Maximum Offering Price per share unless
otherwise noted.
(2)Maximum sales charge is 3.00% of Maximum Offering Price per share.
See accompanying Notes to Financial Statements.
Pegasus Funds
5
<PAGE> 67
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE SHORT MULTI SECTOR INTERNATIONAL HIGH
BOND BOND BOND BOND BOND YIELD
FUND FUND FUND FUND FUND BOND FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $573,245,664 $1,373,182,326 $253,166,456 $125,463,721 $93,590,168 $67,465,137
- ---------------------------------------------------------------------------------------------------------
At value (Note 2) $588,321,155 $1,437,458,015 $254,216,623 $129,914,423 $88,404,359 $67,702,287
Cash 3,132 28,957 385 2,038 -- 258
Receivable for securi-
ties sold -- -- 2,014,550 -- -- --
Receivable for fund
shares sold 94,953 436,407 -- 5,715 61,510 19,087
Income receivable 5,493,654 11,579,880 2,861,472 1,326,482 1,763,634 1,144,937
Reclaim receivable -- -- -- -- 90,469 --
Deferred organization
costs, net (Note 2) -- -- 8,602 15,092 22,001 20,586
Prepaid and other assets 199,658 280,267 83,581 107,030 31,420 42,684
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS 594,112,552 1,449,783,526 259,185,213 131,370,780 90,373,393 68,929,839
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities
purchased 59,964 152,638 -- 29,908 131,774 425,576
Accrued investment advi-
sory fees 193,745 476,654 76,070 41,163 52,130 38,696
Accrued transfer and
dividend disbursing
agent fees 6,724 6,762 460 283 1,158 912
Accrued custodial fees 5,011 3,925 1,290 968 7,916 1,361
Administration fees pay-
able 81,584 178,744 32,601 15,435 10,964 8,292
Shareholder services
fees payable (Class A
Shares) 51,932 128,060 8,699 7,439 5,227 708
Shareholder services
fees payable (Class B
Shares) 403 3,346 179 369 942 130
12b-1 fees payable
(Class B Shares) 1,207 10,039 535 1,000 294 465
Dividends payable 12,325 56,544 111 1,568 712 2,797
Payable for fund shares
redeemed 4,531 63,739 -- -- 3,817 --
Other payables and ac-
crued expenses 15,526 26,690 7,227 11,752 25,841 8,770
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 432,952 1,107,141 127,172 109,885 240,775 487,707
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $593,679,600 $1,448,676,385 $259,058,041 $131,260,895 $90,132,618 $68,442,132
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
6
<PAGE> 68
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE SHORT MULTI SECTOR INTERNATIONAL HIGH
BOND BOND BOND BOND BOND YIELD
FUND FUND FUND FUND FUND BOND FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, OFFER-
ING PRICE AND REDEMPTION
PRICE PER SHARE:
CLASS A SHARES:
Net Assets $ 86,340,805 $ 238,038,439 $ 14,082,561 $ 12,159,376 $ 8,888,827 $ 1,574,353
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue,
unlimited number of
shares authorized 8,222,132 22,312,932 1,387,147 1,503,596 906,925 153,979
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 10.50 $ 10.67 $ 10.15 $ 8.09 $ 9.80 $ 10.22
Maximum Sales charge per
share 0.32 (3) 0.50 (2) 0.10 (1) 0.25(3) 0.46 (2) 0.48(2)
- -------------------------------------------------------------------------------------------------------------------------------
Maximum offering price
per share $ 10.82 $ 11.17 $ 10.25 $ 8.34 $ 10.26 $ 10.70
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 728,387 $ 6,097,242 $ 273,648 $ 603,757 $ 145,004 $ 234,824
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue,
unlimited number of
shares authorized 69,980 571,538 27,205 74,393 14,685 22,931
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 10.41 $ 10.67 $ 10.06 $ 8.12 $ 9.87 $ 10.24
- -------------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $506,610,408 $1,204,540,704 $244,701,832 $118,497,762 $ 81,098,787 $66,632,955
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue,
unlimited number of
shares authorized 48,223,568 112,881,477 24,119,996 14,643,039 8,226,968 6,465,920
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 10.51 $ 10.67 $ 10.15 $ 8.09 $ 9.86 $ 10.31
- -------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET AS-
SETS:
Shares of beneficial in-
terest, at par $ 5,651,568 $ 13,576,595 $ 2,553,435 $ 1,622,103 $ 914,858 $ 664,283
Additional paid-in capi-
tal 581,965,194 1,392,882,653 255,365,610 123,488,970 94,682,936 67,278,089
Accumulated undistrib-
uted net investment in-
come (loss) (346,450) 33,049 (116,476) 29,174 282,542 84,865
Accumulated undistrib-
uted net realized gains
(losses) (8,453,781) (22,091,601) 205,305 1,669,946 (539,714) 177,745
Net unrealized apprecia-
tion on investments 14,863,069 64,275,689 1,050,167 4,450,702 4,803,204 237,150
Net unrealized deprecia-
tion of assets and lia-
bilities denominated in
foreign
currencies -- -- -- -- (10,011,208) --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $593,679,600 $1,448,676,385 $259,058,041 $131,260,895 $ 90,132,618 $68,442,132
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Maximum sales charge is 1.00% of Maximum Offering Price per share.
(2) Maximum sales charge is 4.50% of Maximum Offering Price per share.
(3) Maximum sales charge is 3.00% of Maximum Offering Price per share.
See accompanying Notes to Financial Statements.
Pegasus Funds
7
<PAGE> 69
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT INTERMEDIATE MICHIGAN
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND BOND FUND
-------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $412,563,862 $11,470,926 $435,512,398 $ 94,544,611
- -------------------------------------------------------------------------------
At value (Note 2) $438,193,064 $11,514,920 $454,484,024 $ 98,867,070
Cash -- -- -- 4,189
Receivable for fund shares
sold 193,000 -- 1,500 68,138
Income receivable 6,813,832 157,205 7,459,310 1,202,269
Deferred organization
costs, net (Note 2) 2,810 37,675 16,492 --
Prepaids and other assets 104,013 23,472 49,109 26,540
- -------------------------------------------------------------------------------
TOTAL ASSETS 445,306,719 11,733,272 462,010,435 100,168,206
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities pur-
chased 149,941 1,028,922 6,967,873 20,000
Accrued investment advisory
fees 112,783 3,077 145,918 32,206
Accrued transfer and divi-
dend disbursing agent fees 1,076 213 1,239 2,143
Accrued custodial fees 1,919 1,476 3,179 1,602
Administration fees payable 48,558 1,154 53,790 12,077
Shareholder services fees
payable (Class A Shares) 24,021 14 12,459 11,776
Shareholder services fees
payable (Class B Shares) 1,015 -- 516 639
12b-1 fees payable (Class B
Shares) 3,013 -- 1,620 1,915
Dividends payable 52,017 -- 20,013 18,361
Payable for fund shares re-
deemed 16,944 -- -- --
Other payables and accrued
expenses 15,981 2,043 24,422 4,254
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 427,268 1,036,899 7,231,029 104,973
- -------------------------------------------------------------------------------
NET ASSETS $444,879,451 $10,696,373 $454,779,406 $100,063,233
</TABLE>
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
Pegasus Funds
8
<PAGE> 70
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT INTERMEDIATE MICHIGAN
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND BOND FUND
---------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, OFFER-
ING PRICE AND REDEMPTION
PRICE PER SHARE:
CLASS A SHARES:
Net Assets $ 40,156,768 $ 72,967 $ 20,176,884 $ 18,692,737
Shares of beneficial
interest issued and
outstanding, $0.10 par
value, unlimited number
of shares authorized 3,124,215 7,245 1,640,534 1,706,520
- -----------------------------------------------------------------------------------
Net asset value per
share $ 12.85 $ 10.07 $ 12.30 $ 10.95
Maximum sales charge per
share(1) 0.61 0.47(3) 0.38(2) 0.52
- -----------------------------------------------------------------------------------
Maximum offering price
per share $ 13.46 $ 10.54 $ 12.68 $ 11.47
- -----------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 1,757,634 $ 100 $ 800,830 $ 1,436,391
Shares of beneficial
interest issued and
outstanding, $0.10 par
value, unlimited number
of shares authorized 136,862 10 65,162 135,407
- -----------------------------------------------------------------------------------
Net asset value per
share $ 12.84 $ 10.00 $ 12.29 $ 10.61
- -----------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $402,965,049 $10,623,306 $433,801,692 $ 79,934,105
Shares of beneficial
interest issued and
outstanding, $0.10 par
value, unlimited number
of shares authorized 31,369,953 1,053,205 35,260,701 7,298,664
- -----------------------------------------------------------------------------------
Net asset value per
share $ 12.85 $ 10.09 $ 12.30 $ 10.95
- -----------------------------------------------------------------------------------
COMPOSITION OF NET AS-
SETS:
Shares of beneficial in-
terest, at par $ 3,463,103 $ 106,046 $ 3,696,640 $ 914,059
Additional paid-in capi-
tal 414,514,341 10,532,383 431,767,870 94,955,144
Accumulated undistrib-
uted net investment in-
come 528,427 11,883 64,700 73,954
Accumulated undistrib-
uted net realized gains
(losses) 744,378 2,067 278,570 (202,383)
Net unrealized apprecia-
tion on investments 25,629,202 43,994 18,971,626 4,322,459
- -----------------------------------------------------------------------------------
TOTAL NET ASSETS $444,879,451 $10,696,373 $454,779,406 $100,063,233
- -----------------------------------------------------------------------------------
</TABLE>
(1) Maximum sales charges are 4.50% of Maximum Offering Price per share unless
otherwise noted.
(2) Maximum sales charge is 3.00% of Maximum Offering Price per share.
(3) Maximum sales charge is 1.00% of Maximum Offering Price per share.
See accompanying Notes to Financial Statements.
Pegasus Funds
9
<PAGE> 71
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MANAGED ASSETS MANAGED ASSETS EQUITY GROWTH MID-CAP
CONSERVATIVE FUND BALANCED FUND GROWTH FUND INCOME FUND FUND OPPORTUNITY FUND
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE
2)
Interest $2,776,935 $ 4,307,233 $179,323 $ 1,288,136 $ 63,774 $ 680,466
Dividends 303,100 940,681 93,073 5,285,855 2,260,859 3,537,746
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 3,080,035 5,247,914 272,396 6,573,991 2,324,633 4,218,212
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND
5):
Investment advisory fee 408,182 857,694 56,789 795,419 2,098,794 3,339,295
Administration fees 94,196 197,929 13,105 238,626 524,698 834,824
Shareholder services
fees (Class A Shares) 121,003 193,243 9,455 16,456 117,992 355,597
Shareholder services
fees (Class B Shares) 22,184 16,709 10,516 4,425 3,842 6,701
12b-1 fees (Class B
Shares) 66,552 50,127 31,547 13,275 11,527 20,103
Professional fees 14,484 19,051 12,205 17,914 21,655 27,618
Custodian fees 23,735 34,166 19,771 27,689 42,841 66,201
Transfer and dividend
disbursing agent fees 118,319 315,642 9,732 16,562 106,486 521,354
Amortization of
deferred organization
costs 9,050 4,590 -- 7,580 7,401 --
Registration, filing
fees and other expenses 38,751 58,903 14,172 9,623 33,230 134,169
Less: Expense
reimbursement (79,614) (169,430) (38,809) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
NET EXPENSES 836,842 1,578,624 138,483 1,147,569 2,968,466 5,305,862
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
(LOSS) 2,243,193 3,669,290 133,913 5,426,422 (643,833) (1,087,650)
- ---------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains on:
Investment transactions 2,435,818 9,154,521 567,182 15,331,938 42,245,908 58,155,469
Financial futures -- -- -- -- 409,432 2,418,624
Net change in unrealized
appreciation
(depreciation) on
investment securities
and financial futures 1,599,813 2,805,211 287,782 (8,479,760) 91,065,683 18,915,897
- ---------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS ON
INVESTMENTS 4,035,631 11,959,732 854,964 6,852,178 133,721,023 79,489,990
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS $6,278,824 $15,629,022 $988,877 $12,278,600 $133,077,190 $78,402,340
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
10
<PAGE> 72
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL
OPPORTUNITY INTRINSIC VALUE GROWTH AND VALUE EQUITY INDEX EQUITY
FUND FUND FUND FUND FUND
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 2)
Interest $ 289,442 $ 2,221,389 $ 1,082,192 $ 66,667 $ 1,337,881
Dividends 396,953 8,230,271 7,922,268 6,913,424 6,919,768*
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 686,395 10,451,660 9,004,460 6,980,091 8,257,649
- ------------------------------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND
5):
Investment advisory fees 998,941 2,025,631 3,442,453 463,581 2,276,027
Administration fees 214,059 506,408 860,613 695,372 426,755
Shareholder services fees
(Class A Shares) 35,254 147,308 304,554 299,201 46,275
Shareholder services fees
(Class B Shares) 3,521 5,369 9,246 2,519 2,647
12b-1 fees (Class B
Shares) 10,564 16,108 27,739 7,557 7,941
Professional fees 15,446 20,882 28,621 24,157 31,344
Custodian fees 28,250 44,188 66,253 58,595 239,383
Transfer and dividend
disbursing agent fees 40,034 165,264 397,207 400,460 47,836
Amortization of deferred
organization costs 7,421 -- -- -- 6,221
Registration, filing fees
and other expenses 23,837 44,085 129,675 202,910 50,915
Less: Expense
reimbursement -- -- (32,656) (59,921) --
- ------------------------------------------------------------------------------------------------------
NET EXPENSES 1,377,327 2,975,243 5,233,705 2,094,431 3,135,344
- ------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
(LOSS) (690,932) 7,476,417 3,770,755 4,885,660 5,122,305
- ------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains (losses)
on:
Investment transactions 11,127,791 14,695,972 61,549,050 20,424,184 (14,287,460)
Financial Futures (556,066) 2,312,821 4,878,273 -- (460,809)
Foreign currency
transactions -- -- -- -- 1,081,069
Net change in unrealized
appreciation/(depreciation)
on:
Investment securities and
financial futures 1,750,488 5,239,128 20,972,378 120,702,402 80,423,444
Assets and liabilities
denominated in foreign
currencies -- -- -- -- (1,305,010)
- ------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS 12,322,213 22,247,921 87,399,701 141,126,586 65,451,231
- ------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $11,631,281 $29,724,338 $91,170,456 $146,012,246 $70,573,536
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Net of foreign taxes withheld of $686,734.
See accompanying Notes to Financial Statements.
Pegasus Funds
11
<PAGE> 73
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI
INTERMEDIATE SHORT SECTOR INTERNATIONAL HIGH YIELD
BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE
2)
Interest $18,418,293 $45,310,873 $7,789,885 $4,481,932 $ 2,652,980* $2,494,999
Dividends -- -- -- -- 3,042 121,579
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 18,418,293 45,310,873 7,789,885 4,481,932 2,656,022 2,616,578
- ----------------------------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND
5):
Investment advisory
fees 1,107,234 2,670,788 452,408 271,441 311,525 205,711
Administration fees 415,213 1,001,545 193,889 101,791 66,755 44,081
Shareholder services
fees (Class A Shares) 100,464 230,478 15,865 14,330 9,512 1,094
Shareholder services
fees (Class B Shares) 734 5,746 347 693 175 191
12b-1 fees (Class B
Shares) 2,202 17,240 1,040 2,079 526 572
Professional fees 25,701 35,279 17,527 16,291 19,259 13,676
Custodian fees 46,720 83,998 24,506 11,711 55,770 10,951
Transfer and dividend
disbursing agent fees 119,289 261,650 19,773 26,847 16,295 1,102
Amortization of de-
ferred organization
costs -- -- -- 4,887 6,878 2,498
Registration, filing
fees and other expenses 83,569 137,517 53,372 10,603 12,769 26,190
Less: Expense reim-
bursement -- -- (16,174) -- (81,902) (28,453)
- ----------------------------------------------------------------------------------------------------
NET EXPENSES 1,901,126 4,444,241 762,553 460,673 417,562 277,613
- ----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 16,517,167 40,866,632 7,027,332 4,021,259 2,238,460 2,338,965
- ----------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS (LOSS-
ES) ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
- ----------------------------------------------------------------------------------------------------
Net realized gains
(losses) on:
Investment transactions 66,342 508,104 206,899 1,693,670 (351,084) 185,714
Foreign currency trans-
actions -- -- -- -- (164,953) --
Net change in unrealized
appreciation (deprecia-
tion) on:
Investment securities 1,705,817 9,249,153 (52,043) (708,561) 1,031,760 (371,491)
Assets and liabilities
denominated in foreign
currencies -- -- -- -- (1,387,151) --
- ----------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS (LOSS-
ES) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS 1,772,159 9,757,257 154,856 985,109 (871,428) (185,777)
- ----------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS FROM OPERATIONS $18,289,326 $50,623,889 $7,182,188 $5,006,368 $ 1,367,032 $2,153,188
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Net of foreign taxes withheld of $8,074.
See accompanying Notes to Financial Statements.
Pegasus Funds
12
<PAGE> 74
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT INTERMEDIATE MICHIGAN
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
BOND BOND BOND BOND
FUND FUND(1) FUND FUND
---------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 2)
Interest $10,778,050 $64,813 10,297,441 $2,402,544
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 10,778,050 64,813 10,297,441 2,402,544
- -------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND 5):
Investment advisory fee 808,429 5,304 815,792 178,574
Administration fees 303,161 1,989 305,922 66,965
Shareholder services fees
(Class A Shares) 45,801 14 24,154 23,353
Shareholder services fees
(Class B Shares) 1,852 -- 955 1,186
12b-1 fees (Class B Shares) 5,557 -- 2,864 3,557
Professional fees 19,934 1,200 18,170 14,106
Custodian fees 28,305 3,270 26,274 9,806
Transfer and dividend dis-
bursing agent fees 14,568 75 9,765 8,323
Amortization of deferred
organization costs 724 767 5,972 --
Registration, filing fees
and other expenses 86,786 1,028 27,623 29,920
Less: Expense reimbursement -- (5,594) -- (13,410)
- -------------------------------------------------------------------------------
NET EXPENSES 1,315,117 8,053 1,237,491 322,380
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 9,462,933 56,760 9,059,950 2,080,164
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVEST-
MENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains (losses)
on investment transactions 1,051,755 2,067 276,327 65,158
Net change in unrealized ap-
preciation (depreciation) on
investment securities (1,132,435) 43,994 (470,858) 153,127
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVEST-
MENTS AND FOREIGN CURRENCY
TRANSACTIONS: (80,680) 46,061 (194,531) 218,285
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $9,382,253 $102,821 $8,865,419 $2,298,449
- -------------------------------------------------------------------------------
</TABLE>
(1)For the period May 1, 1998 (commencement of operations) through June 30,
1998.
See accompanying Notes to Financial Statements.
Pegasus Funds
13
<PAGE> 75
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MANAGED ASSETS MANAGED ASSETS
CONSERVATIVE BALANCED GROWTH
FUND FUND FUND
---------------------------------------------------------------------------
Six Months Six Months
Ended Ended Six Months
June 30, Year Ended June 30, Year Ended Ended Year Ended
1998 Dec. 31, 1998 Dec. 31, June 30, 1998 Dec.
(Unaudited) 1997 (Unaudited) 1997 (Unaudited) 31,1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 2,243,193 $ 3,449,327 $ 3,669,290 $ 6,042,494 $ 133,913 $ 75,049
Net realized gains on
investment transactions 2,435,818 10,320,662 9,154,521 34,007,379 567,182 655,347
Net change in
unrealized appreciation
(depreciation) on
investments 1,599,813 (2,350,245) 2,805,211 (7,432,886) 287,782 (8,420)
- ------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 6,278,824 11,419,744 15,629,022 32,616,987 988,887 721,976
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (1,848,665) (2,888,131) (2,320,941) (2,416,016) (72,842) (35,453)
Class B Shares (284,618) (264,207) (141,547) (95,876) (55,847) (22,220)
Class I Shares (224,669) (251,568) (1,467,813) (3,393,246) (14,773) (14,555)
- ------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (2,357,952) (3,403,906) (3,930,301) (5,905,138) (143,462) (72,228)
- ------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares (4,413,070) (9,151,629) (8,791,223) (11,944,679) (211,217) (76,865)
Class B Shares (956,057) (1,158,029) (731,665) (721,797) (246,016) (85,740)
Class I Shares (533,092) (912,087) (4,835,876) (9,490,570) (36,553) (20,902)
- ------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains (5,902,219) (11,221,745) (14,358,764) (22,157,046) (493,786) (183,507)
- ------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (8,260,171) (14,625,651) (18,289,065) (28,062,184) (637,248) (255,735)
- ------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 31,960,195 56,042,633 53,702,342 186,676,562 9,075,944 12,257,921
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 8,001,893 14,019,019 18,045,293 25,044,722 597,435 216,893
- ------------------------------------------------------------------------------------------------------------
39,962,088 70,061,652 71,747,635 211,721,284 9,673,379 12,474,814
Less: payments for
shares redeemed (17,517,326) (28,871,617) (45,730,753) (92,665,003) (1,216,093) (536,321)
- ------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital share
transactions 22,444,762 41,190,035 26,016,882 119,056,281 8,457,286 11,938,493
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 20,463,415 37,984,128 23,356,839 123,611,084 8,808,915 12,404,734
NET ASSETS:
Beginning of period 114,522,502 76,538,374 253,871,836 130,260,752 13,091,043 686,309
- ------------------------------------------------------------------------------------------------------------
End of period $134,985,917 $114,522,502 $277,228,675 $253,871,836 $21,899,958 $13,091,043
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
14
<PAGE> 76
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME FUND GROWTH FUND MID-CAP OPPORTUNITY FUND
--------------------------------------------------------------------
Six Months Six Months
Ended Ended Six Months
June Year Ended June Year Ended Ended
30, 1998 Dec. 31, 30, 1998 Dec. 31, June 30, 1998 Year Ended
(Unaudited) 1997 (Unaudited) 1997 (Unaudited) Dec. 31, 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss) $ 5,426,422 $ 9,995,130 $ (643,833) $ 900,808 $ (1,087,650) $ 76,143
Net realized gains on
investment transactions
and financial futures 15,331,938 49,970,226 42,655,340 38,532,531 60,574,093 75,611,514
Net change in
unrealized appreciation
(depreciation) on in-
vestments and financial
futures (8,479,760) 3,000,172 91,065,683 104,439,823 18,915,897 143,184,993
- ----------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 12,278,600 62,965,528 133,077,190 143,873,162 78,402,340 218,872,650
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (214,466) (397,886) (175) (9,209) (379) --
Class B Shares (44,994) (50,051) -- -- -- --
Class I Shares (5,359,692) (9,614,170) -- (905,808) -- (76,268)
- ----------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (5,619,152) (10,062,107) (175) (915,017) (379) (76,268)
- ----------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares (791,081) (2,206,498) (6,693,734) (3,354,983) (16,417,977) (15,608,413)
Class B Shares (226,136) (503,410) (248,827) (110,626) (714,014) (430,754)
Class I Shares (17,872,287) (54,205,468) (38,254,403) (35,824,761) (45,806,399) (56,800,760)
- ----------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains (18,889,504) (56,915,376) (45,196,964) (39,290,370) (62,938,390) (72,839,927)
- ----------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (24,508,656) (66,977,483) (45,197,139) (40,205,387) (62,938,769) (72,916,195)
- ----------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 13,788,413 36,443,621 60,633,737 120,290,702 160,606,189 340,892,729
Proceeds from shares
issued in connection
with merger 29,377,262 -- 97,388,726 228,354,666 14,935,571 --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 16,857,972 37,045,422 38,176,119 26,835,283 58,023,458 60,563,640
- ----------------------------------------------------------------------------------------------------------------
60,023,647 73,489,043 196,198,582 147,125,985 233,565,218 401,456,369
Less: payments for
shares redeemed (39,472,656) (78,967,179) (79,575,834) (165,354,759) (144,726,767) (275,036,455)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from cap-
ital share transactions 20,550,991 (5,478,136) 116,622,748 (18,228,774) 88,838,451 126,419,914
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 8,320,935 (9,490,091) 204,502,799 85,439,001 104,302,022 272,376,369
NET ASSETS:
Beginning of period 319,999,689 329,489,780 643,212,383 557,773,382 1,041,654,397 769,278,028
- ----------------------------------------------------------------------------------------------------------------
End of period $328,320,624 $319,999,689 $847,715,182 $643,212,383 $1,145,956,419 $1,041,654,397
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
15
<PAGE> 77
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL-CAP OPPORTUNITY
FUND INTRINSIC VALUE FUND GROWTH AND VALUE FUND
-----------------------------------------------------------------------
Six Months Six Months
Ended Ended Six Months
June 30, Year Ended June 30, Year Ended Ended
1998 Dec. 31, 1998 Dec. 31, June 30, 1998 Year Ended
(Unaudited) 1997 (Unaudited) 1997 (Unaudited) Dec. 31, 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss) $ (690,932) $ (819,006) $ 7,476,417 $ 9,255,561 $ 3,770,755 $ 8,392,917
Net realized gains on
investment transactions
and financial futures 10,571,725 23,580,300 17,008,793 51,424,041 66,427,323 83,059,077
Net change in
unrealized appreciation
on investments and fi-
nancial futures 1,750,488 23,977,959 5,239,128 49,889,271 20,972,378 139,970,312
- ----------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 11,631,281 46,739,253 29,724,338 110,568,873 91,170,456 231,422,306
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (189) (10) (1,306,662) (824,689) (665,775) (717,201)
Class B Shares -- -- (58,007) (29,657) (15,012) (13,664)
Class I Shares -- (90) (6,452,751) (8,168,777) (3,374,627) (7,818,526)
- ----------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (189) (100) (7,817,420) (9,023,123) (4,055,414) (8,549,391)
- ----------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares (408,876) (1,940,280) (1,495,637) (5,568,447) (10,573,869) (12,290,204)
Class B Shares (46,328) (140,872) (82,152) (275,342) (602,539) (544,023)
Class I Shares (3,499,880) (21,480,150) (6,112,348) (38,037,383) (37,007,198) (78,740,173)
- ----------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains (3,955,084) (23,561,402) (7,690,137) (43,881,172) (48,183,606) (91,574,400)
- ----------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (3,955,273) (23,561,402) (15,507,557) (52,904,295) (52,239,020) (100,123,791)
- ----------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 95,163,655 96,892,647 124,679,372 253,810,170 226,229,117 345,503,243
Proceeds from shares
issued in connection
with merger -- -- -- -- 48,560,921 --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 3,097,547 13,802,550 11,158,853 42,141,699 44,063,949 71,311,316
- ----------------------------------------------------------------------------------------------------------------
98,261,202 110,695,197 135,838,225 295,951,869 318,853,987 416,814,559
Less: payments for
shares redeemed (19,865,086) (24,978,895) (93,085,337) (107,487,017) (193,482,450) (277,887,120)
- ----------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital share
transactions 78,396,116 85,716,302 42,752,888 188,464,852 125,371,537 138,927,439
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 86,072,124 108,894,153 56,969,669 246,129,430 164,302,973 270,225,954
NET ASSETS:
Beginning of period 241,542,237 132,648,084 626,040,947 379,911,517 1,063,067,814 792,841,860
- ----------------------------------------------------------------------------------------------------------------
End of period $327,614,361 $241,542,237 $683,010,616 $626,040,947 $1,227,370,787 $1,063,067,814
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
16
<PAGE> 78
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INDEX FUND INTERNATIONAL EQUITY FUND
-----------------------------------------------
Six Months Six Months
Ended Ended
June 30, 1998 Year Ended June 30, 1998 Year Ended
(Unaudited) December 31, 1997 (Unaudited) December 31, 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 4,885,660 $ 10,775,328 $ 5,122,305 $ 4,872,280
Net realized gains
(losses) on investment,
financial futures and
foreign currency trans-
actions 20,424,184 137,682,393 (13,667,200) (7,365,462)
Net change in
unrealized appreciation
on investments, finan-
cial futures and for-
eign currency transla-
tion 120,702,402 69,490,136 79,118,431 22,818,587
- ------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 146,012,246 217,947,857 70,573,536 20,325,405
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (1,101,194) (1,287,874) (335,291) (158,687)
Class B Shares (10,658) (13,913) (15,413) (7,361)
Class I Shares (3,700,705) (9,815,475) (4,717,204) (4,474,343)
- ------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (4,812,557) (11,117,262) (5,067,908) (4,640,391)
- ------------------------------------------------------------------------------------------
From realized gains
Class A Shares (1,644,640) (4,544,532) -- --
Class B Shares (26,097) (59,025) -- --
Class I Shares (4,089,881) (17,429,543) -- --
- ------------------------------------------------------------------------------------------
Total distributions
from realized gains (5,760,618) (22,033,100) -- --
- ------------------------------------------------------------------------------------------
Total distributions to
shareholders (10,573,175) (33,150,362) (5,067,908) (4,640,391)
- ------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 136,399,028 315,400,642 72,898,895 163,775,810
Proceeds from shares
issued in connection
with merger -- -- -- 25,851,101
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 7,748,206 22,770,868 1,878,933 1,647,758
- ------------------------------------------------------------------------------------------
144,147,234 338,171,511 74,777,828 191,274,669
Less: payments for
shares redeemed (133,342,099) (557,739,568) (57,709,683) (92,471,044)
- ------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from cap-
ital share transactions 10,805,135 (219,568,057) 17,068,144 98,803,625
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 146,244,206 (34,770,563) 82,573,773 114,488,639
NET ASSETS:
Beginning of period 835,046,087 869,816,650 516,452,867 401,964,228
- ------------------------------------------------------------------------------------------
End of period $981,290,293 $835,046,087 $599,026,639 $516,452,867
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
17
<PAGE> 79
THE PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND BOND FUND SHORT BOND FUND
------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Ended Ended
June 30, 1998 Year Ended June 30, 1998 Year Ended June 30, 1998 Year Ended
(Unaudited) Dec. 31, 1997 (Unaudited) Dec. 31, 1997 (Unaudited) Dec. 31, 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 16,517,167 $ 29,517,324 $ 40,866,632 $ 65,309,976 $ 7,027,332 $ 11,395,674
Net realized gains on
investment transactions 66,342 452,863 508,104 800,544 206,899 144,722
Net change in
unrealized appreciation
(depreciation) on in-
vestments 1,705,817 8,278,943 9,249,153 34,887,256 (52,043) 864,560
- -------------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 18,289,326 38,249,130 50,623,889 100,997,776 7,182,188 12,404,956
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (2,415,775) (1,482,724) (5,614,300) (4,500,480) (342,968) (104,124)
Class B Shares (15,670) (12,737) (122,286) (73,502) ((6,641) (5,587)
Class I Shares (14,543,060) (27,921,135) (35,312,230) (60,755,009) (6,833,859) (11,327,998)
- -------------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (16,974,505) (29,416,596) (41,048,816) (65,328,991) (7,183,468) (11,437,709)
- -------------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares -- -- -- -- (4,895) (1,700)
Class B Shares -- -- -- -- (95) (150)
Class I Shares -- -- -- -- (87,099) (167,344)
- -------------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains -- -- -- -- (92,089) (169,194)
- -------------------------------------------------------------------------------------------------------------------
Total distributions in
excess to shareholders (16,974,505) (29,416,596) (41,048,816) (65,328,991) (7,275,557) (11,606,903)
- -------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 125,334,804 213,559,882 360,705,259 525,891,556 73,300,023 136,214,007
Proceeds from shares
issued in connection
with merger 6,897,367 -- -- -- -- --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 9,205,210 17,877,864 23,286,318 36,740,089 2,869,049 4,626,060
- -------------------------------------------------------------------------------------------------------------------
141,437,381 231,437,746 383,991,577 562,631,645 76,169,072 140,840,067
Less: payments for
shares redeemed (74,479,405) (128,414,182) (175,692,829) (172,381,516) (57,268,199) (73,903,614)
- -------------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital share
transactions 66,957,976 103,023,564 208,298,748 390,250,129 18,900,873 66,936,453
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS 68,272,797 111,856,098 217,873,820 425,918,914 18,807,504 67,734,506
NET ASSETS:
Beginning of period 525,406,803 413,550,705 1,230,802,565 804,883,651 240,250,537 172,516,031
- -------------------------------------------------------------------------------------------------------------------
End of period $593,679,600 $525,406,803 $1,448,676,385 $1,230,802,565 $259,058,041 $240,250,537
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
18
<PAGE> 80
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI SECTOR BOND FUND INTERNATIONAL BOND FUND HIGH YIELD BOND FUND
-------------------------------------------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended
June 30, 1998 Dec. 31, June 30, 1998 Dec. 31, June 30, 1998 Period Ended
(Unaudited) 1997 (Unaudited) 1997 (Unaudited) Dec. 31, 1997(1)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 4,021,259 $ 8,532,835 $ 2,238,460 $ 3,808,873 $ 2,338,965 $ 1,276,922
Net realized gains
(losses) on investment
transactions 1,693,670 263,190 (516,037) (342,342) 185,714 22,645
Net change in
unrealized appreciation
(depreciation) on
investments and foreign
currency translation (708,561) 1,982,422 (355,391) (6,075,834) (371,491) 608,641
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from op-
erations 5,006,368 10,778,447 1,367,032 (2,609,303) 2,153,188 1,908,208
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (324,770) (482,924) (171,409) (175,385) (35,675) (5,259)
Class B Shares (11,588) (22,582) (2,661) (2,562) (5,409) (955)
Class I Shares (3,738,671) (8,031,340) (1,879,441) (3,213,081) (2,238,746) (1,244,978)
- ---------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (4,075,029) (8,536,846) (2,053,511) (3,391,028) (2,279,830) (1,251,192)
- ---------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares -- (18,808) -- (1,440) -- (127)
Class B Shares -- (1,207) -- (25) -- (20)
Class I Shares -- (230,025) -- (23,686) -- (22,498)
- ---------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains (250,040) -- (25,151) -- (22,645)
- ---------------------------------------------------------------------------------------------------------------
Distributions in excess
of realized gains
Class A Shares -- -- -- -- -- (45)
Class B Shares -- -- -- -- -- (7)
Class I Shares -- -- -- -- -- (7,917)
- ---------------------------------------------------------------------------------------------------------------
Total distributions in
excess of realized
gains -- -- -- -- -- (7,969)
- ---------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (4,075,029) (8,786,886) (2,053,511) (3,416,179) (2,279,830) (1,281,806)
- ---------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 21,378,036 10,311,300 10,936,793 45,230,134 20,832,461 50,855,077
Proceeds from shares
issued in connection
with merger 46,376,717 -- -- -- -- --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 1,297,696 724,616 1,020,404 1,766,090 695,530 373,896
- ---------------------------------------------------------------------------------------------------------------
69,052,449 11,035,916 11,957,197 46,996,224 21,527,991 51,228,973
Less: payments for
shares redeemed (41,631,684) (106,530,429) (9,517,780) (8,488,101) (2,756,231) (2,058,361)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from cap-
ital share transactions 27,420,765 (95,494,513) 2,439,417 38,508,123 18,771,760 49,170,612
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 28,352,104 (93,502,952) 1,752,938 32,482,641 18,645,118 49,797,014
NET ASSETS:
Beginning of period 102,908,791 196,411,743 88,379,681 55,897,040 49,797,014 --
- ---------------------------------------------------------------------------------------------------------------
End of period $ 131,260,895 $102,908,791 $90,132,619 $88,379,681 $68,442,132 $49,797,014
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1)For the period June 30, 1997 (commencement of operations) through December
31, 1997.
See accompanying Notes to Financial Statements.
Pegasus Funds
19
<PAGE> 81
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT
MUNICIPAL BOND INTERMEDIATE MUNICIPAL BOND MICHIGAN MUNICIPAL BOND
MUNICIPAL BOND FUND FUND FUND FUND
-----------------------------------------------------------------------------------------
Six Months
Ended Six Months Six Months
June 30, Year Ended For the Period Ended Ended Ended
1998 Dec. 31, June 30, 1998 June 30, 1998 Year Ended June 30, 1998 Year Ended
(Unaudited) 1997 (Unaudited)(1) (Unaudited) Dec. 31, 1997 (Unaudited) Dec. 31, 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income $ 9,462,933 $ 18,742,515 $ 56,760 $ 9,059,950 $ 18,403,998 $ 2,080,164 $ 3,234,218
Net realized
gains (losses) on
investment trans-
actions 1,051,755 2,051,175 2,067 276,327 2,007,297 65,158 (144,655)
Net change in
unrealized
appreciation (de-
preciation) on
investments (1,132,435) 13,548,913 43,994 (470,858) 7,485,364 153,127 3,140,469
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 9,382,253 34,342,603 102,821 8,865,419 27,896,659 2,298,449 6,230,032
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS (NOTE
2):
From net invest-
ment income
Class A Shares (840,419) (1,484,220) (188) (419,587) (839,467) (419,916) (814,513)
Class B Shares (28,819) (35,945) -- (13,679) (24,367) (18,162) (13,084)
Class I Shares (8,831,663) (17,510,743) (44,689) (8,929,552) (17,763,309) (1,669,087) (2,398,650)
- --------------------------------------------------------------------------------------------------------------------------------
Total distribu-
tions from net
investment income (9,700,901) (19,030,908) (44,877) (9,362,818) (18,627,143) (2,107.165) (3,226,247)
- --------------------------------------------------------------------------------------------------------------------------------
From realized
gains
Class A Shares -- -- -- -- (99,588) -- --
Class B Shares -- -- -- -- (3,661) -- --
Class I Shares -- -- -- -- (1,949,447) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distribu-
tions from real-
ized gains -- -- -- -- (2,052,696) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distribu-
tions in excess
of realized gains -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distribu-
tions to share-
holders (9,700,901) (19,030,908) (44,877) (9,362,818) (20,679,839) (2,107.165) (3,226,247)
- --------------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from
shares sold 57,140,741 103,257,906 10,609,161 45,410,463 72,832,224 23,433,776 26,314,714
Proceeds from
shares issued in
connection with
merger 21,791,527 -- -- 43,750,365 -- -- --
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders 821,609 1,503,756 29,268 554,434 2,436,698 572,747 987,581
- --------------------------------------------------------------------------------------------------------------------------------
79,753,877 104,761,662 10,638,429 89,715,262 75,268,922 24,006,523 27,302,295
Less: payments
for shares re-
deemed (26,410,779) (96,346,798) -- (31,380,959) (79,173,261) (5,297,524) (9,736,804)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (de-
crease) in net
assets from capi-
tal share trans-
actions 53,343,098 8,414,864 10,638,429 58,334,303 (3,904,339) 18,708,999 17,565,491
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN
NET ASSETS 53,024,450 23,726,559 10,696,373 57,836,904 3,312,481 18,900,283 20,569,276
NET ASSETS:
Beginning of pe-
riod 391,855,001 368,128,442 -- 396,942,502 393,630,021 81,162,950 60,593,674
- --------------------------------------------------------------------------------------------------------------------------------
End of period $444,879,451 $391,855,001 $10,696,373 $ 454,779,406 $ 396,942,502 $100,063,233 $81,162,950
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period May 1, 1998 (commencement of operations) through June 30,
1998.
See accompanying Notes to Financial Statements.
Pegasus Funds
20
<PAGE> 82
PEGASUS MANAGED ASSETS CONSERVATIVE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MUTUAL FUNDS -- 100.00%
Pegasus Bond Fund...................................... 5,317,009 $ 56,732,483
Pegasus International Bond Fund........................ 1,231,024 12,137,892
Pegasus High Yield Bond Fund........................... 1,176,728 12,132,068
Pegasus Growth Fund.................................... 160,005 2,716,884
Pegasus Growth and Value Fund.......................... 1,113,780 18,889,707
Pegasus International Equity Fund...................... 794,196 10,856,655
Pegasus Intrinsic Value Fund........................... 841,148 13,483,596
Pegasus Mid-Cap Opportunity Fund....................... 257,270 5,446,401
Pegasus Small-Cap Opportunity Fund..................... 163,045 2,757,084
------------
TOTAL MUTUAL FUNDS
(Cost $131,234,165).................................... 135,152,771
------------
TOTAL INVESTMENTS
(Cost $131,234,165).................................... $135,152,771
============
</TABLE>
See Notes to Financial Statements
Pegasus Funds
21
<PAGE> 83
PEGASUS MANAGED ASSETS BALANCED FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MUTUAL FUNDS -- 100.00%
Pegasus Bond Fund...................................... 7,271,544 $ 77,587,377
Pegasus Growth Fund.................................... 489,542 8,312,424
Pegasus Growth and Value Fund.......................... 3,430,160 58,175,519
Pegasus High-Yield Bond Fund........................... 1,608,019 16,578,681
Pegasus International Bond Fund........................ 1,682,684 16,591,269
Pegasus International Equity Fund...................... 2,441,029 33,368,867
Pegasus Intrinsic Value Fund........................... 2,591,191 41,536,784
Pegasus Mid-Cap Opportunity............................ 789,009 16,703,313
Pegasus Small-Cap Opportunity Fund..................... 500,179 8,458,024
------------
TOTAL MUTUAL FUNDS
(Cost $269,667,298).................................... 277,312,258
------------
TOTAL INVESTMENTS
(Cost $269,667,298).................................... $277,312,258
============
</TABLE>
See Notes to Financial Statements
Pegasus Funds
22
<PAGE> 84
PEGASUS MANAGED ASSETS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MUTUAL FUNDS -- 100.00%
Pegasus Bond Fund......................................... 286,869 $ 3,060,891
Pegasus Growth Fund....................................... 51,434 873,347
Pegasus Growth and Value Fund............................. 361,073 6,123,802
Pegasus High-Yield Bond Fund.............................. 63,522 654,908
Pegasus International Bond Fund........................... 66,485 655,546
Pegasus International Equity Fund......................... 256,029 3,499,922
Pegasus Intrinsic Value Fund.............................. 272,836 4,373,567
Pegasus Mid-Cap Opportunity Fund.......................... 82,706 1,750,895
Pegasus Small-Cap Opportunity Fund........................ 52,339 885,057
-----------
TOTAL MUTUAL FUNDS
(Cost $21,591,028)........................................ 21,877,936
-----------
TOTAL INVESTMENTS
(Cost $21,591,028)........................................ $21,877,936
===========
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
23
<PAGE> 85
PEGASUS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 4.50%
Pegasus Cash Management Fund Class I (in shares)...... 14,672,124 $ 14,672,124
------------
(Cost $14,672,124)
CONVERTIBLE BONDS -- 10.56%
NAC RE Corp., 5.25%, 12/15/02......................... $ 3,095,000 3,443,188
Pep Boys, Zero Coupon, 9/20/11........................ 9,400,000 5,158,250
Potomac Electric Power, 5.00%, 9/1/02................. 11,544,000 11,255,400
Roche Holding Inc., Zero Coupon, 5/6/12............... 30,100,000 14,542,213
------------
TOTAL CONVERTIBLE BONDS................................ 34,399,051
------------
(Cost $32,593,383)
<CAPTION>
SHARES
------
<S> <C> <C>
NON-CONVERTIBLE PREFERRED STOCKS -- 5.72%
FINANCE -- 5.72%
Salomon, Inc., 7.625%................................ 391,000 18,626,137
------------
(Cost $10,902,078)
COMMON STOCKS -- 79.22%
AEROSPACE -- 3.46%
Lockheed Martin Corp. ............................... 106,500 11,275,687
------------
APPAREL -- 1.27%
Unifi, Inc. ......................................... 120,800 4,137,400
------------
BANKS -- 2.52%
Pacific Century Financial Corp. ..................... 342,000 8,208,000
------------
CHEMICALS -- 2.51%
NCH Corp. ........................................... 127,800 8,187,188
------------
CONSUMER DURABLES -- 1.14%
National Presto Industries, Inc. .................... 95,400 3,714,638
------------
DOMESTIC OIL -- 2.40%
Atlantic Richfield Co. .............................. 100,200 7,828,125
------------
DRUGS AND MEDICINE -- 2.00%
Block Drug Inc., Class A............................. 62,300 2,367,400
Mid Ocean LTD........................................ 53,000 4,160,500
------------
6,527,900
------------
ENERGY AND UTILITIES -- 6.90%
CINergy Corp. .......................................
Connecticut Energy Corp. ............................ 134,500 3,749,188
Empire District Electric............................. 4,900 102,287
Sierra Pacific Resources............................. 104,000 3,776,500
SJW Corp. ........................................... 11,630 686,170
Southwest Gas Corp. ................................. 179,000 4,374,312
Washington Water Power Co. .......................... 436,500 9,793,969
------------
22,482,426
------------
FOOD AND AGRICULTURE -- 2.96%
Tate & Lyle PLC Sponsored............................ 303,600 9,639,755
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
24
<PAGE> 86
PEGASUS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
INSURANCE -- 13.16%
American National Insurance Co. .................... 120,400 $ 12,672,100
Ohio Casualty Corp. ................................ 216,600 9,584,550
Old Republic International Corp. ................... 518,610 15,201,756
RLI Corp. .......................................... 44,000 1,790,250
SAFECO Corp. ....................................... 79,600 3,616,825
------------
42,865,481
------------
INTERNATIONAL OIL -- 7.11%
Amoco Corp. ........................................ 164,000 6,826,500
Mobil Corp. ........................................ 108,600 8,321,475
Texaco, Inc. ....................................... 134,500 8,027,969
------------
23,175,944
------------
LIQUOR -- 3.83%
Diageo PLC.......................................... 259,092 12,484,996
------------
MISCELLANEOUS FINANCE -- 7.63%
Associated Estates Realty........................... 159,900 2,988,131
Federal National Mortgage Association............... 274,600 16,681,950
PXRE Corp. ......................................... 172,600 5,178,000
------------
24,848,081
------------
NON-DURABLES AND ENTERTAINMENT -- 4.34%
Luby's Cafeterias, Inc. ............................ 353,750 6,212,734
Sbarro, Inc. ....................................... 291,800 7,915,075
------------
14,127,809
------------
NON-FERROUS METALS -- 1.08%
De Beers Consolidated Mines Ltd. ................... 4,900 85,750
Phelps Dodge Corp. ................................. 60,000 3,431,250
------------
3,517,000
------------
RAILROADS AND SHIPPING -- 5.83%
Alexander & Baldwin, Inc. .......................... 317,000 9,232,625
Canadian National Railway Co. ...................... 183,443 9,745,409
------------
18,978,034
------------
REAL PROPERTY -- 1.12%
Amli Residential Properties Trust................... 170,000 3,644,375
------------
RETAIL -- 2.22%
Enesco Group, Inc. ................................. 234,800 7,220,100
------------
TIRES AND RUBBER GOODS -- 1.71%
Bandag, Inc., Class A............................... 161,100 5,557,950
------------
</TABLE>
See Notes to Financial Statements
Pegasus Funds
25
<PAGE> 87
PEGASUS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TOBACCO -- 6.03%
Loews Corp. ........................................ 107,700 $ 9,383,363
Philip Morris Companies, Inc. ...................... 132,800 5,229,000
UST, Inc. .......................................... 185,640 5,012,280
------------
19,624,643
------------
TOTAL COMMON STOCKS................................... 258,045,532
------------
(Cost $210,508,687)
TOTAL INVESTMENTS..................................... $325,742,844
============
(Cost $268,676,272)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
26
<PAGE> 88
PEGASUS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 0.68%
Pegasus Cash Management Fund Class I (in shares)...... 5,421,401 $ 5,421,401
U.S. Treasury Bills, 9/17/98 (1)...................... $ 350,000 346,301
------------
TOTAL TEMPORARY CASH INVESTMENTS....................... 5,767,702
------------
(Cost $5,767,702)
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCKS -- 99.32%
BANKS -- 5.39%
Norwest Corp......................................... 438,000 16,370,250
MBNA Corp............................................ 444,000 14,652,000
State Street Boston Corp............................. 210,000 14,595,000
------------
45,617,250
------------
BUSINESS MACHINES -- 12.90%
Cisco System, Inc.*.................................. 292,500 26,928,281
Dell Computer Corp. ................................. 147,000 13,643,438
Microsoft Corp. *.................................... 436,000 47,251,500
Silicon Graphics *................................... 538,000 6,523,250
Sun Microsystems, Inc................................ 340,000 14,768,750
------------
109,115,219
------------
BUSINESS SERVICES -- 5.50%
Cendent Corp.*....................................... 455,000 9,498,125
Computer Associates International, Inc............... 360,000 20,002,500
Interpublic Group of Companies, Inc. ................ 280,500 17,022,844
------------
46,523,469
------------
CHEMICALS -- 1.03%
Praxair, Inc. ....................................... 186,000 8,707,125
------------
CONSUMER DURABLES -- 1.82%
Newell Co............................................ 70,000 3,486,875
Staples, Inc. ....................................... 412,700 11,942,506
------------
15,429,381
------------
DRUGS AND MEDICINE -- 17.71%
American Home Products Corp. ........................ 344,000 17,802,000
Amgen, Inc. *........................................ 270,000 17,651,250
Guidant Corp. ....................................... 194,000 13,834,625
Johnson & Johnson.................................... 170,000 12,537,500
Mylan Laboratories, Inc.............................. 450,000 13,528,125
Pfizer, Inc. ........................................ 204,000 22,172,250
Smithkline Beecham PLC ADR........................... 456,000 27,588,000
Stryker Corp. ....................................... 206,000 7,905,250
United Healthcare Corp............................... 265,000 16,827,500
------------
149,846,500
------------
ELECTRONICS -- 5.84%
Altera Corp.*........................................ 365,000 10,790,312
Intel Corp........................................... 341,000 25,276,625
Lucent Technologies, Inc. ........................... 160,000 13,310,000
------------
49,376,937
------------
ENERGY AND UTILITIES -- 2.20%
AES Corp. *.......................................... 355,000 18,659,688
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
27
<PAGE> 89
PEGASUS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
ENERGY RAW MATERIALS -- 3.75%
Baker Hughes, Inc......................................... 225,000 $7,776,563
Schlumberger, Ltd. ....................................... 90,000 6,148,125
Western Atlas, Inc. *..................................... 210,000 17,823,750
----------
31,748,438
----------
FOOD AND AGRICULTURE -- 1.95%
PepsiCo, Inc. ............................................ 400,000 16,475,000
----------
INSURANCE -- 3.18%
AFLAC, Inc. .............................................. 294,000 8,911,875
Unum Corp................................................. 324,300 17,998,650
----------
26,910,525
----------
MISCELLANEOUS & CONGLOMERATES -- 4.75%
Elan PLC ADR *............................................ 405,000 26,046,563
Tyco International Ltd.................................... 225,000 14,175,000
----------
40,221,563
----------
MISCELLANEOUS FINANCE -- 3.53%
Associates First Capital Corp............................. 115,000 8,840,625
Federal Home Loan Mortgage Corp. ......................... 227,000 10,683,188
MGIC Investment Corp. .................................... 182,000 10,385,375
----------
29,909,188
----------
NON-DURABLES AND ENTERTAINMENT -- 2.71%
Service Corp. International............................... 535,000 22,938,125
----------
PRODUCER GOODS -- 4.30%
General Electric Co....................................... 209,000 19,019,000
Illinois Tool Works, Inc. ................................ 261,000 17,405,437
----------
36,424,437
----------
RETAIL -- 7.72%
Dollar General Corp....................................... 425,000 16,814,062
Home Depot, Inc........................................... 300,000 24,918,750
Officemax, Inc.*.......................................... 570,000 9,405,000
Walgreen Co. ............................................. 343,000 14,170,188
----------
65,308,000
----------
SOAPS AND COSMETICS -- 1.60%
Procter & Gamble Co....................................... 149,000 13,568,312
----------
TELEPHONE -- 6.97%
AirTouch Communications, Inc.*............................ 528,000 30,855,000
Tellabs, Inc.............................................. 136,000 9,741,000
WorldCom, Inc. ........................................... 380,000 18,406,250
----------
59,002,250
----------
TOBACCO -- 1.60%
Philip Morris Companies, Inc. ............................ 343,000 13,505,625
----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
28
<PAGE> 90
PEGASUS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TRAVEL AND RECREATION -- 4.87%
Carnival Corp. Class A.................................. 740,000 29,322,500
Disney (Walt) Co........................................ 113,000 11,872,061
------------
41,194,561
------------
TOTAL COMMON STOCKS....................................... 840,481,593
------------
(Cost $477,906,612)
TOTAL INVESTMENTS......................................... $846,249,295
============
(Cost $483,674,314)
</TABLE>
*Non-income producing security
(1)Securities represent the margin deposit for the future contracts.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT OF VALUE (LOSS)
- --------- ---------- --------------- ----------
<S> <C> <C> <C>
22 S & P 500 Futures...................... 9/98 $6,286,500 $(26,500)
</TABLE>
Pegasus Funds
29
<PAGE> 91
PEGASUS MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 3.42%
Pegasus Cash Management Class I (in shares)........ 38,105,049 $ 38,105,049
U.S Treasury Bills, 9/24/98(1)..................... $ 950,000 939,142
--------------
TOTAL TEMPORARY CASH INVESTMENTS..................... 39,044,191
--------------
(Cost $39,044,191)
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCKS -- 96.58%
APPAREL -- 1.90%
Tommy Hilfiger Corp................................ 347,652 21,728,250
--------------
BANKS -- 8.86%
Associated Banc Corp. ............................. 420,752 15,830,794
Charter One Financial, Inc......................... 1,016,566 34,245,567
First Tennessee National Corp. .................... 350,276 11,055,586
Peoples Heritage Financial Group................... 584,900 13,818,263
TCF Financial Corp................................. 885,420 26,119,890
--------------
101,070,100
--------------
BUSINESS MACHINES -- 2.21%
Comdisco, Inc...................................... 628,196 11,935,724
Xilinx, Inc.*...................................... 389,072 13,228,448
--------------
25,164,172
--------------
BUSINESS SERVICES -- 10.29%
CDI Corp. ......................................... 356,542 9,537,498
DST Systems, Inc.*................................. 475,767 26,642,952
Hon Industries, Inc. .............................. 703,000 23,902,000
National Data Corp................................. 353,300 15,456,875
Omnicom Group, Inc. ............................... 294,496 14,687,988
Sungard Data Systems, Inc.......................... 709,092 27,211,406
--------------
117,438,719
--------------
CONSTRUCTION -- 4.10%
Applied Power, Inc. ............................... 500,000 17,187,500
Crane Co........................................... 609,835 29,615,112
--------------
46,802,612
--------------
CONSUMER DURABLES -- 1.69%
Leggett & Platt, Inc. ............................. 772,594 19,314,850
--------------
CONTAINERS -- 1.72%
AptarGroup, Inc. .................................. 315,910 19,645,653
--------------
DRUGS AND MEDICINE -- 4.72%
Health Care & Retirement........................... 368,461 14,531,181
Quorum Health Group, Inc.*......................... 602,034 15,953,901
Sybron International Corp.*........................ 926,382 23,391,145
--------------
53,876,227
--------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
30
<PAGE> 92
PEGASUS MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
ELECTRONICS -- 6.93%
Belden, Inc........................................ 593,927 $ 18,189,014
Kemet Corp.*....................................... 385,344 5,069,701
Lexmark International.............................. 404,400 24,668,400
Microchip Technology, Inc.*........................ 491,022 12,827,950
Molex, Inc......................................... 7,812 195,300
Molex, Inc. Class A................................ 417,803 9,766,145
Teradyne, Inc.*.................................... 314,718 8,418,707
--------------
79,135,217
--------------
ENERGY RAW MATERIALS -- 2.65%
Apache Corp........................................ 505,069 15,909,674
Noble Affiliates, Inc. ............................ 377,059 14,328,242
--------------
30,237,916
--------------
FOOD AND AGRICULTURE -- 1.20%
US Foodservice, Inc. .............................. 390,500 13,691,906
--------------
INSURANCE -- 3.24%
Capital Re Corp.................................... 349,536 25,035,516
Transatlantic Holdings, Inc........................ 153,762 11,887,725
--------------
36,923,241
==============
INTERNATIONAL OIL -- 1.53%
Camco International, Inc. ......................... 146,900 11,439,838
Global Industries, Ltd............................. 360,000 6,075,000
--------------
17,514,838
--------------
MISCELLANEOUS AND CONGLOMERATES -- 7.23%
Dentsply International, Inc........................ 443,614 11,090,350
Essex International, Inc. ......................... 488,100 11,531,362
Health Management Association, Inc. Class A........ 257,767 8,619,084
Littelfuse, Inc.*.................................. 493,280 12,455,320
Water Corp......................................... 379,300 22,354,994
Young & Rubicam, Inc............................... 512,350 16,395,200
--------------
82,446,310
--------------
MISCELLANEOUS FINANCE -- 14.23%
CMAC Investment Corp. ............................. 263,508 16,205,742
Edwards (A.G.), Inc................................ 459,604 19,619,346
Everest Reinsurance Holdings, Inc. ................ 556,723 21,399,040
Executive Risk, Inc................................ 230,099 16,969,801
FINOVA Group, Inc. ................................ 466,340 26,406,502
Heller Financial Inc. ............................. 590,000 17,700,000
Idex Corp. ........................................ 447,692 15,445,375
Waddell & Reed Financial Class A................... 565,000 13,524,687
PMI Group, Inc..................................... 206,291 15,136,602
--------------
162,407,095
--------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
31
<PAGE> 93
PEGASUS MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MOTOR VEHICLES -- 5.93%
Borg Warner Automotive............................ 368,139 $ 17,693,681
Donaldson C., Inc. ............................... 457,700 10,813,162
Harley-Davidson, Inc.............................. 570,496 22,106,720
Tower Automotive, Inc. ........................... 397,587 17,046,543
--------------
67,660,106
--------------
NON-DURABLES AND ENTERTAINMENT -- 0.95%
Lancaster Colony Corp............................. 284,887 10,790,095
--------------
NON-FERROUS METALS -- 1.02%
DT Industries, Inc. .............................. 480,232 11,645,626
--------------
PRODUCER GOODS -- 6.78%
Ametek Inc. ...................................... 445,000 13,044,063
Harsco Corp. ..................................... 372,200 17,051,412
Hubbell, Inc. Class B............................. 367,097 15,280,413
Juno Lighting, Inc. .............................. 673,076 15,901,420
Teleflex, Inc..................................... 422,192 16,043,296
--------------
77,320,604
--------------
RETAIL -- 8.17%
Kohls Corp. ...................................... 274,710 14,250,581
Mens Wearhouse, Inc............................... 671,700 22,166,100
Proffitts, Inc.*.................................. 792,918 32,014,064
Zale Corp.*....................................... 778,952 24,780,411
--------------
93,211,156
--------------
TRAVEL AND RECREATION -- 1.23%
Galileo International, Inc. ...................... 312,400 14,077,525
--------------
TOTAL COMMON STOCKS................................. 1,102,102,218
--------------
(Cost $736,734,557)
TOTAL INVESTMENTS................................... $1,141,146,409
==============
(Cost $775,778,748)
</TABLE>
* Non-income producing security.
(1) Securities represent the margin deposit for the futures contracts.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT AT VALUE GAIN
- --------- ---------- --------------- ----------
<S> <C> <C> <C>
164 Mid-Cap 400 Futures................... 9/98 $29,897,200 $607,810
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
32
<PAGE> 94
PEGASUS SMALL-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 2.91%
Pegasus Cash Management Fund Class I (in shares)...... 9,187,465 $9,187,465
U.S. Treasury Bills, 9/24/98(1)....................... $ 350,000 346,000
----------
TOTAL TEMPORARY CASH INVESTMENTS....................... 9,533,465
----------
(Cost $9,533,465)
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCKS -- 97.09%
BANKS -- 4.35%
GBC Bancorp California............................... 168,000 4,452,000
Financial Federal Corp. ............................. 182,000 4,879,875
Litchfield Financial Corp............................ 235,000 4,935,000
----------
14,266,875
----------
BUSINESS MACHINES -- 6.21%
Boole & Babbage, Inc. ............................... 206,675 4,934,366
Cort Business Services Corp.*........................ 200,000 6,300,000
National Instruments Corp............................ 145,900 5,215,925
Structural Dynamics Research Corp.................... 170,000 3,931,250
----------
20,381,541
----------
BUSINESS SERVICES -- 7.36%
Boron Lepore & Associates............................ 100,000 3,800,000
CDI Corp............................................. 106,200 2,840,850
Education Management Corp. .......................... 104,700 3,442,012
Patterson Dental Co.*................................ 118,500 4,340,062
RemedyTemp, Inc., Class A*........................... 187,800 5,457,938
Spartech Corp. ...................................... 200,000 4,287,500
----------
24,168,362
----------
CHEMICALS -- 0.76%
Eastern Environmental Services....................... 73,000 2,482,000
----------
CONSTRUCTION -- 1.30%
Crossmann Communities, Inc. ......................... 140,000 4,252,500
----------
CONTAINERS -- 1.30%
Aptargroup, Inc...................................... 68,800 4,278,500
----------
DRUGS & MEDICINE -- 6.70%
Arrow International, Inc............................. 143,000 3,923,562
Ballard Medical Products............................. 83,000 1,494,000
Hanger Orthopedic Group, Inc. ....................... 223,000 4,543,625
National Dentex Corp................................. 124,000 2,914,000
Omega Protein Corp................................... 315,000 4,843,125
Universal Health Services, Inc., Class B............. 73,000 4,261,375
----------
21,979,687
----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
33
<PAGE> 95
PEGASUS SMALL-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
ELECTRONICS -- 7.67%
Allen Telecom, Inc. .....................................
Altron, Inc. ............................................ 139,000 $ 1,789,625
Belden, Inc. ............................................ 142,000 4,348,750
Burr Brown Corp.*........................................ 115,000 2,415,000
DuPont Photomasks, Inc.*................................. 118,000 4,071,000
Holphane Corp.*.......................................... 133,000 3,391,500
Integrated Electrical Services, Inc. .................... 278,000 5,594,750
MTS Systems Corp. ....................................... 222,000 3,565,875
-----------
25,176,500
-----------
ENERGY RAW MATERIALS -- 5.09%
Doncasters PLC ADR....................................... 233,000 6,480,312
Omni Energy Services..................................... 232,000 3,161,000
Swift Energy Co.*........................................ 295,000 4,701,562
Unit Corp.*.............................................. 391,000 2,370,438
-----------
16,713,312
-----------
FOOD AND AGRICULTURE -- 0.56%
American Italian Pasta Co., Class A...................... 49,000 1,825,250
-----------
INSURANCE -- 5.15%
Capital RE Corp. ........................................ 89,000 6,374,625
Conning Corp. ........................................... 180,000 3,510,000
Stirling Cooke Brown Holdings LTD........................ 250,000 7,031,250
-----------
16,915,875
-----------
MEDIA -- 3.15%
Advanced Communications Systems.......................... 323,000 4,017,313
L-3 Communications Corp. ................................ 59,500 1,944,906
SPSS, Inc.*.............................................. 188,000 4,371,000
-----------
10,333,219
-----------
MISCELLANEOUS & CONGLOMERATES -- 16.49%
Arytesyn Technology, Inc. ............................... 170,000 2,720,000
Davox Corp. ............................................. 88,500 1,935,938
Essex International, Inc. ............................... 139,900 3,305,138
General Cable Corp.*..................................... 220,500 6,366,937
IHOP Corp.*.............................................. 86,000 3,558,250
Industrial Distribution Group............................ 227,000 3,518,500
Lecg, Inc. .............................................. 359,000 5,385,000
Littelfuse, Inc.*........................................ 125,000 3,156,250
OmniQuip International, Inc.*............................ 219,000 4,051,500
Pameco Corp., Class A.................................... 263,000 5,260,000
SBS Technologies, Inc. .................................. 141,000 4,247,625
Simpson Manufacturing Co. ............................... 142,000 5,484,750
Stoneridge, Inc. ........................................ 281,000 5,128,250
-----------
54,118,138
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
34
<PAGE> 96
PEGASUS SMALL-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MISCELLANEOUS FINANCE -- 7.94%
Arm Financial Group..................................... 188,000 $ 4,159,500
Executive Risk, Inc. ................................... 96,000 7,080,000
Idex Corp. ............................................. 100,000 3,450,000
Triad Guaranty, Inc.*................................... 155,300 5,280,200
Unicapital Corp. ....................................... 318,000 6,081,750
------------
26,051,450
------------
MOTOR VEHICLES -- 4.73%
Control Devices, Inc. .................................. 304,582 3,959,566
Dura Automotive Systems, Inc............................ 206,000 6,617,750
Lithia Motors Inc., Class A............................. 335,000 4,941,250
------------
15,518,566
------------
NON-FEROUS METALS -- 0.92%
DT Industries, Inc...................................... 124,000 3,007,000
------------
OPTICAL PHOTOGRAPHIC EQUIPMENT -- 0.66%
II-VI, Inc. ............................................ 153,100 2,181,675
------------
PRODUCER GOODS -- 4.65%
Kuhlman Corp. .......................................... 123,000 4,866,188
SPS Technologies, Inc................................... 145,000 8,482,500
Watsco, Inc............................................. 54,000 1,900,125
------------
15,248,813
------------
RETAIL -- 6.47%
Mens Warehouse, Inc. ................................... 243,000 8,019,000
99 Cents Only Stores*................................... 143,000 5,934,500
Zale Corp.*............................................. 229,000 7,285,062
------------
21,238,562
------------
SOAPS & COSMETICS -- 1.59%
Wesley Jessen Visioncare................................ 225,300 5,210,063
------------
STEEL -- 1.26%
Reliance Steel & Aluminum Co. .......................... 107,000 4,132,875
------------
TRUCKING & FREIGHT -- 2.78%
C.H. Robinson Worldwide, Inc. .......................... 202,000 5,024,750
US Freightways Corp..................................... 125,000 4,105,474
------------
9,130,224
------------
TOTAL COMMON STOCKS....................................... 318,610,987
------------
(Cost $269,653,234)
TOTAL INVESTMENTS......................................... $328,144,452
============
(Cost $279,186,699)
</TABLE>
* Non-income producing security
(1) Securities represent the margin deposit for the futures contracts.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT AT VALUE GAIN
--------- ---------- --------------- -----------
<C> <S> <C> <C> <C>
43 Mid-Cap 400 Futures.......... 9/98 $7,838,900 $161,140
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
35
<PAGE> 97
PEGASUS INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 2.66%
Pegasus Cash Management Fund Class I (in shares)...... 9,266,115 $ 9,266,115
U.S. Treasury Bills, 9/24/98(1)....................... $ 700,000 691,999
------------
TOTAL TEMPORARY CASH INVESTMENTS....................... 9,958,114
------------
(Cost $9,958,114)
CONVERTIBLE BONDS -- 9.94%
Nac Re Corp., 5.25%, 12/15/02........................ 16,384,560 18,227,823
Pep Boys, Zero Coupon, 9/20/11....................... 16,100,000 8,834,875
Potomac Electric Power Co., 5.00%, 9/1/02............ 15,264,000 14,882,400
Roche Holding, Inc., Zero Coupon, 5/6/12............. 55,270,000 26,702,595
------------
TOTAL CONVERTIBLE BONDS................................ 68,647,693
------------
(Cost $64,198,221)
<CAPTION>
SHARES
------
<S> <C> <C>
NON-CONVERTIBLE PREFERRED -- 1.17%
FINANCE -- 1.17%
Salomon, Inc., 7.625% Preferred...................... 181,247 8,631,888
------------
(Cost $5,356,956)
COMMON STOCKS -- 86.23%
AEROSPACE -- 4.55%
Lockheed Martin Corp................................. 289,000 30,597,875
APPAREL -- 5.42%
Payless Shoesource, Inc.*............................ 298,900 22,025,194
Unifi, Inc........................................... 552,300 18,916,275
------------
40,941,469
------------
BANKS -- 1.91%
Pacific Century Financial Corp. ..................... 627,700 15,064,800
------------
BUSINESS SERVICES -- 1.05%
Grey Advertising, Inc. .............................. 35,130 13,911,480
------------
CHEMICALS -- 2.19%
NCH Corp. ........................................... 228,711 14,651,798
------------
CONSUMER DURABLES -- 0.83%
National Presto Industries, Inc. .................... 139,400 5,427,887
------------
DOMESTIC OIL -- 0.91%
Atlantic Richfield Co. .............................. 71,026 5,548,906
------------
DRUGS AND MEDICINE -- 4.50%
Arch Coal, Inc. ..................................... 610,330 15,181,959
Block Drug, Inc., Class A............................ 154,119 5,856,522
------------
21,038,481
------------
ENERGY AND UTILITIES -- 6.79%
Sierra Pacific Resources............................. 342,090 12,422,143
SJW Corp. ........................................... 111,590 6,583,810
Southwest Gas Corporation............................ 509,200 12,443,575
St. Joeseph Light & Power Co. ....................... 393,450 7,328,006
Washington Water Power Co. .......................... 565,145 12,680,441
------------
51,457,975
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
36
<PAGE> 98
PEGASUS INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
FOOD AND AGRICULTURE -- 4.41%
Farmer Brothers Co. ..................................... 74,621 $ 17,834,419
Tate & Lyle PLC Sponsored................................ 440,800 13,996,061
------------
31,830,480
------------
INSURANCE -- 14.62%
American National Insurance Co........................... 227,690 23,964,372
Citizens Corp. .......................................... 573,500 17,957,719
Financial Security Assurance Holdings.................... 226,479 13,305,641
Ohio Casualty Corp....................................... 189,900 8,403,075
Old Republic International Corp.......................... 833,391 24,428,774
Safeco Corp.............................................. 207,461 9,426,509
------------
97,486,090
------------
INTERNATIONAL OIL -- 0.64%
Amoco Corp. ............................................. 94,608 3,938,058
------------
LIQUOR -- 2.57%
Diageo PLC............................................... 364,217 17,550,707
------------
MISCELLANEOUS FINANCE -- 14.89%
Associated Estates Realty................................ 172,700 3,227,331
Federal National Mortgage Association.................... 437,300 26,565,975
Fund American Enterprises Holdings, Inc. ................ 263,490 38,996,520
Leucadia National Corp. ................................. 847,570 28,022,783
PXRE Corp. .............................................. 669,925 20,097,750
------------
116,910,359
------------
NON-DURABLES AND ENTERTAINMENT -- 4.85%
Lubys Cafeterias, Inc. .................................. 470,066 8,255,534
Sbarro, Inc.............................................. 600,430 16,286,664
------------
24,542,198
------------
NON-FERROUS METALS
DeBeers Consolidated Mines Ltd........................... 590,000 10,325,000
------------
PRODUCER GOODS -- 0.31%
Tennant Co............................................... 81,086 3,588,056
------------
RAILROADS AND SHIPPING -- 4.13%
Alexander & Baldwin, Inc................................. 450,553 13,122,356
Canadian National Railway Co. ........................... 328,653 17,459,691
------------
30,582,047
------------
RETAIL -- 1.58%
Enesco Group, Inc. ...................................... 385,700 11,860,275
------------
TIRES AND RUBBER GOODS -- 2.79%
Bandag, Inc. Class A..................................... 389,800 13,448,100
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
37
<PAGE> 99
PEGASUS INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TOBACCO -- 6.51%
Loews Corp............................................... 335,300 $ 29,213,014
UST, Inc. ............................................... 236,400 6,382,800
------------
35,595,814
------------
TOTAL COMMON STOCKS........................................ 596,297,855
------------
(Cost $479,015,306)
TOTAL INVESTMENTS.......................................... $683,535,550
============
(Cost $558,528,597)
</TABLE>
* Non-income producing security.
(1) Securities represent the margin deposit for the futures contracts.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT OF VALUE GAIN
- --------- ---------- --------------- ----------
<S> <C> <C> <C>
5 S & P 500 Futures...................... 9/98 $10,287,000 $305,200
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
38
<PAGE> 100
PEGASUS GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 2.55%
Pegasus Cash Management Fund Class I (in shares).... 29,233,807 $ 29,233,807
U.S. Treasury Bills, 9/17/98(1)..................... $ 2,250,000 2,196,799
--------------
TOTAL TEMPORARY CASH INVESTMENTS.................... 31,430,606
--------------
(Cost $31,430,606)
<CAPTION>
SHARES
-----------
<S> <C> <C>
COMMON STOCKS -- 97.45%
AEROSPACE -- 1.40%
Boeing Co.......................................... 388,000 17,290,250
--------------
BANKS -- 5.21%
BankAmerica Corp................................... 311,000 26,882,063
Norwest Corp....................................... 998,000 37,300,250
--------------
64,182,313
--------------
BUSINESS MACHINES -- 4.40%
Compaq Computer Corp............................... 464,000 13,166,000
Electronic Data Systems Corp....................... 659,000 26,360,000
Gateway 2000, Inc.................................. 289,000 14,630,625
--------------
54,156,625
--------------
BUSINESS SERVICES -- 2.46%
Auto Data Processing, Inc.......................... 416,000 30,316,000
--------------
CHEMICALS -- 2.13%
Sigma-Aldrich Corp................................. 747,000 26,238,375
--------------
CONSTRUCTION -- 3.54%
Masco Corp......................................... 555,000 33,577,500
York International Corp............................ 230,000 10,019,375
--------------
43,596,875
--------------
CONSUMER DURABLES -- 2.54%
Newell Co.......................................... 628,000 31,282,250
--------------
CONTAINERS -- 1.61%
Crown Cork & Seal Co., Inc......................... 416,000 19,760,000
--------------
DRUGS AND MEDICINE -- 11.25%
Abbott Laboratories Corp........................... 654,000 26,732,250
American Home Products Corp........................ 630,000 32,602,500
Bristol-Myers Squibb Co............................ 352,000 40,458,000
Schering-Plough Corp............................... 423,000 38,757,375
--------------
138,550,125
--------------
ELECTRONICS -- 8.65%
AMP, Inc........................................... 782,000 26,881,250
Andrew Corp........................................ 580,600 10,487,087
First Data Corp.................................... 895,000 29,814,688
Hewlett Packard Co................................. 204,000 12,214,500
Intel Corp......................................... 366,000 27,129,750
--------------
106,527,275
--------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
39
<PAGE> 101
PEGASUS GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
ENERGY AND UTILITIES -- 9.18%
Enron Corp........................................... 467,000 $ 25,247,187
FPL Group Inc........................................ 501,000 31,563,000
MCN Energy Group, Inc................................ 925,000 23,009,375
Pinnacle West Capital Corp........................... 737,000 33,165,000
--------------
112,984,562
--------------
ENERGY RAW MATERIALS -- 2.36%
Schlumberger Ltd..................................... 425,000 29,032,812
--------------
FOOD AND AGRICULTURE -- 8.50%
Bestfoods............................................ 572,000 33,211,750
ConAgra, Inc......................................... 1,086,000 34,412,625
PepsiCo, Inc......................................... 898,000 36,986,375
--------------
104,610,750
--------------
INSURANCE -- 4.33%
American International Group, Inc.................... 186,500 27,229,000
Chubb Corp........................................... 324,000 26,041,500
--------------
53,270,500
--------------
INTERNATIONAL OIL -- 3.52%
British Petroleum PLC ADR............................ 302,248 26,673,386
Mobil Corp........................................... 217,000 16,627,625
--------------
43,301,011
--------------
LIQUOR -- 2.35%
Anheuser-Busch Companies, Inc........................ 613,000 28,925,938
--------------
MEDIA -- 5.38%
Gannett Co., Inc..................................... 397,000 28,211,812
Washington Post Co. Class B.......................... 66,000 38,016,000
--------------
66,227,812
--------------
MISCELLANEOUS & CONGLOMERATES -- 2.96%
Cognizant Corp....................................... 578,000 36,414,000
--------------
MISCELLANEOUS FINANCE -- 3.38%
Federal Home Loan Mortgage Corp...................... 445,000 20,942,813
PMI Group, Inc....................................... 282,000 20,691,750
--------------
41,634,563
--------------
NON-DURABLES AND ENTERTAINMENT -- 2.33%
Kimberly-Clark Corp.................................. 626,000 28,717,750
--------------
PRODUCER GOODS -- 2.30%
Dover Corp........................................... 825,000 28,256,250
--------------
RETAIL -- 2.66%
Officemax, Inc....................................... 1,984,000 32,736,000
--------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
40
<PAGE> 102
PEGASUS GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TELEPHONE -- 5.01%
Bell Atlantic Corp.................................... 534,000 $ 24,363,750
Century Telephone Enterprises, Inc.................... 814,000 37,342,250
--------------
61,706,000
--------------
TOTAL COMMON STOCKS..................................... 1,199,718,036
--------------
(Cost $831,880,672)
TOTAL INVESTMENTS....................................... $1,231,148,642
==============
(Cost $863,311,278)
</TABLE>
* Non-income producing security.
(1) Securities represent the margin deposit on the futures contracts.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNDERLYING
EXPIRATION FACE AMOUNT UNREALIZED
PURCHASED DATE AT VALUE GAIN
- -----------------------------------------------------
<S> <C> <C> <C>
96 S&P 500 Futures 9/98 $27,432,000 $465,822
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
41
<PAGE> 103
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- 100.00%
AEROSPACE -- 1.70%
Boeing Co. .............................................. 109,657 $ 4,886,590
General Dynamics Corp. .................................. 11,082 515,313
Goodrich B. F. Co. ...................................... 8,000 397,000
Lockheed Martin Corp. ................................... 21,247 2,249,526
Northrop Grumman Corp. .................................. 7,368 759,825
Raytheon Co. Class A..................................... 5,113 294,637
Raytheon Co. Class B..................................... 31,983 1,890,995
Rockwell International Corp. ............................ 24,874 1,195,506
Textron, Inc. ........................................... 18,048 1,293,816
TRW, Inc. ............................................... 15,942 870,832
United Technologies Corp. ............................... 25,164 2,327,670
------------
16,681,710
------------
AIR TRANSPORT -- 0.54%
AMR Corp.*............................................... 20,896 1,739,592
Delta Air Lines, Inc. ................................... 8,935 1,154,849
FDX Corp. ............................................... 17,431 1,093,795
Southwest Airlines Co. .................................. 18,329 542,997
US Airways Group, Inc. .................................. 9,100 721,175
------------
5,252,408
------------
APPAREL -- 0.34%
Fruit of the Loom, Inc., Class A*........................ 8,497 281,994
Liz Claiborne, Inc. ..................................... 5,553 290,144
Nike, Inc., Class B...................................... 32,790 1,596,463
Reebok International Ltd. ............................... 6,193 171,469
Russell Corp. ........................................... 10,900 329,044
V.F. Corp. .............................................. 12,454 641,381
------------
3,310,495
------------
BANKS -- 9.36%
Banc One Corp. .......................................... 77,093 4,302,753
BankAmerica Corp. ....................................... 75,580 6,532,946
BankBoston Corp. ........................................ 33,592 1,868,555
Bank of New York Co., Inc. .............................. 41,443 2,515,072
Bankers Trust New York Corp. ............................ 10,960 1,272,045
BB & T Corp. ............................................ 15,100 1,021,138
Chase Manhattan Corp. ................................... 91,806 6,931,353
Citicorp................................................. 50,156 7,485,783
Comerica, Inc. .......................................... 17,389 1,152,021
First Chicago NBD Corp. ................................. 32,601 2,889,264
First Union Corp. ....................................... 106,126 6,181,839
Fleet Financial Group, Inc. ............................. 28,249 2,358,791
Fifth Third Bancorp...................................... 24,166 1,522,458
Huntington Bankshares, Inc. ............................. 21,100 706,850
J.P Morgan and Co., Inc. ................................ 20,177 2,363,231
Keycorp.................................................. 48,382 1,723,609
MBNA Corp. .............................................. 54,891 1,811,403
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
42
<PAGE> 104
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Mellon Bank Corp. ....................................... 29,600 $ 2,060,900
Mercantile Bancorporation, Inc. ......................... 14,400 725,400
Morgan Stanley Dean Witter Discover & Co. ............... 65,000 5,939,375
Nationsbank Corp. ....................................... 103,221 7,896,406
National City Corp. ..................................... 36,805 2,613,155
Northern Trust Corp. .................................... 12,400 945,500
Norwest Corp. ........................................... 81,432 3,043,521
PNC Bank Corp. .......................................... 31,420 1,690,789
Republic NY Corp. ....................................... 13,382 842,230
State Street Corp. ...................................... 17,800 1,237,100
Summit Bancorp........................................... 19,400 921,500
Suntrust Banks, Inc. .................................... 24,492 1,991,506
Synovus Financial Corp. ................................. 28,950 687,563
U.S. Bancorp............................................. 81,186 3,490,998
Wachovia Corp. .......................................... 22,453 1,897,278
Wells Fargo & Co. ....................................... 8,850 3,265,650
------------
91,887,982
------------
BUSINESS MACHINES -- 7.82%
Apple Computer, Inc. .................................... 14,900 427,444
Bay Networks, Inc. ...................................... 18,433 594,464
Ceridian Corp.*.......................................... 7,345 431,519
Cisco System, Inc. ...................................... 116,311 10,707,881
Compaq Computer Corp.*................................... 189,126 5,366,455
Dell Computer Corp.*..................................... 73,444 6,816,521
Gateway 2000, Inc. ...................................... 17,400 880,875
Honeywell, Inc. ......................................... 14,096 1,177,897
International Business Machines Corp. ................... 106,672 12,247,279
Microsoft Corp.*......................................... 267,186 28,956,283
Novell, Inc.*............................................ 46,900 597,975
Pitney Bowes, Inc. ...................................... 36,896 1,775,620
Seagate Technology*...................................... 27,865 663,535
Sun Microsystems, Inc.*.................................. 39,267 1,705,660
Unisys Corp. ............................................ 24,600 694,950
Xerox Corp. ............................................. 36,335 3,692,544
------------
76,736,902
------------
BUSINESS SERVICES -- 1.59%
Automatic Data Processing, Inc. ......................... 31,779 2,315,895
Block (H.& R.), Inc. .................................... 16,457 693,251
Browning-Ferris Industries, Inc. ........................ 21,635 751,816
Cendant Corp. ........................................... 86,475 1,805,166
Computer Associates International, Inc. ................. 61,353 3,408,926
Computer Sciences Corp .................................. 15,352 982,528
Dun & Bradstreet Corp. .................................. 18,167 607,459
Ecolab, Inc. ............................................ 22,388 694,028
Equifax, Inc. ........................................... 16,600 602,788
Interpublic Group of Companies, Inc. .................... 12,132 736,261
KLA Tencor Corp. ........................................ 9,400 260,262
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
43
<PAGE> 105
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Moore Corp. ............................................. 10,200 $ 135,150
Omnicom Group, Inc. ..................................... 17,700 882,787
Waste Management, Inc. .................................. 50,275 1,759,625
------------
15,635,942
------------
CHEMICALS -- 2.21%
Air Products & Chemicals, Inc. .......................... 26,980 1,079,200
Dow Chemical Co. ........................................ 25,921 2,506,237
DuPont (E I) de Nemours & Co., Inc. ..................... 124,182 9,267,082
Hercules, Inc. .......................................... 8,610 354,086
Monsanto Co. ............................................ 67,511 3,772,177
Morton International, Inc. .............................. 13,635 340,875
Nalco Chemical Co. ...................................... 8,600 302,075
PPG Industries, Inc. .................................... 20,140 1,400,989
Praxair, Inc. ........................................... 17,003 795,953
Rohm & Haas Co. ......................................... 6,141 638,280
Sigma-Aldrich Corp. ..................................... 11,005 386,550
Union Carbide Corp. ..................................... 16,045 856,402
------------
21,699,906
------------
CONSTRUCTION -- 0.39%
Armstrong World Industries, Inc. ........................ 4,600 309,925
Centex Corp.............................................. 13,224 499,206
Fluor Corp. ............................................. 8,470 431,970
Kaufman & Broad Home Corp. .............................. 20,233 642,398
Masco Corp. ............................................. 18,597 1,125,119
Sherwin Williams Co. .................................... 15,416 510,655
Stanley Works............................................ 7,117 295,800
------------
3,815,073
------------
CONSUMER DURABLES -- 0.32%
Black & Decker Corp. .................................... 10,929 666,669
Maytag Corp. ............................................ 11,800 582,625
Newell Co. .............................................. 16,158 804,870
Rubbermaid, Inc. ........................................ 16,441 545,636
Whirlpool Corp. ......................................... 8,355 574,406
------------
3,174,206
------------
CONTAINERS -- 0.21%
Ball Corp. .............................................. 3,457 138,928
Crown Cork & Seal Co., Inc. ............................. 13,130 623,675
Owens Illinois, Inc. .................................... 15,300 684,675
Sealed Air Corp. ........................................ 9,548 350,889
Stone Container Corp. ................................... 17,556 274,313
------------
2,072,480
------------
DOMESTIC OIL -- 0.91%
Amerada Hess Corp. ...................................... 8,560 464,915
Ashland Oil, Inc. ....................................... 8,240 425,390
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
44
<PAGE> 106
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Atlantic Richfield Co. .................................. 34,960 $ 2,731,250
Oryx Energy Co.*......................................... 11,500 254,438
Pennzoil Co. ............................................ 7,062 357,514
Phillips Petroleum Co. .................................. 29,271 1,410,496
Sun Co., Inc. ........................................... 10,200 395,887
Union Pacific Resources Group............................ 39,806 699,093
Unocal Corp. ............................................ 29,993 1,072,250
USX-Marathon Group....................................... 31,654 1,086,128
------------
8,897,361
------------
DRUGS AND MEDICINE -- 11.74%
Abbott Laboratories...................................... 171,198 6,997,718
Alza Corp. .............................................. 10,200 441,150
American Home Products Corp. ............................ 142,620 7,380,585
Amgen, Inc.*............................................. 28,792 1,882,277
Baxter International, Inc. .............................. 31,385 1,688,905
Becton Dickinson & Co. .................................. 14,362 1,114,850
Biomet, Inc.*............................................ 13,200 436,425
Bristol-Myers Squibb Co. ................................ 109,116 12,541,520
Columbia/HCA Healthcare Corp. ........................... 77,833 2,266,886
Guidant Corp. ........................................... 16,418 1,170,809
HBO & Co. ............................................... 55,600 1,959,900
Healthsouth Corp. ....................................... 42,138 1,124,558
Humana, Inc.*............................................ 17,137 534,460
Johnson & Johnson........................................ 152,218 11,226,078
Lilly (Eli) & Co. ....................................... 124,776 8,243,015
Medtronic, Inc. ......................................... 53,904 3,436,380
Merck & Co., Inc. ....................................... 131,474 17,584,648
Pall Corp. .............................................. 15,700 321,850
Pfizer, Inc. ............................................ 141,976 15,431,016
Pharmacia & Upjohn Co. .................................. 59,708 2,754,031
Schering-Plough Corp. ................................... 82,812 7,587,649
Tenet Healthcare Corp.*.................................. 33,462 1,045,688
United Healthcare Corp. ................................. 25,225 1,601,788
Warner Lambert Co. ...................................... 92,589 6,423,362
------------
115,195,548
------------
ELECTRONICS -- 5.56%
3Com Corp.*.............................................. 36,689 1,125,894
Advanced Micro Devices, Inc.*............................ 16,022 273,375
AMP, Inc. ............................................... 23,240 798,875
Andrew Corp.*............................................ 12,000 216,750
Boston Scientific Corp.*................................. 21,666 1,551,827
E G & G, Inc. ........................................... 12,300 369,000
EMC Corp.*............................................... 55,874 2,503,854
First Data Corp. ........................................ 48,529 1,616,622
General Signal Corp. .................................... 8,100 291,600
Harris Corp. ............................................ 10,812 483,161
Hewlett-Packard Co. ..................................... 116,955 7,002,681
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
45
<PAGE> 107
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Intel Corp. ............................................. 179,590 $ 13,312,109
Johnson Controls, Inc. .................................. 9,804 560,666
Lucent Technologies, Inc. ............................... 142,828 11,881,504
Micron Technology, Inc. ................................. 23,749 589,272
Motorola, Inc. .......................................... 66,101 3,474,434
National Semiconductor Corp.*............................ 15,132 199,553
Northern Telecom Ltd. ................................... 61,946 3,572,186
Parametric Technology Corp. ............................. 28,000 759,500
Perkin Elmer Corp. ...................................... 4,800 298,500
Raychem Corp. ........................................... 11,206 331,277
Tektronix, Inc. ......................................... 7,700 272,388
Texas Instruments, Inc. ................................. 43,386 2,529,946
Thermo Electron Corp. ................................... 16,777 573,564
------------
54,588,538
------------
ENERGY AND UTILITIES -- 3.06%
Ameren Corp. ............................................ 12,821 509,635
American Electric Power Co., Inc. ....................... 20,280 920,205
Baltimore Gas & Electric Co. ............................ 17,663 548,657
Carolina Power & Light Co. .............................. 16,718 725,143
Central & SouthWest Corp. ............................... 20,293 545,374
CINergy Corp. ........................................... 15,367 537,845
Coastal Corp. ........................................... 10,572 738,058
Columbia Gas System, Inc. ............................... 11,989 666,888
Consolidated Edison, Inc. ............................... 26,877 1,238,022
Consolidated Natural Gas Co. ............................ 9,603 565,377
Dominion Resources, Inc. ................................ 20,419 832,074
DTE Energy, Inc. ........................................ 15,571 628,679
Duke Power Co. .......................................... 39,188 2,321,889
Edison International..................................... 47,428 1,402,090
Enron Corp. ............................................. 41,483 2,242,675
Entergy Corp. ........................................... 29,924 860,315
Firstenergy Corp. ....................................... 25,391 780,773
FPL Group, Inc. ......................................... 21,280 1,340,640
GPU, Inc. ............................................... 13,640 515,762
Houston Industries, Inc. ................................ 32,902 1,015,849
Northern States Power Co. ............................... 14,902 426,570
PacifiCorp............................................... 31,880 721,285
PECO Energy Co. ......................................... 23,809 694,925
Peoples Energy Corp. .................................... 3,600 139,050
P G & E Corp. ........................................... 52,151 1,646,016
PP&L Resources, Inc. .................................... 21,745 493,340
Public Service Enterprise Group, Inc. ................... 23,597 812,622
Sonat, Inc. ............................................. 10,691 412,940
Southern Co. ............................................ 79,419 2,198,913
Texas Utilities Co. ..................................... 27,654 1,151,098
Unicom Corp. ............................................ 23,024 807,279
Williams Companies, Inc. ................................ 46,044 1,553,985
------------
29,993,973
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
46
<PAGE> 108
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
ENERGY RAW MATERIALS -- 1.14%
Anadarko Petroleum Corp. ................................ 6,600 $ 443,438
Apache Corp. ............................................ 10,000 315,000
Baker Hughes, Inc. ...................................... 15,450 533,991
Barricks Gold Corp. ..................................... 38,235 733,634
Burlington Resources, Inc. .............................. 18,636 802,513
Dresser Industries, Inc. ................................ 19,462 857,544
Eastern Enterprises...................................... 4,900 210,087
Halliburton Co. ......................................... 28,108 1,252,563
Helmerich & Payne, Inc. ................................. 7,874 175,197
McDermott International, Inc. ........................... 9,400 323,712
Nacco Industries, Inc., Class A.......................... 2,600 336,050
Occidental Petroleum Corp. .............................. 37,520 1,013,040
Schlumberger Ltd. ....................................... 54,974 3,755,411
Western Atlas, Inc.*..................................... 5,727 486,079
------------
11,238,259
------------
FOOD AND AGRICULTURE -- 5.57%
Archer Daniels Midland Co. .............................. 65,037 1,260,092
Bestfoods................................................ 31,230 1,813,292
Cardinal Health, Inc. ................................... 12,100 1,134,375
Campbell Soup Co. ....................................... 51,986 2,761,756
Coca-Cola Co. ........................................... 271,419 23,206,325
ConAgra, Inc. ........................................... 52,158 1,652,757
Darden Restaurants, Inc. ................................ 37,561 596,281
General Mills, Inc. ..................................... 17,041 1,165,178
Heinz (H.J.) Co. ........................................ 39,296 2,205,488
Hershey Foods Corp. ..................................... 16,857 1,163,133
Kellogg Co. ............................................. 47,144 1,770,846
PepsiCo, Inc. ........................................... 172,243 7,094,259
Pioneer Hi-Bred International, Inc. ..................... 34,200 1,415,025
Quaker Oats Co. ......................................... 13,800 758,137
Ralston-Ralston Purina Group............................. 11,577 1,352,338
Sara Lee Corp. .......................................... 49,109 2,747,035
Sysco Corp. ............................................. 33,480 857,925
Tricon Global Restaurants................................ 17,224 545,786
Wrigley (Wm.) Jr Co. .................................... 12,062 1,182,076
------------
54,682,104
------------
GOLD -- 0.05%
Homestake Mining Co. .................................... 47,881 496,765
------------
INSURANCE -- 3.59%
Allstate Corp. .......................................... 48,010 4,395,916
American General Corp. .................................. 27,019 1,923,415
American International Group, Inc. ...................... 76,954 11,235,284
AON Corp. ............................................... 18,253 1,282,273
Chubb Corp. ............................................. 22,534 1,811,170
CIGNA Corp. ............................................. 23,448 1,617,912
Cincinnati Financial Corp. .............................. 18,000 690,750
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
47
<PAGE> 109
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
General Re Corp. ........................................ 8,395 $ 2,128,133
Hartford Financial Services Group, Inc. ................. 12,102 1,384,166
Jefferson-Pilot Corp. ................................... 9,694 561,646
Lincoln National Corp. .................................. 11,498 1,050,630
Marsh & McLennan Companies, Inc. ........................ 26,892 1,625,285
Progressive Corp. (Ohio)................................. 7,900 1,113,900
SAFECO Corp. ............................................ 19,551 888,349
St. Paul Companies....................................... 22,084 928,908
Torchmark Corp. ......................................... 15,458 707,204
Transamerica Corp. ...................................... 6,815 784,577
UNUM Corp. .............................................. 19,298 1,071,039
------------
35,200,557
------------
INTERNATIONAL OIL -- 5.39%
Amoco Corp. ............................................. 106,844 4,447,381
Chevron Corp. ........................................... 76,612 6,363,584
Exxon Corp. ............................................. 270,640 19,300,015
Mobil Corp. ............................................. 84,624 6,484,314
Royal Dutch Petroleum Co., N.Y. Registry................. 235,340 12,899,574
Texaco, Inc. ............................................ 57,578 3,436,687
------------
52,931,555
------------
LIQUOR -- 0.50%
Anheuser-Busch Companies, Inc. .......................... 54,233 2,559,119
Brown Forman Corp. Class B............................... 10,768 691,844
Seagram Co. Ltd. ........................................ 39,428 1,614,084
------------
4,865,047
------------
MEDIA -- 2.48%
Adobe System, Inc. ...................................... 9,300 394,669
Clear Channel Communication.............................. 13,900 1,516,838
Comcast Corp. Class A Special............................ 38,985 1,582,549
Donnelley (R.R.) & Sons Co. ............................. 14,361 657,016
Dow Jones & Co., Inc. ................................... 10,552 588,274
Gannett Co., Inc. ....................................... 29,782 2,116,383
Knight-Ridder, Inc. ..................................... 12,559 691,530
McGraw Hill Companies, Inc. ............................. 9,911 808,366
MediaOne Group, Inc. .................................... 69,144 3,038,015
Meredith Corp. .......................................... 12,900 605,494
New York Times Co. Class A............................... 13,915 1,102,764
Tele-Communications, Inc. Class A........................ 53,863 2,070,359
Time Warner, Inc. ....................................... 61,690 5,270,639
Times Mirror Co. Class A................................. 10,951 688,544
Tribune Co. ............................................. 12,467 857,885
Viacom, Inc. Class B Non-Voting*......................... 39,626 2,308,214
------------
24,297,539
------------
MISCELLANEOUS AND CONGLOMERATES -- 1.37%
Ascend Communications, Inc. ............................. 21,200 1,050,725
Case Corp. .............................................. 6,265 302,286
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
48
<PAGE> 110
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Cognizant Corp. ......................................... 18,167 $ 1,144,521
Corning, Inc. ........................................... 28,111 976,857
Eastman Chemical Co. .................................... 8,252 513,687
ITT Industries, Inc. .................................... 17,186 642,327
Minnesota Mining & MFG Co. .............................. 46,893 3,854,018
Nextel Communications, Inc., Class A..................... 29,400 731,325
Oneok, Inc. ............................................. 4,300 171,463
Tyco International LTD................................... 63,632 4,008,816
------------
13,396,025
------------
MISCELLANEOUS FINANCE -- 4.66%
Aetna, Inc. ............................................. 16,312 1,241,751
Ahmanson (H.F.) & Co. ................................... 9,853 699,563
American Express Co. .................................... 51,022 5,816,508
Associates First Capital Corp. .......................... 38,989 2,997,279
Beneficial Corp. ........................................ 5,757 881,900
Countrywide Credit Industries, Inc. ..................... 11,500 583,625
Federal Home Loan Mortgage Corp. ........................ 77,662 3,654,968
Federal National Mortgage Association.................... 116,478 7,076,039
Franklin Resources, Inc. ................................ 28,400 1,533,600
Golden West Financial Corp. ............................. 6,635 705,383
Greentree Financial Corp. ............................... 14,689 628,873
Household International, Inc. ........................... 35,328 1,757,568
Lehman Brothers Holdings, Inc. .......................... 11,200 868,700
MBIA, Inc. .............................................. 10,082 754,890
Merrill Lynch & Co., Inc. ............................... 36,252 3,344,247
MGIC Investment Corp. ................................... 12,386 706,776
Providian Financial Corp. ............................... 11,231 882,336
Schwab (Charles) Corp. .................................. 28,950 940,875
SunAmerica, Inc. ........................................ 21,600 1,240,650
Travelers Group, Inc. ................................... 125,394 7,602,011
Washington Mutual, Inc. ................................. 41,298 1,793,882
------------
45,711,424
------------
MOTOR VEHICLES -- 2.07%
Autozone, Inc. .......................................... 16,849 538,115
Chrysler Corp. .......................................... 72,106 4,064,976
Cummins Engine Co., Inc. ................................ 6,900 353,625
Dana Corp. .............................................. 11,898 636,543
Eaton Corp. ............................................. 8,305 645,714
Ford Motor Co. .......................................... 137,159 8,092,381
General Motors Corp. .................................... 80,184 5,357,293
Genuine Parts Co. ....................................... 18,165 627,828
------------
20,316,475
------------
NON-DURABLES AND ENTERTAINMENT -- 1.55%
American Greetings Corp. Class A......................... 8,425 429,148
Harcourt General, Inc. .................................. 7,111 423,105
Hasbro, Inc. ............................................ 11,511 452,526
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
49
<PAGE> 111
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Kimberly-Clark Corp. .................................... 63,098 $ 2,894,621
Mattel, Inc. ............................................ 28,507 1,206,202
McDonalds Corp. ......................................... 77,605 5,354,745
Oracle Corp.*............................................ 113,985 2,799,757
Service Corp. International.............................. 31,789 1,362,953
Wendy's International, Inc. ............................. 14,500 340,750
------------
15,263,807
------------
NON-FERROUS METALS -- 0.53%
Alcan Aluminum Ltd. ..................................... 22,182 612,778
Allegheny Teledyne, Inc. ................................ 18,840 430,965
Aluminum Co. of America.................................. 18,969 1,250,768
Asarco, Inc. ............................................ 10,081 224,302
Cyprus Amax Mineral Co. ................................. 23,800 315,350
Engelhard Corp. ......................................... 17,991 364,318
Freeport McMoran Copper Class B.......................... 23,905 363,057
Laidlaw, Inc. ........................................... 34,015 414,558
Newmont Mining Corp. .................................... 18,815 444,504
Phelps Dodge Corp. ...................................... 6,738 385,329
Reynolds Metals Co. ..................................... 7,160 400,513
------------
5,206,442
------------
OPTICAL PHOTOGRAPHIC EQUIPMENT -- 0.29%
Eastman Kodak Co. ....................................... 38,623 2,821,893
------------
PAPER AND FOREST PRODUCTS -- 0.72%
Bemis, Inc. ............................................. 4,177 170,735
Boise Cascade Corp. ..................................... 11,100 363,525
Champion International Corp. ............................ 10,768 529,651
Georgia-Pacific Corp. ................................... 10,387 612,184
International Paper Co. ................................. 32,379 1,392,297
Fort James Corp. ........................................ 21,004 934,678
Mead Corp. .............................................. 15,680 497,840
Temple-Inland, Inc. ..................................... 7,723 416,077
Union Camp Corp. ........................................ 6,604 327,723
Westvaco Corp. .......................................... 11,910 336,457
Weyerhaeuser Co. ........................................ 21,792 1,006,518
Willamette Industries, Inc. ............................. 13,970 447,040
------------
7,034,725
------------
PRODUCER GOODS -- 5.54%
Allied Signal, Inc. ..................................... 64,552 2,864,495
Applied Materials Co.*................................... 38,684 1,141,178
Avery Dennison Corp. .................................... 11,909 640,109
CBS Corp. ............................................... 76,724 2,435,987
Caterpillar, Inc. ....................................... 42,740 2,259,878
Conseco, Inc. ........................................... 21,000 981,750
Cooper Industries, Inc. ................................. 12,499 686,664
Deere & Co. ............................................. 29,106 1,538,980
Dover Corp. ............................................. 24,138 826,726
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
50
<PAGE> 112
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Emerson Electric Co. .................................... 50,814 $ 3,067,895
FMC Corp.*............................................... 5,000 340,937
General Electric Co. .................................... 359,128 32,680,648
Grainger (W.W.), Inc. ................................... 9,666 481,488
Illinois Tool Works, Inc. ............................... 28,528 1,902,461
Ingersoll-Rand Co. ...................................... 15,619 688,212
Millipore Corp. ......................................... 11,100 302,475
Parker-Hannifin Corp. ................................... 12,976 494,710
Snap-On, Inc. ........................................... 7,800 282,750
Tenneco, Inc. ........................................... 18,607 708,229
------------
54,325,572
------------
RAILROADS AND SHIPPING -- 0.53%
Burlington Northern Santa Fe............................. 17,659 1,733,893
CSX Corp. ............................................... 23,242 1,057,511
Norfolk Southern Corp. .................................. 39,725 1,184,301
Union Pacific Corp. ..................................... 27,045 1,193,361
------------
5,169,066
------------
RETAIL -- 5.50%
Albertsons, Inc. ........................................ 26,979 1,397,849
American Stores Co. ..................................... 32,494 785,949
Circuit City Group....................................... 14,591 683,953
Consolidated Stores Corp. ............................... 11,900 431,375
Costco Companies, Inc. .................................. 25,426 1,603,427
CVS Corp. ............................................... 42,890 1,670,029
Dayton Hudson Corp. ..................................... 48,360 2,345,460
Dillards, Inc. Class A................................... 10,894 451,420
Federated Department Stores, Inc.*....................... 24,205 1,302,531
Gap, Inc. ............................................... 43,287 2,667,561
Home Depot, Inc. ........................................ 78,992 6,561,273
Kmart Corp.*............................................. 53,693 1,033,590
Kroger Co.*.............................................. 27,858 1,194,412
Limited, Inc. ........................................... 30,520 1,010,975
Longs Drug Stores Corp. ................................. 8,100 233,888
Lowes Companies, Inc. ................................... 41,450 1,681,316
May Department Stores Co. ............................... 27,699 1,814,284
Nordstrom, Inc. ......................................... 7,484 578,139
Penney (J.C.) & Co., Inc. ............................... 28,640 2,071,030
Rite-Aid Corp. .......................................... 27,298 1,025,381
Sears, Roebuck & Co. .................................... 44,812 2,736,333
Tandy Corp. ............................................. 13,160 698,303
TJX Companies, Inc. ..................................... 34,276 826,909
Toys R Us*............................................... 28,561 672,969
Wal Mart Stores, Inc. ................................... 246,521 14,976,151
Walgreen Co. ............................................ 62,046 2,563,275
Winn-Dixie Stores, Inc. ................................. 18,270 935,196
------------
53,952,978
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
51
<PAGE> 113
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
SOAPS AND COSMETICS -- 3.24%
Alberto-Culver Co. Class B............................... 14,900 $ 432,100
Avon Products, Inc. ..................................... 12,294 952,785
Clorox Co. .............................................. 9,572 912,929
Colgate-Palmolive Co. ................................... 32,872 2,892,736
Gillette Co. ............................................ 128,046 7,258,608
International Flavors & Fragrances, Inc. ................ 10,688 464,260
Procter & Gamble Co. .................................... 147,296 13,413,142
Unilever N.V. ........................................... 69,636 5,496,892
------------
31,823,452
------------
STEEL -- 0.14%
Armco, Inc.*............................................. 85,322 543,928
Nucor Corp. ............................................. 8,179 376,234
Worthington Industries, Inc. ............................ 30,034 452,387
------------
1,372,549
------------
TELEPHONE -- 6.83%
AT&T Corp. .............................................. 178,264 10,183,331
AirTouch Communications, Inc.*........................... 63,525 3,712,242
ALLTEL Corp. ............................................ 16,117 749,441
Ameritech Corp. ......................................... 123,140 5,525,908
Bell Atlantic Corp. ..................................... 169,448 7,731,065
Bellsouth Corp. ......................................... 106,595 7,155,189
Frontier Corp. .......................................... 18,361 578,372
GTE Corp. ............................................... 107,731 5,992,537
MCI Communications Corp. ................................ 73,988 4,300,552
SBC Communications, Inc. ................................ 201,188 8,047,520
Sprint Corp. ............................................ 49,944 3,521,052
Tellabs, Inc.*........................................... 20,086 1,438,660
US WEST Inc.*............................................ 57,072 2,682,399
Worldcom, Inc.*.......................................... 111,178 5,385,184
------------
67,003,452
------------
TIRES AND RUBBER GOODS -- 0.13%
Cooper Tire & Rubber Co. ................................ 12,703 261,999
Goodyear Tire & Rubber Co. .............................. 16,591 1,069,083
------------
1,331,082
------------
TOBACCO -- 1.31%
Fortune Brands, Inc. .................................... 18,700 718,781
Loews Corp. ............................................. 12,695 1,106,052
Philip Morris Companies, Inc. ........................... 266,085 10,477,097
UST, Inc. ............................................... 21,612 583,524
------------
12,885,454
------------
TRAVEL AND RECREATION -- 1.06%
Brunswick Corp. ......................................... 11,200 277,200
Disney (Walt) Co. ....................................... 76,312 8,017,530
Hilton Hotels Corp. ..................................... 28,824 821,484
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
52
<PAGE> 114
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Marriott International, Inc. Class A..................... 27,414 $ 887,528
Mirage Resorts, Inc...................................... 19,600 417,725
------------
10,421,467
------------
TRUCKING AND FREIGHT -- 0.06%
PACCAR, Inc.............................................. 11,782 615,609
------------
TOTAL COMMON STOCKS........................................ 981,305,822
------------
(Cost $537,820,412)
TOTAL INVESTMENTS.......................................... $981,305,822
============
(Cost $537,820,412)
</TABLE>
*Non-income producing security.
See Notes to Financial Statements.
Pegasus Funds
53
<PAGE> 115
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMOUNT MARKET VALUE
----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 5.18%
Pegasus Cash Management Fund Class I (in shares)..... 26,000,000 $26,000,000
Salomon Brothers, Revolving Repurchase Agreement,
5.95%, 7/1/98 (secured by various U.S. Treasury
Notes with maturities ranging from 8/15/98 through
5/15/08 at various interest rates ranging from 0.00%
to 12.00%, all held at Chase Bank).................. $ 5,336,812 5,336,812
-----------
TOTAL TEMPORARY CASH INVESTMENTS ..................... 31,336,812
-----------
(Cost $31,336,812)
COMMON STOCKS -- 94.82% SHARES
------
ARGENTINA -- 1.87%
BANKS
Bco Frances Rio Pl................................. 51,945 381,842
Bco De Galicia Bue "B'............................. 182,153 801,569
CONSTRUCTION
Astra Cia Argentin................................. 290,820 468,276
Perez Companc Sa "B'............................... 299,760 1,501,978
Renault Argentina.................................. 36,624 72,524
Ypf Sa Class "D'................................... 127,300 3,806,727
ENERGY RAW MATERIALS
Comercial Del Plata................................ 116,786 130,816
FOOD & AGRICULTURE
Molinos Rio Plata "B'.............................. 61,742 135,231
LIQUOR & TOBACCO
Ba Embotelladora "B'*.............................. 150 2
NON-FERROUS METALS
Siderca Sa......................................... 488,521 830,585
Siderar Sa "A'..................................... 18,216 69,229
TELEPHONE
Telefonica De Argentina Class "B'.................. 965,600 3,119,262
-----------
11,318,042
-----------
AUSTRALIA -- 1.29%
BANKS
National Australia Bank............................ 96,820 1,277,053
Westpac Bank Corp.................................. 130,510 796,057
CHEMICALS
Orica Limited...................................... 18,853 111,493
CONSTRUCTION
Boral Limited...................................... 70,041 131,419
Csr Limited........................................ 50,166 144,764
Pioneer International.............................. 60,480 144,191
ENERGY RAW MATERIAL
Broken Hill Pty.................................... 120,112 1,015,274
Santos Limited..................................... 82,465 255,331
FOOD & AGRICULTURE
Amcor Limited...................................... 50,613 221,588
Goodman Fielder Limited............................ 55,433 80,668
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
54
<PAGE> 116
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
LIQUOR & TOBACCO
Coca-Cola Amatil........................................ 24,929 $ 166,722
Fosters Brewing Gp...................................... 71,247 167,654
Southcorp Holdings...................................... 24,807 72,046
MEDIA
News Corporation (Aust Listing)......................... 70,119 496,736
News Corporation Preferred Limited Voting Shares........ 120,521 983,654
MULTI-INDUSTRY & CONGLOMERATES
Pacific Dunlop Limited.................................. 92,967 150,257
NON-FERROUS METALS
Rio Tinto Limited....................................... 35,868 426,455
Mim Holdings Limited.................................... 109,423 52,853
North Ltd............................................... 18,300 37,623
WMC Ltd................................................. 81,722 245,946
RAILROAD & SHIPPING
Brambles Inds Limited................................... 13,527 265,453
REAL PROPERTY
Gen Property Tst Units (Aust Listing)................... 56,140 90,736
Lend Lease Corp......................................... 9,661 195,330
Westfield Trust Units................................... 26,752 51,355
Westfield Trust New Units............................... 870 1,659
RETAIL
Coles Myer Limited...................................... 46,811 182,622
Woolworth Limited....................................... 22,733 73,906
----------
7,838,846
----------
BELGIUM -- 4.54%
BANKS
Generale De Banque...................................... 5,883 4,367,585
Kredietbank............................................. 41,700 3,731,819
KBC Bankverzekerin VVPR Strip*.......................... 60 5
CHEMICALS
Solvay.................................................. 28,640 2,270,572
CONSTRUCTION
Glaverbel Mecansa....................................... 1,500 214,458
ENERGY RAW MATERIALS
GPE Bruxelles Lam....................................... 11,265 2,273,586
ENERGY & UTILITIES
Electrabel.............................................. 14,667 4,158,474
Tractebel Inv Cap....................................... 22,375 3,277,176
Soc Gen Belgique p/wts exp 11/15/99*.................... 2,975 1,039
INSURANCE
Fortis Ag............................................... 13,048 3,331,254
INTERNATIONAL OIL
Petrofina Sa............................................ 5,709 2,343,589
MISCELLANEOUS FINANCE
Soc Gen De Belgique..................................... 932 159,049
NON-FERROUS METALS
Union Miniere*.......................................... 7,710 476,565
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
55
<PAGE> 117
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
PRODUCER GOODS
Bekaert Sa............................................... 930 $ 772,292
RETAIL
Delhaize Le Lion......................................... 1,800 125,773
-----------
27,503,237
-----------
BRAZIL -- 2.53%
BANKS
Unibanco Hldgs GDS....................................... 52,000 1,534,000
ENERGY
Petrol Brasileiros ADR................................... 56,000 1,040,973
ENERGY AND UTILITIES
Eletrobras Cent El ADR................................... 77,000 1,175,028
Cebtraus Geradiras Di Sul Do ADR*........................ 7,700 55,589
Cemig CA Energ ADR....................................... 30,349 939,377
FOOD AND AGRICULTURE
PAO De Acucar GDR........................................ 20,000 452,500
MEDIA
Multicanal Partici ADR*.................................. 28,000 138,250
MISCELLANEOUS
RCA -- Stock Portfolia Receipt*.......................... 40,000 3,458,392
NON-FERROUS METALS
Compania Vale ADR........................................ 21,000 426,678
PAPER AND FOREST PRODUCTS
Aracruz Celolose ADR..................................... 19,500 223,031
Klabin Fabricadora ADR................................... 8,000 33,200
STEEL
Sider Nacional ADR....................................... 6,000 147,000
TELEPHONE
Telecomunicacoex Brasileiras ADR......................... 52,000 5,677,750
-----------
15,301,767
-----------
CHILE -- 0.42%
AIR TRANSPORT
Linea Aerea Nacional Chile Sa ADR........................ 10,000 81,250
BANKS
Banco Santander ADR...................................... 14,000 180,250
ENERGY & UTILITIES
Enersis Sa ADR........................................... 45,000 1,099,688
Gener Sa ADR............................................. 10,000 182,500
TELEPHONE
Compania De Telecommunicaciones Chile ADR................ 50,000 1,015,625
Compania De Telecommunicaciones Chile ADR Rights*........ 3,162 1,087
-----------
2,560,400
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
56
<PAGE> 118
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------- ------------
<S> <C> <C>
DENMARK -- 3.01%
BANKS
Den Danske Bank......................................... 16,750 $ 2,009,411
Unidanmark "A' (Regd)................................... 11,735 1,054,561
BUSINESS MACHINE
Iss International Series "B'............................ 8,042 467,761
DRUGS & MEDICINE
Novo-Nordisk As "B'..................................... 19,932 2,747,636
FOOD & AGRICULTURE
Danisco................................................. 17,858 1,199,706
LIQUOR & TOBACCO
Carlsberg "B'........................................... 13,905 1,010,976
MULTI-INDUSTRY
Ratin A/S "B'........................................... 6,927 1,465,576
RAILROAD & SHIPPING
D/S 1912 "B'............................................ 270 2,316,412
D/S Svendborg "B'....................................... 200 2,442,920
RETAIL
Sophus Berendsen "B'.................................... 6,927 287,072
TELEPHONE
Tele Danmark "B'........................................ 33,385 3,204,021
-----------
18,206,052
-----------
FINLAND -- 6.18%
BANKS
Merita Ltd "A'.......................................... 396,000 2,612,821
CONSTRUCTION
Metra AB "B'............................................ 17,116 561,540
Rauma Oy................................................ 8,661 177,593
ELECTRONICS
Nokia (AB) Oy Series "A'................................ 204,000 15,003,051
Nokia (AB) Oy Series "K'................................ 102,400 7,540,275
FOOD & AGRICULTURE
Cultor Oy Series 2...................................... 51,000 818,010
INSURANCE
Pohjola Series "B'...................................... 22,900 1,139,473
Sampo "A'............................................... 36,400 1,724,966
NON-FERROUS METALS
Outokumpo Oy "A'........................................ 59,800 762,966
PAPER & FOREST PRODUCTS
UPM-Kymmene Oy.......................................... 168,500 4,637,487
PRODUCER GOODS
Kone Corp "B'........................................... 5,400 757,862
RETAIL
Kesko................................................... 62,000 977,493
Stockmann OYJ "A'....................................... 15,000 448,375
Stockmann OYJ "B'....................................... 2,500 58,325
TRAVEL & RECREATION
Amer Group "A'*......................................... 11,000 212,522
-----------
37,432,761
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
57
<PAGE> 119
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
FRANCE -- 6.96%
BANKS
Banque National Paris.................................... 16,627 $1,358,534
Banque Paribas........................................... 10,218 1,093,453
Societe Generale......................................... 9,075 1,886,738
CHEMICALS
Air Liquide ("L')........................................ 1,232 203,749
Air Liquide ("L') (Regd)................................. 5,624 930,177
Rhone Poulenc Sa "A'..................................... 22,927 1,293,098
CONSTRUCTION
Cie De St Gobain......................................... 6,784 1,257,828
Imetal................................................... 1,100 151,190
Lafarge Ords (Br)........................................ 6,520 673,996
CONSUMER DURABLES
Bic...................................................... 4,200 298,708
Printemps (Av)........................................... 1,250 1,046,141
DRUGS & MEDICINE
L'Oreal.................................................. 3,828 2,129,259
Sanofi................................................... 6,945 816,717
ELECTRONICS
Alcatel Alsthom (Cge).................................... 14,706 2,994,211
Csf (Thomson)............................................ 6,965 264,959
Legrand.................................................. 1,950 516,041
Schneider Sa (Ex-SB)..................................... 8,816 702,973
ENERGY & UTILITIES
Vivendi.................................................. 11,339 2,421,201
Suez Lyonnaise Eaux...................................... 9,904 1,629,909
FOOD & AGRICULTURE
Danone (Ex Bsn).......................................... 7,913 2,181,758
Eridania Beghin Sa....................................... 1,611 355,719
INSURANCE
Axa...................................................... 25,512 2,869,348
INTERNATIONAL OIL
Elf Aquitaine (Soc Nat).................................. 16,072 2,259,533
Total B.................................................. 19,129 2,486,821
LIQUOR & TOBACCO
Lvmh Moet-Hennessy....................................... 5,822 1,165,165
Pernod-Ricard............................................ 3,864 267,782
MEDIA
Canal Plus............................................... 1,584 296,049
Havas.................................................... 2 170
MOTOR VEHICLES
Peugeot Sa............................................... 5,723 1,230,543
MISCELLANEOUS FINANCE
Dexia France............................................. 1,540 207,336
NON-FERROUS METALS
Usinor................................................... 26,950 416,328
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
58
<PAGE> 120
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
PRODUCER GOODS
Michelin (Cgde) Class "B'.......... 17,937 $ 1,035,392
Valeo.............................. 3,471 354,791
RETAIL
Carrefour.......................... 2,579 1,631,596
Promodes........................... 1,133 627,776
TELEPHONE
France Telecom..................... 19,000 1,310,447
TRAVEL & RECREATION
Accor.............................. 6,191 1,732,571
-----------
42,098,006
-----------
GERMANY -- 8.38%
AIR TRANSPORT
Lufthansa Ag....................... 34,070 855,037
BANKS
Bayer Vereinsbank.................. 19,240 1,636,169
Deutsche Bank...................... 34,500 2,921,455
Dresdner Bank...................... 30,190 1,627,386
CHEMICALS
Basf (Var)...........................36,560 1,731,757
Bayer (Var)........................ 49,770 2,567,036
Schering........................... 5,640 664,601
CONSTRUCTION
Hochtief........................... 11,470 549,660
DRUGS AND MEDICINE
Beiersdorf AG Ser "ABC'............ 6,200 394,663
ELECTRONICS
Siemens AG......................... 35,990 2,189,267
SAP AG............................. 4,850 2,942,188
SAP AG N/V Pref.................... 4,000 2,719,062
ENERGY & UTILITIES
Deutsche Telekom................... 120,250 3,244,357
Rwe AG............................. 18,460 1,094,284
Rwe AG N/V Pref.................... 9,750 419,161
Veba............................... 32,400 2,207,825
INSURANCE
Allianz (Regd)..................... 15,030 4,954,394
Allianz (RFD 01/01/98)*............ 406 132,707
Munchener Ruckvers Reg Vink........ 6,690 3,317,140
MOTOR VEHICLES
Daimler-Benz (Var)................. 33,979 3,331,950
Volkswagen (Var)................... 2,968 2,852,844
RETAIL
Metro AG........................... 23,091 1,400,785
PRODUCER GOODS
Linde.............................. 556 389,655
Mannesmann (Var)................... 28,260 2,866,653
Man AG Non Vtg Pref (Var).......... 2,900 785,636
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
59
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
STEEL
Preussag Br (Var)....................................... 2,594 $ 925,487
Thyssen................................................. 2,466 624,344
Viag (Var).............................................. 2,023 1,367,321
-----------
50,712,824
-----------
HONG KONG -- 0.91%
AIR TRANSPORT
Cathay Pacific Airways.................................. 127,000 89,326
BANKS
Bank of East Asia....................................... 8,716 9,449
Hang Seng Bank.......................................... 100,800 569,787
ENERGY & UTILITIES
CLP Holdings............................................ 96,700 440,534
Hong Kong Electric...................................... 20,000 61,947
Hong Kong & China Gas................................... 285,035 323,712
Hong Kong & China Gas Warrants 09/30/99*................ 12,956 886
MULTI-INDUSTY & CONGLOMERATES
Hutchinson Whampoa...................................... 191,000 1,008,172
MISCELLANEOUS FINANCE
Guoco Group............................................. 6,000 6,311
Swire Pacific "A'....................................... 90,500 341,627
Wharf (Holdings)........................................ 101,000 99,715
Wing Lung Bank.......................................... 53,540 124,374
REAL PROPERTY
Cheung Kong (Holdings).................................. 129,000 634,297
Hopewell Holdings....................................... 217,000 23,244
Hysan Development....................................... 60,000 49,557
Hysan Development Warrants 04/30/99*.................... 6,000 50
New World Development Co................................ 85,907 166,302
Sun Hung Kai Properties................................. 110,700 470,026
TELEPHONE
Hong Kong Telecomm...................................... 587,896 1,103,930
-----------
5,523,247
-----------
IRELAND -- 4.62%
BANKS
Allied Irish Banks...................................... 471,401 6,805,397
Bank of Ireland (Dublin Listing)........................ 189,271 3,867,625
CONSTRUCTION
CRH..................................................... 413,270 5,862,427
FOOD & AGRICULTURE
Greencore Group......................................... 235,322 1,280,117
Kerry Group "A'......................................... 162,538 2,244,465
INSURANCE
Irish Life.............................................. 333,022 3,065,770
MEDIA
Independent News (Dublin Listing)....................... 276,452 1,484,578
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
PAPER & FOREST PRODUCTS
Smurfit (Jefferson) (Dublin Listing).................. 1,121,051 $ 3,330,639
-----------
27,941,019
-----------
ITALY -- 0.99%
BANKS
BCA Comm Italiana..................................... 80,000 478,411
Credito Italiano...................................... 80,000 418,779
ENERGY & UTILITIES
T.I.M. SPA............................................ 170,000 1,039,577
Telecom Italia SPA.................................... 110,000 809,738
INSURANCE
Assic Generali........................................ 26,000 845,433
INA (Ist Naz Ass)..................................... 200,000 568,198
INTERNATIONAL OIL
ENI (regd)............................................ 116,000 760,260
MEDIA
Mediaset.............................................. 80,000 510,590
MISCELLANEOUS FINANCE
IMI SPA............................................... 36,000 567,073
-----------
5,998,059
-----------
JAPAN -- 11.33%
AIR TRANSPORT
Japan Airlines Co*.................................... 110,000 305,941
BANKS
Asahi Bank............................................ 114,000 501,063
Bank of Tokyo MITS--Ex Mitsubishi Bank................ 156,000 1,651,216
Dai-Ichi Kangyo Bank.................................. 155,000 910,221
Fuji Bank............................................. 144,000 642,260
Industrial Bank of Japan.............................. 106,000 664,481
Joyo Bank............................................. 62,000 228,728
Sakura Bank........................................... 127,000 329,430
Sumitomo Bank......................................... 150,000 1,459,091
Tokai Bank............................................ 97,000 533,977
BUSINESS MACHINES
Canon Inc............................................. 69,000 1,566,091
Fujitsu............................................... 128,000 1,346,543
Ricoh................................................. 75,000 789,530
CHEMICALS
Asahi Chemical Industries............................. 140,000 504,377
Dainippon Ink & Chemical.............................. 82,000 251,108
Sekisui Chemical...................................... 40,000 204,633
Shin-Etsu Chemical.................................... 32,000 553,374
Showa Denko Kk*....................................... 131,000 132,147
Sumitomo Chemical..................................... 135,000 416,327
Toray Industries Inc.................................. 147,000 762,618
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------- ------------
<S> <C> <C>
CONSTRUCTION
Daiwa House Industry.................................... 60,000 $ 529,596
Obayashi Corp........................................... 35,000 148,287
Sekisui House........................................... 157,000 1,216,089
Shimizu Corp............................................ 56,000 161,401
Toto.................................................... 40,000 242,966
CONSUMER DURABLES
Matsushita Electric Industries.......................... 197,000 3,165,399
Sanyo Electric Co....................................... 154,000 466,045
Sharp Corp.............................................. 63,000 510,228
DRUGS & MEDICINE
Daiichi Pharm Co........................................ 82,000 1,081,241
Sankyo Co............................................... 58,000 1,320,604
Takeda Chemical Industries.............................. 90,000 2,392,910
ELECTRONICS
Hitachi................................................. 233,000 1,519,364
Kyocera................................................. 17,000 830,493
Mitsubishi Electric Corp................................ 125,000 287,315
Omron Corp.............................................. 36,000 549,915
Sony.................................................... 42,500 3,659,437
Tokyo Electron.......................................... 10,000 306,229
ENERGY & UTILITIES
Kansai Electric Power................................... 59,100 1,026,271
Osaka Gas Co............................................ 271,000 695,147
Tokyo Electric Power.................................... 102,300 2,004,943
Tokyo Gas Co............................................ 137,000 305,026
FOOD & AGRICULTURE
Ajinomoto Co............................................ 74,000 647,837
INTERNATIONAL OIL
Japan Energy Corp....................................... 138,000 146,169
Nippon Oil Co........................................... 120,000 387,362
MEDIA
Dai Nippon Printing..................................... 74,000 1,181,035
MULTI-INDUSTRY
Itochu Corp............................................. 167,000 360,990
Marubeni Corp........................................... 208,000 415,146
Mitsubishi.............................................. 78,000 483,337
Sumitomo Corp........................................... 74,000 355,644
MISCELLANEOUS FINANCE
Daiwa Securities........................................ 149,000 640,941
Mitsubishi Trust & Banking.............................. 50,000 424,758
Nomura Securities....................................... 127,000 1,477,861
Orix Corp............................................... 7,000 472,601
MOTOR VEHICLES
Honda Motor Co.......................................... 64,000 2,278,056
Nissan Motor Co......................................... 131,000 412,487
Toyota Motor Corp....................................... 186,000 4,811,326
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
NON-FERROUS METALS
Tostem Corp............................................. 19,000 $ 246,150
PAPER & FOREST PRODUCTS
Daishowa Paper Manufacturing*........................... 13,000 83,554
Oji Paper Co............................................ 48,000 208,899
PRODUCER GOODS
Bridgestone Corp........................................ 53,000 1,252,585
Komatsu................................................. 70,000 339,950
Kubota Corp............................................. 136,000 313,579
Mitsubishi Heavy Industries............................. 247,000 932,579
Denso Corp.............................................. 61,000 1,010,916
Sumitomo Heavy Industries............................... 83,000 189,581
Toyo Seikan Kaisha...................................... 15,000 183,737
RAILROADS & SHIPPING
East Japan Railway...................................... 38 178,521
Hankyu Corp............................................. 89,000 364,888
Mitsui Osk Lines*....................................... 94,000 159,844
Nagoya Railroad Co...................................... 98,000 296,574
Tokyu Corp.............................................. 148,000 448,953
REAL PROPERTY
Mitsubishi Estate....................................... 153,000 1,344,958
RETAIL
Ito-Yokado Co........................................... 38,000 1,787,945
Mycal Corp.............................................. 78,000 494,578
Seven-Elevan Japan Npv.................................. 28,000 1,666,462
STEEL
Kawasaki Steel Corp..................................... 131,000 235,976
Nippon Steel Corp....................................... 341,000 599,517
NKK Corp................................................ 139,000 133,206
Sumitomo Metal Industries............................... 262,000 420,982
TELEPHONE
Nippon Tel & Tel........................................ 494 4,093,381
TRAVEL & RECREATION
Fuji Photo Film......................................... 24,000 835,249
Nikon................................................... 13,000 93,483
-----------
68,583,657
-----------
MEXICO -- 4.42%
BANKS
Gpo Financiero Banamex-Ac Series "B'*................... 384,000 727,315
Gpo Financiero Banamex-Ac Series "L'*................... 109,017 171,787
CONSTRUCTION
Cemex Sa Ser "A'........................................ 383,937 1,431,320
Cemex Sa (CPO).......................................... 191,768 717,046
FOOD & AGRICULTURE
Grupo Ind Bimbo Series "A'.............................. 583,777 1,156,375
Gpo Modelo Sa de C Ser "C' (Mexican).................... 218,200 1,809,018
LIQUOR & TOBACCO
Empresas La Modern "A'*................................. 153,500 884,851
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MEDIA
Fomento Economico Mexico SA ADR.................... 33,420 $ 1,052,730
Grupo Televisa Ptg Certs Repr 1 A,L,D Shs*......... 125,200 2,357,418
MISCELLANEOUS FINANCE
Grupo Financiero Bancomer Series "B'*.............. 2,756,800 1,015,465
MULTI-INDUSTRY
Desc Sa de Cv Ser "B'*............................. 309,100 1,584,020
Apasco Sa Com (Mexican)............................ 79,900 416,126
GPO Mexico Ser "B' (Mexican)....................... 203,300 556,550
MULTI-INDUSTRY & CONGLOMERATES
Alfa Sa Series "A' (Cpo)............................. 259,601 1,063,129
GPO Carso Series "A1'.............................. 428,900 1,763,609
NON-FERROUS METALS
Industrias Penoles................................. 164,000 520,140
PAPER & FOREST PRODUCTS
Kimberly Clark Mexico "A'.......................... 584,500 2,029,416
RETAIL
Cifra Sa De Cv Series "V'*......................... 1,284,860 1,881,671
TELEPHONE
Telefonos De Mexico Series "L' (Ltd Vtg)........... 2,340,300 5,586,383
-----------
26,724,370
-----------
NETHERLANDS -- 5.41%
AIR TRANSPORT
KLM................................................ 10,016 406,702
BANKS
ABN Amro Holding................................... 113,128 2,647,151
CHEMICALS
Oce................................................ 6,000 255,429
CHEMICALS
Akzo Nobel Nv...................................... 8,742 1,943,314
CONSTRUCTION
Hollandsche Benton................................. 10,000 208,433
ELECTRONICS
Philips Electronic................................. 26,861 2,257,979
FOOD & AGRICULTURE
Ahold (kon) Nv..................................... 37,630 1,207,950
Unilever........................................... 57,108 4,531,084
INSURANCE
ING Groep Nv Cva................................... 70,584 4,621,811
INTERNATIONAL OIL
Royal Dutch Petroleum (Br)......................... 147,364 8,171,507
Royal Dutch Petroleum NY Registry.................. 16,800 920,850
LIQUOR & TOBACCO
Heineken Nv........................................ 19,881 780,884
MEDIA
Elsevier Nv........................................ 74,349 1,122,058
Wolters Kluwer Cva................................. 5,473 751,177
</TABLE>
See Notes to Financial Statements
Pegasus Funds
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
PAPER & FOREST PRODUCTS
KNP BT (Kon) Nv......................................... 7,455 $ 192,402
STEEL
Kon Hoogovens Nv Cva.................................... 3,715 160,710
TELEPHONE
Koninklijke KPN......................................... 39,598 1,524,181
TNT Post Groep*......................................... 39,598 1,012,228
-----------
32,715,851
-----------
NORWAY -- 3.02%
AIR TRANSPORT
Helicopter Service...................................... 6,000 60,989
BANKS
Den Norske Bank......................................... 115,000 602,460
Christiana Bank......................................... 70,000 292,824
CHEMICALS
Dyno Industrier......................................... 18,700 333,862
CONSTRUCTION
Aker As "B'............................................. 10,500 149,833
DRUGS & MEDICINE
Nycomed Amersham........................................ 220,125 1,635,116
ENERGY & UTILITIES
Hafslund Ser "A'........................................ 49,997 270,394
Hafslund Ser "B'........................................ 30,219 119,324
FOOD & AGRICULTURE
Orkla ASA "A'........................................... 103,028 2,396,612
Orkla ASA "B'........................................... 29,400 618,763
INSURANCE
Storebrand Asa "A'*..................................... 159,650 1,414,758
INTERNATIONAL OIL
Norsk Hydro As.......................................... 124,670 5,483,275
MOTOR VEHICLES
Petroleum Geo Svs....................................... 34,824 1,084,628
NON-FERROUS METALS
Elkem Asa............................................... 27,248 326,683
PAPER & FOREST PRODUCTS
Norske Skogsindust "A'.................................. 16,700 515,785
PRODUCER GOODS
Aker Asa Ser "A'........................................ 26,100 409,857
Kvaerner As Series "A'.................................. 20,600 697,983
Kvaerner As Series "B'.................................. 7,900 243,994
Transocean Offshore..................................... 4,000 177,232
RAILROAD & SHIPPING
Bergesen Dy As "A'...................................... 36,050 685,903
Bergesen Dy As "B' Non-Voting........................... 15,150 283,315
Bona Shipholding........................................ 1,025 7,347
Leif Hoegh & Co......................................... 18,447 269,245
Unitor As............................................... 11,600 170,821
-----------
18,251,002
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
65
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
SINGAPORE -- 1.52%
AIR TRANSPORT
Singapore Airlines (Alien Market)..................... 329,000 $1,538,401
BANKS
Dev Bank Singapore (Alien Market)..................... 244,725 1,354,368
Overseas Chinese Bank (Alien Market).................. 229,299 780,399
United Overseas Bank (Alien Market)................... 264,404 821,626
ELECTRONICS
Creative Technology*.................................. 15,000 182,009
Elec & Eltek Intl Co Ltd.............................. 40,000 135,200
ENERGY & UTILITIES
Singapore Telecom..................................... 1,348,000 1,914,908
LIQUOR & TOBACCO
Fraser & Neave........................................ 87,400 234,863
Straits Trading Co.................................... 127,000 74,795
MOTOR VEHICLES
Cycle & Carriage...................................... 102,000 248,739
MULTI-INDUSTRY & CONGLOMERATES
Singapore Tech Ind.................................... 160,000 118,380
PRODUCER GOODS
Keppel Corp........................................... 350,750 527,325
REAL PROPERTY
City Developments..................................... 330,600 923,616
DBS Land.............................................. 328,000 271,799
Keppel Land Ltd....................................... 114,000 104,588
----------
9,231,015
----------
SPAIN -- 6.53%
BANKS
Argentaria Corp Bc.................................... 88,532 1,989,353
Banco Bilbao Vizcaya (Regd)........................... 123,510 6,349,360
Banco Central Hispan (Regd)........................... 68,251 2,148,865
Banco Santander (Regd)................................ 171,654 4,400,953
CONSTRUCTION
Fomento Const Y Contra................................ 15,656 808,929
ENERGY & UTILITIES
Endesa Sa (Regd)...................................... 181,632 3,980,504
Gas Natural Sdg Sa.................................... 25,444 1,841,528
Iberdrola Sa.......................................... 138,600 2,254,321
Union Electrical Fenosa............................... 64,228 828,599
INSURANCE
Corporation Mapfre.................................... 16,992 597,145
INTERNATIONAL OIL
Repsol Sa............................................. 52,224 2,882,571
LIQUOR & TOBACCO
Tabacalera Sa Series "A' (Regd)....................... 37,445 768,027
NON-FERROUS METALS
Acerinox Sa (Regd).................................... 2,627 350,404
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
PRODUCER GOODS
Zardoya-Otis............................................ 22,660 $ 674,960
Zardoya-Otis New (B/R 07/29/98)*........................ 22,660 112,197
RAILROADS & SHIPPING
Autopistas Cesa......................................... 52,811 819,297
Autopistas Cesa New (B/R 07/10/98)*..................... 52,811 40,361
REAL PROPERTY
Vallehermoso Sa......................................... 9,664 356,032
TELEPHONE
Telefonica De Espana.................................... 179,128 8,295,887
-----------
39,499,292
-----------
SWEDEN -- 1.47%
APPAREL
Hennes & Mauritz Ser "B'................................ 14,000 893,548
BANKS
Svenska Handelsbkn Ser "A'.............................. 29,000 1,345,463
Svenska Hankelsbkn (B/R into Balder 06/17/98)*.......... 29,000 29,091
DRUGS & MEDICINE
Astra AB Ser "A'........................................ 75,000 1,532,926
ELECTRONICS
Ericsson (LM) Tel....................................... 100,000 2,921,650
MOTOR VEHICLES
Volvo (AB).............................................. 18,000 536,054
PAPER & FOREST PRODUCTS
Mo Och Domsjo AB Ser "B'................................ 5,000 142,948
Stora Kopparbergs Ser "A'............................... 50,000 786,839
RAILROADS & SHIPPING
ABB Ser "A'............................................. 51,000 722,638
-----------
8,911,156
-----------
SWITZERLAND -- 4.11%
BANKS
Credit Suisse Group (Regd).............................. 9,524 2,119,150
UBS AG (Regd)........................................... 10,807 4,018,539
CONSTRUCTION
Holderbank Fn Glarus (Br)............................... 558 710,003
CONSUMER DURABLES
Smh Ag Neuenburg (Regd)................................. 725 120,928
Swatch Group (Br)....................................... 165 127,491
DRUGS & MEDICINE
Roche Holdings AG Genusscheine Npv...................... 483 4,743,033
Novartis Ag (Regd)...................................... 2,171 3,612,582
Novartis Ag (Br)........................................ 970 1,615,376
ELECTRONICS
Abb (Br)................................................ 550 812,230
FOOD & AGRICULTURE
Nestle Sa (Regd)........................................ 1,874 4,010,390
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
INSURANCE
Schw Ruckversicher (Regd)............................... 30 $ 75,870
Zurich Versicherun (Regd)............................... 4,094 2,612,713
NON-FERROUS METALS
Alusuisse-Lonza Holdings (Regd)......................... 248 314,576
-----------
24,892,882
-----------
THAILAND -- 0.00%
BANKS
Siam Commercial Bank Wts (expire 12/31/02)*............. 27,833 1,746
-----------
UNITED KINGDOM -- 15.31%
AIR TRANSPORT
British Airways......................................... 83,582 900,193
AEROSPACE
British Aerospace....................................... 83,601 641,647
BANKS
Abbey National.......................................... 71,613 1,276,115
Barclays................................................ 115,565 3,337,722
Hsbc Holdings (UK Regd)................................. 86,894 2,110,950
Hsbc Holdings (UK Regd)................................. 162,331 4,119,622
LLoyds Bank............................................. 364,360 5,088,419
CHEMICALS
Boc Group............................................... 40,408 551,502
Imperial Chemical Industries............................ 77,314 1,246,126
CONSTRUCTION
English China Clay...................................... 44,238 152,789
Hanson.................................................. 69,197 419,969
Rmc Group............................................... 26,670 463,234
Taylor Woodrow.......................................... 109,591 367,534
DRUGS & MEDICINE
Glaxo Welcome Ord....................................... 210,829 6,345,906
Smithkline Beecham...................................... 348,700 4,244,280
Zeneca Group............................................ 57,538 2,472,058
ELECTRONICS
General Electric Co..................................... 227,008 1,956,312
ENERGY & UTILITIES
BG...................................................... 284,572 1,647,587
Centrica*............................................... 254,516 431,030
National Power.......................................... 78,850 742,006
Scottish Power.......................................... 22,356 197,322
Thames Water............................................ 63,355 1,156,445
FOOD & AGRICULTURE
Associated British Foods................................ 66,299 623,897
Cadbury Schweppes....................................... 54,993 851,495
Kingfisher.............................................. 48,396 784,071
Sainsbury (J)........................................... 127,180 1,128,904
Tesco................................................... 158,205 1,542,878
Unilever Ord............................................ 229,704 2,466,288
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
INSURANCE
Prudential Corp........................................ 197,160 $ 2,598,799
Royal & Sun Alliance................................... 147,158 1,501,437
INTERNATIONAL OIL
British Petroleum...................................... 398,706 5,804,234
LIQUOR & TOBACCO
BAT Industries......................................... 218,340 2,180,340
Bass................................................... 67,253 1,256,772
Diageo Ord............................................. 343,423 4,088,369
Imperial Tobacco....................................... 31,370 230,562
Safeway................................................ 152,821 1,004,630
MEDIA
British Sky Broadcasting............................... 94,124 678,046
Carlton Communications................................. 56,450 503,429
Reed International..................................... 40,000 361,398
Reuters Holdings....................................... 150,644 1,724,260
PRODUCER GOODS
Btr.................................................... 258,291 733,708
Rio Tinto.............................................. 95,719 1,078,823
Rolls Royce............................................ 125,264 517,806
Smiths Industries...................................... 42,710 597,173
REAL PROPERTY
Mepc................................................... 124,143 1,095,733
RETAIL
Argos.................................................. 30,245 315,399
Boots Co............................................... 62,274 1,035,926
Great Univ Stores...................................... 68,436 902,637
Marks & Spencer........................................ 211,891 1,933,867
Sears.................................................. 237,891 211,361
STEEL
British Steel.......................................... 232,983 515,071
TELEPHONE
British Telecom........................................ 428,698 5,275,216
Cable & Wireless....................................... 179,538 2,185,287
Vodafone Group......................................... 280,189 3,557,644
TRAVEL & RECREATION
Emi Group.............................................. 51,062 447,711
Granada................................................ 80,310 1,479,331
Ladbroke Group......................................... 199,568 1,101,330
Rank Group............................................. 89,318 486,201
Thorn.................................................. 4,052 15,550
------------
92,684,351
------------
TOTAL COMMON STOCKS...................................... 573,929,581
------------
(Cost $442,527,736)
TOTAL INVESTMENTS........................................ $605,266,393
============
(Cost $473,864,548)
</TABLE>
* Non-income producing security.
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO INVESTMENTS
(A) FORWARD FOREIGN CURRENCY CONTRACTS
As of June 30, 1998, the Fund had entered into two forward foreign currency
exchange contracts that obligate the Fund to deliver currencies at specified
future dates.
Outstanding contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
U.S. U.S.
DOLLAR DOLLAR
VALUE AS VALUE AS UNREALIZED
CURRENCY TO OF JUN. CURRENCY TO OF JUN. APPRECIATION
SETTLEMENT DATE BE RECEIVED 30, 1998 BE DELIVERED 30, 1998 AT 6/30/98
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 3, 1998..... 5,470,341,944 $3,077,461 3,066,507 $3,066,507 $10,954
Italian lira U.S. Dollars
July 31, 1998.... 12,689,292 $2,098,781 2,094,738 $2,094,738 $ 4,043
French Franc U.S. Dollars
</TABLE>
(B) FINANCIAL FUTURES CONTRACTS
Outstanding contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
MARKET
VALUE UNREALIZED
NUMBER OF EXPIRATION COVERED BY APPRECIATION
TYPE CONTRACTS DATE CONTRACTS AT 6/30/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Futures purchased
long:
Japanese Yen - TOPIX*...... 175 Sept. 15, 1998 $15,440,248 $292,719
</TABLE>
* Exchange traded local currency denominated futures contracts.
Pegasus Funds
70
<PAGE> 132
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 2.44%
Pegasus Cash Management Fund Class I (in shares)..... 14,367,674 $ 14,367,674
------------
(Cost $14,367,674)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 77.85%
U.S. Treasury Securities -- 39.87%
Strips from U.S. Treasury Securities due:
11/15/98........................................... $ 7,600,000 7,453,624
2/15/99............................................ 7,660,000 7,408,675
2/15/01............................................ 3,300,000 2,859,846
8/15/01............................................ 2,250,000 1,895,693
8/15/08............................................ 5,350,000 3,045,006
11/15/10........................................... 5,000,000 2,494,500
11/15/11........................................... 2,250,000 1,057,725
2/15/13............................................ 1,000,000 437,090
U.S. Treasury Bonds:
10.375% 11/15/09................................... 2,700,000 3,378,378
12.75%, 11/15/10................................... 39,926,000 56,863,408
10.375%, 11/15/12.................................. 14,045,000 18,807,098
12.50%, 8/15/14.................................... 1,000,000 1,557,500
U.S. Treasury Notes:
7.00%, 4/15/99..................................... 1,000,000 1,011,250
9.125%, 5/15/99.................................... 8,700,000 8,963,697
6.875%, 7/31/99.................................... 8,000,000 8,111,280
7.75%, 11/30/99.................................... 31,000,000 31,925,040
7.75%, 1/31/00..................................... 3,000,000 3,099,360
7.125%, 2/29/00.................................... 35,900,000 36,797,500
6.25%, 5/31/00..................................... 2,900,000 2,938,048
8.75%, 8/15/00..................................... 21,350,000 22,711,063
8.00%, 5/15/01..................................... 2,500,000 2,661,725
6.625%, 3/31/02.................................... 360,000 372,881
7.25%, 5/15/04..................................... 1,000,000 1,085,000
7.25%, 8/15/04..................................... 340,000 369,910
7.875%, 11/15/04................................... 385,000 432,401
6.875%, 5/15/06.................................... 600,000 649,686
6.50%, 10/15/06.................................... 350,000 371,655
3.625%, 7/15/02 Inflation Protection Series........ 4,664,248 4,613,221
3.375%, 1/15/07 Inflation Protection Series........ 1,223,628 1,185,010
------------
(Cost $230,005,305) 234,557,268
------------
Agency Obligations -- 37.98%
Federal Home Loan Mortgage Corp. Participation Ctf.:
#170269,12.00%, 8/1/15............................. 826,959 933,546
#252600, 7.50%, 9/1/08............................. 170,741 173,563
#252601, 8.00%, 6/1/01............................. 145,334 147,514
#555238, 12.00%, 7/1/19............................ 362,131 408,821
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 11 Class D, 9.50%, 7/15/19.................. 1,300,000 1,402,285
Series 23 Class E, 9.40%, 8/15/19.................. 123,681 124,876
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
71
<PAGE> 133
PEGASUS INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Series 24-Z 6025, 11/25/23......................... $ 800,000 $ 789,496
Series G-29 Class SD, IF, IO, 4/25/24.............. 7,666,402 258,917
Series 41 Class I, HB, 84.00%, 5/15/20............. 53,830 169,360
Series 46 Class B, 7.80%, 9/15/20.................. 1,186,109 1,225,234
Series 47 Class F, 10.00%, 6/15/20................. 485,116 521,536
Series 99 Class Z, 9.50%, 1/15/21.................. 1,146,693 1,232,706
Series 204 Class E, HB, IF, 5/15/23................ 6,315 146,384
Series 1072 Class A, HB, 1008.50%, 5/15/06......... 11,903 241,494
Series 1079 Class S, IF, 5/15/21................... 557,241 656,536
Series 1084 Class F, AR, 5/15/21................... 399,036 406,831
Series 1084 Class S, IF, 5/15/21................... 279,325 370,184
Series 1098 Class M, HB, 1008%, 6/15/06............ 1,819 37,130
Series 1144 Class KB, 8.50%, 9/15/21............... 2,250,000 2,350,505
Series 1172 Class L, HB, 1167.776%, 11/15/21....... 10,847 296,461
Series 1196 Class B, HB, IF, 1/15/22............... 31,616 431,931
Series 1250 Class J, 7.00%, 5/15/22................ 1,100,000 1,117,370
Series 1295 Class JB, 4.50%, 3/15/07............... 1,500,000 1,426,226
Series 1298 Class L, HB, 981.86%, 6/15/07.......... 6,000 171,842
Series 1329 Class S, IO, IF, 8/15/99............... 2,317,734 65,627
Series 1347 Class BH, 7.75%, 12/15/21.............. 1,000,000 1,041,986
Series 1389 Class SA, IF, 10/15/07................. 403,027 373,718
Series 1414 Class LB, IF, 11/15/07................. 919,631 925,445
Series 1418 Class B, 6.50%, 11/15/19............... 1,250,000 1,255,666
Series 1446 Class G, 7.15%, 2/15/20................ 4,500,000 4,604,121
Series 1450 Class F, 12/15/07...................... 583,450 582,837
Series 1465 Class SA, IO, IF, 2/15/08.............. 11,500,551 475,893
Series 1470 Class F, AR, 2/15/23................... 677,147 672,247
Series 1483 Class FB, AR, 12/15/22................. 2,491,196 2,514,575
Series 1484 Class O, 6.00%, 4/15/23................ 729,392 718,085
Series 1487 Class IB, AR, 3/15/23.................. 767,498 742,587
Series 1489 Class L, 5.50%, 4/15/08................ 459,855 454,973
Series 1506 Class F, AR, 5/15/08................... 1,334,891 1,347,354
Series 1506 Class SD, IO, IF, 5/15/08.............. 7,062,786 361,841
Series 1506 Class S, IF, 5/15/08................... 228,015 226,627
Series 1513 Class TA, AR, 5/15/08.................. 1,447,246 1,438,931
Series 1531 Class K, 6.00%, 4/15/08................ 873,515 858,930
Series 1543 Class KC, AR, 9/15/22.................. 523,301 517,747
Series 1565 Class K, 8/15/08....................... 828,061 719,351
Series 1583 Class NS, IF, 9/15/23.................. 866,804 812,269
Series 1586 Class A, 6.00%, 9/15/08................ 1,048,010 1,043,695
Series 1589 Class Z, 6.25%, 9/15/23................ 6,723,054 6,413,081
Series 1595 Class S, IO, IF, 10/15/13.............. 12,156,719 504,686
Series 1600 Class SC, AR, 10/15/08................. 850,000 914,906
Series 1603 Class IF, AR, 1/15/23.................. 3,000,000 3,063,537
Series 1619 Class CS, AR, 11/15/23................. 1,111,862 1,136,727
Series 1628 Class S, IF, 12/15/23.................. 2,500,000 1,960,333
Series 1635 Class O, AR, 12/15/08.................. 2,207,874 2,228,517
Series 1640 Class A, 5.50%, 10/15/07............... 1,214,368 1,199,234
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
72
<PAGE> 134
PEGASUS INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Series 1646 Class MB, AR, 10/15/22................ $ 2,238,038 $ 2,222,309
Series 1646 Class MD, AR, 10/15/22................ 952,357 976,285
Series 1647 Class FB, AR, 12/15/08................ 603,612 598,988
Series 1647 Class SB, IF, 12/15/08................ 1,126,742 1,124,088
Series 1655 Class F, AR, 12/15/08................. 1,798,061 1,831,426
Series 1655 Class SA, IF, 12/15/08................ 217,052 199,690
Series 1666 Class E, 6.00%, 12/15/19.............. 250,000 250,127
Series 1685 Class Z, 6.00%, 11/25/23.............. 518,436 484,228
Series 1689 Class SD, IF, 10/15/23................ 1,500,000 1,543,029
Series 1694 Class SE, IF, 5/15/23................. 1,148,804 1,139,623
Series 1700 Class GA, PO, 2/15/24................. 2,274,398 1,547,644
Series 1709 Class C, 5.50%, 12/15/19.............. 1,618,411 1,605,614
Series 1796-A, Class S, IF, 2/15/09............... 1,391,843 1,300,462
Series 1807 Class G, 9.00%, 1/1/06................ 814,729 864,571
Series 1849 Class A, PO, 12/15/08................. 1,000,000 681,115
Series 1854 Class SE, IO, IF, 12/15/23............ 2,500,000 526,650
Series 1859 Class SB, IO, AR, 10/15/23............ 6,340,714 1,091,212
Series 1900 Class FA, AR, 3/15/09................. 3,000,000 3,020,916
Series 1900 Class I, PO, 10/15/08................. 897,672 715,310
Series 1927 Class F, AR, 10/15/23................. 2,491,846 2,507,438
Series 1956 Class A, 7.00%, 12/20/21.............. 1,295,574 1,306,190
Series 1967, P/O, 10/15/08........................ 3,500,000 2,851,016
Series 1993 Class SJ, IF, IO, 3/15/12............. 5,610,339 461,349
Series 2002 Class A, PO, 11/15/22................. 3,500,000 2,505,678
Series 2017 Class SE, AR, 12/15/08................ 889,650 826,082
Series 2023 Class PN, IO, 7.00%, 3/15/28.......... 7,920,795 1,962,686
Federal Housing Administration Project #07335307,
7.43%, 1/1/22..................................... 966,177 984,293
Federal Housing Administration Greystone 1996-2,
7.43%, 11/1/22.................................... 1,897,084 1,944,511
Federal National Mortgage Assn. Mortgage Backed
Securities Stripped Trust 50, Class 2, IO, 10.50%,
3/25/19........................................... 152,848 42,254
Federal National Mortgage Assn. Pass Thru
Securities:
Guaranteed Remic Trust:
1988 Class 7-Z, 9.25%, 4/25/18.................... 436,689 460,100
1988 Class 17-B, 9.40%, 10/25/17.................. 19,388 19,539
1989 Class 26-D, 10.00%, 5/25/04.................. 443,686 463,359
1989 Class 70-G, 8.00%, 10/25/19.................. 2,000,000 2,087,594
1989 Class 73-C, PO, 10/25/19..................... 151,308 140,246
1989 Class 78-H, 9.40%, 11/25/19.................. 1,750,000 1,905,953
1989 Class 83, 8.50%, 11/25/19.................... 1,216,450 1,264,712
1989 Class 89-H, 9.00%, 11/25/19.................. 1,388,757 1,455,122
1990 Class 1-D, 8.80%, 1/25/20.................... 613,968 649,479
1990 Class 60-K, 5.50%, 6/25/20................... 878,475 848,006
1990 Class 63-H, 9.50%, 6/25/20................... 755,000 805,723
1990 Class 93-G, 5.50%, 8/25/20................... 856,654 838,439
1990 Class 94-H, HB, 5.05%, 8/25/20............... 13,489 187,235
1990 Class 95-J, HB, 1118.04%, 8/25/20............ 6,535 225,060
1990 Class 102-J, 6.50%, 8/25/20.................. 3,040,770 3,048,630
1990 Class 120-H, 9.00%, 10/25/20................. 1,000,000 1,093,625
1990 Class 134-SC, IF, 11/25/20................... 375,799 437,603
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
73
<PAGE> 135
PEGASUS INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
1990 Class 140-K, HB, 652.145%, 12/25/20.......... $ 13,307 $ 341,248
1991 Class 4-N, HB, 758.75%, 1/25/06.............. 1,845 28,345
1991 Class 7-K, HB, 908.50%, 2/25/21.............. 1,039 25,533
1991 Class 20-M, HB, 908.75%, 3/25/06............. 989 17,373
1991 Class 33-J, HB, 1008.25%, 4/25/06............ 2,283 46,611
1991 Class 161-H, 7.50%, 2/25/21.................. 165,334 165,940
1992 Class 13-S, HB, IF, 1/25/99.................. 3,933 12,263
1992 Class 27-G, AR, 5/25/22...................... 219,525 335,873
1992 Class 42-Z, 7.00%, 7/25/22................... 755,645 769,107
1992 Class 66-HB, 4.00%, 6/25/20.................. 1,000,000 940,643
1992 Class 66-JB, 5.00%, 11/25/21................. 2,800,000 2,560,074
1992 Class 85S, IF, 06/25/99...................... 591,003 617,186
1992 Class 137-BA, 3.50%, 1/25/17................. 246,065 244,248
1992 Class 142, 5.50%, 9/25/22.................... 700,000 650,827
1992 Class 199-S, IO, IF, 11/25/99................ 4,693,283 140,883
1992 Class 204-B, 6.00%, 10/25/20................. 2,000,000 1,990,046
1992 Class 206-FA, IF, 6/25/18.................... 1,250,000 1,204,115
1992 Class 210-D, 7.20%, 1/25/15.................. 1,634,000 1,650,613
1993 Class 3-B, 3.00%, 9/25/23.................... 2,035,387 1,811,751
1993 Class 5-Z, 6.50%, 2/25/23.................... 989,116 977,776
1993 Class 8-PG, 6.50%, 7/25/18................... 1,000,000 1,001,603
1993 Class 8-SB, IO, IF, 8/25/06.................. 5,979,889 234,005
1993 Class 10-G, 5.00%, 4/25/20................... 1,868,560 1,853,543
1993 Class 12-C, PO, 2/25/23...................... 2,745,101 2,560,946
1993 Class 12-S, IO, 6.25%, 2/25/23............... 2,334,671 116,974
1993 Class 12-SB, HB, IF, 2/25/23................. 25,750 185,532
1993 Class 13-G, 6.00%, 6/25/20................... 1,000,000 996,603
1993 Class 19-G, 5.00%, 5/25/19................... 3,530,000 3,445,262
1993 Class 19-K, 6.50%, 6/25/19................... 1,522,098 1,523,670
1993 Class 22-SA, AR, 9/25/09..................... 745,279 749,015
1993 Class 27-SE, AR, 8/25/23..................... 1,535,674 1,146,556
1993 Class 38-S, IO, IF, 5.52%, 11/25/22.......... 2,727,951 20,061
1993 Class 55-FA, IF, 5/25/08..................... 6,750,000 6,861,058
1993 Class 58-J, 5.50%, 4/25/23................... 378,904 374,019
1993 Class 94-K, 6.75%, 5/25/23................... 242,420 242,758
1993 Class 113-S, IO, IF, 7/25/23................. 4,877,833 247,896
1993 Class 139-S, IF, 8/25/23..................... 2,597,473 2,305,159
1993 Class 152-D, PO, 8/25/23..................... 672,342 654,740
1993 Class 155-LA, 6.50%, 5/25/23................. 500,115 501,354
1993 Class 155-SB, IO, IF, 9/25/23................ 4,259,100 222,219
1993 Class 156-SD, IF, 10/25/19................... 1,000,000 896,228
1993 Class 156-FA, AR, 5/25/16.................... 2,093,870 2,097,639
1993 Class 170-FA, AR, 9/25/08.................... 556,580 550,206
1993 Class 174-SB, IF, 11/25/07................... 1,394,135 1,393,788
1993 Class 187-FE, AR, 11/25/16................... 1,180,000 1,168,638
1993 Class 207-SC, IF, 11/25/23................... 2,206,384 1,955,207
1993 Class 209-KB, 5.659%, 8/25/08................ 2,935,043 2,858,853
1993 Class 214-L, 6.00%, 12/25/08................. 969,962 954,601
1993 Class 220-SD, IF, 11/25/13................... 1,242,669 1,110,208
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
74
<PAGE> 136
PEGASUS INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
1993 Class 223-FB, AR, 12/25/23.................... $ 721,333 $ 716,345
1993 Class 223-SB, IF, 12/25/23.................... 651,339 645,574
1994 Class 12SB, IF, 1/25/09....................... 1,741,786 1,703,162
1994 Class 13-ZB, 7.00%, 11/17/24.................. 2,825,151 2,821,620
1994 Class 19-C, 5.00%, 1/25/24.................... 1,335,835 1,306,900
1994 Class 26-G, PO, 2/25/24....................... 2,199,391 1,866,720
1994 Class 30-LA, 6.50%, 2/25/09................... 801,696 804,695
1994 Class 36-SG, IO, IF, 8/25/23.................. 3,480,275 202,771
1994 Class 39-F, AR, 3/25/24....................... 862,835 865,139
1994 Class 39-S, IF, 3/25/24....................... 331,860 330,857
1994 Class 41, AR, 3/25/24......................... 375,159 372,697
1994 Class 82-SA, IO, IF, 5/25/23.................. 12,033,587 386,290
1995 Class 13-B, 6.50%, 3/25/09.................... 2,089,861 2,099,011
1996 Class 20-L, PO, 9/25/08....................... 1,655,000 1,231,151
1996 Class 24-K, PO, 2/25/08....................... 1,900,000 1,575,180
1996 Class 27-FA, AR, 3/25/17...................... 1,833,238 1,848,073
1996 Class 39, PO, 9/25/08......................... 1,750,000 1,256,570
1996 Class 46-A, 5.00%, 2/25/09.................... 1,089,810 1,068,733
1996 Class 46-PE, PO, 9/25/06...................... 1,414,752 1,224,499
1996 Class 69-FA, AR, 10/18/23..................... 557,732 559,855
1997 Class 20, IO, IF, 3/25/27..................... 14,361,792 763,114
1997 Class 29PL, IO, 7.50%, 8/18/26................ 1,700,000 553,974
1997 Class 32C, PO, 10/25/21....................... 1,800,000 1,610,017
1997 Class 50FD6, 8.75%, 4/18/27................... 701,035 702,041
1997 Class 59-FA, 6.75%, 3/25/25................... 4,108,677 4,113,809
1997 Class 70, PO, 9/25/22......................... 2,000,000 1,427,762
1997 Class 81-PI, IO, 7.00%, 12/18/27.............. 10,030,256 2,621,748
1997 Class 97-85L, IO, 6.50%, 12/25/20............. 5,255,205 661,473
1997 Class MI, A, IF, 1/17/03...................... 1,881,872 1,903,481
1997-M4 Class A, AR, 3/17/04....................... 6,097,198 6,188,656
Series G-22 Class G, 6.00%,12/25/16................ 1,234,668 1,220,353
Series X-188A, Class F, AR, 2/25/08................ 2,487,762 2,521,471
Series X-G1C, Class C, 8.80%, 1/25/25.............. 900,621 1,025,726
Series 215PM, 7.875%, 11/25/21..................... 1,200,000 1,278,577
Series X, Class VO, IF, 12/25/22................... 2,000,000 2,043,598
Federal National Mortgage Assn. Pass Thru Pool:
#111366, AR, 8/1/19................................ 343,978 358,988
#116612, AR, 3/1/19................................ 1,017,152 1,051,144
#160330, 6.345%, 3/1/99............................ 2,294,388 2,294,817
#303306, 12.50%, 1/1/16............................ 740,960 864,054
#303532, AR, 3/1/29................................ 1,826,955 1,839,885
#411183, 8.50%, 11/1/26............................ 891,683 945,636
#54844, AR, 9/01/27................................ 1,637,684 1,649,103
Government National Mortgage Assn. Pass Thru Pool:
#297628, 8.00%, 9/15/22............................ 1,491,180 1,553,865
#313110, 7.50%, 11/15/22........................... 1,324,546 1,366,174
------------
(Cost $214,166,528) 223,465,578
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS.......... 458,022,846
------------
(Cost $444,171,833)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
75
<PAGE> 137
PEGASUS INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
ASSET BACKED -- 16.14%
Advanta Mortgage Loan Trust Asset Backed
Certificate:
1994 Series, Class A2, 7.60%, 7/25/10............. $ 36,926 $ 36,871
Arcadia Automobile Receivables Trust Asset Backed
Pass Thru Ctfs:
1997 Series B, Class A3, 6.30%, 7/16/01........... 2,000,000 2,008,666
1997 Series C, Class A2, 6.05%, 11/15/00.......... 781,280 782,907
1998 Series A, Class AY, 6.00%, 11/15/03.......... 2,000,000 2,001,356
1998 Series B, Class A3, 5.95%, 11/15/02.......... 2,400,000 2,400,751
1998 Series B, Class A4, 6.00%, 11/15/03.......... 3,000,000 3,001,992
Case Equipment Loan Trust Asset Backed Ctf. :
1994 Series C, Class A2, 8.10%, 6/15/01........... 644,956 647,375
1995 Series B, Class A3, 6.15%, 9/15/02........... 960,462 964,067
1996 Series A, Class A2, 5.50%, 2/15/03........... 4,030,963 4,024,634
Chase Manhattan Grantor Trust Automobile Loan Pass
Thru Ctfs.:
Series 1995-B, Class A, 5.90%, 11/15/01........... 294,215 294,577
Chemical Master Credit Card Asset Backed
Certificate:
Series 1995, Class A, 6.23%, 8/15/02.............. 250,000 254,339
Chevy Chase Auto Receivable Trust Asset Backed Pass
Thru Ctf.:
Series 1997-4, Class A, 6.25%, 6/15/04............ 1,253,872 1,257,876
Collaterized Mortgage Obligation Trust CMO:
Series 12, Class D, 9.50%, 2/1/17................. 231,376 234,070
Series 16, Class Q, IF, 3/20/18................... 151,716 161,850
Collaterized Mortgage Securities Corp. CMO:
Series 88-2 Class B, 8.80%, 4/20/19............... 307,736 323,129
CPS Auto Trust Asset Backed Pass Thru Ctf.:
Series 1997-4, Class A1, 6.07%, 3/15/03........... 2,291,240 2,293,659
First USA Credit Card Master Trust Asset Backed
Pass Thru Ctf.:
Series 1995-1, Class A, AR, 10/15/01.............. 2,000,000 2,001,786
Ford Credit Auto Owner Trust Asset Backed Pass Thru
Ctf.:
Series 1997-B, Class A2, 5.95%, 1/15/00........... 1,700,000 1,702,385
Green Tree Financial Corp. Loan Trust Asset Backed
Ctf.:
Series 1993-4, Class A2, 5.85%, 1/15/19........... 1,100,530 1,101,183
Series 1994-B, Class A2, 7.30%, 11/15/19.......... 60,976 61,038
Series 1994-B1, Class A1, 7.15%, 7/15/14.......... 78,928 80,311
MBNA Master Credit Card Trust Asset Backed Ctf.:
Series 1994-C, Class A, AR, 3/15/04............... 345,000 347,000
Merrill Lynch Home Equity Loan Asset Backed Pass
Thru Ctf.:
Series 1992-1, Class A, AR, 7/15/22............... 817,673 818,788
Merrill Lynch MBS Inc. Project Pass Thru Ctf.:
Series 144-S, 7.43%, 7/25/24...................... 533,826 544,503
Merrill Lynch Trust 43-E CMO,:
Series 43, Class E, 6.50%, 8/27/15................ 1,700,000 1,698,820
Morgan Stanley Mortgage Trust, CMO:
Series 35-2, HB, IF, 4/20/21...................... 2,045 315,407
Series 37-2, HB, IF, 7/20/21...................... 1,992 428,327
Series 39-3, PO, 12/20/21......................... 381,971 315,909
National Rural Utilities Collateral Trust, 7.30%,
9/15/06........................................... 175,000 187,516
Navistar Financial Corp. Owner Trust Asset Backed
Pass Thru Ctf.:
Series 1995-A, Class A2, 6.55%, 11/20/01.......... 577,741 579,185
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
76
<PAGE> 138
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Newcourt Receivables Trust Asset Backed Pass Thru
Ctf.:
Series 1997-1, Class A2, 6.04%, 6/20/00........... $ 2,000,000 $ 2,004,286
Olympic Automobile Receivables Trust Asset Backed
Pass Thru Ctf.:
Series 1995-E, Class 4, 5.85%, 3/15/01............ 3,119,614 3,122,712
Series 1995-B, Class A2, 7.35%, 10/15/01.......... 576,698 581,700
Series 1995-C, Class A2, 6.20%, 1/15/02........... 3,238,757 3,248,807
Series 1996-C, Class A4, 6.80%, 3/15/02........... 4,500,000 4,560,224
Series 1996-C, Class A5, 7.00%, 3/15/04........... 2,650,000 2,722,199
Onyx Acceptance Grantor Trust Auto Loan Pass Thru
Ctf.:
Series 1996-1, Class A, 5.40%, 5/15/01............ 1,962,007 1,956,474
Series 1997-1, Class A, 6.55%, 9/15/03............ 1,611,807 1,625,394
Rural Housing Trust 1987-1, Senior Mortgage Pass
Thru Ctf.:
Sub Class 3-B, 7.33%, 4/1/26...................... 342,235 350,486
Sears Credit Account Master Trust Asset Backed
Ctf.:
Series 1998-1A, 5.80%, 8/15/05.................... 1,000,000 997,500
Series 1995-3, Class A, 7.00%, 10/15/04........... 300,000 306,613
Standard Credit Card Master Trust Asset Backed
Ctf.:
Series 1991-6, Class A, 7.875%, 1/7/00............ 1,000,000 1,007,693
Series 1995-10, Class A, 5.90%, 2/7/01............ 2,520,000 2,523,931
Superior Wholesale Inventory Fing Trust Asset
Backed Ctf.:
Series 1996-A, Class A, AR, 3/15/01............... 2,200,000 2,200,000
Toyota Auto Receivable Grantor Trust Asset Backed
Ctf.:
Series 1995-A, Class A, 5.85%, 3/15/01............ 174,711 174,873
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.:
Series 1996-A, Class A3, 6.05%, 6/01/00........... 278,765 279,257
Series 1997-C, Class A2, 5.95%, 6/20/00........... 3,017,432 3,018,129
Series 1997-B, Class A2, 6.05%, 7/20/00........... 2,855,575 2,859,553
Series 1997-D, Class A2, 6.20%, 9/20/00........... 2,000,000 2,003,127
Series 1996-A, Class A4, 6.15%, 6/01/01........... 3,685,000 3,697,170
Series 1997-B, Class A3, 6.30%, 7/20/01........... 4,000,000 4,038,332
Series 1996-D, Class A3, 6.05%, 7/20/01........... 2,526,227 2,533,338
Series 1995-4, Class A1, 6.20%, 2/01/02........... 1,068,248 1,071,403
Series 1996-C, Class A4, 6.80%, 12/20/03.......... 6,000,000 6,082,758
Series 1998-B, Class A4, 6.05%, 4/20/03........... 2,900,000 2,899,321
World Omni Automobile Asset Backed Ctf.:
Series 1997-A, Class A4, 6.90%, 6/25/03........... 4,297,776 4,368,947
World Omni Automobile LSE SEC Trust Asset Backed
Ctf.:
Series 1995-A, Class A, 6.05%, 11/25/01........... 1,302,882 1,303,286
Series 1997-B, Class A1, 6.07%, 11/25/03.......... 2,500,000 2,505,450
------------
TOTAL ASSET BACKED................................... 94,913,240
------------
(Cost $94,010,664)
CORPORATE BONDS AND NOTES -- 2.43%
Finance -- 2.01%
ABN Amro Bank NV Chicago:
7.25%, 5/31/05.................................... 200,000 211,485
American Express Credit Corp.:
8.50%, 6/15/99.................................... 300,000 307,317
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
77
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Associates Corp. of North America:
9.125%, 4/1/00.................................... $ 1,675,000 $ 1,761,236
8.15%, 8/1/09..................................... 3,625,000 4,160,884
5.96%, 5/15/37.................................... 1,750,000 1,771,455
6.625%, 6/15/05................................... 300,000 306,447
Cit Group Holdings:
8.375%, 11/1/01................................... 200,000 214,312
Citicorp Subordinated Notes:
6.75%, 8/15/05.................................... 250,000 257,285
Commercial Credit Group Inc.:
9.60%, 5/15/99.................................... 200,000 206,542
Ford Motor Credit Corporation:
8.20%, 2/15/02.................................... 2,000,000 2,136,274
Mellon Financial Corporation Note:
7.625%, 11/15/99.................................. 200,000 204,471
Midland Bank:
8.625%, 12/15/04.................................. 170,000 191,342
Norwest Financial Incorporated Senior Note:
7.00%, 1/15/03.................................... 100,000 103,876
------------
TOTAL FINANCE........................................ 11,832,925
------------
(Cost $11,545,495)
Industrial -- 0.42%
Bellsouth Telecommunications Put Notes:
6.00%, 6/15/02.................................... 1,900,000 1,905,189
Dillard Investment Company:
9.25%, 2/1/01..................................... 200,000 215,425
Rockwell International Corp.:
8.8750%, 9/15/99.................................. 200,000 206,974
Wal Mart Stores Inc.:
8.6250%, 4/1/01................................... 150,000 160,800
------------
TOTAL INDUSTRIAL..................................... 2,488,388
------------
(Cost $2,475,360)
------------
TOTAL CORPORATE BONDS AND NOTES...................... 14,321,313
------------
(Cost $14,020,855)
FOREIGN -- 1.14%
African Development Bank Note, 9.30%, 7/1/00........ 983,000 1,044,192
Metropolis of Tokyo, 8.70%, 10/5/99................. 1,500,000 1,553,765
National Australia Bank Ltd., 9.70%, 10/15/98....... 400,000 404,436
Ontario Province of Canada Senior Unsubordinated
Debenture,
7.375%, 1/27/03.................................... 3,500,000 3,693,690
------------
TOTAL FOREIGN........................................ 6,696,082
------------
(Cost $6,674,638)
TOTAL INVESTMENTS.................................... $588,321,155
============
(Cost $573,245,664)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The Fund invests in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities issued by
U.S. government agencies or by financial institutions and other mortgage
lenders which are collateralized by a pool of mortgages held under an
indenture. Descriptions of certain collateralized mortgage obligations are as
follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these securities
are generally higher than prevailing market yields of other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. These
securities are subject to accelerated principal paydowns as a result of
prepayments or refinancing of the underlying pool of mortgage instruments. As a
result, interest income may be reduced considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a right to
receive a very small portion of principal. The high interest rate results from
taking interest payments from other classes in the REMIC Trust and allocating
them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayments on the underlying mortgages of these securities increase, the yield
on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market value
of $2,116,310. The book cost of certain IO and HB securities include a write
down in the amount of $2,239,420 taken during 1993 to properly state the net
realizable value of the securities. The write down results in a lower cost of
investments than the tax cost disclosed in Note 4 in Notes to Financial
Statements.
See Notes to Financial Statements.
Pegasus Funds
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PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ------------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 3.65%
Pegasus Cash Management Fund Class I (in shares).... 50,940,256 $ 50,940,256
Salomon Brothers, Revolving Repurchase Agreement,
6.03%, 7/1/98 (Secured by various U.S. Treasury
Bills and Strips with maturities ranging from
8/15/98 through 5/15/08, all held at Chase Bank)... $ 1,479,334 1,479,334
------------
(Cost $52,419,590) 52,419,590
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 81.62%
U.S. Treasury Securities -- 40.84%
Strips from U.S. Treasury Securities due:
11/15/98.......................................... 1,700,000 1,667,258
2/15/99........................................... 10,805,000 10,450,488
8/15/99........................................... 9,000,000 8,467,830
8/15/00........................................... 5,000,000 4,454,750
2/15/01........................................... 2,450,000 2,123,219
2/15/11........................................... 12,025,000 5,911,250
5/15/11........................................... 9,338,000 4,523,887
11/15/11.......................................... 8,900,000 4,183,890
2/15/12........................................... 4,555,000 2,108,282
2/15/13........................................... 14,200,000 6,206,678
5/15/13........................................... 10,594,000 4,562,730
8/15/13........................................... 3,500,000 1,484,945
2/15/14........................................... 40,000,000 16,471,600
2/15/15........................................... 2,000,000 778,120
5/15/17........................................... 10,420,000 3,558,326
8/15/17........................................... 33,315,000 11,214,828
5/15/18........................................... 26,820,000 8,651,864
11/15/18.......................................... 49,840,000 15,626,834
U.S. Treasury Bonds:
10.75%, 5/15/03................................... 1,000,000 1,218,590
11.125%, 8/15/03.................................. 3,500,000 4,358,060
11.625%, 11/15/04................................. 5,000,000 6,611,700
10.375%, 11/15/09................................. 6,950,000 8,696,194
12.75%, 11/15/10.................................. 154,270,000 219,714,419
10.375%, 11/15/12................................. 36,215,000 48,494,058
12.50%, 8/15/14................................... 1,300,000 2,024,750
9.875%, 11/15/15.................................. 1,000,000 1,456,560
7.50%, 11/15/16................................... 5,395,000 6,476,536
8.75%, 5/15/17.................................... 9,945,000 13,393,130
7.875%, 2/15/21................................... 2,500,000 3,172,275
U.S. Treasury Notes:
3.375%, 1/15/07 Inflation Protection Series....... 3,059,070 2,962,526
5.00%, 1/31/99.................................... 6,450,000 6,432,843
7.00%, 4/15/99.................................... 9,600,000 9,708,000
6.875%, 7/31/99................................... 7,410,000 7,541,972
9.125%, 5/15/99................................... 2,400,000 2,472,744
6.875%, 7/31/99................................... 7,410,000 7,513,073
7.75%, 11/30/99................................... 43,405,000 44,700,205
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
7.75%, 1/31/00..................................... $ 2,000,000 $ 2,066,240
7.125%, 2/29/00.................................... 30,300,000 31,057,500
6.75%, 4/30/00..................................... 6,200,000 6,330,758
6.125%, 7/31/00.................................... 4,000,000 4,047,480
8.75%, 8/15/00..................................... 12,250,000 13,030,938
5.625%, 11/30/00................................... 2,200,000 2,204,818
7.50%, 11/15/01.................................... 6,800,000 7,202,696
3.625%, 7/15/02, Inflation Index Series............ 8,365,585 8,274,066
5.75%, 8/15/03..................................... 1,250,000 1,263,275
7.25%, 5/15/04..................................... 9,000,000 9,765,000
------------
(Cost $554,232,429) 587,095,212
------------
Agency Obligations -- 40.77%
Federal Home Loan Mortgage Corp. Participation
Ctfs.:
#170269, 12.00%, 8/1/15............................ 1,045,581 1,180,346
#200070, 7.50%, 4/1/02............................. 137,418 139,666
#274081, 7.50%, 7/1/16............................. 65,412 66,928
#289711, 7.50%, 4/1/17............................. 87,408 89,428
#555238, 12.00%, 7/1/19............................ 477,126 538,643
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 11 Class D, 9.50%, 7/15/19.................. 3,000,000 3,236,043
Series 13 Class SA, IF, 4/25/23.................... 815,321 779,605
Series 22 Class C, 9.50%, 4/15/20.................. 1,104,876 1,216,313
Series 23 Class E, 9.40%, 8/15/19.................. 185,521 187,314
Series 23 Class F, 9.60%, 4/15/20.................. 1,575,000 1,706,186
Series G-29 Class FE, IF, 4/25/24.................. 3,849,531 3,879,623
Series G-29 Class SD, IO, IF, 4/25/24.............. 13,205,377 445,985
Series 41 Class I, HB, 84.00%, 5/15/20............. 71,774 225,813
Series 47 Class F, 10.00%, 6/15/20................. 485,116 521,536
Series 48 Class BE, IF, IO, 01/25/23............... 12,905,765 1,064,119
Series 56 Class A, 7.00%, 12/20/21................. 4,059,464 4,092,727
Series 99 Class Z, 9.50%, 1/15/21.................. 1,146,693 1,232,706
Series 134 Class IO, 9.00%, 08/15/22............... 651,616 144,574
Series 204 Class E, HB, IF, 5/15/23................ 19,596 454,208
Series 1045 Class G, HB, 1066.2085%, 2/15/21....... 2,795 78,232
Series 1051 Class D, 7.00%, 11/15/19............... 333,997 335,391
Series 1065 Class J, 9.00%, 4/15/21................ 1,857,562 1,988,487
Series 1072 Class A, HB, 1008.50%, 5/15/06......... 17,916 363,497
Series 1079 Class S, IF, 5/15/21................... 742,988 875,381
Series 1084 Class F, AR, 5/15/21................... 1,875,469 1,912,105
Series 1084 Class S, IF, 5/15/21................... 1,312,829 1,739,864
Series 1098 Class M, HB, 1008%, 6/15/06............ 8,184 167,088
Series 1144 Class KB, 8.50%, 9/15/21............... 2,000,000 2,089,338
Series 1172 Class L, HB, 1167.776% 11/15/21........ 1,256,000 343,274
Series 1190 Class G, 5.00%, 11/15/20............... 1,934,549 1,917,182
Series 1196 Class B, HB, IF, 1/15/22............... 48,322 660,170
Series 1250 Class J, 7.00%, 5/15/22................ 1,550,000 1,574,476
Series 1295 Class JB, 4.50%, 3/15/07............... 2,400,000 2,281,961
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
81
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Series 1297 Class H, 7.50%, 1/15/20................. $ 2,048,677 $ 2,092,574
Series 1298 Class L, HB, 981.8667%, 6/15/07......... 9,000 257,764
Series 1329 Class S, IO, IF, 8/15/99................ 2,704,379 76,574
Series 1347 Class HB, 7.75%, 12/15/21............... 1,244,970 1,297,241
Series 1370 Class F, 6.75%, 3/15/19................. 600,000 602,822
Series 1378 Class JZ, 7.50%, 11/15/21............... 3,589,786 3,788,860
Series 1389 Class SA, IF, 10/15/07.................. 1,249,383 1,158,527
Series 1414 Class LA, AR, 11/15/07.................. 1,501,958 1,474,880
Series 1414 Class LB, IF, 11/15/07.................. 2,071,666 2,084,763
Series 1418 Class B, 6.50%, 11/15/19................ 2,250,000 2,260,199
Series 1435 Class FA, IF, 12/15/22.................. 2,146,179 2,199,001
Series 1465 Class SA, IO, IF, 2/15/08............... 12,477,012 516,299
Series 1470 Class F, AR, 2/15/23.................... 1,354,293 1,344,494
Series 1483 Class E, 6.50%, 2/15/20................. 3,407,500 3,425,297
Series 1483 Class FB, IF, 12/15/22.................. 4,982,391 5,029,151
Series 1487 Class IB, IF, 3/15/23................... 1,710,107 1,654,602
Series 1489 Class L, 5.50%, 4/15/08................. 550,066 544,226
Series 1498 Class I, IF, 4/15/23.................... 1,250,000 1,303,446
Series 1506 Class F, AR, 5/15/08.................... 1,654,112 1,669,555
Series 1506 Class S, IF, 5/15/08.................... 342,022 339,940
Series 1506 Class SD, IO, IF, 5/15/08............... 12,819,846 656,786
Series 1531 Class K, 6.00%, 4/15/08................. 946,308 930,508
Series 1543 Class JC, IF, 7/15/23................... 1,500,000 1,267,371
Series 1544 Class TA, IF, 07/15/08.................. 2,866,674 2,829,301
Series 1546 Class SD, IF, 7/15/23................... 869,091 869,437
Series 1561 Class SC, IF, 8/15/08................... 1,483,744 1,479,655
Series 1564 Class FB, 5.33%, 8/15/08................ 1,236,828 1,209,132
Series 1565 Class K, IF, 8/15/08.................... 1,478,681 1,284,555
Series 1575 Class FB, AR, 8/15/08................... 2,983,452 3,112,772
Series 1575 Class SB, IF, 8/15/08................... 994,484 793,197
Series 1583 Class NS, IF, 9/15/23................... 1,222,521 1,145,606
Series 1586 Class A, 6.00%, 9/15/08................. 1,124,693 1,120,063
Series 1587 Class FA, IF, 10/15/08.................. 2,181,992 2,158,464
Series 1589 Class Z, 6.25%, 09/15/23................ 13,978,573 13,334,077
Series 1595 Class D, 7.00%, 10/15/13................ 1,471,502 1,518,814
Series 1595 Class S, IO, IF, 10/15/13............... 8,624,389 358,042
Series 1601 Class S, IF, 10/15/08................... 2,377,097 2,509,549
Series 1602 Class O, 6.00%, 10/15/23................ 2,763,000 2,730,626
Series 1602 Class T, 6.50%, 5/15/21................. 2,686,778 2,660,222
Series 1603 Class IF, IF, 01/15/20.................. 7,000,000 7,148,253
Series 1604 Class SE, IF, 11/15/08.................. 935,165 889,983
Series 1606 Class LC, AR, 5/15/08................... 1,883,250 1,935,622
Series 1606 Class LD, IF, 5/15/08................... 424,411 380,081
Series 1612 Class SD, IF, 11/15/08.................. 4,352,495 3,898,813
Series 1619 Class SC, IF, 11/15/23.................. 5,049,876 4,971,820
Series 1619 Class SD, IF, 11/15/23.................. 1,853,103 1,894,544
Series 1624 Class FB, IF, 12/15/08.................. 2,801,133 2,823,396
Series 1628 Class S, IF, 12/15/23................... 2,550,000 1,999,539
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
82
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30,1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ------------ ------------
<S> <C> <C>
Series 1633 Class SE, IF, 12/15/23................ $ 1,278,652 $ 1,445,545
Series 1635 Class O, IF, 12/15/08................. 4,415,747 4,457,034
Series 1640 Class A, 5.50%, 10/15/07.............. 671,778 663,406
Series 1646 Class MB, IF, 10/15/22................ 2,571,363 2,553,291
Series 1646 Class MD, IF, 10/15/22................ 2,380,892 2,440,711
Series 1647 Class FB, AR, 12/15/08................ 676,265 671,085
Series 1647 Class SB, IF, 12/15/08................ 1,899,365 1,894,892
Series 1655 Class F, AR, 12/15/08................. 1,448,751 1,475,634
Series 1655 Class SA, IF, 12/15/08................ 532,212 489,641
Series 1669 Class KE, IF, 05/15/23................ 1,877,649 1,889,943
Series 1679 Class O, 6.40%, 2/15/09............... 1,997,620 1,999,018
Series 1681 Class K, 7.00%, 8/15/23............... 1,065,304 1,069,508
Series 1685 Class Z, 6.00%, 11/15/23.............. 3,240,225 3,026,422
Series 1686 Class SH, IF, 2/15/24................. 1,535,892 1,391,896
Series 1686 Class SL, IF, 2/15/24................. 1,157,463 1,134,959
Series 1689 Class SD, IF, 10/15/23................ 1,725,000 1,774,483
Series 1694 Class SE, IF, 5/15/23................. 1,636,872 1,623,790
Series 1700 Class GA, PO, 02/15/24................ 11,008,085 7,490,595
Series 1706 Class LA, 7.00%, 3/15/24.............. 2,013,034 2,033,873
Series 1716 Class F, IF, 04/15/09................. 2,524,525 2,585,747
Series 1796-A, Class S, IF, 2/15/09............... 1,000,000 934,345
Series 1807 Class G, 9.00%, 1/1/06................ 1,575,144 1,671,503
Series 1825 Class C, 5.7999%, 12/15/23............ 2,000,000 1,964,258
Series 1854 Class C, PO, 4/15/08.................. 2,554,881 2,054,947
Series 1854 Class SE, IO, IF, 12/15/23............ 9,886,816 2,082,757
Series 1859 Class SB, IO, IF, 10/15/23............ 15,124,855 2,602,927
Series 1900 Class FA, IF, 03/15/09................ 10,820,440 10,895,880
Series 1900 Class I, IF, PO, 10/15/08............. 3,961,180 3,156,466
Series 1927 Class F, IF, 10/15/23................. 6,068,830 6,106,803
Series 1930 Class SJ, IF, PO, 7/15/16............. 11,879,341 1,098,887
Series 1933 Class SJ, IO, IF, 3/15/12............. 24,946,372 2,051,390
Series 1946 Class l, IO, 10/15/08................. 3,006,111 2,348,834
Series 1948 Class A, PO, 12/15/08................. 3,015,568 2,053,949
Series 1967 Class PC, PO, 10/15/08................ 9,000,000 7,331,184
Series 1987 Class SI, IF, 5/15/24................. 3,426,985 3,612,104
Series 1995 Class EJ, IO, 7.00% 10/20/17.......... 6,585,259 1,165,104
Series 2002 Class A, PO, 11/15/22................. 8,800,000 6,299,990
Series 2017 Class SE, IF, 12/15/08................ 2,000,000 1,857,094
Series 2023 Class PN, IO, 7.00%, 3/15/28.......... 28,122,217 6,968,376
Federal Housing Administration Merrill Lynch
Project Pass Thru Ctfs., 7.43%, 8/1/20............ 1,306,769 1,325,965
Federal Housing Administration Project #07335307,
7.43%, 1/1/22..................................... 1,959,214 1,995,949
Federal Housing Administration Greystone, 7.43%,
11/1/22........................................... 2,512,769 2,575,588
Federal National Mortgage Assn. Mortgage Backed
Securities, Stripped Trust:
K, Class 2, HB, 2.56%, 11/1/08.................... 30,080,293 1,988,486
23, Class 2, IO, 10.00%, 9/1/17................... 729,531 205,022
50, Class 2, IO, 10.50%, 3/25/19.................. 96,536 26,687
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
83
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ---------- ------------
<S> <C> <C>
Federal National Mortgage Assn. Pass Thru Securities:
Pool #44699, 7.00%, 4/1/17.......................... $ 193,323 $ 197,281
Pool #50966, 7.00%, 1/1/24.......................... 1,612,905 1,640,608
Pool #54844, AR, 9/01/27............................ 4,731,295 4,764,286
Pool #70226, AR, 1/1/19............................. 439,714 436,416
Pool #116612, AR, 3/1/19............................ 1,585,560 1,638,548
Pool #160330, 6.345%, 3/1/99........................ 2,294,388 2,294,817
Pool #303306, 12.50%, 1/1/16........................ 1,122,667 1,309,173
Pool #303532, AR, 3/1/29............................ 4,905,714 4,940,431
Federal National Mortgage Assn. Pass Thru Securities
Guaranteed Remic Trust:
1988 Class 7-Z, 9.25%, 4/25/18...................... 446,182 470,102
1988 Class 17-B, 9.40%, 10/25/17.................... 111,558 112,428
1989 Class 34-E, 9.85%, 8/25/14..................... 297,784 300,853
1989 Class 70-G, 8.00%, 10/25/19.................... 2,000,000 2,087,594
1989 Class 73-C, PO, 10/25/19....................... 712,892 660,776
1989 Class 78-H, 9.40%, 11/25/19.................... 1,500,000 1,633,674
1989 Class 83-H, 8.50%, 11/25/19.................... 2,432,901 2,529,423
1989 Class 89-H, 9.00%, 11/25/19.................... 2,777,515 2,910,244
1990 Class 1-D, 8.80%, 1/25/20...................... 2,068,103 2,187,718
1990 Class 60-K, 5.50%, 6/25/20..................... 527,085 508,804
1990 Class 63-H, 9.50%, 6/25/20..................... 900,000 960,465
1990 Class 93-G, 5.50%, 8/25/20..................... 1,027,984 1,006,126
1990 Class 94-H, HB, 505.00%, 8/25/20............... 22,774 316,108
1990 Class 95-J, HB, 1118.04%, 8/25/20.............. 13,069 450,121
1990 Class 102-J, 6.50%, 8/25/20.................... 2,644,148 2,650,983
1990 Class 120-H, 9.00%, 10/25/20................... 4,025,000 4,401,841
1990 Class 134-SC, IF, 11/25/20..................... 632,226 736,202
1990 Class 140-K, HB, 652.1454%, 12/25/20........... 14,257 365,627
1991 Class 4-N, HB, 758.75%, 1/25/06................ 5,228 80,321
1991 Class 7-K, HB, 908.50%, 2/25/21................ 4,155 102,129
1991 Class 24-Z, 5.00%, 3/25/21..................... 2,244,211 2,141,448
1991 Class 33-J, HB, 1008.25%, 4/25/06.............. 4,893 99,884
1991 Class 126-ZB, 7.50%, 9/25/21................... 1,065,374 1,095,962
1991 Class 144-PZ, 8.50%, 6/25/21................... 2,638,299 2,739,902
1992 Class 13-S, HB, IF, 1/25/99.................... 13,283 41,415
1992 Class 15-Z, 7.00%, 1/25/22..................... 1,944,858 2,000,720
1992 Class 27-G, HB, IF, 5/25/22.................... 4,445 680,129
1992 Class 42-Z, 7.00%, 07/25/22.................... 2,644,757 2,691,873
1992 Class 59-G, IF, 10/25/22....................... 4,367,745 4,281,879
1992 Class 61-GJ, IF, 10/25/22...................... 3,684,476 3,659,768
1992 Class G61-Z, 7.00%, 10/25/22................... 1,004,214 1,005,758
1992 Class 66-JB, 5.00%, 11/25/21................... 4,500,000 4,114,404
1992 Class 85-S, IF, 6/25/99........................ 2,364,011 2,468,746
1992 Class 135-LC, 7.50%, 9/25/07................... 1,000,000 1,038,014
1992 Class 137-BA, 3.50%, 1/25/17................... 287,076 284,955
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
84
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
1992 Class 143-FI, 04/25/97......................... $ 4,075,065 $ 3,983,812
1992 Class 143-MA, 5.50%, 9/25/22................... 3,500,000 3,254,136
1992 Class 163-M, 7.75%, 9/25/22.................... 2,000,000 2,135,546
1992 Class 186-M, 6.00%, 9/25/07.................... 326,851 325,257
1992 Class 199-S, IO, IF, 11/25/99.................. 6,735,532 202,187
1992 Class 201-SB, IF, 10/25/22..................... 500,000 517,294
1992 Class 204-B, 6.00%, 10/25/20................... 4,300,000 4,278,599
1992 Class 206-FA, IF, 6/25/18...................... 3,484,000 3,356,109
1992 Class 215-PM, 7.875%, 11/25/21................. 1,600,000 1,704,770
1993 Class 5-Z, 6.50%, 2/25/23...................... 1,978,232 1,955,551
1993 Class 8-SB, IO, IF, 8/25/06.................... 6,219,085 243,365
1993 Class 12-S, IO, 6.25%, 2/25/23................. 3,690,841 184,922
1993 Class 12-SB, HB, IF, 2/25/23................... 29,183 210,270
1993 Class 13-G, 6.00%, 6/25/20..................... 2,000,000 1,993,206
1993 Class 19-G, 5.00%, 5/25/19..................... 3,265,000 3,186,624
1993 Class 19-K, 6.50%, 6/25/19..................... 1,844,967 1,846,873
1993 Class 22-F, IF, 9/25/22........................ 195,141 194,110
1993 Class 32-K, 6.00%, 3/25/23..................... 566,281 557,727
1993 Class 38-S, IO, IF, 11/25/22................... 2,905,232 21,365
1993 Class 44-S, IO, IF, 4/25/23.................... 5,416,774 218,133
1993 Class 55-FA, IF, 05/25/08...................... 12,000,000 12,197,436
1993 Class 58-J, 5.50%, 4/25/23..................... 505,205 498,692
1993 Class 59-FA, IF, 5/25/08....................... 3,970,000 4,057,943
1993 Class 63-FA, IF, 5/25/08....................... 1,473,026 1,449,105
1993 Class 72-F, IF, 5/25/08........................ 2,500,000 2,463,975
1993 Class 79-FE, IF, 1/25/22....................... 1,500,000 1,534,637
1993 Class 94-K, 6.75%, 5/25/23..................... 363,629 364,137
1993 Class 107-F, IF, 6/25/08....................... 956,087 939,790
1993 Class 113-S, IO, IF, 7/25/23................... 5,447,266 276,836
1993 Class 129-FB, IF, 8/25/08...................... 1,000,000 985,068
1993 Class 139-SG, IF, 8/25/23...................... 3,779,324 3,354,006
1993 Class 155-LA, 6.50%, 5/25/23................... 1,312,803 1,316,054
1993 Class 155-SB, IF, IO, 9/25/23.................. 9,937,899 518,510
1993 Class 156-FA, IF, 05/25/16..................... 8,724,459 8,740,163
1993 Class 156-SD, IF, 10/25/19..................... 1,250,000 1,120,285
1993 Class 152-D, PO, 08/25/23...................... 960,489 935,342
1993 Class 160-FE, IF, 6/25/23...................... 993,676 983,417
1993 Class 170-FA, IF, 9/25/08...................... 1,113,160 1,100,413
1993 Class 174-SB, IF, 11/25/07..................... 1,510,313 1,509,937
1993 Class 175-FE, AR, 9/25/08...................... 1,000,000 987,437
1993 Class 175-S, IF, 05/25/07...................... 3,470,939 3,498,210
1993 Class 186-SA, IF, 9/25/08...................... 2,658,882 2,871,138
1993 Class 187-SA, IF, 9/25/23...................... 987,304 1,024,625
1993 Class X-188A, IO, IF, 8/25/06.................. 3,800,239 220,684
1993 Class 189-SH, IF, 3/25/22...................... 2,000,000 2,019,566
1993 Class 193-B, 3.00%, 9/25/23.................... 5,607,264 4,991,172
1993 Class 199-FA, IF, 10/25/23..................... 8,000,000 8,066,192
1993 Class 206-SD, IF, 11/25/23..................... 1,250,000 1,328,940
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
85
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
1993 Class 207-SC, IF, 11/25/23..................... $ 3,469,717 $ 3,074,721
1993 Class 209-KB, 5.659%, 8/25/08.................. 4,943,833 4,815,496
1993 Class 214-L, 6.00%, 12/25/08................... 630,475 620,491
1993 Class 220-SD, IF, 11/25/13..................... 2,087,684 1,865,149
1993 Class 221-FH, IF, 12/25/08..................... 2,000,000 2,069,696
1993 Class 223-FB, AR, 12/25/23..................... 7,114,174 7,064,972
1993 Class 223-SB, IF, 12/25/23..................... 3,081,707 3,054,434
1993 Class X-225C-FP, AR, 12/25/22.................. 1,600,000 1,634,878
1993 Class XG23A-A, PO, 7/25/20..................... 3,892,550 3,729,005
1993 Class 230-FA, IF, 12/25/23..................... 4,953,519 4,992,092
1993 Class 247-AB, 5.75%, 1/25/23................... 2,047,183 2,027,291
1994 Class 8-G, PO, 11/25/23........................ 1,860,424 1,532,995
1994 Class 12-FB, IF, 1/25/09....................... 280,933 278,774
1994 Class 12-SB, IF, 1/25/09....................... 1,891,572 1,849,627
1994 Class 13-ZB, 7.00%, 11/17/24................... 2,825,151 2,821,620
1994 Class 19-C, 5.00%, 1/25/24..................... 1,808,720 1,769,542
1994 Class 26-G, PO, 2/25/24........................ 2,278,569 1,933,922
1994 Class 30-LA, 6.50%, 2/25/09.................... 737,560 740,319
1994 Class 32-F, IF, 3/25/09........................ 1,434,877 1,416,909
1994 Class 32-S, IF, 3/25/09........................ 4,495,948 4,541,932
1994 Class 33-FA, IF, 3/25/09....................... 2,910,683 2,884,283
1994 Class 36-SG, IO, IF, 8/25/23................... 7,651,123 445,777
1994 Class 39-F, AR, 3/25/24........................ 1,150,447 1,153,519
1994 Class 39-S, IF, 3/25/24........................ 442,480 441,142
1994 Class 63-T, IF, 04/25/24....................... 799,901 780,687
1994 Class 76-FA, IF, 4/25/24....................... 2,145,771 2,144,421
1994 Class 82-SA, IO, IF, 5/25/23................... 24,412,742 783,673
1995 Class 13-B, 6.50%, 3/25/09..................... 3,335,740 3,350,344
1995 Class XG1C C, 8.80%, 1/25/25................... 1,597,702 1,819,637
1996 Class 7-C, 6.50%, 12/25/10..................... 1,000,000 992,639
1996 Class 20-L, PO, 9/25/08........................ 3,165,000 2,354,437
1996 Class 24-K, PO, 2/25/08........................ 5,275,000 4,373,197
1996 Class 24-B, PO, 10/25/08....................... 3,800,000 2,569,818
1996 Class 27-FC, IF, 3/25/17....................... 2,399,234 2,418,649
1996 Class 39-J, PO, 9/25/08........................ 6,599,000 4,738,346
1996 Class 46-A, 5.00%, 2/25/09..................... 3,051,228 2,992,217
1996 Class 46-PE, PO, 9/25/06....................... 3,161,764 2,736,576
1997 Class 20, IO, IF, 3/25/27...................... 49,081,423 2,607,941
1997 Class 20-SA, IF, 11/25/23...................... 3,054,459 2,567,679
1997 Class 29-PL, IO, 7.50%, 8/18/26................ 7,875,000 2,566,203
1997 Class 32-AP, PO, 05/25/18...................... 1,361,881 1,312,203
1997 Class 32-C, PO, 10/25/21....................... 4,400,000 3,935,598
1997 Class 40-PC, PO, 5/18/20....................... 3,504,889 2,932,576
1997 Class 50-FD, 6.0875%, 4/18/27.................. 1,758,254 1,760,777
1997 Class 59-FA, IF, 03/25/25...................... 9,860,824 9,873,140
1997 Class 70, PO, 9/25/22.......................... 5,000,000 3,569,405
1997 Class 81, PI, IO, 12/18/27..................... 24,464,039 6,394,508
1997 Class 85, IO, 6.50%, 12/25/20.................. 21,097,897 2,655,592
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
86
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
1997 Class M1-B, IF, 10/17/09.................... $ 3,750,000 $ 3,855,450
1992-G Class 31-W, 8.00%, 9/25/21................ 2,420,253 2,510,364
1992-G Class 17H, HB, IF, 06/25/21............... 78,139 1,082,834
1992-G Class 35-G, 1184.775%, HB, 7/25/22........ 21,689 698,611
1992-G Class 59-C, 6.00%,12/25/21................ 2,747,963 2,732,830
1993-G Class 1-KA, 7.90%, 1/25/23................ 2,400,000 2,601,127
1993-G Class 12-C, PO, 2/25/23................... 5,490,203 5,121,892
1993-G Class 22-SA, IF, 9/25/09.................. 1,341,503 1,348,226
1993-G Class 27-SE, IF, 8/25/23.................. 1,343,715 1,003,236
Government National Mortgage Assn. Pass Thru
Securities Guaranteed Remic Trust:
1994 Class 4-SA, IO, IF, 10/16/22................ 5,199,130 279,718
1996 Class 15-OB, 9.00%, 11/20/21................ 4,528,250 4,708,402
1996 Class 26-S, IO, IF, 12/16/20................ 19,057,900 910,644
Government National Mortgage Assn. Pass Thru Pool:
#023594, 8.50%, 7/15/08.......................... 299,960 320,407
#190923, 9.00%, 12/15/16......................... 301,359 326,158
#297628, 8.00%, 9/15/22.......................... 2,236,770 2,330,797
#313110, 7.50%, 11/15/22......................... 1,827,873 1,885,319
#345288, 7.50%, 3/15/23.......................... 579,230 597,010
--------------
(Cost $572,131,957)................................ 586,108,023
--------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 1,173,203,235
--------------
(Cost $1,126,364,386)..............................
ASSET BACKED -- 10.57%
Case Equipment Loan Trust Asset Backed Ctf.:
5.50%, 2/15/03................................... 5,175,622 5,167,497
7.30%, 3/15/02................................... 759,345 765,529
Chase Manhattan Grantor Trust
Series 95-B, 5.90%, 11/15/01..................... 343,250 343,674
Series 95-A, 6.00%, 09/17/01..................... 1,706,946 1,709,079
Chase Manhattan Corp., Subordinated Note, 9.75%,
11/1/01.......................................... 2,000,000 2,223,830
Chevy Chase Automobile Recievable Trust Asset
Backed Pass Thru Ctf.:
Series 1995-2, Class A, 5.80%, 6/15/02........... 484,572 484,801
Collateralized Mortgage Obligation Trust CMO:
Trust 12-D, 9.50%, 2/1/17........................ 462,753 468,140
Trust 16-Q, IF, 3/20/18.......................... 269,000 286,969
CPS Auto Trust
Series 1997-4, Class-A1, 6.07%, 03/15/03......... 5,891,760 5,897,980
Dayton Hudson Credit Card Master Trust Asset
Backed Ctf.
Series A, 6.10%, 2/25/02......................... 1,900,000 1,902,913
First USA Credit Card Master Trust, VR, 10/15/01.. 4,100,000 4,103,661
Ford Motor Credit Corporation Note, 8.20%,
2/15/02.......................................... 4,000,000 4,272,548
Government National Mortgage Assn. Backed Trust I
CMO, Class A, Zero Coupon, PO, 5/20/17........... 174,758 153,758
Green Tree Financial Corp. Loan Trust Asset Backed
Ctf.:
Series 1995-A, Class A6, 7.30%, 7/15/25.......... 3,000,000 3,179,307
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
87
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ---------- --------------
<S> <C> <C>
Series 1994-A, Class A2, 7.30%, 11/15/19.......... $ 108,536 $ 108,647
Series 1993-4, Class A2, 5.85%, 01/15/19.......... 1,414,967 1,415,806
Merrill Lynch Trust Series 43 Class E CMO, 6.50%,
8/27/15........................................... 4,000,000 3,997,224
Merrill Lynch Home Equity Loan, 1992-1, Class A,
AR, 7/15/22....................................... 1,022,091 1,023,485
Merrill Lynch MBS 144-S, 7.43%, 7/25/24............ 4,626,495 4,719,025
Morgan Stanley Mortgage Trust CMO:
Series 35-2, HB, IF, 4/20/21...................... 2,684 413,947
Series 37-2, HB, IF, 7/20/21...................... 2,938 631,747
Series 39-3, PO, 12/20/21......................... 491,106 406,169
Navistar, Class A-2, 6.55%, 11/20/01............... 742,810 744,667
Newcourt Receivables Asset Trust
Series 1997-1, Class-A, 6.04%, 06/20/00........... 4,250,000 4,259,108
Olympic Automobile Receivables Trust Asset Backed
Pass Thru Ctf.
Series 1996-C, Class A5, 7.00%, 03/15/04.......... 3,500,000 3,595,358
Series 1996-C, Class A4, 6.80%, 3/15/02........... 7,000,000 7,093,681
Series 1997-A, Class-A2, 6.125%, 08/15/00......... 1,638,721 1,641,249
ONYX Acceptance CMO Trust, 5.40%, 05/15/01......... 2,452,509 2,445,593
ONYX Accpetance Grantor Trust Auto Loan Pass Thru
Ctf.
Series 1997-1, Class A5, 6.55%, 9/15/03........... 3,309,960 3,337,863
PaineWebber CMO Trust:
Series H-4, 8.75%, 4/1/18......................... 517,915 543,045
Series P-4, 8.50%, 8/1/19......................... 2,796,039 2,925,031
Rural Housing Trust 1987-1 Sr. Mortgage Pass Thru
Ctf., Class 3-B, 7.33%, 4/1/26.................... 764,895 783,336
Salomon Inc. Note, 6.70%, 12/1/98 2,500,000 2,508,540
Sears Credit Account Master Trust Asset Backed Ctf.
Series 1995-3, Class A, 7.00%, 10/15/04........... 1,600,000 1,635,269
Series 1998-1, Class A, 5.80%, 8/15/05............ 2,800,000 2,793,000
Standard Credit Card Master Trust Asset Backed
Ctf.,
Series 1994-2, Class A, 7.25%, 4/7/08............. 1,800,000 1,936,978
Superior Wholesale, 1996-A, A, 3/15/01............. 2,700,000 2,700,000
Toyota Auto Receivables Grantor Trust, Series 95-A
Class A, 5.85%, 3/15/01........................... 175,091 175,254
Union Acceptance Corp.
Series 1997-D, Class-A3, 6.26%, 02/08/02.......... 1,700,000 1,709,899
Western Financial Asset Backed Pass Thru Ctf.
Series 1994-4, Class-A1, 7.10%, 01/01/00.......... 1,853,659 1,858,873
Series 1995-4, Class-A1, 6.20%, 2/01/02........... 3,022,837 3,031,763
Series 1996-A, Class-A3, 6.05%, 06/01/00.......... 929,217 930,855
Series 1996-B, Class-A3, 6.65%, 8/20/00........... 2,212,455 2,220,780
Series 1996-C, Class A4, 6.80%, 12/20/03.......... 4,150,000 4,207,241
Series 1996-D, Class-A3, 6.05%, 07/20/01.......... 5,894,531 5,911,123
Series 1997-A, Class-A3, 6.50, 9/20/01............ 2,253,386 2,269,527
Series 1997-B, Class-A2, 6.05%, 07/20/00.......... 6,053,820 6,062,251
Series 1997-B, Class A3, 6.30%, 07/20/01.......... 6,000,000 6,057,497
Series 1997-C, Class-A2, 5.95%, 06/20/00.......... 3,017,432 3,018,129
Series 1997-D, Class-A2, 6.20%, 12/01/10.......... 13,500,000 13,521,109
Series 1998-B, Class-A4, 6.05%, 4/20/03........... 6,000,000 5,998,596
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
88
<PAGE> 150
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ---------- ------------------
<S> <C> <C>
World Omni Asset Backed Pass Thru Ctf.
Series 1995-A, Class A, 6.05%, 11/25/01....... $1,591,306 $ 1,591,799
Series 1997-A, Class A4, 6.90%, 6/25/03....... 4,597,620 4,673,757
Series 1997-B, Class-A1, 6.07%, 11/25/03...... 6,000,000 6,013,080
------------------
TOTAL ASSET BACKED............................... 151,869,987
------------------
(Cost $149,245,070)
CORPORATE BONDS AND NOTES -- 2.97%
Finance -- 2.00%
ABN Amro Bank NV, 7.25%, 5/31/05............... 2,000,000 2,114,846
Associates Corp. of North America:
9.125%, 4/1/00................................ 2,350,000 2,470,987
8.15%, 8/1/09................................. 3,085,000 3,541,056
5.96%, 5/15/37................................ 7,300,000 7,389,498
American Re Corp., Series B, 7.45%, 12/15/26... 1,500,000 1,669,515
Arcadia Automobile Receivable Trust
Series 1998-A, Class AY, 6.00%, 11/15/03...... 3,600,000 3,602,441
Series 1998-B, Class A-3, 5.95%, 11/15/02..... 3,000,000 3,000,939
Series 1998-B, Class A-4, 6.00%, 11/15/03..... 5,000,000 5,003,320
------------------
(Cost $28,317,268).............................. 28,792,602
------------------
Industrial -- 0.97%
BellSouth Telecommunications, 7.95%, 8/15/24... 3,500,000 3,509,559
Boeing Co., 7.95%, 8/15/24..................... 1,730,000 2,137,284
Dayton Hudson Co., 7.875%, 6/15/23............. 1,800,000 1,921,284
General Motors Corp., 8.80%, 3/1/21............ 2,695,000 3,339,967
Monsanto Co., 8.20%, 4/15/25................... 1,500,000 1,662,780
Nippon T&T, 9.50%, 07/27/98.................... 1,355,000 1,357,818
------------------
(Cost $12,525,959).............................. 13,928,692
------------------
TOTAL CORPORATE BONDS AND NOTES.................. 42,721,294
------------------
(Cost $40,843,227)
FOREIGN -- 1.20%
African Development Bank Note, 9.30%, 7/1/00.... 1,572,000 1,669,857
Kingdom of Belgium Put Euro Dollar, 9.20%,
6/28/00........................................ 1,990,129 2,525,456
Metropolis of Tokyo, 8.70%, 10/5/99............. 2,250,000 2,330,647
National Australia Bank Ltd, 9.70%, 10/15/98.... 800,000 808,872
Province of Ontario Eurobond, 7.375%, 1/27/03... 4,400,000 4,643,496
Province of Quebec, 9.125%, 8/22/01............. 2,515,000 2,720,206
Quebec Province of Canada, 6.50%, 1/17/06....... 2,500,000 2,545,375
------------------
(Cost $16,486,157).............................. 17,243,909
------------------
TOTAL INVESTMENTS................................ $ 1,437,458,015
==================
(Cost $1,373,182,326)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
89
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The Fund invests in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities issued
by U.S. government agencies or by financial institutions and other mortgage
lenders which are collateralized by a pool of mortgages held under an
indenture. Descriptions of certain collateralized mortgage obligations are as
follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields of other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool of
mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's the owner also has a right
to receive a very small portion of principal. The high interest rate results
from taking interest payments from other classes in the REMIC Trust and
allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market
value of $2,807,640. The book cost of certain IO and HB securities includes a
write down in the amount of $5,725,668 taken during 1993 to properly state
the net realizable value of the securities. The write down results in a lower
cost of investments than the tax cost disclosed in Note 4 in Notes to
Financial Statements.
See Notes to Financial Statements.
Pegasus Funds
90
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.90%
Pegasus Cash Management Fund Class I (in shares).... 4,842,088 $ 4,842,088
------------
(Cost $4,842,088)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 62.84%
U.S. Treasury Securities -- 48.70%
U.S. Treasury Notes:
8.875%, 2/15/99.................................... $ 1,000,000 1,020,310
7.00%, 4/15/99..................................... 1,000,000 1,011,250
6.375%, 4/30/99.................................... 14,645,000 14,747,954
6.375%, 5/15/99.................................... 6,000,000 6,043,140
6.25%, 5/31/99..................................... 3,000,000 3,019,230
6.75%, 5/31/99..................................... 2,200,000 2,223,716
6.875%, 7/31/99.................................... 1,000,000 1,013,910
5.875%, 8/31/99.................................... 6,300,000 6,324,633
6.875%, 8/31/99.................................... 2,000,000 2,030,000
7.125%, 9/30/99.................................... 4,000,000 4,076,240
7.50%, 10/31/99.................................... 2,935,000 3,007,905
7.875%, 11/15/99................................... 1,000,000 1,030,620
7.75%, 11/30/99.................................... 9,750,000 10,040,940
5.625%, 11/30/99................................... 2,000,000 2,003,126
7.75%, 12/31/99.................................... 1,000,000 1,031,560
7.75%, 1/31/00..................................... 700,000 698,469
7.75%, 1/31/00..................................... 9,100,000 9,401,392
8.50%, 2/15/00..................................... 960,000 1,003,651
7.125%, 2/29/00.................................... 7,000,000 7,175,000
6.875%, 3/31/00.................................... 500,000 511,095
6.75%, 4/30/00..................................... 1,700,000 1,735,853
6.25%, 4/30/01..................................... 21,200,000 21,594,108
6.50%, 5/31/01..................................... 3,000,000 3,076,860
6.625%, 6/30/01.................................... 2,000,000 2,058,440
7.875%, 8/15/01.................................... 3,900,000 4,155,918
6.25%, 10/31/01.................................... 1,500,000 1,531,170
7.50%, 11/15/01.................................... 3,000,000 3,177,660
5.875%, 11/30/01................................... 2,000,000 2,020,626
6.25%, 2/28/02..................................... 5,900,000 6,036,443
3.625%, 7/15/02.................................... 1,014,580 1,003,480
------------
(Cost $123,353,952) 123,804,701
------------
Agency Obligations -- 14.14%
Federal Home Loan Bank
Series GI98, 4.83%, 09/21/98....................... 500,000 499,220
Series 2 Class Z, 9.30%, 3/15/19................... 761,523 801,687
Series 11 Class C, 9.50%, 4/15/19.................. 199,052 202,375
Series 26 Class F, 9.50%, 2/15/20.................. 996,510 1,070,394
Series 81 Class A, 8.125%, 11/15/20................ 250,585 259,436
Series 85 Class C, 8.60%, 1/15/21.................. 595,900 624,855
Series 99 Class Z, 9.50%, 1/15/21.................. 1,146,693 1,232,706
Series 192 Class H, 9.00%, 7/15/21................. 56,550 56,565
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
91
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Series 1045 Class G, HB, 1066.208%, 2/15/21........ $ 1,398 $ 39,117
Series 1424 Class IF, 11/15/22..................... 1,088,182 1,067,084
Series 1477 Class F, 6.65%, 5/15/18................ 300,000 304,495
Series 1490 Class PE, 5.75%, 07/15/06.............. 213,840 213,504
Series 1497 Class CC, 5.50%, 07/15/14.............. 422,125 421,442
Series 1541 Class E, 6.00%, 12/15/16............... 500,000 500,332
Series 1541 Class EA, 4.00%, 12/15/16.............. 1,000,000 980,823
Series 1544 Class E, 6.25%, 6/15/08................ 241,165 242,000
Series 1552 Class F, 6.00%, 06/15/19............... 553,000 553,406
Series 1555 Class PK, 7.00%, 07/15/07.............. 2,000,000 2,028,754
Series 1559 Class VF, 6.25%, 2/15/20............... 500,000 503,860
Series 1560 Class X, Accrual Bond, 6.00%, 11/15/16. 1,001,597 1,002,251
Series 1561 Class EA, IF, 06/15/07................. 500,000 504,670
Series 1570 Class D, PO, 7/15/20................... 154,156 147,246
Series 1606 Class G, 5.75%, 1/15/08................ 260,000 258,607
Series 1614 Class G, 5.80%, 2/15/19................ 1,100,000 1,098,276
Series 1671 Class D, 5.75%, 11/15/16............... 156,934 156,807
Series 1679 Class A, 5.25%, 9/15/06................ 344,923 342,237
Series 1698 Class PE, 6.00%, 11/15/05.............. 250,000 250,343
Series 1727 Class E, 6.50%, 4/15/18................ 1,000,000 1,009,763
Series 1807 Class G, 9.00%, 1/1/06................. 543,153 576,380
Federal National Mortgage Assn. Mortgage Backed
Securities
Stripped Trust 268, Class 2, IO, 9.00%, 12/25/21... 150,751 33,887
Federal National Mortgage Assn. Pass Thru
Securities:
Pool #070226, AR, 1/1/19........................... 263,829 261,850
Pool #111366, AR, 8/1/19........................... 277,828 289,952
Pool #116612, AR, 3/1/19........................... 568,408 587,404
Federal National Mortgage Assn. Pass Thru Securities
Gtd. Remic Trust:
1997 32C, Class GP, PO, 10/25/21................... 700,000 626,118
1997 Class A, IF, 01/17/03......................... 320,319 323,997
1988 Class 7-Z, 9.25%, 4/25/18..................... 474,662 500,108
1988 Class 15-A, 9.00%, 6/25/18.................... 97,653 103,116
1988 Class 16-B, 9.50%, 6/25/18.................... 594,781 639,624
1988 Class 17-B, 9.40%, 10/25/17................... 9,694 9,770
1989 Class 31-D, 9.15%, 8/25/18.................... 9,827 9,813
1989 Class 73-C, PO, 10/25/19...................... 116,391 107,882
1989 Class 89-H, 9.00%, 11/25/19................... 1,157,298 1,212,602
1990 Class 77-C, 9.00%, 7/25/19.................... 129,798 133,023
1991 Class 41-O, 9.00%, 8/25/06.................... 256,078 259,697
1991 Class 56-K, 8.60%, 2/25/20.................... 83,041 83,022
1992 Class 13-S, HB, IF, 1/25/99................... 1,672 5,212
1992 Class 137-BA, 3.50%, 1/25/17.................. 41,011 40,708
1993 Class 93-E, 6.25%, 4/25/07.................... 175,000 176,151
1993 Class 85-PD, 5.50%, 7/25/03................... 39,589 39,464
1993 Class 86-E, 6.00%, 1/25/07.................... 1,333,522 1,332,313
1993 Class 26-PE, 5.90%, 7/25/15................... 481,625 480,663
1993 Class 107-D, 6.50%, 12/25/06.................. 1,900,000 1,922,098
1993 Class 127-E, 6.00%, 10/25/16.................. 474,606 474,095
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
92
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
1994 Class 12-PD, 5.50%, 7/25/04.................. $ 491,550 $ 489,550
1994 Class 17-E, 6.00%, 2/25/07................... 425,000 424,870
1994 Class 15- E, 5.50%, 2/25/19.................. 786,000 780,162
1994 Class 23-PJ, 6.00%, 1/25/02.................. 488,660 488,353
1994 Class 33-E, 5.50%, 11/25/07.................. 125,000 123,983
1994 Class 36-GA, 6.50%, 2/25/20.................. 500,000 506,881
1995 Class PK, 6.35%, 3/15/11..................... 1,203,936 1,208,683
Federal National Mortgage Assn. Debenture,
4.70%, 9/10/98.................................... 1,000,000 997,653
Federal National Mortgage Assn. Medium Term Note,
5.75%, 11/25/16................................... 610,000 608,383
Government National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust 1997 Class 13-PA, 6.00%, 1/16/20. 3,714,195 3,716,026
------------
(Cost $35,769,932) 35,945,745
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS......... 159,750,446
------------
(Cost $159,123,884)
ASSET BACKED SECURITIES -- 19.87%
Arcadia Automobile Receivable Trust
6.50%, 6/17/02.................................... 600,000 607,892
BM Mortgage Securities Inc. Mortgage Backed Pass
Thru Ctf.,
Series 1998-2, Class 1A10, 6.60%, 06/25/28........ 1,600,000 1,611,499
Case Equipment Loan Trust Asset Backed Pass Thru
Ctf.,
Series 1994-C, Class A2, 8.10%, 06/15/01.......... 237,967 238,859
Case Equipment Loan Trust Asset Backed Pass Thru
Ctf.,
Series 1995-A, Class A, 7.30%, 03/15/02........... 131,981 133,056
Case Equipment Loan Trust Asset Backed Pass Thru
Ctf.,
Series 1996-B, Class A3, 6.65%, 09/15/03.......... 424,695 427,546
Chase Credit Card Trust
6.30%, 4/15/03.................................... 1,880,000 1,901,906
Chase Manhattan Auto Owner Trust
6.50%, 12/17/01................................... 375,000 381,508
Chevy Chase Auto Receivable Trust
6.20%, 3/20/04.................................... 752,004 755,135
Chevy Chase Auto Receivable Trust
5.91%, 4/15/00.................................... 1,000,000 998,242
Citicorp Mortgage Securities, Inc. Remic Pass Thru
Ctf.,
Series 89-16, Class A-1, AR, 4/1/19............... 173,591 172,834
Citicorp Mortgage Securities, Inc. Remic Pass Thru
Ctf.,
Series 94-9, Class A-3, 5.75%, 6/25/09............ 2,040,000 2,024,421
Collateralized Mortgage Obligations Trust CMO,
Trust 12, Class D, 9.50%, 2/1/17.................. 115,688 117,035
Discover Card Trust Series 93-B Class A,
6.75%, 2/16/02.................................... 700,000 707,877
Discover Card Master Trust
Series 95-2 Class A, 6.55%, 2/15/03............... 550,000 558,251
First Security Series 98-A Class A,
5.97%, 4/15/04.................................... 916,585 918,769
Ford Credit Auto Owner Trust Asset Backed Pass Thru
Ctf.,
Series 1996-A, Class A3, 6.50%, 11/15/99.......... 160,762 161,012
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
93
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Ford Credit Auto Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1996-A, Class A4, 6.75%, 09/15/00......... $ 607,000 $ 612,404
Greentree Collateralized Mortgage Obligation,
Series 1997-3, Class A2, 6.49%, 07/15/28......... 2,223,308 2,229,556
Key Auto Finance Trust
5.85%, 03/15/03.................................. 255,524 255,752
MBNA Master Credit Card Trust Asset Backed Ctf.,
Trust 93-3, Series 1993-3A, 5.40%, 9/15/00....... 592,500 590,926
Merrill Lynch Home Equity Loan Asset Backed Pass
Thru Ctf.,
Series 1992-1, Class A, IF, 7/15/22.............. 340,697 341,162
Morgan Stanley Mortgage Trust, CMO,
Series 38-4, PO, 11/20/21........................ 61,402 50,528
Navistar Financial Corp. Owner Trust Asset Backed
Pass Thru Ctf.,
Series 1995-A, Class A2, 6.55%, 11/20/01......... 477,049 478,241
Navistar Financial Corp. Owner Trust Asset Backed
Pass Thru Ctf.,
Series 1997-A, Class A3, 6.75%, 3/15/02.......... 500,000 506,707
Newcourt Receivables Asset Trust
Series 1997-1, Class A, 6.04%, 06/20/00.......... 1,400,000 1,403,000
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1996-D Class A3, 5.95%, 06/15/01.......... 1,200,000 1,201,792
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1996-D Class A4, 6.05%, 08/15/02.......... 500,000 501,992
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1996-C Class A5, 7.00%, 03/15/04.......... 1,150,000 1,181,332
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1996-B Class A4, 6.70%, 03/15/02.......... 2,000,000 2,019,826
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1996-C Class A4, 6.80%, 03/15/02.......... 2,750,000 2,786,803
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1996-B Class A3, 6.50%, 12/15/00.......... 511,431 512,640
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1997-A Class A4, 6.625%, 12/15/02......... 1,435,000 1,457,563
Olympic Automobile Rec. Trust Asset Backed Pass
Thru Ctf.,
Series 1995-C Class A2, 6.20%, 1/15/02........... 731,463 733,733
Onyx Acceptance Trust Auto Loan Backed Pass Thru
Ctf.,
Series 1997-3 Class A, 6.30%, 5/15/04............ 374,618 376,724
Onyx Acceptance Trust Auto Loan Backed Pass Thru
Ctf.,
Series 1997-3 Class A, 6.35%, 1/15/04............ 1,497,707 1,507,357
Premier Auto Trust Asset Backed Pass Thru Ctf.,
Series 1996-4 Class A3, 6.20%, 11/06/00.......... 775,122 777,093
Premier Auto Trust Asset Backed Pass Thru Ctf.,
Series 1997-2 Class A3, 6.13%, 9/06/00........... 445,000 446,238
Ryland Acceptance Corp. Four, CMO, Series 78,
Class 78-B, 9.55%, 3/1/16........................ 122,137 123,398
Sears Credit Account Master Trust
Series 1995-4 Class A, 6.25%, 1/15/03............ 1,466,667 1,470,147
Sears Credit Account Master Trust
Series 1996-1 Class A, 6.20%, 2/16/06............ 1,000,000 1,011,786
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
94
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Sears Credit Account Master Trust
Series 1996-4 Class A, 6.45%, 10/16/06............ $ 790,000 $ 803,180
Standard Credit Card Master Trust Asset Backed
Ctf.,
Series 1993-3, Class A, 5.50%, 02/07/00........... 2,110,000 2,107,559
Standard Credit Card Master Trust Asset Backed
Ctf.,
Series 1995-10, Class A, 5.90%, 02/07/01.......... 450,000 450,702
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1995-2 Class A1, 7.10%, 7/01/00............ 796,308 801,558
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1996-B, Class A4, 6.95%, 11/20/03.......... 2,840,000 2,882,069
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1996-B, Class A3, 6.65%, 8/20/00........... 254,518 255,476
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1996-D, Class A3, 6.05%, 7/20/01........... 842,076 844,446
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1997-D, Class A3, 6.25%, 3/20/02........... 1,000,000 1,006,863
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1997-D, Class A2, 6.20%, 9/20/00........... 500,000 500,782
Western Financial Owner Trust Asset Backed Pass
Thru Ctf.,
Series 1997-B, Class A4, 6.40%, 7/20/02........... 1,450,000 1,469,336
Western Financial Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03.......... 4,000,000 4,055,172
Western Financial Grantor Trust Auto Receivable P/T
Ctf:
1993-4, Class A1, 4.60%, 4/1/99................... 51,871 51,795
1994-3, Class A, 6.65%, 12/1/99................... 88,199 88,519
1998-B, Class A4, 6.05%, 4/20/03.................. 500,000 499,883
World Omni Automobile LSE SEC Trust Asset Backed
Pass Thru Cft.,
Series 1995-A, Class A, 6.05%, 11/25/01........... 397,826 397,950
------------
TOTAL ASSET BACKED SECURITIES 50,507,829
------------
(Cost $50,265,041)
CORPORATE BONDS AND NOTES -- 15.39%
Finance -- 14.33%
Associates Corp. of North America
9.125%, 4/1/00.................................... 1,904,000 2,002,026
6.625%, 05/15/01.................................. 1,015,000 1,031,802
American Express Credit Corp
7.375%, 02/01/99.................................. 295,000 297,498
Association Corp. of North America Medium Term Note
8.50%, 01/10/00................................... 1,025,000 1,062,877
7.55%, 08/23/01................................... 250,000 261,307
Association Corp. of North America
5.25%, 3/30/00.................................... 2,654,000 2,624,854
8.25, 12/01/99.................................... 3,240,000 3,339,183
Association Corp. of North America Medium Term Note
Series G, 5.49%, 01/28/99......................... 270,000 269,503
Association Corp. of North America Medium Term Note
Tranche #00455, 7.48%, 07/27/02................... 300,000 315,429
Association Corp. of North America Senior Term Note
6.25%, 9/15/00.................................... 1,090,000 1,097,558
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
95
<PAGE> 157
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Beneficial Finance Corp. Medium Term Note:
7.34%, 11/26/99.................................... $ 200,000 $ 203,300
Du Pont E I De Nemours & Co.
9.15%, 4/15/00..................................... 825,000 870,130
Ford Holdings Inc.,
9.25%, 3/1/00...................................... 4,115,000 4,329,404
Ford Motor Credit Co.:
8.875%, 06/15/99................................... 1,460,000 1,497,502
9.50%, 4/15/00..................................... 1,415,000 1,497,308
9.00%, 9/15/01..................................... 1,192,000 1,291,381
8.00%, 6/15/02..................................... 219,000 233,643
Ford Motor Credit Co. Medium Term Note,
Tranche #00281, 7.47%, 7/29/99..................... 1,200,000 1,217,802
Tranche #00442, 7.59%, 4/6/00...................... 300,000 308,010
General Motors Acceptance Corp.
9.375%, 4/1/00..................................... 500,000 527,773
9.625%, 5/15/00.................................... 856,000 910,147
9.625%, 12/1/00.................................... 250,000 270,596
Goldman Sachs Group, Private Placement Note 144A,
6.20%, 02/15/01.................................... 1,500,000 1,503,092
Goldman Sachs Group, LP
6.875%, 9/15/99.................................... 1,275,000 1,287,203
Lehman Brothers Holdings Inc.,
10.00%, 5/15/99.................................... 1,790,000 1,848,094
8.875%, 11/01/98................................... 532,000 536,620
7.625%, 7/15/99.................................... 365,000 370,127
7.11%, 9/27/99..................................... 1,063,000 1,075,442
6.33%, 8/1/00...................................... 360,000 361,768
Northwest Corporation
6.0%, 3/15/00...................................... 280,000 280,936
Sears Roebuck Acceptance
6.73%, 8/29/00..................................... 500,000 507,336
Union Acceptance Corp.
Series 1997-D, Class A3, 6.26%, 2/08/02............ 1,750,000 1,760,190
Series 1997-D, Class A2, 6.375%, 10/08/03.......... 1,422,000 1,431,233
------------
(Cost $36,244,911) 36,421,071
------------
Industrial -- 0.51%
Sears Roebuck & Co
9.50%, 6/1/99...................................... 649,000 667,774
Texaco Capital, Inc.:
9.00%, 12/15/99.................................... 600,000 626,125
------------
(Cost $1,293,073) 1,293,899
------------
Foreign -- 0.55%
Republic N Y Corp
9.75%, 12/1/00..................................... 1,290,000 1,401,291
------------
(Cost $1,397,459)
TOTAL CORPORATE BONDS AND NOTES....................... 39,116,261
------------
(Cost $38,935,443)
TOTAL INVESTMENTS..................................... $254,216,623
============
(Cost $253,166,456)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
96
<PAGE> 158
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The Fund invests in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities issued by
U.S. government agencies or by financial institutions and other mortgage
lenders which are collateralized by a pool of mortgages held under an
indenture. Descriptions of certain collateralized mortgage obligations are as
follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these securities
are generally higher than prevailing market yields of other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. These
securities are subject to accelerated principal paydowns as a result of
prepayments or refinancing of the underlying pool of mortgage instruments. As a
result, interest income may be reduced considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a right to
receive a very small portion of principal. The high interest rate results from
taking interest payments from other classes in the REMIC Trust and allocating
them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayments on the underlying mortgages of these securities increase, the yield
on these securities increases.
See Notes to Financial Statements.
Pegasus Funds
97
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 3.34%
Pegasus Cash Management Fund Class I (in shares).... 4,337,599 $ 4,337,599
------------
(Cost $4,337,599)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 20.19%
U.S. Treasury Securities -- 13.01%
U.S. Treasury Bonds:
12.750%, 11/15/10................................. $ 5,740,000 8,175,023
7.500%, 11/15/16.................................. 500,000 600,235
8.125%, 5/15/21................................... 2,820,000 3,671,725
8.125%, 8/15/21................................... 1,000,000 1,303,440
U.S. Treasury Notes:
8.50%, 2/15/00.................................... 560,000 585,463
Inflation Protection Security, 3.375%, 1/15/07.... 2,651,194 2,567,522
------------
(Cost $16,504,948) 16,903,408
------------
Agency Obligations -- 7.18%
Federal Home Loan Mortgage Corp. Gold Participation
Ctfs.:
Series #D81734, 7.00%, 8/1/27..................... 1,442,537 1,466,306
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 1507 Class JC, 6.75%, 12/15/05............. 100,000 102,793
Series 1552 Class GB, 6.50%, 12/15/21............. 289,000 293,821
Series 1552 Class HB, 6.500%, 11/15/22............ 562,000 571,389
Series 1556 Class H, 6.50%, 8/15/13............... 115,000 116,918
Series 1590 Class FA, 5.50%, 1/15/19.............. 345,000 340,110
Series 1630 Class PJ, 6.000%, 5/15/23............. 802,000 797,473
Series 1671 Class F, 6.25%, 3/15/22............... 250,000 252,088
Series 1995 Class EM, 6.375%, 8/15/11............. 1,044,481 1,049,174
Federal National Mortgage Assn. Pass Thru
Securities Guaranteed Remic Trust:
Series 1993-23 Class PZ, 7.50%, 3/25/23........... 155,475 171,162
Series 1993-55 Class K, 6.50%, 5/25/08............ 490,000 502,730
Series 1993-56 Class PZ, 7.00%, 5/25/23........... 449,157 477,052
Series 1993-70 Class D, 6.900%, 12/25/03.......... 242,928 247,648
Series 1993-140 Class H, 6.50%, 3/25/13........... 300,000 304,555
Series 1993-231 Class M, 6.00%, 12/25/08.......... 615,000 614,828
Series 1994-40 Class H, 6.00%, 10/25/20........... 311,000 310,556
Series 1997-12 Class G, 7.00%, 7/18/24............ 1,500,000 1,514,003
Series X-225C Class PD, 5.700%, 6/25/17........... 200,000 198,895
------------
(Cost $10,699,912) 9,331,498
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS......... 26,234,907
------------
(Cost $27,204,860)
ASSET BACKED SECURITIES -- 21.40%
Advanta Mortgage Loan Trust Asset Backed Ctf.,
Series 1994-3, Class A2, 7.60%, 7/25/10........... 203,615 203,312
BA Mortgage Securities Inc Mortgage Pass Thru Ctf.,
Series 1998-2, Class 1A10, 6.60%, 6/25/28......... 2,000,000 2,014,374
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
98
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
Chemical Master Credit Card Trust 1 Asset Backed Ctf.,
Series 1995-3, Class A, 6.23%, 8/15/02............... $2,500,000 $ 2,543,393
Chevy Chase Auto Receivables Trust Asset Backed Pass
Thru Ctf.,
Series 1995-2, Class A, 5.80%, 6/15/02............... 726,858 727,202
Citicorp Mortgage Securities Pass Thru Ctf.,
Series 1994-9, Class A3, 5.75%, 6/25/09.............. 2,500,000 2,480,908
Dayton Hudson Credit Card Master Trust Asset Backed
Ctf.,
Series 1995-1, Class A, 6.10%, 2/25/02............... 2,500,000 2,503,833
Green Tree Financial Corp. Asset Backed Pass Thru
Ctf.,
Series 1994-B1, Class A1, 7.15%, 7/15/14............. 236,784 240,933
Key Auto Finance Trust Asset Backed Pass Thru Ctf.,
Series 1997-1, Class A1, 5.85%, 3/15/03.............. 2,255,524 2,416,972
MBNA Master Credit Card Trust Asset Backed Pass Thru
Ctf.,
Series 1994-C, Class A, Adjustable Rate, 3/15/04..... 1,655,000 1,664,592
Newcourt Recievables Asset Trust Pass Thru Ctf.,
Series 1997-1, Class A, 6.04%, 6/20/00............... 500,000 501,072
Olympic Automobile Receivables Trust Asset Backed Pass
Thru Ctf.
Series 1995-D, Class A5, 6.15%, 7/15/01.............. 2,300,000 2,307,597
Series 1996-C, Class A5, 7.00%, 12/15/01............. 3,000,000 3,081,735
PNC Student Loan Trust Asset Backed Pass Thru Ctf.
Series 1997-2, Class A6, 6.572%, 1/25/04............. 382,000 394,664
Security Pacific Acceptance Corp. Asset Backed Pass
Thru Ctf.,
Series 1995-1, Class A3, 7.25%, 4/10/20.............. 2,000,000 2,093,074
Union Federal Savings Bank Trust Auto Recievable Pass
Thru Ctf.,
Series 1994-D, Class A, 7.65%, 1/10/01............... 573,905 577,035
Western Financial Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03............. 4,000,000 4,055,172
-----------
TOTAL ASSET BACKED SECURITIES........................... 27,805,866
-----------
(Cost $25,250,746)
CORPORATE BONDS AND NOTES -- 55.06%
Finance -- 45.69%
ABN AMRO Bank N.V., 7.25%, 5/31/05.................... 4,800,000 5,075,630
American Express Credit Card Note, 6.125% 11/15/01.... 2,000,000 2,017,876
American RE Corp., 7.45%, 12/15/26.................... 6,000,000 6,678,060
Baltimore Gas & Electric Co. Mortgage, 6.60%, 6/25/28. 2,000,000 2,041,476
Donaldson Lufkin Senior Note, 6.50%, 6/01/08.......... 1,000,000 1,005,300
General Electric Capital Corp., 8.85%, 4/1/05......... 3,500,000 4,047,138
Genera Motors Acceptance Corp. Note, 7.125%, 5/01/03.. 2,000,000 2,087,292
Grand Metro Investment Corp. Guaranteed Note, 7.45%,
4/15/35.............................................. 4,500,000 5,222,322
Hertz Corporation Senior Note, 6.625%, 5/15/08........ 2,500,000 2,529,653
Household Finance Co. Note, 7.25%, 7/15/03............ 2,000,000 2,090,994
Lilly Eli & Company Debenture, 8.375%, 12/01/06....... 2,000,000 2,296,600
Mellon Financial Corp., 7.625%, 11/15/99.............. 2,310,000 2,361,640
National Rural Utilities Coop Financial Corp., 6.75%,
9/1/01............................................... 4,290,000 4,386,040
Norwest Corp., Senior Medium Term Note, 7.75%, 3/1/02. 1,500,000 1,589,968
Republic New York Corp., 7.25%, 7/15/02............... 2,000,000 2,090,338
Royal Caribbean Cruises Note, 6.75%, 3/15/08.......... 5,000,000 5,063,130
Salomon Inc., 6.70%, 12/1/98.......................... 3,700,000 3,712,639
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
99
<PAGE> 161
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Societe General Estate, LLC
Series 144A, Perpetual Maturity, 7.64%, 9/30/07....... $3,055,000 $ 3,040,507
Travelers Group Note, 6.25%, 12/1/05................... 2,000,000 2,022,806
------------
(Cost $57,360,241) 59,359,409
------------
Industrial -- 2.33%
Beckman Instruments, 7.05%, 6/1/26..................... 3,000,000 3,028,599
------------
(Cost $3,009,317)
Public Utility -- 7.04%
Bell Telephone Co. Pennsylvania, 8.35%, 12/15/30....... 4,000,000 5,083,324
New York Telephone Note, 5.625%, 11/01/03.............. 2,000,000 1,964,418
Pacific Bell Senior Note, 6.875%, 8/15/06.............. 2,000,000 2,100,301
------------
(Cost $8,300,959) 9,148,043
------------
TOTAL CORPORATE BONDS AND NOTES.......................... 71,536,051
------------
(Cost $68,670,517)
TOTAL INVESTMENTS........................................ $129,914,423
============
(Cost $125,463,721)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
100
<PAGE> 162
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 7.62%
Pegasus Cash Management Fund Class I (in shares)... 4,000,000 $ 4,000,000
Salomon Brothers, Revolving Repurchase Agreement,
5.95%, 7/1/98 (secured by various U.S. Treasury
Notes with maturities ranging from 8/15/98 through
5/15/08 at various interest rates ranging from
0.00% to 12.00%, all held at Chase Bank).......... $ 2,738,721 2,738,721
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $6,738,721) 6,738,721
-----------
<CAPTION>
PAR (A)
-------------
<S> <C> <C>
FOREIGN BONDS -- 92.38%
ARGENTINA -- 4.82%
Republic of Argentina, 11.375%, 12/15/99........USD 4,000,000 4,256,740
-----------
AUSTRALIA -- 2.08%
Australia (Commonwealth), 9.00%, 09/15/04.......... 2,500,000 1,834,716
-----------
AUSTRIA -- 0.69%
Republic of Austria, 7.00%, 01/20/03............... 7,000,000 608,019
-----------
BELGIUM -- 1.87%
Belgium Government, Series 19, 6.50%, 03/31/05..... 56,000,000 1,856,048
-----------
BRAZIL -- 2.92%
Federal Republic of Brazil, 10.125%, 05/15/27...USD 3,000,000 2,584,269
-----------
CANADA -- 5.22%
Canada Government, 6.50%, 06/01/04................. 3,800,000 2,740,547
Ontario Hydro, 8.825%, 02/06/02.................... 2,500,000 1,876,570
-----------
4,617,117
-----------
DENMARK -- 1.66%
Kingdom of Denmark, 9.00%, 11/15/98................ 2,000,000 295,749
Kingdom of Denmark, 7.00%, 11/15/07................ 7,000,000 1,172,208
-----------
1,467,957
-----------
FINLAND -- 2.30%
Republic of Finland, 5.50%, 02/09/01............DEM 2,000,000 1,160,531
Republic of Finland, 6.00%, 01/29/02............JPY 30,000,000 254,253
Republic of Finland, 7.25%, 04/18/06............... 3,000,000 632,055
-----------
2,036,839
-----------
FRANCE -- 9.55%
Government of France, 5.75%, 03/12/01.............. 10,000,000 1,720,428
Government of France, 5.50%, 04/25/04.............. 20,100,000 3,495,372
Government of France, 5.50%, 05/24/07.............. 12,000,000 2,088,984
Government of France, 6.50%, 04/25/11.............. 6,000,000 1,137,217
-----------
8,442,001
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
101
<PAGE> 163
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION PAR (A) MARKET VALUE
----------- ------------- ------------
<S> <C> <C>
GERMANY -- 10.68%
Deutsche Bundespost, 5.75%, 04/02/01............... 5,500,000 $ 3,207,467
Deutsche Bundespost, 7.50%, 08/02/04............... 600,000 387,781
Federal Republic of Germany, 9.00%, 10/20/00....... 600,000 367,520
Federal Republic of Germany, 6.50%, 07/15/03....... 4,600,000 2,781,678
Federal Republic of Germany, 6.00%, 01/06/08....... 4,500,000 2,695,611
-----------
9,440,047
-----------
INTERNATIONAL -- 9.71%
Asian Development Bank, 3.125%, 06/29/05........JPY 300,000,000 2,409,596
Asian Development Bank, 5.00%, 02/06/03.........JPY 40,000,000 338,838
Council of Europe, 6.875%, 03/05/01.............JPY 30,000,000 250,093
European Investment Bank, 8.00%, 06/10/03.......GBP 1,300,000 2,288,919
Inter-American Development Bank, 2.25%,
02/05/02.......................................JPY 400,000,000 3,009,760
Inter-American Development Bank, 7.25%,
05/15/00.......................................JPY 35,000,000 283,002
-----------
8,580,207
-----------
ITALY -- 8.58%
Italian Government, 8.50%, 01/01/99................ 5,500,000,000 3,150,160
Italian Government, 9.50%, 02/01/06................ 3,500,000,000 2,541,224
Italian Government, 6.75%, 02/01/07................ 3,000,000,000 1,896,325
-----------
7,587,709
-----------
JAPAN -- 11.02%
Export-Import Bank Japan, 4.375%, 10/01/03......... 30,000,000 251,339
Export-Import Bank Japan, 2.875%, 07/28/05......... 400,000,000 3,185,505
Government of Japan, 4.50%, 12/20/04............... 40,000,000 347,031
International Bank of Reconstruction & Development,
5.25%, 03/20/02................................... 100,000,000 835,069
International Bank of Reconstruction & Development,
4.75%, 12/20/04................................... 200,000,000 1,764,322
Japan Development Bank, 6.50%, 09/20/01............ 35,000,000 296,956
Nippon Telephone & Telegraph, 2.50%, 07/25/07...... 400,000,000 3,060,071
-----------
9,740,293
-----------
NETHERLANDS -- 3.54%
Netherland Government, 5.75%, 01/15/04............. 6,000,000 3,125,287
-----------
NEW ZEALAND -- 1.87%
New Zealand Government, 8.00%, 04/15/04............ 3,000,000 1,656,642
-----------
PANAMA -- 3.34%
Republic of Panama, 7.875%, 02/13/02............... 3,000,000 2,951,379
-----------
SOUTH AFRICA -- 1.17%
Republic of South Africa, 9.625%, 12/15/99......USD 1,000,000 1,040,000
-----------
SPAIN -- 3.19%
Spanish Government, 8.00%, 05/30/04................ 370,000,000 2,817,661
-----------
SWEDEN -- 1.56%
Swedish Government, 8.00%, 08/15/07................ 9,000,000 1,379,274
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
102
<PAGE> 164
PEGASUS INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION PAR (A) MARKET VALUE
----------- --------- ------------
<S> <C> <C>
UNITED KINGDOM -- 6.61%
Exchequer, 12.25%, 03/26/99............................. 250,000 $ 431,470
United Kingdom Treasury, 7.00%, Stock 2001.............. 2,000,000 3,373,404
United Kingdom Treasury, 8.00%, Stock 2013.............. 1,000,000 2,040,359
-----------
5,846,233
-----------
TOTAL FOREIGN BONDS...................................... 81,685,638
-----------
(COST $86,851,447)
TOTAL INVESTMENTS........................................ $88,404,359
===========
(COST $93,590,168)
</TABLE>
(a) In local currencies unless otherwise noted.
CURRENCY ABBREVIATIONS
DEM German Deutschemark
GBP United Kingdom Pound Sterling
JPY Japanese Yen
USD United States Dollar
See Notes to Financial Statements.
Pegasus Funds
103
<PAGE> 165
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 2.85%
Pegasus Cash Management Fund Class I (in shares)....... 1,933,941 $ 1,933,941
-----------
(Cost $1,933,941)
CORPORATE BONDS AND NOTES -- 93.42%
Aerospace & Defense -- 0.16%
Tracor, Inc., 8.500%, 3/1/07.......................... $ 100,000 109,000
-----------
(Cost $103,614)
Automotive -- 1.74%
Collins & Aikman Products, 11.500%, 4/15/06........... 575,000 643,281
Lear Corp., 9.500%, 7/15/06........................... 300,000 328,500
Oshkosh Truck Corp., 8.750%, 3/1/08................... 100,000 101,500
Oxford Automotive, Inc., 10.125%, 6/15/07............. 100,000 103,750
-----------
(Cost $1,175,975) 1,177,031
-----------
Banking -- 1.51%
First Nationwide Holdings
9.125%, 1/15/03...................................... 550,000 573,375
10.625%, 10/1/03..................................... 400,000 451,000
-----------
(Cost $1,017,084) 1,024,375
-----------
Beverage & Tobacco -- 0.37%
Dimon, Inc., 8.875%, 6/1/06 .......................... 250,000 250,000
-----------
(Cost $265,608)
Broadcast Radio & TV -- 7.21%
Acme Television LLC
Series B, Step Up, 0% to 9/30/00, thereafter 10.875%,
9/30/04 (b)......................................... 300,000 249,000
Big City Radio, Inc.
Series 144A, Step Up, 0% to 3/15/01, thereafter
11.250%, 3/15/05 (a) (b)............................ 425,000 323,000
Capstar Broadcasting, 9.250%, 7/1/07.................. 150,000 157,875
Chancellor Media Corp. Los Angeles
Series B, 10.500%, 1/15/07........................... 100,000 111,000
Series B, 8.750%, 6/15/07............................ 675,000 705,375
Series B, 8.125%, 12/15/07........................... 475,000 482,125
Cumulus Media, Inc., 10.375%, 7/1/08.................. 150,000 152,250
Fox/Liberty Networks LLC
8.875%, 8/15/07...................................... 125,000 127,812
Step Up, 0% to 8/15/02, thereafter 9.750%, 8/15/07
(b)................................................. 725,000 500,250
Lamar Advertising Co., 9.625%, 12/1/06................ 200,000 215,250
Outdoor Systems, 8.875%, 6/15/07...................... 600,000 627,000
Sinclair Broadcasting Group
10.000%, 9/30/05..................................... 100,000 107,750
9.000%, 7/15/07...................................... 600,000 627,000
8.750%, 12/15/07..................................... 300,000 310,500
Young Broadcasting, Inc., Series B, 9.000%, 1/15/06... 175,000 185,063
-----------
(Cost $4,767,615) 4,881,250
-----------
Building & Development -- 1.24%
American Architectural, 11.750%, 12/1/07.............. 175,000 181,125
American Builders Contractors Supply Co., Series B,
10.625%, 5/15/07..................................... 275,000 276,375
Building Materials Corp., Series B, 8.000%, 10/15/07.. 375,000 378,750
-----------
(Cost $835,978) 836,250
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
104
<PAGE> 166
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Business Equipment & Services -- 2.05%
Dialog Corp. PLC, Series A, 11.000%, 11/15/07....... $ 325,000 $ 357,500
Fisher Scientific International, Inc., 9.000%,
2/1/08............................................. 250,000 250,000
US Office Products Co., Series 144A, 9.750%, 6/15/08
(a)................................................ 325,000 328,656
United Stationers Supply Co.
12.750%, 5/1/05.................................... 134,000 153,430
Series 144A, 8.375%, 4/15/08 (a)................... 300,000 301,500
-----------
(Cost $1,354,552) 1,391,086
-----------
Cable Television -- 9.32%
CSC Holdings, Inc.
9.250%, 11/1/05.................................... 450,000 483,750
7.875%, 12/15/07................................... 250,000 265,000
Charter Communications Southeast Holdings
Series B, Step Up, 0% to 3/15/01, thereafter
14.000%, 3/15/07 (b).............................. 375,000 309,375
Comcast Corp., 9.375%, 5/15/05...................... 250,000 268,125
Diamond Cable Communications PLC
Step Up, 0% to 12/15/00, thereafter 11.750%,
12/15/05 (b)...................................... 75,000 62,438
Step Up, 0% to 2/15/02, thereafter 10.750%, 2/15/07
(b)............................................... 450,000 333,000
Diamond Holdings PLC, Series 144A, 9.125%, 2/1/08
(a)................................................ 150,000 156,375
Diva Systems Corp.,
Unit, Step Up, 0% to 3/1/03, thereafter 12.625%,
3/1/08 (b)........................................ 275,000 130,625
EchoStar Satellite Broadcasting Corp.
Step Up, 0% to 3/15/00, thereafter 13.125%, 3/15/04
(b)............................................... 275,000 254,375
International Cabletel, Inc.
Series B, Step Up, 0% to 2/1/01, thereafter
11.500%, 2/1/06 (b)............................... 800,000 660,000
Lenfest Communications
8.375%, 11/1/05.................................... 300,000 320,250
Series 144A, 8.250%, 2/15/08 (a)................... 275,000 286,687
NTL, Inc.
Series 144A, Step Up, 0% to 4/1/03, thereafter
9.750%, 4/1/08 (a) (b)............................ 1,075,000 704,125
Pegasus Communications, Series B, 9.625%, 10/15/05.. 375,000 388,125
Rogers Cablesystems LTD, Series B, 10.000%, 3/15/05. 275,000 306,625
TeleWest Communication PLC
Step Up, 0% to 10/1/00, thereafter 11.000%, 10/1/07
(b)............................................... 1,050,000 871,500
UIH Australia/Pacific
Series B, Step Up, 0% to 5/15/01, thereafter
14.000%, 5/15/06 (b).............................. 300,000 181,500
United International Holdings, Inc.
Series B, Step Up, 0% to 2/15/03, thereafter
10.750%, 2/15/08 (b).............................. 525,000 328,125
-----------
(Cost $6,216,059) 6,310,000
-----------
Chemicals & Plastics -- 2.60%
Buckeye Cellulose Corp., 8.500%, 12/15/05........... 425,000 431,375
ISP Holdings, Inc., Series B, 9.750%, 2/15/02....... 450,000 474,750
Polymer Group, Inc.
Series B, 9.000%, 7/1/07........................... 500,000 510,000
Series 144A, 8.750%, 3/1/08 (a).................... 200,000 200,500
Sterling Chemicals Holdings, Inc.
Step Up, 0% to 8/15/01, thereafter 13.500%, 8/15/08
(b)............................................... 250,000 143,750
-----------
(Cost $1,810,959) 1,760,375
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
105
<PAGE> 167
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Clothing & Textiles -- 2.71%
Collins & Aikman Floorcoverings, Series B, 10.000%,
1/15/07............................................ $ 500,000 $ 527,500
Dyersburg Corp., Series B, 9.750%, 9/1/07........... 200,000 192,000
GFSI, Inc., Series B, 9.625%, 3/1/07................ 200,000 209,000
Glenoit Corp., 11.000%, 4/15/07..................... 250,000 268,750
Pillowtex Corp.
10.000%, 11/15/06.................................. 500,000 537,500
Series B, 9.000%, 12/15/07......................... 100,000 103,250
-----------
(Cost $1,848,932) 1,838,000
-----------
Conglomerates -- 0.45%
Eagle Picher Industries, Series 144A, 9.375%, 3/1/08
(a)................................................ 300,000 304,500
-----------
(Cost $301,414)
Consumer Products -- 5.66%
American Safety Razor Co., Series B, 9.875%, 8/1/05. 150,000 160,125
Amscan Holdings, Inc., 9.875%, 12/15/07............. 425,000 431,375
Boyds Collection LTD, Series 144A, 9.000%, 5/15/08
(a)................................................ 250,000 250,625
Chattem, Inc., Series 144A, 8.875%, 4/1/08 (a)...... 325,000 321,750
Diamond Brands, Inc.
Series 144A, 10.125%, 4/15/08 (a).................. 125,000 125,625
Series 144A, Step Up, 0% to 4/15/03, thereafter
12.875%, 4/15/09 (a) (b).......................... 175,000 94,500
Icon Health & Fitness, Series B, 13.000%, 7/15/02... 250,000 251,250
NBTY, Inc., Series B, 8.625%, 9/15/07............... 350,000 357,000
Playtex Products, Series B, 8.875%, 7/15/04......... 500,000 515,000
Revlon Consumer Products Corp., 8.625%, 2/1/08...... 725,000 728,625
Sealy Mattress Co., 9.875%, 12/15/07................ 125,000 128,125
Simmons Co., 10.750%, 4/15/06....................... 350,000 376,250
Syratech Corp., 11.000%, 4/15/07.................... 100,000 89,000
-----------
(Cost $3,852,263) 3,829,250
-----------
Container & Glass Products -- 0.71%
Tekni-Plex, Inc., Series B, 9.250%, 3/1/08.......... 475,000 477,375
-----------
(Cost $484,664)
Ecological Services & Equipment -- 1.24%
Allied Waste Industries
Step Up, 0% to 6/1/02, thereafter 11.300%, 6/1/07
(b)............................................... 950,000 700,625
Allied Waste North America, 10.250%, 12/1/06........ 125,000 137,656
-----------
(Cost $828,623) 838,281
-----------
Electronics -- 0.62%
Fairchild Semiconductor Corp., 10.125%, 3/15/07..... 100,000 102,500
PX Escrow Corp.
Series 144A, Step Up, 0% to 2/1/02, thereafter
9.625%, 2/1/06 (a) (b)............................ 200,000 144,500
Viasystems, Inc., Series B, 9.750%, 6/1/07.......... 175,000 172,375
-----------
(Cost $434,809) 419,375
-----------
Farming & Agriculture -- 0.30%
Purina Mills, Inc., Series 144A, 9.000%, 3/15/10
(a)................................................ 200,000 206,000
-----------
(Cost $200,000)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
106
<PAGE> 168
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Financial Intermediaries -- 0.56%
Contifinancial Corp., 8.125%, 4/1/08................ $ 375,000 $ 380,141
-----------
(Cost $374,590)
Food & Drug Retailers -- 1.79%
Community Distributors, Series B, 10.250%, 10/15/04. 150,000 152,250
Di Giorgio Corp., Series B, 10.000%, 6/15/07........ 300,000 299,250
Jitney-Jungle Stores of America, Inc., 10.375%,
9/15/07............................................ 325,000 348,563
Stater Brothers, 9.000%, 7/1/04..................... 400,000 412,000
-----------
(Cost $1,185,640) 1,212,063
-----------
Food Products -- 2.49%
Aurora Foods, Series B, 9.875%, 2/15/07............. 225,000 239,625
Curtice-Burns Foods, Inc., 12.250%, 2/1/05.......... 150,000 165,000
Eagle Family Foods, Series 144A, 8.750%, 1/15/08
(a)................................................ 600,000 586,500
International Home Foods, 10.375%, 11/1/06.......... 425,000 463,250
Van de Kamps, Inc., 12.000%, 9/15/05................ 200,000 229,000
-----------
(Cost $1,674,930) 1,683,375
-----------
Food Services -- 1.01%
Ameriserv Food Distribution, Inc., 10.125%, 7/15/07. 575,000 594,406
Nebco Evans Holding Co., Step Up, 0% to 7/15/02,
thereafter 12.375%, 7/15/07 (b).................... 125,000 86,875
-----------
(Cost $682,381) 681,281
-----------
Forest Products -- 0.34%
Stone Container Corp., 9.875%, 2/1/01............... 225,000 232,312
-----------
(Cost $229,534)
Healthcare -- 4.20%
Alliance Imaging, 9.625%, 12/15/05.................. 100,000 101,500
Conmed Corp., Series 144A, 9.000%, 3/15/08 (a)...... 250,000 250,000
Dade International, Inc., Series B, 11.125%, 5/1/06. 450,000 508,500
Everest Healthcare Services, Series 144A, 9.750%,
5/1/08 (a)......................................... 200,000 205,000
Genesis Health Ventures, 9.750%, 6/15/05............ 150,000 154,875
Hudson Respiratory Care, Series 144A, 9.125%,
4/15/08 (a)........................................ 275,000 262,625
Oxford Health Plans, Series 144A, 11.000%, 5/15/05
(a)................................................ 50,000 51,250
Tenet Healthcare Corp.
8.000%, 1/15/05.................................... 1,025,000 1,055,514
8.625%, 1/15/07.................................... 100,000 103,750
Series 144A, 8.125%, 12/1/08 (a)................... 150,000 151,500
-----------
(Cost $2,839,229) 2,844,514
-----------
Home Products & Furnishings -- 0.73%
Falcon Building Products, Inc.,
Series B, Step Up, 0% to 6/15/02, thereafter
10.500%, 6/15/07 (b).............................. 500,000 335,000
Werner Holdings Co., Inc., A, 10.000%, 11/15/07..... 150,000 156,750
-----------
(Cost $494,121) 491,750
-----------
Hotels, Motels, Inns & Casinos -- 0.24%
Courtyard by Marriott, Series B, 10.750%, 2/1/08.... 150,000 165,375
-----------
(Cost $164,016)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
107
<PAGE> 169
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Industrial Products & Equipment -- 3.78%
Amphenol Corp., 9.875%, 5/15/07..................... $ 300,000 $ 317,250
Anchor Lamina, Inc., 9.875%, 2/1/08................. 150,000 147,000
Continental Global Group, Series B, 11.000%, 4/1/07. 375,000 391,875
Euramax International, Inc., 11.250%, 10/1/06....... 150,000 162,750
Grove Worldwide LLC, Series 144A, 9.250%, 5/1/08
(a)................................................ 100,000 99,500
International Utility Structures, Series 144A,
10.750%, 2/1/08 (a)................................ 125,000 128,125
JTM Industries, Series 144A, 10.000%, 4/15/08 (a)... 250,000 255,000
Johnstown America Industries, Series C, 11.750%,
8/15/05............................................ 125,000 139,063
MMI Products, Inc., Series B, 11.250%, 4/15/07...... 250,000 275,000
Neenah Corp., Series B, 11.125%, 5/1/07............. 200,000 219,000
Wesco Distribution, Inc., Series 144A, 9.125%,
6/1/08 (a)......................................... 325,000 323,375
Wesco International, Inc.
Series 144A, Step Up, 0% to 6/1/03, thereafter
11.125%, 6/1/08 (a) (b)........................... 175,000 103,250
-----------
(Cost $2,552,464) 2,561,188
-----------
Leisure & Entertainment -- 4.33%
AMF Bowling Worldwide
Series B, Step Up, 0% to 3/15/01, thereafter
12.250%, 3/15/06 (b).............................. 337,000 271,285
Premier Parks, Inc.
9.250%, 4/1/06..................................... 50,000 51,812
9.750%, 1/15/07.................................... 325,000 354,656
Step Up, 0% to 4/1/03, thereafter 10.000%, 4/1/08
(b)............................................... 175,000 117,250
Regal Cinemas, Series 144A, 9.500%, 6/1/08 (a)...... 375,000 380,625
Six Flags Theme Parks
Series A, Step Up, 0% to 6/15/98, thereafter
12.250%, 6/15/05 (b).............................. 450,000 513,000
Viacom International, 8.000%, 7/7/06................ 1,200,000 1,243,500
-----------
(Cost $2,858,841) 2,932,128
-----------
Machinery & Equipment -- 1.20%
Alvey Systems, 11.375%, 1/31/03..................... 150,000 163,125
Clark Materials Handling, 10.750%, 11/15/06......... 400,000 426,000
Columbus McKinnon Corp., Series 144A, 8.500%, 4/1/08
(a)................................................ 75,000 74,438
National Equipment Services, Series 144A, 10.000%,
11/30/04 (a)....................................... 150,000 152,250
-----------
(Cost $805,920) 815,813
-----------
Metals & Mining -- 0.53%
AEI Holding Company, Inc., Series 144A, 10.000%,
11/15/07 (a)....................................... 175,000 175,437
Anker Coal Group, Series B, 9.750%, 10/1/07......... 200,000 183,000
-----------
(Cost $377,780) 358,437
-----------
Oil & Gas -- 5.27%
Abraxas Petroleum Corp., Series D, 11.500%, 11/1/04. 200,000 207,000
Chiles Offshore LLC, Series 144A, 10.000%, 5/1/08
(a)................................................ 250,000 242,500
DI Industries, Inc., 8.875%, 7/1/07................. 200,000 194,000
Dailey Petroleum Service, Series B, 9.500%, 2/15/08. 400,000 392,000
Forcenergy, Inc., 8.500%, 2/15/07................... 500,000 475,000
KCS Energy, Inc., 8.875%, 1/15/08................... 300,000 286,500
Ocean Energy, Inc., 10.375%, 10/15/05............... 500,000 552,500
Pacalta Resources LTD, Series B, 10.750%, 6/15/04... 250,000 250,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
108
<PAGE> 170
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Pogo Producing Company, Series B, 8.750%, 5/15/07... $ 250,000 $ 255,000
Pride Petroleum Services, Inc., 9.375%, 5/1/07...... 375,000 396,563
Universal Compression, Inc.
Series 144A, Step Up, 0% to 2/15/03, thereafter
9.875%, 2/15/08 (a) (b)........................... 500,000 317,500
-----------
(Cost $3,658,210) 3,568,563
-----------
Printing & Publishing -- 2.63%
Garden State Newspapers, Series B, 8.750%, 10/1/09.. 550,000 561,000
Hollinger International Publishing
9.250%, 2/1/06..................................... 400,000 420,000
9.250%, 3/15/07.................................... 250,000 262,500
K-III Communications Corp., Series B, 8.500%,
2/1/06............................................. 275,000 282,549
Ziff-Davis, Inc., 8.500%, 5/1/08.................... 250,000 253,750
-----------
(Cost $1,760,383) 1,779,799
-----------
Retailers -- 0.47%
Leslie's Poolmart, 10.375%, 7/15/04................. 300,000 316,500
-----------
(Cost $312,557)
Services -- 0.81%
Coinmach Corp., Series D, 11.750%, 11/15/05......... 250,000 280,000
Sitel Corp., Series 144A, 9.250%, 3/15/06 (a)....... 275,000 268,125
-----------
(Cost $552,055) 548,125
-----------
Steel -- 0.92%
GS Technologies, 12.250%, 10/1/05................... 325,000 360,750
Ryerson Tull, Inc., 8.500%, 7/15/01................. 250,000 261,250
-----------
(Cost $618,829) 622,000
-----------
Surface Transportation -- 3.57%
Allied Holdings, 8.625%, 10/1/07.................... 350,000 353,500
AmeriTruck Distribution, Series B, 12.250%,
11/15/05........................................... 325,000 190,125
Chemical Leaman Corp., 10.375%, 6/15/05............. 200,000 212,500
Gearbulk Holdings, 12.250%, 12/1/04................. 400,000 439,000
The Holt Group, Series 144A, 9.750%, 1/15/06 (a).... 200,000 197,000
Statia Terminals, Series B, 11.750%, 11/15/03....... 150,000 157,500
Stena AB
10.500%, 12/15/05.................................. 425,000 464,312
8.750%, 6/15/07.................................... 300,000 302,250
Stena Line AB, 10.625%, 6/1/08...................... 100,000 101,875
-----------
(Cost $2,571,239) 2,418,062
-----------
Telecommunications & Cellular -- 19.87%
American Cellular Corp., Series 144A, 10.500%,
5/15/08 (a)........................................ 350,000 350,875
Arch Communications, Inc., Series 144A, 12.750%,
7/1/07 (a)......................................... 250,000 253,750
Call-Net Enterprises, Inc.,
Step Up, 0% to 8/15/02, thereafter 9.270%, 8/15/07
(b)............................................... 725,000 511,125
Comcast Cellular Holdings, Inc., Series B, 9.500%,
5/1/07............................................. 375,000 393,750
E. Spire Communications, Inc.
Step Up, 0% to 11/1/00, thereafter 13.000%, 11/1/05
(b)............................................... 75,000 61,125
Step Up, 0% to 4/1/01, thereafter 12.750%, 4/1/06
(b)............................................... 200,000 155,000
13.750%, 7/15/07................................... 50,000 57,375
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
109
<PAGE> 171
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Esprit Telecom, 11.500%, 12/15/07................... $ 100,000 $ 103,375
Hermes Europe Railtel BV, 11.500%, 8/15/07 (a)...... 375,000 421,875
Highwaymaster Communications, Inc., Series B,
13.750%, 9/15/05................................... 100,000 75,000
ICG Holdings, Inc.
Step Up, 0% to 5/1/01, thereafter 12.500%, 5/1/06
(b)............................................... 350,000 275,188
Step Up, 0% to 3/15/02, thereafter 11.625%, 3/15/07
(b)............................................... 400,000 284,500
Intermedia Communications
Step Up, 0% to 7/15/02, thereafter 11.250%, 7/15/07
(b)............................................... 850,000 624,750
Series B, 8.875%, 11/1/07.......................... 100,000 102,750
Series 144A, 8.600%, 6/1/08 (a).................... 350,000 356,125
IXC Communications, Inc., Series 144A, 9.000%,
4/15/08 (a)........................................ 250,000 251,875
Level 3 Communications, Inc., Series 144A, 9.125%,
5/1/08 (a)......................................... 1,200,000 1,176,000
McLeodUSA, Inc.
Step Up, 0% to 3/1/02, thereafter 10.500%, 3/1/07
(b)............................................... 750,000 562,500
9.250%, 7/15/07.................................... 150,000 156,375
Series 144A, 8.375%, 3/15/08 (a)................... 100,000 100,250
Metronet Communications, Inc.
Unit, 12.000%, 8/15/07............................. 200,000 226,000
Series 144A, Step Up, 0% to 6/15/03, thereafter
9.950%, 6/15/08 (a) (b)........................... 700,000 436,625
Millicom International Cellular
Step Up, 0% to 6/1/01, thereafter 13.500%, 6/1/06
(b)............................................... 525,000 408,187
Nextel Communications, Inc.
Step Up, 0% to 9/15/02, thereafter 10.650%, 9/15/07
(b)............................................... 525,000 358,313
Series 144A, Step Up, 0% to 2/15/03, thereafter
9.950%, 2/15/08 (a) (b)........................... 900,000 583,875
Series 144A, Step Up, 0% to 4/15/03, thereafter
12.125%, 4/15/08 (a) (b).......................... 200,000 117,500
Nextlink Communications
9.625%, 10/1/07.................................... 400,000 410,000
Series 144A, Step Up, 0% to 4/15/03, thereafter
9.450%, 4/15/08 (a) (b)........................... 375,000 231,562
Paging Network, 10.000%, 10/15/08................... 575,000 600,156
Pathnet, Inc., Unit, 12.250%, 4/15/08............... 275,000 292,875
PsiNet, Inc., Series B, 10.000%, 2/15/05............ 100,000 102,750
Qwest Communications International
Step Up, 0% to 10/15/02, thereafter 9.470%,
10/15/07 (b)...................................... 900,000 676,125
Rogers Cantel, Inc., 8.800%, 10/1/07................ 500,000 498,125
Telecom Techniques Co., Series 144A, 9.750%, 5/15/08
(a)................................................ 400,000 411,000
Teligent, Inc.
11.500%, 12/1/07................................... 350,000 354,375
Series 144A, Step Up, 0% to 3/1/03, thereafter
11.500%, 3/1/08 (a) (b)........................... 225,000 123,750
Telesystem International Wireless, Inc.
Series B, Step Up, 0% to 6/30/02, thereafter
13.250%, 6/30/07 (b).............................. 400,000 265,000
Series C, Step Up, 0% to 11/1/02, thereafter
10.500%, 11/1/07 (b).............................. 350,000 209,125
Triton Communications
Series 144A, Step Up, 0% to 5/1/03, thereafter
11.625%, 5/1/08 (a) (b)........................... 550,000 312,125
US Xchange LLC, Series 144A, 15.000%, 7/1/08 (a).... 175,000 180,689
Viatel, Inc.
Units, 11.125%, 4/15/08............................ 300,000 316,500
Units, Step Up, 0% to 4/15/03, thereafter 12.500%,
4/15/08 (b)....................................... 100,000 61,500
-----------
(Cost $13,375,779) 13,449,720
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
110
<PAGE> 172
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Utilities -- 0.79%
El Paso Electric Co., First Mortgage Series E,
9.400%, 5/1/11..................................... $ 400,000 $ 462,508
Niagara Mohawk Power Corp.
Series H, Step Up, 0% to 7/1/03, thereafter 8.500%,
7/1/10 (b)........................................ 100,000 69,302
-----------
(Cost $511,918) 531,810
-----------
TOTAL CORPORATE BONDS AND NOTES....................... 63,245,104
-----------
(Cost $63,098,565)
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCKS -- 0.03%
Cable Television -- 0.01%
Pegasus Communications, Warrant*.................... 175 5,775
UIH Australia/Pacific, Warrant*..................... 300 1,538
-----------
7,313
-----------
Telecommunications & Cellular -- 0.02%
Highwaymaster Communications, Warrant*.............. 100 1,012
Metronet Communications, Warrant*................... 200 9,667
-----------
10,679
-----------
TOTAL COMMON STOCKS................................... 17,992
-----------
(Cost $3,636)
PREFERRED STOCKS -- 3.70%
Broadcast Radio & TV -- 1.65%
Benedek Communications, Series 144A, 11.500% (a).... 200 202,000
CBS Radio, Inc., Series B, 11.375%.................. 1,750 203,438
Capstar Broadcasting Partners, Inc., PIK, 12.000%**. 845 100,025
Cumulus Media, Inc., Series A, 13.750%.............. 150 154,125
SFX Broadcasting, Inc., Cumulative, Series E,
12.625%............................................ 2,657 300,905
Sinclair Capital, 11.625%........................... 1,425 158,303
-----------
1,118,796
-----------
Cable Television -- 0.69%
Echostar Communications, Series B, PIK, 12.125%**... 219 242,692
Pegasus Communications, Series A, 12.750%........... 198 223,755
-----------
466,447
-----------
Food Services -- 0.15%
Nebco Evans Holding Co., PIK, 11.250%**............. 1,027 104,964
-----------
Healthcare -- 0.08%
River Holdings Corp., Series 144A, PIK, 11.500%
(a)**.............................................. 500 50,875
-----------
Printing & Publishing -- 0.93%
Primedia, Inc.
Series F, 9.200%................................... 5,250 534,188
Series H, 8.625%................................... 1,000 97,500
-----------
631,688
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
111
<PAGE> 173
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Telecommunications & Cellular -- 0.20%
Nextel Communications, Series 144A, PIK, 11.125% (a)**..... 128 $ 132,480
-----------
TOTAL PREFERRED STOCKS....................................... 2,505,250
-----------
(Cost $2,428,995)
TOTAL INVESTMENTS............................................ $67,702,287
===========
(Cost $67,465,137)
</TABLE>
* Non-income producing security.
** PIK--Payment-In-Kind
(a) Security Exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Additional
information regarding these securities follows:
<TABLE>
<CAPTION>
PERCENTAGE
ACQUISITION PRICE PER ORIGINAL MARKET OF TOTAL
HOLDING DATE PAR UNIT COST VALUE INVESTMENTS
- ------------------------ ----------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
AEI Holding Company,
Inc.................... 11/6/97 $ 175,000 $ 100.25 $ 177,875 $ 175,438 0.26%
American Cellular Corp.. 5/6/98 350,000 100.25 348,451 350,875 0.52
Arch Communications,
Inc.................... 6/24/98 250,000 101.50 245,123 253,750 0.37
Benedek Communications.. 5/7/98 200 1,010.00 200,000 202,000 0.30
Big City Radio, Inc..... 3/2/98 425,000 76.00 312,430 323,000 0.48
Boyds Collection LTD.... 4/16/98 250,000 100.25 249,750 250,625 0.37
Chattem, Inc............ 3/20/98 325,000 99.00 327,156 321,750 0.48
Chiles Offshore LLC..... 4/24/98 250,000 97.00 251,781 242,500 0.36
Columbus McKinnon Corp.. 3/26/98 75,000 99.25 74,801 74,438 0.11
Conmed Corp............. 2/26/98 250,000 100.00 250,000 250,000 0.37
Diamond Brands, Inc.,
Step Up 4/15/09........ 4/15/98 175,000 54.00 94,291 94,500 0.14
Diamonds Brands, Inc.... 4/15/98 125,000 100.50 125,500 125,625 0.19
Diamonds Holdings PLC... 1/30/98 150,000 104.25 151,875 156,375 0.23
Eagle Family Foods...... 1/16/98 600,000 97.75 605,188 586,500 0.87
Eagle Picher Industries. 2/19/98 300,000 101.50 310,442 304,500 0.45
Everest Healthcare Serv-
ices................... 4/30/98 200,000 102.50 200,000 205,000 0.30
Hermes Europe Railtel
BV..................... 3/25/98 375,000 112.50 408,188 421,875 0.62
Hudson Respiratory Care. 4/2/98 275,000 95.50 274,625 262,625 0.39
Intermedia Communica-
tions.................. 5/21/98 350,000 101.75 350,000 356,125 0.53
International Utility
Structures............. 1/27/98 125,000 102.50 126,375 128,125 0.19
IXC Communications,
Inc.................... 4/16/98 250,000 100.75 249,250 251,875 0.37
JTM Industries.......... 4/17/98 250,000 102.00 252,938 255,000 0.38
Lenfest Communications.. 3/24/98 275,000 104.25 279,688 286,688 0.42
Level 3 Communications,
Inc.................... 4/23/98 1,200,000 98.00 1,187,467 1,176,000 1.74
McleodUSA, Inc.......... 3/10/98 100,000 100.25 100,000 100,250 0.15
Metronet Communications,
Inc.................... 7/7/98 700,000 62.375 430,185 436,625 0.64
National Equipment Serv-
ices................... 11/20/97 150,000 101.50 148,151 152,250 0.22
Nextel Communications... 2/6/98 128 1,035.00 126,869 132,480 0.20
Nextel Communications,
Inc., Step Up 2/15/03.. 2/6/98 900,000 64.875 554,817 583,875 0.86
Nextel Communications,
Inc., Step Up 4/15/08.. 3/10/98 200,000 58.75 109,830 117,500 0.17
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
112
<PAGE> 174
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE PERCENTAGE
ACQUISITION PER ORIGINAL MARKET OF TOTAL
HOLDING DATE PAR UNIT COST VALUE INVESTMENTS
- ------------------------ ----------- ---------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Nextlink Communications. 3/27/98 $ 375,000 $ 61.75 $ 233,297 $ 231,563 0.34%
NTL, Inc................ 3/6/98 1,075,000 65.50 668,829 704,125 1.04
Oxford Health Plans..... 5/7/98 50,000 102.50 50,000 51,250 0.08
Polymer Group, Inc...... 2/27/98 200,000 100.25 201,000 200,500 0.30
Purina Mills, Inc....... 3/6/98 200,000 103.00 200,000 206,000 0.30
PX Excrow Corp.......... 2/6/98 200,000 72.25 141,294 144,500 0.21
Regal Cinemas........... 5/21/98 375,000 101.50 374,366 380,625 0.56
River Holdings Corp..... 4/2/98 500 101.75 50,000 50,875 0.08
Sitel Corp.............. 3/5/98 275,000 97.50 278,938 268,125 0.40
Relecom Techniques Co... 5/14/98 400,000 102.75 400,000 411,000 0.61
Teligent, Inc........... 3/18/98 225,000 55.00 127,125 123,750 0.18
Tenet Healthcare Corp... 5/8/98 150,000 101.00 149,418 151,500 0.22
The Holt Group.......... 3/13/98 200,000 98.50 204,250 197,000 0.29
Triton Communications... 4/29/98 550,000 56.75 322,273 312,125 0.46
United Stationers Supply
Co..................... 4/9/98 300,000 100.50 300,000 301,500 0.45
Universal Compression,
Inc.................... 2/13/98 500,000 63.50 314,331 317,500 0.47
US Office Products Co... 6/5/98 325,000 101.125 323,499 328,656 0.49
US Xchange LLC.......... 6/22/98 175,000 103.25 175,000 180,688 0.27
Wesco Distribution,
Inc.................... 5/29/98 325,000 99.50 323,944 323,375 0.48
Wesco International,
Inc.................... 5/29/98 175,000 59.00 101,537 103,250 0.15
----------- ----------- -----
Totals.............. $13,453,141 $13,566,074 20.04%
=========== =========== =====
</TABLE>
(b) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
See Notes to Financial Statements.
Pegasus Funds
113
<PAGE> 175
PEGASUS MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS -- 100.00%
ALABAMA -- 1.24%
Courtland Industrial Development Board Solid Waste
Disposal Revenue, Series A, 6.50%, 9/1/25........... $ 5,000,000 $ 5,444,200
------------
ALASKA -- 0.85%
Alaska Student Loan Revenue State Assisted Series A
(AMBAC Insured), 6.125%, 7/1/05..................... 1,000,000 1,057,040
Fairbanks North Star Boro Refunding Series S (MBIA
Insured), 5.45%, 3/1/93............................. 2,500,000 2,663,275
------------
3,720,315
------------
ARIZONA -- 1.92%
Maricopa County General Obligation Unlimited Tax
School District No. 28 Series B (FGIC Insured),
6.00%, 7/1/14....................................... 2,500,000 2,694,000
Salt River Project Agricultural Improvement Power
District Revenue, Electric System Series D, 6.00%,
1/1/08.............................................. 625,000 701,725
Salt River Project Agricultural Refunding Series B,
5.25%, 1/1/19....................................... 5,000,000 5,028,700
------------
8,424,425
------------
CALIFORNIA -- 7.31%
Anaheim California Public Finance Authority Lease
Revenue Series C (FSA Insured), 6.00%, 9/1/16....... 2,000,000 2,259,920
Los Angeles Public Works Finance Authority Lease
Revenue, 5.00%, 10/1/19............................. 2,000,000 1,960,100
Los Angeles Uni School District General Obligation
(FGIC Insured), Series A, 5.00%, 7/1/21............. 3,000,000 2,937,780
Northern California Public Power Agency Revenue
Refunding Geothermal Project A (AMBAC Insured):
5.60%, 7/1/06....................................... 3,500,000 3,796,695
5.65%, 7/1/07....................................... 4,800,000 5,247,648
Orange Co. Recovery CTFS PRTN CA Series A (MBIA
Insured),
5.80%, 7/1/16....................................... 5,315,000 5,685,774
Sacramento Cogeneration Authority Revenue:
6.00%, 7/1/03....................................... 1,000,000 1,072,070
7.00%, 7/1/05....................................... 1,500,000 1,713,450
6.20%, 7/1/06....................................... 2,500,000 2,756,500
Sacramento, California M.U.D. (MBIA Insured), 5.75%,
1/1/10.............................................. 1,500,000 1,615,500
Sacramento, California M.U.D. Revenue Refunding,
Series L, 5.125%, 7/1/22............................ 3,000,000 2,971,380
------------
32,016,817
------------
COLORADO -- 5.73%
Colorado Health Facilities Authority Revenue Natl
Jewish Medical & Research Center, 5.375%, 1/1/16.... 2,250,000 2,252,858
Denver City & Co. Airport Revenue:
Series B, 7.25%, 11/15/05........................... 3,000,000 3,365,220
Series C, 6.50%, 11/15/06........................... 2,000,000 2,154,000
Series D, 7.75%, 11/15/13........................... 6,925,000 8,697,454
Series A, 8.50%, Prerefunded, 11/15/23.............. 220,000 246,475
Series A, 8.50%, Unrefunded, 11/15/23............... 2,280,000 2,519,446
Series A, 8.00%, Prerefunded, 11/15/25.............. 200,000 221,822
Series A, 8.00%, Unrefunded, 11/15/25............... 2,095,000 2,285,750
</TABLE>
See Notes to Financial Statements.
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114
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
E-470 Public Highway Authority Revenue Co. MBIA Cap
Appreciation Series B, 9/1/23....................... $12,295,000 $ 3,360,838
------------
25,103,862
------------
CONNECTICUT -- 0.82%
Connecticut Housing Finance Authority Revenue
Mortgage Subseries D-1, 5.90%, 5/15/16.............. 3,400,000 3,581,764
------------
FLORIDA -- 9.51%
Lakeland Electric & Water Revenue Refunding Series B
(FGIC Insured) 6.00%, 10/1/11....................... 4,000,000 4,544,360
Lee County Transportation Facilities Revenue (MBIA
Insured), 5.75%, 10/1/27............................ 9,640,000 10,224,473
Florida State Board of Education Capital Outlay
General Obligation Unlimited Tax Refunding:
Series C, 5.75%, 6/1/13............................. 5,000,000 5,286,950
Series F, 5.50%, 6/1/26............................. 8,250,000 8,534,543
Series F, 6.40%, 6/1/19............................. 12,100,000 13,091,232
------------
41,681,558
------------
GEORGIA -- 11.46%
Fulton County School District General Obligation
Unlimited Tax Refunding, 6.375%, 5/1/10............. 5,000,000 5,825,100
Gainesville Water & Sewer Revenue Series B (FGIC
Insured), 6.00%, 11/15/12........................... 3,950,000 4,468,714
Georgia General Obligation Unlimited Tax:
7.10%, 9/1/09....................................... 9,500,000 11,681,960
6.75%, 9/1/11....................................... 10,000,000 12,077,600
7.25%, 7/1/05....................................... 1,000,000 1,180,070
Georgia State Housing And Finance Authority Revenue
Series B, 6.10%, 12/1/12............................ 650,000 691,776
Georgia State Tollway Authority Revenue Refunding GA
400 Project 5.00%, 7/1/10........................... 5,345,000 5,563,076
Putnam Co. Development Authority Pollution Control,
4/1/32.............................................. 5,800,000 5,800,000
Rockdale Country Water and Sewer Authority Revenue
(FSA Insured), 5.00%, 7/1/22........................ 3,000,000 2,936,370
------------
50,224,666
------------
ILLINOIS -- 10.66%
Chicago Metropolitan Water Capital Improvement,
5.50%, 12/1/12...................................... 1,000,000 1,077,610
Chicago O'Hare International Airport Revenue Series A
(AMBAC Insured):
5.625%, 1/1/13...................................... 5,000,000 5,270,850
5.625%, 1/1/14...................................... 5,000,000 5,255,300
Chicago Revenue Il MBIA Waste Water Series A, 1/1/22. 10,000,000 2,951,500
Chicago School Reform Board of Educ. (AMBAC Insured),
Unlimited Tax General Oligation, 5.25%, 12/1/22..... 2,000,000 1,998,540
Cook County Community College Participation Ctfs.
District #508 Series C (MBIA Insured), 7.70%,
12/1/04............................................. 5,000,000 5,941,800
DuPage Co. Forest Preservation District Refunding,
6.00%, 11/1/03...................................... 1,750,000 1,901,253
</TABLE>
See Notes to Financial Statements.
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115
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Illinois Health Facilities Authority Revenue
Northwestern Memorial Hospital Series A, 5.60%,
8/15/06............................................. $ 1,000,000 $ 1,072,650
Illinois Health Facilities Authority Revenue
Refunding (FGIC Insured), 6.00%, 8/15/05............ 1,000,000 1,094,650
Illinois Housing Development Series A, 5.95%, 7/1/21. 2,000,000 2,076,160
Illinois State Sales Tax Revenue Refunding Series Q,
5.75%, 6/15/06...................................... 5,000,000 5,457,750
Metropolitan Pier & Expo Authority Revenue, zero
coupon bond, 6/15/29................................ 12,575,000 2,511,102
Northlake Illinois Public Imp. General Obligation
(MBIA Insured), 5.60%, 12/1/14...................... 4,000,000 4,208,760
Winnebago Co IL General Obligation Unlimited Tax,
1/1/17.............................................. 4,565,000 1,753,051
Winnebago & Boone Counties General Obligation
Unlimited Tax 7.35%, 2/1/04......................... 3,600,000 4,152,492
------------
46,723,468
------------
INDIANA -- 1.43%
Allen County Economic Development, 5/1/21............ 2,000,000 2,000,000
Ball State University Revenue Student Fee Series G
(FGIC Insured), 6.125%, 7/1/09...................... 400,000 432,868
Indiana State Vocational Technology Revenue Series D,
5.90%, 7/1/06....................................... 1,000,000 1,095,230
Indiana Transportation Finance Authority, Series A:
Series A, Prerefunded 6.25%, 11/1/16................ 1,370,000 1,506,219
Series A, Unrefunded 6.25%, 11/1/16................. 130,000 140,925
St. Joseph Co. Hospital Authority Facilities Revenue
(MBIA Insured), Memorial Hospital South Bend
Project, 6.25%, 8/15/12............................. 1,000,000 1,102,920
------------
6,278,162
------------
IOWA -- 1.35%
Iowa Finance Authority Hospital Fac. Revenue, 5.125%,
7/1/20.............................................. 5,000,000 4,909,400
Iowa Higher Education Loan Authority St Ambrose Univ,
2/1/05.............................................. 1,000,000 1,000,000
------------
5,909,400
------------
LOUISIANA -- 1.71%
East Baton Rouge Parish Revenue Pollution Control Var
Ref Exxon Project, 11/1/19.......................... 7,500,000 7,500,000
------------
MAINE -- 0.99%
Maine Muni Bond Bank FSA Refunding Series A, 5.50%,
11/1/10............................................. 4,000,000 4,337,720
------------
MASSACHUSETTS -- 3.79%
Massachusetts State General Obligation Unlimited Tax,
Series C, 5.00%, 8/1/17............................. 10,000,000 9,944,800
Massachusetts State Housing Finance Agency Revenue
Single
Family Series 47 (AMBAC Insured), 6.00%, 12/1/15.... 4,000,000 4,217,440
Massachusetts State Industrial Finance Agency Revenue
(MBIA Insured), 6.00%, 1/1/15....................... 2,265,000 2,461,058
------------
16,623,298
------------
MICHIGAN -- 6.45%
Caledonia Community Schools General Obligation
Unlimited Tax (MBIA Insured), 5.85%, 5/1/22......... 1,500,000 1,592,805
Dexter Community Schools Obligation Unlimited Tax,
5.10%, 5/1/18....................................... 1,000,000 1,017,480
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
116
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Grand Rapids Water Supply System Revenue (FGIC
Insured), 6.30%, 1/1/04............................. $ 250,000 $ 267,413
Kalamazoo Hospital Finance Authority, (AMBAC
Insured), 5.875%, 5/15/26........................... 4,675,000 4,977,332
Michigan State Building Authority Revenue Series I,
6.40%, 10/1/04...................................... 600,000 651,708
Michigan State Building Authority Revenue Series II,
6.75%, 10/1/11...................................... 5,150,000 5,603,664
Michigan State Hospital Finance Authority Revenue
Detroit Medical Center, 6.50%, 8/15/18.............. 6,500,000 7,093,645
Michigan State Housing Development Authority Revenue:
Series C, 6.375%, 12/1/11........................... 1,450,000 1,546,585
Series D, 5.95%, 12/1/16............................ 5,000,000 5,257,400
Saranac Community School District, 6.00%, 5/1/13..... 250,000 271,118
------------
28,279,148
------------
MINNESOTA -- 1.47%
Minnesota State Housing Finance Agency Series D (MBIA
Insured) 5.90%, 8/1/15.............................. 6,185,000 6,459,676
------------
MISSOURI -- 0.93%
Sikeston Electric Revenue Refunding (MBIA Insured),
6.00%, 6/1/05....................................... 3,710,000 4,080,369
------------
NEVADA -- 1.31%
Clark County Industrial Development Revenue Project C
Refunding (AMBAC Insured), 7.20%, 10/1/22........... 5,145,000 5,753,396
------------
NEW JERSEY -- 0.10%
Gloucester Co. Improvement Authority Gtd. Revenue,
Solid Waste Landfill Project Series AA, 6.20%,
9/1/07.............................................. 400,000 430,436
------------
NEW MEXICO -- 0.82%
New Mexico Mortgage Finance Authority Revenue, 5.90%,
7/1/16.............................................. 3,430,000 3,599,922
------------
NEW YORK -- 4.63%
New York State Dormitory Authority Revenue:
5.875%, 7/1/08...................................... 5,000,000 5,429,050
5.125%, 2/15/08..................................... 3,500,000 3,589,390
New York State Highway & Building, 6.00%, 4/1/14..... 1,345,000 1,491,955
New York State Location Assistance Corp. Refunding
Series E, 5.00%, 4/1/21............................. 9,500,000 9,492,875
Tri-Borough Bridge & Tunnel Authority Revenue General
Purpose Series X, 6.625%, 1/1/12.................... 250,000 296,468
------------
20,299,737
------------
NORTH CAROLINA -- 3.06%
Charlotte Mecklenberg Hospital Revenue, 5.90%,
1/15/16............................................. 1,400,000 1,509,522
North Carolina Housing Finance Agency Single Family
Revenue:
Series BB, 6.50%, 9/1/26............................ 4,250,000 4,527,483
Series FF, 6.25%, 3/1/28............................ 5,000,000 5,281,700
Series LL, 5.50%, 9/1/22............................ 2,045,000 2,091,319
------------
13,410,024
------------
OHIO -- 2.75%
Franklin Co. Hospital Revenue, Children's Hospital
Series A, 6.50%, 5/1/07............................. 950,000 1,050,995
Montgomery County Hospital Revenue Refunding (MBIA
Insured), 5.625%, 4/1/16............................ 4,500,000 4,709,295
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
117
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Ohio General Obligation State of Public & Sewer
Imports Unlimited Tax, 6.00%, 8/1/07................ $ 1,000,000 $ 1,111,150
Ohio Housing Financial Agency Mortgage Revenue
Residential GNMA Series A-1, 6.20%, 9/1/14.......... 1,605,000 1,721,507
Ohio State Building Authority Revenue, State
Facilities Adult Correctional Building Fund Series
A, 6.125%, 10/1/09.................................. 250,000 275,850
Ohio State Community Turnpike Revenue Series A (MBIA
Insured), 5.70%, 2/15/17............................ 3,000,000 3,175,380
------------
12,044,176
------------
RHODE ISLAND -- 1.48%
Rhode Island Depositors Economic Protection Series A
(MBIA Insured), 6.30%, 8/1/05....................... 5,800,000 6,481,210
------------
SOUTH CAROLINA -- 1.64%
Greenville Hospital System Facilities Revenue SC
Health Hospital Nursing Home Improvements Series A,
5.60%, 5/1/10....................................... 2,000,000 2,124,620
Spartansburg Water Revenue (FGIC Insured), 5.00%,
6/1/17.............................................. 5,125,000 5,072,264
------------
7,196,884
------------
SOUTH DAKOTA -- 1.74%
Heartland Consumers Power District Electric Revenue
Refunding Electric Light & Power Improvements,
6.00%, 1/1/17....................................... 2,500,000 2,793,025
South Dakota Housing Development Authority Series A,
5.70%, 5/5/08....................................... 2,300,000 2,416,955
South Dakota Housing Development Authority Revenue
Series C, 6.25%, 5/1/15............................. 1,000,000 1,062,630
South Dakota State Building Authority Lease Revenue
(AMBAC Insured), 6.625%, 9/1/12..................... 1,200,000 1,331,400
------------
7,604,010
------------
TENNESSEE -- 0.74%
Knox County Health, Educational, & Housing Facilities
Revenue
(MBIA Insured):
7.25%, 1/1/10....................................... 1,300,000 1,595,230
7.25%, 1/1/09....................................... 1,360,000 1,655,623
------------
3,250,853
------------
TEXAS -- 9.05%
Matagorda County District #1 Power & Light Project,
(MBIA Insured) 6.10%, 7/1/28........................ 6,750,000 7,106,063
Richardson Hospital Authority, 6.50%, 12/1/12........ 3,745,000 4,025,201
San Antonio Hotel Occupancy Tax Revenue (FGIC
Insured), 5.70%, 8/15/26............................ 10,000,000 10,562,400
Texas College Student Loan, 6.50%, 8/1/07............ 4,000,000 4,273,080
Texas General Obligation Unlimited Tax:
7.70%, 8/1/06....................................... 1,305,000 1,309,476
Series B, 5.625%, 10/1/12........................... 5,000,000 5,304,200
Texas General Obligation Refunding Series A Unlimited
Tax, 6.00%, 10/1/05................................. 1,000,000 1,103,900
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
118
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Texas Turnpike Authority Dallas Northway RV (FGIC
Insured) President George Bush Turnpike Highway
Improvements, 5.00%, 1/1/25:
5.00%, 1/1/25........................................ $3,000,000 $ 2,920,530
5.25%, 1/1/23........................................ 2,000,000 2,005,180
Unversity Texas Revenues Funding Systems Series A,
5.25%, 8/15/07....................................... 1,000,000 1,062,110
------------
39,672,140
------------
UTAH -- 1.34%
Utah Housing Finance Agency Single Family Revenue:
Series A-2, 6.25%, 7/1/25............................ 5,545,000 5,864,392
------------
VIRGINIA -- 0.60%
Virginia State Housing Development Authority Revenue,
5.60%, 11/1/10....................................... 1,500,000 1,554,585
Virginia State Housing Development Commonwealth Series
H, 6.20%, 1/1/08..................................... 1,000,000 1,070,140
------------
2,624,725
------------
WASHINGTON -- 0.87%
Washington State Health Care FA Authority Revenue
(MBIA), 2/15/27...................................... 3,800,000 3,800,000
------------
WEST VIRGINIA -- 1.10%
Braxton Co. Solid Waste Disposal Revenue, 6.125%,
4/1/26............................................... 4,475,000 4,824,050
------------
WISCONSIN -- 0.90%
Wisconsin Housing & Economic Development Authority
Revenue Series A, 6.15%, 9/1/17...................... 1,470,000 1,539,178
Wisconsin General Obligation Refunding Series 2
Unlimited Tax, 5.125%, 11/1/08....................... 1,250,000 1,324,013
Wisconsin State Transportation Revenue Series B,
5.75%, 7/1/12........................................ 1,000,000 1,061,290
------------
3,924,481
------------
WYOMING -- 0.23%
Wyoming Community Development Authority Series D,
7.60%, 6/1/17........................................ 1,000,000 1,023,780
TOTAL MUNICIPAL BONDS.................................. 438,193,064
------------
(Cost--$412,563,862)
TOTAL INVESTMENTS...................................... $438,193,064
============
(Cost--$412,563,862)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
119
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.57%
Pegasus Municipal Cash Management Fund Class I (in shares)
......................................................... 180,979 $ 180,979
----------
(Cost--$180,979)
MUNICIPAL BONDS -- 98.43%
ALABAMA -- 8.25%
Decatur Industrial Development Board Solid Waste Disposal
Revenue, AMT, Variable Rate, 1/1/27...................... $300,000 300,000
Dothan Industrial Development Board Revenue, 4.60%,
10/1/02.................................................. 650,000 650,000
----------
950,000
----------
ARIZONA -- 4.42%
Arizona State Transportation Board Excise Tax Revenue,
4.60%, 7/1/04............................................ 500,000 509,055
----------
CALIFORNIA -- 2.28%
Los Angeles Wastewater System Revenue, 5.50%, 2/1/02...... 250,000 262,105
----------
GEORGIA -- 3.91%
Macon-Bibb County Hospital Authority Revenue, Variable
Rate, 8/1/18............................................. 450,000 450,000
----------
ILLINOIS -- 11.44%
Chicago School Finance Authorty General Obligation, 4.70%,
6/1/00................................................... 450,000 456,044
Illinois Rural Bond Bank Revenue, 4.50%, 3/15/99.......... 350,000 351,082
Illinois Development Finance Authority Pollution Control
Revenue, 5.70%, 10/1/99.................................. 500,000 510,250
----------
1,317,376
----------
INDIANA -- 7.46%
Indiana Transportation Finance Authority Highway Revenue,
4.50%, 12/1/01........................................... 485,000 491,659
Indianapolis Public Improvement Revenue Bond Bank Series
B, 5.65%, 1/10/02........................................ 350,000 367,234
----------
858,893
----------
MARYLAND -- 2.25%
Montgomery County General Obligation, 5.10%, 4/1/02....... 250,000 259,170
----------
MASSACHUSETTS -- 5.29%
New England Student Loan Revenue Series G, 5.00%, 8/1/00.. 600,000 608,754
----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
120
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
MICHIGAN -- 17.36%
Wayne Charter County Airport Revenue Series A, AMT,
Variable Rate, 12/1/16 $ 400,000 $ 400,000
Detroit Water Supply System Revenue, 4.30%, 7/1/01 465,000 468,450
Dickinson County Economic Revenue, 6.55%, 3/1/07 500,000 529,645
Michigan Higher Education Facility Authority Revenue,
4.45%, 5/1/03 600,000 601,002
-----------
1,999,097
-----------
MISSOURI -- 3.93%
Missouri Rural Water Finance, 4.50%, 11/15/99 450,000 453,010
-----------
NEVADA -- 3.14%
Clark County Highway Improvement Revenue, 5.00%, 7/1/02 350,000 361,322
-----------
NEW YORK -- 7.81%
Tri-Borough Bridge & Tunnel Authority Revenue, 6.20%,
1/1/08 500,000 538,064
Municipal Assistance Corp., Forest City Series G,
5.00%, 7/1/02 350,000 361,456
-----------
899,520
-----------
NORTH CAROLINA -- 4.59%
Charlotte General Obligation, 5.50%, 7/1/04 500,000 528,805
-----------
OHIO -- 3.08%
Ohio State Building Authority Revenue, 4.50%, 10/1/02 350,000 355,050
-----------
TEXAS -- 6.97%
Fort Bend County Industrial Development Corp. Revenue,
4.55%, 10/1/99 350,000 352,496
North Central Health Facility Development Corp.
Revenue, Variable Rate, 6/1/21 450,000 450,000
-----------
802,496
-----------
UTAH -- 3.11%
Intermountain Power Agency Revenue, 7.20%, 7/1/99 350,000 357,941
-----------
VIRGINIA -- 3.14%
Virginia State Public Building Facility Authority
Revenue, 4.90%, 8/1/03 350,000 361,347
-----------
TOTAL MUNICIPAL BONDS................................... 11,333,941
-----------
(Cost $11,289,947)
TOTAL INVESTMENTS....................................... $11,514,920
===========
(Cost $11,470,926)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
121
<PAGE> 183
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS -- 100%
ALABAMA -- 1.30%
Alabama Public Schools, 5.25%, 11/01/05.............. $ 2,000,000 $ 2,115,120
Courtland Industrial Development Board Solid Waste
Disposal Revenue, Series A, 6.50%, 9/1/25........... 3,500,000 3,810,940
------------
5,926,060
------------
ALASKA -- 1.20%
Alaska Student Loan Revenue State Assisted Series A,
5.50%, 7/1/04....................................... 1,000,000 1,041,630
North Slope Boro General Obligation (MBIA Insured),
Capital Appreciation, Series A Unlimited Tax,
6/30/08............................................. 7,000,000 4,407,480
------------
5,449,110
------------
ARIZONA -- 0.98%
Maricopa Co. General Obligation School District No.
41 Series C (FGIC Insured), 6.10%, 7/1/14........... 2,000,000 2,199,220
University of Arizona 5.25%, 06/01/14................ 2,215,000 2,263,885
------------
4,463,105
------------
CALIFORNIA -- 8.23%
CALIFORNIA STATE:
7/1/10.............................................. 7,000,000 7,500,360
5/17/10............................................. 5,000,000 5,037,400
MSR Public Power Agency San Juan Project Revenue
Refunding Series F (AMBAC Insured), 5.55%, 7/1/02... 1,615,000 1,704,600
Orange Co. Recovery CTFS PRTN CA Series A (MBIA
Insured), 5.70%, 7/1/10............................. 4,000,000 4,336,440
2/15/22............................................. 4,000,000 4,395,440
Sacramento Cogeneration Authority Revenue:
5.60%, 7/1/99....................................... 3,300,000 3,357,915
5.80%, 7/1/01....................................... 1,300,000 1,358,474
5.90%, 7/1/02....................................... 1,000,000 1,059,020
University of California Revenues Refunding Multiple
Purpose (MBIA Insured), 6.20%, 9/1/01............... 8,100,000 8,636,139
------------
37,385,788
------------
COLORADO -- 9.57%
Adams Co. Single Family Mortgage Revenue Series A,
8.875%, 8/1/03...................................... 1,230,000 1,490,489
Arapahoe County Capital improvement Revenue Refunding
Capital Appreciation, 8/31/05....................... 20,000,000 7,083,200
Colorado Water Power Development Authority Revenue
(AMBAC Insured) Revolving Fund, Series A,
6.00%, 9/1/10....................................... 3,410,000 3,862,780
Denver City & Co. Airport Revenue:
Series A, 6.90%, 11/15/98........................... 2,000,000 2,023,700
Series A, 7.00%, 11/15/99........................... 1,000,000 1,040,610
Series D, 7.30%, 11/15/00........................... 2,900,000 3,105,059
Series C, 6.55%, 11/15/03........................... 1,145,000 1,259,901
Series B, 7.25%, 11/15/05........................... 2,000,000 2,243,480
Series A (AMT), Prerefunded, 8.00%, 11/15/25........
Series A (AMT), Unrefunded, 8.00%, 11/15/25......... 1,000,000 1,100,000
Series A (MBIA Insured), Prerefunded, 8.50%,
11/15/07...........................................
Series A (MBIA Insured), Unrefunded, 8.50%,
11/15/07........................................... 1,830,000 2,040,578
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
122
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Denver City & Co. General Obligation Refunding Water
Unlimited Tax, 7.00%, 10/1/99....................... $ 8,665,000 $ 9,013,940
Jefferson Co. School District No. R-001 General
Obligation (AMBAC Insured), 5.90%, 12/15/05......... 3,500,000 3,790,150
Poudre Valley Hospital Revenue (AMBAC Insured),
6.625%, 12/1/11..................................... 5,000,000 5,459,900
------------
43,513,787
------------
DISTRICT OF COLUMBIA -- 0.93%
Series B-3 (MBIA Insured), 5.20%, 6/1/04............ 2,000,000 2,081,980
Series 5.50%, 10/01/12.............................. 2,000,000 2,136,740
------------
4,218,720
------------
FLORIDA -- 2.24%
Lakeland Electric & Water Revenue Series B (FGIC
Insured), 6.00%, 10/1/10............................ 5,170,000 5,870,380
Tampa, 5.50%, 11/15/12............................... 4,000,000 4,301,040
------------
10,171,420
------------
HAWAII -- 2.85%
Hawaii State Airports System Revenue, Series II,
7.00%, 7/1/18....................................... 10,000,000 10,818,400
Hawaii State Department of Budget & Finance Revenue,
5.60%, 7/1/02....................................... 2,065,000 2,156,190
------------
12,974,590
------------
ILLINOIS -- 6.56%
Chicago Metropolitan Water General Obligation
Unlimited Tax Refunding, 5.00%, 12/1/02............. 4,500,000 4,661,145
Chicago, General Obligation AMBAC, 5.60%, 01/01/04... 4,000,000 4,253,400
Chicago O'Hare International Airport Revenue Series A
(AMBAC Insured), 5.625%, 1/1/13..................... 5,000,000 5,270,850
Madison County, Series A, 03/01/33................... 600,000 600,000
Metropolitan Pier & Exposition Authority Dedicated
State Tax Revenue: 6.50%, 6/1/05.................... 2,960,000 3,320,646
Metropolitan Pier & Exposition Authority Dedicated
State Tax Revenue: (MBIA Insured), Capital
Appreciation, Series A, 12/15/16.................... 8,330,000 3,223,627
6.40%, 06/01/03..................................... 2,250,000 2,461,050
6.50%, 06/01/04..................................... 2,500,000 2,775,675
Regional Transit Authority (AMBAC Insured), Series A,
8.00%, 6/1/03....................................... 2,785,000 3,242,074
------------
29,808,467
------------
INDIANA -- 2.59%
Indianapolis Airport Authority Revenue, 7.10%,
1/15/17............................................. 6,900,000 7,780,647
Indiana Bond Bank Revenue, 6.00%, 2/1/04............. 3,670,000 3,979,601
------------
11,760,248
------------
KANSAS -- 1.23%
Kansas City Utility System Revenue, (FGIC Insured)
6.375%, 9/1/23...................................... 5,000,000 5,584,400
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
123
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
MARYLAND -- 3.89%
Maryland State Community Development Administration
Department Revenue Fifth Series, 5.95%, 4/1/16...... $ 2,950,000 $ 3,121,926
Maryland State Community Development Administration
Department Housing & MNTY Single Family,
4.90%, 04/01/06..................................... 2,000,000 2,038,620
Maryland State General Obligation Unlimited Tax
5.00%, 3/1/08....................................... 5,510,000 5,759,989
Maryland State Public Improvement General Obligation
Second Series, 5.25%, 6/15/02....................... 2,500,000 2,610,050
Montgomery County Public Improvement Series A, 5.20%,
10/1/01............................................. 4,000,000 4,152,840
------------
17,683,425
------------
MASSACHUSETTS -- 5.11%
Massachusetts General Obligation (FGIC Insured),
Refunding Series A, 5.00%, 8/1/07................... 5,000,000 5,216,800
Massachusetts General Obligation Unlimited Tax:
Series A, 5.50%, 03/01/11........................... 5,000,000 5,400,600
Series A, 6.25%, 7/1/02............................. 4,500,000 4,854,690
Massachusetts Federal Highway, 5.25%, 06/15/12....... 2,000,000 2,067,480
New England Educational Loan Refunding Senior A:
6.50%, 9/1/02....................................... 5,250,000 5,684,753
------------
23,224,323
------------
MICHIGAN -- 6.02%
Michigan State Building Authority Revenue Refunding
Series I, 6.75%, 10/1/11............................ 5,575,000 6,066,102
Michigan State Hospital Financing Authority Revenue
Refunding: Detroit Medical Center Obligation Group A
6.25%, 8/15/13...................................... 6,750,000 7,316,325
Royal Oak Hospital Financing Authority Revenue
Refunding: Wm. Beaumont Hospital,
6.25%, 1/1/11....................................... 5,445,000 6,178,060
6.25%, 1/1/12....................................... 6,850,000 7,788,382
------------
27,348,869
------------
MINNESOTA -- 4.25%
Minnesota Housing Finance Agency Revenue:
Series D, 5.90%, 8/1/15............................. 2,225,000 2,323,812
Series G, 6.25%, 7/1/26............................. 3,270,000 3,444,683
Series L, 6.25%, 7/1/27............................. 12,910,000 13,533,811
------------
19,302,307
------------
NEBRASKA -- 0.57%
University of Nebraska, 5.28%, 07/15/11.............. 2,500,000 2,596,830
------------
NEVADA -- 2.70%
Clark County General Obligation Limited Tax, 7.00%,
9/1/00.............................................. 6,705,000 7,123,526
Clark County Industrial Revenue Swiss Bank, 12/01/22. 600,000 600,000
Las Vegas General Obligation Refunding Limited Tax,
6.40%, 10/1/03...................................... 2,250,000 2,456,483
Nevada General Obligation Limited Tax:
Series C, 5.90%, 4/1/01............................. 1,000,000 1,048,860
Series A, 6.00%, 5/1/02............................. 1,000,000 1,059,370
------------
12,288,239
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
124
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
NEW JERSEY -- 1.62%
New Jersey State Transit Fund Authority, 5.00%,
6/15/04............................................. $ 7,090,000 $ 7,361,476
------------
NEW YORK -- 7.84%
New York City General Obligation Unlimited Tax
Refunding Series I, 5.75%, 3/15/07.................. 6,500,000 6,999,460
New York City General Obligation Unlimited Tax Series
A, 6.00%, 8/1/06.................................... 5,000,000 5,469,750
New York City Municipal Water Authority Series C
(FGIC Insured), 7.00%, 6/15/16...................... 1,230,000 1,350,073
New York State Dormitory Authority Revenue Series A,
5.20%, 5/15/05...................................... 4,300,000 4,463,185
New York State Environment Pollution Control
Facilities, 6.50%, 6/15/14.......................... 6,740,000 7,330,828
Tri-Borough Bridge & Tunnel Authority Revenue General
Purpose Series Y, 5.90%, 1/1/08..................... 9,000,000 9,998,640
------------
35,611,936
------------
NORTH CAROLINA -- 1.44%
North Carolina University and College Improvements
Unlimited Tax General Obligation, 5.00%, 6/1/01..... 1,535,000 1,581,326
North Carolina Municipal Power Agency (MBIA Insured),
7.25%, 1/1/07....................................... 2,500,000 2,968,275
Raleigh Durham Airport Series A, 11/01/15............ 2,000,000 2,000,000
------------
6,549,601
------------
OHIO -- 1.14%
Ohio State Highway Capital Improvements General
Obligation Unlimited Tax, Series B, 5.00%, 5/1/05... 4,000,000 4,182,160
Ohio Housing, 4.90%, 09/01/06........................ 1,000,000 1,018,200
------------
5,200,360
PENNSYLVANIA -- 6.26%
Delaware County Series A, 5.50%, 12/01/13............ 4,440,000 4,790,804
Geisinger Authority Health System Revenue Series A,
5.50%, 7/1/03....................................... 2,895,000 3,049,217
Pennsylvania Intergovernmental Coop Authority Special
Tax Revenue (FGIC Insured), 6.00%, 6/15/00.......... 7,000,000 7,279,790
Philadelphia Gas Works Revenue Fourteenth Series
(CAPMAC Insured), 7.00%, 7/1/02..................... 12,090,000 13,327,653
------------
28,447,464
------------
SOUTH CAROLINA -- 2.96%
Beaufort County School District General Obligation
Unlimited Tax Series B (MBIA Insured),
4.75%, 3/1/03....................................... 2,800,000 2,867,508
South Carolina State Public Service Authority Revenue
Refunding Series A, 5.00%, 7/1/01................... 5,000,000 5,133,750
South Carolina, 5.75%, 08/01/05...................... 2,300,000 2,514,245
Greenville Hospital Series A, 5.00%, 05/01/04........ 2,840,000 2,931,874
------------
13,447,377
------------
TENNESSEE -- 1.25%
Hamilton County General Obligation Unlimited Tax
Series A, 5.00%, 5/1/09............................. 3,370,000 3,511,574
Memphis-Shelby County Airport Authority Revenue
Refunding, 6.75%, 9/1/12............................ 2,000,000 2,190,380
------------
5,701,954
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
125
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEXAS -- 5.22%
Dallas Independent School District General Obligation
Unlimited Tax, 8.70%, 8/1/00........................ $ 1,000,000 $ 1,095,470
Dallas Revenue Tax Series A, 5.25%, 08/15/12......... 2,955,000 3,058,100
Harris County Revenue (AMBAC Insured), Capital
Appreciation, 8/15/18............................... 7,500,000 2,415,975
Humble Independent School District General Obligation
Unlimited Tax Refunding, 6.00%, 2/15/04............. 2,035,000 2,179,912
Texas A&M University Permanent Fund Revenue, 5.60%,
7/1/05.............................................. 5,000,000 5,397,300
Texas State General Obligation Unlimited Tax
Refunding Series B, 5.625%, 10/1/11................. 5,000,000 5,328,800
Texas Dept. Series E, 4.90%, 09/01/02................ 920,000 940,562
Texas Dept. Series E, 4.80%, 09/01/01................ 1,165,000 1,185,854
Texas A&M University, 7.5%, 07/01/02................. 1,000,000 1,122,970
Texas Housing Dept 4.80%, 03/01/01................... 990,000 1,005,068
------------
23,730,011
------------
VIRGINIA -- 0.96%
Loudoun County Sanitation Authority Water and Sewer
Refunding, (FGIC Insured), 6.25%, 1/1/16............ 4,000,000 4,366,800
------------
4,366,800
------------
WASHINGTON -- 4.05%
Seattle General Obligation Limited Tax Series A,
5.75%, 1/15/17...................................... 10,000,000 10,520,700
Snohomish County Mukilteo Refunding General
Obligation (FGIC Insured), 5.70%, 12/1/12........... 5,140,000 5,656,673
Washington St. Pub, Series C, 7.625%, 07/01/10....... 2,000,000 2,206,000
------------
18,383,373
------------
WISCONSIN -- 6.60%
Durand Hospital Facilities Revenue, Chippewa Valley
Hospital and Nursing Project, 7.10%, 9/1/12......... 5,735,000 6,758,640
Southeast Professional Revenue (MBIA Insured),
Capital Appreciation
12/15/07............................................ 5,000,000 3,276,200
12/15/09............................................ 5,000,000 2,949,400
Wisconsin Clean Water Revenue Series 2, 6.00%,
6/1/07.............................................. 2,500,000 2,781,650
Wisconsin General Obligation Unlimited Tax Series B:
7.00%, 5/1/02....................................... 4,155,000 4,574,530
7.00%, 5/1/03....................................... 5,830,000 6,535,955
Wisconsin State Health & Educational Facilities
Authority Revenue: (MBIA Insured), 5.10%, 8/15/05... 3,000,000 3,107,610
------------
29,983,985
WYOMING -- 0.44%
Lincoln Co, 08/01/15................................. 2,000,000 2,000,000
============
TOTAL MUNICIPAL BONDS................................. 454,484,024
------------
(Cost -- $435,512,398)
TOTAL INVESTMENTS..................................... $454,484,024
============
(Cost -- $435,512,398)
</TABLE>
See Notes to Financial Statements.
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126
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.68%
Pegasus Michigan Tax-Exempt Money Market Fund Class I
(in shares)............................................ 1,659,345 $1,659,345
----------
(Cost -- $1,659,345)
MUNICIPAL BONDS -- 98.32%
MICHIGAN -- 93.60%
Allegan Public School District General Obligation
(AMBAC Insured), Unlimited Tax, 5.75%, 5/1/12......... $ 200,000 215,200
Chelsea Economic Development Revenue, 5.40%, 11/15/18.. 1,500,000 1,497,870
Chelsea Economic Development Revenue, 5.40%, 11/15/27.. 2,000,000 1,961,740
Dearborn Economic Division Oakwood Obligation Group
Series, 5.60%, 11/15/08............................... 1,690,000 1,823,442
Dearborn School District, General Obligation, Unlimited
Tax, 6.00%, 5/1/14.................................... 1,000,000 1,070,710
Dearborn Sewage Disposal (MBIA Insured), 5.125%,
4/1/14................................................ 1,830,000 1,841,712
Detroit Local Development Fin. Authority, 5.375%,
05/01/18.............................................. 3,850,000 3,906,595
Detroit Local Development Fin. Authority, 5.375%,
05/01/21.............................................. 1,410,000 1,427,230
Detroit Sewer Disposal Revenue (FGIC Insured), 6.00%,
7/1/00................................................ 1,225,000 1,274,943
Detroit Wayne Co. (FGIC Insured), Public Improvements,
5.50%, 2/1/17......................................... 1,800,000 1,872,450
Dexter Community Schools, 5.80%, 5/1/19................ 2,000,000 2,115,840
Dickinson Co. Economic Development Corporation
Pollution Control Revenue, 5.85%, 10/1/18............. 3,000,000 3,134,160
Eastern Michigan University General Sinking Fund,
6.375%, 6/1/14........................................ 1,000,000 1,081,030
Ferndale School District, 5.50%, 5/1/11................ 1,000,000 1,050,200
Hancock Hospital Finance Authority Revenue, 5.45%,
8/1/47................................................ 2,400,000 2,428,656
Huron Valley School District (FGIC Insured), Unlimited
Tax, 5.875%, 5/1/16................................... 1,000,000 1,071,020
Kalamazoo Economic Development, Friendship Vlg-A:
6.125%, 5/15/12....................................... 1,250,000 1,331,125
6.125%, 5/15/17....................................... 600,000 636,648
Kalamazoo Hospital Finance Authority Revenue (FGIC
Insured), 5.25%, 6/1/17............................... 1,000,000 1,000,270
Lake Orion Community, 5.80%, 05/01/15.................. 1,000,000 1,060,780
Lansing Building Authority (AMBAC Insured), 6.00%,
6/1/05................................................ 1,000,000 1,102,980
Livingston Co. General Obligation Bldg. Authority
Limited Tax, 5.80%, 7/1/08............................ 1,330,000 1,456,257
Marysville Public School District, General Obligation,
Unlimited Tax, 5.60%, 5/1/09.......................... 620,000 660,064
Michigan General Obligation Environmental Protection
Program, 6.25%, 11/1/08............................... 450,000 495,311
Michigan Higher Education Student Loan (AMBAC Insured),
5.75%, 6/1/13......................................... 1,000,000 1,065,290
Michigan Higher Education Facility Authority Revenue,
5.35%, 6/1/13......................................... 2,390,000 2,417,891
Michigan Higher Education Facility Authority Revenue,
5.55%, 6/1/17......................................... 1,550,000 1,569,174
Michigan Municipal Bond Authority Revenue, 5.70%,
8/1/07................................................ 1,145,000 1,216,792
Michigan Municipal Bond Authority Revenue (FGIG
Insured), 6.00%, 12/1/13.............................. 1,500,000 1,638,795
Michigan State General Obligation, Zero Coupon,
12/1/17............................................... 4,000,000 3,982,600
Michigan State Hospital Finance Authority Revenue
(AMBAC Insured):
6.00%, 9/1/11......................................... 1,250,000 1,336,787
Michigan State Hospital Finance Authority Revenue:
Mercy Mt. Clemens, 6.25%, 5/15/11..................... 500,000 531,770
Daughters of Charity, 5.25%, 11/1/15.................. 1,000,000 1,008,370
Mercy Health Services, 5.375%, 8/15/16................ 1,000,000 1,019,490
Mercy Health Services, 5.625%, 8/15/16................ 2,000,000 2,084,720
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
127
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
Detroit Medical Center, 6.50%, 8/15/18............... $2,000,000 $ 2,182,660
Michigan State Housing Development Authority Revenue:
6.375%, 12/1/11...................................... 750,000 799,958
6.00%, 12/1/15....................................... 4,750,000 4,981,278
Michigan State Housing Development Authority Revenue,
Federal Housing Association, AMT, 6.20%, 6/1/27...... 2,500,000 2,654,875
Michigan State Strategic Fund Revenue, 5.30%, 7/1/18.. 1,250,000 1,251,550
Michigan State University Revenue, 6.25%, 8/15/15..... 2,000,000 2,177,280
Newaygo Public Schools General Obligation Unlimited
Tax, 6.00%, 5/1/12................................... 300,000 322,992
Norway Vulcan Area Schools, 5.75%, 5/1/13............. 250,000 268,535
Novi Community Schools, 6.125%, 5/1/13................ 750,000 827,070
Oak Park School District (AMBAC Insured), 6.00%,
6/1/09............................................... 250,000 270,535
Ottawa Co. General Obligation Water Supply System,
6.00%, 8/1/08........................................ 1,950,000 2,095,763
Perry Public Schools, General Obligation, Unlimited
Tax, 6.00%, 5/1/12................................... 250,000 271,118
Rockford Public Schools, 5.875%, 5/1/12............... 500,000 533,376
Rockford Public Schools, 5.25%, 5/1/22................ 2,930,000 2,939,024
Ronulus MI Community, 05/01/18........................ 4,755,000 1,727,538
Royal Oak Hospital Finance Authority Revenue-William
Beaumont Hospital
5.60%, 11/15/11...................................... 2,000,000 2,119,280
5.50%, 1/1/18........................................ 1,500,000 1,543,034
Saranac Community School District, 6.00%, 5/1/13...... 250,000 271,117
South Lake General Obligation, 5.13%, 5/1/15.......... 1,000,000 1,007,000
Traverse City Area Public School District, Series I,
5.70%, 5/1/12........................................ 2,400,000 2,547,984
University of Michigan Revenue, 6.20%, 12/1/03........ 1,000,000 1,086,580
University of Michigan Revenue, 5.75%, 12/1/12........ 850,000 902,734
University of Michigan University Revenues, 5.50%,
12/1/21.............................................. 450,000 458,865
Wayne County Charter Airport Revenue, AMT, Variable
Rate, 12/1/16........................................ 3,000,000 3,000,000
Wayne State University (AMBAC Insured):
5.50%, 11/15/07...................................... 1,000,000 1,058,280
5.65%, 11/15/15...................................... 800,000 830,111
Wayne Westland Community Schools (FGIC Insured),
Unlimited Tax, 5.75%, 5/1/11......................... 350,000 372,285
Western University Revenue (FGIC Insured), 6.25%,
11/15/12............................................. 250,000 275,765
Wyoming Public School, 5.875%, 5/1/13................. 350,000 376,408
-----------
92,540,907
-----------
PUERTO RICO -- 4.72%
Puerto Rico Commonwealth General Obligation (MBIA
Insured) Unlimited Tax, Public Improvements, 6.25%,
7/1/12............................................... 1,000,000 1,157,710
Puerto Rico Commonwealth, General Obligation, 5.75%,
7/1/17............................................... 3,280,000 3,509,108
-----------
4,666,818
-----------
TOTAL MUNICIPAL BONDS................................... 97,207,725
-----------
(Cost -- $92,885,266)
TOTAL INVESTMENTS....................................... $98,867,070
===========
(Cost -- $94,544,611)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
128
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PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND COMMENCEMENT OF OPERATIONS
The Pegasus Funds (Pegasus or the Funds), was organized as a Massachusetts
business trust on April 21, 1987, and registered under the Investment Company
Act of 1940 (the "Act"), as amended, as an open-end investment company. As of
June 30, 1998, the Trust consisted of thirty separate portfolios of which there
were twenty-one asset allocation, equity, bond and municipal bond funds, as
described below.
<TABLE>
<CAPTION>
COMMENCEMENT
DATE
------------
<S> <C>
ASSET ALLOCATION
FUNDS
Managed Assets Con-
servative Fund 1/23/86
Managed Assets Bal-
anced Fund 1/1/94
Managed Assets
Growth Fund 12/17/96
EQUITY FUNDS
Equity Income Fund 1/27/95
Growth Fund 1/27/95
Mid-Cap Opportunity
Fund 6/1/91
Small-Cap Opportu-
nity Fund 1/27/95
Intrinsic Value
Fund 6/1/91
Growth and Value
Fund 6/1/91
Equity Index Fund 7/10/92
International Eq-
uity Fund 12/3/94
BOND FUNDS
Intermediate Bond
Fund 6/1/91
Bond Fund 6/1/91
Short Bond Fund 9/17/94
Multi Sector Bond
Fund 3/5/93
International Bond
Fund 1/27/95
High Yield Bond
Fund 6/30/97
MUNICIPAL BOND
FUNDS
Municipal Bond Fund 3/1/88
Short Municipal
Bond Fund 5/1/98
Intermediate Munic-
ipal Bond Fund 3/1/88
Michigan Municipal
Bond Fund 2/1/93
</TABLE>
Pegasus Funds
129
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PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
CONVERSION OF COMMON TRUST FUNDS:
During the period ended June 30, 1998 and the year ended December 31, 1997,
the net assets of certain common trust funds managed by the adviser were
exchanged in a tax-free conversion for shares of the corresponding Pegasus
Funds (Class I). The transactions were accounted for by a method followed for
tax purposes in a tax free business combination sometimes referred to as the
pooling without restatement method. The following is a summary of dates, shares
issued, net assets converted, net asset value per share issued and unrealized
appreciation of assets acquired as of the conversion date:
<TABLE>
<CAPTION>
NET ASSET
VALUE
SHARES NET ASSETS PER SHARE UNREALIZED
ISSUED CONVERTED ISSUED APPRECIATION
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
December 12, 1997
- -----------------
International Equity Fund 2,159,636 $25,851,101 $11.97 $5,338,342
January 16, 1998
- ----------------
Multi Sector Bond Fund 5,725,521 46,376,717 8.10 1,314,449
Growth and Value Fund 826,627 13,267,362 16.05 7,896,171
June 5, 1998
- ------------
Municipal Bond Fund 1,694,520 21,791,527 12.86 1,385,555
Intermediate Municipal Bond Fund 3,551,166 43,750,365 12.32 662,877
Intermediate Bond Fund 657,518 6,897,367 10.49 212,421
June 19, 1998
- -------------
Growth Fund 5,967,446 97,388,726 16.32 40,491,888
Equity Income Fund 2,382,584 29,377,262 12.33 4,563,975
Mid-Cap Opportunity 739,751 14,935,571 20.19 7,647,809
Growth and Value 2,124,838 35,293,559 16.61 23,002,210
</TABLE>
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
Pegasus in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
The Funds value investment securities at market value which is determined by
a pricing service based upon quoted market prices or dealer quotes at the close
of the respective domestic and foreign securities exchanges.
Pegasus Funds
130
<PAGE> 192
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Securities for which market prices or dealer quotes are not readily available
(including restricted securities) are valued by the investment advisor, First
Chicago NBD Investment Management Company (FCNIMCO), in accordance with
procedures approved by the Board of Trustees. Fixed income securities for which
quoted bid and ask prices are readily available are valued at the mean between
the quoted bid prices (as obtained by the pricing service from dealers in such
securities) and ask prices (as calculated by the pricing service based upon its
evaluation of the market for such securities). Fixed income securities with
maturities less than 60 days are carried at amortized cost, which approximates
market value. Shares of open-end management investment companies (mutual funds)
in which the Funds invest are valued at their respective net asset values as
determined under the Act. Such mutual funds value securities in their
portfolios for which market quotations are readily available at their current
market value (generally the last reported sale price) and all other securities
and assets at fair value pursuant to methods established in good faith by the
Board of Trustees of the underlying mutual fund. Money market funds in which
the Funds also invest generally value securities in their portfolios on an
amortized cost basis, which approximates market value.
Investment security purchases and sales are recorded as of the trade date.
Pegasus invests in securities subject to repurchase agreements. Such
transactions are entered into only with
institutions included on the Federal Reserve System's list of institutions with
whom the Federal Reserve Open Market Desk will do business. FCNIMCO, acting
under the supervision of the Board of Trustees, has established the following
additional policies and procedures relating to Pegasus' investments in
securities subject to repurchase agreements: 1) the value of the underlying
collateral is required to equal or exceed 102% of the funds advanced under the
repurchase agreement including accrued interest; 2) collateral is marked to
market daily by FCNIMCO to assure its value remains at least equal to 102% of
the repurchase agreement amount; and 3) funds are not disbursed by Pegasus or
its agent unless collateral is presented or acknowledged by the collateral
custodian.
Restricted Securities
The High Yield Bond Fund is permitted to invest in securities that are
subject to legal or contractual restrictions on resale. These securities
generally may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the period, restricted
securities in the High Yield Bond Fund amounted to $3,566,074 or 20% of the
Fund's net assets.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted under the effective interest rate
method as required by the Internal Revenue Code (the Code) and generally
accepted accounting principles. For mortgage-backed securities, as prepayments
on the underlying mortgages increase or decrease the expected life, the yield
is adjusted to amortize/accrete the security to its new expected life.
Dividends are recorded on the ex-dividend date.
The High Yield Bond Fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and writing off
interest receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures, under the general
supervision of the Board of Trustees of the Fund. A debt obligation is removed
from non-accrual status when the issuer resumes interest payments or when
collectibility of interest is reasonably assured. None of the Fund's debt
obligations were in non-accrual status at June 30, 1998 or for the period then
ended.
For the International Equity Fund, dividends are recorded on the ex-dividend
date or upon receipt of ex-dividend notification in the case of certain foreign
securities. For the International Equity Fund and the International Bond Fund,
investment income is recorded net of foreign taxes withheld where recovery of
such taxes is uncertain.
Pegasus Funds
131
<PAGE> 193
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Forward Foreign Currency Contracts
The International Equity Fund and the International Bond Fund may enter into
forward foreign currency contracts which are agreements between two parties to
buy and sell a currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is "marked-to-market" daily using the prevailing exchange rate and the
change in market value is recorded as an unrealized gain or loss. When the
contract is closed, a realized gain or loss is recorded equal to the difference
between the value of the contract at the time it was entered into and the value
at the time it was closed.
The International Equity Fund and the International Bond Fund may enter into
forward foreign currency contracts with the objective of minimizing its risk
from adverse changes in the relationship between currencies or to enhance
income. The International Equity Fund and the International Bond Fund may also
enter into a forward contract in a foreign currency in order to "lock in" the
U.S. dollar price of a security or the U.S. dollar equivalent of such dividend
or interest payments.
These contracts involve market risk in excess of the amounts reflected in the
International Equity Fund's and the International Bond Fund's Statement of
Assets and Liabilities. The face or contract amount in U.S. dollars, as
reflected in notes to the Portfolio of Investments, reflects the total exposure
the Fund has in that particular currency contract. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does not
perform under the contract.
Futures Contracts
The Funds may enter into futures contracts for the purpose of hedging against
changes in the value of their portfolio securities or in securities they intend
to purchase. The Equity Funds may also enter into stock index futures contracts
as a substitute for comparable market positions in the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by the Fund each day, depending on
the daily fluctuation of the value of the contract. Futures contracts are
valued based upon their quoted daily closing prices. The aggregate principal
amounts of the contracts are not recorded in the financial statements. The
daily change in the value of the contract is recorded as an unrealized gain or
loss. Futures contracts open at June 30, 1998 and their related unrealized
market appreciation (depreciation) are set forth in the respective Portfolios
of Investments.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or indices, which may not
correlate with the change in value of the hedged investments.
Foreign Currency Translations
The accounting records of the International Equity Fund and the International
Bond Fund are maintained in U.S. dollars. Foreign currency-denominated assets
and liabilities are "marked-to-market" daily using the prevailing exchange rate
and the change in value is recorded as an unrealized gain or loss. Upon receipt
or payment, a realized gain or loss is recorded equal to the difference between
the original value and the settlement value of the asset or liability.
Purchases and sales of securities, income, and expenses are translated into
U.S. dollars at prevailing exchange rates on the respective dates of the
transactions.
In both the International Equity Fund and the International Bond Fund, net
realized gains and losses on foreign currency transactions represent gains and
losses from sales and maturities of forward foreign currency contracts,
disposition of foreign currencies, currency gains and losses realized between
trade and settlement dates on securities transactions and between the ex, pay
and settlement dates on dividend income. In the International Bond Fund, the
effects of changes in foreign currency exchange rates on investments in
securities are included within the net realized foreign exchange gain or loss
on securities sold and net unrealized foreign exchange gain or loss on
investment securities held. In the International Equity Fund, exchange rate
fluctuations on investments are not segregated in the statement of operations
from changes arising in market price
Pegasus Funds
132
<PAGE> 194
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
movements but are instead included within the net realized gain or loss on
securities sold and net unrealized gain or loss on investment securities held.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Code, as amended, applicable to regulated investment companies and to
distribute net investment income and realized gains to its shareholders.
Therefore, no federal income tax provision is required in the accompanying
financial statements.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily due to differing treatments for
foreign currency transactions, passive foreign investment companies,
redemptions in-kind, wash sales and post-October 31 capital losses. Also, due
to the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the net investment income or realized
gains were recorded by the Fund. Certain book-to-tax timing differences for the
Funds are reflected as excess distributions in the Statements of Changes in Net
Assets. These distributions do not constitute a tax return of capital.
During the year ended December 31, 1997, the Mid-Cap Opportunity, Intrinsic
Value and Equity Index Funds made redemptions in-kind to shareholders which
resulted in GAAP-basis realized gains of approximately $2 million, $2 million
and $115 million, respectively. For tax purposes these realized gains were
distributed only to the redeeming shareholders with the transfer of specific
fund assets. These transactions resulted in permanent book-tax differences that
were reclassified to paid-in capital in the respective funds.
As of December 31, 1997, the following Pegasus Funds had capital loss
carryforwards and related expiration dates as follows:
<TABLE>
<CAPTION>
FUND 2002 2003 2004 2005 TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bond $15,197,602 $1,041,792 $ -- $ -- $16,239,394
Intermediate
Bond 3,896,190 2,190,497 168,406 -- 6,255,093
Municipal
Bond -- -- 307,645 -- 307,645
Michigan Mu-
nicipal Bond 29,400 -- 94,571 144,655 268,626
International
Equity -- 97,147 1,083,369 6,436,160 7,616,676
</TABLE>
Shareholder Dividends
Dividends from net investment income are declared and paid quarterly by the
Equity Funds and Asset Allocation Funds (with the exception of the Managed
Assets Conservative and Equity Income Funds which pay dividends monthly) and
monthly by the Bond Funds and Municipal Bond Funds. Net realized capital gains
are distributed annually or as necessary to comply with subchapter M of the
Internal Revenue Code. Distributions from net investment income and net
realized gains are made during each year to avoid the 4% excise tax imposed on
regulated investment companies by the Code. However, to the extent that net
realized capital gains of a Fund can be reduced by capital loss carryforwards,
if any, such gains will not be distributed.
Deferred Organization Costs
Organization costs incurred prior to June 30, 1998 are amortized on a
straight-line basis over a five year period beginning with the commencement of
operations of each portfolio.
Concentration of Risk
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and U.S. government securities. These risks include
revaluation of currencies, adverse fluctuations in foreign currency values and
possible adverse political, social and economic developments, including those
particular to a specific industry, country or region, which could cause the
securities and their markets to be less liquid and price more volatile than
those of comparable U.S. companies and U.S. government securities.
While the International Equity Fund has a diversified investment portfolio,
it currently has investments in excess of 10% of its total investments in Banks
(15.16%).
Pegasus Funds
133
<PAGE> 195
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Although the Short Municipal Bond Fund has a diversified investment
portfolio, it currently has investments in excess of 10% of its total
investments in the States of Illinois and Michigan. Although the Municipal Bond
Fund has a diversified investment portfolio it currently has investments in
excess of 10% in each of the States of Illinois and Georgia. The Michigan
Municipal Bond Fund does not have a diversified portfolio since 94% of its
investments are within the State of Michigan. Such concentrations within a
particular state may subject the funds more significantly to economic changes
occurring within those states.
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations. Expenses which are applicable to all Funds are allocated among them
on the basis of relative average daily net assets. Fund expenses directly
attributable to a class of shares are charged to that class; expenses which are
applicable to all classes are allocated among them.
Pegasus monitors the rate at which expenses are charged to ensure that a
proper amount of expense is charged to income each year. This percentage is
subject to revision if there is a change in the estimate of the future net
assets of Pegasus or a change in expectations as to the level of actual
expenses.
When Issued/To Be Announced (TBA) Securities
The Bond Funds may purchase securities on a "when issued" basis. These
securities have been registered by a municipality or government agency, but
have not yet been issued to the public. These transactions involve a commitment
by the Funds to purchase particular securities, with payment and delivery
taking place at a future date, for which all specific information, such as the
face amount and maturity date of such investment security, is not known at the
time of the trade. These transactions are subject to market fluctuations and
the risk that the value at delivery may be more or less than the purchase price
at which the transactions were entered. The current value of these securities
is determined in the same manner as that of other portfolio securities.
Although the Bond Funds generally purchase these securities with the intention
of acquisition, such securities may be sold before the settlement date.
Multiple Classes of Capital Shares of Beneficial Interest
The Funds offer Class A, Class B and Class I shares. Each class of shares has
equal rights as to earnings, assets and voting privileges except that each
class bears different distribution and shareholder service expenses. Each class
of shares has exclusive voting rights with respect to matters that affect just
that class. Income, expenses (other than expenses attributable to a specific
class) and realized and unrealized gains or losses on investments are allocated
to each class of shares based on relative net assets. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses. Class B shares automatically convert to Class A shares
at the beginning of the eighth year (the third year in the case of the Short
Bond Fund and the seventh year in the case of the Equity Index, Multi Sector
Bond, Intermediate Bond and Intermediate Municipal Bond Funds) after the date
of purchase.
(3) INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
FCNIMCO is the investment advisor pursuant to the Advisory Agreement whereby
FCNIMCO has agreed to provide the day-to-day management of each of the Fund's
investments. For its advisory services to Pegasus, FCNIMCO is entitled to a
fee, computed daily and payable monthly.
The Trust has a Co-Administration Agreement with NBD Bank, FCNIMCO and BISYS
Fund Services ("BISYS") (collectively, the "Co-Administrators") pursuant to
which the Co-Administrators have agreed to assist in all aspects of the Funds'
operations for an administration fee, at an annual rate of 0.15% of each Fund's
average daily net assets.
Federated Investment Counseling (Federated) is the sub-advisor of the High
Yield Bond Fund's investments. For its services, Federated is entitled to a
monthly fee at the following annual rates, which vary according to the level of
assets: 0.50% on the first $30 million of average daily net assets, 0.40% on
the next $20
Pegasus Funds
134
<PAGE> 196
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
million, 0.30% on the next $25 million, 0.25% on the next $25 million and 0.20%
of the Fund's average daily net assets in excess of $100 million. The Sub-
Advisor's fee is paid by FCNIMCO and not by the Fund.
BISYS serves as the Fund's principal underwriter and distributor of the
Fund's shares.
NBD Bank, an affiliate of FCNIMCO, is also compensated for its services as
Pegasus' custodian and for certain transfer agent services and is reimbursed
for certain out-of-pocket expenses incurred on behalf of Pegasus.
Pegasus maintains an unfunded, nonqualified deferred compensation plan. This
plan allows for an individual trustee to elect to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
The Funds may invest in mutual funds sponsored and managed by FCNIMCO,
subject to certain limitations. The terms of such transactions are identical to
those of non-related entities except that, to avoid duplicate fees, the FCNIMCO
remits to each Fund an amount equal to all fees assessed on the assets invested
in such funds, with the exception of the Managed Assets Conservative, Managed
Assets Balanced and Managed Assets Growth funds whereby FCNIMCO only reimburses
the investment management and administration fees.
On April 10, 1998 First Chicago NBD Investment Management Company's parent
company, First Chicago NBD Corporation, entered into an agreement and plan of
merger with BANC ONE CORPORATION pursuant to which First Chicago NBD
Corporation will merge with and into BANC ONE CORPORATION. The merger is
conditioned upon, among other things, approval by holders of a majority of BANC
ONE CORPORATION common stock, approval by holders of a majority of the First
Chicago NBD Corporation common stock, and receipt of certain regulatory and
governmental approvals.
(4) INVESTMENT SECURITIES TRANSACTIONS
The following summarizes the securities transactions entered into by the
Funds, excluding short-term investments for the period ended June 30, 1998:
<TABLE>
<CAPTION>
PURCHASES SALES FEDERAL TAX COST
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed Assets Conservative.......... $ 16,682,753 $ 8,498,896 $ 131,315,010
Managed Assets Balanced.............. 44,892,949 30,414,356 269,727,313
Managed Assets Growth................ 8,451,178 1,254,973 21,612,070
Equity Income........................ 47,059,427 45,719,067 268,676,272
Growth............................... 161,412,600 131,909,342 483,706,600
Mid-Cap Opportunity.................. 170,997,680 169,536,878 776,337,875
Small-Cap Opportunity................ 135,749,392 65,276,561 279,228,740
Intrinsic Value...................... 82,364,201 37,854,011 558,528,597
Growth and Value..................... 276,016,532 222,528,157 863,450,150
Equity Index......................... 73,636,355 64,495,422 541,271,530
International Equity................. 36,225,749 13,964,528 473,871,004
Intermediate Bond.................... 123,560,826 68,400,805 575,452,084
Bond................................. 310,777,134 131,804,018 1,379,506,803
Short Bond........................... 73,692,940 58,888,677 253,166,456
Multi Sector Bond.................... 69,258,531 46,352,894 125,463,721
International Bond................... 9,980,000 8,675,782 93,590,168
High Yield Bond...................... 28,451,683 10,255,587 67,474,633
Municipal Bond....................... 86,525,729 34,800,392 412,563,862
Short Municipal Bond................. 13,340,616 2,756,086 11,470,926
Intermediate Municipal Bond.......... 94,061,637 30,839,655 435,512,398
Michigan Municipal Bond.............. 32,030,090 11,830,300 94,544,611
</TABLE>
Pegasus Funds
135
<PAGE> 197
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
At June 30, 1998, accumulated net unrealized appreciation (depreciation) on
investments based on federal tax cost was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed Assets Conservative........... $ 4,794,791 $ (957,030) $ 3,837,761
Managed Assets Balanced............... 10,098,903 (2,513,958) 7,584,945
Managed Assets Growth................. 588,426 (322,560) 265,866
Equity Income......................... 64,161,139 (7,094,567) 57,066,572
Growth................................ 383,379,469 (20,863,274) 362,516,195
Mid-Cap Opportunity................... 386,159,986 (20,743,642) 365,416,344
Small-Cap Opportunity................. 64,091,842 (15,014,990) 49,076,852
Intrinsic Value....................... 140,768,452 (15,456,299) 125,312,153
Growth and Value...................... 390,968,491 (22,804,177) 368,164,314
Equity Index.......................... 449,306,951 (9,272,659) 440,034,292
International Equity.................. 191,307,668 (59,619,560) 131,688,108
Intermediate Bond..................... 43,289,755 (30,633,106) 12,656,649
Bond.................................. 112,310,031 (54,358,819) 57,951,212
Short Bond............................ 1,378,792 (328,625) 1,050,167
Multi Sector Bond..................... 4,586,943 (136,241) 4,450,702
International Bond.................... 1,579,917 (6,765,726) (5,185,809)
High Yield Bond....................... 951,851 (724,197) 227,654
Municipal Bond........................ 25,686,365 (57,163) 25,629,202
Short Municipal Bond.................. 44,629 (635) 43,994
Intermediate Municipal Bond........... 19,069,641 (98,015) 18,971,626
Michigan Municipal Bond............... 4,341,980 (19,521) 4,322,459
</TABLE>
(5) EXPENSES
For the period ended June 30, 1998 FCNIMCO voluntarily agreed to reimburse a
portion of the operating expenses of the Funds to the extent that the Funds'
expenses exceeded the following amounts (as a percentage of each Funds' average
net assets.) Under the terms of the Investment Advisory Agreement, the
Investment Advisor is entitled to a monthly fee as a percentage of each Fund's
daily net assets. Each Fund's current contractual fee for advisory services is
also set forth below.
<TABLE>
<CAPTION>
CURRENT
CONTRACTUAL
ADVISORY
CLASS A CLASS B CLASS I FEE RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed Assets Conservative................. 1.25% 2.00% 1.00% 0.65%
Managed Assets Balanced..................... 1.25% 2.00% 1.00% 0.65%
Managed Assets Growth....................... 1.25% 2.00% 1.00% 0.65%
Equity Income............................... 1.21% 1.96% 0.96% 0.50%
Growth...................................... 1.25% 2.00% 1.00% 0.60%
Mid-Cap Opportunity......................... 1.27% 2.02% 1.02% 0.60%
Small-Cap Opportunity....................... 1.42% 2.17% 1.17% 0.70%
Intrinsic Value............................. 1.19% 1.94% 0.94% 0.60%
Growth and Value............................ 1.12% 1.87% 0.87% 0.60%
Equity Index................................ 0.66% 1.41% 0.41% 0.10%
International Equity........................ 1.44% 2.19% 1.19% 0.80%
Intermediate Bond........................... 1.04% 1.79% 0.79% 0.40%
Bond........................................ 0.99% 1.74% 0.74% 0.40%
Short Bond.................................. 0.86% 1.61% 0.61% 0.35%
Multi-Sector Bond........................... 0.92% 1.67% 0.67% 0.40%
International Bond.......................... 1.15% 1.90% 0.90% 0.70%
High Yield Bond............................. 1.14% 1.89% 0.89% 0.70%
Municipal Bond.............................. 0.98% 1.73% 0.73% 0.40%
Short Municipal Bond........................ 0.87% 1.62% 0.62% 0.40%
Intermediate Municipal Bond................. 0.93% 1.68% 0.68% 0.40%
Michigan Municipal Bond..................... 0.98% 1.73% 0.73% 0.40%
</TABLE>
Pegasus Funds
136
<PAGE> 198
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
The Funds' Class A shares and Class B shares have a Shareholder Services Plan
(the "Plan") pursuant to which the Funds pay BISYS (the "Distributor") a fee,
at an annual rate not to exceed 0.25% of the value of the average daily net
assets of the outstanding Class A shares and Class B shares. Pursuant to the
terms of the Plan, the Distributor has agreed to provide certain shareholder
services to the holders of these shares. Additionally, under the terms of the
Plan, the Distributor may make payments to other shareholder service agents
which may include FCNIMCO, and its affiliates. For the period ended June 30,
1998, the Funds paid the following amounts under the Plan to BISYS:
<TABLE>
<CAPTION>
AMOUNTS PAID
------------------------------------------------------------------
<S> <C>
Managed Assets Conservative......................... $143,187
Managed Assets Balanced............................. 209,952
Managed Assets Growth............................... 19,971
Equity Income....................................... 20,881
Growth.............................................. 121,834
Mid-Cap Opportunity................................. 362,298
Small-Cap Opportunity............................... 38,775
Intrinsic Value..................................... 152,677
Growth and Value.................................... 313,800
Equity Index........................................ 301,720
International Equity................................ 48,922
Intermediate Bond................................... 101,198
Bond Fund........................................... 236,224
Short Bond.......................................... 16,212
Multi-Sector Bond................................... 15,023
International Bond.................................. 9,687
High Yield Bond..................................... 1,285
Municipal Bond...................................... 47,653
Short Municipal Bond................................ 14
Intermediate Municipal Bond......................... 25,109
Michigan Municipal Bond............................. 24,539
</TABLE>
Pegasus Funds
137
<PAGE> 199
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
The Funds' Class B shares have a Distribution Plan adopted pursuant to Rule
12b-1 under the Act (the "12b-1 Plan") pursuant to which the Funds have agreed
to pay the Distributor for advertising, marketing and distributing Class B
shares of the Funds at an annual rate of 0.75% of the average daily net assets
of the Funds' outstanding Class B shares. Under the terms of the 12b-1 Plan,
the Distributor may make payments to FCNIMCO, and its affiliates with respect
to these services. A contingent deferred sales charge (CDSC) payable to the
Distributor is imposed on redemptions of Class B shares depending on the number
of years such shares were held by the investor. For the period ended June 30,
1998, the Funds made the following payments under the 12b-1 Plan, all of which
was retained by the Distributor:
<TABLE>
<CAPTION>
12B-1 FEES PAID CDSC PAID
-----------------------------------------------------------------
<S> <C> <C>
Managed Assets Conservative........... $66,552 42,909
Managed Assets Balanced............... 50,127 22,672
Managed Assets Growth................. 31,547 17,051
Equity Income......................... 13,275 3,965
Growth................................ 11,527 8,231
Mid-Cap Opportunity................... 20,103 18,049
Small-Cap Opportunity................. 10,564 8,855
Intrinsic Value....................... 16,108 12,889
Growth and Value...................... 27,739 19,369
Equity Index.......................... 7,557 4,963
International Equity.................. 7,941 2,586
Intermediate Bond..................... 2,202 1,487
Bond.................................. 17,240 12,578
Short Bond............................ 1,040 --
Multi-Sector Bond..................... 2,079 116
International Bond.................... 526 538
High Yield Bond....................... 572 316
Municipal Bond........................ 5,557 1,980
Intermediate Municipal Bond........... 2,864 710
Michigan Municipal Bond............... 3,557 3,085
</TABLE>
Pegasus Funds
138
<PAGE> 200
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
Transactions in amounts and shares of the Funds are summarized below:
<TABLE>
<CAPTION>
MANAGED ASSETS CONSERVATIVE FUND MANAGED ASSETS BALANCED FUND
-------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 17,924,181 1,177,389 $ 31,316,561 2,016,301 $ 38,426,564 3,101,811 $123,331,478 10,106,283
Dividends rein-
vested 6,072,466 411,447 11,601,787 765,341 11,055,875 941,363 13,209,034 1,100,235
Shares redeemed (13,020,787) (851,247) (19,010,963) (1,222,958) (20,045,688) (1,639,411) (19,705,519) (1,614,532)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase $ 10,975,860 737,589 $ 23,907,385 1,558,684 $ 29,436,751 2,403,763 $116,834,993 9,591,986
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 8,894,605 579,283 $ 7,513,031 482,687 $ 5,791,970 421,492 $ 8,381,742 606,921
Dividends rein-
vested 1,192,528 81,016 1,365,334 90,169 868,880 66,322 757,299 56,894
Shares redeemed (746,150) (48,794) (806,131) (52,379) (618,933) (44,921) (781,266) (56,066)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase $ 9,340,983 611,505 $ 8,072,234 520,477 $ 6,041,917 442,893 $ 8,357,755 607,749
- -------------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 5,141,409 334,995 $ 17,213,041 1,103,175 $ 9,483,808 754,105 $ 54,963,342 4,828,990
Dividends rein-
vested 736,899 49,766 1,051,898 69,270 6,120,538 521,256 11,078,389 924,980
Shares redeemed (3,750,389) (244,349) (9,054,523) (582,695) (25,066,132) (2,021,085) (72,178,198) (5,944,348)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 2,127,919 140,412 $ 9,210,416 589,750 $ (9,461,786) (745,724) $ (6,136,467) (190,378)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in
fund $ 22,444,762 1,489,506 $ 41,190,035 2,668,911 $ 26,016,882 2,100,932 $119,056,281 10,009,357
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MANAGED ASSETS GROWTH FUND
-------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $4,052,183 333,930 $ 5,803,931 520,583
Dividends rein-
vested 280,592 23,876 110,631 9,677
Shares redeemed (816,938) (67,340) (447,060) (40,532)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase $3,515,837 290,466 $ 5,467,502 489,728
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $4,842,618 404,318 $ 5,710,882 519,712
Dividends rein-
vested 300,043 26,027 106,258 9,416
Shares redeemed (301,382) (25,165) (89,261) (7,937)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase $4,841,279 405,180 $ 5,727,879 521,191
- -------------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 181,143 15,142 $ 743,108 64,957
Dividends rein-
vested 16,800 1,435 4 0
Shares redeemed (97,773) (8,270) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 100,170 8,307 $ 743,112 64,957
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in
fund $8,457,286 703,953 $11,983,493 1,075,876
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
139
<PAGE> 201
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INCOME FUND GROWTH FUND
------------------------------------------------ ---------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
----------------------- ----------------------- ------------------------ -------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 3,289,458 251,251 $ 6,572,559 468,697 $ 40,736,158 2,543,923 $ 40,045,445 2,775,581
Dividends rein-
vested 893,534 71,108 1,844,995 139,990 6,132,760 399,878 2,790,818 182,621
Shares redeemed (2,860,238) (211,621) (8,721,198) (619,931) (10,293,749) (624,519) (9,366,705) (646,661)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 1,322,754 110,738 $ (294,644) (11,244) $ 36,575,169 2,319,282 $ 33,469,558 2,311,541
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 567,957 42,281 $ 1,438,787 101,560 $ 1,738,143 104,969 $ 1,483,297 101,867
Dividends rein-
vested 258,523 20,608 427,616 32,598 247,803 16,049 93,456 6,193
Shares redeemed (175,563) (13,145) (457,543) (34,137) (80,402) (4,834) (640,490) (49,812)
- ------------------------------------------------------------------------------------------------------------------------
Net increase $ 650,917 49,744 $ 1,408,860 100,021 $ 1,905,544 116,184 $ 936,263 58,248
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 9,930,998 713,659 $28,432,275 2,026,742 $ 18,159,436 1,042,714 $ 78,761,960 5,522,672
Shares issued in
connection with
merger 29,377,262 2,382,584 -- -- 97,388,726 5,967,446 -- --
Dividends rein-
vested 15,705,915 1,297,069 34,772,811 2,674,370 31,795,556 2,018,765 23,951,009 1,567,312
Shares redeemed (36,436,855) (2,732,538) (69,797,438) (5,065,466) (69,201,683) (4,198,356) (155,347,564) (10,934,920)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $18,577,320 1,660,774 $(6,592,352) (364,354) $ 78,142,035 4,830,569 $(52,634,595) (3,844,936)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease)
in fund $20,550,991 1,821,256 $(5,478,136) (275,577) $116,622,748 7,266,035 $(18,228,774) (1,475,147)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MID-CAP OPPORTUNITY FUND
----------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------------- --------------------------
AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 71,788,059 3,327,466 $130,158,919 6,412,767
Dividends rein-
vested 15,975,797 802,800 13,953,980 672,278
Shares redeemed (28,515,067) (1,286,242) (21,535,955) (1,077,836)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 59,248,789 2,844,024 $122,576,944 6,007,209
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 2,604,965 228,925 $ 3,558,244 329,955
Dividends rein-
vested 697,188 73,811 388,813 37,100
Shares redeemed (174,485) (15,260) (93,380) (8,506)
- ------------------------------------------------------------------------------------------------------------------------
Net increase $ 3,127,668 287,476 $ 3,853,677 358,549
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 86,213,165 3,936,325 $207,175,566 10,476,135
Shares issued in
connection with
merger 14,935,571 739,751 -- --
Dividends rein-
vested 41,350,473 2,070,630 46,220,847 2,224,010
Shares redeemed (116,037,215) (5,311,460) (253,407,120) (12,783,438)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 26,461,994 1,435,246 $ (10,707) (83,293)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease)
in fund $ 88,838,451 4,566,746 $126,419,914 6,282,465
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
140
<PAGE> 202
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
SMALL-CAP OPPORTUNITY FUND INTRINSIC VALUE FUND
------------------------------------------------- --------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
----------------------- ------------------------ ------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 13,936,584 815,028 $ 16,824,149 1,022,192 $ 57,874,860 3,541,487 $ 60,372,454 3,925,383
Dividends rein-
vested 394,634 24,489 1,650,556 102,839 2,662,928 164,904 6,149,882 394,556
Shares redeemed (3,297,000) (192,434) (3,824,714) (251,988) (12,054,207) (736,574) (10,129,328) (667,228)
- ------------------------------------------------------------------------------------------------------------------------
Net increase $ 11,034,218 647,083 $ 14,649,991 873,043 $ 48,483,581 2,969,817 $ 56,393,008 3,652,651
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 2,111,683 124,513 $ 1,618,901 99,977 $ 2,064,308 174,930 $ 2,966,956 260,864
Dividends rein-
vested 46,202 2,989 125,301 7,951 136,596 11,919 291,301 25,987
Shares redeemed (107,134) (6,293) (29,610) (1,796) (129,883) (11,085) (122,704) (10,630)
- ------------------------------------------------------------------------------------------------------------------------
Net increase $ 2,050,751 121,209 $ 1,714,592 106,132 $ 2,071,021 175,764 $ 3,135,553 276,221
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 79,115,388 4,522,142 $ 78,449,597 4,974,079 $ 64,740,204 3,994,500 $190,470,760 12,535,439
Shares issued in
connection with
merger -- -- -- -- -- -- -- --
Dividends rein-
vested 2,656,711 165,941 12,026,693 741,015 8,359,329 517,634 35,700,516 2,291,818
Shares redeemed (16,460,952) (954,269) (21,124,571) (1,399,602) (80,901,247) (4,947,887) (97,234,985) (6,443,872)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 65,311,147 3,733,814 $ 69,351,719 4,315,492 $ (7,801,714) (435,753) $128,936,291 8,383,385
- ------------------------------------------------------------------------------------------------------------------------
Net increase in
fund $ 78,396,116 4,502,106 $ 85,716,302 5,294,667 $ 42,752,888 2,709,828 $188,464,852 12,312,257
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH AND VALUE FUND
-------------------------------------------------------
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1998 (UNAUDITED) DECEMBER 31, 1997
--------------------------- ---------------------------
AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 107,000,982 6,453,604 $ 94,486,592 5,899,852
Dividends rein-
vested 10,938,794 663,838 12,755,356 781,070
Shares redeemed (24,605,771) (1,428,895) (15,125,603) (944,388)
- ------------------------------------------------------------------------------------------------------------------------
Net increase $ 93,334,005 5,688,547 $ 92,116,345 5,736,534
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 4,276,924 398,180 $ 4,612,966 444,913
Dividends rein-
vested 596,008 59,937 517,650 50,518
Shares redeemed (221,636) (20,568) (145,758) (13,846)
- ------------------------------------------------------------------------------------------------------------------------
Net increase $ 4,651,296 437,549 $ 4,984,858 481,585
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 114,951,211 6,717,761 $ 246,403,685 15,691,586
Shares issued in
connection with
merger 48,560,921 2,951,465 -- --
Dividends rein-
vested 32,529,147 1,972,365 58,038,310 3,548,746
Shares redeemed (168,655,043) (10,078,889) (262,615,759) (16,528,740)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 27,386,236 1,562,702 $ 41,826,236 2,711,592
- ------------------------------------------------------------------------------------------------------------------------
Net increase in
fund $ 125,371,537 7,688,798 $ 138,927,439 8,929,711
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
141
<PAGE> 203
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INDEX FUND INTERNATIONAL EQUITY FUND
----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED SIX MONTHS ENDED FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 JUNE 30, 1998 (UNAUDITED) DECEMBER 31, 1997
----------------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 81,493,460 3,509,171 $ 168,016,201 8,416,137 $ 15,770,529 1,212,350 $ 18,567,566 1,519,426
Dividends
reinvested 2,708,689 113,249 5,805,194 273,337 308,244 23,165 151,571 12,294
Shares redeemed (31,892,145) (1,355,473) (32,929,404) (1,733,288) (3,521,088) (266,699) (3,047,589) (247,544)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase $ 52,310,004 2,266,947 $ 140,891,991 6,956,186 $ 12,557,685 968,816 $ 15,671,548 1,284,176
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 1,069,724 73,231 $ 1,287,388 104,699 $ 539,854 42,455 $ 811,445 70,622
Dividends
reinvested 36,089 2,503 71,089 5,457 $ 15,124 1,211 $ 7,275 630
Shares redeemed (55,073) (3,858) (57,785) (4,457) (84,870) (6,796) (201,965) (18,241)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase $ 1,050,740 71,876 $ 1,300,692 105,699 $ 470,109 36,870 $ 616,755 53,011
- ------------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 53,835,844 2,333,633 $ 146,097,054 7,485,701 $ 56,588,512 4,302,721 $144,396,799 12,175,388
Shares issued in
connection with
merger -- -- -- -- -- -- 25,851,101 2,159,636
Dividends
reinvested 5,003,428 209,182 16,894,585 811,344 1,555,564 116,475 1,488,912 120,663
Shares redeemed (101,394,881) (4,383,249) (524,752,379) (28,171,388) (54,103,725) (4,145,547) (89,221,490) (7,329,317)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $(42,555,609) (1,840,434) $(361,760,740) (19,874,343) $ 4,040,351 273,649 $ 82,515,322 7,126,370
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
fund $ 10,805,135 498,389 $(219,568,057) (12,812,458) $ 17,068,144 1,279,335 $ 98,803,625 8,463,557
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERMEDIATE BOND FUND
----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1998 (UNAUDITED) DECEMBER 31, 1997
----------------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 51,684,471 4,899,794 $ 27,304,014 2,624,666
Dividends
reinvested 2,222,174 212,019 1,358,064 131,435
Shares redeemed (9,806,660) (932,786) (5,101,965) (493,064)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase $ 44,099,985 4,179,027 $ 23,560,093 2,283,037
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 378,196 36,223 $ 278,873 27,172
Dividends
reinvested 12,449 1,198 8,536 833
Shares redeemed (46,783) (4,498) (29,302) (2,866)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase $ 343,862 32,923 $ 258,107 25,139
- ------------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 73,272,137 6,969,702 $185,976,995 18,003,953
Shares issued in
connection with
merger 6,897,367 657,518 -- --
Dividends
reinvested 6,970,587 664,981 16,511,264 1,601,349
Shares redeemed (64,625,962) (6,136,491) (123,282,895) (11,921,465)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 22,514,129 2,155,710 $ 79,205,364 7,683,837
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
fund $ 66,957,976 6,367,660 $103,023,564 9,972,013
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
142
<PAGE> 204
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
BOND FUND SHORT BOND FUND
---------------------------------------------------- -------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------------------- ------------------------- ----------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $128,544,146 12,071,298 $ 87,085,926 8,353,347 $11,148,043 1,093,694 $ 4,288,154 423,115
Dividends rein-
vested 5,011,237 472,336 3,910,615 377,818 276,480 27,247 100,656 9,964
Shares redeemed (22,121,036) (2,080,411) (15,064,433) (1,455,779) (2,040,961) (200,700) (692,337) (68,358)
- -------------------------------------------------------------------------------------------------------------------------
Net increase $111,434,347 10,463,223 $ 75,932,108 7,275,386 $ 9,383,562 920,241 $ 3,696,473 364,721
- -------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 2,898,579 272,590 $ 3,156,452 303,186 $ 131,540 13,036 $ 500,749 49,815
Dividends rein-
vested 104,581 9,858 60,268 5,791 5,530 550 4,017 400
Shares redeemed (331,794) (31,253) (164,690) (15,856) (404,494) (40,137) (20,443) (2,048)
- -------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 2,671,366 251,195 $ 3,052,030 293,121 $ (267,424) (26,551) $ 484,323 48,167
- -------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $229,262,534 21,523,087 $435,649,178 42,208,448 $62,020,440 6,099,302 $131,425,104 12,981,562
Dividends rein-
vested 18,170,500 1,712,575 32,769,206 3,176,489 2,587,039 255,070 4,521,387 447,631
Shares redeemed (153,239,999) (14,365,069) (157,152,393) (15,127,474) (54,822,744) (5,393,540) (73,190,834) (7,226,149)
- -------------------------------------------------------------------------------------------------------------------------
Net increase $ 94,193,035 8,870,593 $311,265,991 30,257,463 $ 9,784,735 960,832 $ 62,755,657 6,203,044
- -------------------------------------------------------------------------------------------------------------------------
Net increase in
fund $208,298,748 19,585,011 $390,250,129 37,825,970 $18,900,873 1,854,522 $ 66,936,453 6,615,932
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
143
<PAGE> 205
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
MULTI SECTOR BOND FUND INTERNATIONAL BOND FUND
-------------------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
-------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 6,177,798 765,752 $ 2,346,273 298,883 $3,096,824 311,501 $ 5,057,792 501,600
Dividends reinvested 310,701 38,775 481,710 61,412 165,922 16,687 173,729 17,298
Shares redeemed (2,252,672) (280,389) (3,919,756) (502,746) (707,617) (71,027) (554,465) (55,064)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 4,235,827 524,138 $ (1,091,773) (142,451) $2,555,129 257,161 $ 4,677,056 463,834
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 80,572 10,007 $ 235,272 29,850 $ 41,508 4,143 $ 104,851 10,315
Dividends reinvested 9,388 1,169 18,480 2,347 2,446 244 2,380 235
Shares redeemed (27,176) (3,357) (230,668) (29,611) (14,972) (1,492) (29,856) (2,993)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase $ 62,784 7,819 $ 23,084 2,586 $ 28,982 2,895 $ 77,375 7,557
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 15,119,666 1,883,224 $ 7,729,755 983,848 $7,798,461 783,674 $40,067,491 3,900,010
Shares issued in con-
nection with merger 46,376,717 5,725,521 -- -- -- -- -- --
Dividends reinvested 977,607 121,956 224,426 28,290 852,036 85,181 1,589,981 157,098
Shares redeemed (39,351,836) (4,894,210) (102,380,005) (13,037,412) (8,795,191) (881,263) (7,903,780) (780,266)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 23,122,154 2,836,491 $(94,425,824) (12,025,274) $ (144,694) (12,408) $33,753,692 3,276,342
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund $ 27,420,765 3,368,448 $(95,494,513) (12,165,139) $2,439,417 247,648 $38,508,123 3,747,733
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
144
<PAGE> 206
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND MUNICIPAL BOND FUND
-------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 1,164,308 112,580 $ 566,077 55,462 $ 8,552,396 666,238 $11,724,049 939,135
Dividends rein-
vested 23,847 2,319 3,384 332 512,852 39,979 843,113 67,267
Shares redeemed (172,437) (16,714) -- -- (3,614,960) (281,221) (8,454,633) (681,140)
- -------------------------------------------------------------------------------------------------------------------
Net increase $ 1,015,718 98,185 $ 569,461 55,794 $ 5,450,288 424,996 4,112,529 325,262
- -------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 219,930 21,164 $ 77,187 7,534 $ 497,522 38,856 $ 733,512 58,222
Dividends rein-
vested 2,672 259 959 94 22,200 1,732 28,072 2,246
Shares redeemed (62,794) (6,034) (893) (87) (74,296) (5,813) (160,009) (12,772)
- -------------------------------------------------------------------------------------------------------------------
Net increase $ 159,808 15,389 $ 77,253 7,541 $ 445,426 34,775 601,575 47,696
- -------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $19,448,223 1,863,548 $50,211,813 4,945,400 $48,090,823 3,745,599 $90,800,345 7,311,590
Shares issued in
connection with
merger -- -- -- -- 21,791,527 1,694,520 -- --
Dividends rein-
vested 669,011 64,340 369,553 36,030 286,557 22,351 632,571 50,986
Shares redeemed (2,521,000) (242,449) (2,057,468) (200,949) (22,721,523) (1,766,880) (87,732,156) (7,051,329)
- -------------------------------------------------------------------------------------------------------------------
Net increase $17,596,234 1,685,439 $48,523,898 4,780,481 $47,447,384 3,695,590 $ 3,700,760 311,247
- -------------------------------------------------------------------------------------------------------------------
Net increase in
fund $18,771,760 1,799,013 $49,170,612 4,843,816 $53,343,098 4,155,361 $ 8,414,864 684,205
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHORT MUNICIPAL BOND FUND
-------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED
JUNE 30, 1998
(UNAUDITED)(1)
-------------------------------------------------------------------------------------------------------
AMOUNT SHARES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 72,750 7,226
Dividends rein-
vested 188 19
Shares redeemed -- --
- -------------------------------------------------------------------------------------------------------------------
Net increase $ 72,938 7,245
- -------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 101 10
Dividends rein-
vested 0 0
Shares redeemed -- --
- -------------------------------------------------------------------------------------------------------------------
Net increase $ 101 $ 10
- -------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $10,536,310 1,050,317
Shares issued in
connection with
merger -- --
Dividends rein-
vested $ 29,080 2,888
Shares redeemed -- --
- -------------------------------------------------------------------------------------------------------------------
Net increase $10,565,390 1,053,205
- -------------------------------------------------------------------------------------------------------------------
Net increase in
fund $10,638,429 1,060,460
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period May 1, 1998 (commencement of operations) through June 30,
1998.
Pegasus Funds
145
<PAGE> 207
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL BOND FUND MICHIGAN MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE FOR THE YEAR ENDED SIX MONTHS ENDED JUNE FOR THE YEAR ENDED
30, 1998 (UNAUDITED) DECEMBER 31, 1997 30, 1998 (UNAUDITED) DECEMBER 31, 1997
---------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 2,339,395 190,321 $ 4,330,436 356,402 $ 1,416,018 129,260 $ 1,862,834 175,504
Dividends reinvested 287,600 23,402 654,340 53,881 321,434 29,427 635,851 59,987
Shares redeemed (1,315,969) (106,913) (5,476,837) (450,630) (1,770,939) (161,778) (3,140,092) (297,510)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 1,311,026 106,810 $ (492,061) (40,347) $ (33,487) (3,091) $ (641,407) (62,019)
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 201,345 16,414 $ 97,661 8,007 $ 722,091 68,048 $ 597,476 57,746
Dividends reinvested 9,315 758 19,911 1,640 8,245 779 4,727 457
Shares redeemed (117,442) (9,564) (31,769) (2,641) (2,500) (233) (22,479) (2,223)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase $ 93,218 7,608 $ 85,803 7,006 $ 727,836 68,594 $ 579,724 55,980
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $42,869,723 3,514,247 $68,404,127 5,629,130 $21,295,667 1,946,719 $23,854,404 2,244,429
Shares issued in connec-
tion with merger 43,750,365 3,551,166 -- -- -- -- -- --
Dividends reinvested 257,519 20,948 1,762,447 143,942 243,068 22,233 347,003 32,675
Shares redeemed (29,947,548) (2,428,489) (73,664,655) (6,056,270) (3,524,085) (321,765) (6,574,233) (622,964)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 56,930,059 4,657,872 $(3,498,081) (283,198) 18,014,650 1,647,187 17,627,174 1,654,140
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund $58,334,303 4,772,290 $(3,904,339) (316,539) $18,708,999 1,712,690 $17,565,491 1,648,101
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
146
<PAGE> 208
[INTENTIONALLY LEFT BLANK]
Pegasus Funds
147
<PAGE> 209
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the Funds' net
assets values have changed during the periods presented. Additional
quantitative measures expressed in ratio form analyze important relationships
between certain items presented in the financial statements. These financial
highlights have been derived from the financial statements of the Funds and
other information for the periods presented.
- --------------------------------------------------------------------------------
See accompanying Notes to the Financial Statements.
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
----------------------------------------------
TOTAL
NET ASSET NET REALIZED INCOME
VALUE NET AND UNREALIZED FROM
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT
OF PERIOD INCOME ON INVESTMENTS OPERATIONS
--------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
MANAGED ASSETS CONSERVATIVE
CLASS A SHARES
June 30, 1998 (unau-
dited) $14.95 0.28 0.49 $ 0.77
December 31, 1997 $15.34 0.58 1.35 $ 1.93
December 31, 1996 $14.54 0.56 0.89 $ 1.45
December 31, 1995 $12.13 0.64 2.48 $ 3.12
December 31, 1994 $13.11 0.73 (0.98) $(0.25)
December 31, 1993 $12.68 0.72 0.61 $ 1.33
CLASS B SHARES
June 30, 1998 (unau-
dited) $14.97 0.25 0.46 $ 0.71
December 31, 1997 $15.36 0.47 1.35 $ 1.82
December 31, 1996 $14.56 0.44 0.89 $ 1.33
For the period ended
12/31/1995(/2/) $12.42 0.45 2.17 $ 2.62
For the period ended
12/2/1994(/1/) $13.05 0.51 (0.91) $(0.40)
CLASS I SHARES
June 30, 1998 (unau-
dited) $15.00 0.29 0.51 $ 0.80
December 31, 1997 $15.38 0.59 1.37 $ 1.96
December 31, 1996 $14.57 0.60 0.89 $ 1.49
For the period ended
12/31/1995(/4/) $12.42 0.57 2.18 $ 2.75
- ---------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED
CLASS A SHARES
June 30, 1998 (unau-
dited) $11.92 0.17 0.57 $ 0.74
December 31, 1997 $11.63 0.32 1.43 $ 1.75
December 31, 1996 $11.24 0.35 1.06 $ 1.41
December 31, 1995 $ 9.53 0.35 1.83 $ 2.18
December 31, 1994 $10.00 0.28 (0.48) $(0.20)
CLASS B SHARES
June 30, 1998 (unau-
dited) $13.27 0.12 0.65 $ 0.77
December 31, 1997 $12.81 0.24 1.61 $ 1.85
For the period ended
12/31/1996(/5/) $12.16 0.08 0.81 $ 0.89
CLASS I SHARES
June 30, 1998 (unau-
dited) $11.91 0.18 0.56 $ 0.74
December 31, 1997 $11.59 0.34 1.47 $ 1.81
December 31, 1996 $11.24 0.39 1.02 $ 1.41
December 31, 1995 $ 9.53 0.35 1.83 $ 2.18
December 31, 1994 $10.00 0.28 (0.48) $(0.20)
- ---------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH
CLASS A SHARES
June 30, 1998 (unau-
dited) $11.51 0.10 0.71 $ 0.81
December 31, 1997 $10.08 0.17 1.60 $ 1.77
For the period ended
12/31/1996(/6/) $10.00 0.00 0.08 $ 0.08
CLASS B SHARES
June 30, 1998 (unau-
dited) $11.35 0.06 0.70 $ 0.76
December 31, 1997 $ 9.99 0.11 1.55 $ 1.66
For the period ended
12/31/1996(/6/) $10.00 0.00 (0.01) $(0.01)
CLASS I SHARES
June 30, 1998 (unau-
dited) $11.57 0.12 0.71 $ 0.83
December 31, 1997 $10.13 0.21 1.59 $ 1.80
For the period ended
12/31/1996(/6/) $10.00 0.00 0.13 $ 0.13
- ---------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------------------------------------
IN EXCESS
OF NET
REALIZED
GAIN ON
IN EXCESS FROM NET INVESTMENTS
FROM NET OF NET REALIZED AND FOREIGN
INVESTMENT INVESTMENT GAIN ON CURRENCY RETURN OF TOTAL
INCOME INCOME INVESTMENTS TRANSACTIONS CAPITAL DISTRIBUTIONS
---------- ---------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
MANAGED ASSETS CONSERVATIVE
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.29) -- (0.68) -- -- $(0.97)
December 31, 1997 (0.58) -- (1.74) -- -- $(2.32)
December 31, 1996 (0.56) -- (0.09) -- -- $(0.65)
December 31, 1995 (0.68) -- (0.03) -- -- $(0.71)
December 31, 1994 (0.72) -- (0.01) -- -- $(0.73)
December 31, 1993 (0.72) -- (0.18) -- -- $(0.90)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.24) -- (0.68) -- $(0.92)
December 31, 1997 (0.47) -- (1.74) -- -- $(2.21)
December 31, 1996 (0.44) -- (0.09) -- -- $(0.53)
For the period ended
12/31/1995(/2/) (0.45) -- (0.03) -- -- $(0.48)
For the period ended
12/2/1994(/1/) (0.54) -- (0.01) -- -- $(0.55)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.31) -- (0.68) -- -- $(0.99)
December 31, 1997 (0.60) -- (1.74) -- -- $(2.34)
December 31, 1996 (0.59) -- (0.09) -- -- $(0.68)
For the period ended
12/31/1995(/4/) (0.57) -- (0.03) -- -- $(0.60)
- ---------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.18) -- (0.66) -- -- $(0.84)
December 31, 1997 (0.31) -- (1.15) -- -- $(1.46)
December 31, 1996 (0.34) -- (0.68) -- -- $(1.02)
December 31, 1995 (0.35) -- (0.12) -- -- $(0.47)
December 31, 1994 (0.27) -- -- -- -- $(0.27)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.13) -- (0.66) -- -- $(0.79)
December 31, 1997 (0.24) -- (1.15) -- -- $(1.39)
For the period ended
12/31/1996(/5/) (0.07) -- (0.17) -- -- $(0.24)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.19) -- (0.66) -- -- $(0.85)
December 31, 1997 (0.34) -- (1.15) -- -- $(1.49)
December 31, 1996 (0.38) -- (0.68) -- -- $(1.06)
December 31, 1995 (0.35) -- (0.12) -- -- $(0.47)
December 31, 1994 (0.27) -- -- -- -- $(0.27)
- ---------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.10) -- (0.28) -- -- $(0.38)
December 31, 1997 (0.16) -- (0.18) -- -- $(0.34)
For the period ended
12/31/1996(/6/) 0.00 -- -- -- -- $ 0.00
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.07) -- (0.28) -- -- $(0.35)
December 31, 1997 (0.12) -- (0.18) -- -- $(0.30)
For the period ended
12/31/1996(/6/) 0.00 -- -- -- -- $ 0.00
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.12) -- (0.28) -- -- $(0.40)
December 31, 1997 (0.18) -- (0.18) -- -- $(0.36)
For the period ended
12/31/1996(/6/) 0.00 -- -- -- -- $ 0.00
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
148
<PAGE> 210
PEGASUS FUNDS
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- (0.20) $14.75 10.52%+ $100,508 1.25%+ 3.61%+ 1.31%+ 17.40%
-- (0.39) $14.95 13.10% $ 90,835 1.24% 3.74% 1.33% 102.37%
-- 0.80 $15.34 10.11% $ 69,301 1.18% 3.64% 1.33% 63.41%
-- 2.41 $14.54 26.40% $ 51,997 1.17% 4.88% 1.54% 8.23%
-- (0.98) $12.13 (1.92%) $ 44,367 0.63% 5.77% 1.67% 28.69%
-- 0.43 $13.11 10.70% $ 51,586 0.39% 5.54% 1.65% 16.40%
-- (0.21) $14.76 9.72%+ $ 22,223 2.00%+ 2.86%+ 2.06%+ 17.40%
-- (0.39) $14.97 12.29% $ 13,378 1.99% 2.99% 2.08% 102.37%
-- 0.80 $15.36 9.26% $ 5,736 1.93% 2.89% 2.07% 63.41%
-- 2.14 $14.56 21.42%++ $ 2,175 1.92%+ 3.89%+ 2.12%+ 8.23%++
(12.10) (0.95) -- (3.13%) -- 1.21%+ 4.10%+ 2.17%+ 28.69%++
-- (0.19) $14.81 10.78%+ $ 12,255 1.00%+ 3.86%+ 1.06%+ 17.40%
-- (0.38) $15.00 13.34% $ 10,309 0.99% 3.99% 1.08% 102.37%
-- 0.81 $15.38 10.43% $ 1,501 0.93% 3.89% 1.19% 63.41%
-- 2.15 $14.57 22.55%++ $ 1,294 0.77%+ 5.12%+ 1.22%+ 8.23%++
- ------------------------------------------------------------------------------------------------------------------------
-- (0.10) $11.82 12.56%+ $169,028 1.25%+ 2.69%+ 1.31%+ 19.75%
-- 0.29 $11.92 15.28% $141,804 1.24% 2.71% 1.32% 116.87%
-- 0.39 $11.63 12.99% $ 26,775 1.09% 3.13% 1.16% 50.50%
-- 1.71 $11.24 23.18% $ 9,986 0.91% 3.40% 1.09% 31.76%
-- (0.47) $ 9.53 (1.95%) $ 8,168 0.85% 3.41% 1.56% 37.49%
-- (0.02) $13.25 11.74%+ $ 15,875 2.00%+ 1.94%+ 2.06%+ 19.75%
-- 0.46 $13.27 14.59% $ 10,026 1.99% 1.96% 2.07% 116.87%
-- 0.65 $12.81 7.30%++ $ 1,890 1.96%+ 1.35%+ 2.03%+ 50.50%
-- (0.11) $11.80 12.70%+ $ 92,326 1.00%+ 2.94%+ 1.06%+ 19.75%
-- 0.32 $11.91 15.79% $102,042 0.99% 2.96% 1.07% 116.87%
-- 0.35 $11.59 13.04% $101,596 0.94% 3.28% 1.01% 50.50%
-- 1.71 $11.24 23.18% $ 83,638 0.91% 3.40% 1.09% 31.76%
-- (0.47) $ 9.53 (1.95%) $ 45,999 0.85% 3.41% 1.56% 37.49%
- ------------------------------------------------------------------------------------------------------------------------
-- 0.43 $11.94 14.18%+ $ 9,404 1.25%+ 1.85%+ 1.47%+ 9.25%
-- 1.43 $11.51 17.75% $ 5,725 1.24% 1.69% 2.29% 39.35%
-- 0.08 $10.08 0.80%++ $ 75 1.20%+ (0.45%)+ (3.50%)+ 0.00%
-- 0.41 $11.76 13.38%+ $ 10,913 2.00%+ 1.10%+ 2.22%+ 9.25%
-- 1.36 $11.35 16.69% $ 5,936 1.99% 0.94% 3.04% 39.35%
-- (0.01) $ 9.99 (0.10%)++ $ 17 1.95%+ (1.20%)+ (4.25%)+ 0.00%
-- 0.43 $12.00 14.44%+ $ 1,583 1.00%+ 2.10%+ 1.22%+ 9.25%
-- 1.44 $11.57 17.87% $ 1,430 0.99% 1.94% 2.04% 39.35%
-- 0.13 $10.13 1.30%++ $ 594 0.95%+ 0.20%+ (3.25%)+ 0.00%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
149
<PAGE> 211
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
See accompanying Notes to the Financial Highlights.
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
----------------------------------------------
NET REALIZED
AND UNREALIZED TOTAL
NET ASSET GAIN (LOSS) INCOME
VALUE NET ON INVESTMENTS FROM
BEGINNING INVESTMENT AND FINANCIAL INVESTMENT
OF PERIOD INCOME FUTURES OPERATIONS
--------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
EQUITY INCOME
CLASS A SHARES
June 30, 1998 (unau-
dited) $13.06 0.21 0.24 $ 0.45
December 31, 1997 $13.29 0.41 2.37 $ 2.78
December 31, 1996 $12.22 0.39 1.90 $ 2.29
For the period ended
12/31/1995(/7/) $10.00 0.36 2.57 $ 2.93
CLASS B SHARES
June 30, 1998 (unau-
dited) $13.05 0.16 0.25 $ 0.41
December 31, 1997 $13.28 0.29 2.39 $ 2.68
December 31, 1996 $12.22 0.30 1.88 $ 2.18
For the period ended
12/31/1995(/7/) $10.00 0.29 2.56 $ 2.85
CLASS I SHARES
June 30, 1998 (unau-
dited) $13.02 0.22 0.24 $ 0.46
December 31, 1997 $13.25 0.44 2.38 $ 2.82
December 31, 1996 $12.21 0.45 1.87 $ 2.32
For the period ended
12/31/1995(/7/) $10.00 0.42 2.55 $ 2.97
- ----------------------------------------------------------------------------------------------
GROWTH
CLASS A SHARES
June 30, 1998 (unau-
dited) $15.07 (0.02) 3.01 $ 2.99
December 31, 1997 $12.64 (0.01) 3.40 $ 3.39
December 31, 1996 $11.97 0.05 1.04 $ 1.09
For the period ended
12/31/1995(/7/) $10.00 0.11 2.86 $ 2.97
CLASS B SHARES
June 30, 1998 (unau-
dited) $14.86 (0.03) 2.91 $ 2.88
December 31, 1997 $12.56 (0.06) 3.32 $ 3.26
December 31, 1996 $11.95 (0.02) 0.99 $ 0.97
For the period ended
12/31/1995(/7/) $10.00 0.06 2.84 $ 2.90
CLASS I SHARES
June 30, 1998 (unau-
dited) $15.08 (0.01) 3.01 $ 3.00
December 31, 1997 $12.63 0.02 3.41 $ 3.43
December 31, 1996 $11.97 0.09 1.02 $ 1.11
For the period ended
12/31/1995(/7/) $10.00 0.15 2.86 $ 3.01
- ----------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY
CLASS A SHARES
June 30, 1998 (unau-
dited) $20.89 (0.04) 1.48 $ 1.44
December 31, 1997 $17.61 (0.03) 4.87 $ 4.84
December 31, 1996 $15.15 0.02 3.74 $ 3.76
December 31, 1995 $13.34 0.06 2.57 $ 2.63
December 31, 1994 $14.49 0.07 (0.54) $(0.47)
December 31, 1993 $12.37 0.10 2.87 $ 2.97
CLASS B SHARES
June 30, 1998 (unau-
dited) $10.58 (0.05) 0.73 $ 0.68
December 31, 1997 $ 9.57 (0.03) 2.60 $ 2.57
December 31, 1996(/8/) $10.00 0.00 0.79 $ 0.79
CLASS I SHARES
June 30, 1998 (unau-
dited) $20.93 (0.01) 1.49 $ 1.48
December 31, 1997 $17.61 0.01 4.88 $ 4.89
December 31, 1996 $15.15 0.04 3.74 $ 3.78
December 31, 1995 $13.34 0.06 2.57 $ 2.63
December 31, 1994 $14.49 0.07 (0.54) $(0.47)
December 31, 1993 $12.37 0.10 2.87 $ 2.97
<CAPTION>
LESS DISTRIBUTIONS
---------------------------------------------------------------------
FROM NET
REALIZED
GAIN ON IN EXCESS
IN EXCESS INVESTMENTS OF NET
FROM NET OF NET AND REALIZED
INVESTMENT INVESTMENT FINANCIAL GAIN ON RETURN OF TOTAL
INCOME INCOME FUTURES INVESTMENTS CAPITAL DISTRIBUTIONS
---------- ---------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY INCOME
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.22) -- (0.82) -- -- $(1.04)
December 31, 1997 (0.41) -- (2.60) -- -- $(3.01)
December 31, 1996 (0.38) -- (0.84) -- -- $(1.22)
For the period ended
12/31/1995(/7/) (0.36) (0.01) (0.34) -- -- $(0.71)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.17) -- (0.82) -- -- $(0.99)
December 31, 1997 (0.31) -- (2.60) -- -- $(2.91)
December 31, 1996 (0.28) -- (0.84) -- -- $(1.12)
For the period ended
12/31/1995(/7/) (0.29) -- (0.34) -- -- $(0.63)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.23) -- (0.82) -- -- $(1.05)
December 31, 1997 (0.45) -- (2.60) -- -- $(3.05)
December 31, 1996 (0.44) -- (0.84) -- -- $(1.28)
For the period ended
12/31/1995(/7/) (0.42) -- (0.34) -- -- $(0.76)
- ----------------------------------------------------------------------------------------------
GROWTH
CLASS A SHARES
June 30, 1998 (unau-
dited) -- -- (1.10) -- -- $(1.10)
December 31, 1997 0.00 -- (0.96) -- -- $(0.96)
December 31, 1996 (0.06) -- (0.36) -- -- $(0.42)
For the period ended
12/31/1995(/7/) (0.11) -- (0.89) -- -- $(1.00)
CLASS B SHARES
June 30, 1998 (unau-
dited) -- -- (1.10) -- -- $(1.10)
December 31, 1997 0.00 -- (0.96) -- -- $(0.96)
December 31, 1996 0.00 -- (0.36) -- -- $(0.36)
For the period ended
12/31/1995(/7/) (0.06) -- (0.89) -- -- $(0.95)
CLASS I SHARES
June 30, 1998 (unau-
dited) -- -- (1.10) -- -- $(1.10)
December 31, 1997 (0.02) -- (0.96) -- -- $(0.98)
December 31, 1996 (0.09) -- (0.36) -- -- $(0.45)
For the period ended
12/31/1995(/7/) (0.15) -- (0.89) -- -- $(1.04)
- ----------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY
CLASS A SHARES
June 30, 1998 (unau-
dited) -- -- (1.24) -- -- $(1.24)
December 31, 1997 0.00 -- (1.56) -- -- $(1.56)
December 31, 1996 (0.02) -- (1.28) -- -- $(1.30)
December 31, 1995 (0.06) -- (0.76) -- -- $(0.82)
December 31, 1994 (0.07) -- (0.49) (0.02) (0.10) $(0.68)
December 31, 1993 (0.10) -- (0.75) -- -- $(0.85)
CLASS B SHARES
June 30, 1998 (unau-
dited) -- -- (1.24) -- -- $(1.24)
December 31, 1997 0.00 -- (1.56) -- -- $(1.56)
December 31, 1996(/8/) (0.01) -- (1.21) -- -- $(1.22)
CLASS I SHARES
June 30, 1998 (unau-
dited) -- -- (1.24) -- -- $(1.24)
December 31, 1997 (0.01) -- (1.56) -- -- $(1.57)
December 31, 1996 (0.04) -- (1.28) -- -- $(1.32)
December 31, 1995 (0.06) -- (0.76) -- -- $(0.82)
December 31, 1994 (0.07) -- (0.49) (0.02) (0.10) $(0.68)
December 31, 1993 (0.10) -- (0.75) -- -- $(0.85)
</TABLE>
Pegasus Funds
150
<PAGE> 212
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See accompanying Notes to the Financial Statements.
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- (0.59) $12.47 6.98%+ $ 13,397 0.95%+ 3.15%+ -- 15.06%
-- (0.23) $13.06 21.57% $ 12,583 0.95% 2.90% -- 41.31%
-- 1.07 $13.29 19.29% $ 12,956 0.91% 3.29% 0.95% 61.41%
-- 2.22 $12.22 29.78%++ $ 2,873 1.11%+ 3.33%+ 1.44%+ 44.07%++
-- (0.58) $12.47 6.42%+ $ 3,638 1.70%+ 2.40%+ -- 15.06%
-- (0.23) $13.05 20.73% $ 3,157 1.70% 2.15% -- 41.31%
-- 1.06 $13.28 18.28% $ 1,885 1.66% 2.54% 1.81% 61.41%
-- 2.22 $12.22 28.97%++ $ 593 1.90%+ 2.65%+ 2.65%+ 44.07%++
-- (0.59) $12.43 7.34%+ $311,286 0.70%+ 3.40%+ -- 15.06%
-- (0.23) $13.02 21.95% $304,260 0.70% 3.15% -- 41.31%
-- 1.04 $13.25 19.58% $314,649 0.66% 3.54% 0.74% 61.41%
-- 2.21 $12.21 30.27%++ $283,927 0.65%+ 4.08%+ 0.77%+ 44.07%++
- ----------------------------------------------------------------------------------------------------------------------------
-- 1.89 $16.96 40.80%+ $109,752 1.06%+ (0.40%)+ -- 18.55%
-- 2.43 $15.07 26.76% $ 62,562 1.04% (0.08%) -- 22.89%
-- 0.67 $12.64 20.10% $ 23,273 1.04% 0.43% 1.07% 61.95%
-- 1.97 $11.97 29.98%++ $ 4,329 1.21%+ 0.86%+ 1.39%+ 106.02%++
-- 1.78 $16.64 39.84%+ $ 4,353 1.81%+ (1.15%)+ -- 18.55%
-- 2.30 $14.86 25.90% $ 2,161 1.79% (0.83%) -- 22.89%
-- 0.61 $12.56 19.04% $ 1,094 1.79% (0.32%) 1.89% 61.95%
-- 1.95 $11.95 29.15%++ $ 268 2.04%+ 0.02%+ 2.60%+ 106.02%++
-- 1.90 $16.98 40.94%+ $733,610 0.81%+ (0.15%)+ -- 18.55%
-- 2.45 $15.08 27.10% $578,490 0.79% 0.17% -- 22.89%
-- 0.66 $12.63 20.36% $533,406 0.79% 0.68% 0.85% 61.95%
-- 1.97 $11.97 30.38%++ $293,944 0.80%+ 1.46%+ 0.92%+ 106.02%++
- ----------------------------------------------------------------------------------------------------------------------------
-- 0.20 $21.09 14.54%+ $296,264 1.14%+ (0.38%)+ -- 15.52%
-- 3.28 $20.89 27.56% $234,020 1.09% (0.20%) -- 37.54%(23)
-- 2.46 $17.61 24.91% $ 91,516 0.93% 0.12% -- 34.87%
-- 1.81 $15.15 19.88% $ 71,858 0.89% 0.37% -- 53.55%
-- (1.15) $13.34 (3.27%) $ 64,326 0.90% 0.53% -- 37.51%
-- 2.12 $14.49 24.01% $ 53,977 0.86% 0.71% -- 33.99%
-- (0.56) $10.02 14.18%+ $ 6,632 1.89%+ (1.13%)+ -- 15.52%
-- 1.01 $10.58 27.10% $ 3,965 1.84% (0.95%) -- 37.54%(23)
-- (0.43) $ 9.57 7.94%++ $ 154 1.81%+ (0.59%)+ -- 34.87%
-- 0.24 $21.17 14.82%+ $843,060 0.89%+ (0.13%)+ -- 15.52%
-- 3.32 $20.93 27.91% $803,670 0.84% 0.05% -- 37.54%(23)
-- 2.46 $17.61 25.03% $677,608 0.81% 0.24% -- 34.87%
-- 1.81 $15.15 19.88% $579,094 0.89% 0.37% -- 53.55%
-- (1.15) $13.34 (3.27%) $460,673 0.90% 0.53% -- 37.51%
-- 2.12 $14.49 24.01% $311,688 0.86% 0.71% -- 33.99%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
151
<PAGE> 213
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
-----------------------------------------------------------------------
NET REALIZED
AND UNREALIZED TOTAL
NET ASSET GAIN (LOSS) INCOME
VALUE NET ON INVESTMENTS FROM
BEGINNING INVESTMENT AND FINANCIAL INVESTMENT
OF PERIOD INCOME FUTURES OPERATIONS
--------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
SMALL-CAP OPPORTUNITY
CLASS A SHARES
June 30, 1998 (unau-
dited) $16.03 (0.05) 0.92 $ 0.87
December 31, 1997 $13.70 (0.06) 4.16 $ 4.10
December 31, 1996 $12.20 (0.02) 3.02 $ 3.00
For the period ended
12/31/1995(/7/) $10.00 0.02 2.45 $ 2.47
CLASS B SHARES
June 30, 1998 (unau-
dited) $15.74 (0.09) 0.88 $ 0.79
December 31, 1997 $13.58 (0.07) 4.00 $ 3.93
December 31, 1996 $12.12 (0.04) 3.00 $ 2.96
For the period ended
12/31/1995(/7/) $10.00 (0.03) 2.40 $ 2.37
CLASS I SHARES
June 30, 1998 (unau-
dited) $16.22 (0.03) 0.93 $ 0.90
December 31, 1997 $13.80 (0.05) 4.24 $ 4.19
December 31, 1996 $12.19 (0.01) 3.13 $ 3.12
For the period ended
12/31/1995(/7/) $10.00 0.06 2.44 $ 2.50
- ----------------------------------------------------------------------------------------------
INTRINSIC VALUE
CLASS A SHARES
June 30, 1998 (unau-
dited) $15.66 0.15 0.56 $ 0.71
December 31, 1997 $13.70 0.23 3.17 $ 3.40
December 31, 1996 $11.89 0.28 2.50 $ 2.78
December 31, 1995 $10.48 0.29 2.24 $ 2.53
December 31, 1994 $11.05 0.31 (0.38) $(0.07)
December 31, 1993 $10.40 0.29 1.23 $ 1.52
CLASS B SHARES
June 30, 1998 (unau-
dited) $11.23 0.13 0.33 $ 0.46
December 31, 1997 $10.18 0.25 2.19 $ 2.44
December 31, 1996(/8/) $10.00 0.04 0.79 $ 0.83
CLASS I SHARES
June 30, 1998 (unau-
dited) $15.67 0.19 0.54 $ 0.73
December 31, 1997 $13.71 0.28 3.15 $ 3.43
December 31, 1996 $11.89 0.29 2.51 $ 2.80
December 31, 1995 $10.48 0.29 2.24 $ 2.53
December 31, 1994 $11.05 0.31 (0.38) $(0.07)
December 31, 1993 $10.40 0.29 1.23 $ 1.52
- ----------------------------------------------------------------------------------------------
GROWTH AND VALUE
CLASS A SHARES
June 30, 1998 (unau-
dited) $16.38 0.04 1.28 $ 1.32
December 31, 1997 $14.12 0.10 3.78 $ 3.88
December 31, 1996 $13.16 0.16 2.37 $ 2.53
December 31, 1995 $10.67 0.21 2.76 $ 2.97
December 31, 1994 $11.16 0.23 (0.17) $ 0.06
December 31, 1993 $10.51 0.20 1.24 $ 1.44
CLASS B SHARES
June 30, 1998 (unau-
dited) $10.19 0.01 0.77 $ 0.78
December 31, 1997 $ 9.32 0.07 2.38 $ 2.45
December 31, 1996(/8/) $10.00 0.01 0.62 $ 0.63
CLASS I SHARES
June 30, 1998 (unau-
dited) $16.39 0.06 1.28 $ 1.34
December 31, 1997 $14.12 0.14 3.79 $ 3.93
December 31, 1996 $13.16 0.18 2.36 $ 2.54
December 31, 1995 $10.67 0.21 2.76 $ 2.97
December 31, 1994 $11.16 0.23 (0.17) $ 0.06
December 31, 1993 $10.51 0.20 1.24 $ 1.44
December 31, 1992 $ 9.86 0.22 0.75 $ 0.97
<CAPTION>
LESS DISTRIBUTIONS
-----------------------------------------------------------------------
FROM NET
REALIZED
GAIN ON IN EXCESS
IN EXCESS INVESTMENTS OF NET
FROM NET OF NET AND REALIZED
INVESTMENT INVESTMENT FINANCIAL GAIN ON RETURN OF TOTAL
INCOME INCOME FUTURES INVESTMENTS CAPITAL DISTRIBUTIONS
---------- ---------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
SMALL-CAP OPPORTUNITY
CLASS A SHARES
June 30, 1998 (unau-
dited) -- -- (0.21) -- -- $(0.21)
December 31, 1997 -- -- (1.77) -- -- $(1.77)
December 31, 1996 -- -- (1.50) -- -- $(1.50)
For the period ended
12/31/1995(/7/) (0.02) -- (0.25) -- -- $(0.27)
CLASS B SHARES
June 30, 1998 (unau-
dited) -- -- (0.21) -- -- $(0.21)
December 31, 1997 -- -- (1.77) -- -- $(1.77)
December 31, 1996 -- -- (1.50) -- -- $(1.50)
For the period ended
12/31/1995(/7/) -- -- (0.25) -- -- $(0.25)
CLASS I SHARES
June 30, 1998 (unau-
dited) -- -- (0.21) -- -- $(0.21)
December 31, 1997 -- -- (1.77) -- -- $(1.77)
December 31, 1996 -- (0.01) (1.50) -- -- $(1.51)
For the period ended
12/31/1995(/7/) (0.06) -- (0.25) -- -- $(0.31)
- ----------------------------------------------------------------------------------------------
INTRINSIC VALUE
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.17) -- (0.18) -- -- $(0.35)
December 31, 1997 (0.24) -- (1.20) -- -- $(1.44)
December 31, 1996 (0.28) -- (0.69) -- -- $(0.97)
December 31, 1995 (0.30) -- (0.82) -- -- $(1.12)
December 31, 1994 (0.30) -- (0.20) -- -- $(0.50)
December 31, 1993 (0.28) -- (0.59) -- -- $(0.87)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.14) -- (0.18) -- -- $(0.32)
December 31, 1997 (0.19) -- (1.20) -- -- $(1.39)
December 31, 1996(/8/) (0.06) -- (0.59) -- -- $(0.65)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.19) -- (0.18) -- -- $(0.37)
December 31, 1997 (0.27) -- (1.20) -- -- $(1.47)
December 31, 1996 (0.29) -- (0.69) -- -- $(0.98)
December 31, 1995 (0.30) -- (0.82) -- -- $(1.12)
December 31, 1994 (0.30) -- (0.20) -- -- $(0.50)
December 31, 1993 (0.28) -- (0.59) -- -- $(0.87)
- ----------------------------------------------------------------------------------------------
GROWTH AND VALUE
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.04) -- (0.71) -- -- $(0.75)
December 31, 1997 (0.11) -- (1.51) -- -- $(1.62)
December 31, 1996 (0.16) -- (1.41) -- -- $(1.57)
December 31, 1995 (0.22) -- (0.26) -- -- $(0.48)
December 31, 1994 (0.21) -- (0.30) (0.01) (0.03) $(0.55)
December 31, 1993 (0.20) -- (0.59) -- -- $(0.79)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.02) -- (0.71) -- -- $(0.73)
December 31, 1997 (0.07) -- (1.51) -- -- $(1.58)
December 31, 1996(/8/) (0.03) -- (1.28) -- -- $(1.31)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.06) -- (0.71) -- -- $(0.77)
December 31, 1997 (0.15) -- (1.51) -- -- $(1.66)
December 31, 1996 (0.17) -- (1.41) -- -- $(1.58)
December 31, 1995 (0.22) -- (0.26) -- -- $(0.48)
December 31, 1994 (0.21) -- (0.30) (0.01) (0.03) $(0.55)
December 31, 1993 (0.20) -- (0.59) -- -- $(0.79)
December 31, 1992 (0.22) -- (0.10) -- -- $(0.32)
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
152
<PAGE> 214
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- 0.66 $16.69 10.90%+ $ 33,523 1.18%+ (0.70%)+ -- 23.16%
-- 2.33 $16.03 30.16% $ 21,836 1.18% (0.68%) -- 58.29%
-- 1.50 $13.70 24.59% $ 6,697 1.13% (0.29%) 1.24% 93.82%
-- 2.20 $12.20 24.80%++ $ 672 1.25%+ 0.19%+ 2.56%+ 38.89%++
-- 0.58 $16.32 10.14%+ $ 3,843 1.93%+ (1.45%)+ -- 23.16%
-- 2.16 $15.74 29.17% $ 1,799 1.93% (1.43%) -- 58.29%
-- 1.46 $13.58 24.42% $ 110 1.88% (1.04%) 3.04% 93.82%
-- 2.12 $12.12 23.76%++ $ 15 2.00%+ (0.51%)+ 9.52%+ 38.89%++
-- 0.69 $16.91 11.16%+ $290,248 0.93%+ (0.45%)+ -- 23.16%
-- 2.42 $16.22 30.60% $217,908 0.93% (0.43%) -- 58.29%
-- 1.61 $13.80 25.63% $125,840 0.88% (0.04%) 1.02% 93.82%
-- 2.19 $12.19 25.08%++ $ 92,926 0.85%+ 0.59%+ 1.09%+ 38.89%++
- ------------------------------------------------------------------------------------------------------------------------------
-- 0.36 $16.02 9.12%+ $132,278 1.09%+ 1.99%+ -- 5.72%
-- 1.96 $15.66 25.03% $ 82,791 1.06% 1.64% -- 35.93%(23)
-- 1.81 $13.70 23.79% $ 22,370 0.94% 2.16% -- 34.24%
-- 1.41 $11.89 24.38% $ 17,858 0.91% 2.49% -- 45.55%
-- (0.57) $10.48 (0.60%) $ 15,730 0.91% 2.92% -- 58.62%
-- 0.65 $11.05 14.71% $ 14,098 0.86% 2.67% -- 63.90%
-- 0.14 $11.37 8.34%+ $ 5,342 1.84%+ 1.24%+ -- 5.72%
-- 1.05 $11.23 24.24% $ 3,302 1.81% 0.89% -- 35.93%(23)
-- 0.18 $10.18 8.31%++ $ 182 1.81%+ 0.25%+ -- 34.24%+
-- 0.36 $16.03 9.36%+ $545,391 0.84%+ 2.24%+ -- 5.72%
-- 1.96 $15.67 25.25% $539,948 0.81% 1.89% -- 35.93%(23)
-- 1.82 $13.71 23.99% $357,360 0.83% 2.27% -- 34.24%
-- 1.41 $11.89 24.38% $238,027 0.91% 2.49% -- 45.55%
-- (0.57) $10.48 (0.60%) $204,298 0.91% 2.92% -- 58.62%
-- 0.65 $11.05 14.71% $178,457 0.86% 2.67% -- 63.90%
- ------------------------------------------------------------------------------------------------------------------------------
-- 0.57 $16.95 16.44%+ $264,450 1.10%+ 0.46%+ 1.10%+ 20.03%
-- 2.26 $16.38 27.80% $162,393 1.09% 0.67% 1.10% 30.98%
-- 0.96 $14.12 19.24% $ 59,027 0.91% 1.17% -- 43.21%
-- 2.49 $13.16 28.04% $ 49,872 0.84% 1.73% -- 26.80%
-- (0.49) $10.67 0.55% $ 42,274 0.84% 2.07% -- 28.04%
-- 0.65 $11.16 13.79% $ 29,467 0.83% 1.84% -- 42.31%
-- 0.05 $10.24 15.82%+ $ 9,613 1.85%+ (0.29%)+ 1.85%+ 20.03%
-- 0.87 $10.19 26.90% $ 5,107 1.84% (0.08%) 1.85% 30.98%
-- (0.68) $ 9.32 6.10%++ $ 183 1.80%+ 0.25%+ -- 43.21%+
-- 0.57 $16.96 16.66%+ $953,308 0.85%+ 0.71%+ 0.85%+ 20.03%
-- 2.27 $16.39 28.15% $895,567 0.84% 0.92% 0.85% 30.98%
-- 0.96 $14.12 19.35% $733,632 0.80% 1.28% -- 43.21%
-- 2.49 $13.16 28.04% $687,295 0.84% 1.73% -- 26.80%
-- (0.49) $10.67 0.55% $529,097 0.84% 2.07% -- 28.04%
-- 0.65 $11.16 13.79% $400,168 0.83% 1.84% -- 42.31%
-- 0.65 $10.51 9.87% $283,007 0.83% 2.20% -- 16.28%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
153
<PAGE> 215
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------
NET REALIZED
AND UNREALIZED TOTAL
NET ASSET GAIN (LOSS) INCOME
VALUE, NET ON INVESTMENTS FROM
BEGINNING INVESTMENT AND FINANCIAL INVESTMENT
OF PERIOD INCOME FUTURES OPERATIONS
--------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
EQUITY INDEX
CLASS A SHARES
June 30, 1998 (unau-
dited) $21.36 0.10 3.59 $3.69
December 31, 1997 $16.75 0.26 5.19 $5.45
December 31, 1996 $14.15 0.30 2.85 $3.15
December 31, 1995 $10.65 0.30 3.65 $3.95
December 31, 1994 $11.15 0.31 (0.20) $0.11
December 31, 1993 $10.52 0.28 0.75 $1.03
December 31,
1992(/2//3/) $10.00 0.12 0.52 $0.64
CLASS B SHARES
June 30, 1998 (unau-
dited) $13.01 0.05 2.15 $2.20
December 31, 1997 $10.50 0.15 3.15 $3.30
December 31, 1996(/8/) $10.00 0.05 0.76 $0.81
CLASS I SHARES
June 30, 1998 (unau-
dited) $21.37 0.13 3.59 $3.72
December 31, 1997 $16.75 0.30 5.20 $5.50
December 31, 1996 $14.15 0.31 2.85 $3.16
December 31, 1995 $10.65 0.30 3.65 $3.95
December 31, 1994 $11.15 0.31 (0.20) $0.11
December 31, 1993 $10.52 0.28 0.75 $1.03
December 31,
1992(/2//3/) $10.00 0.12 0.52 $0.64
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY
CLASS A SHARES
June 30, 1998 (unau-
dited) $12.11 0.13 1.51 $1.64
December 31, 1997 $11.77 0.07 0.36 $0.43
December 31, 1996 $11.05 0.10 0.72 $0.82
December 31, 1995 $10.01 0.10 1.05 $1.15
CLASS B SHARES
June 30, 1998 (unau-
dited) $11.37 0.08 1.42 $1.50
December 31, 1997 $11.08 0.01 0.34 $0.35
December 31, 1996(/5/) $10.84 0.04 0.24 $0.28
CLASS I SHARES
June 30, 1998 (unau-
dited) $12.14 0.14 1.51 $1.65
December 31, 1997 $11.79 0.10 0.37 $0.47
December 31, 1996 $11.05 0.11 0.74 $0.85
December 31, 1995 $10.01 0.10 1.05 $1.15
December 31, 1994(/9/) $10.00 0.01 -- $0.01
- ---------------------------------------------------------------------------------------------------
INTERMEDIATE BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $10.47 0.31 0.03 $0.34
December 31, 1997 $10.29 0.62 0.18 $0.80
December 31, 1996 $10.37 0.64 (0.07) $0.57
December 31, 1995 $ 9.21 0.59 1.16 $1.75
December 31, 1994 $10.41 0.56 (1.20) ($0.64)
December 31, 1993 $10.28 0.59 0.26 $0.85
December 31,
1992(/2//2/) $10.32 0.49 0.13 $0.62
CLASS B SHARES
June 30, 1998 (unau-
dited) $10.38 0.27 0.03 $0.30
December 31, 1997 $10.20 0.55 0.17 $0.72
December 31, 1996(/8/) $10.00 0.15 0.20 $0.35
CLASS I SHARES
June 30, 1998 (unau-
dited) $10.48 0.32 0.03 $0.35
December 31, 1997 $10.29 0.65 0.18 $0.83
December 31, 1996 $10.37 0.64 (0.07) $0.57
December 31, 1995 $ 9.21 0.59 1.16 $1.75
December 31, 1994 $10.41 0.56 (1.20) ($0.64)
December 31, 1993 $10.28 0.59 0.26 $0.85
December 31, 1992 $10.55 0.71 (0.10) $0.61
- ---------------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
-----------------------------------------------------------------------------------
FROM NET
REALIZED
GAIN ON
INVESTMENTS & IN EXCESS
IN EXCESS FOREIGN CURRENCY OF NET
FROM NET OF NET TRANSACTIONS AND REALIZED
INVESTMENT INVESTMENT FINANCIAL GAIN ON RETURN OF TOTAL
INCOME INCOME FUTURES INVESTMENTS CAPITAL DISTRIBUTIONS
---------- ---------- ---------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY INDEX
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.10) -- (0.15) -- -- $(0.25)
December 31, 1997 (0.26) -- (0.58) -- -- $(0.84)
December 31, 1996 (0.29) -- (0.26) -- -- $(0.55)
December 31, 1995 (0.31) -- (0.14) -- -- $(0.45)
December 31, 1994 (0.30) -- (0.23) (0.08) -- $(0.61)
December 31, 1993 (0.27) -- (0.13) -- -- $(0.40)
December 31,
1992(/2//3/) (0.12) -- -- -- -- $(0.12)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.07) -- (0.15) -- -- $(0.22)
December 31, 1997 (0.21) -- (0.58) -- -- $(0.79)
December 31, 1996(/8/) (0.06) -- (0.25) -- -- $(0.31)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.13) -- (0.15) -- -- $(0.28)
December 31, 1997 (0.30) -- (0.58) -- -- $(0.88)
December 31, 1996 (0.30) -- (0.26) -- -- $(0.56)
December 31, 1995 (0.31) -- (0.14) -- -- $(0.45)
December 31, 1994 (0.30) -- (0.23) (0.08) -- $(0.61)
December 31, 1993 (0.27) -- (0.13) -- -- $(0.40)
December 31,
1992(/2//3/) (0.12) -- -- -- -- $(0.12)
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.11) -- -- -- -- $(0.11)
December 31, 1997 (0.09) -- 0.00 -- -- $(0.09)
December 31, 1996 (0.10) -- (0.00) -- -- $(0.10)
December 31, 1995 (0.11) -- (0.00) -- -- $(0.11)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.08) -- -- -- -- $(0.08)
December 31, 1997 (0.06) -- -- -- -- $(0.06)
December 31, 1996(/5/) (0.04) -- -- -- -- $(0.04)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.12) -- -- -- -- $(0.12)
December 31, 1997 (0.12) -- -- -- -- $(0.12)
December 31, 1996 (0.11) -- -- -- -- $(0.11)
December 31, 1995 (0.11) -- -- -- -- $(0.11)
December 31, 1994(/9/) -- -- -- -- -- $(0.00)
- ---------------------------------------------------------------------------------------------------
INTERMEDIATE BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.31) -- -- -- -- $(0.31)
December 31, 1997 (0.62) -- -- -- -- $(0.62)
December 31, 1996 (0.65) -- -- -- -- $(0.65)
December 31, 1995 (0.59) -- -- -- -- $(0.59)
December 31, 1994 (0.55) -- (0.01) -- -- $(0.56)
December 31, 1993 (0.59) -- (0.13) -- -- $(0.72)
December 31,
1992(/2//2/) (0.49) -- (0.17) -- -- $(0.66)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.27) -- -- -- -- $(0.27)
December 31, 1997 (0.54) -- -- -- -- $(0.54)
December 31, 1996(/8/) (0.15) -- -- -- -- $(0.15)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.32) -- -- -- -- $(0.32)
December 31, 1997 (0.64) -- -- -- -- $(0.64)
December 31, 1996 (0.65) -- -- -- -- $(0.65)
December 31, 1995 (0.59) -- -- -- -- $(0.59)
December 31, 1994 (0.55) -- (0.01) -- -- $(0.56)
December 31, 1993 (0.59) -- (0.13) -- -- $(0.72)
December 31, 1992 (0.71) -- (0.17) -- -- $(0.88)
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
154
<PAGE> 216
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- 3.44 $24.80 34.60%+ $281,047 0.63%+ 0.87%+ 0.63%+ 6.95%
-- 4.61 $21.36 32.69% $193,663 0.57% 1.20% -- 12.80%(23)
-- 2.60 $16.75 22.49% $ 35,336 0.37% 1.89% -- 12.25%
-- 3.50 $14.15 37.35% $ 4,007 0.15% 2.39% -- 10.66%
-- (0.50) $10.65 1.02% $ 1,197 0.17% 2.71% -- 24.15%
-- 0.63 $11.15 9.77% $ 960 0.20% 2.59% -- 16.01%
-- 0.52 $10.52 13.61%+ $ 151 0.22%+ 2.71%+ -- 0.50%++
-- 1.98 $14.99 33.78%+ $ 2,822 1.38%+ 0.12%+ 1.38%+ 6.95%
-- 2.51 $13.01 31.71% $ 1,515 1.32% 0.45% -- 12.80%(23)
-- 0.50 $10.50 8.09%+ $ 113 1.29%+ 0.57%+ -- 12.25%+
-- 3.44 $24.81 34.92%+ $697,422 0.38%+ 1.12%+ 0.38%+ 6.95%
-- 4.62 $21.37 32.97% $639,868 0.32% 1.45% -- 12.80%(23)
-- 2.60 $16.75 22.58% $834,368 0.21% 2.05% -- 12.25%
-- 3.50 $14.15 37.35% $524,195 0.15% 2.39% -- 10.66%
-- (0.50) $10.65 1.02% $339,611 0.17% 2.71% -- 24.15%
-- 0.63 $11.15 9.77% $324,369 0.20% 2.59% -- 16.01%
-- 0.52 $10.52 13.61%+ $241,907 0.22%+ 2.71%+ -- 0.50%++
- -------------------------------------------------------------------------------------------------------------------------
-- 1.53 $13.64 27.00%+ $ 43,280 1.32%+ 1.56%+ 1.32%+ 2.51%
-- 0.34 $12.11 3.69% $ 26,703 1.35% 0.80% -- 3.56%(24)
-- 0.72 $11.77 7.50% $ 10,836 1.23% 0.88% -- 6.37%
-- 1.04 $11.05 11.47% $ 988 1.16% 1.43% 1.24% 2.09%
-- 1.42 $12.79 25.04%+ $ 2,456 2.07%+ 0.81%+ 2.07%+ 2.51%
-- 0.29 $11.37 2.90% $ 1,763 2.10% 0.05% -- 3.56%(24)
-- 0.24 $11.08 2.62%++ $ 1,131 2.05%+ 0.75%+ -- 6.37%+
-- 1.53 $13.67 27.20%+ $553,870 1.07%+ 1.81%+ 1.07%+ 2.51%
-- 0.35 $12.14 3.98% $487,986 1.10% 1.05% -- 3.56%(24)
-- 0.74 $11.79 7.79% $389,997 1.10% 1.01% -- 6.37%
-- 1.04 $11.05 11.47% $106,300 1.16% 1.43% 1.24% 2.09%
-- 0.01 $10.01 1.26%+ $ 36,545 1.15%+ 1.18%+ 1.92%+ 0.30%++
- -------------------------------------------------------------------------------------------------------------------------
-- 0.03 $10.50 6.48%+ $ 86,341 0.90%+ 5.70%+ 0.90%+ 12.66%
-- 0.18 $10.47 8.04% $ 42,343 0.86% 6.01% -- 31.66%
-- (0.08) $10.29 5.65% $ 18,324 0.79% 6.17% -- 31.62%
-- 1.16 $10.37 19.48% $ 11,654 0.73% 5.98% -- 36.47%
-- (1.20) $ 9.21 (6.31%) $ 11,983 0.74% 5.73% -- 54.60%
-- 0.13 $10.41 8.41% $ 16,491 0.74% 5.44% -- 92.80%
-- (0.04) $10.28 11.17%+ $ 4,509 0.75%+ 7.04%+ -- 56.30%+
-- 0.03 $10.41 5.80%+ $ 728 1.65%+ 4.95%+ 1.65%+ 12.66%
-- 0.18 $10.38 7.32% $ 385 1.61% 5.26% -- 31.66%
-- 0.20 $10.20 3.50%++ $ 122 1.60%+ 1.52%+ -- 31.62%+
-- 0.03 $10.51 6.74%+ $506,610 0.65%+ 5.95%+ 0.65%+ 12.66%
-- 0.19 $10.48 8.37% $482,679 0.61% 6.26% -- 31.66%
-- (0.08) $10.29 5.78% $395,105 0.67% 6.29% -- 31.62%
-- 1.16 $10.37 19.48% $393,656 0.73% 5.98% -- 36.47%
-- (1.20) $ 9.21 (6.31%) $381,036 0.74% 5.73% -- 54.60%
-- 0.13 $10.41 8.41% $413,299 0.74% 5.44% -- 92.80%
-- (0.27) $10.28 6.00% $215,923 0.74% 6.91% -- 56.30%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
155
<PAGE> 217
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
----------------------------------------------------------------------------
TOTAL
NET ASSET NET REALIZED INCOME
VALUE NET AND UNREALIZED FROM
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT
OF PERIOD INCOME ON INVESTMENTS OPERATIONS
--------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $10.59 0.31 0.08 $ 0.39
December 31, 1997 $10.27 0.63 0.32 $ 0.95
December 31, 1996 $10.45 0.67 (0.18) $ 0.49
December 31, 1995 $ 9.01 0.63 1.45 $ 2.08
December 31, 1994 $10.32 0.61 (1.31) ($0.70)
December 31, 1993 $10.25 0.76 0.38 $ 1.14
CLASS B SHARES
June 30, 1998 (unau-
dited) $10.59 0.27 0.08 $ 0.35
December 31, 1997 $10.27 0.56 0.32 $ 0.88
December 31, 1996(/5/) $10.00 0.21 0.27 $ 0.48
CLASS I SHARES
June 30, 1998 (unau-
dited) $10.59 0.32 0.08 $ 0.40
December 31, 1997 $10.27 0.66 0.32 $0.98
December 31, 1996 $10.45 0.68 (0.18) $0.50
December 31, 1995 $ 9.01 0.63 1.45 $2.08
December 31, 1994 $10.32 0.61 (1.31) ($0.70)
December 31, 1993 $10.25 0.76 0.38 $1.14
- ----------------------------------------------------------------------------------------------
SHORT BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $10.15 0.25 0.01 $ 0.26
December 31, 1997 $10.11 0.53 0.06 $ 0.59
December 31, 1996 $10.23 0.55 (0.10) $ 0.45
December 31, 1995 $ 9.84 0.58 0.39 $ 0.97
December 31,
1994(/1//0/) $10.00 0.17 (0.16) $ 0.01
CLASS B SHARES
June 30, 1998 (unau-
dited) $10.05 0.23 0.01 $ 0.24
December 31, 1997 $10.02 0.46 0.05 $ 0.51
December 31, 1996(/8/) $10.00 0.12 0.04 $ 0.16
CLASS I SHARES
June 30, 1998 (unau-
dited) $10.15 0.27 0.01 $ 0.28
December 31, 1997 $10.11 0.56 0.06 $ 0.62
December 31, 1996 $10.23 0.55 (0.10) $ 0.45
December 31, 1995 $ 9.84 0.58 0.39 $ 0.97
December 31,
1994(/1//0/) $10.00 0.17 (0.16) $ 0.01
- ----------------------------------------------------------------------------------------------
MULTI SECTOR BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $ 8.00 0.22 0.08 $ 0.30
December 31, 1997 $ 7.84 0.48 0.17 $ 0.65
December 31, 1996 $ 8.18 0.41 (0.25) $ 0.16
FOR THE PERIOD ENDED
12/31/1995(/1//1/) $ 7.68 0.44 0.72 $ 1.16
January 31, 1995 $ 8.25 0.52 (0.57) ($0.05)
FOR THE PERIOD ENDED
1/31/1994(/1//2/) $ 8.36 0.47 (0.09) $ 0.38
CLASS B SHARES
June 30, 1998 (unau-
dited) $ 8.00 0.19 0.10 $ 0.29
December 31, 1997 $ 7.85 0.42 0.17 $ 0.59
December 31, 1996 $ 8.18 0.45 (0.23) $ 0.22
FOR THE PERIOD ENDED
12/31/1995(/1//3/) $ 8.13 0.24 0.27 $ 0.51
FOR THE PERIOD ENDED
12/2/1994(/1//4/) $ 8.16 0.40 (0.55) ($0.15)
CLASS I SHARES
June 30, 1998 (unau-
dited) $ 8.01 0.24 0.07 $ 0.31
December 31, 1997 $ 7.85 0.50 0.17 $ 0.67
December 31, 1996 $ 8.18 0.46 (0.24) $ 0.22
FOR THE PERIOD ENDED
12/31/1995(/1//1/) $ 7.68 0.47 0.72 $ 1.19
January 31, 1995 $ 8.25 0.52 (0.57) ($0.05)
FOR THE PERIOD ENDED
1/31/1994(/1//2/) $ 8.36 0.47 (0.09) $ 0.38
- ----------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------------------------------------------
IN EXCESS
IN EXCESS FROM NET OF NET
FROM NET OF NET REALIZED REALIZED
INVESTMENT INVESTMENT GAIN ON GAIN ON RETURN OF TOTAL
INCOME INCOME INVESTMENTS INVESTMENTS CAPITAL DISTRIBUTIONS
---------- ---------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.31) -- -- -- -- ($0.31)
December 31, 1997 (0.63) -- -- -- -- ($0.63)
December 31, 1996 (0.67) -- -- -- -- ($0.67)
December 31, 1995 (0.64) -- -- -- -- ($0.64)
December 31, 1994 (0.59) -- (0.02) -- -- ($0.61)
December 31, 1993 (0.76) -- (0.31) -- -- ($1.07)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.27) -- -- -- -- ($0.27)
December 31, 1997 (0.56) -- -- -- -- ($0.56)
December 31, 1996(/5/) (0.21) -- -- -- -- ($0.21)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.32) -- -- -- -- ($0.32)
December 31, 1997 (0.66) -- -- -- -- ($0.66)
December 31, 1996 (0.68) -- -- -- -- ($0.68)
December 31, 1995 (0.64) -- -- -- -- ($0.64)
December 31, 1994 (0.59) -- (0.02) -- -- ($0.61)
December 31, 1993 (0.76) -- (0.31) -- -- ($1.07)
- ----------------------------------------------------------------------------------------------
SHORT BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.26) -- -- -- -- ($0.26)
December 31, 1997 (0.54) -- (0.01) -- -- ($0.55)
December 31, 1996 (0.55) -- (0.02) -- -- ($0.57)
December 31, 1995 (0.58) -- -- -- -- ($0.58)
December 31,
1994(/1//0/) (0.17) -- -- -- -- ($0.17)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.23) -- -- -- -- ($0.23)
December 31, 1997 (0.47) -- (0.01) -- -- ($0.48)
December 31, 1996(/8/) (0.12) -- (0.02) -- -- ($0.14)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.28) -- -- -- -- ($0.28)
December 31, 1997 (0.57) -- (0.01) -- -- ($0.58)
December 31, 1996 (0.55) -- (0.02) -- -- ($0.57)
December 31, 1995 (0.58) -- -- -- -- ($0.58)
December 31,
1994(/1//0/) (0.17) -- -- -- -- ($0.17)
- ----------------------------------------------------------------------------------------------
MULTI SECTOR BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.21) -- -- -- -- ($0.21)
December 31, 1997 (0.47) -- (0.02) -- -- ($0.49)
December 31, 1996 (0.40) -- (0.10) -- -- ($0.50)
FOR THE PERIOD ENDED
12/31/1995(/1//1/) (0.44) -- (0.22) -- -- ($0.66)
January 31, 1995 (0.52) -- -- -- -- ($0.52)
FOR THE PERIOD ENDED
1/31/1994(/1//2/) (0.47) -- (0.02) -- -- ($0.49)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.17) -- -- -- -- ($0.17)
December 31, 1997 (0.42) -- (0.02) -- -- ($0.44)
December 31, 1996 (0.45) -- (0.10) -- -- ($0.55)
FOR THE PERIOD ENDED
12/31/1995(/1//3/) (0.24) -- (0.22) -- -- ($0.46)
FOR THE PERIOD ENDED
12/2/1994(/1//4/) (0.40) -- -- -- -- ($0.40)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.23) -- -- -- -- ($0.23)
December 31, 1997 (0.49) -- (0.02) -- -- ($0.51)
December 31, 1996 (0.45) -- (0.10) -- -- ($0.55)
FOR THE PERIOD ENDED
12/31/1995(/1//1/) (0.47) -- (0.22) -- -- ($0.69)
January 31, 1995 (0.52) -- -- -- -- ($0.52)
FOR THE PERIOD ENDED
1/31/1994(/1//2/) (0.47) -- (0.02) -- -- ($0.49)
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
156
<PAGE> 218
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- 0.08 $10.67 7.44%+ $ 238,038 0.88%+ 5.86%+ 0.88%+ 10.30%
-- 0.32 $10.59 9.65% $ 125,515 0.86% 6.16% -- 17.60%
-- (0.18) $10.27 4.98% $ 46,977 0.78% 6.59% -- 24.92%
-- 1.44 $10.45 23.75% $ 31,714 0.74% 6.39% -- 41.91%
-- (1.31) $ 9.01 (6.99%) $ 32,053 0.74% 6.36% -- 75.67%
-- 0.07 $10.32 11.39% $ 45,410 0.73% 7.20% -- 111.52%
-- 0.08 $10.67 6.66%+ $ 6,097 1.63%+ 5.11%+ 1.63%+ 10.30%
-- 0.32 $10.59 8.91% $ 3,394 1.61% 5.41% -- 17.60%
-- 0.27 $10.27 4.81%++ $ 280 1.59%+ 3.01%+ -- 24.92%+
-- 0.08 $10.67 7.68%+ $1,204,541 0.63%+ 6.11%+ 0.63%+ 10.30%
-- 0.32 $10.59 9.97% $1,101,894 0.61% 6.41% -- 17.60%
-- (0.18) $10.27 5.08% $ 757,627 0.66% 6.71% -- 24.92%
-- 1.44 $10.45 23.75% $ 485,851 0.74% 6.39% -- 41.91%
-- (1.31) $ 9.01 (6.99%) $ 395,116 0.74% 6.36% -- 75.67%
-- 0.07 $10.32 11.39% $ 455,786 0.73% 7.20% -- 111.52%
- -----------------------------------------------------------------------------------------------------------------------------
-- -- $10.15 5.40%+ $ 14,083 0.84%+ 5.14%+ 0.85%+ 23.37%
-- 0.04 $10.15 5.92% $ 4,738 0.82% 5.36% 0.83% 68.04%
-- (0.12) $10.11 4.45% $ 1,033 0.80% 5.35% 0.82% 109.58%
-- 0.39 $10.23 10.07% $ 766 0.75% 5.74% 0.81% 30.94%
-- (0.16) $ 9.84 0.21%+ $ 308 0.75%+ 5.92%+ 0.93%+ 10.20%++
-- 0.01 $10.06 4.66%+ $ 274 1.59%+ 4.39%+ 1.60%+ 23.37%
-- 0.03 $10.05 5.19% $ 541 1.57% 4.61% 1.58% 68.04%
-- 0.02 $10.02 2.04%++ $ 56 1.57%+ 1.47%+ 1.59%+ 109.58%+
-- -- $10.15 5.66%+ $ 244,702 0.59%+ 5.39%+ 0.60%+ 23.37%
-- 0.04 $10.15 6.20% $ 234,972 0.57% 5.61% 0.58% 68.04%
-- (0.12) $10.11 4.56% $ 171,427 0.70% 5.45% 0.72% 109.58%
-- 0.39 $10.23 10.07% $ 162,571 0.75% 5.74% 0.81% 30.94%
-- (0.16) $ 9.84 0.21%+ $ 63,931 0.75%+ 5.92%+ 0.93%+ 10.20%++
- -----------------------------------------------------------------------------------------------------------------------------
-- 0.09 $ 8.09 7.72%+ $ 12,159 0.90%+ 5.82%+ 0.90%+ 35.44%
-- 0.16 $ 8.00 8.58% $ 7,832 0.87% 5.83% -- 38.70%
-- (0.34) $ 7.84 2.75% $ 8,798 0.84% 5.75% 0.90% 103.93%
-- 0.50 $ 8.18 15.55%++ $ 6,095 0.94%+ 5.72%+ 1.15%+ 173.26%++
-- (0.57) $ 7.68 (0.45%) $ 69 0.04% 6.70% 2.78% 71.65%
-- (0.11) $ 8.25 5.16%+ $ 65 -- 5.96%+ 3.67%+ 26.54%++
-- 0.12 $ 8.12 7.06%+ $ 604 1.65%+ 5.07%+ 1.65%+ 35.44%
-- 0.15 $ 8.00 7.75% $ 533 1.62% 5.08% -- 38.70%
-- (0.33) $ 7.85 2.09% $ 502 1.58% 5.01% 1.67% 103.93%
-- 0.05 $ 8.18 6.41%++ $ 259 1.60%+ 5.00%+ 1.78%+ 173.26%++
(7.61)(/3/) (0.55) $ -- (1.82%)++ -- -- 6.48%+ 2.58%+ 71.65%++
-- 0.08 $ 8.09 8.04%+ $ 118,498 0.65%+ 6.07%+ 0.65%+ 35.44%
-- 0.16 $ 8.01 8.86% $ 94,544 0.62% 6.08% -- 38.70%
-- (0.33) $ 7.85 3.14% $ 187,112 0.57% 6.02% 0.66% 103.93%
-- 0.50 $ 8.18 15.90%++ $ 191,930 0.55%+ 6.34%+ 0.67%+ 173.26%++
-- (0.57) $ 7.68 (0.48%) $ 7,101 0.04% 6.70% 2.78% 71.65%
-- (0.11) $ 8.25 5.16%++ $ 5,128 -- 6.21%+ 2.64%+ 26.54%++
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
157
<PAGE> 219
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
-------------------------------------------------------------------------------
TOTAL
NET ASSET NET REALIZED INCOME
VALUE NET AND UNREALIZED FROM
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT
OF PERIOD INCOME ON INVESTMENTS OPERATIONS
--------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
INTERNATIONAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $ 9.88 0.23 (0.09) $ 0.14
December 31, 1997 $10.79 0.45 (0.93) ($0.48)
December 31, 1996 $10.75 0.54 0.04 $ 0.58
For the period ended
12/31/1995(/7/) $10.00 0.98 1.10 $ 2.08
CLASS B SHARES
June 30, 1998 (unau-
dited) $ 9.96 0.22 (0.12) $ 0.10
December 31, 1997 $10.87 0.41 (0.96) ($0.55)
December 31, 1996 $10.81 0.47 0.06 $ 0.53
For the period ended
12/31/1995(/7/) $10.00 0.91 1.16 $ 2.07
CLASS I SHARES
June 30, 1998 (unau-
dited) $ 9.93 0.25 (0.09) $ 0.16
December 31, 1997 $10.85 0.46 (0.93) ($0.47)
December 31, 1996 $10.81 0.59 0.04 $ 0.63
For the period ended
12/31/1995(/7/) $10.00 1.02 1.16 $ 2.18
- -------------------------------------------------------------------------------------------------
HIGH YIELD BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $10.21 0.39 -- $ 0.39
For the period ended
12/31/1997(/2//2/) $10.00 0.19 0.23 $ 0.42
CLASS B SHARES
June 30, 1998 (unau-
dited) $10.20 0.37 0.02 $ 0.39
For the period ended
12/31/1997(/2//2/) $10.00 0.15 0.25 $ 0.40
CLASS I SHARES
June 30, 1998 (unau-
dited) $10.28 0.41 0.01 $ 0.42
For the period ended
12/31/1997(/2//2/) $10.00 0.32 0.29 $ 0.61
- -------------------------------------------------------------------------------------------------
MUNICIPAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $12.87 0.28 (0.01) $ 0.27
December 31, 1997 $12.36 0.56 0.54 $ 1.10
December 31, 1996 $12.64 0.59 (0.18) $ 0.41
For the period ended
12/31/1995(/1//5/) $12.06 0.48 0.82 $ 1.30
02/28/95 $12.13 0.60 (0.07) $ 0.53
02/28/94 $13.25 0.63 (0.15) $ 0.48
02/28/93 $12.49 0.70 1.01 $ 1.71
02/29/92 $12.10 0.76 0.47 $ 1.23
CLASS B SHARES
June 30, 1998 (unau-
dited) $12.86 0.24 (0.01) $ 0.23
December 31, 1997 $12.36 0.46 0.54 $ 1.00
December 31, 1996 $12.65 0.52 (0.21) $ 0.31
For the period ended
12/31/95(/1//6/) $12.17 0.34 0.72 $ 1.06
For the period ended
12/2/94(/1//7/) $12.14 0.41 (0.70) ($0.29)
For the period ended
2/28/94(/1//8/) $12.37 0.03 (0.23) ($0.20)
CLASS I SHARES
June 30, 1998 (unau-
dited) $12.86 0.30 -- $ 0.30
December 31, 1997 $12.36 0.61 0.51 $ 1.12
December 31, 1996 $12.63 0.65 (0.20) $ 0.45
For the period ended
12/31/95(/1//5/) $12.06 0.52 0.81 $ 1.33
For the period ended
2/28/95(/1//9/) $12.06 0.05 -- $ 0.05
- -------------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
-------------------------------------------------------------------------------
FROM NET
REALIZED IN EXCESS
IN EXCESS GAIN ON OF NET
FROM NET OF NET INVESTMENTS & REALIZED
INVESTMENT INVESTMENT FOREIGN CURRENCY GAIN ON RETURN OF TOTAL
INCOME INCOME TRANSACTIONS INVESTMENTS CAPITAL DISTRIBUTIONS
---------- ---------- ---------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.22) -- -- -- -- ($0.22)
December 31, 1997 (0.43) -- (0.00) -- -- ($0.43)
December 31, 1996 (0.54) -- -- -- -- ($0.54)
For the period ended
12/31/1995(/7/) (0.98) (0.01) (0.34) -- -- ($1.33)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.19) -- -- -- -- ($0.19)
December 31, 1997 (0.36) -- (0.00) -- -- ($0.36)
December 31, 1996 (0.47) -- -- -- -- ($0.47)
For the period ended
12/31/1995(/7/) (0.91) (0.01) (0.34) -- -- ($1.26)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.23) -- -- -- -- ($0.23)
December 31, 1997 (0.45) -- (0.00) -- -- ($0.45)
December 31, 1996 (0.59) -- -- -- -- ($0.59)
For the period ended
12/31/1995(/7/) (1.02) (0.01) (0.34) -- -- ($1.37)
- -------------------------------------------------------------------------------------------------
HIGH YIELD BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.38) -- -- -- -- ($0.38)
For the period ended
12/31/1997(/2//2/) (0.20) -- (0.01) 0.00 -- ($0.21)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.35) -- -- -- -- ($0.35)
For the period ended
12/31/1997(/2//2/) (0.19) -- (0.01) 0.00 -- ($0.20)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.39) -- -- -- -- ($0.39)
For the period ended
12/31/1997(/2//2/) (0.32) -- (0.01) 0.00 -- ($0.33)
- -------------------------------------------------------------------------------------------------
MUNICIPAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.29) -- -- -- -- ($0.29)
December 31, 1997 (0.59) -- 0.00 -- -- ($0.59)
December 31, 1996 (0.58) -- (0.01) (0.10) -- ($0.69)
For the period ended
12/31/1995(/1//5/) (0.48) -- (0.24) -- -- ($0.72)
02/28/95 (0.60) -- -- -- -- ($0.60)
02/28/94 (0.63) -- (0.96) (0.01) -- ($1.60)
02/28/93 (0.70) -- (0.25) -- -- ($0.95)
02/29/92 (0.76) -- (0.08) -- -- ($0.84)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.25) -- -- -- -- ($0.25)
December 31, 1997 (0.50) -- 0.00 -- -- ($0.50)
December 31, 1996 (0.49) -- (0.01) (0.10) -- ($0.60)
For the period ended
12/31/95(/1//6/) (0.34) -- (0.24) -- -- ($0.58)
For the period ended
12/2/94(/1//7/) (0.41) -- -- -- -- ($0.41)
For the period ended
2/28/94(/1//8/) (0.03) -- -- -- -- ($0.03)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.31) -- -- -- -- ($0.31)
December 31, 1997 (0.62) -- 0.00 -- -- ($0.62)
December 31, 1996 (0.61) -- (0.01) (0.10) -- ($0.72)
For the period ended
12/31/95(/1//5/) (0.52) -- (0.24) -- -- ($0.76)
For the period ended
2/28/95(/1//9/) (0.05) -- -- -- -- ($0.05)
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
158
<PAGE> 220
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- (0.08) $ 9.80 2.80%+ $ 8,889 1.15%+ 4.77%+ 1.24%+ 11.09%
-- (0.91) $ 9.88 (4.46%) $ 6,419 1.12% 4.76% 1.33% 4.51%
-- 0.04 $10.79 5.62% $ 2,006 1.15% 4.74% 1.94% 97.82%
-- 0.75 $10.75 21.10%++ $ 487 1.33%+ 4.91%+ 3.65%+ 48.03%++
-- (0.09) $ 9.87 2.06%+ $ 145 1.90%+ 4.02%+ 2.00%+ 11.09%
-- (0.91) $ 9.96 (5.04%) $ 117 1.87% 4.01% 2.08% 4.51%
-- 0.06 $10.87 5.01% $ 46 1.90% 3.99% 4.08% 97.82%
-- 0.81 $10.81 20.90%++ $ 4 2.03%+ 4.39%+ 8.69%+ 48.03%++
-- (0.07) $ 9.86 3.06%+ $ 81,099 0.90%+ 5.02%+ 0.99%+ 11.09%
-- (0.92) $ 9.93 (4.25%) $ 81,843 0.87% 5.01% 1.08% 4.51%
-- 0.04 $10.85 5.99% $ 53,845 0.90% 4.99% 1.40% 97.82%
-- 0.81 $10.81 22.13%++ $ 14,504 0.95%+ 5.71%+ 1.93%+ 48.03%++
- -------------------------------------------------------------------------------------------------------------------------
-- 0.01 $10.22 7.76%+ $ 1,574 1.21%+ 7.63%+ 1.30%+ 18.05%
-- 0.21 $10.21 8.31%+ $ 570 1.22%+ 7.42%+ 1.43%+ 11.17%
-- 0.04 $10.24 7.72%+ $ 235 1.96%+ 6.88%+ 2.05%+ 18.05%
-- 0.20 $10.20 7.82%+ $ 77 1.97%+ 6.67%+ 2.18%+ 11.17%
-- 0.03 $10.31 8.16%+ $ 66,633 0.96%+ 7.88%+ 1.05%+ 18.05%
-- 0.28 $10.28 12.64%+ $ 49,150 0.97%+ 7.67%+ 1.18%+ 11.17%
- -------------------------------------------------------------------------------------------------------------------------
-- (0.02) $12.85 4.38%+ $ 40,157 0.88%+ 4.40%+ 0.88%+ 8.67%
-- 0.51 $12.87 9.13% $ 34,729 0.85% 4.65% -- 32.08%
-- (0.28) $12.36 3.36% $ 29,352 0.83% 4.54% 0.89% 64.51%
-- 0.58 $12.64 10.95%++ $ 7,426 0.89%+ 4.57%+ 1.04%+ 69.31%++
-- (0.07) $12.06 4.45% $ 6,840 1.98% 5.09% 3.89% 60.78%
-- (1.12) $12.13 3.70% $ 9,234 -- 4.85% 1.44% 175.06%
-- 0.76 $13.25 14.37% $ 11,290 -- 5.49% 1.59% 88.53%
-- 0.39 $12.49 10.50% $ 6,591 -- 5.99% 2.75% 66.28%
-- (0.02) $12.84 3.64%+ $ 1,758 1.63%+ 3.65%+ 1.63%+ 8.67%
-- 0.50 $12.86 8.26% $ 1,312 1.60% 3.90% -- 32.08%
-- (0.29) $12.36 2.56% $ 672 1.58% 3.79% 1.70% 64.51%
-- 0.48 $12.65 8.81%++ $ 238 1.66%+ 3.61%+ 2.04%+ 69.31%++
11.44(/3/) (12.14) -- (4.30%)++ -- 3.18%+ 4.51%+ 5.85%+ 60.78%++
-- (0.23) $12.14 (1.64%)++ $ 2 0.50%+ 4.10%+ 2.91%+ 175.06%++
-- (0.01) $12.85 4.66%+ $402,965 0.63%+ 4.65%+ 0.63%+ 8.67%
-- 0.50 $12.86 9.32% $355,814 0.60% 4.90% -- 32.08%
-- (0.27) $12.36 3.76% $338,104 0.58% 4.79% 0.68% 64.51%
-- 0.57 $12.63 11.20%++ $240,160 0.54%+ 4.95%+ 0.67%+ 69.31%++
-- -- $12.06 0.39%++ $220,143 0.65%+ 5.45%+ 0.79%+ 60.78%++
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
159
<PAGE> 221
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
----------------------------------------------------------------------------
TOTAL
NET ASSET NET REALIZED INCOME
VALUE NET AND UNREALIZED FROM
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT
OF PERIOD INCOME ON INVESTMENTS OPERATIONS
--------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
SHORT MUNICIPAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited)(/2//5/) $10.00 0.05 0.07 $ 0.12
CLASS B SHARES
June 30, 1998 (unau-
dited)(/2//5/) $10.00 0.04 -- $ 0.04
CLASS I SHARES
June 30, 1998 (unau-
dited)(/2//5/) $10.00 0.06 0.08 $ 0.14
- ----------------------------------------------------------------------------------------------
INTERMEDIATE MUNICIPAL
BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $12.32 0.26 (0.02) $ 0.24
December 31, 1997 $12.10 0.54 0.28 $ 0.82
December 31, 1996 $12.25 0.53 (0.09) $ 0.44
For the period ended
12/31/95(/1//5/) $11.79 0.44 0.56 $ 1.00
February 28, 1995 $12.18 0.55 (0.36) $ 0.19
February 28, 1994 $12.79 0.61 0.01 $ 0.62
February 28, 1993 $12.25 0.64 0.68 $ 1.32
February 29, 1992 $11.95 0.76 0.37 $ 1.13
CLASS B SHARES
June 30, 1998 (unau-
dited) $12.32 0.21 (0.02) $ 0.19
December 31, 1997 $12.10 0.43 0.30 $ 0.73
December 31, 1996 $12.25 0.44 (0.09) $ 0.35
For the period ended
12/31/95(/1//5/) $11.80 0.37 0.55 $ 0.92
For the period ended
2/28/95(/2//0/) $11.57 0.04 0.23 $ 0.27
For the period ended
12/2/94(/1//7/) $12.18 0.37 (0.72) ($0.35)
For the period ended
2/28/94(/1//8/) $12.32 0.03 (0.14) ($0.11)
CLASS I SHARES
June 30, 1998 (unau-
dited) $12.33 0.27 (0.02) $ 0.25
December 31, 1997 $12.11 0.57 0.28 $ 0.85
December 31, 1996 $12.25 0.56 (0.08) $ 0.48
For the period ended
12/31/95(/1//5/) $11.80 0.47 0.55 $ 1.02
February 28,
1995(/1//9/) $11.57 0.04 0.23 $ 0.27
- ----------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) $10.93 0.24 0.02 $ 0.26
December 31, 1997 $10.48 0.49 0.44 $ 0.93
December 31, 1996 $10.60 0.48 (0.14) $ 0.34
December 31, 1995 $ 9.54 0.48 1.06 $ 1.54
December 31, 1994 $10.60 0.50 (1.06) ($0.56)
December 31,
1993(/2//1/) $10.00 0.44 0.59 $ 1.03
CLASS B SHARES
June 30, 1998 (unau-
dited) $10.59 0.21 0.02 $ 0.23
December 31, 1997 $10.18 0.38 0.44 $ 0.82
For the period ended
12/31/96(/8/) $10.00 0.07 0.17 $ 0.24
CLASS I SHARES
June 30, 1998 (unau-
dited) $10.93 0.25 0.03 $ 0.28
December 31, 1997 $10.48 0.51 0.45 $ 0.96
December 31, 1996 $10.60 0.49 (0.14) $ 0.35
December 31, 1995 $ 9.54 0.48 1.06 $ 1.54
December 31, 1994 $10.60 0.50 (1.06) ($0.56)
December 31,
1993(/2//1/) $10.00 0.44 0.59 $ 1.03
- ----------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------------------------------------------
IN EXCESS
IN EXCESS FROM NET OF NET
FROM NET OF NET REALIZED REALIZED
INVESTMENT INVESTMENT GAIN ON GAIN ON RETURN OF TOTAL
INCOME INCOME INVESTMENTS INVESTMENTS CAPITAL DISTRIBUTIONS
---------- ---------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHORT MUNICIPAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited)(/2//5/) (0.05) -- -- -- -- ($0.05)
CLASS B SHARES
June 30, 1998 (unau-
dited)(/2//5/) (0.04) -- -- -- -- ($0.04)
CLASS I SHARES
June 30, 1998 (unau-
dited)(/2//5/) (0.05) -- -- -- -- ($0.05)
- ----------------------------------------------------------------------------------------------
INTERMEDIATE MUNICIPAL
BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.26) -- -- -- -- ($0.26)
December 31, 1997 (0.54) -- (0.06) -- -- ($0.60)
December 31, 1996 (0.51) -- (0.08) -- -- ($0.59)
For the period ended
12/31/95(/1//5/) (0.44) -- (0.10) -- -- ($0.54)
February 28, 1995 (0.55) -- (0.03) -- -- ($0.58)
February 28, 1994 (0.61) -- (0.62) -- -- ($1.23)
February 28, 1993 (0.64) -- (0.14) -- -- ($0.78)
February 29, 1992 (0.76) -- (0.07) -- -- ($0.83)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.22) -- -- -- -- ($0.22)
December 31, 1997 (0.45) -- (0.06) -- -- ($0.51)
December 31, 1996 (0.42) -- (0.08) -- -- ($0.50)
For the period ended
12/31/95(/1//5/) (0.37) -- (0.10) -- -- ($0.47)
For the period ended
2/28/95(/2//0/) (0.04) -- -- -- -- ($0.04)
For the period ended
12/2/94(/1//7/) (0.37) -- (0.03) -- -- ($0.40)
For the period ended
2/28/94(/1//8/) (0.03) -- -- -- -- ($0.03)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.28) -- -- -- -- ($0.28)
December 31, 1997 (0.57) -- (0.06) -- -- ($0.63)
December 31, 1996 (0.54) -- (0.08) -- -- ($0.62)
For the period ended
12/31/95(/1//5/) (0.47) -- (0.10) -- -- ($0.57)
February 28,
1995(/1//9/) (0.04) -- -- -- -- ($0.04)
- ----------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND
CLASS A SHARES
June 30, 1998 (unau-
dited) (0.24) -- -- -- -- ($0.24)
December 31, 1997 (0.48) -- -- -- -- ($0.48)
December 31, 1996 (0.46) -- -- -- -- ($0.46)
December 31, 1995 (0.48) -- -- -- -- ($0.48)
December 31, 1994 (0.50) -- -- -- -- ($0.50)
December 31,
1993(/2//1/) (0.43) -- -- -- -- ($0.43)
CLASS B SHARES
June 30, 1998 (unau-
dited) (0.21) -- -- -- -- ($0.21)
December 31, 1997 (0.41) -- -- -- -- ($0.41)
For the period ended
12/31/96(/8/) (0.06) -- -- -- -- ($0.06)
CLASS I SHARES
June 30, 1998 (unau-
dited) (0.26) -- -- -- -- ($0.26)
December 31, 1997 (0.51) -- -- -- -- ($0.51)
December 31, 1996 (0.47) -- -- -- -- ($0.47)
December 31, 1995 (0.48) -- -- -- -- ($0.48)
December 31, 1994 (0.50) -- -- -- -- ($0.50)
December 31,
1993(/2//1/) (0.43) -- -- -- -- ($0.43)
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
160
<PAGE> 222
PEGASUS FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- 0.07 $10.07 3.96%+ $ 73 .87%+ 3.99%+ .96%+ 29.48%
-- 0.00 $10.00 3.60%+ $ 1 1.62%+ 3.24%+ 1.71%+ 29.48%
-- 0.09 $10.09 4.08%+ $ 1,053 .62%+ 4.24%+ .71%+ 29.48%
- ----------------------------------------------------------------------------------------------------------------------------
-- (0.02) $12.30 3.90%+ $ 20,177 0.85%+ 4.15%+ 0.85%+ 7.63%
-- 0.22 $12.32 7.05% $ 18,903 0.84% 4.41% -- 36.82%
-- (0.15) $12.10 3.69% $ 19,049 0.83% 4.37% 0.88% 52.95%
-- 0.46 $12.25 8.58%++ $ 17,777 0.83%+ 4.30%+ 0.97%+ 44.75%++
-- (0.39) $11.79 1.64% $ 17,243 0.29% 4.73% 1.38% 128.02%
-- (0.61) $12.18 4.94% $ 28,826 0.06% 4.78% 1.27% 167.95%
-- 0.54 $12.79 11.26% $ 27,885 -- 5.16% 1.31% 63.67%
-- 0.30 $12.25 9.78% $ 18,310 -- 6.15% 1.72% 86.91%
-- (0.03) $12.29 3.16%+ $ 801 1.60%+ 3.40%+ 1.60%+ 7.63%
-- 0.22 $12.32 6.19% $ 709 1.59% 3.66% -- 36.82%
-- (0.15) $12.10 2.90% $ 611 1.58% 3.62% 1.68% 52.95%
-- 0.45 $12.25 7.75%++ $ 341 1.71%+ 3.36%+ 2.01%+ 44.75%++
-- 0.23 $11.80 2.30%++ $ 6 1.36%+ 3.72%+ 1.64%+ 128.02%++
(11.43)(/8/) (0.75) -- (2.98%)++ -- 0.76%+ 4.03%+ 2.00%+ 128.02%++
-- (0.14) $12.18 (0.93%)++ $ 12 0.75%+ 1.68%+ 3.00%+ 167.95%++
-- (0.03) $12.30 4.16%+ $433,802 0.60%+ 4.40%+ 0.60%+ 7.63%
-- 0.22 $12.33 7.29% $377,331 0.59% 4.66% -- 36.82%
-- (0.14) $12.11 4.05% $373,970 0.58% 4.62% 0.64% 52.95%
-- 0.45 $12.25 8.76%++ $373,753 0.55%+ 4.78%+ 0.68%+ 44.75%++
-- 0.23 $11.80 2.37%++ $365,801 0.50%+ 4.79%+ 0.60%+ 128.02%++
- ----------------------------------------------------------------------------------------------------------------------------
-- 0.02 $10.95 4.94%+ $ 18,693 0.91%+ 4.43%+ 0.92%+ 13.58%
-- 0.45 $10.93 9.15% $ 18,687 0.92% 4.59% 0.98% 37.84%
-- (0.12) $10.48 3.32% $ 18,575 0.88% 4.57% 0.96% 24.49%
-- 1.06 $10.60 16.49% $ 21,034 0.79% 4.71% 1.04% 26.97%
-- (1.06) $ 9.54 (5.42%) $ 21,106 0.53% 5.01% 1.05% 25.93%
-- 0.60 $10.60 11.50%+ $ 26,342 0.19%+ 5.12%+ 1.21%+ 41.70%++
-- 0.02 $10.61 4.30%+ $ 1,436 1.66%+ 3.68%+ 1.67%+ 13.58%
-- 0.41 $10.59 8.26% $ 707 1.67% 3.84% 1.73% 37.84%
-- 0.18 $10.18 2.45%++ $ 110 1.69%+ 2.01%+ 1.77%+ 24.49%+
-- 0.02 $10.95 5.18%+ $ 79,934 0.66%+ 4.68%+ 0.67%+ 13.58%
-- 0.45 $10.93 9.42% $ 61,768 0.67% 4.84% 0.73% 37.84%
-- (0.12) $10.48 3.44% $ 41,909 0.77% 4.68% 0.85% 24.49%
-- 1.06 $10.60 16.49% $ 32,419 0.79% 4.71% 1.04% 26.97%
-- (1.06) $ 9.54 (5.42%) $ 24,157 0.53% 5.01% 1.05% 25.93%
-- 0.60 $10.60 11.50%+ $ 15,772 0.19%+ 5.12%+ 1.21%+ 41.70%++
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
161
<PAGE> 223
NOTES TO FINANCIAL HIGHLIGHTS
(1) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares under the then-current sales load schedule and
such shares converted to Class A Shares.
(2) For the period March 3, 1995 (re-offering date of Class B Shares) through
December 31, 1995.
(3) On December 2, 1994, the Fund terminated its offering of Class B Shares
under the then-current sales load schedule and such shares converted to
Class A Shares.
(4) For the period March 3, 1995 (initial offering date of Class I Shares)
through December 31, 1995.
(5) For the period August 24, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(6) For the period December 17, 1996 (commencement of operations) through
December 31, 1996.
(7) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(8) For the period September 23, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(9) For the period December 3, 1994 (commencement of operations) through
December 31, 1994.
(10) For the period September 17, 1994 (commencement of operations) through
December 31, 1994.
(11) For the period February 1, 1995 (commencement of operations) through
December 31, 1995. Effective February 1, 1995, the Fund changed its fiscal
year end from January 31 to December 31.
(12) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
(13) For the period May 31, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective February 1, 1995, the Fund changed its fiscal
year end from January 31, to December 31.
(14) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares and such shares converted to Class A shares.
(15) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
(16) For the period April 4, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective March 1, 1995, the Fund changed its fiscal
year end from February 28 to December 31.
(17) For the period March 1, 1994 through December 2, 1994. On December 2,
1994, the Fund terminated its offering of Class B Shares and such shares
converted to Class A Shares.
Pegasus Funds
162
<PAGE> 224
(18) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
(19) For the period February 1, 1995 (initial offering date of Class I Shares)
to February 28, 1995.
(20) For the period January 30, 1995 (re-offering date of Class B Shares)
through February 28, 1995.
(21) For the period February 1, 1993 (commencement of operations) through
December 31, 1993.
(22) For the period June 30, 1997 (commencement of operations) through December
31, 1997.
(23) The Portfolio Turnover Percentage was adjusted for Redemptions In-Kind for
shareholders that took place during 1997 for the Equity Index, Mid-Cap
Opportunity and Intrinsic Value Funds. Each Fund's securities sales were
appropriately reduced by the fair market value of the Redemptions In-Kind.
The Redemptions In-Kind for the Equity Index, Mid-Cap Opportunity and
Intrinsic Value Funds were approximately $260 million, $4 million and $5
million, respectively.
(24) The Portfolio Turnover Percentage was adjusted for a conversion of assets
from First National Bank of Chicago's International Equity Common Trust
Fund, which took place during 1997. The Fund's securities purchases were
appropriately reduced by the fair market value of the asset transfer
approximating $20 million.
(25) For the period May 1, 1998 (commencement of operations) through June 30,
1998.
(a) Total returns as presented do not include any applicable sales load or
redemption charges.
+ Annualized.
++ Not Annualized.
Pegasus Funds
163
<PAGE> 1
Exhibit 17(g)
PEGASUS FUNDS
(800) 688-3350
Table of Contents
1 Letter to Shareholders
3 Statements of Assets and Liabilities
4 Statements of Operations
5 Statements of Changes in Net Assets
6 Portfolios of Investments
19 Notes to Financial Statements
26 Financial Highlights
28 Report of Independent Public Accountants
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY. INVESTMENT
IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A CONSTANT NET
ASSET VALUE OF $1.00 PER SHARE.
INVESTMENT ADVISER
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, MS 0334
Chicago, IL 60670-0334
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
Pegasus Funds I
<PAGE> 2
Dear Shareholder:
INVESTMENT YEAR IN REVIEW
It appears that the U.S. economy is experiencing an almost ideal combination of
continued growth, tame inflation, and strong employment. U.S. Federal Reserve
(Fed) policy makers left the benchmark Federal Funds (Fed Funds) rate unchanged
for most of 1997. The Fed last raised the Fed Funds rate from 5.25% to 5.50% on
March 25, 1997, as large gains in gross domestic product were reported for the
fourth quarter of 1996 (4.3%) and the first quarter of 1997 (4.9%). The Fed
worried that the strong economy would lead to increasing inflation. The economy
did remain strong for the rest of 1997, but excessive inflation did not appear.
For the year, inflation as measured by the consumer price index (CPI), was only
1.7%. The U.S. economy is enjoying some of the lowest inflation in more than a
decade. Except for 1986, when the collapse of oil prices led to a drop in the
CPI, inflation has not been so low since the 1960s.
Employment also remains strong. December's unemployment rate came in at 4.7%,
which followed November's 4.6%, the lowest in 24 years. The economy of 1997 has
caused many economists to re-think the traditional teaching that tight labor
markets almost certainly result in higher wages which in turn result in higher
prices as the wage increases are passed on to the consumer. However, wages are
rising. There are worker shortages in many industries and companies are
increasing compensation to retain and attract employees. And because of this,
the Fed will most certainly keep a watchful eye on wage pressures.
MUNICIPAL MONEY MARKET REVIEW
For much of the first part of 1997, the short-term tax-exempt market saw
excessive cash inflows with tax-free money funds at a record level of $150
billion in assets by the end of the first quarter. The Fed Funds increase in
March led many longer-term investors toward a more cautionary position by
shifting assets from the capital markets to the cash markets. By mid-April, the
positive cash flows which had been present for much of the early stages of the
year finally reversed as income-tax related redemptions caused tax-free assets
to fall by nearly $7 billion or almost 5%.
The second half of the year was supply driven with 83% ($37.4 billion) of total
1997 new issuances coming to market. This was a welcome source of relief for
fund managers as they deployed some of their excess liquidity into longer-term
notes. The combination of heavy supply and investor interest in the surging
equity market resulted in upward pressure on short-term tax-exempt interest
rates, resulting in a sharply inverted yield curve at year end. We expect the
curve to return to normal in the beginning of the year.
INTEREST RATE OUTLOOK
It appears that the Fed will hold a steady course until the problems in Asia
are resolved in the upcoming months. Some have talked of deflation, but this
seems unlikely as our domestic economy remains robust. U.S. Treasury yields
have been pushed down by a "flight to quality" causing the short-end of the
yield curve to invert. As the Asian problems are sorted out, the short-end of
the curve should become positively sloped again. It looks like 1998 will be
similar to 1997 with short-term interest rates generally holding relatively
steady in both the taxable and tax-exempt markets.
Sincerely,
LOGO
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
<PAGE> 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
2 Pegasus Funds
<PAGE> 4
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
-------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $2,179,962,259 $977,377,992 $726,864,739 $103,727,142
- ---------------------------------------------------------------------------------------
At amortized cost $2,182,925,547 $978,067,127 $726,598,012 $103,416,678
Cash 804,947 2,164 48,062 25,267
Interest receivable 21,265,978 4,967,107 4,664,194 874,320
Prepaids and other 480,685 -- -- 27,936
- ---------------------------------------------------------------------------------------
TOTAL ASSETS 2,205,477,157 983,036,398 731,310,268 104,344,201
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payable for shares re-
deemed 7,975,314 -- 30,000 --
Accrued administration
fees 291,613 120,054 98,130 13,610
Shareholder services
fees payable 203,619 49,917 44,602 6,610
Accrued investment advi-
sory fees 549,721 240,107 196,259 27,220
Accrued transfer agent
fees 85,625 10,325 7,491 81
Accrued custodial fees 2,969 4,028 5,157 239
Dividends payable 4,336,196 2,823,688 1,537,037 206,829
Other payables and ac-
crued expenses -- 65,587 72,447 --
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES 13,445,057 3,313,706 1,991,123 254,589
- ---------------------------------------------------------------------------------------
NET ASSETS $2,192,032,100 $979,722,692 $729,319,145 $104,089,612
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AND RE-
DEMPTION PRICE PER
SHARE:
CLASS A SHARES:
Net assets $ 973,820,802 $234,049,808 $204,526,632 $ 29,201,826
Capital shares 973,818,008 234,066,536 204,580,757 29,202,390
- ---------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
CLASS B SHARES:
Net assets $ 338,263 $ -- $ -- $ --
Capital shares 338,263 -- -- --
- ---------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ -- $ -- $ --
- ---------------------------------------------------------------------------------------
CLASS I SHARES:
Net assets $1,217,873,035 $745,672,884 $524,792,513 $ 74,887,786
Capital shares 1,217,873,035 745,672,884 524,794,138 74,888,209
- ---------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital shares (unlim-
ited number of shares
authorized, par value
$.10 per share) $ 219,202,931 $ 97,973,942 $ 72,937,490 $ 10,409,060
Additional paid-in capi-
tal 1,972,826,375 881,765,478 656,437,405 93,681,539
Accumulated undistrib-
uted net realized gains
(losses) 2,794 (16,728) (55,750) (987)
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS $2,192,032,100 $979,722,692 $729,319,145 $104,089,612
- ---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
3
<PAGE> 5
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
-----------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME $137,212,807 $58,855,781 $31,246,988 $4,688,142
- ------------------------------------------------------------------------------------
EXPENSES:
Investment advisory
fees 6,818,663 2,939,704 2,544,532 379,957
Administration fees 3,641,198 1,602,847 1,272,266 189,978
Transfer and dividend
disbursement agent fees 1,204,507 77,320 73,570 13,499
Shareholder service
fees (Class A shares) 2,074,770 473,261 463,609 143,515
Shareholder service
fees (Class B shares) 994 -- -- --
12b-1 fees (Class B
shares) 2,984 -- -- --
Professional fees 105,908 63,738 50,471 37,115
Custodial fees 36,857 12,828 38,829 8,024
Registration, filing
fees and other expenses 211,196 122,469 66,465 49,295
Less: Expense reim-
bursement (46,475) -- -- (44,602)
- ------------------------------------------------------------------------------------
NET EXPENSES 14,050,602 5,292,167 4,509,742 776,781
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME 123,162,205 53,563,614 26,737,246 3,911,361
- ------------------------------------------------------------------------------------
NET REALIZED LOSSES ON
INVESTMENTS -- -- (2,098) --
- ------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS FROM OPERATIONS $123,162,205 $53,563,614 $26,735,148 $3,911,361
- ------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
4 Pegasus Funds
<PAGE> 6
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY
MONEY MARKET MONEY MARKET
FUND FUND
------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income $ 123,162,205 $ 101,190,560 $ 53,563,614 $ 66,048,537
Net realized
gains (losses)
on investments -- 2,794 -- (743)
- -------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 123,162,205 101,193,354 53,563,614 66,047,794
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME (NOTE 2):
Class A shares (40,816,984) (39,714,946) (9,126,231) (15,961,445)
Class B shares (15,474) (1,519)(/1/) -- --
Class I shares (82,329,747) (61,474,095)(/2/) (44,437,383) (50,087,092)(/2/)
- -------------------------------------------------------------------------------------------------
Total distribu-
tions to share-
holders (123,162,205) (101,190,560) (53,563,614) (66,048,537)
- -------------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold 9,687,488,060 14,864,047,666 4,728,247,544 14,570,699,743
Proceeds from
shares issued in
connection with
merger -- 401,052,532 -- 441,805,139
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders 59,792,177 34,746,272 13,617,762 10,667,035
- -------------------------------------------------------------------------------------------------
9,747,280,237 15,299,846,470 4,741,865,306 15,023,171,917
Less: payments
for shares re-
deemed (9,999,101,019) (14,495,691,196) (5,032,144,249) (14,680,865,041)
- -------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions (251,820,782) 804,155,274 (290,278,943) 342,306,876
- -------------------------------------------------------------------------------------------------
NET INCREASE (DE-
CREASE) IN NET
ASSETS (251,820,782) 804,158,068 (290,278,943) 342,306,133
NET ASSETS:
Beginning of
year 2,443,852,882 1,639,694,814 1,270,001,635 927,695,502
- -------------------------------------------------------------------------------------------------
End of year $ 2,192,032,100 $ 2,443,852,882 $ 979,722,692 $ 1,270,001,635
- -------------------------------------------------------------------------------------------------
<CAPTION>
MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET
FUND FUND
-------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income $ 26,737,246 $ 20,832,980 $ 3,911,361 $ 3,849,942
Net realized
gains (losses)
on investments (2,098) -- -- (987)
- -------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 26,735,148 20,832,980 3,911,361 3,848,955
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME (NOTE 2):
Class A shares (5,495,113) (6,597,625) (1,691,184) (2,516,627)
Class B shares -- -- -- --
Class I shares (21,242,133) (14,235,355)(/2/) (2,220,177) (1,333,315)(/2/)
- -------------------------------------------------------------------------------------------------
Total distribu-
tions to share-
holders (26,737,246) (20,832,980) (3,911,361) (3,849,942)
- -------------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold 2,227,511,937 3,285,400,405 385,607,333 360,970,978
Proceeds from
shares issued in
connection with
merger -- 281,427,973 -- --
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders 6,014,147 4,167,474 1,688,415 2,226,403
- -------------------------------------------------------------------------------------------------
2,233,526,084 3,570,995,852 387,295,748 363,197,381
Less: payments
for shares re-
deemed (2,318,368,395) (3,321,245,774) (404,815,670) (363,643,802)
- -------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions (84,842,311) 249,750,078 (17,519,922) (446,421)
- -------------------------------------------------------------------------------------------------
NET INCREASE (DE-
CREASE) IN NET
ASSETS (84,844,409) 249,750,078 (17,519,922) (447,408)
NET ASSETS:
Beginning of
year 814,163,554 564,413,476 121,609,534 122,056,942
- -------------------------------------------------------------------------------------------------
End of year $ 729,319,145 $ 814,163,554 $ 104,089,612 $ 121,609,534
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period September 14, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(2) For the period of March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
See Notes to Financial Statements.
Pegasus Funds 5
<PAGE> 7
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 4.90%
Paccar Leasing Master Note, 5.93%, 1/2/98........... 15,000,000 15,000,000
Salomon Brothers, Revolving Repurchase Agreement,
6.625%, 1/2/98 (secured by various U.S. Treasury
Notes with maturities ranging from 7/15/98 through
2/28/02 at various interest rates ranging from
5.75% to 8.25%, all held at Chase Bank)............ 15,000,000 15,000,000
Smith Barney, Inc., Revolving Repurchase Agreement,
6.75%, 1/2/98 (secured by various U.S. Treasury &
Agency Obligations with maturities ranging from
7/31/98 through 12/15/07 at various interest rates
ranging from 0.00% to 9.00%, all held at The Bank
of New York)....................................... 77,000,000 77,000,000
-------------
107,000,000
-------------
COMMERCIAL PAPER -- 30.34%
Akzo Funding Corp., 5.72%, 4/6/98................... 10,000,000 9,849,056
Apreco, Inc., 5.85%, 2/17/98........................ 20,000,000 19,847,250
Banca Serfin S.A., 5.65%, 8/31/98................... 30,000,000 28,860,583
Barton Capital Corp., 5.95%, 2/10/98................ 9,700,000 9,635,872
Block Financial Corp., 5.70%, 1/30/98............... 10,000,000 9,954,083
BTR Dunlop Finance, 5.72%, 2/18/98.................. 25,000,000 24,809,333
Calicia Funding Corp., 5.75%, 3/4/98................ 16,000,000 15,841,556
Centre Square Funding Corp.:
5.62%, 1/5/98..................................... 18,000,000 17,988,760
6.00%, 2/20/98.................................... 28,168,000 27,933,267
Centric Capital Corp., 5.71%, 9/2/98................ 13,000,000 12,496,886
Commission Federal De Electricidad, 5.75%, 2/26/98.. 10,000,000 9,910,556
Compass Securitization, Inc., 6.35%, 1/15/98........ 15,000,000 14,962,958
Dairy Investments LTD.:
5.70%, 2/18/98.................................... 25,000,000 24,810,000
5.75%, 3/17/98.................................... 10,000,000 9,880,208
Equipment Intermediation Partnership:
5.80%, 1/7/98..................................... 12,000,000 11,988,400
5.93%, 1/8/98..................................... 16,000,000 15,981,551
Explorer Pipeline Co.:
5.75%, 1/20/98.................................... 13,000,000 12,960,549
5.75%, 3/12/98.................................... 7,000,000 6,921,736
Greenwich Funding Corp., 5.90%, 1/20/98............. 10,000,000 9,966,750
Market Street Funding, 6.20%, 1/9/98................ 20,000,000 19,972,444
Matson Navigation, 6.75%, 1/8/98.................... 12,000,000 11,984,250
Mont Blanc Capital Corp., 5.85%, 1/20/98............ 10,000,000 9,969,125
National Power, 5.75%, 3/5/98....................... 14,000,000 13,859,125
Pacific Dunlop Limited:
5.75%, 3/9/98..................................... 20,000,000 19,785,972
5.75%, 3/10/98.................................... 5,000,000 4,945,694
Pearson, Inc., 5.90%, 1/8/98........................ 14,000,000 13,983,939
PHH Corporation, 6.75%, 1/2/98...................... 75,000,000 74,985,937
Pooled Accounts Receivable Cap., 5.77%, 3/18/98..... 35,000,000 34,573,661
</TABLE>
See Notes to Financial Statements.
6 Pegasus Funds
<PAGE> 8
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
Prudential Funding, Inc., 5.75%, 4/2/98............. $15,000,000 $ 14,783,117
Rexam Plc., 5.75%, 1/29/98.......................... 15,000,000 14,932,917
Special Purpose Account Receivable Coop Corp.:
6.03%, 1/30/98.................................... 15,000,000 14,927,137
5.75%, 2/12/98.................................... 27,000,000 26,818,875
Sun Belt Dix, Inc.:
5.55%, 1/13/98.................................... 7,651,000 7,636,846
5.78%, 1/15/98.................................... 14,000,000 13,968,531
TI Group, Inc.
5.58%, 1/12/98.................................... 10,000,000 9,982,950
5.55%, 1/23/98.................................... 5,000,000 4,983,042
5.73%, 6/10/98.................................... 17,000,000 16,567,067
Triple A One Funding Corp., 5.93%, 1/6/98........... 24,000,000 23,980,233
Windmill Funding Corp., 5.90%, 1/8/98............... 15,000,000 14,982,792
-------------
662,223,008
-------------
BANKERS ACCEPTANCE NOTES -- 0.92%:
LaSalle National Bank, 5.93%, 3/10/98............... 20,000,000 20,000,000
-------------
CORPORATE NOTES -- 22.72%
Allstate Life Insurance Co., 5.87%, 3/1/98*......... 10,000,000 10,000,000
Beta Finance Corp., Medium Term Note, 5.82%,
1/28/98............................................ 22,000,000 22,000,000
CIT Group Holdings, 6.75%, 4/30/98.................. 10,000,000 10,016,734
Commonwealth Life Insurance Co., 5.86%, 3/1/98*..... 5,000,000 5,000,000
CSA Funding (A/R), Series C, 6.34%, 3/31/98......... 24,000,000 24,000,000
GE Engine Receivables Trust, (A/R), 6.34%, 2/14/00.. 26,811,485 26,811,485
General American Life Funding Agr., 5.85%, 1/30/98.. 35,500,000 35,500,000
Key Auto Finance, 5.835%, 1/5/99.................... 40,000,000 40,000,000
Morgan Guaranty Trust Co.:
5.965%, 6/22/98................................... 17,000,000 16,997,279
5.93%, 8/31/98.................................... 20,000,000 20,007,729
Peoples Security Life Insurance Co., 5.86%, 3/1/98*. 10,000,000 10,000,000
Sigma Finance, Medium Term Note:
5.84%, 8/4/98..................................... 20,000,000 20,000,000
5.95%, 10/20/98................................... 15,000,000 15,000,000
SunAmerica Life Insurance Co., 5.83%, 1/7/98*....... 14,000,000 14,000,000
SunAmerica Life Insurance Co., 5.79%, 3/1/98*....... 25,000,000 25,000,000
Transamerica Life Insurance & Annuity Co., Funding
Agreement, (A/R),
5.85%, 12/9/02*................................... 50,000,000 50,000,000
Travelers Life Ins Co., Funding Agreement
5.91%, 11/6/98*................................... 25,000,000 25,000,000
Wachovia Bank, Medium Term Note, 5.895%, 10/2/98.... 10,000,000 9,994,570
Wheels Inc., Master Note, (A/R), 6.05%, 8/15/98..... 75,000,000 75,000,000
Wilmington Trust Co.:
Amtrak 93-A, (A/R), 1/1/11........................ 8,592,429 8,592,429
Amtrak 93-I, (A/R), 1/1/11........................ 10,101,919 10,101,919
Amtrak 93-B, (A/R), 1/1/13........................ 22,977,508 22,977,508
-------------
495,999,653
-------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 7
<PAGE> 9
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
CERTIFICATES OF DEPOSIT -- 20.63%
Amro Bank, 5.98%, 3/19/98......................... $ 15,000,000 $ 14,999,395
Banque Nationale De Paris:
5.75%, 2/26/98.................................. 23,000,000 22,998,310
5.815%, 10/5/98................................. 15,500,000 15,485,292
Bayerische Wechsel Bank, 5.94%, 10/22/98.......... 20,000,000 19,990,762
Canadian Imperial Bank of Commerce:
5.685%, 3/2/98.................................. 15,000,000 14,996,814
5.95%, 6/29/98.................................. 16,500,000 16,494,589
5.94%, 10/21/98................................. 18,000,000 17,991,714
Commerzbank AG:
5.89%, 7/9/98................................... 27,000,000 27,000,437
5.94%, 10/23/98................................. 14,000,000 13,993,511
Deutsche Bank:
6.26%, 4/15/98.................................. 20,000,000 19,997,828
5.80%, 8/5/98................................... 22,000,000 21,993,770
Generale Bank, 6.015%, 12/16/98................... 38,500,000 38,505,278
Landesbank Hessen Thuringen, 5.94%, 6/19/98....... 13,000,000 12,996,548
Norddeutsche Landesbank Girozentrale, 5.9175%
10/21/98......................................... 26,000,000 25,989,525
Rabobank Nederland NV, 6.05%, 3/27/98............. 15,000,000 14,997,332
Royal Bank of Canada, 5.955%, 8/13/98............. 14,000,000 13,996,305
Societe Generale:
5.80%, 1/13/98.................................. 15,000,000 14,999,700
6.21%, 5/6/98................................... 20,000,000 19,998,040
5.945%, 8/28/98................................. 19,000,000 18,993,460
5.92%, 10/21/98................................. 20,000,000 19,990,792
Swiss Bank Corp., 5.88%, 11/19/98................. 32,000,000 31,994,599
Toronto Dominion Bank, 5.74%, 1/7/98.............. 27,000,000 27,000,000
Westpac Banking Corp., 5.97%, 3/24/98............. 5,000,000 4,998,885
--------------
450,402,886
--------------
TIME DEPOSITS -- 20.49%
Bank Austria AG, 9.00% 01/2/98.................... 50,000,000 50,000,000
Bank Brussel Lambert, 6.625%, 1/2/98.............. 100,000,000 100,000,000
Citibank N.A., 4.50%, 1/2/98...................... 9,550,000 9,550,000
Istituto Bancario San Paolo, 6.875%, 1/2/98....... 50,000,000 50,000,000
Key Bank N.A., 6.75%, 1/2/98...................... 25,000,000 25,000,000
PNC Bank, 6.50%, 1/2/98........................... 23,000,000 23,000,000
Suntrust Bank, 6.75%, 1/2/98...................... 47,000,000 47,000,000
Union Bank of Switzerland, 8.50%, 1/2/98.......... 80,000,000 80,000,000
Wachovia Bank of North Carolina, 4.50%, 1/2/98.... 62,750,000 62,750,000
--------------
447,300,000
--------------
TOTAL INVESTMENTS.................................. $2,182,925,547
==============
</TABLE>
A/R -- Adjustable Rate
* -- Restricted Security (See Note 7)
See Notes to Financial Statements.
8 Pegasus Funds
<PAGE> 10
PEGASUS TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 86.72%
Aubrey Lanston Revolving Repurchase Agreement,
6.50%, 1/2/98 (secured by various U.S. Treasury
Obligations with maturities ranging from 1/2/98
through 2/15/07 at various interest rates ranging
from 0.00% to 11.875%, all held at Chase Bank).... $ 43,000,000 $ 43,000,000
Barclays Inc., Revolving Repurchase Agreement,
6.60%, 1/2/98 (secured by various U.S. Treasury
Notes with maturities ranging from 8/31/99 through
11/15/00 at various interest rates ranging from
5.875% to 8.50%, all held at The Bank of New
York)............................................. 43,000,000 43,000,000
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 6.50%, 1/2/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
8/15/98 through 11/15/07 at various interest rates
ranging from 0.00% to 8.00%, all held at Custodial
Trust Company).................................... 176,000,000 176,000,000
Donaldson Lufkin, Inc., Revolving Repurchase
Agreement, 6.53%, 1/2/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
4/2/98 through 2/15/07 at various interest rates
ranging from 0.00% to 11.625%, all held at The
Bank of New York)................................. 43,000,000 43,000,000
Credit Suisse First Boston, Revolving Repurchase
Agreement, 6.25%, 1/2/98 (secured by U.S. Treasury
Notes maturing 1/31/99 at an interest rate of
5.00%, all held at Chase Bank).................... 11,000,000 11,000,000
First Union Capital Markets , Revolving Repurchase
Agreement, 6.625%, 1/2/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
1/2/98 through 3/31/99 at various interest rates
ranging from 0.00% to 6.25%, all held at Bankers
Trust Company).................................... 151,000,000 151,000,000
Goldman Sachs Agency, Revolving Repurchase
Agreement, 6.50%, 1/2/98 (secured by U.S. Treasury
Notes maturing 11/15/00 at an interest rate of
5.75%, all held at The Bank of New York).......... 43,000,000 43,000,000
Greenwich Capital Markets, Inc., Revolving
Repurchase Agreement, 6.60%, 1/2/98 (secured by
various U.S. Treasury Obligations with maturities
ranging from 5/15/98 through 2/15/05 all at an
interest rate of 0.00% , all held at Chase Bank).. 43,000,000 43,000,000
H.S.B.C. Treasury, Revolving Repurchase Agreement,
6.625%, 1/2/98 (secured by U.S. Treasury Notes
maturing 8/31/00 at an interest rate of 6.25%, all
held at Chase Bank)............................... 43,000,000 43,000,000
London Global, Revolving Repurchase Agreement,
6.60%, 1/2/98 (secured by various U.S. Treasury
Obligations with maturities ranging from 2/28/98
through 5/15/99 at various interest rates ranging
from 0.00% to 6.375%, all held at Bankers Trust
Company).......................................... 25,170,000 25,170,000
Morgan Stanley Government Collateralized, Revolving
Repurchase Agreement, 6.13%, 1/2/98 (secured by
various U.S. Treasury Notes with maturities
ranging from 8/15/99 through 12/31/99 at various
interest rates ranging from 7.75% to 8.00%, all
held at The Bank of New York)..................... 10,000,000 10,000,000
Nomura Securities Intl., Revolving Repurchase
Agreement, 6.625%, 1/2/98 (secured by various U.S.
Treasury Notes with maturities ranging from
11/15/98 through 5/15/04 at various interest rates
ranging from 5.50% to 7.25%, all held at The Bank
of New York)...................................... 43,000,000 43,000,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 9
<PAGE> 11
PEGASUS TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.625%, 1/2/98 (secured by
various U.S. Treasury Obligations with maturities
ranging from 2/15/02 through 8/15/07 at various
interest rates ranging from 3.375% to 9.375%, all
held at Chase Bank)................................ $131,000,000 $131,000,000
Salomon Brothers, Inc., Revolving Repurchase
Agreement, 6.625%,, 1/2/98 (secured by various U.S.
Treasury Notes with maturities ranging from 7/15/98
through 2/28/02 at various interest rates ranging
from 5.75% to 8.25%, all held at Chase Bank)....... 43,000,000 43,000,000
------------
848,170,000
------------
U.S. GOVERNMENT OBLIGATIONS -- 13.28%
U.S. Treasury Securities:
U.S. Treasury Bills:
5.285%, 01/8/98................................... 20,000,000 19,979,496
U.S. Treasury Notes:
7.875%, 04/15/98.................................. 20,000,000 20,101,364
6.125%, 05/15/98.................................. 20,000,000 20,025,775
6.250%, 07/31/98.................................. 20,000,000 20,064,558
4.750%, 09/30/98.................................. 10,000,000 9,928,024
5.125%, 11/30/98.................................. 40,000,000 39,797,910
------------
129,897,127
------------
TOTAL INVESTMENTS.................................... $978,067,127
============
</TABLE>
See Notes to Financial Statements.
10 Pegasus Funds
<PAGE> 12
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ALABAMA -- 1.82%
Chatom Air Pollution Control, IDR,
2/13/98............................. Aa 3 3.75% $ 8,400,000 $ 8,400,000
Decatur Industrial Development
Revenue, AMT, 1/1/27................ VMIG 1 3.80% 4,800,000 4,800,000
------------
13,200,000
------------
ARIZONA -- 0.62%
Chandler IDR-Parsons Municipal
Services, 12/15/09.................. A 1+ 4.05% 4,500,000 4,500,000
------------
DELAWARE -- 3.19%
Delaware State Economic Development,
AMT, 8/1/29......................... A 1+ 3.75% 23,200,000 23,200,000
------------
DISTRICT OF COLUMBIA -- 4.67%........
District of Columbia General
Obligation, 9/30/98................. VMIG 1 3.85% 8,800,000 8,800,000
District of Columbia, TRAN, Series B,
9/30/98............................. MIG 1 4.50% 12,000,000 12,054,161
District of Columbia, TRAN, Series C,
9/30/98............................. MIG 1 5.00% 9,500,000 9,578,731
District of Columbia American
University, 10/1/15................. VMIG 1 3.85% 3,500,000 3,500,000
------------
33,932,892
------------
FLORIDA -- 3.31%
Sarasota Co. Public Hospital, CP,
1/23/98............................. VMIG 1 3.65% 9,060,000 9,060,000
St. Lucie Co. Pollution Control
Revenue, CP, 4/8/98................. VMIG 1 3.75% 15,000,000 15,000,000
------------
24,060,000
------------
GEORGIA -- 4.54%
Burke County Pollution Control, CP,
5/28/98............................. Aaa 3.80% 17,000,000 17,000,000
Fayette County IDR, Shinsei Corp.
Project, 8/15/07.................... VMIG 1 4.15% 7,000,000 7,000,000
Georgia Municipal Gas, AMT, 1/1/08... A 1+ 3.65% 4,000,000 4,000,000
Macon-Bibb County Hospital Revenue,
8/1/18.............................. Aa 3 4.20% 5,000,000 5,000,000
------------
33,000,000
------------
IDAHO -- 1.73%
Idaho State Revenue, TAN, 6/30/98.... MIG 1 4.625% 12,500,000 12,544,130
------------
ILLINOIS -- 5.10%
Carol Stream Multifamily Revenue,
AMT, 3/15/27........................ A 1+ 4.10% 5,000,000 5,000,000
Cook County General Obligation,
12/1/01............................. VMIG 1 3.65% 2,700,000 2,700,000
Illinois Development Authority
Environment, 5/1/32................. A 1+ 3.85% 14,325,000 14,325,000
Illinois Development Authority
Revenue, MBIA, 11/15/27............. VMIG 1 4.00% 15,000,000 15,000,000
------------
37,025,000
------------
INDIANA -- 3.30%
Burns Harbor, IDR, AMT, 3/1/16....... ** N/R 4.25% 9,000,000 9,000,000
Indiana DFA Solid Waste, CP, 2/20/98. P 1 3.80% 15,000,000 15,000,000
------------
24,000,000
------------
IOWA -- 2.99%
Iowa Finance Authority Revenue,
6/1/19.............................. A 1 4.30% 15,760,000 15,760,000
Iowa Finance Authority, Solid Waste
Disposal, AMT, 2/1/32............... A 1+ 5.10% 6,000,000 6,000,000
------------
21,760,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 11
<PAGE> 13
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
KANSAS -- 0.76%
Butler County Solid Waste Disposal,
AMT, 8/1/24......................... A 1 5.15% $ 5,500,000 $ 5,500,000
------------
KENTUCKY -- 6.61%
Clark County Pollution Control
Revenue, 4/15/98.................... VMIG 1 3.70% 2,000,000 2,000,000
Henderson Co. Solid Waste Disposal
Rev, AMT, 3/1/15.................... VMIG 1 3.75% 9,000,000 9,000,000
Kentucky Asset/Liability, TRAN,
Series A, 6/25/98................... MIG 1 4.50% 17,000,000 17,051,000
Kentucky Economic Development
Authority Hospital Facilities,
8/15/31............................. A 1+ 3.65% 20,000,000 20,000,000
------------
48,051,000
------------
LOUISIANA -- 2.70%
Lake Charles Harbor Revenue, AMT,
9/1/12.............................. P 1 5.10% 2,700,000 2,700,000
Plaquemines Parish, Environmental
Rev, AMT, 10/1/24................... P 1 5.10% 6,900,000 6,900,000
Plaquemines Parish, Environmental
Rev, AMT, 5/1/25.................... P 1 5.10% 2,100,000 2,100,000
South Lousiana Port Revenue, AMT,
1/1/27.............................. VMIG 1 3.95% 6,900,000 6,900,000
St. Charles, Pollution Control
Revenue, AMT, 11/1/21............... VMIG 1 5.10% 1,000,000 1,000,000
------------
19,600,000
------------
MICHIGAN -- 7.43%
Dearborn Economic Development Corp.
Revenue, 3/1/25..................... A 1 3.70% 1,000,000 1,000,000
Grand Rapids Water Supply Revenue,
1/1/20.............................. VMIG 1 3.55% 5,450,000 5,450,000
Ingham County Economic Development,
CP, Limited Obligation Revenue
4/1/22.............................. A 1+ 4.00% 2,470,000 2,470,000
Jackson Co. Economic Development
Corp., Limited Obligation Revenue,
6/1/17.............................. **N/R 4.30% 5,000,000 5,000,000
Kalamazoo EDC, Limited Obligation,
5/15/27............................. A 1+ 3.95% 1,000,000 1,000,000
Kent Hospital Finance Authority
Revenue, Series A, 01/15/20......... VMIG 1 3.65% 1,100,000 1,100,000
Meridian Limited Obligation, EDC,
11/15/14............................ A 1+ 4.05% 600,000 600,000
Michigan State Hospital Finance
Authority, 6/1/01................... VMIG 1 3.65% 1,700,000 1,700,000
Michigan State Hospital Finance
Authority, 11/1/11.................. VMIG 1 3.65% 12,400,000 12,400,000
Michigan State Hospital Finance
Authority, 8/15/15.................. VMIG 1 3.70% 1,000,000 1,000,000
Michigan State Hospital Finance
Authority Revenue, Series A,
12/1/23............................. VMIG 1 3.80% 3,600,000 3,600,000
Michigan State Housing Development
Authority Revenue, Series B,
12/1/07............................. VMIG 1 3.65% 2,900,000 2,900,000
Michigan State Housing Development
Authority Rental Revenue, Series B,
4/1/19.............................. VMIG 1 3.70% 2,300,000 2,300,000
Michigan State Strategic Fund,
Saginaw Products Corporation, AMT,
9/1/17.............................. **N/R 4.30% 200,000 200,000
Michigan State Strategic Fund Limited
Obligation Revenue, AMT, 12/1/22.... **N/R 4.30% 1,050,000 1,050,000
Michigan State Strategic Fund Limited
Obligation, Petoskey Plastics, Inc.,
AMT, 8/1/16......................... **N/R 4.30% 5,000,000 5,000,000
Royal Oak Hospital Finance Authority
Revenue, 1/1/03..................... VMIG 1 4.85% 2,200,000 2,200,000
Wayne Charter Co. Airport Revenue,
AMT, 12/1/16........................ VMIG 1 3.75% 5,000,000 5,000,000
------------
53,970,000
------------
</TABLE>
See Notes to Financial Statements.
12 Pegasus Funds
<PAGE> 14
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
MINNESOTA -- 2.38%
Hennepin County, Series C, 12/1/02.. VMIG 1 4.05% $ 2,600,000 $ 2,600,000
Minneapolis Convention Center Sales
Revenue, 12/1/17................... A 1+ 4.15% 2,300,000 2,300,000
Minneapolis Revenue, Series B,
12/1/07............................ VMIG 1 4.05% 4,900,000 4,900,000
Minnesota State Higher Education
Facilities Authority Revenue,
Series 3-L2, VRDB, 11/1/12......... VMIG 1 4.05% 6,100,000 6,100,000
Rochester General Obligation, Series
A, 11/1/99......................... **N/R 4.10% 1,400,000 1,400,000
------------
17,300,000
------------
MISSOURI -- 1.79%
Missouri State Development Finance
Board, 12/1/98..................... Aa 3 3.80% 8,000,000 8,000,000
Missouri State Health & Educational
Facilities Authority, Series B,
VRDB, 6/1/22....................... Aaa 3.70% 5,000,000 5,000,000
------------
13,000,000
------------
NEBRASKA -- 2.13%
Nebraska Investment Finance
Authority Revenue, Series C, AMT,
7/1/98............................. A 1+ 3.95% 15,500,000 15,500,000
------------
NEVADA -- 1.35%
Clark County, IDR, Series A, AMT,
10/1/30............................ A 1+ 3.95% 4,800,000 4,800,000
Washoe County Water Facilities
Revenue, AMT, 12/1/20.............. P 1 5.10% 5,000,000 5,000,000
------------
9,800,000
------------
NEW HAMPSHIRE -- 1.38%
New Hampshire State Business Finance
Revenue, AMT, 5/1/21............... VMIG 1 3.80% 10,000,000 10,000,000
------------
NEW MEXICO -- 5.80%
New Mexico State, TRAN, 6/30/98..... MIG 1 4.50% 42,000,000 42,129,631
------------
NEW YORK -- 1.62%
New York City General Obligation,
Series F-3, 2/15/13................ VMIG 1 3.65% 800,000 800,000
New York State Energy Development
Revenue, 12/1/98................... Aaa 3.80% 11,000,000 11,000,000
------------
11,800,000
------------
NORTH CAROLINA -- 0.68%
Raleigh Durham Airport Authority
Revenue, 11/1/15................... A 1+ 5.00% 4,950,000 4,950,000
------------
OHIO -- 1.10%
Ohio State Water Development
Authority, AMT, 5/1/98............. P 1 4.10% 8,000,000 8,000,000
------------
PENNSYLVANIA -- 4.53%
Allegheny Co. IDR, VRDB, United
Jewish Federation, 10/1/25......... VMIG 1 4.25% 1,900,000 1,900,000
Carbon County Individual Development
Authority, CP, AMT, 4/3/98......... P 1 3.80% 6,000,000 6,000,000
Indiana County Individual
Development Authority, PCR, AMT,
6/1/27............................. VMIG 1 3.75% 25,000,000 25,000,000
------------
32,900,000
------------
PUERTO RICO -- 3.46%
Puerto Rico Commonwealth, TRAN,
Series A, 7/30/98.................. MIG 1 4.50% 25,000,000 25,105,659
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 13
<PAGE> 15
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ------ ---------
<S> <C> <C> <C> <C>
SOUTH CAROLINA -- 1.02%
Berkley County Industrial Development
Revenue, AMT, 4/1/27................. VMIG 1 5.10% 2,900,000 $ 2,900,000
Charleston County Industrial Revenue,
AMT, 8/1/28.......................... A 1+ 5.10% 3,000,000 3,000,000
Florence County Solid Waste Disposal,
AMT, 4/1/27.......................... A 1+ 5.10% 1,500,000 1,500,000
------------
7,400,000
------------
SOUTH DAKOTA -- 2.00%
South Dakota Housing Development
Authority Revenue, Series C, AMT,
3/26/98.............................. VMIG 1 3.90% 5,000,000 5,000,000
South Dakota Housing Development
Authority Revenue, Series E, AMT,
12/14/00............................. VMIG 1 4.35% 9,500,000 9,500,000
------------
14,500,000
------------
TENNESSEE -- 1.38%
Oak Ridge IDR, AMT, 1/1/06............ Aa 3 4.30% 10,000,000 10,000,000
------------
TEXAS -- 10.75%
Austin Utilities, C/P, Series A,
3/6/98............................... P 1 3.65% 3,670,000 3,670,000
Brazos River Authority, PCR, AMT:
3/1/26............................... VMIG 1 5.10% 10,960,000 10,960,000
6/1/30............................... VMIG 1 5.10% 9,200,000 9,200,000
2/1/32............................... VMIG 1 5.10% 1,600,000 1,600,000
Gulf Coast Waste Disposal Authority
Revenue, AMT:
5/1/25............................... VMIG 1 5.15% 7,700,000 7,700,000
1/1/26............................... VMIG 1 5.10% 4,500,000 4,500,000
Harris County IDR, AMT, 2/1/23........ VMIG 1 5.20% 2,400,000 2,400,000
Matagorda County Revenue, AMT,
11/1/28.............................. VMIG 1 4.95% 2,600,000 2,600,000
North Central Health Facility
Development, 6/1/21.................. VMIG 1 4.00% 5,600,000 5,600,000
North Central Health Facility, CP,
2/19/98.............................. VMIG 1 3.70% 8,700,000 8,700,000
Panhandle Plan Higher Education
Authority Revenue, Series A, AMT,
6/1/21............................... VMIG 1 3.75% 6,000,000 6,000,000
Port of Corpus Christi Authority
Revenue, 9/1/14...................... A 1+ 3.80% 2,800,000 2,800,000
Port of Corpus Christi, IDR, 4/1/18... A 1+ 3.70% 3,500,000 3,500,000
Texas Hospital Equipment Finance
Council Revenue, 4/7/05.............. VMIG 1 3.90% 7,695,000 7,695,000
West Side Calhoun, Series C, AMT,
4/1/31............................... Aa 2 5.10% 1,200,000 1,200,000
------------
78,125,000
------------
UTAH -- 2.93%
Intermountain Power Agency, CP:
3/9/98............................... VMIG 1 3.65% 9,300,000 9,300,000
Series E, 3/16/98.................... VMIG 1 3.75% 12,000,000 12,000,000
------------
21,300,000
------------
VERMONT -- 1.40%
Vermont Educational Health Building
Agency Revenue, 11/1/98.............. Aa 3.85% 6,000,000 6,000,000
Vermont Student Assistance Corp.
Revenue 1/1/04....................... VMIG 1 3.80% 4,200,000 4,200,000
------------
10,200,000
------------
</TABLE>
See Notes to Financial Statements.
14 Pegasus Funds
<PAGE> 16
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ------ ---------
<S> <C> <C> <C> <C>
VIRGINIA -- 4.49%
King George County, IDR, AMT, 3/1/27.. A 1+ 5.10% 4,100,000 $ 4,100,000
Peninsula Ports Authority Revenue,
AMT, 5/1/22.......................... A 1+ 5.10% 18,500,000 18,500,000
Virginia State Public School
Authority, 4/1/98.................... Aa 2 3.60% 10,045,000 10,044,700
------------
32,644,700
------------
WASHINGTON -- 0.15%
Port Seattle Revenue, AMT, 9/1/22..... VMIG 1 3.85% 1,100,000 1,100,000
------------
WYOMING -- 0.89%
Sweetwater County Environmental Rev.,
AMT, 11/1/25......................... VMIG 1 5.25% 6,500,000 6,500,000
------------
TOTAL INVESTMENTS..................... $726,598,012
============
</TABLE>
INVESTMENT ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corp.
AMT -- Alternate Minimum Tax
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
DFA -- Development Finance Authority
EDC -- Economic Development Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCF -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Individual Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Rating (not covered by the report of independent public accountants) --
Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1997. The interest rate for all securities with maturity
greater than thirteen months has an automatic reset featute resulting in an
effective maturity of thirteen months or less.
See Notes to Financial Statements.
Pegasus Funds 15
<PAGE> 17
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ------ ---------
<S> <C> <C> <C> <C>
MICHIGAN -- 100%
Ann Arbor ECD, Ltd. Obligation,
5/1/00.............................. **N/R 3.90% $ 575,000 $ 575,000
Ann Arbor School District, GO,
5/1/98.............................. Aa 2 4.75% 5,475,000 5,489,826
Cornell Twp EDC, IDR, 2/6/98......... A 1+ 3.70% 3,600,000 3,600,000
Detroit Sewer Disposal, MBIA, 7/1/98. Aaa 5.00% 6,000,000 6,032,490
Grand Rapids Water Supply, RFD,
Series 1988, 1/1/98................. Aaa 7.875% 5,775,000 5,890,500
Grosse Pointe Public School, TAN, GO,
4/1/98.............................. MIG 1 4.00% 5,000,000 5,004,357
Holland EDC, VRDB-Thrifty Holland,
Inc., 3/1/13........................ A 1 3.80% 2,500,000 2,500,000
Kalamazoo Co. EDC, VRDB-Industrial &
Economic Development WBC Properties
Ltd., 9/1/15........................ **N/R 4.71% 1,000,000 1,000,000
Kalamazoo EDC, Ltd. Obligation,
5/15/27............................. A 1+ 3.95% 3,000,000 3,000,000
Kent Hospital, VRDB-Butterworth
Hospital, 1/15/20................... VMIG 1 3.65% 3,200,000 3,200,000
Meridian EDC Ltd. Obligation VRDB-
Hannah
Technologies, 11/15/14.............. A 1+ 4.05% 2,400,000 2,400,000
Michigan Comprehensive Transportation
Revenue Bond, RFD, State of
Refunding Series 1988-I, 9/1/98..... AA- 7.625% 3,000,000 3,121,549
Michigan Higher Education Student
Loan, AMT,
AMBAC, Series XII-D, 10/1/15........ VMIG 1 3.75% 3,100,000 3,100,000
Michigan Municipal Bond Authority,
RFD, School
Group 14, 5/1/98.................... AAA 7.80% 1,890,000 1,951,317
Michigan Municipal Bond Authority
Revenue, 9/18/98.................... SP 1+ 4.50% 1,400,000 1,405,754
Michigan State Building Authority,
10/15/98............................ AA- 4.50% 5,000,000 5,025,885
Michigan State Hospital, VRDB-
Hospital Equipment Loan Program,
Series A, 12/1/23................... VMIG 1 3.80% 2,900,000 2,900,000
Michigan State HDA, CP, AMT, 2/12/98. VMIG 1 3.75% 5,000,000 5,000,000
Michigan State HDA, Ltd. Obligation
VRDB:
Laurel Valley, 12/1/07.............. VMIG 1 3.65% 700,000 700,000
Woodland Meadows, 3/1/13............ VMIG 1 3.85% 2,000,000 2,000,000
Michigan State HDA, Series B, 4/1/19. VMIG 1 3.70% 1,100,000 1,100,000
Michigan State Strategic, CP, 3/2/98. P 1 3.75% 3,500,000 3,500,000
Michigan State Strategic Fund Ltd.
Obligation, 10/1/01................. Aa 2 4.26% 2,000,000 2,000,000
Michigan State Strategic Fund Ltd.
Obligation, AMT:
VRDB-United Waste System, Inc.,
4/1/10............................. VMIG 1 3.80% 4,700,000 4,700,000
VRDB-Dennenlease LC Project, 4/1/10. **N/R 4.35% 2,015,000 2,015,000
VRDB-Ironwood Plastics, Inc.,
11/1/11............................ **N/R 4.35% 1,155,000 1,155,000
VRDB-Saginaw Products Corp., 9/1/17. **N/R 4.30% 2,800,000 2,800,000
VRDB-Autocam Corp., 12/1/17......... **N/R 4.10% 3,000,000 3,000,000
VRDB-Quincy Str. Inc., 12/1/22...... **N/R 4.30% 1,950,000 1,950,000
Michigan State Strategic Fund, IDR,
VRDB-Trust Co., Series C, 10/1/11... Aa 3 4.30% 1,500,000 1,500,000
Michigan State Strategic Fund, PCR,
VRDN-Consumers Power Co., 9/1/00.... A 1+ 3.85% 3,000,000 3,000,000
Michigan Underground, CP, 2/5/98..... P 1 3.75% 4,500,000 4,500,000
</TABLE>
See Notes to Financial Statements.
16 Pegasus Funds
<PAGE> 18
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Regents of the University of
Michigan, CP,
1/13/98............................. A 1+ 3.75% $ 2,000,000 $ 2,000,000
1/14/98............................. A 1+ 3.75% 2,500,000 2,500,000
Wayne Charter Co. Airport, AMT, VRDB,
Series A, 12/1/16................... VMIG 1 3.75% 3,800,000 3,800,000
------------
TOTAL INVESTMENTS.................... $103,416,678
============
</TABLE>
INVESTMENT ABBREVIATIONS
AMT -- Alternative Minimum Tax
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCFA -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
RFD -- Pre-Refunded Bond
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax-Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Rating (not covered by the report of independent public accountants.) --
Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1997. The interest rate for all securities with maturity
greater than thirteen months has an automatic reset feature resulting in an
effective maturity of thirteen months or less.
See Notes to Financial Statements.
Pegasus Funds 17
<PAGE> 19
[THIS PAGE INTENTIONALLY LEFT BLANK]
18 Pegasus Funds
<PAGE> 20
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) GENERAL
The Pegasus Funds (Pegasus) was organized as a Massachusetts business trust on
April 21, 1987 and registered under the Investment Company Act of 1940 (the
Act), as amended, as an open-end investment company. As of December 31, 1997,
Pegasus consisted of twenty-nine separate portfolios of which there were four
money market funds (the Money Market Funds or the Funds), as described below.
PEGASUS MONEY MARKET FUND
PEGASUS TREASURY MONEY MARKET FUND
PEGASUS MUNICIPAL MONEY MARKET FUND
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
The Money Market Funds commenced operations on January 4, 1988, except for the
Michigan Municipal Money Market Fund and the Treasury Money Market Fund, which
commenced operations on January 23, 1991 and January 1, 1993, respectively.
On September 14, 1996, the Pegasus Money Market Funds (formerly The Woodward
Money Market Funds) acquired all the net assets of the Prairie Money Market
Funds pursuant to an Agreement and Plan of Reorganization (the "Plan").
Shareholders of each reorganizing portfolio approved the Plan which called for
the transfer of the assets, subject to the liabilities, of each Prairie Fund to
the corresponding Pegasus Fund. The Plan also called for the issuance of shares
by the Pegasus Fund to the shareholders of the corresponding Prairie Fund, such
shares being equal in value to the net assets so transferred.
In accordance with generally accepted accounting principles, the historical
cost of investment securities was carried forward to the surviving fund (the
Pegasus Fund which is the accounting survivor for performance measurement
purposes as noted in the table that follows) and the results of operations for
precombination periods for the surviving fund were not restated. The financial
statements do not reflect the expenses of the reorganization. The combination
of the funds was treated as a tax free business combination and accordingly was
accounted for by a method of accounting for tax free mergers of investment
companies (sometimes referred to as the pooling without restatement method).
The following table sets forth the name of the surviving fund (for the number
of shares issued in connection with the various mergers and the net assets
transferred, see Note 5):
<TABLE>
<CAPTION>
FORMER WOODWARD FUND(S) FORMER PRAIRIE FUND CURRENT PEGASUS FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
*Money Market Money Market Money Market
*Treasury Money Market and
Government Money Market U.S. Government Money Market Treasury Money Market
*Tax Exempt Money Market Municipal Money Market Municipal Money Market
*Michigan Tax Exempt Money Market Michigan Municipal Money Market
</TABLE>
*Surviving fund for accounting and performance measurement purposes
On the date of reorganization, capital loss carryforwards were transferred
from the non-surviving funds in the amounts of $15,985 and $53,652 for the
Treasury Money Market and Municipal Money Market Funds, respectively.
The Pegasus Money Market Funds (except for the Money Market Fund which offers
Class A, Class B, and Class I shares) each offer Class A shares and Class I
shares. Class A shares, Class B shares and Class I shares are substantially the
same except that Class A shares are not subject to any sales charge and are
subject to a shareholder services fee pursuant to the Shareholder Services
Plan. Class B shares are subject to a contingent deferred sales charge imposed
at the time of redemption and are subject to fees charged pursuant to a
distribution plan adopted pursuant to Rule 12b-1 under the Act and fees charged
pursuant to the Shareholder Services Plan. Class I shares are not subject to
any sales charge, shareholder services fees or distribution 12b-1 fees.
Pegasus Funds 19
<PAGE> 21
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Money Market Funds in preparation of the financial statements. The policies are
in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
Pursuant to Rule 2a-7 of the Act, the Money Market Funds utilize the
amortized cost method to determine the carrying value of investment securities.
Under this method, investment securities are valued for both financial
reporting and federal tax purposes at amortized cost and any discount or
premium is amortized from the date of acquisition to maturity. The use of this
method results in a carrying value which approximates market value. Market
value is determined based upon quoted market prices or dealer quotes.
Investment security purchases and sales are accounted for on the trade date.
Realized gains or losses from security transactions are recorded on the
identified cost basis.
Pegasus invests in securities subject to repurchase agreements. First Chicago
NBD Investment Management Company (FCNIMCO), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Pegasus' investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by FCNIMCO to assure
its value remains at least equal to 102% of the repurchase agreement amount;
and 3) funds are not disbursed by Pegasus or its agent unless collateral is
presented or acknowledged by the collateral custodian.
The Municipal and Michigan Municipal Money Market Funds invest in a majority
of instruments whose stated maturity is greater than one year, but whose rate
of interest is readjusted no less frequently than annually, or which possess
demand features and may therefore be deemed to have a maturity equal to the
period remaining until the next interest adjustment date or the demand date,
whichever is longer.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code, as amended (the
Code), and generally accepted accounting principles.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Code applicable to regulated investment companies and to distribute net
investment income and realized gains to its shareholders. Therefore, no federal
income tax provision is required in the accompanying Financial Statements.
As of December 31, 1997 the Funds have capital loss carryforwards and related
expiration dates as follows:
<TABLE>
<CAPTION>
FUND 1999 2001 2002 2003 2004 2005 TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury Money Market
Fund $ -- $ -- $16,000 $ -- $ 1,000 $ -- $17,000
Municipal Money Market
Fund 1,000 2,000 1,000 36,000 14,000 2,000 56,000
Michigan Municipal Money
Market -- -- -- -- 1,000 -- 1,000
</TABLE>
20 Pegasus Funds
<PAGE> 22
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Shareholder Dividends
On each business day except those holidays the New York Stock Exchange
(Exchange), FCNIMCO or its bank affiliates observe, net investment income is
declared as a dividend, at the close of the Exchange, to shareholders of record
at such close. Such dividends are paid monthly.
Distributions from net realized capital gains, if any, are normally declared
annually and paid annually, but each Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Code. To the
extent that net realized capital gains can be offset by capital loss
carryforwards, it is the policy of each Fund not to distribute such gains.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five-year period beginning with the commencement of operations of each
portfolio.
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations; expenses which are applicable to all Funds are allocated among them
on the basis of relative net assets. Fund expenses directly attributable to a
class of shares are charged to that class; expenses which are applicable to all
classes are allocated among them. Pegasus monitors the rate at which expenses
are charged to ensure that a proper amount of expense is charged to income each
year. This percentage is subject to revision if there is a change in the
estimate of the future net assets of the funds or a change in expectations as
to the level of actual expenses.
Multiple Classes of Capital Shares of Beneficial Interest
Each class of shares has equal rights as to earnings, assets and voting
privileges except that each class bears different distribution and shareholder
service expenses. Each class of shares has exclusive voting rights with respect
to matters that affect just that class. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Class B shares of the Pegasus Money Market Fund are available only to the
holders of Class B shares in the Pegasus non-money market funds who wish to
exchange their shares in such funds for shares in the Pegasus Money Market
Fund. Class B shares of the Pegasus Money Market Fund will automatically
convert to Class A shares at the time the exchanged shares would have
converted.
(3) INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Pegasus has an Investment Advisory Agreement with FCNIMCO pursuant to which
FCNIMCO has agreed to provide the day-to-day management of each of the Money
Market Fund's investments for a monthly fee computed daily and payable monthly,
expressed as a percentage of each Money Market Fund's average daily net assets,
of 0.30% of the first $1.0 billion, 0.275% of the next $1.0 billion and 0.25%
of each such Money Market Fund's average daily net assets in excess of $2.0
billion.
Pegasus has a Co-Administration Agreement with FCNIMCO and BISYS Fund Services
(BISYS or Distributor) (collectively the Co-Administrators) pursuant to which
the Co-Administrators have agreed to assist in all aspects of each Money Market
Fund's operations for an administration fee, at an annual rate of 0.15% of each
Money Market Fund's average daily net assets.
BISYS serves as Pegasus' principal underwriter and distributor of the Funds'
shares. NBD Bank (an affiliate of FCNIMCO) is also compensated for its services
as Pegasus' custodian and is reimbursed for certain out-of-pocket expenses
incurred on behalf of Pegasus. See Note 4 for a summary of fee rates and
expenses pursuant to these agreements.
Pegasus Funds 21
<PAGE> 23
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(4) EXPENSES
For the year ended December 31, 1997, FCNIMCO voluntarily agreed to reimburse
a portion of the operating expenses of the Funds to the extent that the Funds'
expenses exceeded the following amounts (as a percentage of each Fund's average
daily net assets):
<TABLE>
<CAPTION>
MICHIGAN
TREASURY MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES 0.75% 0.75% 0.75% 0.75%
CLASS B SHARES 1.50% N/A N/A N/A
CLASS I SHARES 0.50% 0.50% 0.50% 0.50%
</TABLE>
Pegasus maintains an unfunded, nonqualified deferred compensation plan. This
plan allows an individual Trustee to elect to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
The Funds' Class A shares and Class B shares have a Shareholder Services Plan
(the "Plan") pursuant to which the Funds pay the Distributor a fee, at an
annual rate of 0.25% of the average daily net assets of the outstanding Class A
shares and Class B shares. Pursuant to the terms of the Plan, the Distributor
has agreed to provide certain shareholder services to the holders of these
shares. Additionally, under the terms of the Plan, the Distributor may make
payments to other shareholder service agents which may include FCNIMCO and
their affiliates. For the year ended December 31, 1997, the Money Market Funds
paid the following amounts under the Plan:
<TABLE>
<CAPTION>
AMOUNTS PAID
- ------------------------------------------------
<S> <C>
Money Market Fund $2,075,764
Treasury Money Market Fund 473,261
Municipal Money Market Fund 463,609
Michigan Municipal Money
Market Fund 143,515
</TABLE>
The Money Market Fund's Class B shares have a distribution plan adopted
pursuant to Rule 12b-1 under the Act (the "12b-1 Plan") pursuant to which the
Money Market Fund has agreed to pay the Distributor for advertising, marketing
and distributing Class B shares of the Money Market Fund at an annual rate of
0.75% of the average daily net assets of the Money Market Fund's outstanding
Class B shares. Under the terms of the 12b-1 Plan, the Distributor may make
payments to FCNIMCO and their affiliates with respect to these services. For
the year ended December 31, 1997, the Money Market Fund paid $2,984 under the
12b-1 Plan which was retained by the Distributor.
22 Pegasus Funds
<PAGE> 24
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds are summarized below:
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
---------------------------------------------------------------------------
Amount Shares Amount Shares
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 4,662,663,756 4,662,663,756 $ 6,364,896,910 6,364,896,910
Shares Reclassified -- -- (648,644,214) (648,644,214)
Shares Issued in Connection
with Merger -- -- 400,921,734 400,921,734
Dividends Reinvested 39,487,594 39,487,594 24,864,635 24,864,635
Shares Redeemed (4,456,727,929) (4,456,727,929) (7,053,339,291) (7,053,339,291)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 245,423,421 245,423,421 $ (911,300,226) (911,300,226)
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares Issued $ 3,505,576 3,505,576 $ 220,732(/1/) 220,732(/1/)
Shares Issued in Connection
with Merger -- -- 130,798 130,798
Dividends Reinvested 24,606 24,606 2,577 2,577
Shares Redeemed (3,334,960) (3,334,960) (211,066) (211,066)
- ------------------------------------------------------------------------------------------------------------
Net increase $ 195,222 195,222 $ 143,041 143,041
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 5,021,318,728 5,021,318,728 $ 8,498,930,024(/2/) 8,498,930,024(/2/)
Shares Reclassified -- -- 648,644,214 648,644,214
Shares Issued in Connection
with Merger -- -- -- --
Dividends Reinvested 20,279,977 20,279,977 9,879,060 9,879,060
Shares Redeemed (5,539,038,130) (5,539,038,130) (7,442,140,839) (7,442,140,839)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (497,439,425) (497,439,425) $ 1,715,312,459 1,715,312,459
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (251,820,782) (251,820,782) $ 804,155,274 804,155,274
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
---------------------------------------------------------------------------
Amount Shares Amount Shares
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 1,093,249,460 1,093,249,460 $ 3,820,123,799 3,820,139,784
Shares Reclassified -- -- (1,072,297,258) (1,072,297,258)
Shares Issued in Connection
with Merger -- -- 159,726,471 159,726,471
Dividends Reinvested 8,689,041 8,689,041 5,610,939 5,610,939
Shares Redeemed (1,082,286,729) (1,082,286,729) (3,626,460,674) (3,626,460,674)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 19,651,772 19,651,772 $ (713,296,723) (713,280,738)
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares Issued -- -- -- --
Shares Issued in Connection
with Merger -- -- -- --
Dividends Reinvested -- -- -- --
Shares Redeemed -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Net increase -- -- -- --
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 3,634,998,084 3,634,998,084 $ 10,750,575,944(/2/) 10,750,575,944(/2/)
Shares Reclassified -- -- 1,072,297,258 1,072,297,258
Shares Issued in Connection
with Merger -- -- 282,078,668 282,078,668
Dividends Reinvested 4,928,721 4,928,721 5,056,096 5,056,096
Shares Redeemed (3,949,857,520) (3,949,857,520) (11,054,404,367) (11,054,404,367)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (309,930,715) (309,930,715) $ 1,055,603,599 1,055,603,599
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (290,278,943) (290,278,943) $ 342,306,876 342,322,861
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period September 14, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(2) For the period March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
Pegasus Funds 23
<PAGE> 25
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(5)CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
------------------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
------------------------------------------------------------------------
Amount Shares Amount Shares
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 489,667,505 489,667,505 $ 1,174,088,220 1,174,141,872
Shares Reclassified -- -- (452,842,722) (452,842,722)
Shares Issued in Connection
with Merger -- -- 281,427,973 281,427,973
Dividends Reinvested 5,398,206 5,398,206 3,498,925 3,498,925
Shares Redeemed (472,764,413) (472,764,413) (1,388,360,065) (1,388,360,065)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 22,301,298 22,301,298 $ (382,187,669) (382,134,017)
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 1,737,844,432 1,737,844,432 $ 2,111,312,185(/1/) 2,111,312,185(/1/)
Shares Reclassified -- -- 452,842,722 452,842,722
Dividends Reinvested 615,941 615,941 668,549 668,549
Shares Redeemed (1,845,603,982) (1,845,603,982) (1,932,885,709) (1,932,885,709)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (107,143,609) (107,143,609) $ 631,937,747 631,937,747
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (84,842,311) (84,842,311) $ 249,750,078 249,803,730
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
MICHIGAN MUNICIPAL MONEY MARKET FUND
-----------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
-----------------------------------------------------------------
Amount Shares Amount Shares
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 151,616,093 151,616,093 $ 226,255,283 226,255,283
Shares Reclassified -- -- (27,136,751) (27,136,751)
Shares Issued in Connection
with Merger -- -- -- --
Dividends Reinvested 1,604,993 1,604,993 2,098,227 2,098,227
Shares Redeemed (196,108,154) (196,108,154) (251,184,243) (251,184,243)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (42,887,068) (42,887,068) $ (49,967,484) (49,967,484)
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 233,991,240 233,991,240 $ 134,715,695(/1/) 134,715,695(/1/)
Shares Reclassified -- -- 27,136,751 27,136,751
Dividends Reinvested 83,422 83,422 128,176 128,176
Shares Redeemed (208,707,516) (208,707,516) (112,459,559) (112,459,559)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 25,367,146 25,367,146 $ 49,521,063 49,521,063
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (17,519,922) (17,519,922) $ (446,421) (446,421)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
24 Pegasus Funds
<PAGE> 26
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6)PORTFOLIO COMPOSITION
Although the Municipal Money Market Fund has a diversified investment
portfolio, the Fund has investments in excess of 10% of its total investments
in the State of Texas. The Michigan Municipal Money Market Fund does not have a
diversified portfolio since 100% of its investments are within the State of
Michigan. Such concentrations within a particular state may subject the fund
more significantly to economic changes occurring within that state.
(7)ILLIQUID SECURITIES
The Pegasus Money Market Funds may invest not more than 10% of the value of
their net assets in securities that are illiquid. Illiquid investments may
include securities having legal or contractual restrictions on resale or no
readily available market. At December 31, 1997, the Pegasus Money Market Fund
owned the following restricted securities (constituting 6.5% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the discretion of the Trustees. Certain of these securities
may be offered and sold to "qualified institutional buyers" under Rule 144A of
the 1933 Act.
<TABLE>
<CAPTION>
DECEMBER 31,
ACQUISITION PAR VALUE 1997 PERCENTAGE
SECURITY DATE VALUE PER UNIT VALUE OF NET ASSETS COST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allstate Life Insurance Company 4/18/95 $10,000,000 $1.00 $ 10,000,000 0.5% $ 10,000,000
Commonwealth Life Insurance Company 4/18/95 5,000,000 1.00 5,000,000 0.2 5,000,000
Travelers Life Insurance Company 11/06/97 25,000,000 1.00 25,000,000 1.2 25,000,000
Peoples Security Life Insurance
Company 04/18/95 10,000,000 1.00 10,000,000 0.5 10,000,000
SunAmerica Life Insurance Company 07/01/97 14,000,000 1.00 14,000,000 0.6 14,000,000
SunAmerica Life Insurance Company 4/18/95 25,000,000 1.00 25,000,000 1.2 25,000,000
Transamerica Life Insurance and
Annuity Company 12/09/96 50,000,000 1.00 50,000,000 2.3 50,000,000
- -------------------------------------------------------------------------------------------------------------
$139,000,000 6.5% $139,000,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
25
<PAGE> 27
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of net investment income
and distributions from net investment income for the Money Market Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Money Market Funds and other information for the periods presented.
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS
VALUE NET AND UNREALIZED TOTAL FROM FROM NET
BEGINNING INVESTMENT LOSSES ON INVESTMENT INVESTMENT TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME DISTRIBUTIONS
--------- ---------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 1.0000 0.0491 -- 0.0491 (0.0491) (0.0491)
December
31, 1996 1.0000 0.0488 -- 0.0488 (0.0488) (0.0488)
December
31, 1995 1.0000 0.0549 -- 0.0549 (0.0549) (0.0549)
December
31, 1994 1.0000 0.0378 -- 0.0378 (0.0378) (0.0378)
December
31, 1993 1.0000 0.0281 -- 0.0281 (0.0281) (0.0281)
CLASS B
SHARES
December
31, 1997 1.0000 0.0421 -- 0.0421 (0.0421) (0.0421)
December
31,
1996(/1/) 1.0000 0.0117 -- 0.0117 (0.0117) (0.0117)
CLASS I
SHARES
December
31, 1997 1.0000 0.0516 -- 0.0516 (0.0516) (0.0516)
December
31,
1996(/2/) 1.0000 0.0373 -- 0.0373 (0.0373) (0.0373)
- -------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 0.9999 0.0481 -- 0.0481 (0.0481) (0.0481)
December
31, 1996 1.0000 0.0474 (0.0001) 0.0473 (0.0474) (0.0474)
December
31, 1995 1.0000 0.0539 -- 0.0539 (0.0539) (0.0539)
December
31, 1994 1.0000 0.0370 -- 0.0370 (0.0370) (0.0370)
December
31, 1993 1.0000 0.0273 -- 0.0273 (0.0273) (0.0273)
CLASS I
SHARES
December
31, 1997 1.0000 0.0507 -- 0.0507 (0.0507) (0.0507)
December
31,
1996(/2/) 1.0000 0.0361 -- 0.0361 (0.0361) (0.0361)
- -------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 0.9997 0.0296 -- 0.0296 (0.0296) (0.0296)
December
31, 1996 1.0000 0.0295 (0.0003) 0.0292 (0.0295) (0.0295)
December
31, 1995 1.0000 0.0335 -- 0.0335 (0.0335) (0.0335)
December
31, 1994 1.0000 0.0242 -- 0.0242 (0.0242) (0.0242)
December
31, 1993 1.0000 0.0196 -- 0.0196 (0.0196) (0.0196)
CLASS I
SHARES
December
31, 1997 1.0000 0.0322 (0.0001) 0.0321 (0.0322) (0.0322)
December
31,
1996(/2/) 1.0000 0.0232 -- 0.0232 (0.0232) (0.0232)
- -------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 1.0000 0.0296 -- 0.0296 (0.0296) (0.0296)
December
31, 1996 1.0000 0.0289 -- 0.0289 (0.0289) (0.0289)
December
31, 1995 1.0000 0.0329 -- 0.0329 (0.0329) (0.0329)
December
31, 1994 1.0000 0.0235 -- 0.0235 (0.0235) (0.0235)
December
31, 1993 1.0000 0.0181 -- 0.0181 (0.0181) (0.0181)
CLASS I
SHARES
December
31, 1997 1.0000 0.0321 -- 0.0321 (0.0321) (0.0321)
December
31,
1996(/2/) 1.0000 0.0225 -- 0.0225 (0.0225) (0.0225)
- -------------------------------------------------------------------------------------
</TABLE>
(/1/)For the period September 14, 1996 (initial offering of Class B Shares)
through December 31, 1996.
(/2/)For the period March 30, 1966 (initial offering date of Class I Shares)
through December 31, 1996.
+ Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Pegasus Funds
26
<PAGE> 28
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO OF NET TO AVERAGE NET
RATIO OF INVESTMENT ASSETS
NET ASSETS EXPENSES INCOME TO (EXCLUDING
NET ASSET VALUE END OF PERIOD TO AVERAGE NET AVERAGE NET FEE WAIVERS AND
END OF PERIOD TOTAL RETURN (000'S OMITTED) ASSETS ASSETS REIMBURSEMENTS)
- --------------- ------------ --------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
1.0000 5.04% 973,821 0.74% 4.90% 0.74%
1.0000 4.99% 728,397 0.63% 4.87% --
1.0000 5.63% 1,639,695 0.51% 5.49% --
1.0000 3.86% 1,320,040 0.47% 3.78% --
1.0000 2.85% 1,326,693 0.49% 2.81% --
1.0000 4.29% 338 1.49% 4.15% 1.49%
1.0000 4.70%+ 143 1.48%+ 3.99%+ --
1.0000 5.29% 1,217,873 0.49% 5.15% 0.49%
1.0000 5.06%+ 1,715,313 0.51%+ 4.99%+ --
- -----------------------------------------------------------------------------------------
0.9999 4.92% 234,050 0.70% 4.80% --
0.9999 4.83% 214,398 0.56% 4.82% --
1.0000 5.53% 927,696 0.53% 5.39% --
1.0000 3.77% 785,694 0.50% 3.70% --
1.0000 2.77% 854,873 0.50% 2.73% --
1.0000 5.18% 745,673 0.45% 5.05% --
1.0000 4.89%+ 1,055,804 0.53%+ 4.85%+ --
- -----------------------------------------------------------------------------------------
0.9997 3.01% 204,527 0.73% 2.96% --
0.9997 2.96% 182,226 0.60% 2.97% --
1.0000 3.41% 564,413 0.53% 3.35% --
1.0000 2.45% 550,736 0.51% 2.42% --
1.0000 1.98% 498,706 0.51% 1.96% --
0.9999 3.26% 524,793 0.48% 3.21% --
1.0000 3.13%+ 631,938 0.51%+ 3.06%+ --
- -----------------------------------------------------------------------------------------
1.0000 3.00% 29,202 0.75% 2.95% 0.79%
1.0000 2.93% 72,089 0.74% 2.87% 0.77%
1.0000 3.32% 122,057 0.69% 3.30% 0.76%
1.0000 2.38% 78,640 0.67% 2.35% 0.75%
1.0000 1.83% 52,557 0.65% 1.81% --
1.0000 3.26% 74,888 0.50% 3.20% 0.54%
1.0000 3.03%+ 49,521 0.59%+ 3.02%+ 0.62%+
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds 27
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
the Pegasus Money Market Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments of the Money Market Funds of the
PEGASUS FUNDS (comprising, as indicated in Note 1, the Money Market, Treasury
Money Market, Municipal Money Market and Michigan Municipal Money Market) as of
December 31, 1997, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
periods then ended and the financial highlights for each of the five years in
the periods then ended. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical counts and confirmation of
securities owned as of December 31, 1997, by inspection and correspondence with
custodians, banks and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Money Market Funds of the Pegasus
Funds as of December 31, 1997, and the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
periods then ended and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 17, 1998.
Pegasus Funds
28
<PAGE> 30
Table of Contents
1 Letter to Shareholders
2 Management's Discussion and Analysis
39 Statements of Assets and Liabilities
47 Statements of Operations
51 Statements of Changes in Net Assets
58 Portfolios of Investments
156 Notes to Financial Statements
174 Financial Highlights
190 Report of Independent Public Accountants
Pegasus Funds are not bank
deposits or obligations of, or
guaranteed or endorsed by First
Chicago NBD Corporation or any
of its affiliates, and are not
federally insured or guaranteed
by the U.S. government, FDIC,
or any governmental agency.
Investment in the Funds
involves risks, including the
possible loss of principal.
PEGASUS FUNDS
(800) 688-3350
INVESTMENT ADVISER
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, MS 0334
Chicago, IL 60670-0334
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
Pegasus Funds
I
<PAGE> 31
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
MARKET COMMENTARY:
1997 may well be remembered as one of the best years for domestic investing in
recent times. Not only did equities perform well, over 33% total return for the
Standard & Poor's Composite 500 Index ("S&P 500 Index"), but bonds also
provided above average results with the Lehman Brothers Bond Index providing a
9.7% return. Importantly, these results occurred in the lowest inflation
environment that the United States has seen since the 1960's, therefore real
returns, after adjusting for inflation, were about the same as actual returns
and very rewarding by historical experience. The S&P 500, dominated by larger
companies, provided the strongest results, but other indices representing mid-
sized and smaller companies also had good years. The Russell 2500 (mid-sized
companies) returned 24.4% and the Russell 2000 (smaller companies) returned
22.4%. Municipal Bonds provided results very similar to the taxable index noted
above with the Lehman Municipal Bond Index up 9.2%. International investing,
which has lagged domestic results for the last few years, continued that trend
including substantial weakening in the fourth quarter. Morgan Stanley's Europe,
Australia and Far East (EAFE) index returned just 1.8% for the year and the
Salomon Non-U.S. Government Bond Index declined 4.3%.
Equity Highlights
A number of trends continued in 1997. Large capitalization stocks again
provided the best returns. Stocks of financial companies were again among the
strongest groups, while economically sensitive industries such as
transportation, consumer durables and materials and services continued to lag
the overall market. The finance area is worth noting. In 1997 the group as a
whole provided a total return of 48.5%, after generating returns equalling
35.3% in 1996. Two trend reversals did occur in 1997. Technology issues, having
led the market in 1996, were the second weakest group in 1997, advancing 22.9%
versus the overall level of 33.3%. The weakness, caused by the correcting of an
excessive level of enthusiasm was compounded by selected disappointments by
individual companies. Utilities, which were huge laggards in 1996, ran ahead of
the market in 1997 with a total return of 36.8%. The group benefited from
declining interest rates and improvement in the competitive environment for the
regional telephone companies. As the year ended, the trouble in a number of
Asian economies began weighing on the U.S. equity markets, particularly
selected industries. As 1998 unfolds, the Asian markets and economies are
likely to play a key role in our market, as the impact on earnings and investor
confidence becomes clearer.
Fixed Income Highlights
The U.S. bond market closed out the year on a very strong note. Longer bond
yields were driven to their lowest level since 1993 as economic turmoil in the
Asian markets increased the demand for U.S. Treasuries. Bonds also benefitted
from good inflation data at home and the early signs of asset allocation shifts
from the equity markets to fixed income. These flows have been directed more
towards the longer end of the market which has resulted in a dramatic
flattening of the yield curve. The drop in interest rates over the course of
the past year also had a profound effect on the municipal market. Municipal
debt issuance, consisting of new and refunding issues, increased substantially
during 1997, totaling $220 billion. This was the second highest level attained
since 1993, when a record $290 billion was sold. Debt issuance estimates for
1998 indicate a modest slowing to around $203 billion. The decline in interest
rates contributed to both improving credit quality and lowering default rates
in the municipal market, which in turn brought about a dramatic narrowing of
credit spreads all along the yield curve.
Pegasus Family Highlights
In this annual report you will find detailed information about all of your
Pegasus Funds. In summary, 1997 was a good year with all of the funds providing
competitive results, while selected funds distinguished themselves. We are
pleased that our investors fully participated in the overall market's success.
During 1997, we expanded the family to include the Pegasus High Yield Bond
Fund, the Pegasus Municipal Cash Management Fund and the Pegasus Treasury Cash
Management Fund, bringing the family up to 29 funds with year-end assets of
$15.7 billion. In 1998 we don't expect the markets to match 1997 exceptional
results, but we remain optimistic that the favorable economic trends will
provide the backdrop for continued advances. Similarly, we look forward to
another good year for the funds. We believe the Pegasus Funds provide a solid
foundation for meeting your investment goals and we thank you for your
continued confidence in selecting us as your investment advisor.
Sincerely
/s/ George F. Abel
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
<PAGE> 32
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGED ASSETS FUNDS
- --------------------------------------------------------------------------------
An Interview with Claude Erb
Portfolio Manager
- --------------------------------------------------------------------------------
Q. THE U.S. STOCK MARKET HAD ITS THIRD STRAIGHT YEAR OF RETURNS IN EXCESS OF
20%. HOW DID THE MANAGED ASSETS FUNDS PERFORM?
The Managed Assets Conservative Fund returned 13.34% (I Shares), the Managed
Assets Balanced Fund returned 15.79% (I Shares), and the Managed Assets Growth
Fund returned 17.87% (I Shares) for the year ended December 31, 1997. The Funds
trailed the most commonly used investment benchmark, the S&P 500 index, which
returned 33.35% for the year. However, all the Funds were comfortably ahead of
the Lehman Brothers Aggregate Bond Index which returned 9.66% for the year. The
Funds, by their "balanced" design, should provide returns somewhere between
stocks and bonds.
Q. THE U.S. CONTINUED TO BE THE BEST PERFORMING MAJOR STOCK MARKET IN THE WORLD
LAST YEAR. WHY DO YOU FEEL THIS WAS THE CASE, AND WILL IT CONTINUE?
The U.S. economy and stock market have seen the best of all possible worlds in
1997. We continued to see strong economic growth with, by historical standards,
low inflation. This has allowed corporate profits to continue to rise while
interest rates declined. This combination is ideal for the stock market. In
addition, we have seen a continuation in the strong flows into equity mutual
funds driven by retirement savings from baby boomers.
Q. INTEREST RATES SEEM TO BE AN IMPORTANT COMPONENT OF INVESTMENT RETURNS. WHAT
HAPPENED ON THAT FRONT IN THE U.S. AND AROUND THE WORLD?
Interest rates are indeed crucial to the capital markets. As stated before,
long term interest rates in the U.S. were able to decline through 1997 on
continued low inflation. This, however, was a global phenomenon, with interest
rates in almost all other developed countries falling throughout the year. The
global economy is clearly in flux right now, given developments in Asia, so the
progression of global interest rates will be crucial throughout 1998.
Q. WHERE WERE THE PORTFOLIOS' ASSETS ALLOCATED THROUGHOUT THE YEAR?
Throughout the year, the Funds were underweighted in large capitalization
domestic stocks. In the large capitalization arena, the Funds were overweighted
in value stocks relative to growth stocks. The Funds were also overweighted in
international stocks. In the third quarter, the Funds initiated positions in
the Pegasus High Yield Bond Fund.
Q. WHAT, IN PARTICULAR, DROVE THE FUNDS' PERFORMANCE?
Obviously, underweighting large capitalization stocks hurt relative
performance, as did overweighting international stocks. These macro decisions
were offset, however, by strong asset class performance. For example, the
Funds' underlying investments in mid- and small-capitalization domestic
equities, U.S. investment grade bonds, and international stocks and bonds, all
outperformed their respective benchmarks.
Q. WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD?
As mentioned before, the U.S. economy and capital markets have been in a nearly
ideal position for the past few years. However, as we start 1998 there are some
uncertainties facing corporate America not seen of late. The turmoil in Asia's
economies is creating a great deal of uncertainty for the earnings prospects of
many American companies. We will need to closely watch the growth of corporate
earnings. On the interest rate side we are seeing the benefit of continued
deflation in the U.S. The yield on long term U.S. government bonds fell from
6.64% to 5.92% in 1997, and should continue to be moderate by historical
standards.
Q. HOW HAVE YOU POSITIONED THE FUNDS TO TAKE ADVANTAGE OF YOUR OUTLOOK?
The Funds continue to maintain an overweight position in international stocks
versus large capitalization domestic equities. Within the domestic equity
sector we think that relative valuations favor value stocks over growth stocks,
and we have positioned the portfolio accordingly. The Funds now have meaningful
positions in domestic high yield and international bonds. The Managed Assets
Funds are designed to provide investors with high risk-adjusted returns, given
their risk tolerance. We feel that the active construction of a broadly
diversified portfolio is suited to a wide number of investors.
2 Pegasus Funds
<PAGE> 33
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGED ASSETS FUNDS -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS MANAGED ASSETS CONSERVATIVE FUND, THE
S&P 500 INDEX* AND LEHMAN BROTHERS AGGREGATE BOND INDEX**
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Managed Assets Conservative Fund
Lehman Brothers Aggregate
A-Shares(1) S&P 500(2) Bond Index(2)
<S> <C> <C> <C>
1/23/86 $9,500 $10,000 $10,000
Dec-86 $10,789 $12,293 $11,601
Dec-87 $10,681 $12,936 $11,921
Dec-88 $12,577 $15,079 $12,861
Dec-89 $14,973 $19,846 $14,729
Dec-90 $15,399 $19,232 $16,047
Dec-91 $19,115 $25,079 $16,610
Dec-92 $20,783 $26,986 $19,988
Dec-93 $22,842 $29,701 $21,935
Dec-94 $22,404 $30,092 $21,296
Dec-95 $28,314 $41,366 $25,231
Dec-96 $31,176 $50,883 $26,143
Dec-97 $35,260 $67,853 $28,674
</TABLE>
(1) Includes maximum sales charge of 5.00%
(2) Excludes expenses
(3) An "A' shareholder investment at the original 4.50% sales charge is
currently valued at $35,445
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE FIVE TEN SINCE
THROUGH 12/31/97 DATE YEAR YEAR YEAR INCEPTION
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PEGASUS MANAGED ASSETS CONSERVATIVE FUND
A Shares With 5.00% Load 1/23/86 7.45% 10.02% 12.11% 11.13%(/1/)
S&P 500 Index* 1/23/86 33.35% 20.25% 18.03% 17.40%
Lehman Brothers Aggregate Bond Index** 1/23/86 9.66% 7.48% 9.17% 9.23%
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50% sales
charge was 11.18%.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The S&P 500 Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
** The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
Pegasus Funds
3
<PAGE> 34
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGED ASSETS FUNDS -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS MANAGED ASSETS CONSERVATIVE FUND, THE
S&P 500 INDEX* AND THE LEHMAN BROTHERS AGGREGATE BOND INDEX**
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Managed Assets Conservative Fund
Lehman Brothers
I-Shares B-Shares(1) S&P 500(2) Aggregate Bond Index(2)
<S> <C> <C> <C> <C>
3/3/95 $10,000 $10,000 $10,000 $10,000
3/95 10,194 10,194 10,295 9,130
6/95 10,961 10,927 11,276 10,706
9/95 11,591 11,535 12,171 10,917
12/95 12,255 12,161 12,904 11,382
3/96 12,547 12,405 13,597 11,179
6/96 12,756 12,578 14,206 11,242
9/96 12,999 12,790 14,645 11,450
12/96 13,533 13,288 15,865 11,793
3/97 13,410 13,136 16,291 11,728
6/97 14,475 14,145 19,133 12,159
9/97 15,150 14,778 20,566 12,565
12/97 15,339 14,621 21,156 12,935
</TABLE>
(1) Includes contingent deferred sales charge of 3.00%.
(2) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS MANAGED ASSETS CONSERVATIVE FUND
I Shares 3/3/95 13.34% 16.30%
B Shares With 3.00% CDSC 3/3/95 9.37% 14.34%
S&P 500 Index* 3/3/95 33.35% 30.31%
Lehman Brothers Aggregate Bond Index** 3/3/95 9.66% 9.52%
</TABLE>
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so than an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The S&P 500 Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
** The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
Pegasus Funds
4
<PAGE> 35
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGED ASSETS FUNDS -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS MANAGED ASSETS BALANCED FUND, AND A
60% S&P 500 INDEX*, 40% LEHMAN BROTHERS AGGREGATE BOND INDEX** BLEND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Managed Assets Balanced Fund A-Shares(1) I-Shares Index Blend(2)
- ------------------------------------ ----------- -------- ---------------
<S> <C> <C> <C>
12/31/93 $ 9,500 $10,000 $10,000
6/94 $ 9,226 $ 9,712 $ 9,643
12/94 $ 9,310 $ 9,800 $ 9,967
6/95 $10,531 $11,085 $11,624
12/95 $11,466 $12,070 $12,922
6/96 $11,957 $12,587 $13,627
12/96 $12,956 $13,644 $14,855
6/97 $14,084 $14,878 $16,846
12/97 $14,936 $15,798 $18,364
</TABLE>
(1) Includes maximum sales charge of 5.00%.
(2) Excludes expenses.
(3) An "A" shareholder investment at the original 4.50% sales charge is
currently valued at $15,014.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS MANAGED ASSETS BALANCED FUND
I Shares 1/1/94 15.79% 12.11%
A Shares With 5.00% Load 1/1/94 9.52% 10.55%(/1/)
B Shares With 4.00% CDSC(3) 8/26/96 10.59% 13.73%
60% S&P 500 Index* and 40% Lehman Brothers Ag-
gregate Bond Index** Blend 1/1/94 23.62% 16.41%(/2/)
</TABLE>
(1) Return for an "A" shareholder who invested at the original 4.50% sales
charge was 10.70%.
(2) Index return annualized, since 8/26/96, was 25.24%.
(3) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so than an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The S&P 500 Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
**The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
Pegasus Funds
5
<PAGE> 36
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGED ASSETS FUNDS -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS MANAGED ASSETS GROWTH FUND AND AN 80%
S&P 500 INDEX*/ 20% LEHMAN BROTHERS AGGREGATE BOND INDEX** BLEND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Managed Assets Growth Fund
I-Shares A-Shares(1) B-Shares(2) Index Blend(3)
<S> <C> <C> <C> <C>
12/18/96 $10,000 $ 9,500 $10,000 $10,000
Dec-96 10,099 9,547 9,960 10,115
Mar-97 10,039 9,497 9,874 10,324
Jun-97 11,211 10,600 11,000 11,831
Sep-97 11,868 11,213 11,616 12,624
Dec-97 11,905 10,242 11,223 12,992
</TABLE>
(1) Includes maximum sales charge of 5.00%.
(2) Incudes contingent deferred sales charge of 4.00%.
(3) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS MANAGED ASSETS GROWTH FUND
I Shares 12/18/96 17.87% 18.30%
A Shares With 5.00% Load 12/18/96 11.87% 17.62%
B Shares With 4.00% CDSC 12/18/96 10.69% 11.76%
80% S&P 500 Index* and 20% Lehman
Brothers Aggregate Bond Index** Blend 12/18/96 28.44% 28.88%
</TABLE>
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The S&P 500 Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
**The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
Pegasus Funds
6
<PAGE> 37
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
An Interview with Chris Gassen and Richard Neumann
Portfolio Managers
- --------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM IN 1997?
The Fund posted a 21.95% return (I shares) in 1997. This was a very strong
return for the portfolio by historical standards, although we have had better
years relative to the market and other equity income managers.
Q. WHAT CAUSED THE PERFORMANCE DIFFERENTIAL LAST YEAR?
It is difficult to pinpoint exactly, although the Fund does maintain a lower
risk profile than the market and many other funds. Our conservative investment
approach and our high dividend yield target lead us to invest in securities
which tend to appreciate less than others in exuberant market environments such
as we witnessed last year. Investors continue to pour capital into the market
in pursuit of easy profit, with professional money managers chasing hot stock
groups to boost short-term performance. Witness the continued increase of
public stock offerings, many of which are flimsy companies at inflated prices.
Reliable measures of success in this market will only come when speculative
activity becomes more subdued and sensible valuations become more important in
determining stock prices.
Q. WHAT CHANGES WERE MADE IN THE FUND LAST YEAR?
Activity in the Fund remained modest in 1997. We sold some positions on price
strength, but there was virtually no activity due to fundamental
disappointments with our investments. Overall, the companies in the Fund are
performing in line with our expectations. However, finding attractively priced
new investments is becoming close to impossible, so we continue to add to some
of our existing holdings, especially ones that haven't participated as fully in
the recent market surge. Among the roster of our holdings are some top-notch
managements with whom we are very comfortable being business partners. Over the
longer-term we think our patience with these stocks will be rewarded.
Q. WHAT'S NEXT FOR 1998?
The prevailing view among most market pundits is that stock prices will
continue to do well because the U.S. economy will remain strong, although
prices will probably not rise as fast as last year. However, market forecasts
are not always accurate. Therefore, our view is more simple, forget the broad
market forecasts and look for attractively priced stocks of financially sound
but out-of-favor companies. Of course these days this is much easier said than
done. As stock prices continue to inflate, good investments become increasingly
scarce. We will obviously be challenged this year to maintain our conservative
posture with sensibly priced investments.
Q. YOU SEEM TO PAINT A RATHER BLEAK PICTURE FOR THE MARKET. WHY SHOULD I REMAIN
INVESTED IN EQUITIES IF I BELIEVE YOU ARE CORRECT?
No one (even us) has demonstrated the ability to accurately predict short-term
market trends. Over the longer-term, equities historically have tended to
outperform other investments such as bonds or cash instruments, although they
are more volatile. Therefore, most investment advisors suggest that some equity
exposure be maintained at all times. However, if one believes that the current
short-term outlook is for a volatile and somewhat shaky market environment,
then a relatively lower-risk equity fund which seeks to pay out above average
current income like the Pegasus Equity Income Fund may be a sensible place to
maintain equity exposure.
Pegasus Funds
7
<PAGE> 38
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
EQUITY INCOME FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS EQUITY INCOME FUND AND THE
RUSSELL 1000 VALUE INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Equity Income Fund
Russell 1000
A-Shares(1) B-Shares(2) I-Shares Value Index(3)
<S> <C> <C> <C> <C>
1/27/95 $ 9,500 $10,000 $10,000 $10,000
Jun-95 $10,692 $11,219 $11,264 $11,597
Dec-95 $12,329 $12,894 $13,027 $13,441
Jun-96 $13,076 $13,622 $13,846 $14,454
Dec-96 $14,706 $15,250 $15,576 $16,358
Jun-97 $16,210 $16,754 $17,196 $19,250
Dec-97 $17,878 $17,911 $18,995 $22,113
</TABLE>
(1) Includes maximum sales charge of 5.00%.
(2) Includes contingent deferred sales charge of 3.00%.
(3) Excludes expenses.
(4) An "A' shareholder investment at the original 4.50% sales charge is
currently valued at $17,972.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS EQUITY INCOME FUND
I Shares 1/27/95 21.95% 24.49%
A Shares With 5.00% Load 1/27/95 15.49% 21.94%(/1/)
B Shares With 3.00% CDSC 1/27/95 17.78% 22.48%
Russell 1000 Value Index* 1/27/95 35.18% 31.12%
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50% sales
charge was 22.15%.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The Russell 1000 Value Index is an unmanaged index generally representative
of the largest 1000 companies with a greater-than-average value orientation.
Pegasus Funds
8
<PAGE> 39
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
GROWTH FUND
- --------------------------------------------------------------------------------
An Interview with Jeffrey Beard
Portfolio Manager
- --------------------------------------------------------------------------------
Q. WE HAVE READ ELSEWHERE HOW 1997 WAS ANOTHER BLOCKBUSTER YEAR IN THE EQUITY
MARKET, BUT WHAT HAPPENED IN THE FOURTH QUARTER?
Equity investors in the fourth quarter turned defensive in response to the
uncertainties growing out of the turmoil in the Asian countries. Although the
market experienced its first real correction in seven years, it did manage at
least a partial comeback as stocks, which can demonstrate consistent results,
including those in the consumer staples, healthcare, and financial sectors,
were bid upward. However, performing surprisingly well in this market
environment were stocks offering some type of fixed return such as former
laggards in the telecommunications and utilities sectors. Finishing up with a
2.9% return for the quarter, the S&P 500 Index capped off a third blockbuster
year in a row with a 33.4% total return.
Q. THIS DOES NOT SOUND LIKE A POSITIVE BACKDROP FOR GROWTH INVESTORS. HOW DID
THE GROWTH FUND PERFORM?
This type of market backdrop is not particularly conducive to growth investing,
in general, as evidenced by the negative 1.1% average return for the Lipper
Growth Universe of managers, nor is it friendly toward the general equity fund
manager which averaged negative 1.6% according to Lipper; yet the Fund was able
to hold its own in this market, turning in positive 2% total return before fee
adjustment, and 1.8% afterward. For the year, the Fund provided a healthy
return of 27.10%. This compares favorably with the Lipper Growth Universe
average return of 25.3%, as well as the 24.4% return generated by the average
general equity fund.
Q. GRANTED, THE FUND PERFORMED WELL COMPARED TO OTHER GROWTH MANAGERS.
NONETHELESS, HELP US BETTER UNDERSTAND THE DYNAMICS WHICH CONTRIBUTED TOWARD
THE FUND LAGGING THE S&P 500 FOR THE QUARTER AND THE LARGE CAPITALIZATION
BENCHMARK, THE STANDARD AND POOR'S COMPOSITE INDEX.
Sub-market performance for the quarter is largely attributable to two factors:
a large underexposure to the communication services sector and the large
exposure to technology stocks. The former are traditionally underweighted in
growth funds due to unexciting growth prospects and the latter bore the brunt
of the market's retreat in the correction, but did not rebound as much. In
keeping with the market theme for the quarter, the best performing stocks in
the Fund were largely domestic, highly consistent earners. Norwest was up 27%,
having benefited from declining interest rates, as well. Pfizer received
preliminary approval for a new potential blockbuster drug sooner than
anticipated and returned 24%. Rounding out the top five were Walt Disney
(+23%), Walgreens (+23%), and Illinois Tool Works (+21%). Technology stocks
dominated the worst performing stocks in the Fund. Preannounced earnings were
responsible for very disappointing returns from Silicon Graphics and Cabletron
Systems, both of which were down 53%, and Altera which was down 35%. Management
guidance to reduce near-term expectations impacted Fluor (-30%), and
uncertainty surrounding Asia's influence on demand for personal computers hurt
Intel (-24%).
Q. AND WHAT ABOUT FOR THE YEAR; WHAT WERE THE WINNERS AND THE LOSERS IN THE
FUND?
The best performance came from the independent power producer, AES Corp., which
doubled in value during 1997, in large part due to several contracts signed
throughout the year which have added to the visibility of earnings over the
next two to three years, or longer. Norwest Corp. returned 82% and benefited
from solid fundamental execution within the consistently strong financial
sector. Pfizer, which also advanced 82%, has consistently hit expectations and
has one of the richest pipelines of new products, contributing to clearly
visible earnings growth for the foreseeable future. State Street Corp., up 82%
for the year, exceeded expectations, driven by growth in assets and associated
higher fee income. Rounding out the top five was Home Depot, up 77%. Home Depot
benefited from the consolidation within the do-it-yourself retailing industry
coupled with very favorable consumer demand for its products and services. The
negative side of the ledger was dominated by technology stocks, all of which
paid the price for missing expectations and most of which suffered from
concerns originating from soft demand, perceived or real, from international
customers. Specifically, Cabletron Systems declined 53%, Silicon Graphics
declined 52%, Altera dropped 35%, and First Data Corp. dropped 20%. Fluor was
influenced by Asian dislocations disrupting the supply/demand relationship for
global engineering and construction services following a period of aggressive
expansion for the company. Its stock declined 40%.
Q. CAN YOU COMMENT ON ACTIVITY IN THE FUND GIVEN THE ROBUST MARKET ENVIRONMENT?
The turnover ratio for the Growth Fund was below average at 22% using the SEC's
definition of turnover. The turnover rate for the Fund is expected to be in the
range of 25% to 35% over longer time periods.
Q. WHAT IS YOUR OUTLOOK FOR THE NEXT 12 MONTHS, AND GIVEN THIS OUTLOOK, HOW IS
THE FUND POSITIONED?
We believe the economy will continue to grow, although the head winds created
by increased competition from cheap imports will pressure revenue growth and
increasing wage demands will squeeze margins as well, pulling corporate
earnings growth expectations downward. As earnings growth does in fact slow,
stock selection becomes even more paramount, and we believe that investors will
focus on an increasingly narrow selection of large-capitalization, consistent
growth equities, driving valuation of these successful stocks even higher. The
Growth Fund's approach to investing is particularly well suited to this
environment, emphasizing consistent earnings growth supported by strong, unit-
driven revenue growth.
Pegasus Funds
9
<PAGE> 40
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
GROWTH FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS GROWTH FUND, AND THE
RUSSELL 1000 GROWTH INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Growth Fund A-Shares(1) B-Shares(2) I-Shares Russell 1000 Growth Index(5)
<S> <C> <C> <C> <C> <C>
1/27/95 $9,500 $10,000 $10,000 $10,000
6/95 $10,749 $11,269 $11,317 $11,879
12/95 $12,347 $12,915 $13,038 $13,548
6/96 $13,423 $13,974 $14,200 $15,235
12/96 $14,830 $15,374 $15,692 $16,737
6/97 $17,231 $17,810 $18,260 $20,009
12/97 $18,796 $18,858 $19,946 $21,841
</TABLE>
(1) Includes maximum sales load of 5.00%.
(2) Includes contingent deferred sales charge of 3.00%.
(3) Excludes expenses.
(4) An "A' Share holder investment at the original 4.50% sales charge is
currently valued at $18,897.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS GROWTH FUND
I Shares 1/27/95 27.10% 26.58%
A Shares With 5.00% Load 1/27/95 20.42% 24.05%(1)
B Shares With 3.00% CDSC 1/27/95 22.90% 24.62%
Russell 1000 Growth Index* 1/27/95 30.49% 30.41%
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50% sales
charge was 24.27%.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The Russell 1000 Growth Index is an unmanaged index generally representative
of the largest 1000 companies with a greater-than-average growth orientation.
Pegasus Funds
10
<PAGE> 41
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MID-CAP OPPORTUNITY FUND AND SMALL-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
An Interview with Ronald Doyle and Joe Gatz
Portfolio Managers
- --------------------------------------------------------------------------------
Q: HOW DID THE MID-CAP OPPORTUNITY FUND AND SMALL-CAP OPPORTUNITY FUND PERFORM
IN 1997?
Both Funds had excellent performance, exceeding both their respective mid-cap
and small-cap market indicies, and the universe averages of other mid-cap and
small-cap funds. The Mid-Cap Opportunity Fund returned 27.9% (I shares) for the
twelve months ended December 31, 1997, compared to the 19.6% return for the
Lipper Mid-Cap Universe average and the 24.4% return of the Russell 2500 Index.
The Small-Cap Opportunity Fund returned 30.6% (I Shares) for the twelve month
period compared to the 20.8% return for the Lipper Small Company Growth Average
and the Russell 2000 return of 22.4%.
Q: TO WHAT DO YOU ATTRIBUTE THIS STRONG PERFORMANCE?
Both Funds' favorable returns versus their benchmarks can be attributed to good
fundamental performance of the holdings in the portfolios, with relatively few
negative "surprises" throughout the year. Our efforts to select attractive
stocks were successful in almost all industry sectors, with the strongest
contributions from financial services and health care. In addition, both Funds
maintained attractive valuation profiles versus many other small- and mid-cap
funds.
Q: LARGE COMPANY STOCKS HAVE PERFORMED BETTER THAN SMALLER COMPANY STOCKS FOR
THE LAST FEW YEARS. HOW DID MID-SIZED AND SMALL COMPANY STOCKS COMPARE TO THE
S&P 500 LAST YEAR?
Indeed, the 33.4% return of the S&P 500 Index once again exceeded almost all
other market indices, including the mid-cap and small-cap benchmarks. During
the first half of 1997, record cash flows into the equity market were absorbed
by the liquidity offered in larger company stocks and large-cap dominated index
funds. Although small- and mid-cap stocks rallied in the third quarter of the
year, investors returned to the perceived safety and liquidity of large-cap
stocks in reaction to the uncertainty generated by economic turmoil in
Southeast Asia.
Q: WHAT IS THE OUTLOOK FOR MID-CAP AND SMALL-CAP INVESTMENTS IN 1998?
Although disruption in certain international economies lends uncertainty to the
overall outlook for U.S. equities, we remain optimistic regarding the prospects
for mid-cap and small-cap stocks. Relative to the large-cap multinational
companies represented in the S&P 500 Index, small- and mid-sized companies are
more domesticly oriented and are generally less affected by international
economies and currency fluctuations. In addition, we believe near term earnings
growth for small companies is expected to exceed that of larger companies.
Finally, the valuation of mid- and small-cap stocks appears somewhat more
attractive after the sector has underperformed larger company stocks for the
last three years.
Q: GIVEN THIS OUTLOOK, HOW ARE THE FUNDS POSITIONED?
Both the Mid-Cap Opportunity Fund and the Small-Cap Opportunity Fund seek to
invest in proven growth companies selling at reasonable prices. We require the
companies we invest in have a distinct competitive advantage that allows them
to maintain above average growth and profitability. We prefer companies that
generate strong cash flow and have solid financial structures. We also prefer
companies whose managements have their financial interests aligned with
shareholders. In addition, we pay close attention to the valuations of our
holdings relative to their underlying fundamental prospects. These strategies
have served us well in the past, and we are committed to maintaining them in
the future.
Small capitalization equity Funds typically carry additional risks and
historically, their stocks have experienced a greater degree of market
volatility than stocks on average.
Pegasus Funds
11
<PAGE> 42
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MID-CAP OPPORTUNITY FUND AND SMALL-CAP OPPORTUNITY FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS MID-CAP OPPORTUNITY FUND, AND THE
RUSSELL 2500 INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Mid-Cap
Opportunity Fund A-Shares(1) I-Shares Russell 2500 Index(2)
<S> <C> <C> <C>
6/1/91 $10,000 $10,000
12/91 $10,523 $11,204
5/1/92 $ 9,500 $10,995 $11,638
12/92 $11,208 $13,107 $13,017
12/93 $13,899 $16,254 $15,170
12/94 $13,844 $15,724 $15,026
12/95 $16,102 $18,830 $19,787
12/96 $20,113 $23,544 $23,553
12/97 $25,657 $30,116 $29,290
</TABLE>
(1) Includes maximum sales charge of 5.00%.
(2) Excludes expenses.
(3) An "A' shareholder investment at the original 4.50% sales charge is
currently valued at $25,792.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE FIVE SINCE
THROUGH 12/31/97 DATE YEAR YEAR INCEPTION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS MID-CAP OPPORTUNITY FUND
I Shares 6/1/91 27.91% 18.10% 18.22%
A Shares With 5.00% Load 5/1/92 21.19% 16.81% 18.08%(/1/)
B Shares With 4.00% CDSC (3) 9/23/96 23.10% N/A 25.25%
Russell 2500 Index* 6/1/91 24.36% 17.59% 17.72%(/2/)
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50% sales
charge was 18.19%.
(2) Index return since 9/23/96 was 24.85%.
(3) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so than an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The Russell 2500 Index is an unmanaged index generally representative of the
small-to-medium-small stock market.
Pegasus Funds
12
<PAGE> 43
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MID-CAP OPPORTUNITY FUND AND SMALL-CAP OPPORTUNITY FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS SMALL-CAP OPPORTUNITY FUND AND THE
RUSSELL 2000 INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Small-Cap
Opporunity Fund A-Shares(1) B-Shares(2) I-Shares Russell 2000 Index(3)
<S> <C> <C> <C> <C>
1/27/95 $9,500 $10,000 $10,000 $10,000
6/95 $10,113 $10,600 $10,640 $11,539
12/95 $11,856 $12,376 $12,486 $12,954
6/96 $12,750 $13,274 $13,460 $14,296
12/96 $14,771 $15,398 $15,713 $15,090
6/97 $17,000 $17,647 $18,109 $16,534
12/97 $19,226 $19,389 $20,522 $18,358
</TABLE>
(1) Includes maximum sales charge of 5.00%.
(2) Includes contingent deferred sales charge of 3.00%.
(3) Excludes expenses.
(4) An "A' shareholder investment at the original 4.50% sales charge is
currently valued at $19,327.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS SMALL-CAP OPPORTUNITY FUND
I Shares 1/27/95 30.60% 27.81%
A Shares with 5.00% Load 1/27/95 23.66% 25.00%(/1/)
B Shares with 3.00% CDSC 1/27/95 26.17% 25.80%
Russell 2000 Index* 1/27/95 22.36% 22.83%
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50 sales
charge was 25.22%.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The Russell 2000 Index is an unmanaged index generally representative of the
small-cap equity market.
Pegasus Funds
13
<PAGE> 44
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
An Interview with Chris Gassen and Richard Neumann
Portfolio Managers
- --------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM?
We ended 1997 with a 25.25% return (I shares), a very strong year for absolute
performance. However, it was also a good year for the general equity market
with the S & P 500 Index up an astounding 33.4 percent, while the Lipper Growth
& Income Index return was closer to the Fund's return at 27.1%.
Q. DESPITE THE GOOD ABSOLUTE RETURN, YOU FELL SLIGHTLY BEHIND THE S&P 500
INDEX. WHY?
In exuberant market environments such as last year, more conservatively
invested funds such as the Intrinsic Value Fund typically lag. Over longer
periods we have achieved more competitive returns and have done so with less
risk than the market.
Q. HOW DO YOU MEASURE RISK?
Many investors use volatility statistics (such as beta and standard deviation)
to measure risk; the more volatile the return, the riskier the asset. In
general, investors demand higher returns when they incur greater risk.
Q. YOU SAY THAT THE FUND HAS BEEN LESS RISKY THAN THE OVERALL MARKET. WHAT
ABOUT RISK ADJUSTED RETURNS?
A risk adjusted return takes a fund's risk into account when evaluating
performance. According to outside sources like Morningstar and Value Line, the
Intrinsic Value Fund's performance is above average when considering that our
risk has been very low relative to other funds in the same category.
Q. WHERE IS THE MARKET AND THE FUND HEADED IN 1998?
The market has looked expensive to us for some time, and 1997 did nothing to
change that outlook. We see a market environment driven by forces of momentum
and speculation, so the connection between current stock prices and the
business fundamentals of underlying companies is not often apparent to us.
Thus, its difficult to find attractively valued stocks. We believe that this
speculative environment will eventually cool off and prices will return to more
sensible values. We think the Fund is positioned to give investors a less bumpy
ride in the interim, although in such a volatile environment anything can
happen in the short run.
Q. A LESS BUMPY RIDE, BUT A BUMPY RIDE NONETHELESS?
Unfortunately, one cannot be invested in equities without expecting ups and
downs, no matter how conservative the portfolio. However, it is precisely for
this reason that equities have outperformed other asset classes over the longer
term. Remember that higher returns should accompany higher risk. Historically,
the Intrinsic Value Fund has earned attractive returns with less volatility
than the market. This is clearly our goal in the years ahead.
14
Pegasus Funds
<PAGE> 45
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRINSIC VALUE FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS INTRINSIC VALUE FUND AND THE
S&P 500 INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Intrinsic
Value Fund A-Shares(1) I-Shares S&P 500(2) B-Shares(3)
<S> <C> <C> <C> <C>
6/1/91 $10,000 $10,000
12/91 $10,152 $10,902
5/1/92 $ 9,500 $10,919 $10,627
12/92 $ 9,930 $11,629 $11,731
12/93 $11,391 $13,340 $12,911
12/94 $11,323 $13,260 $13,080
12/95 $14,083 $16,492 $17,991
12/96 $17,434 $20,449 $22,119
12/97 $21,798 $25,613 $29,496
</TABLE>
(1) Includes maximum sales charge of 5.00%.
(2) Excludes expenses.
(3) An "A' shareholder investment at the original 4.50% sales charge is
currently valued at $21,913.
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE FIVE SINCE
THROUGH 12/31/97 DATE YEAR YEAR INCEPTION
- -----------------------------------------------------------------------------------
PEGASUS INTRINSIC VALUE FUND
I Shares 6/1/91 25.25% 17.11% 15.35%
A Shares With 5.00% Load 5/1/92 18.79% 15.83% 14.73%(/1/)
B Shares With 4.00% CDSC(3) 9/23/96 20.24% N/A 23.41%
S&P 500 Index* 6/1/91 33.35% 20.25% 17.84%(/2/)
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.5% sales
charge was 14.84%.
(2) Index return since 9/23/96 was 30.68%.
(3) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The S&P 500 Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
Pegasus Funds
15
<PAGE> 46
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
An Interview with Gary L. Konsler
Portfolio Manager
- --------------------------------------------------------------------------------
Q. CAN YOU PUT THE STOCK MARKET'S RETURN FOR 1997 INTO PERSPECTIVE FOR ME?
The Dow Jones Industrial Average (Dow) posted another record year generating a
25% return. The S&P 500 Index did even better earning a 33% return. Both
indices have now recorded annual returns in excess of 20% for three years
duration. The Dow has been in existence for over 100 years, the S&P 500 over 69
years. Successive 20%, three-year returns have never been achieved by either.
The three-year cumulative returns for the Dow and the S&P are over 100%, the
second best 36-month period. The historical longer term return for stocks
averages about 10% to 11% per year.
Q. HOW DID THE PEGASUS GROWTH AND VALUE FUND PERFORM DURING 1997?
The Fund returned over 28% (I shares) in 1997. This compares favorably with the
27% return reported by the Lipper Growth and Income Universe Average of mutual
funds as well as the 24% return for General Equity Funds invested in
diversified U.S. stocks.
Q. CONSIDERING THE SIZE OF THESE NUMBERS, IS THIS A NEW ERA OF INVESTING?
It is still too early to say with total conviction. However, we can say the
markets have benefited from a remarkable combination of economic events.
Despite monetary upheavals in Asia, the economy is expanding at a 3% rate with
more consistency than at any time in over a decade. At the same time, inflation
is at levels not seen in over three decades. Concurrently, bond yields are
nearing 30-year lows. Consumer confidence is at a 28-year high. The Federal
budget deficit is shrinking. Corporate profits advanced for a sixth year. (A
seventh year would be a record.) This environment has been described as the
Goldilocks economy, nirvana, and the best of all possible worlds. As the
economy approaches the beginning of its eighth year of expansion (the third
longest in U.S. history), the question remains, how long will the stock-market-
benefiting, economic expansion continue?
Q. WHICH STOCKS PERFORMED PARTICULARLY WELL IN THE FUND AND WHICH DID NOT MEET
YOUR EXPECTATIONS?
The best performing stocks were in the healthcare arena, Schering-Plough and
Bristol-Myers Squibb, each representing 3 to 4% of the Fund's portfolio.
Finance was also strong, led by Norwest (the 12th largest bank). Schlumberger,
the premier oil service firm, was additive. In the newspaper area, both Gannett
and the Washington Post boosted returns. These five stocks returned between 47%
and 94% for the year. During 1997, investors once again severely punished any
company that reported bad news or warned of potential problems on the horizon.
That was the common threat that tied together the disappointing holdings for
the year, e.g., York (heating and air conditioning), First Data (credit card
processing), The Pep Boys (auto parts sales and service), Russell (active
apparel) and Boeing (aerospace).
Q. WHAT WAS THE MAGNITUDE OF PURCHASE AND SALE ACTIVITY DURING THE YEAR?
Turnover for the year was about average at 29%.
Q. WHAT IS THE FUND'S POSITION REGARDING CASH HOLDINGS IN THE FUND?
The Fund does not engage in market timing or asset allocation strategies. Its
goal is to remain as fully invested in common stocks as practical. To further
that goal, late in the quarter, the Fund initiated a strategy of investing
liquidity in S&P 500 Index futures. This will be likely to have the effect of
"equitizing" cash operating reserves.
Q. IN ADDITION TO THE ECONOMIC UNDERPINNINGS MENTIONED ABOVE, ARE THERE ANY
OTHER ISSUES THAT COULD HAVE A MAJOR IMPACT ON THE STOCK MARKET?
During 1997, the stock market was unusually volatile. The S&P 500 rose or fell
more than 1% on nearly one-third of the trading days in 1997, double the
volatility of 1996, triple that of 1995. This was only the fourth time in two
decades the market was so volatile. In addition, at year end, the S&P 500 was
trading at 19 times 1998 consensus earnings estimates, a level not seen in over
20 years. Thus, the market does not appear to expect any disappointments.
Naturally, with expectations so high, volatility will likely continue in 1998.
Q. HOW DO YOU INVEST DURING SUCH TIMES?
Such an environment, we believe, calls for the core of an investor's equity
holdings to be invested in a diversified portfolio of high quality, financially
sound, blue chip stocks selling at attractive prices. That is how the Pegasus
Growth and Value Fund is, and plans to remain, invested.
16 Pegasus Funds
<PAGE> 47
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
GROWTH AND VALUE FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS GROWTH AND VALUE FUND AND THE
S&P 500 INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Growth & Value Fund A Shares(1) I-Shares S&P 500(2)
- --------------------------- ----------- -------- ----------
<S> <C> <C> <C>
6/1/91 $10,000 $10,000
12/91 $10,000 $10,902
5/1/92 $9,500 $10,170 $10,627
12/92 $10,015 $11,000 $11,731
12/93 $11,397 $12,512 $12,911
12/94 $11,459 $12,580 $13,080
12/95 $14,670 $16,105 $17,991
12/96 $17,493 $19,221 $22,119
12/97 $22,355 $24,631 $29,496
</TABLE>
(1) Includes maximum sales charge of 5.00%.
(2) Excludes expenses.
(3) An "A' shareholder investment at the original 4.50% sales charge is
currently valued at $22,473.
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE FIVE SINCE
THROUGH 12/31/97 DATE YEAR YEAR INCEPTION
- -----------------------------------------------------------------------------------
PEGASUS GROWTH AND VALUE FUND
I Shares 6/1/91 28.15% 17.50% 14.67%
A Shares With 5.00% Load 5/1/92 21.41% 16.22% 15.24%(/1/)
B Shares With 4.00% CDSC(3) 9/23/96 22.90% N/A 23.36%
S&P 500 Index* 6/1/91 33.35% 20.25% 17.84%(/2/)
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50% sales
charge was 15.35%.
(2) Index return since 9/23/96 was 30.68%.
(3) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
*The S&P 500 Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
Pegasus Funds
17
<PAGE> 48
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
EQUITY INDEX FUND
- --------------------------------------------------------------------------------
An Interview with Richard Neumann
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE EQUITY INDEX FUND PERFORM LAST YEAR?
The Fund returned 32.97% (I shares) last year compared with a 33.35% return for
the S&P 500 Index.
Q. WHAT ACCOUNTED FOR THE DIFFERENCE BETWEEN THE FUND'S RETURN AND THAT OF THE
MARKET?
Last year, the entire difference was more than accounted for by management
fees. If fees are excluded, the Fund's return would have been slightly higher
than the Index. In addition to management fees, we would expect small
deviations to occur due to transaction costs and small differentials between
securities' weights in the Fund and in the S&P 500 Index. Over time we would
expect only a small negative variance from the underlying performance of the
S&P 500 Index.
Q. WHAT HAS BEEN THE LONGER-TERM RECORD FOR THE FUND?
For the past five years, the Fund's compound annual return totals 20.21% versus
20.25% for the market.
18
Pegasus Funds
<PAGE> 49
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
EQUITY INDEX FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS EQUITY INDEX FUND AND THE
S&P 500 INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Equity Index Fund
A-Shares(1) I-Shares S&P 500(2)
<S> <C> <C> <C>
7/10/92 $ 9,700 $10,000 $10,000
Dec-92 $10,331 $10,648 $10,657
Dec-93 $11,340 $11,688 $11,736
Dec-94 $11,456 $11,807 $11,891
Dec-95 $15,735 $16,219 $16,355
Dec-96 $19,273 $19,880 $20,108
Dec-97 $25,573 $26,434 $26,814
</TABLE>
(1) Includes maximum sales charge of 3.00%.
(2) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE FIVE SINCE
THROUGH 12/31/97 DATES YEAR YEAR INCEPTION
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS EQUITY INDEX FUND
I Shares 7/10/92 32.97% 19.94% 19.41%
A Shares With 3.00% Load 7/10/92 28.71% 19.15% 18.69%
B Shares With 3.00% CDSC(2) 9/23/96 28.71% N/A 29.78%
S&P 500 Index* 7/10/92 33.35% 20.25% 19.72%(/1/)
</TABLE>
(1) Index return since 9/23/96 was 30.68%.
(2) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
*The S&P 500 Index is an unmanaged index generally representative of the U.S.
stock market as a whole.
Pegasus Funds
19
<PAGE> 50
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
An Interview with Richard Kost
Portfolio Manager
- --------------------------------------------------------------------------------
WHAT IS THE NATURE OF THE FUND AND ITS OBJECTIVES?
The Fund is an equity mutual fund which invests primarily in equity securities
of non-U.S. companies. The Fund's objective is to achieve long-term capital
appreciation. The Fund seeks to achieve this objective by emphasizing active
country selection involving global economic, financial, and political
assessments together with valuation analysis of selected countries' securities
markets. The Fund may exhibit more volatility than the U.S. equity market in
general.
HOW DID THE FUND DO IN 1997?
For the year ended December 31, 1997, the Fund returned 4.0% (I Shares). The
Fund's return outperformed the Morgan Stanley Capital International EAFE Index
(EAFE Index) return of 1.8%. The EAFE Index is a market value weighted index of
about 1,100 equity securities issued by non-U.S. companies with a total market
value of approximately US $5.9 trillion. This index is not subject to the
expenses of a mutual fund. The Fund outperformed the EAFE Index primarily due
to its underweighting of equities in Japan and overweighting of equities in
Latin America.
WHAT WAS THE INVESTMENT ENVIRONMENT THAT THE FUND OPERATED IN?
International equity markets appreciated during 1997 as continued economic
growth and modest inflationary pressures resulted in lower interest rates. The
Morgan Stanley Capital International EAFE Index returned 1.8% in U.S. dollar
terms for the year. European equity markets advanced 23.8% in U.S. dollar terms
on good earnings gains and lower interest rates. The Japanese stock market
lagged with a U.S. dollar return of -23.7%. This stock market declined during
the year on concerns about the sluggish economy, and investor uncertainty about
the competitive position of Japanese banks in a less regulated environment. The
MSCI Pacific ex-Japan index declined 31.0%, led by a return of -68.3% in
Malaysia. The Asian turmoil appears to reflect uncertainties about the region's
financial systems and political instability in several countries governments.
Latin American equity markets advanced 31.6% (MSCI Latin America free) as
economic growth accelerated in a more stable environment.
WHAT IS YOUR LONG TERM OUTLOOK FOR INTERNATIONAL EQUITY INVESTING?
Over the long term, international equities have historically provided returns
superior to U.S. large capitalization stocks, although at a higher level of
volatility. We continue to recommend that long-term investors have a portion of
their assets invested internationally to capture the benefits of portfolio
diversification and potential capital appreciation.
GIVEN YOUR OUTLOOK HOW HAVE YOU ALLOCATED THE FUND'S ASSETS?
At year end, 60% of the Fund's assets were invested in Europe. Approximately
19% were invested in the Far East, of which 13% were in Japan. Investments in
Latin American countries represented 16% of assets and cash equivalents
accounted for 5%.*
* The portfolio composition is subject to change.
International investing is subject to certain factors such as currency exchange
rate volatility, possible political, social or economic instability, foreign
taxation and differences in auditing and other financial standards.
20
Pegasus Funds
<PAGE> 51
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERNATIONAL EQUITY FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS INTERNATIONAL EQUITY FUND AND THE
MSCI EAFE INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus International Equity Fund
A-SHARES(1) I-SHARES EAFE(2)
<S> <C> <C> <C>
12/3/94 $9,500 $10,000 $10,000
Dec-94 $9,504 $10,005 $10,012
Mar-95 $9,665 $10,174 $10,198
Jun-95 $10,004 $10,531 $10,273
Sep-95 $10,339 $10,883 $10,701
Dec-95 $10,595 $11,153 $11,134
Mar-96 $10,896 $11,470 $11,456
Jun-96 $11,102 $11,687 $11,637
8/26/96
Sep-96 $11,099 $11,710 $11,623
Dec-96 $11,390 $12,021 $11,808
Mar-97 $11,280 $11,913 $11,623
Jun-97 $12,524 $13,238 $13,130
Sep-97 $12,777 $13,513 $13,037
Dec-97 $11,810 $12,499 $12,016
</TABLE>
(1) Includes maximum sales charges of 5.00%.
(2) Excludes expenses.
(3) An "A' shareholder investment at the original 4.50% sales charge is
currently valued at $11,872.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS INTERNATIONAL EQUITY FUND
I Shares 12/3/94 3.98% 7.51%
A Shares With 5.00% Load 12/3/94 (1.49)% 5.55%(/1/)
B Shares With 4.00% CDSC (3) 8/26/96 (.88)% 1.35%
MSCI EAFE Index* 12/3/94 1.77% 6.84%(/2/)
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50% sales
charge was 5.73%.
(2) Index return since 8/26/96 was 3.00%.
(3) The performance of the B Shares will be less than the performance Shares
for the I-Shares due to the differences in loads and fees paid by
Shareholders investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The MSCI EAFE Index is an unmanaged index generally representative of the
foreign equity market as a whole.
Pegasus Funds
21
<PAGE> 52
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
BOND AND INTERMEDIATE BOND FUNDS
- --------------------------------------------------------------------------------
An Interview with Doug Swanson
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE BOND AND INTERMEDIATE BOND FUNDS PERFORM IN 1997?
With rates generally moving lower in 1997 both Funds had another great year
relative to their benchmarks and peers. For the Bond Fund's fiscal year ended
December 31, 1997 the Fund provided a total return of 9.97% (I Shares) versus
9.65% for its Index the Lehman Brothers Aggregate Bond Index. This return also
placed the Fund fourth out of 123 in its Lipper category (Intermediate U.S.
Government) for the year. For the five years ended December 31, 1997 the Fund
placed first out of 49 funds in the same Lipper category. For the Intermediate
Bond Fund's fiscal year ended December 31, 1997 the Fund provided a total
return of 8.37% (I Shares) versus 7.87% for its Index the Lehman Intermediate
Government/Corporate Index. This placed the Fund first out of 92 in its Lipper
category (Short-Intermediate U.S. Government). For the five years ended
December 31, 1997 the Fund placed first out of 49 funds in the same Lipper
category.
Q. WHAT WERE THE PRIMARY REASONS FOR THESE FUNDS' GOOD PERFORMANCE?
Similarly to 1996, our overweighting in mortgage backed securities was a
positive, as this sector outperformed most of the year. Also, our security
selection within this sector was excellent as many of our individual
(Collateralized Mortgage Obligations (CMOs)) holdings outperformed generic
securities.
Q. HOW DID THE CRISIS IN THE ASIAN FINANCIAL MARKETS AFFECT THE FUNDS?
The biggest effect was to create a "flight to quality" that extended the rally
in U.S. fixed income markets. This clearly had a positive effect on the Funds'
absolute returns. The Funds had no direct exposure to Asian creditors, many of
which had their ratings slide to below investment grade. The flight to quality
did result in returns on corporate bonds significantly lagging that of similar
duration U.S. Treasuries. The Funds' underweighting in this sector versus their
respective benchmark index had a positive impact on performance in the fourth
quarter.
Q. WHAT ARE THE FUNDS' CURRENT DURATION AND WHY IS THAT IMPORTANT?
As of December 31, 1997, the Bond Fund had a duration of 4.4 versus 4.6 for its
benchmark index and the Intermediate Fund had a duration of 3.2 versus 3.4 for
its Index. This is important because duration is a measure of interest rate
risk of a portfolio or security. The higher the duration the higher the
interest rate risk.
Q. WHAT ARE THE FUNDS' SECTOR ALLOCATIONS?
At the end of 1997 the Bond Fund held 40% in U.S. Treasuries, 44% in Mortgage
Backed Securities, 11% in Asset Backed Securities, 4% in Corporates and 1% in
money market funds. Also, the Fund held 96% in AAA securities. For the
Intermediate Bond Fund, 41% was invested in U.S. Treasuries, 39% in mortgage
backed securities, 18% in asset backed securities and 2% in Corporates. Also,
97% of the assets in the Fund were rated AAA.
Q. WHAT ARE SOME OF YOUR STRATEGIES FOR 1998?
We will continue to keep the duration of the Funds' similar to that of their
respective benchmark index. Our long-term view on the bond market remains
positive, although we believe we will remain within a range during most of
1998. We have increased our holdings of short duration AAA rated asset-backed
securities and believe these will outperform similar duration Treasuries.
Although the mortgage-backed sector is not as undervalued as it was at the end
of 1996, we think there are still many opportunities in this sector. Finally,
we will continue to stress higher quality securities.
Neither the Lehman Aggregate Bond Index or Intermediate Government/Corporate
Bond Index is subject to the expenses of a mutual fund.
22
Pegasus Funds
<PAGE> 53
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
BOND AND INTERMEDIATE BOND FUNDS -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS BOND FUND AND THE LEHMAN BROTHERS
AGGREGATE BOND INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Bond Fund
Lehman Brothers
I-Shares A Shares (1) Aggregate Bond Index (2)
<S> <C> <C> <C>
5/31/91
6/1/91 $10,000 $10,000
12/31/91 $11,070 $11,098
6/30/92 $11,332 $ 9,851 $11,398
12/31/92 $11,796 $10,253 $11,919
6/30/93 $12,794 $11,121 $12,742
12/31/93 $13,139 $11,422 $13,082
6/30/94 $12,486 $10,854 $12,576
12/31/94 $12,220 $10,623 $12,700
6/30/95 $14,022 $12,189 $14,154
12/31/95 $15,122 $13,145 $15,046
6/30/96 $14,964 $13,007 $14,864
12/31/96 $15,890 $13,799 $15,593
6/30/97 $16,402 $14,221 $16,075
12/31/97 $17,474 $15,131 $17,098
</TABLE>
(1) Includes maximum sales charge of 4.50%.
(2) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE FIVE SINCE
THROUGH 12/31/97 DATE YEAR YEARS INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS BOND FUND
I Shares -- Net of Fees 6/1/91 9.97% 8.18 8.84%
A Shares With 4.50% Load 5/1/92 4.72% 7.10 7.58%
B Shares With 4.00% CDSC(1) 8/26/96 4.91% N/A 7.42%
Lehman Brothers Aggregate Bond Index* 6/1/91 9.65% 7.48 8.49%
</TABLE>
(1) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The Lehman Aggregate Bond Index is an unmanaged index generally
representative of the bond market as a whole.
Pegasus Funds
23
<PAGE> 54
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
BOND AND INTERMEDIATE BOND FUNDS -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS INTERMEDIATE BOND FUND AND LEHMAN
BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX*
[LINE GRAPH APPEARS HERE]
(TABLE TO COME)
(1) Includes sales charge of 3.00%.
(2) Excludes expenses.
(3) An "A' shareholder investment with the original 4.50% sales charge is
currently valued at $14,065.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN INCEPTION ONE FIVE SINCE
THROUGH 12/31/97 DATE YEAR YEARS INCEPTION
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS INTERMEDIATE BOND FUND
I Shares -- Net of Fees 6/1/91 8.37% 6.82% 7.57%
A Shares With 3.00% Load 5/1/92 4.80% 6.08% 6.49%(1)
B Shares With 3.00% CDSC(2) 9/23/96 4.32% N/A 6.29%
Lehman Brothers Intermediate
Government/Corporate Bond Index* 6/1/91 7.87% 6.66% 7.67%
</TABLE>
(1) Return for an "A' shareholder who invested at the original 4.50% sales
charge was 6.20%.
(2) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index generally representative of the intermediate-term government
and corporate bond market as a whole.
Pegasus Funds
24
<PAGE> 55
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
SHORT BOND FUND
- --------------------------------------------------------------------------------
An Interview with Rick Cipicchio
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE SHORT BOND FUND PERFORM IN 1997?
The Fund's I shares returned 6.20% versus 6.67% for the Salomon Brothers
Government/Corporate 1-3 Year Bond Index. The index, however, is not subject to
the expenses of a mutual fund. The Fund's return compared favorably to the
Lipper Short U.S. Government Universe Average of 5.82% for the year.
Q. WHAT FACTORS AFFECTED THE RETURNS OF THE FUND?
The Fund's absolute return was enhanced by the decline in interest rates. The
one, two and three-year Treasuries declined by 1, 23, and 34 basis points,
respectively. The Fund's position in mortgage-backed and asset-backed
securities helped returns due to their higher yield.
Q. WHAT IS THE FUND'S CURRENT DURATION AND WHY IS IT IMPORTANT?
As of December 31, 1997, the Short Bond Fund duration was 1.6 years versus 1.7
years for the Salomon Brothers Government/Corporate 1-3 year Bond Index.
Duration is a measure of interest rate risk of a portfolio or security. The
higher the duration the higher the interest rate risk.
Q. HOW DOES THIS DURATION COMPARE TO OTHER FUNDS?
The duration of the Short Bond Fund has the shortest duration of any Pegasus
taxable bond fund. This generally allows the Fund to have a more stable NAV
versus funds with longer duration. It is also important to realize that this is
not a money market fund and the NAV will fluctuate from day to day.
Q. WHAT IS THE SHORT BOND FUND'S SECTOR ALLOCATION?
At the end of 1997, the Fund held 50% in Treasuries/Agencies, 15% in mortgage-
backed securities, 18% in asset-backed securities and 17% in high quality
corporate securities. The portfolio held 84% AAA rated securities and 16% in A
or AA rated securities.*
WHAT ARE SOME OF YOUR STRATEGIES FOR 1998?
The Fund remains overweighted in mortgage-backed and asset-backed securities
and will continue to selectively add asset-backed securities. The Fund will
also seek high quality corporation securities that have excellent risk/return
characteristics.
*The portfolio's composition is subject to change.
Pegasus Funds
25
<PAGE> 56
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
SHORT BOND FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS SHORT BOND FUND AND THE SALOMON
BROTHERS GOVERNMENT/ CORPORATE 1-3 YEAR BOND INDEX
[LINE GRAPH APPEARS HERE]
(TABLE TO COME)
(1) Includes sales charge of 1.00%.
(2) Excludes expenses.
(3) An "A' shareholder investment with the original 3.00% sales charge is
currently valued at $11,821.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION ONE SINCE
THROUGH 12/31/97 DATE YEAR INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS SHORT BOND FUND
I Shares -- Net of Fees 9/17/94 6.20% 6.31%
A Shares With 1.00% Load 9/17/94 4.86% 5.87%(1)
B Shares no CDSC(2) 9/23/96 5.19% 5.72%
Salomon Brothers Government/Corporate 1-3 year Bond
Index* 9/17/94 6.67% 6.84%
</TABLE>
(1) Return for an "A' Shareholder who invested at the original 3.00% sales
charge was 5.22%.
(2) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The Salomon Brothers Government/Corporate 1-3 year Bond Index is an unmanaged
index generally representative of the short-term government and corporate bond
market.
Pegasus Funds
26
<PAGE> 57
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MULTI SECTOR BOND FUND
- --------------------------------------------------------------------------------
An Interview with Mark Jackson
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM IN 1997?
The Fund's I Shares provided a total return of 8.86% in 1997. This compares
favorably to the Lipper Intermediate Investment Grade Bond Fund average net
total return of 8.57%. The total return for the Lehman Brothers
Government/Corporate Index was 9.76%.
Q. WHAT FACTORS AFFECTED THE RETURN OF THE MULTI SECTOR BOND FUND DURING THE
YEAR?
The Fund's absolute return was helped by the downward move in long-term
interest rates. The yield on the benchmark ten year Treasury Note declined
nearly 70 basis points in 1997. The Fund's relative performance was adversely
affected by a slightly cautious interest rate outlook and by lagging
performance of the Fund's overweighted corporate bond and asset-backed
securities positions.
Q. THE FUND HAS UNDERGONE SOME CHANGES, COULD YOU EXPLAIN THEM?
The Fund is now investing in mortgage-backed securities, in addition to U.S.
Treasury and Agency securities, corporate bonds and asset-backed securities.
This change was made to allow shareholders to benefit from the diversification
and return potential of the mortgage-backed security sector. Anticipating
trends in interest rates will play a slightly larger role in the performance of
the Fund relative to the benchmark index. These changes are designed to enhance
the long-term total return and income of the fund. Also, the name of the Fund
was changed from the Income Fund to the Multi Sector Bond Fund to better
reflect the balanced nature of the Fund's investments and management style.
Q. HOW DID THE CRISIS IN THE ASIAN FINANCIAL MARKETS AFFECT THE FUND?
The biggest effect was to create a "flight to quality" that extended the rally
in U.S. fixed income markets. This clearly had a positive effect on the Fund's
absolute return. The Fund had no direct exposure to Asian creditors. Many of
these issuers saw their credit ratings slide below investment grade. The flight
to quality did, however, cause corporate bond and asset-backed security returns
to lag returns for U.S. Treasury securities. The Fund's overweighted position
in both these sectors had a negative impact on fourth quarter performance
relative to the benchmark index.
Q. WHAT ARE SOME OF YOUR STRATEGIES FOR 1998?
We plan to remain overweighted in corporate and asset-backed securities in
anticipation of a rebound from the fourth quarter weakness in these sectors and
mortgage-backed securities with superior risk/return characteristics will
continue to be added to the portfolio. We believe the Fund is well positioned
to outperform the benchmark index.
Pegasus Funds
27
<PAGE> 58
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MULTI SECTOR BOND FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
PEGASUS MULTI SECTOR BOND FUND*
AND LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX**
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pegasus Multi-Sector Bond Fund
Lehman Brothers
Government Corporate Bond
I-Shares A Shares (1) B Shares (1) Index (2)
<S> <C> <C> <C> <C>
3/5/93 10000 9700 10000
12/31/93 10376 10065 10532
6/30/94 10173 9881 10076
12/31/94 10277 9969 10163
6/30/95 11362 11000 11361
12/31/95 12079 11684 12118
6/30/96 11894 11475 11890
12/31/96 12458 12005 12470
6/30/97 12766 12286 12812
12/31/97 13562 13035 13687
</TABLE>
(1) Includes sales charge of 3.00%.
(2) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION SINCE
THROUGH 12/31/97 DATE ONE YEAR INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS MULTI SECTOR BOND FUND*
I Shares *3/5/93 8.86% 6.52%
A Shares With 3.00% Load *3/5/93 5.33% 5.65%
B Shares With 2.00% CDSC(1) *5/31/95 5.75% 5.56%
Lehman Brothers Government/Corporate Bond Index** 3/5/93 9.76% 6.72%
</TABLE>
(1) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*Formerly the Pegasus Income Fund
**The Lehman Government/Corporate Bond Index is an unmanaged index generally
representative of the government and corporate bond market as a whole.
Pegasus Funds
28
<PAGE> 59
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
An Interview with Claude Erb
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE INTERNATIONAL BOND FUND PERFORM IN 1997?
The Fund was able to outperform its benchmark for the third straight year
(second calendar year). The International Bond Fund had a total return of -4.25%
(I Shares) versus -4.26% for the Salomon Brothers Non-US Government Bond Index
(US dollars unhedged) for the year ended December 31, 1997. Given the volatile
and trying times in the global bond market in 1997, we were happy to outperform
our benchmark.
Q. WHAT IN PARTICULAR DROVE THE FUND'S PERFORMANCE?
We can say that interest rate bets did not drive performance. The Fund, for the
most part, had a neutral stance towards interest rates in 1997. That is the
Fund maintained a duration, or interest rate sensitivity, similar to that of
its underlying benchmark. However the Fund did make some active decisions
towards the countries in which it was invested.
Q. IF COUNTRY SELECTION IS IMPORTANT FOR THE FUND, WHAT MARKETS DID YOU
EMPHASIZE DURING 1997?
Japan is the largest country in the non-US government bond market. We continued
our long-standing underweighting of Japan, which returned
- -4.84%. We have felt for some time that the low yields in Japan do not
compensate us for the risk involved there. A disappointing market was New
Zealand with a -12.3% return whose currency was caught up in the Asian crisis.
In the fourth quarter the Fund also increased its weighting in the emerging
markets. Investments in Argentina, Brazil and Russia all experienced
significant volatility during this period.
Q. WE HAVE HEARD A GREAT DEAL ABOUT THE TURMOIL IN ASIA. HOW HAS THIS AFFECTED
THE FUND?
As mentioned, the Asian crisis had a spillover effect in other emerging
markets. We saw the yields in those markets increase dramatically as the crisis
unfolded. Some stability returned towards the end of the year, but the markets
did not rebound entirely. The Asian crisis also prompted more strength in the
US dollar. The overall market's poor performance was driven by the strength in
the dollar. In fact the currency-hedged version of the Salomon Brothers Non-US
Government Bond Index increased 11.07% for the year. Other Asian markets, i.e.
Australia and New Zealand, were also hurt by their economic ties to the region.
Q. WHAT AFFECT WILL THE CREATION OF THE EURO HAVE ON THE FUND?
The European markets experienced falling interest rates and depreciating
currencies. Some of the best performing continental markets were those non-core
markets, i.e. Italy and Spain, which will be helped by their inclusion in the
first round of the Euro. The introduction of the Euro will be a long and
tumultuous process. It is one of the largest and most important monetary
experiments ever undertaken. With the elimination of a number of currencies,
the European markets will be driven solely by macroeconomic and credit
concerns.
Q. HOW DO YOU HAVE THE FUND POSITIONED FOR 1998?
In regards to interest rate sensitivity, the Fund remains largely duration
neutral. We do not believe that global interest rates have a great deal of room
to fall in 1998. Our primary emphasis remains to underweight Japan. Japan still
has significant macroeconomic problems it needs to work through. In our search
for high risk-adjusted yields we have begun emphasizing the emerging markets.
We feel that the greatest opportunities lie in these markets. However, some
developed markets like Australia and New Zealand continue to remain attractive.
In the fast-changing world of bond markets, unforeseen investment opportunities
arise from time to time. We will continue to seek out these attractive
risk/reward opportunities.
*The portfolio's composition is subject to change. International investing is
subject to certain factors such as currency exchange rate volatility, possible
political, social or economic instability, foreign taxation and differences in
auditing and other financial standards.
Pegasus Funds
29
<PAGE> 60
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERNATIONAL BOND FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS INTERNATIONAL BOND FUND AND THE
SALOMON BROTHERS NON-U.S. WORLD GOVERNMENT BOND INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
SALOMON BROTHERS
NON-U.S. WORLD
I SHARES A SHARES B SHARES GOVERNMENT
<S> <C> <C> <C> <C>
1/27/95 $10,000 $9,550 $10,000 $10,000
6/30/95 $11,703 $11,280 $11,658 $11,770
12/31/95 $12,210 $11,743 $12,090 $11,722
6/30/96 $12,224 $11,725 $12,028 $11,570
12/31/96 $12,941 $12,402 $12,696 $12,200
6/30/97 $12,488 $11,955 $12,207 $11,820
12/31/97 $12,391 $11,849 $11,756 $11,680
</TABLE>
(1) Includes sales charge of 4.50%.
(2) Includes contingent deferred sales charge of 3.00%.
(3) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION SINCE
THROUGH 12/31/97 DATE ONE YEAR INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
PEGASUS INTERNATIONAL BOND FUND
I-Shares 1/27/95 -4.25% 7.59%
A-Shares With 4.50% Load 1/27/95 -8.76% 5.96%
B-Shares With 3.00% CDSC 1/27/95 -7.79% 5.68%
Salomon Brothers Non-U.S. World Government Bond
Index* 1/27/95 -4.26% 5.44%
</TABLE>
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The Salomon Brothers Non-U.S. Government Bond Index is an unmanaged index
generally representative of the world government bond markets.
Pegasus Funds
30
<PAGE> 61
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
An Interview with Mark Durbiano and Constantine Kartsonas
Portfolio Managers
- --------------------------------------------------------------------------------
Q. WHAT FACTORS IMPACTED THE HIGH YIELD MARKET DURING 1997?
The Pegasus High Yield Bond Fund made its initial investments into the high
yield bond market during July, 1997. From July 31, 1997 through December 31,
1997, the high yield market generated attractive relative returns. For example,
the Lehman Brothers High Yield Bond Index returned 3.71% for the period versus
3.58% for the Lehman Aggregate Index, a measure of high quality bond
performance. The major factor for the superior relative performance of high
yield bonds was the almost ideal economic environment which existed for most of
1997. Strong steady economic growth coupled with low inflation resulted in
declining interest rates (the yield on 10-year US government securities
declined about 60 basis points) and good operating performance for most high
yield issuers. The high yield market also benefited from strong demand for high
yield securities as investors were attracted to the historically strong total
return performance of the marketplace and the attractive yields offered by high
yield securities in a falling interest rate environment. During the fourth
quarter, the high yield market was negatively impacted by turmoil in Asia as
investors attempted to quantify Asia's impact on domestic economic growth in
1998.
Q. WHAT IN PARTICULAR DROVE THE FUND'S PERFORMANCE?
The Pegasus High Yield Bond Fund outperformed both the Lipper High Current Yield
Fund Average and the Lehman Brothers High Yield Bond Index for the 5 months
ended December 31, 1997. Several factors benefited the fund versus the
benchmarks. The Fund's largest industry exposures have been (and continue to be)
telecommunications, cable and broadcasting. These three sectors generated very
strong performance versus the market during the period. The Fund was generally
underweighted in basic industries such as steel, forest products and commodity
chemicals. These sectors underperformed especially in the fourth quarter as
economic concerns about 1998 began to increase. The portfolio also had no
exposure to emerging Asian markets which were negatively impacted in the fourth
quarter by economic and currency turmoil. Several portfolio holdings were
involved in corporate finance activities such as mergers, initial public
offerings (IPO's) and tenders which proved beneficial to bondholders. For
example, Ralph's Grocery and Brooks Fiber have announced plans to be acquired
while AMF and International Home Foods did initial stock offerings. Finally, the
portfolio benefited from outstanding individual security selection avoiding
major deteriorating situations while holding numerous strong performers. Nextel,
Teleport, American Communications and Echostar were particularly strong
performers.
Q. WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD?
As we look to 1998, the main area of uncertainty is what impact the developing
problems in Asia will have on U.S. economic growth, inflation and equity
markets. It would appear that the problems in Asia will serve to slow the U.S.
economy and reduce inflation much like a Federal Reserve tightening. This could
serve to head off inflationary fears, reduce the likelihood of a Fed tightening
and extend the economic expansion. An extended economic expansion would be a
long term positive for high yield bonds. The risk is that Asia's problems have
a greater impact on the U.S. economy and push the domestic economy into
recession. Superior credit selection will be essential in 1998 and the odds-on-
bet is for slower economic activity which could lead to negative credit
surprises. From a portfolio perspective, we continue to like companies that are
benefiting from secular growth like telecommunications and companies in
consolidating businesses like cable and broadcasting.
Although the Fund's yield may be higher than that of fixed income Funds that
purchase higher-rated securities, the potentially higher yield is a function of
the greater risk that the Fund's share price will decline.
Pegasus Funds
31
<PAGE> 62
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS HIGH YIELD BOND FUND AND THE LEHMAN
BROTHERS HIGH YIELD BOND INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers
High Yield Bond
High Yield Bond Fund I Shares Net A Shares w/4.50% Load B Shares w/ 5% CDSC Index
- -------------------- ------------ --------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
6/30/97 10,000 9,550 10,000 10,000
7/97 10,177 9,665 10,120 10,275
8/97 10,183 9,598 10,050 10,251
9/97 10,411 9,749 10,210 10,454
10/97 10,381 9,721 10,162 10,464
11/97 10,479 9,809 10,248 10,564
12/97 10,637 9,950 9,894 10,656
</TABLE>
(1) Includes sales charge of 4.50%.
(2) Includes contingent deferred sales charge of 5.00%.
(3) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION SINCE
THROUGH 12/31/97 DATE INCEPTION
- --------------------------------------------------------------------------------------
<S> <C> <C>
PEGASUS HIGH YIELD BOND FUND
I Shares 6/30/97 6.37%
A Shares With 4.50% Load 6/30/97 -0.49%
B Shares With 5.00% CDSC 6/30/97 -1.06%
Lehman Brothers High Yield Bond Index* 6/30/97 6.56%
</TABLE>
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception data.
In such instances, and without waiver of fees, total return would have been
lower.
*The Lehman Brothers High Yield Bond Index is an unmanaged index generally
covering the universe of fixed rate, publicly issued, non investment grade
debt registered with the SEC.
Pegasus Funds
32
<PAGE> 63
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
An Interview with Robert Grabowski
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM DURING THE YEAR ENDED DECEMBER 31, 1997?
The Fund's I share return was 9.32% versus 9.19% for the Lehman Brothers
Municipal Bond Index (Index). The index, however, is not subject to the
expenses of a mutual fund. The Fund's return compared favorably to the average
return of 9.11% in the Lipper General Municipal Debt Funds peer group.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
The outperformance by the Fund relative to the Index during the year was
attributable to its longer duration, overweighting in the revenue and insured
sectors, and its underweighted stance in prerefunded bonds. The minimal average
cash position of the Fund also added to the incremental return. The Fund's
overweighting in the housing sector and callable bond position were the main
reasons for a drag on performance. The Fund's high quality position was also a
negative as overall quality spreads narrowed dramatically.
Q. WHAT ARE THE FUND'S INVESTMENT CHARACTERISTICS?
As of December 31, 1997, the Fund held 44% in insured securities, 33% in
revenue securities, 21% in general obligation bonds, and 2% in prerefunded
bonds. The Fund remains in higher credit-quality issues: 80% of the Fund is
rated AA or better. The remaining 20%, of which 10% is rated A and 10% rated
Baa, are issues which help enhance the yield in the Fund through selectively
adding minimal credit risk.* The Fund's average maturity on a call-adjusted
basis was 10.4 years versus 8.4 years for the Index, and its duration (a
measure of interest rate risk) was 7.4 years versus 6.2 years for the Index.
Q. WHY WAS THE FUND'S CASH POSITION AT YEAR-END SO LOW AND WHAT IS YOUR
PHILOSOPHY REGARDING CASH?
The Fund's cash position at year end was purposely taken down to a bare minimum
to stay fully invested in anticipation of a continued decline in interest rates
and to position itself to benefit from the "January Effect" (low municipal bond
issuance coupled with heavy cash flow in the market from maturities and coupon
payments). For the year, the Fund's average cash position was just slightly
over one percent. This practice allows for the Fund to provide as steady a
dividend stream as possible by using a minimal amount of lower-yielding cash
equivalent securities when repositioning of the portfolio is warranted.
Q. WHAT WAS THE OVERALL PERFORMANCE OF THE MUNICIPAL MARKET DURING 1997?
The municipal bond market outperformed the taxable bond market on a relative
basis, but not on an absolute basis, for the year as indicated by the returns
of the Lehman Brothers Municipal Bond and Aggregate Bond indices. The drop in
interest rates also had a profound effect on the municipal market as new-issue
volume increased substantially during the year, totaling $220.4 billion, up 19%
from the prior year and, was the third highest issuance of tax- exempt debt in
the history of the market. For the year, the best performing investment grade
sector of the municipal bond market was revenue securities with a 9.81% return.
Insured, general obligation, and prerefunded bonds returned 9.58%, 8.80%, and
6.17% respectively. The best performing component of the revenue sector was
hospital bonds and the worst performing element was electric utilities.
Q. WHAT ARE SOME OF YOUR STRATEGIES FOR 1998?
We plan to continue to maintain the Fund's current long-duration position as
municipal bonds remain attractive versus Treasuries on a ratio basis and the
probability that the Fed will not move anytime soon in changing monetary policy
until the current turmoil in the Asian market subsides. The Fund will be
looking to add structure (modest discounts with good call protection) to the
portfolio. The maturity range of preference is the intermediate sector (12 to
17 years) as nearly 95 percent of the municipal yield curve is captured and
should offer the best relative value total return. Also, with the historic
narrow quality spreads, the Fund will look to add incremental return by
selectively adding revenue bonds for incremental return pick-up.
*The portfolio's composition is subject to change.
Pegasus Funds
33
<PAGE> 64
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MUNICIPAL BOND FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS MUNICIPAL BOND FUND AND THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers
A Shares Municipal Bond Index
<S> <C> <C>
3/1/88 9,550 10,000
6/88 9,489 10,075
12/88 10,147 10,526
6/89 10,809 11,223
12/89 11,166 11,662
6/90 11,414 11,987
12/90 12,033 12,512
6/91 12,549 13,068
12/91 13,458 14,031
6/92 14,014 14,606
12/92 14,728 15,267
6/93 15,652 16,353
12/93 16,309 17,142
6/94 15,882 16,381
12/94 15,987 16,256
6/95 17,587 17,825
12/95 18,588 19,094
6/96 18,468 19,009
12/96 19,316 19,942
6/97 19,898 20,581
12/97 21,079 21,777
</TABLE>
(1) Includes sales charge of 4.50%.
(2) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION SINCE
THROUGH 12/31/97 DATE ONE YEAR FIVE YEARS INCEPTION
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS MUNICIPAL BOND FUND
I Shares(1) 2/1/95 9.32% N/A 9.28%
A Shares With 4.50% Load 3/1/88 4.22% 6.45 7.88%
B Shares With 3.00% CDSC(1) 4/4/95 5.26% N/A 6.09%
Lehman Brothers Municipal Bond Index* 3/1/88 9.19% 7.36 8.24%
</TABLE>
(1) The performance of the I and B Shares will be more or less than the A
Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The Lehman Brothers Municipal Bond Index is an unmanaged index generally
representative of the municipal bond market as a whole.
Pegasus Funds
34
<PAGE> 65
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
An Interview with Jonathan Nicholl
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM DURING THE YEAR ENDED DECEMBER 31, 1997?
The Fund's I share return was 7.29% versus 7.67% for the Lehman Brothers 7-Year
Municipal Bond Index (Index). The Index, however, is not subject to the
expenses of a mutual fund. The Fund's return compared favorably to the average
return of 7.16% in the Lipper Intermediate Municipal Debt Funds peer group.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
Fund performance was helped by the Fund's longer duration relative to its
Index, as well as the continued emphasis on bonds with good call protection and
a minimal overall cash position throughout the year. The Fund's large
allocation to the prerefunded sector and higher overall credit quality in a
narrowing credit-spread environment were the primary reasons for a drag on
performance relative to the Index.
Q. WHAT ARE THE FUND'S INVESTMENT CHARACTERISTICS?
As of December 31, 1997, the Fund held 43% in revenue securities, 25% in
general obligation bonds, 20% in insured securities, and 12% in prerefunded
bonds.* The Fund retains its bias towards higher credit quality, with 79% of
the portfolio rated AA or higher. The call-adjusted average maturity of the
portfolio was 6.7 years and its duration (a measure of interest rate risk) was
5.5 years.
Q. DOES THE ASIAN CURRENCY CRISIS AFFECT MUNICIPAL BONDS?
The credit quality of the holdings in the Fund is largely insulated from the
economic problems currently facing Southeast Asia. While a small proportion of
the portfolio's holdings derive their credit quality from corporate obligors,
the vast majority of the Fund's investments rely on municipal project
financings or operations. In addition, the high proportion of municipal bonds
that carry bond insurance provides an extra layer of credit protection. Of
course, the market value of the bonds will fluctuate with the general interest
rate environment. The currency crisis will likely cause a slowing of overall
economic growth, although the magnitude of the effect is uncertain. Generally
speaking, fixed-income instruments appreciate in slowing economic climates, as
inflation worries subside. As a result, we believe municipal bonds are probably
one of the asset classes best insulated from the Asian crisis.
Q. WHAT TYPES OF SECURITIES WILL THE FUND BE BUYING IN 1998?
The Fund will maintain its bias towards higher credit-quality securities.
Credit spreads (the yield differential between lower-rated and higher-rated
securities) are historically narrow right now. As a result, we do not feel
adequately compensated for taking additional credit risk in the current market
environment. Thus, the Fund will continue to look primarily to the insured
sector and, to a lesser extent, the general obligation sector, and de-emphasize
revenue bonds. The Fund's allocation to the prerefunded sector will also be
reduced on an opportunistic basis.
*The portfolio's composition is subject to change.
Pegasus Funds
35
<PAGE> 66
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERMEDIATE MUNICIPAL BOND FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS INTERMEDIATE MUNICIPAL BOND FUND AND
THE LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers 7-Year
I-Shares A Shares B Shares C Shares Municipal Bond
<S> <C> <C> <C> <C> <C>
3/1/88 $ 9,700
6/88 9,882
12/88 10,334
6/89 10,797
12/89 11,265 10,000
6/90 11,534 10,274
12/90 12,118 10,740
6/91 12,619 11,187
12/91 13,556 11,993
6/92 13,987 12,410
12/92 14,537 12,959
6/93 15,329 13,743
12/93 16,001 14,311
6/94 15,667 13,916
12/94 15,619 13,914
1/30/95
6/95 16,806 15,062
12/95 17,578 15,883
6/96 17,546 15,896
12/96 18,227 16,579
6/97 18,655 17,018
12/97 12,428 19,513 17,854
</TABLE>
(1) Includes sales charge of 3.00%
(2) Excludes expenses
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INCEPTION SINCE
THROUGH 12/31/97 DATE ONE YEAR FIVE YEARS INCEPTION
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS INTERMEDIATE MUNICIPAL BOND FUND
I Shares(1) 1/30/95 7.29% N/A 7.73%
A Shares With 3.00% Load 3/1/88 3.84% 5.42 7.03%
B Shares With 2.00% CDSC(1) 1/30/95 4.19% N/A 5.96%
Lehman Brothers 7-year Municipal Bond Index* 12/31/89 7.67% 6.62 7.51%
</TABLE>
(1) The performance of the I and B Shares will be more or less than the A
Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
* The Lehman Brothers 7-year Municipal Bond Index (which began in 1989) is an
unmanaged index generally representative of the intermediate-term municipal
bond market.
Pegasus Funds
36
<PAGE> 67
PEGASUS FUNDS
MANAGEMENT DISCUSSION AND ANALYSIS
MICHIGAN MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
An Interview with Rebecca Gersonde
Portfolio Manager
- --------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM DURING THE YEAR ENDED DECEMBER 31, 1997?
The Fund's I shares return was 9.42%, matching the return of the Lehman
Brothers Michigan Municipal Bond Index (Index). The Index, however, is not
subject to the expenses of a mutual fund. The Fund's return number compared
favorably to the average return of 8.50% in the Lipper Michigan Municipal Debt
Funds peer group.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
Positive performance by the Fund relative to the Index during the year was
attributable to its longer duration, overweighting in the revenue sector,
primarily hospital bonds, and an underweighting in prerefunded securities. A
minimal average cash position was also a positive for the Fund's total return.
Underweighting in the insured sector (the best performing sector in the
Michigan market) and the propensity for holding higher credit-quality issues as
credit spreads narrowed during the year hindered performance.
Q. WHAT ARE THE FUND'S INVESTMENT CHARACTERISTICS?
As of December 31, 1997, the Fund held 39% in revenue securities, 37% in
insured securities, 18% in general obligation bonds, 2% in prerefunded bonds,
and 4% in cash. The Fund remains primarily invested in higher credit-quality
issues: 78% of the Fund is rated Aa or better. The remaining 22%, of which 16%
is rated A and 6% is rated Baa, are issues which enhance the yield in the Fund
through selectively adding low credit risk.* The Fund's average maturity was
8.9 years (call adjusted) and its duration (a measurement of interest rate
risk) was 6.7 years.
Q. HOW DID THE MICHIGAN ECONOMY FARE DURING 1997?
The State's economy experienced another good year as the jobless rate averaged
4.2% compared to the National level of 4.9%. Michigan's unemployment numbers
have consistently remained below U.S. rates for 33 consecutive months. The
manufacturing sector was primarily responsible for leading the way towards the
strong job growth in 1997. Michigan has made inroads towards diversifying its
economy from one so heavily reliant on manufacturing (which accounts for 33% of
total state personal income) to that of a service related one. Debt levels in
the State remain below national averages; overall debt issuance for the year
was up 8% versus 1996 levels, while the National market was up approximately
19%. Michigan's Budget Stabilization Fund ("Rainy Day Fund") ended 1997 in a
surplus position with its cash reserve in excess of $1.2 billion.
Q. HAS THERE BEEN ANY NOTICEABLE CHANGE IN THE COMPOSITION OF THE MUNICIPAL
MARKET?
The one area that has drawn the largest attention during the year has been the
dramatic increase in bond insurance. As a percentage of total municipal debt
issued during 1997, bond insurance accounted for almost 50% of the tax exempt
market. The surge in bond insurance can be largely attributed to the value both
issuers and investors alike feel this credit enhancement affords them, given
the financial stability of the insurers and their sound historical claims-
paying ability. For issuers, the premiums paid to assure timely payment of
principal and interest to its bondholders (should a default situation arise)
has declined so significantly that the interest savings achieved more than
offsets the cost of the insurance. For the investor, not only are principal and
interest payments secured, but liquidity is preserved during financial or
economic pressures. With the ongoing focus placed on the insurers to maintain
their AAA ratings coupled with the comfort insurance provides both issuers and
investors, bond insurance will continue to play a major role in influencing and
changing the municipal market.
*The portfolio's composition is subject to change.
Pegasus Funds
37
<PAGE> 68
PEGASUS FUNDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
MICHIGAN MUNICIPAL BOND FUND -- (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE PEGASUS MICHIGAN MUNICIPAL BOND FUND AND THE
LEHMAN BROTHERS MICHIGAN BOND INDEX*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers
Michigan Municipal I I-Shares Net A-Shares(1) B-Shares Michigan Bond
<S> <C> <C> <C> <C>
2/1/93 $10,000 $ 9,550
6/93 $10,533 $10,059 $10,000
12/93 $11,053 $10,555 $10,470
6/94 $10,521 $10,047 $10,011
12/94 $10,454 $ 9,984 $ 9,938
6/95 $11,400 $10,887 $10,947
12/95 $12,179 $11,631 $11,770
6/96 $12,047 $11,505 $11,715
12/96 $12,598 $12,016 $12,296
6/97 $13,009 $12,394 $12,700
12/97 $13,784 $13,116 $13,455
</TABLE>
(1) Includes sales charge of 4.50%.
(2) Excludes expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN INCEPTION ONE FIVE SINCE
THROUGH 12/31/97 DATE YEAR YEAR INCEPTION
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS MICHIGAN MUNICIPAL BOND FUND
I Shares -- Net of Fees 2/1/93 9.42% N/A 6.75%
A Shares With 4.50% Load 2/1/93 4.24% N/A 5.68%
B Shares With 4.00% CDSC(1) 9/23/96 4.26% N/A 5.39%
Lehman Brothers Michigan Municipal Bond Index* 7/1/93 9.42% N/A 6.82%
</TABLE>
(1) The performance of the B Shares will be less than the performance shown for
the I Shares due to the differences in loads and fees paid by shareholders
investing in the different classes.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and Net Asset Value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date.
In such instances, and without waiver of fees, total return would have been
lower.
*The Lehman Brothers Michigan Municipal Bond Index (which began in 1993) is an
unmanaged index generally representative of the Michigan municipal bond
market.
Pegasus Funds
38
<PAGE> 69
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MANAGED ASSETS MANAGED ASSETS EQUITY GROWTH MID-CAP
CONSERVATIVE FUND BALANCED FUND GROWTH FUND INCOME FUND FUND OPPORTUNITY FUND
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $ 112,166,645 $ 248,977,942 $ 13,019,613 $ 258,050,039 $ 411,800,398 $ 710,340,845
- ----------------------------------------------------------------------------------------------------------------------
At value (Note 2) $ 114,485,438 $ 253,817,691 $ 13,018,739 $ 319,032,396 $ 642,791,308 $ 1,049,752,610
Cash 168 127 2,954 -- -- 97
Receivable for securi-
ties sold -- 2,150 -- -- 17,195 4,857,864
Receivable for fund
shares sold 74,973 92,069 378,319 2,641 320,452 236,903
Income receivable 18,874 52,977 2,240 1,133,604 403,863 759,470
Deferred organization
costs, net (Note 2) 40,546 9,447 -- 30,151 34,100 --
Prepaids and other as-
sets 46,065 172,850 24,001 20,714 83,032 256,677
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 114,666,064 254,147,311 13,426,253 320,219,506 643,649,950 1,055,863,621
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities
purchased 2,693 -- 317,124 13,984 -- 13,403,241
Accrued investment advi-
sory fees 62,116 137,889 6,559 135,211 297,924 514,548
Accrued transfer and
dividend disbursing
agent fees 5,900 56,054 1,050 3,110 15,494 80,118
Accrued custodial fees 3,750 6,498 2,900 4,649 6,630 9,300
Administration fees pay-
able 14,335 31,821 1,514 40,563 74,529 128,637
Shareholder services
fees payable (Class A
Shares) 11,319 26,219 1,081 2,768 17,512 47,171
Shareholder services
fees payable (Class B
Shares) 3,230 1,869 1,216 670 360 740
12b-1 fees payable
(Class B Shares) 10,416 5,606 3,639 1,955 2,195 2,221
Dividends payable 10,106 3,882 27 10,707 -- 50
Payable for fund shares
redeemed 19,697 5,637 100 6,200 22,923 23,198
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 143,562 275,475 335,210 219,817 437,567 14,209,224
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 114,522,502 $ 253,871,836 $ 13,091,043 $ 319,999,689 $ 643,212,383 $ 1,041,654,397
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
39
<PAGE> 70
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MID-CAP
CONSERVATIVE MANAGED ASSETS MANAGED ASSETS EQUITY GROWTH OPPORTUNITY
FUND BALANCED FUND GROWTH FUND INCOME FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, OFFER-
ING PRICE AND REDEMPTION
PRICE PER SHARE:
CLASS A SHARES:
Net Assets $ 90,835,386 $141,803,809 $ 5,724,639 $ 12,583,119 $ 62,561,833 $ 234,019,581
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 6,076,825 11,894,951 497,204 963,796 4,152,571 11,203,992
- ---------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 14.95 $ 11.92 $ 11.51 $ 13.06 $ 15.07 $ 20.89
Maximum sales charge per
share(1) 0.79 0.63 0.61 0.69 0.79 1.10
- ---------------------------------------------------------------------------------------------------------------
Maximum offering price
per share $ 15.74 $ 12.55 $ 12.12 $ 13.75 $ 15.86 $ 21.99
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 13,377,680 $ 10,025,684 $ 5,936,435 $ 3,156,636 $ 2,160,866 $ 3,965,140
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 893,858 755,293 522,850 241,897 145,391 374,706
- ---------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 14.97 $ 13.27 $ 11.35 $ 13.05 $ 14.86 $ 10.58
- ---------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $ 10,309,436 $102,042,343 $ 1,429,969 $304,259,934 $578,489,684 $ 803,669,676
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 687,315 8,569,472 123,628 23,375,587 38,373,830 38,391,879
- ---------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 15.00 $ 11.91 $ 11.57 $ 13.02 $ 15.08 $ 20.93
- ---------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET AS-
SETS:
Shares of beneficial in-
terest, at par $ 765,800 $ 2,121,972 $ 114,368 $ 2,458,128 $ 4,267,179 $ 4,997,058
Additional paid-in capi-
tal 105,416,026 232,421,785 12,502,930 249,191,647 400,810,290 688,237,503
Accumulated undistrib-
uted net investment in-
come 64,607 193,830 2,779 298,296 118 500
Accumulated undistrib-
uted net realized gains 5,957,276 14,294,500 471,840 7,069,261 7,143,886 9,007,571
Net unrealized apprecia-
tion (depreciation) on
investments 2,318,793 4,839,749 (874) 60,982,357 230,990,910 339,411,765
- ---------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $114,522,502 $253,871,836 $13,091,043 $319,999,689 $643,212,383 $1,041,654,397
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Maximum sales charges are 5.00% of Maximum Offering Price per share unless
otherwise noted.
See accompanying Notes to Financial Statements.
Pegasus Funds
40
<PAGE> 71
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL-CAP INTRINSIC VALUE GROWTH & VALUE EQUITY INDEX INTERNATIONAL
OPPORTUNITY FUND FUND FUND FUND EQUITY FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $194,298,293 $505,182,618 $ 746,130,933 $511,580,181 $462,587,211
- ----------------------------------------------------------------------------------------------------
At value (Note 2) $241,666,698 $625,255,643 $1,062,225,748 $834,363,189 $514,569,067
Cash -- 35 44 254 110,119
Receivable for variation
margin on futures con-
tracts -- -- -- -- 1,542
Unrealized appreciation
on foreign exchange con-
tracts -- -- -- -- 666,402
Receivable for securi-
ties sold 80,173 -- -- -- --
Receivable for fund
shares sold 126,427 294,205 727,252 17,501 292,723
Income receivable 79,432 1,512,749 1,207,199 1,129,147 613,762
Reclaim receivable -- -- -- -- 541,440
Deferred organization
costs, net (Note 2) 30,335 -- -- -- 24,057
Prepaids and other as-
sets 32,500 51,740 188,580 333,166 111,342
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS 242,015,565 627,114,372 1,064,348,823 835,843,257 516,930,454
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities
purchased 276,520 617,924 337,577 529,588 11,055
Accrued investment advi-
sory fees 138,658 312,580 532,565 69,881 345,309
Accrued transfer and
dividend disbursing
agent fees 5,410 22,813 60,614 34,057 --
Accrued custodial fees 4,439 7,001 11,145 9,529 29,807
Administration fees pay-
able 29,763 78,145 133,141 104,822 64,745
Shareholder services
fees payable (Class A
Shares) 4,431 15,748 32,142 39,420 5,360
Shareholder services
fees payable (Class B
Shares) 318 574 980 313 361
12b-1 fees payable
(Class B Shares) 1,568 1,722 2,939 937 1,082
Withholding Tax payable -- -- -- -- 7,551
Dividends payable -- 7,092 4,155 4,177 3,269
Payable for fund shares
redeemed 12,221 9,826 165,751 4,446 4,662
Other payables and ac-
crued expenses -- -- -- -- 4,386
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 473,328 1,073,425 1,281,009 797,170 477,587
- ----------------------------------------------------------------------------------------------------
NET ASSETS $241,542,237 $626,040,947 $1,063,067,814 $835,046,087 $516,452,867
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
41
<PAGE> 72
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTRINSIC
SMALL-CAP VALUE GROWTH & VALUE EQUITY INDEX INTERNATIONAL
OPPORTUNITY FUND FUND FUND FUND EQUITY FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, OFFER-
ING PRICE AND REDEMPTION
PRICE PER SHARE:
CLASS A SHARES:
Net Assets $ 21,835,548 $ 82,790,941 $ 162,393,347 $193,663,013 $ 26,703,310
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 1,361,809 5,285,120 9,916,334 9,066,009 2,204,629
- ----------------------------------------------------------------------------------------------------
Net asset value per
share $ 16.03 $ 15.66 $ 16.38 $ 21.36 $ 12.11
Maximum sales charge per
share(1) 0.84 0.82 0.86 0.66(2) 0.64
- ----------------------------------------------------------------------------------------------------
Maximum offering price
per share $ 16.87 $ 16.48 $ 17.24 $ 22.02 $ 12.75
- ----------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 1,799,023 $ 3,301,574 $ 5,107,031 $ 1,514,644 $ 1,763,332
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 114,264 294,018 501,229 116,395 155,070
- ----------------------------------------------------------------------------------------------------
Net asset value per
share $ 15.74 $ 11.23 $ 10.19 $ 13.01 $ 11.37
- ----------------------------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $217,907,666 $539,948,432 $ 895,567,436 $639,868,430 $487,986,225
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue, unlimited number of
shares authorized 13,431,245 34,455,448 54,653,280 29,949,195 40,193,776
- ----------------------------------------------------------------------------------------------------
Net asset value per
share $ 16.22 $ 15.67 $ 16.39 $ 21.37 $ 12.14
- ----------------------------------------------------------------------------------------------------
COMPOSITION OF NET AS-
SETS:
Shares of beneficial in-
terest, at par $ 1,490,732 $ 4,003,459 $ 6,507,084 $ 3,913,160 $ 4,255,348
Additional paid-in capi-
tal 187,920,480 493,993,292 726,832,464 506,673,609 468,930,030
Accumulated undistrib-
uted net investment in-
come -- 290,531 455,846 135,185 (691,163)
Accumulated undistrib-
uted net realized gains
(losses) 4,762,620 7,680,640 12,839,993 1,541,125 (7,947,601)
Net unrealized apprecia-
tion on investments 47,368,405 120,073,025 316,432,427 322,783,008 51,981,856
Net unrealized deprecia-
tion of assets and lia-
bilities denominated in
foreign currencies and
financial futures -- -- -- -- (75,603)
- ----------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $241,542,237 $626,040,947 $1,063,067,814 $835,046,087 $516,452,867
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1)Maximum sales charges are 5.00% of Maximum Offering Price per share unless
otherwise noted.
(2)Maximum sales charge is 3.00% of Maximum Offering Price per share.
See accompanying Notes to Financial Statements.
Pegasus Funds
42
<PAGE> 73
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE SHORT MULTI SECTOR INTERNATIONAL HIGH
BOND BOND BOND BOND BOND YIELD
FUND FUND FUND FUND FUND BOND FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $507,466,938 $1,167,551,781 $236,334,002 $ 97,838,368 $90,706,670 $48,369,311
- ---------------------------------------------------------------------------------------------------------
At value (Note 2) $520,624,190 $1,222,578,317 $237,436,213 $101,683,183 $85,909,632 $48,977,952
Cash -- -- -- -- 124,557 --
Receivable for securi-
ties sold -- -- -- -- 16,253 --
Receivable for fund
shares sold -- 639,218 -- -- 84,075 --
Income receivable 5,150,762 10,434,120 2,849,060 1,196,698 2,197,904 853,232
Reclaim receivable -- -- -- -- 94,246 --
Deferred organization
costs, net (Note 2) -- -- 11,911 19,979 28,879 23,084
Prepaid and other assets 167,896 142,788 71,867 76,436 8,181 --
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS 525,942,848 1,233,794,443 240,369,051 102,976,296 88,463,727 49,854,268
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities
purchased 230,562 2,292,716 3,596 5,556 -- --
Accrued investment advi-
sory fees 178,274 410,717 72,337 34,989 52,856 28,601
Accrued transfer and
dividend disbursing
agent fees 21,481 32,703 5,873 4,340 2,058 299
Accrued custodial fees 7,195 13,802 4,097 2,046 8,884 1,575
Administration fees pay-
able 75,782 154,019 31,017 13,120 11,120 6,128
Shareholder services
fees payable (Class A
Shares) 7,506 22,771 592 1,851 1,314 95
Shareholder services
fees payable (Class B
Shares) 73 664 103 125 873 12
12b-1 fees payable
(Class B Shares) 220 1,992 310 267 87 75
Dividends payable 11,215 50,376 589 1,541 393 1,851
Payable for fund shares
redeemed 3,737 12,118 -- 3,670 701 --
Other payables and ac-
crued expenses -- -- -- -- 5,760 18,618
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 536,045 2,991,878 118,514 67,505 84,046 57,254
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $525,406,803 $1,230,802,565 $240,250,537 $102,908,791 $88,379,681 $49,797,014
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
43
<PAGE> 74
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE SHORT MULTI SECTOR INTERNATIONAL HIGH
BOND BOND BOND BOND BOND YIELD
FUND FUND FUND FUND FUND BOND FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, OFFER-
ING PRICE AND REDEMPTION
PRICE PER SHARE:
CLASS A SHARES:
Net Assets $ 42,343,077 $ 125,515,486 $ 4,738,270 $ 7,832,393 $ 6,419,244 $ 569,747
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue,
unlimited number of
shares authorized 4,043,105 11,849,709 466,906 979,458 649,764 55,794
- --------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 10.47 $ 10.59 $ 10.15 $ 8.00 $ 9.88 $ 10.21
Maximum Sales charge per
share 0.32(3) 0.50(2) 0.10(1) 0.25(3) 0.47(2) 0.48(2)
- --------------------------------------------------------------------------------------------------------------------------
Maximum offering price
per share $ 10.79 $ 11.09 $ 10.25 $ 8.25 $ 10.35 $ 10.69
- --------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 384,727 $ 3,393,507 $ 540,515 $ 532,835 $ 117,382 $ 76,927
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue,
unlimited number of
shares authorized 37,057 320,343 53,756 66,574 11,790 7,542
- --------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 10.38 $ 10.59 $ 10.05 $ 8.00 $ 9.96 $ 10.20
- --------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $482,678,999 $1,101,893,572 $234,971,752 $ 94,543,563 $81,843,055 $49,150,340
Shares of beneficial in-
terest issued and out-
standing, $0.10 par val-
ue,
unlimited number of
shares authorized 46,067,858 104,010,884 23,159,164 11,806,548 8,239,376 4,780,481
- --------------------------------------------------------------------------------------------------------------------------
Net asset value per
share $ 10.48 $ 10.59 $ 10.15 $ 8.01 $ 9.93 $ 10.28
- --------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET AS-
SETS:
Shares of beneficial in-
terest, at par $ 5,014,802 $ 11,618,094 $ 2,367,983 $ 1,285,258 $ 890,093 $ 484,382
Additional paid-in capi-
tal 515,643,984 1,186,542,407 236,650,188 97,719,499 92,268,285 48,686,230
Accumulated undistrib-
uted net investment in-
come 110,888 215,233 39,660 82,943 97,593 25,730
Accumulated undistrib-
uted net realized gains
(losses) (8,520,123) (22,599,705) 90,495 (23,724) (23,677) (7,969)
Net unrealized apprecia-
tion on investments 13,157,252 55,026,536 1,102,211 3,844,815 3,771,444 608,641
Net unrealized deprecia-
tion of assets and lia-
bilities denominated in
foreign
currencies and financial
futures -- -- -- -- (8,624,057) --
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $525,406,803 $1,230,802,565 $240,250,537 $102,908,791 $88,379,681 $49,797,014
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Maximum sales charge is 1.00% of Maximum Offering Price per share
(2)Maximum sales charge is 4.50% of Maximum Offering Price per share.
(3)Maximum sales charge is 3.00% of Maximum Offering Price per share.
See accompanying Notes to Financial Statements.
Pegasus Funds
44
<PAGE> 75
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE MICHIGAN
MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND
---------------------------
<S> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $360,198,033 $371,559,402 $76,080,729
- -------------------------------------------------------------------------------
At value (Note 2) $385,574,115 $390,339,008 $80,250,061
Receivable for fund shares sold 138,940 -- --
Income receivable 6,482,184 6,877,273 965,322
Deferred organization costs, net (Note
2) 3,534 22,284 --
Prepaids and other assets 121,210 3,227 27,575
- -------------------------------------------------------------------------------
TOTAL ASSETS 392,319,983 397,241,792 81,242,958
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 249,027 78,650 18,125
Accrued investment advisory fees 102,072 132,731 27,040
Accrued transfer and dividend disbursing
agent fees 2,271 2,317 1,869
Accrued custodial fees 3,764 3,767 1,076
Administration fees payable 44,542 48,845 10,140
Shareholder services fees payable (Class
A Shares) 7,256 4,146 3,956
Shareholder services fees payable (Class
B Shares) 254 165 102
12b-1 fees payable (Class B Shares) 729 565 305
Dividends payable 55,017 23,901 17,395
Payable for fund shares redeemed 50 -- --
Other payables and accrued expenses -- 4,203 --
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 464,982 299,290 80,008
- -------------------------------------------------------------------------------
NET ASSETS $391,855,001 $396,942,502 $81,162,950
</TABLE>
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
Pegasus Funds
45
<PAGE> 76
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE MICHIGAN
MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND
---------------------------
<S> <C> <C> <C>
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE:
CLASS A SHARES:
Net Assets $ 34,728,537 $ 18,902,884 $18,687,389
Shares of beneficial interest is-
sued and outstanding, $0.10 par
value, unlimited number of shares
authorized 2,699,219 1,533,724 1,709,611
- -------------------------------------------------------------------------------
Net asset value per share $ 12.87 $ 12.32 $ 10.93
Maximum sales charge per share(/1/) 0.61 0.38(2) 0.52
- -------------------------------------------------------------------------------
Maximum offering price per share $ 13.48 $ 12.70 $ 11.45
- -------------------------------------------------------------------------------
CLASS B SHARES:
Net Assets $ 1,312,385 $ 708,808 $ 707,359
Shares of beneficial interest is-
sued and outstanding, $0.10 par
value, unlimited number of shares
authorized 102,087 57,554 66,813
- -------------------------------------------------------------------------------
Net asset value per share $ 12.86 $ 12.32 $ 10.59
- -------------------------------------------------------------------------------
CLASS I SHARES:
Net Assets $355,814,079 $377,330,810 $61,768,202
Shares of beneficial interest is-
sued and outstanding, $0.10 par
value, unlimited number of shares
authorized 27,674,363 30,602,829 5,651,477
- -------------------------------------------------------------------------------
Net asset value per share $ 12.86 $ 12.33 $ 10.93
- -------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at
par $ 3,047,567 $ 3,219,411 $ 742,790
Additional paid-in capital 362,972,334 374,573,674 76,417,414
Accumulated undistributed net in-
vestment income 766,395 367,568 100,955
Accumulated undistributed net real-
ized gains (losses) (307,377) 2,243 (267,541)
Net unrealized appreciation on in-
vestments 25,376,082 18,779,606 4,169,332
- -------------------------------------------------------------------------------
TOTAL NET ASSETS $391,855,001 $396,942,502 $81,162,950
- -------------------------------------------------------------------------------
</TABLE>
(1) Maximum sales charges are 4.50% of Maximum Offering Price per share unless
otherwise noted.
(2) Maximum sales charge is 3.00% of Maximum Offering Price per share.
See accompanying Notes to Financial Statements.
Pegasus Funds
46
<PAGE> 77
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MANAGED ASSETS MANAGED ASSETS EQUITY GROWTH MID-CAP
CONSERVATIVE FUND BALANCED FUND GROWTH FUND INCOME FUND FUND OPPORTUNITY FUND
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE
2)
Interest $ 4,247,793 $ 6,949,595 $111,297 $ 2,329,500 $ 459,636 $ 1,490,210
Dividends 411,914 1,456,843 45,782 9,953,413 5,388,543 6,468,939
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 4,659,707 8,406,438 157,079 12,282,913 5,848,179 7,959,149
- -------------------------------------------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND
5):
Investment advisory
fees 608,622 1,384,326 35,036 1,594,129 3,641,754 5,355,678
Administration fees 140,451 319,460 8,085 478,239 910,438 1,338,920
Shareholder services
fees (Class A Shares) 190,392 215,488 5,385 33,570 99,549 373,129
Shareholder services
fees (Class B Shares) 21,977 12,011 5,817 5,547 2,917 3,935
12b-1 fees (Class B
Shares) 65,931 36,033 17,451 16,641 9,894 11,805
Professional fees 25,520 30,698 23,089 40,001 31,968 48,919
Custodian fees 22,879 81,364 24,190 55,265 38,606 94,949
Transfer and dividend
disbursing agent fees 161,747 412,034 6,445 28,079 143,911 568,167
Amortization of
deferred organization
costs 18,250 9,434 -- 15,330 14,965 --
Registration, filing
fees and other expenses 39,795 35,242 12,648 20,982 53,369 87,504
Less: Expense
reimbursement (85,184) (172,146) (56,116) -- -- --
- -------------------------------------------------------------------------------------------------------------------
NET EXPENSES 1,210,380 2,363,944 82,030 2,287,783 4,947,371 7,883,006
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,449,327 6,042,494 75,049 9,995,130 900,808 76,143
- -------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains on:
Investment transactions 10,320,662 34,007,379 655,347 49,970,226 38,532,531 75,611,514
Net change in unrealized
appreciation
(depreciation) on:
Investment securities (2,350,245) (7,432,886) (8,420) 3,000,172 104,439,823 143,184,993
- -------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS ON
INVESTMENTS 7,970,417 26,574,493 646,927 52,970,398 142,972,354 218,796,507
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS $11,419,744 $32,616,987 $721,976 $62,965,528 $143,873,162 $218,872,650
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
47
<PAGE> 78
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL-CAP INTRINSIC VALUE GROWTH & VALUE EQUITY INDEX INTERNATIONAL
OPPORTUNITY FUND FUND FUND FUND EQUITY FUND
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE
2)
Interest $ 341,062 $ 3,169,867 $ 1,413,596 $ 109,762 $ 1,924,127
Dividends 574,637 10,260,968 15,096,038 13,353,788 8,150,756*
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 915,699 13,430,835 16,509,634 13,463,550 10,074,883
- ----------------------------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND
5):
Investment advisory
fees 1,283,658 2,987,206 5,632,896 760,869 3,752,409
Administration fees 275,070 746,802 1,408,224 1,141,303 703,577
Shareholder services
fees (Class A Shares) 30,251 120,837 252,785 253,701 46,711
Shareholder services
fees (Class B Shares) 1,543 3,402 5,286 1,931 3,378
12b-1 fees (Class B
Shares) 5,247 10,205 15,857 5,793 10,134
Professional fees 28,373 36,511 49,822 50,035 44,225
Custodian fees 29,848 54,924 94,006 110,947 464,416
Transfer and dividend
disbursing agent fees 26,152 177,390 494,618 349,216 38,719
Amortization of de-
ferred organization
costs 14,965 -- -- 2,200 12,551
Registration, filing
fees and other expenses 39,598 37,997 230,820 12,227 126,483
Less: Expense reim-
bursement -- -- (67,597) -- --
- ----------------------------------------------------------------------------------------------------
NET EXPENSES 1,734,705 4,175,274 8,116,717 2,688,222 5,202,603
- ----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
(LOSS) (819,006) 9,255,561 8,392,917 10,775,328 4,872,280
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON IN-
VESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains
(losses) on:
Investment transactions 23,580,300 51,424,041 83,059,077 137,682,393 (2,611,326)
Foreign currency trans-
actions -- -- -- -- (929,302)
Futures transactions -- -- -- -- (3,824,834)
Net change in unrealized
appreciation on:
Investment securities 23,977,959 49,889,271 139,970,312 69,490,136 21,345,962
Assets and liabilities
denominated in foreign
currencies and finan-
cial futures -- -- -- -- 1,472,625
- ----------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS 47,558,259 101,313,312 223,029,389 207,172,529 15,453,125
- ----------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS $46,739,253 $110,568,873 $231,422,306 $217,947,857 $20,325,405
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Net of foreign taxes withheld of $351,500.
See accompanying Notes to Financial Statements.
Pegasus Funds
48
<PAGE> 79
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE SHORT BOND MULTI SECTOR INTERNATIONAL HIGH YIELD
BOND FUND BOND FUND FUND BOND FUND BOND FUND BOND FUND (1)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE
2)
Interest $32,483,439 $ 71,695,112 $12,564,456 $ 9,430,783 $ 4,483,007* $1,438,317
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 32,483,439 71,695,112 12,564,456 9,430,783 4,483,007 1,438,317
- ---------------------------------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND
5):
Investment advisory
fees 1,890,923 4,089,788 712,555 562,165 534,521 114,085
Administration fees 709,096 1,533,671 305,381 210,812 114,545 24,447
Shareholder services
fees (Class A Shares) 62,545 181,257 4,929 20,201 10,170 38
Shareholder services
fees (Class B Shares) 583 3,265 285 1,047 179 19
12b-1 fees (Class B
Shares) 1,750 9,794 856 3,141 536 75
Professional fees 40,275 56,090 29,878 29,587 34,536 19,411
Custodian fees 65,072 111,128 38,088 22,882 92,870 7,226
Transfer and dividend
disbursing agent fees 180,167 317,042 46,792 36,705 12,461 1,061
Amortization of de-
ferred organization
costs -- -- 6,792 9,855 13,769 742
Registration, filing
fees and other expenses 15,704 83,101 46,758 1,553 20,396 30,008
Less: Expense reim-
bursement -- -- (23,532) -- (159,849) (35,717)
- ---------------------------------------------------------------------------------------------------------
NET EXPENSES 2,966,115 6,385,136 1,168,782 897,948 674,134 161,395
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 29,517,324 65,309,976 11,395,674 8,532,835 3,808,873 1,276,922
- ---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
- ---------------------------------------------------------------------------------------------------------
Net realized gains
(losses) on:
Investment transactions 452,863 800,544 144,722 263,190 1,931 22,645
Foreign currency trans-
actions -- -- -- -- (344,273) --
Net change in unrealized
appreciation (deprecia-
tion) on:
Investment securities 8,278,943 34,887,256 864,560 1,982,422 1,297,046 608,641
Assets and liabilities
denominated in foreign
currencies and finan-
cial futures -- -- -- -- (7,372,880) --
- ---------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS (LOSS-
ES) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS 8,731,806 35,687,800 1,009,282 2,245,612 (6,418,176) 631,286
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS FROM OPER-
ATIONS $38,249,130 $100,997,776 $12,404,956 $10,778,447 $(2,609,303) $1,908,208
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period June 30, 1997 (commencement of operations) through December
31, 1997.
*Net of foreign taxes withheld of $21,338.
See accompanying Notes to Financial Statements.
Pegasus Funds
49
<PAGE> 80
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE MICHIGAN
MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND
----------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 2)
Interest $21,137,070 $20,808,712 $3,737,858
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 21,137,070 20,808,712 3,737,858
- -------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND 5):
Investment advisory fees 1,524,196 1,585,083 271,734
Administration fees 571,573 594,406 101,900
Shareholder services fees (Class A
Shares) 77,567 47,300 44,780
Shareholder services fees (Class B
Shares) 2,184 1,626 739
12b-1 fees (Class B Shares) 6,553 4,878 2,218
Professional fees 45,742 48,105 31,025
Custodian fees 39,163 37,002 21,562
Transfer and dividend disbursing agent
fees 42,085 18,260 22,742
Amortization of deferred organization
costs 1,460 11,680 3,284
Registration, filing fees and other ex-
penses 84,032 56,374 46,814
Less: Expense reimbursement -- -- (43,158)
- -------------------------------------------------------------------------------
NET EXPENSES 2,394,555 2,404,714 503,640
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 18,742,515 18,403,998 3,234,218
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on:
Investment transactions 2,051,175 2,007,297 (144,655)
Net change in unrealized appreciation
(depreciation) on:
Investment securities 13,548,913 7,485,364 3,140,469
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS ON IN-
VESTMENTS 15,600,088 9,492,661 2,995,814
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERA-
TIONS $34,342,603 $27,896,659 $6,230,032
- -------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
50
<PAGE> 81
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS MANAGED ASSETS BALANCED
CONSERVATIVE FUND FUND MANAGED ASSETS GROWTH FUND
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, For the period ended
1997 1996 1997 1996 1997 Dec. 31, 1996(1)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss) $ 3,449,327 $ 2,249,353 $ 6,042,494 $ 3,706,735 $ 75,049 $ (42)
Net realized gains on
investment transactions 10,320,662 7,593,376 34,007,379 8,885,279 655,347 --
Net change in
unrealized appreciation
(depreciation) on
investment securities (2,350,245) (3,598,969) (7,432,886) 1,454,970 (8,420) 7,546
- ------------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 11,419,744 6,243,760 32,616,987 14,046,984 721,976 7,504
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (2,888,131) (2,065,593) (2,416,016) (425,768) (35,453) --
Class B Shares (264,207) (116,907) (95,876) (9,258) (22,220) --
Class I Shares (251,568) (47,887) (3,393,246) (3,244,172) (14,555) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (3,403,906) (2,230,387) (5,905,138) (3,679,198) (72,228) --
- ------------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares (9,151,629) (503,438) (11,944,679) (821,598) (76,865) --
Class B Shares (1,158,029) (40,850) (721,797) (21,678) (85,740) --
Class I Shares (912,087) (11,015) (9,490,570) (5,862,553) (20,902) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains (11,221,745) (555,303) (22,157,046) (6,705,829) (183,507) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (14,625,651) (2,785,690) (28,062,184) (10,385,027) (255,735) --
- ------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 56,042,633 24,898,181 186,676,562 56,965,450 12,257,921 678,805
Proceeds from shares
issued in connection
with merger -- -- -- 10,706,448 -- --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 14,019,019 2,586,607 25,044,722 9,612,196 216,893 --
- ------------------------------------------------------------------------------------------------------------------
70,061,652 27,484,788 211,721,284 77,284,094 12,474,814 678,805
Less: payments for
shares redeemed (28,871,617) (9,869,811) (92,665,003) (44,309,100) (536,321) --
- ------------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital share
transactions 41,190,035 17,614,977 119,056,281 32,974,994 11,938,493 678,805
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 37,984,128 21,073,047 123,611,084 36,636,951 12,404,734 686,309
NET ASSETS:
Beginning of period 76,538,374 55,465,327 130,260,752 93,623,801 686,309 --
- ------------------------------------------------------------------------------------------------------------------
End of period $114,522,502 $76,538,374 $253,871,836 $130,260,752 $13,091,043 $686,309
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period December 17, 1996 (commencement of operations) through
December 31, 1996.
See accompanying Notes to Financial Statements.
Pegasus Funds
51
<PAGE> 82
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME FUND GROWTH FUND MID-CAP OPPORTUNITY FUND
--------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Year Ended Dec. 31,
1997 1996 1997 1996 Dec. 31, 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 9,995,130 $ 10,953,219 $ 900,808 $ 2,845,987 $ 76,143 $ 1,595,621
Net realized gains on
investment transactions 49,970,226 28,916,705 38,532,531 39,693,748 75,611,514 57,875,884
Net change in
unrealized appreciation
on investment securi-
ties 3,000,172 16,384,426 104,439,823 37,068,731 143,184,993 97,381,421
- --------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 62,965,528 56,254,350 143,873,162 79,608,466 218,872,650 156,852,926
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (397,886) (182,781) (9,209) (43,133) -- (104,348)
Class B Shares (50,051) (30,522) -- -- -- (58)
Class I Shares (9,614,170) (10,366,056) (905,808) (2,792,205) (76,268) (1,491,567)
- --------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (10,062,107) (10,579,359) (915,017) (2,835,338) (76,268) (1,595,973)
- --------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares (2,206,498) (620,108) (3,354,983) (978,254) (15,608,413) (6,210,266)
Class B Shares (503,410) (111,649) (110,626) (102,183) (430,754) (10,839)
Class I Shares (54,205,468) (19,435,888) (35,824,761) (35,960,890) (56,800,760) (45,814,909)
- --------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains (56,915,376) (20,167,645) (39,290,370) (37,041,327) (72,839,927) (52,036,014)
- --------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (66,977,483) (30,747,004) (40,205,387) (39,876,665) (72,916,195) (53,631,987)
- --------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 36,443,621 40,669,211 120,290,702 52,488,542 340,892,729 151,712,918
Proceeds from shares
issued in connection
with merger -- -- -- 228,354,666 -- --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 37,045,422 17,221,331 26,835,283 31,463,299 60,563,640 45,831,569
- --------------------------------------------------------------------------------------------------------------
73,489,043 57,890,542 147,125,985 312,306,507 401,456,369 197,544,487
Less: payments for
shares redeemed (78,967,179) (41,301,635) (165,354,759) (92,806,272) (275,036,455) (182,439,666)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from cap-
ital share transactions (5,478,136) 16,588,907 (18,228,774) 219,500,235 126,419,914 15,104,821
- --------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (9,490,091) 42,096,253 85,439,001 259,232,036 272,376,369 118,325,760
NET ASSETS:
Beginning of period 329,489,780 287,393,527 557,773,382 298,541,346 769,278,028 650,952,268
- --------------------------------------------------------------------------------------------------------------
End of period $319,999,689 $329,489,780 $643,212,383 $557,773,382 $1,041,654,397 $769,278,028
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
52
<PAGE> 83
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL-CAP OPPORTUNITY
FUND INTRINSIC VALUE FUND GROWTH AND VALUE FUND
-----------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Year Ended Dec. 31,
1997 1996 1997 1996 Dec. 31, 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss) $ (819,006) $ (32,509) $ 9,255,561 $ 6,855,556 $ 8,392,917 $ 9,665,824
Net realized gains on
investment transactions 23,580,300 17,881,429 51,424,041 16,465,095 83,059,077 87,410,523
Net change in
unrealized appreciation
on investment securi-
ties 23,977,959 7,930,344 49,889,271 43,380,316 139,970,312 36,502,219
- --------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 46,739,253 25,779,264 110,568,873 66,700,967 231,422,306 133,578,566
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (10) (10) (824,689) (425,708) (717,201) (611,802)
Class B Shares -- -- (29,657) (689) (13,664) (600)
Class I Shares (90) (3,928) (8,168,777) (6,481,315) (7,818,526) (8,481,780)
- --------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (100) (3,938) (9,023,123) (6,907,712) (8,549,391) (9,094,182)
- --------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares (1,940,280) (556,174) (5,568,447) (1,071,739) (12,290,204) (5,430,328)
Class B Shares (140,872) (8,638) (275,342) (6,170) (544,023) (15,316)
Class I Shares (21,480,150) (12,459,929) (38,037,383) (16,413,883) (78,740,173) (66,935,481)
- --------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains (23,561,302) (13,024,741) (43,881,172) (17,491,792) (91,574,400) (72,381,125)
- --------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (23,561,402) (13,028,679) (52,904,295) (24,399,504) (100,123,791) (81,475,307)
- --------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 96,892,647 33,354,228 253,810,170 128,545,740 345,503,243 142,799,001
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 13,802,550 7,971,106 42,141,699 21,568,282 71,311,316 67,584,671
- --------------------------------------------------------------------------------------------------------------
110,695,197 41,325,334 295,951,869 150,114,022 416,814,559 210,383,672
Less: payments for
shares redeemed (24,978,895) (15,040,778) (107,487,017) (68,388,827) (277,887,120) (206,812,138)
- --------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital share
transactions 85,716,302 26,284,556 188,464,852 81,725,195 138,927,439 3,571,534
- --------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 108,894,153 39,035,141 246,129,430 124,026,658 270,225,954 55,674,793
NET ASSETS:
Beginning of period 132,648,084 93,612,943 379,911,517 255,884,859 792,841,860 737,167,067
- --------------------------------------------------------------------------------------------------------------
End of period $241,542,237 $132,648,084 $626,040,947 $379,911,517 $1,063,067,814 $792,841,860
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
53
<PAGE> 84
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INDEX FUND INTERNATIONAL EQUITY FUND
-----------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 10,775,328 $ 14,823,298 $ 4,872,280 $ 2,474,079
Net realized gains
(losses) on investment
and foreign currency
transactions 137,682,393 16,222,665 (7,365,462) (1,496,221)
Net change in
unrealized appreciation
on investment securi-
ties and foreign cur-
rency translation 69,490,136 119,756,862 22,818,587 17,747,087
- ------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 217,947,857 150,802,825 20,325,405 18,724,945
- ------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (1,287,874) (232,541) (158,687) (29,678)
Class B Shares (13,913) (467) (7,361) (3,888)
Class I Shares (9,815,475) (14,255,449) (4,474,343) (2,296,031)
- ------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (11,117,262) (14,488,457) (4,640,391) (2,329,597)
- ------------------------------------------------------------------------------------------------
From realized gains
Class A Shares (4,544,532) (524,957) -- --
Class B Shares (59,025) (1,276) -- --
Class I Shares (17,429,544) (12,759,806) -- --
- ------------------------------------------------------------------------------------------------
Total distributions
from realized gains (22,033,101) (13,286,039) -- --
- ------------------------------------------------------------------------------------------------
Total distributions to
shareholders (33,150,363) (27,774,496) (4,640,391) (2,329,597)
- ------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 315,400,643 430,581,095 163,775,810 161,993,251
Proceeds from shares
issued in connection
with merger -- -- 25,851,101 144,968,119
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 22,770,868 25,322,886 1,647,758 1,196,154
- ------------------------------------------------------------------------------------------------
338,171,511 455,903,981 191,274,669 308,157,524
Less: payments for
shares redeemed (557,739,568) (237,318,573) (92,471,044) (29,876,945)
- ------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from cap-
ital share transactions (219,568,057) 218,585,408 98,803,625 278,280,579
- ------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (34,770,563) 341,613,737 114,488,639 294,675,927
NET ASSETS:
Beginning of period 869,816,650 528,202,913 401,964,228 107,288,301
- ------------------------------------------------------------------------------------------------
End of period $ 835,046,087 $869,816,650 $516,452,867 $401,964,228
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
54
<PAGE> 85
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND BOND FUND SHORT BOND FUND
------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 29,517,324 $ 24,856,790 $ 65,309,976 $ 40,606,005 $ 11,395,674 $ 9,102,945
Net realized gains on
investments 452,863 1,800,673 800,544 4,524,736 144,722 480,231
Net change in
unrealized appreciation
(depreciation) on in-
vestment securities 8,278,943 (4,413,650) 34,887,256 (10,189,588) 864,560 (2,046,522)
- ------------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 38,249,130 22,243,813 100,997,776 34,941,153 12,404,956 7,536,654
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (1,482,724) (767,604) (4,500,480) (2,223,311) (104,124) (43,710)
Class B Shares (12,737) (1,022) (73,502) (5,666) (5,587) (375)
Class I Shares (27,921,135) (24,369,891) (60,755,009) (38,376,142) (11,327,998) (9,042,643)
- ------------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (29,416,596) (25,138,517) (65,328,991) (40,605,119) (11,437,709) (9,086,728)
- ------------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares -- -- -- -- (1,700) (2,475)
Class B Shares -- -- -- -- (150) (119)
Class I Shares -- -- -- -- (167,344) (402,873)
- ------------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains -- -- -- -- (169,194) (405,467)
- ------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (29,416,596) (25,138,517) (65,328,991) (40,605,119) (11,606,903) (9,492,195)
- ------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 213,559,882 118,511,852 525,891,556 228,866,516 136,214,007 41,032,559
Proceeds from shares
issued in connection
with merger -- -- -- 130,865,901 -- --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 17,877,864 19,192,374 36,740,089 29,585,134 4,626,060 3,975,394
- ------------------------------------------------------------------------------------------------------------------
231,437,746 137,704,226 562,631,645 389,317,551 140,840,067 45,007,953
Less: payments for
shares redeemed (128,414,182) (126,568,756) (172,381,516) (96,335,513) (73,903,614) (33,873,236)
- ------------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital share
transactions 103,023,564 11,135,470 390,250,129 292,982,038 66,936,453 11,134,717
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS 111,856,098 8,240,766 425,918,914 287,318,072 67,734,506 9,179,176
NET ASSETS:
Beginning of period 413,550,705 405,309,939 804,883,651 517,565,579 172,516,031 163,336,855
- ------------------------------------------------------------------------------------------------------------------
End of period $ 525,406,803 $ 413,550,705 $1,230,802,565 $804,883,651 $240,250,537 $172,516,031
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
55
<PAGE> 86
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
MULTI SECTOR BOND FUND INTERNATIONAL BOND FUND BOND FUND
----------------------------------------------
Period
Year Ended Year Ended Year Ended Ended
Year Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Dec. 31, 1997 1996 1997 1996 1997(1)
----------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 8,532,835 $ 12,243,298 $ 3,808,873 $ 1,588,432 $ 1,276,922
Net realized gains
(losses) on investments
and foreign currency
transactions 263,190 (21,631) (342,342) 255,095 22,645
Net change in
unrealized appreciation
(depreciation) on in-
vestment securities and
foreign
currency translation 1,982,422 (5,355,005) (6,075,834) 651,325 608,641
- --------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from op-
erations 10,778,447 6,866,662 (2,609,303) 2,494,852 1,908,208
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (482,924) (430,827) (175,385) (48,371) (5,259)
Class B Shares (22,582) (22,400) (2,562) (540) (955)
Class I Shares (8,031,340) (11,703,117) (3,213,081) (1,719,814) (1,244,978)
- --------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (8,536,846) (12,156,344) (3,391,028) (1,768,725) (1,251,192)
- --------------------------------------------------------------------------------------------
From realized gains
Class A Shares (18,808) (92,572) (1,440) -- (127)
Class B Shares (1,207) (5,831) (25) -- (20)
Class I Shares (230,025) (2,526,588) (23,686) -- (22,498)
- --------------------------------------------------------------------------------------------
Total distributions
from realized gains (250,040) (2,624,991) (25,151) -- (22,645)
- --------------------------------------------------------------------------------------------
Distributions in excess
of realized gains
Class A Shares -- -- -- -- (45)
Class B Shares -- -- -- -- (7)
Class I Shares -- -- -- -- (7,917)
- --------------------------------------------------------------------------------------------
Total distributions in
excess of realized
gains -- -- -- -- (7,969)
- --------------------------------------------------------------------------------------------
Total distributions to
shareholders (8,786,886) (14,781,335) (3,416,179) (1,768,725) (1,281,806)
- --------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 10,311,300 61,836,745 45,230,134 42,220,702 50,855,077
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 724,616 2,635,130 1,766,090 843,217 373,896
- --------------------------------------------------------------------------------------------
11,035,916 64,471,875 46,996,224 43,063,919 51,228,973
Less: payments for
shares redeemed (106,530,429) (58,429,130) (8,488,101) (2,888,294) (2,058,361)
- --------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from cap-
ital share transactions (95,494,513) 6,042,745 38,508,123 40,175,625 49,170,612
- --------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (93,502,952) (1,871,928) 32,482,641 40,901,752 49,797,014
NET ASSETS:
Beginning of period 196,411,743 198,283,671 55,897,040 14,995,288 --
- --------------------------------------------------------------------------------------------
End of period $ 102,908,791 $196,411,743 $88,379,681 $55,897,040 $49,797,014
- --------------------------------------------------------------------------------------------
</TABLE>
(1)For the period June 30, 1997 (commencement of operations) through December
31, 1997.
See accompanying Notes to Financial Statements.
Pegasus Funds
56
<PAGE> 87
PEGASUS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL BOND MICHIGAN MUNICIPAL BOND
MUNICIPAL BOND FUND FUND FUND
---------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 18,742,515 $ 13,312,581 $ 18,403,998 $ 18,092,497 $ 3,234,218 $ 2,575,994
Net realized gains
(losses) on investments 2,051,175 2,185,933 2,007,297 2,576,883 (144,655) (90,124)
Net change in
unrealized appreciation
(depreciation) on in-
vestment securities 13,548,913 (3,444,888) 7,485,364 (5,510,989) 3,140,469 (530,540)
- ----------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from operations 34,342,603 12,053,626 27,896,659 15,158,391 6,230,032 1,955,330
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS (NOTE 2):
From net investment in-
come
Class A Shares (1,484,220) (535,878) (839,467) (761,652) (814,513) (868,350)
Class B Shares (35,945) (15,695) (24,367) (16,784) (13,084) (702)
Class I Shares (17,510,743) (11,706,220) (17,763,309) (16,723,347) (2,398,650) (1,615,892)
- ----------------------------------------------------------------------------------------------------------------
Total distributions
from net investment in-
come (19,030,908) (12,257,793) (18,627,143) (17,501,783) (3,226,247) (2,484,944)
- ----------------------------------------------------------------------------------------------------------------
From realized gains
Class A Shares -- (6,075) (99,588) (112,133) -- --
Class B Shares -- (394) (3,661) (3,569) -- --
Class I Shares -- (201,402) (1,949,447) (2,341,621) -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions
from realized gains -- (207,871) (2,052,696) (2,457,323) -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions in excess
of realized gains
Class A Shares -- (101,301) -- -- -- --
Class B Shares -- (6,561) -- -- -- --
Class I Shares -- (3,358,322) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions in
excess of realized
gains -- (3,466,184) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (19,030,908) (15,931,848) (20,679,839) (19,959,106) (3,226,247) (2,484,944)
- ----------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 103,257,906 56,407,627 72,832,224 65,174,176 26,314,714 17,373,469
Proceeds from shares
issued in connection
with merger -- 102,578,100 -- -- -- --
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 1,503,756 2,868,722 2,436,698 2,546,519 987,581 854,735
- ----------------------------------------------------------------------------------------------------------------
104,761,662 161,854,449 75,268,922 67,720,695 27,302,295 18,228,204
Less: payments for
shares redeemed (96,346,798) (37,670,935) (79,173,261) (61,160,676) (9,736,804) (10,558,076)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from cap-
ital share transactions 8,414,864 124,183,514 (3,904,339) 6,560,019 17,565,491 7,670,128
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 23,726,559 120,305,292 3,312,481 1,759,304 20,569,276 7,140,514
NET ASSETS:
Beginning of period 368,128,442 247,823,150 393,630,021 391,870,717 60,593,674 53,453,160
- ----------------------------------------------------------------------------------------------------------------
End of period $391,855,001 $368,128,442 $396,942,502 $393,630,021 $81,162,950 $60,593,674
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds
57
<PAGE> 88
PEGASUS MANAGED ASSETS CONSERVATIVE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.99%
Pegasus Cash Management Fund Class I.................. 2,277,288 $ 2,277,288
------------
(Cost $2,277,288)
MUTUAL FUNDS -- 98.01%
Pegasus Bond Fund...................................... 4,537,028 48,047,128
Pegasus International Bond Fund........................ 1,033,931 10,266,933
Pegasus High Yield Bond Fund........................... 998,729 10,266,934
Pegasus Growth Fund.................................... 154,867 2,335,393
Pegasus Growth and Value Fund.......................... 838,187 13,737,888
Pegasus International Equity Fund...................... 752,430 9,134,500
Pegasus Intrinsic Value Fund........................... 730,256 11,443,109
Pegasus Mid-Cap Opportunity Fund ...................... 221,530 4,636,618
Pegasus Small-Cap Opportunity Fund..................... 144,244 2,339,647
------------
TOTAL MUTUAL FUNDS
(Cost $109,889,357).................................... 112,208,150
------------
TOTAL INVESTMENTS....................................... $114,485,438
============
(Cost $112,166,645)
</TABLE>
See Notes to Financial Statements
Pegasus Funds
58
<PAGE> 89
PEGASUS MANAGED ASSETS BALANCED FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 2.99%
Pegasus Cash Management Fund Class I.................. 7,582,964 $ 7,582,964
------------
(Cost $7,582,964)
MUTUAL FUNDS -- 97.01%
Pegasus Bond Fund...................................... 6,703,435 70,989,381
Pegasus Growth Fund.................................... 513,008 7,736,160
Pegasus Growth and Value Fund.......................... 2,788,521 45,703,855
Pegasus High Yield Bond Fund........................... 1,473,686 15,149,489
Pegasus International Bond Fund........................ 1,525,628 15,149,489
Pegasus International Equity Fund...................... 2,504,952 30,410,117
Pegasus Intrinsic Value Fund........................... 2,424,941 37,998,826
Pegasus Mid-Cap Opportunity Fund ...................... 733,682 15,355,970
Pegasus Small-Cap Opportunity Fund..................... 477,277 7,741,440
------------
TOTAL MUTUAL FUNDS...................................... 246,234,727
------------
(Cost $241,394,978)
TOTAL INVESTMENTS....................................... $253,817,691
============
(Cost $248,977,942)
</TABLE>
See Notes to Financial Statements
Pegasus Funds
59
<PAGE> 90
PEGASUS MANAGED ASSETS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 3.85%
Pegasus Cash Management Fund Class I..................... 501,221 $ 501,221
-----------
(Cost $501,221)
MUTUAL FUNDS -- 96.15%
Pegasus Bond Fund......................................... 172,170 1,823,281
Pegasus Growth Fund....................................... 34,544 520,938
Pegasus Growth and Value Fund............................. 190,703 3,125,625
Pegasus High Yield Bond Fund.............................. 38,006 390,703
Pegasus International Bond Fund........................... 39,346 390,703
Pegasus International Equity Fund......................... 172,881 2,098,769
Pegasus Intrinsic Value Fund.............................. 166,221 2,604,687
Pegasus Mid-Cap Opportunity Fund.......................... 49,779 1,041,875
Pegasus Small-Cap Opportunity Fund........................ 32,117 520,937
-----------
TOTAL MUTUAL FUNDS......................................... 12,517,518
-----------
(Cost $12,518,392)
TOTAL INVESTMENTS.......................................... $13,018,739
===========
(Cost $13,019,613)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
60
<PAGE> 91
PEGASUS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 6.67%
Salomon Brothers, Revolving Repurchase Agreement,
6.625%, 1/2/98 (secured by U.S. Treasury Notes with
maturities ranging from 7/15/98 through 2/28/02 at
various interest rates ranging from 6.25% to 8.25%,
all held at Chase Bank).............................. $ 8,545,629 $ 8,545,629
Pegasus Cash Management Fund Class I (in shares)...... 12,740,160 12,740,160
-----------
(Cost $21,285,789).................................... 21,285,789
-----------
CONVERTIBLE BONDS -- 9.73%
Enserch Corp., 6.375%, 4/1/02......................... 1,610,000 1,734,775
NAC RE Corp., 5.25%, 12/15/02......................... 3,095,000 3,505,088
Pep Boys, Zero Coupon, 9/20/11........................ 3,272,700 1,750,894
Potomac Electric Power, 5.00%, 9/1/02................. 10,294,000 10,100,988
Roche Holding Inc., Zero Coupon, 5/6/12............... 30,100,000 13,958,875
-----------
(Cost $29,136,373).................................... 31,050,620
-----------
<CAPTION>
SHARES
------
<S> <C> <C>
NON-CONVERTIBLE PREFERRED STOCKS -- 4.50%
FINANCE -- 4.50%
Salomon, Inc., 7.625%................................ 356,900 14,365,225
-----------
(Cost $9,930,110)
COMMON STOCKS -- 79.10%
AEROSPACE -- 2.89%
Lockheed Martin Corp................................. 93,600 9,219,600
-----------
BANKS -- 3.17%
Mercantile Bankshares Corp........................... 100,000 3,912,500
Pacific Century Financial Corp....................... 250,000 6,187,500
-----------
10,100,000
-----------
CHEMICALS -- 5.48%
Dow Chemical Co...................................... 100,000 10,150,000
NCH Corp............................................. 111,900 7,329,450
-----------
17,479,450
-----------
CONSUMER DURABLES -- 0.87%
National Presto Industries, Inc...................... 69,900 2,765,419
-----------
DOMESTIC OIL -- 2.26%
Atlantic Richfield Co................................ 90,200 7,227,275
-----------
DRUGS AND MEDICINE -- 1.54%
Mid Ocean LTD........................................ 90,600 4,915,050
-----------
ENERGY AND UTILITIES -- 8.51%
CINergy Corp......................................... 130,000 4,980,625
Connecticut Energy Corp.............................. 162,400 4,892,300
Empire District Electric............................. 4,500 88,313
Sierra Pacific Resources............................. 104,000 3,900,000
SJW Corp............................................. 10,000 605,000
Southwest Gas Corp................................... 179,000 3,345,062
Washington Water Power Co............................ 383,700 9,328,706
-----------
27,140,006
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
61
<PAGE> 92
PEGASUS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
FOOD AND AGRICULTURE -- 2.76%
Tate & Lyle PLC Sponsored................................. 266,700 $8,811,635
----------
INSURANCE -- 11.42%
American National Insurance Co............................ 107,750 10,020,750
Ohio Casualty Corp........................................ 191,600 8,550,150
Old Republic International Corp........................... 328,650 12,221,672
RLI Corp.................................................. 35,200 1,753,400
SAFECO Corp............................................... 79,600 3,880,500
----------
36,426,472
----------
INTERNATIONAL OIL -- 6.33%
Amoco Corp................................................ 74,700 6,358,838
Mobil Corp................................................ 99,200 7,161,000
Texaco, Inc............................................... 122,600 6,666,375
----------
20,186,213
----------
MISCELLANEOUS AND CONGLOMERATES -- 3.12%
Diageo PLC................................................ 263,000 9,961,125
----------
MISCELLANEOUS FINANCE -- 5.48%
Associated Estates Realty................................. 139,700 3,309,144
Federal National Mortgage Association..................... 248,600 14,185,737
----------
17,494,881
----------
MOTOR VEHICLES -- 2.24%
Ford Motor Co............................................. 146,800 7,147,325
----------
NON-DURABLES AND ENTERTAINMENT -- 5.30%
Hasbro, Inc............................................... 154,000 4,851,000
Luby's Cafeterias, Inc.................................... 313,600 5,507,600
Sbarro, Inc............................................... 248,500 6,538,656
----------
16,897,256
----------
NON-FERROUS METALS -- 1.17%
Phelps Dodge Corp......................................... 60,000 3,735,000
----------
RAILROADS AND SHIPPING -- 4.60%
Alexander & Baldwin, Inc.................................. 280,500 7,661,156
Illinois Central Corp., Series A.......................... 206,300 7,027,094
----------
14,688,250
----------
REAL PROPERTY -- 0.98%
Amli Residential Properties Trust......................... 140,000 3,115,000
----------
RETAIL -- 2.78%
May Department Stores..................................... 72,500 3,819,843
Stanhome, Inc. VTG........................................ 196,200 5,039,888
----------
8,859,731
----------
TIRES AND RUBBER GOODS -- 2.21%
Bandag, Inc., Class A..................................... 147,500 7,061,562
----------
</TABLE>
See Notes to Financial Statements
Pegasus Funds
62
<PAGE> 93
PEGASUS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TOBACCO -- 5.99%
Loews Corp.............................................. 71,600 $ 7,598,550
Philip Morris Companies, Inc............................ 119,800 5,428,437
UST, Inc................................................ 164,400 6,072,525
------------
19,099,512
------------
TOTAL COMMON STOCKS....................................... 252,330,762
------------
(Cost $197,697,767)
TOTAL INVESTMENTS......................................... $319,032,396
============
(Cost $258,050,039)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
63
<PAGE> 94
PEGASUS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 0.88%
Pegasus Cash Management Fund Class I.................... 5,639,483 $ 5,639,483
-----------
(Cost $5,639,483)
COMMON STOCKS -- 99.12%
BANKS -- 6.65%
Norwest Corp........................................... 500,000 19,312,500
MBNA Corp.............................................. 390,000 10,651,875
State Street Boston Corp............................... 220,000 12,801,250
-----------
42,765,625
-----------
BUSINESS MACHINES -- 9.42%
Cisco System, Inc.*.................................... 255,000 14,216,250
Microsoft Corp.*....................................... 220,000 28,435,000
Silicon Graphics*...................................... 475,000 5,907,813
Sun Microsystems, Inc.................................. 300,000 11,962,500
-----------
60,521,563
-----------
BUSINESS SERVICES -- 6.97%
Cendent Corp.*......................................... 220,000 7,562,500
Computer Associates International, Inc................. 315,000 16,655,625
First Data Corp........................................ 270,000 7,897,500
Interpublic Group of Companies, Inc.................... 255,000 12,702,188
-----------
44,817,813
-----------
CHEMICALS -- 1.54%
Praxair, Inc........................................... 220,000 9,900,000
-----------
CONSTRUCTION -- 1.16%
Fluor Corp............................................. 200,000 7,475,000
-----------
CONSUMER DURABLES -- 2.08%
Newell Co.............................................. 315,000 13,387,500
-----------
DRUGS AND MEDICINE -- 17.66%
American Home Products Corp............................ 100,000 7,650,000
Amgen, Inc.*........................................... 210,000 11,366,250
Guidant Corp........................................... 170,000 10,582,500
Johnson & Johnson...................................... 200,000 13,175,000
Mylan Laboratories, Inc................................ 430,000 9,003,125
Pall Corp.............................................. 275,000 5,689,062
Pfizer, Inc............................................ 225,000 16,776,562
Smithkline Beecham PLC ADR............................. 400,000 20,575,000
Stryker Corp........................................... 181,400 6,757,150
United Healthcare Corp................................. 240,000 11,925,000
-----------
113,499,649
-----------
ELECTRONICS -- 6.77%
Altera Corp.*.......................................... 325,000 10,765,625
Intel Corp............................................. 305,000 21,426,250
Lucent Technologies, Inc............................... 141,600 11,310,300
-----------
43,502,175
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
64
<PAGE> 95
PEGASUS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
ENERGY AND UTILITIES -- 3.35%
AES Corp.*.............................................. 315,000 $ 14,686,875
Enron Corp.............................................. 165,000 6,857,812
------------
21,544,687
------------
ENERGY RAW MATERIALS -- 3.80%
Schlumberger, Ltd....................................... 90,000 7,245,000
Unova, Inc.*............................................ 190,000 3,123,125
Western Atlas, Inc.*.................................... 190,000 14,060,000
------------
24,428,125
------------
FOOD AND AGRICULTURE -- 1.42%
PepsiCo, Inc............................................ 250,000 9,109,375
------------
INSURANCE -- 4.81%
AFLAC, Inc.............................................. 200,000 10,225,000
Unum Corp............................................... 380,000 20,662,500
------------
30,887,500
------------
MEDIA -- 1.00%
Cabletron System, Inc................................... 430,000 6,450,000
------------
MISCELLANEOUS & CONGLOMERATES -- 2.87%
Elan PLC ADR*........................................... 360,000 18,427,500
------------
MISCELLANEOUS FINANCE -- 2.65%
Federal Home Loan Mortgage Corp......................... 200,000 8,387,500
MGIC Investment Corp.................................... 130,000 8,645,000
------------
17,032,500
------------
NON-DURABLES AND ENTERTAINMENT -- 2.99%
Service Corp. International............................. 520,000 19,207,500
------------
PRODUCER GOODS -- 3.04%
Illinois Tool Works, Inc................................ 325,000 19,540,625
------------
RETAIL -- 8.32%
Dollar General Corp..................................... 300,000 10,875,000
Home Depot, Inc......................................... 390,000 22,961,250
Officemax, Inc.*........................................ 500,000 7,125,000
Walgreen Co............................................. 400,000 12,550,000
------------
53,511,250
------------
SOAPS AND COSMETICS -- 2.17%
Procter & Gamble Co..................................... 175,000 13,967,187
------------
TELEPHONE -- 3.01%
AirTouch Communications, Inc.*.......................... 465,000 19,326,563
------------
TOBACCO -- 2.11%
Philip Morris Companies, Inc............................ 300,000 13,593,750
------------
TRAVEL AND RECREATION -- 5.33%
Carnival Corp. Class A.................................. 395,000 21,873,125
Disney (Walt) Co........................................ 125,000 12,382,813
------------
34,255,938
------------
TOTAL COMMON STOCKS....................................... 637,151,825
------------
(Cost $406,160,915)
TOTAL INVESTMENTS......................................... $642,791,308
============
(Cost $411,800,398)
</TABLE>
* Non-income producing security
See Notes to Financial Statements.
Pegasus Funds
65
<PAGE> 96
PEGASUS MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 3.12%
Pegasus Cash Management Fund Class I................ 32,773,742 $ 32,773,742
------------
(Cost $32,773,742)
COMMON STOCKS -- 96.88%
AIR TRANSPORT -- 1.08%
Air Express International Corp. .................... 371,892 11,342,706
------------
APPAREL -- 0.86%
Tommy Hilfiger Corp................................. 258,652 9,085,151
------------
BANKS -- 8.33%
Associated Banc Corp................................ 336,602 18,555,185
Charter One Financial, Inc.......................... 459,615 29,013,197
First Tennessee National Corp....................... 175,138 11,690,462
TCF Financial Corp.................................. 830,220 28,175,591
------------
87,434,435
------------
BUSINESS MACHINES -- 4.56%
Comdisco, Inc....................................... 469,898 15,712,214
Diebold, Inc........................................ 240,533 12,176,983
Stratus Computer Inc................................ 278,900 10,545,906
Xilinx, Inc.*....................................... 267,572 9,381,743
------------
47,816,846
------------
BUSINESS SERVICES -- 8.64%
CDI Corp............................................ 384,342 17,583,646
DST Systems, Inc.*.................................. 468,767 20,010,491
Hon Industries, Inc................................. 330,000 19,470,000
Omnicom Group, Inc.................................. 282,496 11,970,768
Sungard Data Systems, Inc........................... 699,092 21,671,852
------------
90,706,757
------------
CHEMICALS -- 0.71%
RPM, Inc............................................ 490,233 7,476,053
------------
CONSTRUCTION -- 4.13%
Applied Power, Inc.................................. 250,000 17,250,000
Crane Co............................................ 602,335 26,126,281
------------
43,376,281
------------
CONSUMER DURABLES -- 1.50%
Leggett & Platt, Inc................................ 376,297 15,757,437
------------
CONTAINERS -- 1.51%
AptarGroup, Inc..................................... 286,210 15,884,655
------------
DRUGS AND MEDICINE -- 4.61%
Health Care & Retirement............................ 354,961 14,287,180
Quorum Health Group, Inc.*.......................... 558,384 14,587,782
Sybron International Corp.*......................... 415,541 19,504,456
------------
48,379,418
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
66
<PAGE> 97
PEGASUS MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
ELECTRONICS -- 9.11%
Belden, Inc............................................. 587,927 $ 20,724,427
Dynatech Corp.*......................................... 413,389 19,377,609
Kemet Corp.*............................................ 385,344 7,466,040
Lexmark International................................... 461,100 17,521,800
Microchip Technology, Inc.*............................. 301,322 9,039,660
Molex, Inc. Class A..................................... 417,803 12,011,836
Teradyne, Inc.*......................................... 295,818 9,466,176
------------
95,607,548
------------
ENERGY RAW MATERIALS -- 3.39%
Apache Corp............................................. 505,069 17,708,982
Noble Affiliates, Inc................................... 369,059 13,009,330
Southwestern Energy Co.................................. 376,200 4,843,575
------------
35,561,887
------------
INSURANCE -- 3.42%
Capital Re Corp......................................... 349,536 21,693,078
Transatlantic Holdings, Inc............................. 198,762 14,211,483
------------
35,904,561
------------
MISCELLANEOUS AND CONGLOMERATES -- 8.49%
Camco Inernational, Inc................................. 262,900 16,743,444
Culligan Water Technologies, Inc........................ 171,492 8,617,473
Dentsply International, Inc............................. 421,014 12,840,927
Essex International, Inc................................ 516,900 15,377,775
Health Management Association, Inc. Class A............. 257,767 6,508,617
Littelfuse, Inc.*....................................... 483,280 12,021,590
Water Corp.............................................. 452,900 17,040,363
------------
89,150,189
------------
MISCELLANEOUS FINANCE -- 13.22%
CMAC Investment Corp.................................... 338,508 20,437,421
Edwards (A.G.), Inc..................................... 522,304 20,761,584
Everest Reinsurance Holdings, Inc....................... 556,723 22,964,824
Executive Risk, Inc..................................... 164,099 11,456,161
FINOVA Group, Inc....................................... 521,340 25,904,081
Idex Corp............................................... 447,692 15,613,258
PMI Group, Inc.......................................... 298,591 21,591,862
------------
138,729,191
------------
MOTOR VEHICLES -- 5.52%
Borg Warner Automotive.................................. 363,139 18,883,228
Donaldson C., Inc....................................... 211,500 9,530,719
Harley-Davidson, Inc.................................... 516,496 14,139,078
Tower Automotive, Inc................................... 365,587 15,377,503
------------
57,930,528
------------
NON-DURABLES AND ENTERTAINMENT -- 1.29%
Lancaster Colony Corp................................... 239,925 13,525,772
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
67
<PAGE> 98
PEGASUS MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
NON-FERROUS METALS -- 1.56%
DT Industries, Inc.................................... 480,232 $ 16,327,888
--------------
PRODUCER GOODS -- 5.80%
Harsco Corp........................................... 372,200 16,051,125
Hubbell, Inc. Class B................................. 367,097 18,102,471
Juno Lighting, Inc.................................... 673,076 11,778,830
Teleflex, Inc......................................... 362,192 13,672,748
TriMas Corp........................................... 38,600 1,326,875
--------------
60,932,049
--------------
RETAIL -- 6.42%
Kohls Corp............................................ 181,955 12,395,684
Mens Wearhouse, Inc................................... 382,800 13,302,300
Proffitts, Inc.*...................................... 843,618 23,990,387
Zale Corp.*........................................... 771,952 17,754,896
--------------
67,443,267
--------------
TRAVEL AND RECREATION -- 2.73%
Callaway Golf Co...................................... 484,382 13,835,161
Galileo International, Inc............................ 534,700 14,771,088
--------------
28,606,249
--------------
TOTAL COMMON STOCKS..................................... 1,016,978,868
--------------
(Cost $677,567,103)
TOTAL INVESTMENTS....................................... $1,049,752,610
==============
(Cost $710,340,845)
</TABLE>
*Non-income producing security.
See Notes to Financial Statements.
Pegasus Funds
68
<PAGE> 99
PEGASUS SMALL-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 2.58%
Pegasus Cash Management Fund Class I................. 6,245,567 $ 6,245,567
------------
(Cost $6,245,567)
COMMON STOCKS -- 97.42%
APPAREL -- 0.93%
Culp, Inc........................................... 112,000 2,240,000
------------
BUSINESS MACHINES -- 4.54%
Boole & Babbage, Inc................................ 105,450 3,150,319
Box Hill Systems Corp............................... 120,000 1,252,500
Cort Business Services Corp.*....................... 130,000 5,175,625
Perceptron, Inc.*................................... 65,000 1,405,625
------------
10,984,069
------------
BUSINESS SERVICES -- 6.31%
Boron Lepore & Associates........................... 105,000 2,887,500
CDI Corp............................................ 84,600 3,870,450
Education Management Corp........................... 94,700 2,935,700
Patterson Dental Co.*............................... 65,000 2,941,250
RemedyTemp, Inc., Class A*.......................... 135,000 2,615,625
------------
15,250,525
------------
CHEMICALS -- 1.31%
Brady (W.H.) Co., Class A........................... 102,000 3,162,000
------------
CONSTRUCTION -- 1.44%
Crossmann Communities, Inc.......................... 126,000 3,480,750
------------
CONTAINERS -- 1.40%
Aptargroup, Inc..................................... 60,800 3,374,400
------------
DOMESTIC OIL -- 1.32%
Coho Energy Resources, Inc.......................... 350,000 3,193,750
------------
DRUGS & MEDICINE -- 5.67%
Arrow International, Inc............................ 115,000 4,255,000
Ballard Medical Products............................ 135,000 3,273,750
Marquette Medical Systems, Inc., Class A*........... 55,000 1,464,375
National Dentex Corp................................ 100,000 2,200,000
Universal Health Services, Inc., Class B............ 50,000 2,518,750
------------
13,711,875
------------
ELECTRONICS -- 8.57%
Allen Telecom, Inc.................................. 80,000 1,475,000
Altron, Inc......................................... 130,000 1,722,500
Belden, Inc......................................... 129,000 4,547,250
Burr Brown Corp.*................................... 60,000 1,927,500
DuPont Photomasks, Inc.*............................ 85,000 2,964,375
Holphane Corp.*..................................... 120,000 2,970,000
Methode Electronics, Inc., Class A.................. 130,000 2,112,500
MTS Systems Corp.................................... 80,000 3,000,000
------------
20,719,125
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
69
<PAGE> 100
PEGASUS SMALL-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
ENERGY RAW MATERIALS -- 4.79%
Doncasters PLC ADR....................................... 153,000 $ 3,232,125
Omni Energy Services..................................... 200,000 2,350,000
Swift Energy Co.*........................................ 181,500 3,822,844
Unit Corp.*.............................................. 225,000 2,165,625
-----------
11,570,594
-----------
FOOD AND AGRICULTURE -- 1.29%
American Italian Pasta Co., Class A...................... 125,000 3,125,000
-----------
INSURANCE -- 4.36%
Capital RE Corp.......................................... 83,000 5,151,188
Conning Corp............................................. 102,500 1,716,875
Stirling Cooke Brown Holdings LTD........................ 150,000 3,675,000
-----------
10,543,063
-----------
MEDIA -- 0.92%
SPSS, Inc.*.............................................. 115,000 2,213,750
-----------
MISCELLANEOUS & CONGLOMERATES -- 20.33%
Chart Industries, Inc.................................... 175,000 3,992,187
Essex International, Inc................................. 155,600 4,629,100
General Cable Corp.*..................................... 135,000 4,885,312
IHOP Corp.*.............................................. 70,000 2,275,000
Industrial Distribution Group............................ 150,000 2,353,125
Lecg, Inc................................................ 330,000 2,887,500
Littelfuse, Inc.*........................................ 90,000 2,238,750
OmniQuip International, Inc.*............................ 204,000 4,067,250
Pameco Corp., Class A.................................... 225,000 4,275,000
Panavision, Inc.......................................... 150,000 3,871,875
Robbins & Myers, Inc..................................... 110,000 4,358,750
Rural Metro Corp.*....................................... 81,000 2,703,375
SBS Technologies, Inc.................................... 125,000 3,390,625
Stoneridge, Inc.......................................... 200,000 3,200,000
-----------
49,127,849
-----------
MISCELLANEOUS FINANCE -- 8.57%
Arm Financial Group...................................... 180,000 4,747,500
CMAC Investment Corp..................................... 65,000 3,924,375
Executive Risk, Inc...................................... 50,000 3,490,625
First Financial Corp..................................... 83,700 1,977,413
Idex Corp................................................ 105,000 3,661,875
Triad Guaranty, Inc.*.................................... 100,000 2,900,000
-----------
20,701,788
-----------
MOTOR VEHICLES -- 4.00%
Borg Warner Automotive, Inc.............................. 40,000 2,080,000
Control Devices, Inc..................................... 226,666 3,626,656
Dura Automotive Systems, Inc............................. 160,000 3,960,000
-----------
9,666,656
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
70
<PAGE> 101
PEGASUS SMALL-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
NON-FEROUS METALS -- 1.59%
DT Industries, Inc...................................... 113,000 $ 3,842,000
------------
OPTICAL PHOTOGRAPHIC EQUIPMENT -- 1.29%
II-VI, Inc.............................................. 130,000 3,120,000
------------
PRODUCER GOODS -- 4.27%
Kuhlman Corp............................................ 115,000 4,499,375
SPS Technologies, Inc................................... 105,000 4,580,625
Watsco, Inc............................................. 50,000 1,234,375
------------
10,314,375
------------
REAL PROPERTY -- 1.85%
Penn America Group, Inc................................. 218,000 4,469,000
------------
RETAIL -- 7.74%
Mens Warehouse, Inc..................................... 151,000 5,247,250
99 Cents Only Stores*................................... 125,000 3,687,500
Proffitts, Inc.*........................................ 177,000 5,033,437
Zale Corp.*............................................. 206,000 4,738,000
------------
18,706,187
------------
SOAPS & COSMETICS -- 2.51%
Alberto Culver Co., Class A............................. 80,000 2,160,000
Wesley Jessen Visioncare................................ 100,000 3,900,000
------------
6,060,000
------------
TRUCKING & FREIGHT -- 2.42%
C.H. Robinson Worldwide, Inc............................ 145,000 3,244,375
US Freightways Corp..................................... 80,000 2,600,000
------------
5,844,375
------------
TOTAL COMMON STOCKS....................................... 235,421,131
------------
(Cost $188,052,726)
TOTAL INVESTMENTS......................................... $241,666,698
============
(Cost $194,298,293)
</TABLE>
* Non-income producing security.
See Notes to Financial Statements.
Pegasus Funds
71
<PAGE> 102
PEGASUS INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 2.66%
Pegasus Cash Management Fund Class I (in shares)....... 16,618,577 $16,618,577
-----------
(Cost $16,618,577)
CONVERTIBLE BONDS -- 9.94%
Nac Re Corp., 5.25%, 12/15/02......................... $16,384,560 18,555,514
Pep Boys, Zero Coupon, 9/20/11........................ 5,610,300 3,001,511
Potomac Electric Power Co., 5.00%, 9/1/02............. 15,264,000 14,977,800
Roche Holding, Inc., Zero Coupon, 5/6/12.............. 55,270,000 25,631,462
-----------
(Cost $57,481,099) 62,166,287
-----------
<CAPTION>
SHARES
------
<S> <C> <C>
NON-CONVERTIBLE PREFERRED -- 1.17%
FINANCE -- 1.17%
Salomon, Inc., 7.625% Preferred....................... 181,247 7,295,192
-----------
(Cost $5,356,956)
COMMON STOCKS -- 86.23%
AEROSPACE -- 4.55%
Lockheed Martin Corp.................................. 289,000 28,466,500
-----------
APPAREL -- 5.42%
Payless Shoesource, Inc.*............................. 298,900 20,063,662
Unifi, Inc............................................ 340,040 13,835,378
-----------
33,899,040
-----------
BANKS -- 1.91%
Pacific Century Financial Corp........................ 481,228 11,910,393
-----------
BUSINESS SERVICES -- 1.05%
Grey Advertising, Inc................................. 19,996 6,558,688
-----------
CHEMICALS -- 2.19%
NCH Corp.............................................. 208,711 13,670,571
-----------
CONSUMER DURABLES -- 0.83%
National Presto Industries, Inc....................... 131,600 5,206,425
-----------
DOMESTIC OIL -- 0.91%
Atlantic Richfield Co................................. 71,026 5,690,958
-----------
DRUGS AND MEDICINE -- 4.50%
Arch Coal, Inc........................................ 592,730 16,225,983
Block Drug, Inc., Class A............................. 134,586 5,820,844
Mid Ocean Ltd......................................... 111,800 6,065,150
-----------
28,111,977
-----------
ENERGY AND UTILITIES -- 6.79%
Sierra Pacific Resources.............................. 342,090 12,828,375
SJW Corp.............................................. 10,419 630,350
Southwest Gas Corporation............................. 509,200 9,515,675
St. Joeseph Light & Power Co.......................... 323,150 5,756,109
Washington Water Power Co............................. 565,145 13,740,088
-----------
42,470,597
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
72
<PAGE> 103
PEGASUS INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
FOOD AND AGRICULTURE -- 4.41%
Farmer Brothers Co...................................... 69,521 $ 13,000,427
Tate & Lyle PLC Sponsored............................... 440,800 14,563,812
------------
27,564,239
------------
INSURANCE -- 14.62%
Allmerica Financial Corp................................ 167,200 8,349,550
American National Insurance Co.......................... 211,790 19,696,470
Citizens Corp........................................... 505,800 14,541,750
Financial Security Assurance Holdings................... 226,479 10,927,612
Ohio Casualty Corp...................................... 159,900 7,135,538
Old Republic International Corp......................... 555,594 20,661,151
Safeco Corp............................................. 207,461 10,113,724
------------
91,425,795
------------
INTERNATIONAL OIL -- 0.64%
Amoco Corp.............................................. 47,304 4,026,753
------------
MISCELLANEOUS AND CONGLOMERATES -- 2.55%
Diageo PLC.............................................. 421,548 15,966,131
------------
MISCELLANEOUS FINANCE -- 14.89%
Associated Estates Realty............................... 172,700 4,090,831
Federal National Mortgage Association................... 437,300 24,953,431
Fund American Enterprises Holdings, Inc................. 257,290 31,132,090
Leucadia National Corp.................................. 767,570 26,481,165
PXRE Corp............................................... 194,700 6,461,606
------------
93,119,123
------------
MOTOR VEHICLES -- 0.80%
Ford Motor Co........................................... 102,156 4,973,720
------------
NON-DURABLES AND ENTERTAINMENT -- 4.85%
Hasbro, Inc............................................. 301,684 9,503,046
Lubys Cafeterias, Inc................................... 470,066 8,255,534
Sbarro, Inc............................................. 478,219 12,583,137
------------
30,341,717
------------
PRODUCER GOODS -- 0.31%
Tennant Co.............................................. 52,586 1,912,816
------------
RAILROADS AND SHIPPING -- 4.13%
Alexander & Baldwin, Inc. .............................. 450,553 12,305,728
Illinois Central Corp. Series A......................... 397,000 13,522,813
------------
25,828,541
------------
RETAIL -- 1.58%
Stanhome, Inc. ......................................... 385,700 9,907,669
------------
TIRES AND RUBBER GOODS -- 2.79%
Bandag, Inc. Class A.................................... 363,790 17,416,446
------------
TOBACCO -- 6.51%
Loews Corp.............................................. 301,300 31,975,463
UST, Inc. .............................................. 236,400 8,732,025
------------
40,707,488
------------
TOTAL COMMON STOCKS....................................... 539,175,587
------------
(Cost $425,725,986)
TOTAL INVESTMENTS......................................... $625,255,643
============
(Cost $505,182,618)
</TABLE>
* Non-income producing security.
See Notes to Financial Statements.
Pegasus Funds
73
<PAGE> 104
PEGASUS GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 2.76%
Pegasus Cash Management Fund Class I (in shares)....... 27,907,105 $27,907,105
U.S. Treasury Bills 03/26/98(1)........................ $1,100,000 1,086,910
U.S. Treasury Bills 06/18/98(1)........................ 300,000 292,764
-----------
TOTAL TEMPORARY CASH INVESTMENTS........................ 29,286,779
-----------
(Cost $29,286,779)
<CAPTION>
SHARES
----------
<S> <C> <C>
COMMON STOCKS -- 97.24%
AEROSPACE -- 1.55%
Boeing Co............................................. 336,000 16,443,000
-----------
APPAREL -- 1.48%
Russell Corp.......................................... 593,000 15,751,563
-----------
BANKS -- 5.21%
BankAmerica Corp...................................... 288,000 21,024,000
Norwest Corp.......................................... 888,000 34,299,000
-----------
55,323,000
-----------
BUSINESS MACHINES -- 2.59%
Electronic Data Systems Corp.......................... 625,000 27,460,938
-----------
BUSINESS SERVICES -- 6.62%
Auto Data Processing, Inc............................. 520,000 31,915,000
Deluxe Corp........................................... 676,000 23,322,000
First Data Corp....................................... 517,000 15,122,250
-----------
70,359,250
-----------
CHEMICALS -- 2.65%
Sigma-Aldrich Corp.................................... 708,000 28,143,000
-----------
CONSTRUCTION -- 4.17%
Masco Corp............................................ 488,000 24,827,000
York International Corp............................... 493,000 19,504,313
-----------
44,331,313
-----------
CONSUMER DURABLES -- 2.51%
Newell Co............................................. 627,000 26,647,500
-----------
CONTAINERS -- 1.83%
Crown Cork & Seal Co., Inc............................ 388,000 19,448,500
-----------
DRUGS AND MEDICINE -- 8.88%
Abbott Laboratories Corp.............................. 367,000 24,061,438
Bristol-Myers Squibb Co............................... 373,000 35,295,125
Schering-Plough Corp.................................. 563,000 34,976,375
-----------
94,332,938
-----------
ELECTRONICS -- 8.18%
AMP, Inc.............................................. 581,000 24,402,000
Andrew Corp........................................... 397,000 9,528,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
74
<PAGE> 105
PEGASUS GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
ELECTRONICS -- CONTINUED
Hewlett Packard Co..................................... 333,000 $20,812,500
Lucent Technologies, Inc............................... 184,000 14,697,000
Motorola, Inc.......................................... 305,000 17,404,063
-----------
86,843,563
-----------
ENERGY AND UTILITIES -- 10.45%
Enron Corp............................................. 442,000 18,370,625
FPL Group Inc.......................................... 485,000 28,705,938
MCN Energy Group, Inc.................................. 834,000 33,672,750
Pinnacle West Capital Corp............................. 713,000 30,213,375
-----------
110,962,688
-----------
ENERGY RAW MATERIALS -- 3.03%
Schlumberger Ltd....................................... 400,000 32,200,000
-----------
FOOD AND AGRICULTURE -- 7.70%
ConAgra, Inc........................................... 810,000 26,578,125
CPC International, Inc................................. 271,000 29,200,250
PepsiCo, Inc........................................... 713,000 25,979,938
-----------
81,758,313
-----------
INSURANCE -- 3.86%
American International Group, Inc...................... 163,000 17,726,250
Chubb Corp............................................. 308,000 23,292,500
-----------
41,018,750
-----------
INTERNATIONAL OIL -- 2.05%
British Petroleum PLC ADR.............................. 273,420 21,788,156
-----------
LIQUOR -- 2.40%
Anheuser-Busch Companies, Inc.......................... 580,000 25,520,000
-----------
MEDIA -- 5.17%
Gannett Co., Inc....................................... 384,000 23,736,000
Washington Post Co. Class B............................ 64,000 31,136,000
-----------
54,872,000
-----------
MISCELLANEOUS & CONGLOMERATES -- 2.58%
Cognizant Corp......................................... 614,000 27,361,375
-----------
MISCELLANEOUS FINANCE -- 1.85%
PMI Group, Inc......................................... 273,000 19,741,313
-----------
NON-DURABLES AND ENTERTAINMENT -- 2.31%
Kimberly-Clark Corp.................................... 497,000 24,508,313
-----------
PRODUCER GOODS -- 2.65%
Dover Corp............................................. 782,000 28,249,750
-----------
RETAIL -- 5.11%
Officemax, Inc......................................... 1,532,000 21,831,000
Pep Boys Manny Moe & Jack.............................. 753,000 17,977,875
Toys R Us*............................................. 460,000 14,461,250
-----------
54,270,125
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
75
<PAGE> 106
PEGASUS GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TELEPHONE -- 2.41%
Century Telephone Enterprises, Inc.................... 514,000 $ 25,603,621
--------------
TOTAL COMMON STOCKS..................................... 1,032,938,969
--------------
(Cost $716,844,154)
TOTAL INVESTMENTS....................................... $1,062,225,748
==============
(Cost $746,130,933)
</TABLE>
* Non-income producing security.
(1) Securities represent the margin deposit for the futures contracts.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNDERLYING
EXPIRATION FACE AMOUNT UNREALIZED
PURCHASED DATE AT VALUE GAIN/(LOSS)
- -------------------------------------------------------
<S> <C> <C> <C>
5 S&P 500 Futures 3/98 $ 1,223,875 $ (7,588)
115 S&P 500 Futures 6/98 28,436,625 345,200
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
76
<PAGE> 107
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 0.37%
Pegasus Cash Management Fund Class I................... 3,109,780 $ 3,109,780
------------
(COST $3,109,780)
COMMON STOCKS -- 99.63%
AEROSPACE -- 1.90%
Boeing Co............................................. 111,757 5,469,108
General Dynamics Corp................................. 5,241 453,019
Goodrich B. F. Co..................................... 7,600 314,925
Lockheed Martin Corp.................................. 21,247 2,092,829
Northrop Grumman Corp................................. 7,368 847,320
Raytheon Co. Class A.................................. 5,113 252,151
Raytheon Co. Class B.................................. 25,596 1,292,598
Rockwell International Corp........................... 24,874 1,299,667
Textron, Inc.......................................... 18,048 1,128,000
TRW, Inc.............................................. 15,942 850,904
United Technologies Corp.............................. 25,164 1,832,254
------------
15,832,775
------------
AIR TRANSPORT -- 0.52%
AMR Corp.*............................................ 9,148 1,175,518
Delta Air Lines, Inc.................................. 8,935 1,063,265
Federal Express Corp.*................................ 12,909 788,256
Southwest Airlines Co................................. 31,429 773,951
USAir Group, Inc.*.................................... 9,100 568,750
------------
4,369,740
------------
APPAREL -- 0.33%
Fruit of the Loom, Inc., Class A*..................... 8,497 217,736
Liz Claiborne, Inc.................................... 5,553 232,185
Nike, Inc., Class B................................... 32,790 1,287,007
Reebok International Ltd.............................. 6,193 178,436
Russell Corp.......................................... 10,900 289,531
V.F. Corp............................................. 12,454 572,106
------------
2,777,001
------------
BANKS -- 9.11%
Banc One Corp......................................... 63,176 3,431,247
Bank of Boston Corp................................... 16,796 1,577,774
Bank of New York Co., Inc............................. 41,443 2,395,923
BankAmerica Corp...................................... 75,280 5,495,440
Bankers Trust New York Corp........................... 10,960 1,232,315
Barnett Banks, Inc.................................... 22,251 1,599,291
BB & T Corp........................................... 15,100 967,344
Chase Manhattan Corp.................................. 45,603 4,993,529
Citicorp.............................................. 49,956 6,316,312
Comerica, Inc......................................... 13,393 1,208,718
Corestates Financial Corp............................. 23,736 1,900,364
First Chicago NBD Corp................................ 32,601 2,722,184
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
77
<PAGE> 108
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
First Union Corp........................................ 69,252 $ 3,549,165
Fleet Financial Group, Inc.............................. 28,149 2,109,416
Fifth Third Bancorp..................................... 16,111 1,317,074
Huntington Bankshares, Inc.............................. 17,600 633,600
J.P. Morgan and Co., Inc................................ 20,177 2,277,479
Keycorp................................................. 24,841 1,759,053
MBNA Corp............................................... 54,891 1,499,210
Mellon Bank Corp........................................ 29,600 1,794,500
Morgan Stanley Dean Witter.............................. 65,100 3,849,038
Norwest Corp............................................ 81,732 3,156,898
Nationsbank Corp........................................ 78,598 4,779,741
National City Corp...................................... 22,305 1,466,554
PNC Bank Corp........................................... 31,420 1,792,904
Republic NY Corp........................................ 6,691 764,028
State Street Corp....................................... 17,800 1,035,737
Suntrust Banks, Inc..................................... 24,492 1,748,116
Synovus Financial Corp.................................. 19,300 632,075
U.S. Bancorp............................................ 27,062 3,029,252
Wachovia Corp........................................... 22,453 1,821,500
Wells Fargo & Co........................................ 9,350 3,173,740
------------
76,029,521
------------
BUSINESS MACHINES -- 6.29%
Bay Networks, Inc....................................... 18,433 471,194
Ceridian Corp.*......................................... 7,345 336,493
Cisco Systems, Inc...................................... 112,911 6,294,788
Compaq Computer Corp.*.................................. 86,824 4,900,130
Dell Computer Corp.*.................................... 36,722 3,084,648
Digital Equipment Corp.*................................ 16,379 606,023
Honeywell, Inc.......................................... 14,096 965,576
International Business Machines Corp.................... 108,372 11,331,647
Microsoft Corp.*........................................ 132,243 17,092,408
Nextlevel Systems, Inc.................................. 16,300 291,362
Novell, Inc.*........................................... 46,900 351,750
Pitney Bowes, Inc....................................... 18,448 1,659,167
Seagate Technology*..................................... 27,865 536,401
Silicon Graphics*....................................... 22,900 284,819
Sun Microsystems, Inc.*................................. 39,267 1,565,771
Xerox Corp.............................................. 36,335 2,681,977
------------
52,454,154
------------
BUSINESS SERVICES -- 2.17%
Automatic Data Processing, Inc.......................... 31,779 1,950,436
Block (H.&R.) Inc....................................... 8,057 361,054
Browning-Ferris Industries, Inc......................... 21,635 800,495
Cendent Corp............................................ 86,475 2,972,603
Computer Associates International, Inc.................. 61,353 3,244,040
Computer Sciences Corp.................................. 7,676 640,946
Deluxe Corp............................................. 8,215 283,418
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
78
<PAGE> 109
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Dun & Bradstreet Corp.................................... 18,167 $ 562,042
Ecolab, Inc.............................................. 11,194 620,567
Equifax, Inc............................................. 16,600 588,262
First Data Corp.......................................... 48,529 1,419,473
Interpublic Group of Companies, Inc...................... 12,132 604,325
KLA Tencor Corp.......................................... 9,400 363,075
Shared Medical Sysjtem, Inc.............................. 5,400 356,400
U.S. West Media Group.................................... 69,144 1,996,533
Waste Management, Inc.................................... 50,275 1,382,563
------------
18,146,232
------------
CHEMICALS -- 2.38%
Air Products & Chemicals, Inc............................ 11,190 920,377
Dow Chemical Co.......................................... 23,821 2,417,832
DuPont (E I) de Nemours & Co., Inc....................... 126,082 7,572,800
Grace (W.R.) & Co........................................ 9,445 759,732
Hercules, Inc............................................ 8,610 431,038
Monsanto Co.............................................. 67,511 2,835,462
Morton International, Inc................................ 13,635 468,703
Nalco Chemical Co........................................ 8,600 340,238
PPG Industries, Inc...................................... 20,140 1,150,498
Praxair, Inc............................................. 17,003 765,135
Rohm & Haas Co........................................... 6,141 588,001
Safety Kleen Corp........................................ 16,500 452,719
Sigma-Aldrich Corp....................................... 11,005 437,448
Union Carbide Corp....................................... 16,045 688,932
------------
19,828,915
------------
CONSTRUCTION -- 0.53%
Armstrong World Industries, Inc.......................... 4,556 340,561
Centex Corp.............................................. 6,612 416,143
Fluor Corp............................................... 8,470 316,566
Kaufman & Broad Home Corp................................ 20,233 453,978
Masco Corp............................................... 18,597 946,122
Owens-Corning Fiberglass Corp............................ 8,129 277,402
Sherwin Williams Co...................................... 15,416 427,794
Stanley Works............................................ 7,117 335,834
Sunamerica, Inc.......................................... 21,600 923,400
------------
4,437,800
------------
CONSUMER DURABLES -- 0.29%
Black & Decker Corp...................................... 10,929 426,914
Maytag Corp.............................................. 11,800 440,288
Newell Co................................................ 16,158 686,715
Rubbermaid, Inc.......................................... 16,441 411,025
Whirlpool Corp........................................... 8,355 459,525
------------
2,424,467
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
79
<PAGE> 110
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
CONTAINERS -- 0.19%
Ball Corp............................................... 3,457 $ 122,075
Crown Cork & Seal Co., Inc.............................. 13,130 658,141
Owens Illinois, Inc..................................... 15,300 580,444
Stone Container Corp.................................... 17,556 183,241
------------
1,543,901
------------
DOMESTIC OIL -- 1.12%
Amerada Hess Corp....................................... 8,560 469,730
Ashland Oil, Inc........................................ 8,240 442,385
Atlantic Richfield Co................................... 34,960 2,801,170
Kerr-McGee Corp......................................... 4,408 279,082
Oryx Energy Co.*........................................ 11,500 293,250
Pennzoil Co............................................. 7,062 471,830
Phillips Petroleum Co................................... 29,271 1,423,302
Sun Co., Inc............................................ 10,200 429,038
Union Pacific Resources Group........................... 21,506 521,521
Unocal Corp............................................. 29,993 1,164,103
USX-Marathon Group...................................... 31,654 1,068,322
------------
9,363,733
------------
DRUGS AND MEDICINE -- 11.04%
Abbott Laboratories..................................... 85,599 5,612,084
American Home Products Corp............................. 72,910 5,577,615
Amgen, Inc.*............................................ 28,792 1,558,367
Baxter International, Inc............................... 31,385 1,582,981
Becton Dickinson & Co................................... 14,362 718,100
Biomet, Inc.*........................................... 13,500 345,938
Bristol-Myers Squibb Co................................. 110,416 10,448,114
Columbia/HCA Healthcare Corp............................ 77,833 2,305,803
Guidant Corp............................................ 16,418 1,022,021
HBO & Co................................................ 21,000 1,008,000
Healthsouth Corp........................................ 42,138 1,169,329
Humana, Inc.*........................................... 17,137 355,593
Johnson & Johnson....................................... 146,818 9,671,636
Lilly (Eli) & Co........................................ 120,976 8,422,954
Mallinckrodt Group, Inc................................. 8,900 338,200
Manor Care, Inc......................................... 9,300 325,500
Medtronic, Inc.......................................... 53,904 2,819,853
Merck & Co., Inc........................................ 134,374 14,277,238
Pall Corp............................................... 15,700 324,794
Pfizer, Inc............................................. 144,476 10,772,491
Pharmacia & Upjohn Co................................... 59,708 2,186,805
St. Jude Medical, Inc.*................................. 11,300 344,650
Schering-Plough Corp.................................... 82,812 5,144,696
Tenet Healthcare Corp.*................................. 33,462 1,108,428
United Healthcare Corp.................................. 19,225 955,242
Warner Lambert Co....................................... 29,763 3,690,612
------------
92,087,044
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
80
<PAGE> 111
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
ELECTRONICS -- 5.33%
3Com Corp.*............................................. 36,689 $ 1,281,822
Advanced Micro Devices, Inc.*........................... 16,022 287,395
AMP, Inc................................................ 23,240 976,080
Andrew Corp.*........................................... 12,000 288,000
Boston Scientific Corp.*................................ 21,666 993,928
EMC Corp.*.............................................. 55,874 1,533,043
General Signal Corp..................................... 6,500 274,219
Harris Corp............................................. 10,812 496,000
Hewlett-Packard Co...................................... 116,955 7,309,688
Intel Corp.............................................. 180,190 12,658,348
Johnson Controls, Inc................................... 9,804 468,141
LSI Logic Corp.*........................................ 15,985 315,704
Lucent Technologies, Inc................................ 71,414 5,704,193
Micron Technology, Inc.................................. 23,749 617,474
Motorola, Inc........................................... 66,101 3,771,888
National Semiconductor Corp.*........................... 15,132 392,486
Northern Telecom Ltd.................................... 28,373 2,525,197
Parametric Technology Corp.............................. 14,000 663,250
Perkin Elmer Corp....................................... 4,800 341,100
Raychem Corp............................................ 11,206 482,558
Thermo Electron Corp.................................... 16,777 746,577
Texas Instruments, Inc.................................. 43,386 1,952,370
Thomas & Betts Corp..................................... 7,400 349,650
------------
44,429,111
------------
ENERGY AND UTILITIES -- 3.37%
American Electric Power Co., Inc........................ 20,280 1,046,955
Baltimore Gas & Electric Co............................. 17,663 601,646
Carolina Power & Light Co............................... 16,718 709,470
Central & SouthWest Corp................................ 20,293 549,179
CINergy Corp............................................ 15,367 588,748
Coastal Corp............................................ 10,572 654,803
Columbia Gas System, Inc................................ 7,993 627,950
Consolidated Edison Co. of New York, Inc................ 26,877 1,101,957
Consolidated Natural Gas Co............................. 9,603 580,982
Dominion Resources, Inc................................. 20,419 869,084
DTE Energy, Inc......................................... 15,571 540,119
Duke Power Co........................................... 39,188 2,170,036
Edison International.................................... 47,428 1,289,449
Enron Corp.............................................. 33,683 1,399,950
Entergy Corp............................................ 29,924 895,850
Firstenergy Corp........................................ 25,391 736,339
FPL Group, Inc.......................................... 21,280 1,259,510
General Public Utilities Corp........................... 13,640 574,585
Houston Industries, Inc................................. 32,902 878,072
Niagara Mohawk Power Corp............................... 33,700 353,850
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
81
<PAGE> 112
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Northern States Power Co................................ 7,451 $ 434,021
PP&L Resources, Inc..................................... 21,745 520,521
Pacific Enterprises..................................... 9,300 349,913
Pacific Gas & Electric Co............................... 52,151 1,587,346
PacifiCorp.............................................. 31,880 870,723
PECO Energy Co.......................................... 23,809 577,368
Public Service Enterprise Group, Inc.................... 23,597 747,730
Sonat, Inc.............................................. 10,691 489,113
Southern Co............................................. 71,819 1,858,317
Texas Utilities Co...................................... 27,654 1,149,369
Unicom Corp............................................. 23,024 707,988
Union Electric Co....................................... 12,821 554,508
Williams Companies, Inc................................. 30,444 863,849
------------
28,139,300
------------
ENERGY RAW MATERIALS -- 1.43%
Anadarko Petroleum Corp................................. 6,600 400,538
Apache Corp............................................. 10,000 350,625
Baker Hughes, Inc....................................... 15,450 674,006
Barricks Gold Corp...................................... 38,235 712,127
Burlington Resources, Inc............................... 18,636 835,126
Dresser Industries, Inc................................. 19,462 816,188
Halliburton Co.......................................... 28,108 1,459,859
Helmerich & Payne, Inc.................................. 3,937 267,224
Occidental Petroleum Corp............................... 37,520 1,099,805
Rowan Companies, Inc.*.................................. 15,553 474,367
Schlumberger Ltd........................................ 54,974 4,425,407
Western Atlas, Inc.*.................................... 5,727 423,798
------------
11,939,070
------------
FOOD AND AGRICULTURE -- 5.83%
Archer Daniels Midland Co............................... 65,037 1,410,490
Cardinal Health, Inc.................................... 12,100 909,012
Campbell Soup Co........................................ 51,986 3,021,686
Coca-Cola Co............................................ 273,719 18,236,528
ConAgra, Inc............................................ 52,158 1,711,434
CPC International, Inc.................................. 15,615 1,682,516
Darden Restaurants, Inc................................. 37,561 469,513
General Mills, Inc...................................... 17,041 1,220,562
Heinz (H.J.) Co......................................... 38,896 1,976,403
Hershey Foods Corp...................................... 16,857 1,044,080
Kellogg Co.............................................. 47,144 2,339,521
PepsiCo, Inc............................................ 172,243 6,276,104
Pioneer Hi-Bred International, Inc...................... 7,800 836,550
Quaker Oats Co.......................................... 13,800 727,950
Ralston-Ralston Purina Group............................ 11,577 1,075,937
Sara Lee Corp........................................... 55,509 3,125,851
Sysco Corp.............................................. 24,140 1,099,879
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
82
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Tricon Global Restaurants............................... 17,224 $ 500,573
Wrigley (Wm.) Jr Co..................................... 11,762 935,814
------------
48,600,403
------------
GOLD -- 0.07%
Battle Mountain Gold Co................................. 23,473 137,904
Homestake Mining Co..................................... 14,681 130,294
Placer Dome, Inc........................................ 27,977 354,958
------------
623,156
------------
INSURANCE -- 3.58%
Allstate Corp........................................... 48,010 4,362,909
American General Corp................................... 27,019 1,460,715
American International Group, Inc....................... 77,354 8,412,248
AON Corp................................................ 18,253 1,070,082
Chubb Corp.............................................. 17,534 1,326,009
CIGNA Corp.............................................. 7,816 1,352,657
Cincinnati Financial Corp............................... 6,000 844,500
General Re Corp......................................... 8,295 1,758,540
ITT Hartford Group, Inc................................. 12,002 1,122,937
Jefferson-Pilot Corp.................................... 6,463 503,306
Lincoln National Corp................................... 11,498 898,281
Marsh & McLennan Companies, Inc......................... 17,928 1,336,757
Progressive Corp. (Ohio)................................ 7,900 947,012
SAFECO Corp............................................. 12,451 606,986
St. Paul Companies...................................... 11,161 915,900
Torchmark Corp.......................................... 18,858 793,215
Transamerica Corp....................................... 6,815 725,797
UNUM Corp............................................... 19,298 1,049,328
USF&G Corp.............................................. 16,500 364,031
------------
29,851,210
------------
INTERNATIONAL OIL -- 5.88%
Amoco Corp.............................................. 53,922 4,590,110
Chevron Corp............................................ 71,912 5,537,224
Exxon Corp.............................................. 273,040 16,706,635
Mobil Corp.............................................. 86,724 6,260,389
Royal Dutch Petroleum Co., N.Y. Registry................ 236,640 12,822,930
Texaco, Inc............................................. 57,578 3,130,804
------------
49,048,092
------------
LIQUOR -- 0.51%
Anheuser-Busch Companies, Inc........................... 54,233 2,386,252
Brown Forman Corp. Class B.............................. 10,768 594,932
Seagram Co. Ltd......................................... 39,428 1,274,017
------------
4,255,201
------------
MEDIA -- 2.01%
Adobe System, Inc....................................... 8,000 330,000
Cabletron System, Inc.*................................. 16,806 252,090
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
83
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Clear Channel Communication............................. 10,000 $ 794,375
Comcast Corp. Class A Special........................... 38,985 1,230,464
Donnelley (R.R.) & Sons Co.............................. 14,361 534,947
Dow Jones & Co., Inc.................................... 10,552 566,511
Gannett Co., Inc........................................ 29,582 1,828,537
King World Productions, Inc............................. 6,100 352,275
Knight-Ridder, Inc...................................... 12,559 653,068
McGraw Hill Companies, Inc.............................. 9,911 733,414
New York Times Co. Class A.............................. 13,915 920,129
Tele-Communications, Inc. Class A....................... 53,863 1,504,798
Time Warner, Inc........................................ 63,990 3,967,380
Times Mirror Co. Class A................................ 10,951 673,487
Tribune Co.............................................. 12,467 776,071
Viacom, Inc. Class B Non-Voting*........................ 39,626 1,642,002
------------
16,759,548
------------
MISCELLANEOUS AND CONGLOMERATES -- 1.32%
Case Corp............................................... 6,265 378,641
Cognizant Corp.......................................... 18,167 809,566
Corning, Inc............................................ 28,111 1,043,621
Eastman Chemical Co..................................... 8,252 491,510
Georgia Pacific Timber.................................. 10,387 235,655
ITT Corp.*.............................................. 11,858 982,732
ITT Industries, Inc..................................... 17,186 539,211
Minnesota Mining & MFG Co............................... 46,893 3,848,157
Tyco International LTD.................................. 59,632 2,687,167
------------
11,016,260
------------
MISCELLANEOUS FINANCE -- 4.10%
Aetna, Inc.............................................. 16,312 1,151,016
Ahmanson (H.F.) & Co.................................... 10,053 672,923
American Express Co..................................... 52,022 4,642,964
Beneficial Corp......................................... 5,757 478,551
Countrywide Credit Industry............................. 11,500 493,063
Federal Home Loan Mortgage Corp......................... 77,662 3,256,950
Federal National MTG Assn............................... 117,078 6,680,763
Golden West Financial Corp.............................. 6,635 648,986
Green Tree Financial Corp............................... 14,689 384,668
Household International, Inc............................ 11,776 1,502,176
MBIA, Inc............................................... 10,082 673,604
Merrill Lynch & Co., Inc................................ 35,652 2,600,368
MGIC Investment Corp.................................... 12,386 823,669
Providian Financial Corp................................ 11,231 507,500
Schwab Charles Corp..................................... 28,950 1,214,091
Travelers, Inc.......................................... 125,194 6,744,826
Washington Mutual....................................... 27,532 1,756,885
------------
34,233,003
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
84
<PAGE> 115
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MOTOR VEHICLES -- 2.06%
Autozone, Inc........................................... 16,849 $ 488,621
Chrysler Corp........................................... 80,806 2,843,361
Cummins Engine Co., Inc................................. 4,900 289,406
Dana Corp............................................... 11,898 565,155
Eaton Corp.............................................. 8,305 741,221
Echlin, Inc............................................. 10,200 369,113
Ford Motor Co........................................... 132,359 6,444,229
General Motors Corp..................................... 80,184 4,861,155
Genuine Parts Co........................................ 18,165 616,475
------------
17,218,736
------------
NON-DURABLES AND ENTERTAINMENT -- 1.56%
American Greetings Corp. Class A........................ 8,425 329,628
Harcourt General, Inc................................... 7,111 389,327
Hasbro, Inc............................................. 11,511 362,597
Kimberly-Clark Corp..................................... 63,098 3,111,520
Mattel, Inc............................................. 28,507 1,061,886
McDonalds Corp.......................................... 77,605 3,705,639
Oracle Systems Corp. *.................................. 113,985 2,543,290
Service Corp. International............................. 31,789 1,174,206
Wendy's International, Inc.............................. 14,500 348,906
------------
13,026,999
------------
NON-FERROUS METALS -- 0.69%
Alcan Aluminum Ltd...................................... 22,182 612,778
Allegheny Teledyne, Inc................................. 18,840 487,485
Aluminum Co. of America................................. 18,969 1,334,943
Asarco, Inc............................................. 10,081 226,192
Cyprus Amax Mineral Co.................................. 13,078 201,074
Engelhard Corp.......................................... 17,991 312,594
Freeport McMoran Copper Class B......................... 23,905 376,504
Inco Limited............................................ 18,558 315,486
Laidlaw, Inc............................................ 34,015 463,454
Newmont Mining Corp..................................... 18,815 552,690
Phelps Dodge Corp....................................... 6,738 419,441
Reynolds Metals Co...................................... 7,160 429,600
------------
5,732,241
------------
OPTICAL PHOTOGRAPHIC EQUIPMENT -- 0.28%
Eastman Kodak Co........................................ 38,623 2,348,761
------------
PAPER AND FOREST PRODUCTS -- 0.82%
Bemis, Inc.............................................. 4,177 184,049
Champion International Corp............................. 10,768 487,925
Georgia-Pacific Corp.................................... 10,387 631,010
International Paper Co.................................. 32,379 1,396,344
Fort James Corp......................................... 21,004 803,403
Louisiana Pacific Corp.................................. 14,600 277,400
Mead Corp............................................... 15,680 439,040
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
85
<PAGE> 116
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Temple-Inland, Inc...................................... 7,723 $ 404,009
Union Camp Corp......................................... 6,604 354,552
Westvaco Corp........................................... 11,910 374,421
Weyerhaeuser Co......................................... 21,792 1,069,170
Willamette Industries, Inc.............................. 13,970 449,659
------------
6,870,982
------------
PRODUCER GOODS -- 5.76%
Alco Standard Corp...................................... 16,392 461,025
Allied Signal, Inc...................................... 64,552 2,513,494
Applied Materials Co.*.................................. 38,684 1,165,355
Avery Dennison Corp..................................... 11,909 532,928
CBS Corp................................................ 76,724 2,258,563
Caterpillar, Inc........................................ 42,740 2,075,561
Conseco, Inc............................................ 21,000 954,188
Cooper Industries, Inc.................................. 12,499 612,451
Deere & Co.............................................. 29,106 1,697,243
Dover Corp.............................................. 24,138 871,985
Emerson Electric Co..................................... 50,814 2,867,815
FMC Corp.*.............................................. 3,747 252,219
General Electric Co..................................... 361,328 26,512,442
Grainger (W.W.), Inc.................................... 4,833 469,707
Harnischfeger Industries, Inc........................... 7,400 261,312
Illinois Tool Works, Inc................................ 25,428 1,528,859
Ingersoll-Rand Co....................................... 15,619 632,570
Millipore Corp.......................................... 6,800 230,775
Parker-Hannifin Corp.................................... 12,976 595,274
Snap-On, Inc............................................ 7,800 340,275
Tenneco, Inc............................................ 18,607 734,977
Timken Co............................................... 15,122 519,819
------------
48,088,837
------------
RAILROADS AND SHIPPING -- 0.70%
Burlington Northern Santa Fe............................ 17,659 1,641,183
CSX Corp................................................ 23,242 1,255,068
Norfolk Southern Corp................................... 40,125 1,236,352
Union Pacific Corp...................................... 27,045 1,688,622
------------
5,821,225
------------
RETAIL -- 4.70%
Albertsons, Inc......................................... 26,979 1,278,130
American Stores Co...................................... 32,494 668,158
Circuit City Stores, Inc................................ 14,591 518,892
Dayton Hudson Corp...................................... 24,180 1,632,150
Dillard Department Stores Class A....................... 10,894 384,014
Federated Department Stores, Inc.*...................... 20,305 874,384
Gap, Inc................................................ 43,287 1,533,983
Home Depot, Inc......................................... 79,992 4,709,529
Kmart Corp.*............................................ 59,393 686,732
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
86
<PAGE> 117
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Kroger Co.*............................................. 27,858 $ 1,029,004
Limited, Inc............................................ 30,520 778,260
Lowes Companies, Inc.................................... 20,725 988,323
May Department Stores Co................................ 27,699 1,459,391
Melville Corp........................................... 18,345 1,175,226
Mercantile Stores, Inc.................................. 5,100 310,463
Nordstrom, Inc.......................................... 7,484 451,847
Penney (J.C.) & Co., Inc................................ 28,640 1,727,350
Price/Costco, Inc.*..................................... 25,426 1,134,635
Rite-Aid Corp........................................... 13,649 801,026
Sears, Roebuck & Co..................................... 44,812 2,027,743
Tandy Corp.............................................. 13,160 507,483
TJX Companies, Inc...................................... 17,138 589,118
Toys R Us*.............................................. 28,561 897,886
Wal Mart Stores, Inc.................................... 252,421 9,954,853
Walgreen Co............................................. 62,046 1,946,693
Winn-Dixie Stores, Inc.................................. 18,270 798,171
Woolworth Corp.*........................................ 15,100 307,663
------------
39,171,107
------------
SOAPS AND COSMETICS -- 3.29%
Alberto-Culver Co. Class B.............................. 10,500 336,656
Avon Products, Inc...................................... 17,194 1,055,282
Clorox Co............................................... 9,572 756,786
Colgate-Palmolive Co.................................... 32,872 2,416,092
Gillette Co............................................. 62,223 6,249,523
International Flavors & Fragrances, Inc................. 10,688 550,432
Procter & Gamble Co..................................... 147,296 11,756,062
Unilever N.V............................................ 69,036 4,310,435
------------
27,431,268
------------
STEEL -- 0.14%
Armco, Inc.*............................................ 85,322 421,277
Nucor Corp.............................................. 8,179 395,148
USX-- U.S. Steel Group.................................. 5,637 176,156
Worthington Industries, Inc............................. 9,134 150,711
------------
1,143,292
------------
TELEPHONE -- 7.06%
AT&T Corp............................................... 179,264 10,979,920
AirTouch Communications, Inc.*.......................... 56,025 2,328,539
ALLTEL Corp............................................. 25,217 1,035,473
Ameritech Corp.......................................... 61,570 4,956,385
Bell Atlantic Corp...................................... 86,324 7,855,484
Bellsouth Corp.......................................... 108,895 6,132,150
Frontier Corp........................................... 18,361 441,811
GTE Corp................................................ 104,331 5,451,295
MCI Communications Corp................................. 74,188 3,176,174
SBC Communications, Inc................................. 99,944 7,320,898
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
87
<PAGE> 118
PEGASUS EQUITY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Sprint Corp............................................. 49,944 $ 2,927,967
Tellabs, Inc.*.......................................... 20,086 1,062,047
US WEST Communications Group*........................... 51,184 2,309,678
Worldcom, Inc.*......................................... 95,778 2,897,285
------------
58,875,106
------------
TIRES AND RUBBER GOODS -- 0.16%
Cooper Tire & Rubber Co................................. 12,703 309,636
Goodyear Tire & Rubber Co............................... 16,591 1,055,602
------------
1,365,238
------------
TOBACCO -- 1.79%
Fortune Brands, Inc..................................... 18,700 693,069
Loews Corp.............................................. 12,695 1,347,257
Philip Morris Companies, Inc............................ 267,385 12,115,883
UST, Inc................................................ 21,612 798,292
------------
14,954,501
------------
TRAVEL AND RECREATION -- 1.21%
Disney (Walt) Co........................................ 76,312 7,559,658
Harrahs Entertainment................................... 16,700 315,213
Hilton Hotels Corp...................................... 28,824 857,514
Marriott International, Inc............................. 13,707 949,209
Mirage Resorts, Inc..................................... 19,600 445,900
------------
10,127,494
------------
TRUCKING AND FREIGHT -- 0.11%
Caliber System, Inc..................................... 5,653 275,230
PACCAR, Inc............................................. 6,182 324,555
Ryder Systems, Inc...................................... 8,800 288,200
------------
887,985
------------
TOTAL COMMON STOCKS....................................... 831,253,409
------------
(Cost $508,470,401)
TOTAL INVESTMENTS......................................... $834,363,189
============
(Cost $511,580,181)
</TABLE>
*Non-income producing security.
See Notes to Financial Statements.
Pegasus Funds
88
<PAGE> 119
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET VALUE
------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 5.45%
Pegasus Cash Management Fund Class I (in shares)...... 20,926,655 $20,926,655
Salomon Brothers, Revolving Repurchase Agreement,
6.625%, 1/2/98 (secured by various U.S. Treasury
Notes with maturities ranging from 7/15/98 through
2/28/02 at various interest rates ranging from 6.25%
to 8.25%, all held at Chase Bank) ................... $7,095,567 7,095,567
-----------
(Cost $28,022,222) 28,022,222
-----------
COMMON STOCKS -- 94.55% SHARES
------
ARGENTINA -- 2.69%
BANKS
Bco Frances Rio Pl.................................. 51,945 482,138
Bco De Galicia Bue "B'.............................. 155,024 992,335
CONSTRUCTION
Astra Cia Argentin.................................. 290,820 509,028
Ciadea Sa........................................... 36,624 47,254
Perez Companc Sa "B'................................ 299,760 2,140,678
Ypf Sa Class "D'.................................... 127,300 4,290,794
FOOD & AGRICULTURE
Molinos Rio Plata "B'............................... 61,742 148,208
LIQUOR & TOBACCO
Ba Embotelladora "B'*............................... 150 2
MISCELLANEOUS
Comercial Del Plata................................. 116,786 184,556
NON-FERROUS METALS
Siderca Sa.......................................... 488,521 1,358,337
Siderar Sa "A'...................................... 18,216 77,432
TELEPHONE
Telefonica De Argentina Class "B'................... 965,600 3,621,663
-----------
13,852,425
-----------
AUSTRALIA -- 1.56%
AIR TRANSPORT
Qantas Airways...................................... 32,000 56,629
BANKS
National Australia Bank............................. 96,820 1,351,903
Westpac Bank Corp................................... 130,510 834,713
CHEMICALS
Ici Australia....................................... 18,853 132,053
CONSTRUCTION
Boral Limited....................................... 68,719 173,727
Csr Limited......................................... 50,166 169,970
Pioneer International............................... 60,480 165,114
ENERGY RAW MATERIAL
Broken Hill Pty..................................... 117,905 1,094,726
Santos Limited...................................... 82,465 339,583
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
89
<PAGE> 120
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
FOOD & AGRICULTURE
Amcor Limited........................................... 50,613 $ 222,600
Goodman Fielder Limited................................. 55,124 87,637
LIQUOR & TOBACCO
Coca-Cola Amatil........................................ 24,724 184,710
Fosters Brewing Gp...................................... 71,247 135,553
Southcorp Holdings...................................... 24,447 80,919
MEDIA
News Corporation (Aust Listing)......................... 120,325 664,046
News Corporation Preferred Limited Voting Shares........ 69,789 345,316
MULTI-INDUSTRY & CONGLOMERATES
Pacific Dunlop Limited.................................. 92,967 196,866
NON-FERROUS METALS
Aberfoyle............................................... 2,400 3,909
Rio Tinto Limited....................................... 35,868 418,400
Mim Holdings Limited.................................... 109,423 67,019
North Ltd............................................... 18,069 47,587
WMC Ltd................................................. 80,894 281,987
RAILROAD & SHIPPING
Brambles Inds Limited................................... 13,527 268,378
REAL PROPPERTY
Gen Property Tst Units (Aust Listing)................... 55,200 97,829
Lend Lease Corp......................................... 9,661 188,843
Westfield Trust Units................................... 25,740 49,140
Westfield Trust New Units............................... 1,012 1,886
RETAIL
Coles Myer Limited...................................... 46,602 223,785
David Jones Limited..................................... 43,000 48,470
Woolworth Limited....................................... 22,434 74,986
-----------
8,008,284
-----------
BELGIUM -- 3.77%
BANKS
Generale De Banque...................................... 5,883 2,560,422
Kredietbank............................................. 4,164 1,747,649
Kredietbank VVPR........................................ 6 2,518
CHEMICALS
Solvay.................................................. 28,640 1,801,117
CONSTRUCTION
Glaverbel Mecansa....................................... 1,500 234,818
ENERGY RAW MATERIALS
GPE Bruxelles Lam....................................... 11,265 1,629,705
ENERGY & UTILITIES
Electrabel.............................................. 14,667 3,392,619
Tractebel Inv Cap....................................... 22,375 1,950,647
Soc Gen Belgique p/wts exp 11/15/99*.................... 2,975 7,628
INSURANCE
Fortis Ag............................................... 13,048 2,722,303
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
90
<PAGE> 121
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
INTERNATIONAL OIL
Petrofina Sa............................................. 5,709 $ 2,107,174
MISCELLANEOUS FINANCE
Soc Gen De Belgique...................................... 932 85,276
NON-FERROUS METALS
Union Miniere*........................................... 7,710 534,811
PRODUCER GOODS
Bekaert Sa............................................... 930 553,483
RETAIL
Delhaize Le Lion......................................... 1,800 91,336
-----------
19,421,506
-----------
BRAZIL -- 2.63%
BANKS
Unibanco Holdings........................................ 52,000 1,673,750
MISCELLANEOUS
Aracruz Celolose ADR..................................... 19,500 280,313
Electrobas ADR........................................... 77,000 1,966,357
PAO De Acucar GDR........................................ 20,000 387,500
Sider Nacional ADR....................................... 6,000 154,875
Cemig Ca Energy ADR...................................... 24,800 1,077,535
Compania Vale ADR........................................ 21,000 422,438
Klabin Fabricadora ADR................................... 8,000 36,558
Multicanal Partici ADR*.................................. 28,000 164,500
Petrol Brasileiros ADR................................... 56,000 1,309,650
TELEPHONE
Telecomunicacoex Brasileiras ADR......................... 52,000 6,054,750
-----------
13,528,226
-----------
CHILI -- 0.40%
BANKS
Banco Santander ADR...................................... 14,000 197,750
ENERGY & UTILITIES
Chilgener Sa ADR......................................... 10,000 245,000
Enersis Sa ADR........................................... 25,000 725,000
TELEPHONE
Compania De Telecommunicaciones Chile ADR................ 30,000 896,250
-----------
2,064,000
-----------
DENMARK -- 3.17%
BANKS
Den Danske Bank.......................................... 16,750 2,233,428
Unidanmark "A' (Regd).................................... 11,735 862,060
BUSINESS MACHINE
Iss International Series "B'*............................ 8,042 295,972
Sophus Berendsen "B'..................................... 6,927 1,143,168
DRUGS & MEDICINE
Novo-Nordisk As "B'...................................... 19,932 2,852,747
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
91
<PAGE> 122
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------- ------------
<S> <C> <C>
FOOD & AGRICULTURE
Danisco................................................. 17,858 $ 991,066
LIQUOR & TOBACCO
Carlsberg "A'........................................... 7,300 394,862
Carlsberg "B'........................................... 6,705 360,357
RAILROAD & SHIPPING
D/S 1912 "B'............................................ 54 2,492,110
D/S Svendborg "B'....................................... 40 2,628,808
TELEPHONE
Tele Danmark AS Series "B'.............................. 33,385 2,072,176
-----------
16,326,754
-----------
FINLAND -- 4.44%
BANKS
Merita Ltd "A'.......................................... 396,000 2,167,080
CONSTRUCTION
Metro AB "A'............................................ 8,600 203,728
Metro AB "B'............................................ 8,600 202,149
Rauma Oy................................................ 8,661 135,192
ELECTRONICS
Nokia (AB) Oy Series "K'................................ 51,200 3,666,892
Nokia (AB) Oy Series "A'................................ 102,000 7,248,942
FOOD & AGRICULTURE
Cultor Oy Series 2...................................... 5,800 314,205
Cultor Oy Series 1...................................... 11,200 608,798
INSURANCE
Pohjola Series "B'...................................... 22,900 849,475
Sampo "A'............................................... 36,400 1,183,146
NON-FERROUS METALS
Outokumpo Oy "A'........................................ 59,800 730,275
PAPER & FOREST PRODUCTS
UPM-"Kymmene Oy......................................... 168,500 3,372,795
PRODUCER GOODS
Kone Corp "B'........................................... 5,400 654,487
RETAIL
Kesko................................................... 62,000 981,437
Stockmann Oy "A'........................................ 5,000 325,958
TRAVEL & RECREATION
Amer Group "A' *........................................ 11,000 211,092
-----------
22,855,651
-----------
FRANCE -- 5.36%
BANKS
Banque National Paris................................... 14,627 777,807
Cie Fin Paribas "A'..................................... 6,021 523,447
Societe Generale........................................ 8,075 1,100,674
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
92
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
CHEMICALS
Air Liquide ("L')........................................ 4,999 $ 782,774
Air Liquide ("L') (Regd)................................. 1,095 171,462
Rhone Poulenc Sa "A'..................................... 22,927 1,027,470
CONSTRUCTION
Cie De St Gobain......................................... 6,784 964,171
Imetal................................................... 1,100 136,772
Lafarge Prime Fidelite '99............................... 800 52,515
Lafarge Ords (Br)........................................ 5,219 342,591
CONSUMER DURABLES
BIC...................................................... 4,200 306,699
Printemps (Av)........................................... 1,250 667,194
DRUGS & MEDICINE
L'Oreal.................................................. 3,828 1,498,528
Sanofi................................................... 6,945 773,480
ELECTRONICS
Alcatel Alsthom (CGE).................................... 9,706 1,234,252
CSF (Thomson)............................................ 6,965 219,629
Legrand.................................................. 1,950 388,648
Schneider Sa (X-SB)...................................... 8,816 478,912
ENERGY & UTILITIES
Eaux (Cie Generale)...................................... 10,173 1,420,465
Eaux (Cie Generale) Wts.................................. 9,995 6,795
Suez Lyonnaise Eaux...................................... 8,904 985,738
FOOD & AGRICULTURE
Danone (Ex Bsn).......................................... 6,313 1,128,097
Eridania Beghin SA....................................... 1,611 251,992
INSURANCE
AXA...................................................... 20,412 1,580,134
INTERNATIONAL OIL
ELF Aquitaine (Soc Nat).................................. 16,072 1,870,123
Total B.................................................. 15,129 1,647,228
LIQUOR & TOBACCO
LVMH Moet-Hennessy....................................... 5,822 966,807
Pernod-Ricard............................................ 3,864 227,375
MEDIA
Canal Plus............................................... 1,584 294,637
Havas.................................................... 2,917 209,955
MULTI-INDUSTRY & CONGLOMERATES
Worms & Cie.............................................. 2,800 207,119
MOTOR VEHICLES
Peugeot SA............................................... 5,723 722,051
MISCELLANEOUS FINANCE
CIE Bancaire............................................. 2,798 453,476
CLF-Dexia France Prime Fid '99........................... 1,540 178,425
NON-FERROUS METALS
Usinor Sacilor........................................... 26,950 389,297
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
93
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
PRODUCER GOODS
Michelin (CGDE) Class "B'............................... 9,937 $ 500,495
Valeo................................................... 3,471 235,521
REAL PROPERTY
Sefimeg (Regd).......................................... 3,836 191,294
RETAIL
Carrefour............................................... 2,579 1,346,118
Casino Guichard-Perrachon............................... 4,250 236,666
Promodes................................................ 1,133 470,274
TRAVEL & RECREATION
Accor................................................... 3,191 593,552
-----------
27,560,659
-----------
GERMANY -- 6.74%
AIR TRANSPORT
Lufthansa Ag............................................ 34,070 640,455
BANKS
Bayer Vereinsbank....................................... 19,240 1,241,261
Deutsche Bank........................................... 34,500 2,413,791
Dresdner Bank........................................... 30,190 1,373,461
CHEMICALS
Basf (Var).............................................. 36,560 1,305,393
Bayer (Var)............................................. 49,770 1,847,646
Schering AG............................................. 5,640 544,225
CONSTRUCTION
Hochtief AG............................................. 11,470 472,058
DRUGS AND MEDICINE
Beiersdorf AG Ser "A B C'............................... 6,200 263,787
ELECTRONICS
Siemens AG.............................................. 35,990 2,171,758
SAP AG.................................................. 4,850 1,471,419
SAP AG N/V Pref......................................... 3,200 1,039,708
ENERGY & UTILITIES
Deutsche Telekom........................................ 120,250 2,227,046
Rwe AG.................................................. 18,460 990,738
Rwe AG N/V Pref......................................... 9,750 417,537
Veba AG................................................. 32,400 2,207,400
INSURANCE
Allianz (Regd).......................................... 13,830 3,568,948
Munchener Ruckvers Reg Vink............................. 5,690 2,164,553
MISCELLANEOUS
Metro AG................................................ 18,091 641,923
MOTOR VEHICLES
Daimler-Benz AG (Var)................................... 30,890 2,181,833
Volkswagen AG (Var)..................................... 2,106 1,177,130
PRODUCER GOODS
Linde................................................... 556 337,365
Mannesmann (Var)........................................ 2,826 1,419,253
Man AG Non Vtg Pref(Var)................................ 1,500 340,370
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
94
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
STEEL
Preussag Br (Var)....................................... 2,594 $ 797,802
Thyssen................................................. 2,466 526,653
Viag (Var).............................................. 1,623 889,108
-----------
34,672,621
-----------
HONG KONG -- 1.49%
AIR TRANSPORT
Cathay Pacific Airways.................................. 127,000 103,262
BANKS
Bank of East Asia....................................... 8,716 20,417
Hang Seng Bank.......................................... 100,800 972,450
ENERGY & UTILITIES
China Light & Power..................................... 96,700 536,649
Hong Kong Electric...................................... 20,000 76,017
Hong Kong & China Gas................................... 259,123 501,641
MULTI-INDUSTRY & CONGLOMERATES
Hutchinson Whampoa...................................... 191,000 1,198,022
MISCELLANEOUS FINANCE
Guoco Group............................................. 6,000 14,674
Swire Pacific "A'....................................... 90,500 496,401
Wharf (Holdings)........................................ 101,000 221,598
Wing Lung Bank.......................................... 53,540 256,358
REAL PROPERTY
Cheung Kong (Holdings).................................. 129,000 844,931
Hopewell Holdings....................................... 217,000 54,052
Hysan Development....................................... 60,000 119,640
New World Development Co................................ 82,089 283,933
Sun Hung Kai Properties................................. 110,700 771,502
TELEPHONE
Hong Kong Telecomm...................................... 587,896 1,210,198
-----------
7,681,745
-----------
IRELAND -- 4.21%
BANKS
Allied Irish Banks...................................... 471,401 4,568,932
Bank of Ireland (Dublin Listing)........................ 187,790 2,896,110
CONSTRUCTION
CRH..................................................... 409,887 4,802,323
FOOD & AGRICULTURE
Greencore Group......................................... 235,322 1,106,858
Kerry Group "A'......................................... 162,538 1,739,844
INSURANCE
Irish Life.............................................. 328,549 1,887,211
MEDIA
Independent News (Dublin Listing)....................... 273,187 1,499,119
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
95
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
PAPER & FOREST PRODUCTS
Smurfit (Jefferson)................................... 24,000 $ 66,738
Smurfit(Jefferson) (Dublin Listing)................... 1,097,051 3,096,046
-----------
21,663,181
-----------
JAPAN -- 13.20%
AIR TRANSPORT
Japan Airlines Co*.................................... 110,000 300,336
BANKS
Asahi Bank............................................ 114,000 464,694
Bank of Tokyo MITS--Ex Mitsubishi Bank................ 156,000 2,159,649
Dai-Ichi Kangyo Bank.................................. 155,000 917,928
Fuji Bank............................................. 144,000 584,767
Industrial Bank of Japan.............................. 106,000 758,185
Joyo Bank............................................. 62,000 219,349
Sakura Bank........................................... 127,000 364,333
Sumitomo Bank......................................... 150,000 1,718,952
Tokai Bank............................................ 97,000 453,588
BUSINESS MACHINES
Canon Inc............................................. 59,000 1,379,469
Fujitsu............................................... 128,000 1,378,238
Ricoh................................................. 75,000 934,464
CHEMICALS
Asahi Chemical Industries............................. 140,000 475,923
Dainippon Ink & Chemical.............................. 82,000 208,120
Mitsubishi Gas Chemical............................... 34,000 89,693
Sekisui Chemical...................................... 40,000 203,967
Shin-Etsu Chemical.................................... 32,000 612,824
Showa Denko Kk*....................................... 131,000 114,858
Sumitomo Chemical..................................... 135,000 311,488
Toray Industries Inc.................................. 147,000 661,393
CONSTRUCTION
Chichibu Onoda Cement................................. 67,000 123,672
Daiwa House Industry.................................. 60,000 318,410
Haseko Corp*.......................................... 136,000 70,081
Kajima Corp........................................... 36,000 91,093
Nihon Cement Co....................................... 34,000 70,342
Obayashi Corp......................................... 35,000 119,519
Sekisui House......................................... 137,000 884,034
Shimizu Corp.......................................... 56,000 130,071
Taisei Corp........................................... 73,000 120,150
Toto.................................................. 40,000 256,574
CONSUMER DURABLES
Matsushita Electric Industries........................ 172,000 2,526,667
Sanyo Electric Co..................................... 154,000 402,704
Sharp Corp............................................ 63,000 435,114
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
96
<PAGE> 127
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------- ------------
<S> <C> <C>
DRUGS & MEDICINE
Daiichi Pharm Co........................................ 56,000 $ 633,128
Sankyo Co............................................... 58,000 1,315,940
Takeda Chemical Industries.............................. 90,000 2,574,967
ELECTRONICS
Hitachi................................................. 233,000 1,666,576
Kyocera................................................. 17,000 774,028
Mitsubishi Electric Corp................................ 125,000 321,102
Omron Corp.............................................. 36,000 564,831
Sony.................................................... 39,500 3,524,043
ENERGY & UTILITIES
Kansai Electric Power................................... 59,100 1,004,537
Osaka Gas Co............................................ 271,000 621,115
Tokyo Electric Power.................................... 102,300 1,872,573
Tokyo Gas Co............................................ 137,000 311,888
FOOD & AGRICULTURE
Ajinomoto Co............................................ 74,000 722,806
INTERNATIONAL OIL
Japan Energy Corp....................................... 138,000 130,548
Nippon Oil Co........................................... 120,000 311,026
MEDIA
Dai Nippon Printing..................................... 74,000 1,394,389
MULTI-INDUSTRY
Itochu Corp............................................. 167,000 263,303
Marubeni Corp........................................... 208,000 366,341
Mitsubishi.............................................. 78,000 617,900
Sumitomo Corp........................................... 74,000 415,471
MISCELLANEOUS FINANCE
Daiwa Securities........................................ 149,000 515,686
Mitsubishi Trust & Banking.............................. 50,000 503,764
Nomura Securities....................................... 127,000 1,699,570
MOTOR VEHICLES
Honda Motor Co.......................................... 64,000 2,357,771
Nissan Motor Co......................................... 131,000 544,066
Toyota Motor Corp....................................... 186,000 5,350,209
NON-FERROUS METALS
Tostem Corp............................................. 19,000 204,582
PAPER & FOREST PRODUCTS
Daishowa Paper Manufacturing*........................... 13,000 71,988
Oji Paper Co............................................ 48,000 191,600
PRODUCER GOODS
Bridgestone Corp........................................ 53,000 1,153,582
Komatsu................................................. 70,000 352,635
Kubota Corp............................................. 136,000 359,819
Mitsubishi Heavy Industries............................. 247,000 1,033,432
Denso Corp.............................................. 61,000 1,102,513
Sumitomo Heavy Industries............................... 83,000 254,705
Toyo Seikan Kaisha...................................... 15,000 214,581
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
97
<PAGE> 128
PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
RAILROADS & SHIPPING
East Japan Railway...................................... 38 $ 172,141
Hankyu Corp............................................. 89,000 418,232
Mitsui Osk Lines*....................................... 94,000 130,856
Nagoya Railroad Co...................................... 98,000 337,668
Tokyu Corp.............................................. 148,000 573,692
REAL PROPERTY
Mitsubishi Estate....................................... 153,000 1,670,960
RETAIL
Ito-Yokado Co........................................... 38,000 1,943,531
Mycal Corp.............................................. 78,000 653,894
Seven-Elevan Japan Npv.................................. 28,000 1,989,831
STEEL
Kawasaki Steel Corp..................................... 131,000 179,340
Kobe Steel*............................................. 142,000 114,674
Nippon Steel Corp....................................... 341,000 506,172
NKK Corp................................................ 139,000 111,182
Sumitomo Metal Industries............................... 262,000 336,515
TELEPHONE
Nippon Tel & Tel........................................ 344 2,963,211
TRAVEL & RECREATION
Fuji Photo Film......................................... 14,000 538,374
Nikon................................................... 13,000 128,979
-----------
67,946,916
-----------
MALAYSIA -- 0.61%
AIR TRANSPORT
Malaysian Airline Systems............................... 42,000 33,666
BANKS
Ammb Holdings Berhad.................................... 66,000 43,238
Commerce Asset Holding.................................. 21,600 10,322
RHB Capital............................................. 114,000 55,062
Malayan Bkg Berhad...................................... 88,000 255,473
Public Bank Berhad (Alien Market)....................... 295,999 101,902
CONSTRUCTION
Hume Inds (M) Berhad.................................... 44,000 46,121
United Engineers Berhad................................. 88,000 73,251
YTL Corp................................................ 9,000 12,139
YTL Corp Wts (expire 9/30/02)*.......................... 600 244
CONSUMER DURABLES
Tech Res Inds Berhad.................................... 115,000 67,954
ENERGY & UTILITIES
Tenaga Nasional......................................... 175,000 373,166
FOOD & AGRICULTURE
Golden Hope Plants...................................... 159,000 183,820
Kuala Lumpur Kepg....................................... 19,000 40,759
Nestle Malay Berhad..................................... 22,000 101,738
LIQUOR & TOBACCO
Rothmans Pall Mall...................................... 17,000 132,118
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
98
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PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
MOTOR VEHICLES
Edaran Otomobil....................................... 86,000 $ 175,652
MULTI-INDUSTRY & CONGLOMERATES
Malayan Utd Inds...................................... 551,600 96,365
Sime Darby Berhad..................................... 147,200 141,438
PRODUCER GOODS
Leader Univ Holdings.................................. 191,333 58,987
RAILROAD & SHIPPING
Malaysian Int Ship (Alien Market)..................... 37,000 54,183
REAL PROPERTY
Hong Leong Properties................................. 212,000 38,671
Land & General........................................ 20,000 3,700
STEEL
Sungei Way Holdings................................... 170,000 55,031
TELEPHONE
Telekom Malaysia...................................... 215,000 635,218
TRAVEL & RECREATION
Landmarks Berhad...................................... 108,000 15,816
Magnum Corp Berhad.................................... 354,250 212,966
Resorts World Berhad.................................. 75,000 126,209
----------
3,145,209
----------
MEXICO -- 5.45%
BANKS
Gpo Financiero Banamex-Ac Series "B'*................. 384,000 1,147,931
Gpo Financiero Banamex-Ac Series "L'*................. 109,017 281,271
CONSTRUCTION
Cemex Sa Ser "A'*..................................... 383,937 1,740,664
FOOD & AGRICULTURE
Grupo Ind Bimbo Series "A'............................ 142,000 1,347,464
Gpo Modelo Sa de C Ser "C' (Mexican)*................. 218,200 1,837,774
LIQUOR & TOBACCO
Empresas La Modern "A'*............................... 153,500 837,777
MEDIA
Fomento Economico Mexico Series "B'................... 167,100 1,334,842
Grupo Televisa Ptg Certs Repr 1 A,L,D Shs*............ 90,200 1,755,485
MISCELLANEOUS FINANCE
Grupo Carso Ser "A1'.................................. 282,900 1,884,408
Grupo Financiero Bancomer Series "B'*................. 1,756,800 1,141,882
MULTI-INDUSTRY
Desc Sa de Cv Ser "B'*................................ 149,100 1,412,988
Apasco Sa Com (Mexican)............................... 79,900 548,074
GPO Mexico Ser "B' (Mexican).......................... 203,300 746,443
MULTI-INDUSTRY & CONGLOMERATES
Alfa Sa Series "A' (Cpo).............................. 259,601 1,758,193
NON-FERROUS METALS
Industrias Penoles.................................... 164,000 730,308
PAPER & FOREST PRODUCTS
Kimberly Clark Mexico "A'............................. 474,500 2,248,367
</TABLE>
See Notes to Financial Statements
Pegasus Funds
99
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PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
RETAIL
Cifra Sa De Cv Series "V'............................. 774,651 $ 1,902,562
TELEPHONE
Telefonos De Mexico Series "L' (Ltd Vtg).............. 1,917,300 5,410,520
-----------
28,066,953
-----------
NETHERLANDS -- 5.24%
AIR TRANSPORT
KLM................................................... 10,016 370,555
BANKS
ABN Amro Holding Nv................................... 113,128 2,204,270
CHEMICALS
Akzo Nobel Nv......................................... 8,742 1,507,578
CONSTRUCTION
Hollandsche Benton.................................... 10,000 185,968
ELECTRONICS
Philips Electronic.................................... 26,861 1,611,215
FOOD & AGRICULTURE
Ahold (kon) Nv........................................ 36,893 962,714
INSURANCE
ING Groep Nv Cva...................................... 70,584 2,973,458
INTERNATIONAL OIL
Royal Dutch Petroleum (Br)............................ 147,364 8,090,664
Royal Dutch Petroleum NY Registry..................... 16,800 910,350
LIQUOR & TOBACCO
Heineken Nv........................................... 3,181 553,906
MEDIA
Elsevier Nv........................................... 74,349 1,202,947
Wolters Kluwer Cva.................................... 5,473 707,064
MISCELLANEOUS
Oce Nv................................................ 1,500 163,524
Unilever Nv Cva....................................... 57,108 3,521,313
PAPER & FOREST PRODUCTS
KNP BT (Kon) Nv....................................... 7,455 171,736
STEEL
Kon Hoogovens Nv Cva.................................. 3,715 152,285
TELEPHONE
Kon Ptt Nederland..................................... 39,598 1,652,499
-----------
26,942,046
-----------
NORWAY -- 3.74%
AIR TRANSPORT
Helicopter Service.................................... 6,000 73,248
BANKS
Den Norske Bank....................................... 115,000 542,851
Christiana Bank....................................... 70,000 282,955
CHEMICALS
Dyno Industrier....................................... 18,700 360,192
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
100
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PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
CONSTRUCTION
Aker AS "B'........................................... 10,500 $ 170,913
DRUGS & MEDICINE
Nycomed Amersham Non-voting*.......................... 18,456 670,928
Nycomed Amersham *.................................... 24,729 929,159
ENERGY & UTILITIES
Hafslund Ser "A'...................................... 49,997 305,183
Hafslund Ser "B'...................................... 30,219 144,287
FOOD & AGRICULTURE
Orkla AS "A'.......................................... 25,757 2,218,568
Orkla AS "B'.......................................... 7,350 572,272
INSURANCE
Storebrand Asa "A'*................................... 159,650 1,126,097
INTERNATIONAL OIL
Norsk Hydro AS........................................ 124,670 6,079,451
MISCELLANEOUS
Transocean Offshore................................... 4,000 176,338
MOTOR VEHICLES
Petroleum Geo Svs*.................................... 17,412 1,098,260
NON-FERROUS METALS
Elkem Asa............................................. 27,248 362,213
PAPER & FOREST PRODUCTS
Norske Skogsindust "A'................................ 16,700 484,768
PRODUCER GOODS
Aker Asa Ser "A'...................................... 26,100 470,864
Kvaerner AS Series "A'................................ 20,600 1,050,651
Kvaerner AS Series "B'................................ 7,900 367,557
RAILROAD & SHIPPING
Bergesen Dy AS "A'.................................... 36,050 850,860
Bergesen Dy AS "B' Non-Voting......................... 15,150 353,464
Bona Shipholding*..................................... 1,537 15,636
Leif Hoegh & Co....................................... 18,447 375,336
Unitor AS............................................. 11,600 141,613
-----------
19,223,664
-----------
SINGAPORE -- 2.79%
AIR TRANSPORT
Singapore Airlines (Alien Market)..................... 329,000 2,147,852
BANKS
Dev Bank Singapore (Alien Market)..................... 188,250 1,608,842
Overseas Chinese Bank (Alien Market).................. 229,299 1,333,657
United Overseas Bank (Alien Market)................... 264,404 1,467,221
CONSUMER DURABLES
Jardine Matheson...................................... 4,100 20,910
ELECTRONICS
Creative Technology*.................................. 15,000 304,462
ENERGY & UTILITIES
Singapore Telecom..................................... 1,248,000 2,325,734
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
101
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PEGASUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
LIQUOR & TOBACCO
Fraser & Neave.......................................... 87,400 $ 378,661
Straits Trading Co...................................... 127,000 150,747
MEDIA
Singapore Press Holdings (Alien Market)................. 65,800 823,994
MOTOR VEHICLES
Cycle & Carriage........................................ 102,000 420,727
MISCELLANEOUS
Singapore Tech Ind...................................... 160,000 152,884
MULTI-INDUSTRY & CONGLOMERATES
Keppel Land Ltd......................................... 114,000 156,967
PRODUCER GOODS
Keppel Corp............................................. 350,750 1,007,532
REAL PROPERTY
City Developments....................................... 330,600 1,530,429
DBS Land................................................ 328,000 502,238
-----------
14,332,857
-----------
SPAIN -- 5.28%
BANKS
Argentaria Corp Bc...................................... 22,133 1,346,143
Banco Bilbao Vizcaya (Regd)............................. 123,510 3,995,031
Banco Central Hispan (Regd)............................. 60,668 1,476,742
Banco Santander (Regd).................................. 85,827 2,866,242
CONSTRUCTION
Fomento Const Y Contra.................................. 15,656 595,772
ENERGY & UTILITIES
Endesa Sa (Regd)........................................ 181,632 3,223,523
Gas Natural Sdg Sa...................................... 25,444 1,318,814
Iberdrola Sa............................................ 138,600 1,823,261
Union Electrical Fenosa................................. 64,228 615,245
INSURANCE
Corporation Mapfre...................................... 16,992 450,399
INTERNATIONAL OIL
Repsol Sa............................................... 52,224 2,227,177
LIQUOR & TOBACCO
Tabacalera Sa Series "A' (Regd)......................... 7,489 606,823
NON-FERROUS METALS
Acerinox Sa (Regd)...................................... 2,627 389,012
PRODUCER GOODS
Zardoya-Otis............................................ 4,532 527,788
RAILROADS & SHIPPING
Autopistas Cesa......................................... 52,811 708,580
REAL PROPERTY
Vallehermoso Sa......................................... 9,664 296,104
TELEPHONE
Telefonica De Espana.................................... 164,201 4,686,366
-----------
27,153,022
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
102
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
SWEDEN -- 1.29%
APPAREL
Hennes & Mauritz Ser "B'................................. 14,000 $ 617,567
BANKS
Svenska Handelsbkn Ser "A'............................... 29,000 1,003,294
DRUGS & MEDICINE
Astra AB Ser "A'......................................... 75,000 1,299,726
ELECTRONICS
Ericsson (LM) Tel........................................ 50,000 1,881,060
MOTOR VEHICLES
Volvo (AB)............................................... 18,000 483,215
PAPER & FOREST PRODUCTS
Mo Och Domsjo AB Ser "B'................................. 5,000 129,185
Stora Kopparbergs Ser "A'................................ 50,000 630,170
RAILROADS & SHIPPING
ABB Ser "A'.............................................. 51,000 604,207
-----------
6,648,424
-----------
SWITZERLAND -- 4.05%
BANKS
Credit Suisse Group (Regd)............................... 9,524 1,475,728
Schweiz Bangesellsch (Br)................................ 1,068 1,546,477
Schweiz Bangesellsch (Regd).............................. 1,052 303,652
Schweiz Bankverein (Regd)................................ 4,100 1,276,198
CONSTRUCTION
Holderbank Fn Glarus (Br)................................ 558 456,025
CONSUMER DURABLES
Smh Ag Neuenburg (Regd).................................. 725 97,923
Smh Ag Neuenburg (Br).................................... 165 91,180
DRUGS & MEDICINE
Roche Holdings Genusscheine Npv.......................... 343 3,411,066
Roche Holdings (Br)...................................... 80 1,234,102
Novartis Ag (Regd)....................................... 2,171 3,527,659
Novartis Ag (Br)......................................... 970 1,579,479
ELECTRONICS
Abb (Br)................................................. 450 566,144
Adecco Sa (Br)........................................... 135 39,198
Sgs Holding (Br)......................................... 79 151,657
FOOD & AGRICULTURE
Nestle Sa (Regd)......................................... 1,874 2,812,508
Valora Holding Ag........................................ 80 16,893
INSURANCE
Schw Ruckversicher (Regd)................................ 30 56,193
Zurich Versicherun (Regd)................................ 4,094 1,953,599
NON-FERROUS METALS
Alusuisse-Lonza Holdings (Regd).......................... 248 238,555
PRODUCER GOODS
Sulzer Ag Ptg............................................ 13 8,253
-----------
20,842,489
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
103
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
THAILAND -- 0.47%
BANKS
Bk of Ayudhya (Alien Market)............................ 89,000 $ 36,045
Bangkok Bank (Fr)....................................... 169,100 421,445
Ind Fin Corp Thail (Alien Market)....................... 159,100 24,452
Siam Commercial Bank (Alien Market)..................... 111,333 127,175
Siam Commercial Bank Wts (expire 12/31/02)*............. 27,833 0
Thai Farmers Bank (Alien Market)........................ 220,400 400,531
CONSTRUCTION
Siam Cement (Fr)........................................ 37,600 296,748
Tipco Asphalt (Alien Market)............................ 26,500 18,988
ENERGY AND MATERIALS
PTT Explortn & Prd (Alien Market)....................... 72,200 830,737
INTERNATIONAL OIL
Banpu Co (Alien Market)................................. 13,000 52,110
MISCELLANEOUS FINANCE
Phatra Thanakit Co (Alien Market)....................... 134,400 74,669
TELEPHONE
Shinawatra C & Comms.................................... 32,900 109,328
Utd Commns Indust (Alien Market)........................ 79,900 32,359
----------
2,424,587
----------
UNITED KINGDOM -- 15.97%
AIR TRANSPORT
British Airways......................................... 82,877 813,423
AEROSPACE
British Aerospace....................................... 20,774 595,102
BANKS
Abbey National.......................................... 71,613 1,236,060
Barclays................................................ 115,565 3,070,938
HSBC Holdings (UK Regd)................................. 85,460 2,117,679
HSBC Holdings (UK Regd)................................. 159,651 4,126,863
LLoyds Bank............................................. 364,360 4,712,218
CHEMICALS
BOC Group............................................... 40,408 669,196
Imperial Chemical Industries............................ 77,314 1,195,799
CONSTRUCTION
English China Clay...................................... 44,238 195,803
Hanson.................................................. 69,197 310,260
RMC Group............................................... 26,670 376,515
Redland................................................. 123,016 695,281
Taylor Woodrow.......................................... 109,591 321,874
DRUGS & MEDICINE
Glaxo Welcome Ord....................................... 210,829 4,988,402
Smithkline Beecham...................................... 347,160 3,572,968
Zeneca Group............................................ 57,538 2,026,006
ELECTRONICS
General Electric Co..................................... 227,008 1,490,343
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
104
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
ENERGY & UTILITIES
British Gas............................................. 284,572 $1,282,965
Centrica*............................................... 254,516 368,528
Energy Group............................................ 61,814 686,027
National Power.......................................... 78,850 781,683
Scottish Power.......................................... 22,356 197,349
Thames Water............................................ 63,355 949,667
FOOD & AGRICULTURE
Associated British Foods................................ 66,299 568,351
Cadbury Schweppes....................................... 54,993 547,438
Kingfisher.............................................. 48,396 675,270
Sainsbury (J)........................................... 126,210 1,058,060
Tesco................................................... 158,205 1,275,523
Unilever Ord............................................ 229,704 1,971,038
INSURANCE
Prudential Corp......................................... 197,160 2,291,940
Royal & Sun Alliance.................................... 147,158 1,477,018
INTERNATIONAL OIL
British Petroleum....................................... 395,489 5,209,163
LIQUOR & TOBACCO
BAT Industries.......................................... 214,180 1,954,126
Bass.................................................... 75,324 1,160,063
Diageo Ord.............................................. 397,481 3,652,680
Imperial Tobacco........................................ 31,370 198,207
Safeway................................................. 150,780 855,924
MEDIA
British Sky Broadcasting................................ 94,124 703,118
Carlton Communications.................................. 56,450 434,692
Reed International...................................... 40,000 389,960
Reuters Holdings........................................ 173,821 1,911,947
PRODUCER GOODS
BTR..................................................... 317,897 975,523
Rio Tinto............................................... 95,719 1,111,136
Rolls Royce............................................. 124,074 469,549
Smiths Industries....................................... 42,710 608,231
REAL PROPERTY
MEPC.................................................... 124,143 1,040,731
RETAIL
Argos................................................... 30,245 274,206
Boots Co................................................ 62,274 904,773
Great Univ Stores....................................... 68,436 844,536
Marks & Spencer......................................... 211,891 2,088,390
Sears................................................... 237,891 205,499
STEEL
British Steel........................................... 232,983 505,065
TELEPHONE
British Telecom......................................... 428,698 3,384,064
Cable & Wireless........................................ 179,538 1,578,979
Vodafone Group.......................................... 278,223 2,030,294
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
105
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TRAVEL & RECREATION
EMI Group............................................... 51,062 440,462
Granada Gp.............................................. 80,310 1,238,173
Ladbroke Group.......................................... 199,568 866,896
Rank Group.............................................. 86,224 494,783
Thorn................................................... 28,368 8,869
------------
82,185,626
------------
TOTAL COMMON STOCKS....................................... 486,546,845
------------
(Cost $434,564,989)
TOTAL INVESTMENTS......................................... $514,569,067
============
(Cost $462,587,211)
</TABLE>
*Non-income producing security.
See Notes to Financial Statements.
Pegasus Funds
106
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(A) FORWARD FOREIGN CURRENCY CONTRACTS
As of December 31, 1997, the Fund had entered into one forward foreign
currency exchange contract that obligates the Fund to deliver currencies at
specified future dates.
Outstanding contract as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR U.S. DOLLAR UNREALIZED
CURRENCY TO VALUE AS OF CURRENCY TO VALUE AS OF APPRECIATION
SETTLEMENT DATE BE DELIVERED DEC. 31, 1997 BE RECEIVED DEC. 31, 1997 AT 12/31/97
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1998.......... 10,000,000 $5,914,710 6,581,112 $6,581,112 $666,402
Singapore Dollars U.S. Dollars
</TABLE>
(B) FINANCIAL FUTURES CONTRACTS
Oustanding contract as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
NUMBER OF EXPIRATION COVERED BY DEPRECIATION
TYPE CONTRACTS DATE CONTRACTS AT 12/31/97
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Futures purchased
long:
Japanese Yen -- TOPIX *.... 175 March 13, 1998 $16,030,092 ($711,731)
</TABLE>
*Exchange traded local currency denominated futures contracts.
See Notes to Financial Statements.
Pegasus Funds
107
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 0.18%
Pegasus Cash Management Fund Class I (in shares)..... 945,644 $ 945,644
(Cost $945,644)
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 78.74%
U.S. Treasury Securities -- 40.52%
Strips from U.S. Treasury Securities due:
5/15/98............................................ $ 6,600,000 6,470,178
11/15/98........................................... 7,600,000 7,245,384
2/15/99............................................ 9,660,000 9,076,343
2/15/01............................................ 3,300,000 2,769,294
8/15/01............................................ 2,250,000 1,833,907
8/15/08............................................ 5,350,000 2,879,263
11/15/10........................................... 5,000,000 2,335,250
U.S. Treasury Bonds:
12.75%, 11/15/10................................... 25,426,000 36,291,547
10.375%, 11/15/12.................................. 7,765,000 10,317,744
12.50%, 8/15/14.................................... 1,000,000 1,545,780
U.S. Treasury Notes:
8.125%, 2/15/98.................................... 8,300,000 8,322,078
5.125%, 4/30/98.................................... 3,320,000 3,315,850
7.00%, 4/15/99..................................... 1,000,000 1,016,560
9.125%, 5/15/99.................................... 8,700,000 9,090,108
6.875%, 7/31/99.................................... 8,000,000 8,142,480
7.75%, 11/30/99.................................... 31,000,000 32,147,930
7.75%, 1/31/00..................................... 3,000,000 3,120,000
7.125%, 2/29/00.................................... 35,900,000 36,937,869
6.25%, 05/31/00.................................... 2,900,000 2,936,250
8.75%, 08/15/00.................................... 21,350,000 22,911,112
7.25%, 5/15/04..................................... 1,000,000 1,079,220
3.375%, 1/15/07 Inflation Protection Series........ 1,223,868 1,191,741
------------
(Cost $207,793,214) 210,975,888
------------
Agency Obligations -- 38.22%
Federal Home Loan Mortgage Corp. Participation Ctf.:
#170269,12.00%, 8/1/15............................. 947,804 1,070,904
#252600, 7.50%, 9/1/08............................. 188,787 192,937
#252601, 8.00%, 6/1/01............................. 196,442 198,026
#555238, 12.00%, 7/1/19............................ 413,901 467,637
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 10 Class D, 10.00%, 7/15/18................. 235,972 236,406
Series 11 Class D, 9.50%, 7/15/19.................. 1,300,000 1,437,433
Series 23 Class E, 9.40%, 8/15/19.................. 196,153 199,709
Series G-29 Class SD, AR, IO, 4/25/24.............. 9,542,812 315,228
Series 30 Class C, 9.50%, 5/15/18.................. 19,874 19,874
Series 38 Class C, 9.50%, 1/15/19.................. 53,246 53,436
Series 39 Class E, 10.00%, 10/15/19................ 78,659 78,651
Series 41 Class I, HB, 84.00%, 5/15/20............. 63,018 200,396
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
108
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
Series 47 Class F, 10.00%, 6/15/20.................. $ 500,000 $ 546,087
Series 99 Class Z, 9.50%, 1/15/21................... 1,342,016 1,436,055
Series 204 Class E, HB, IF, 5/15/23................. 6,900 162,447
Series 1072 Class A, HB, 1008.50%, 5/15/06.......... 13,947 308,450
Series 1079 Class S, IF, 5/15/21.................... 664,892 761,110
Series 1084 Class F, AR, 5/15/21.................... 466,339 475,725
Series 1084 Class S, IF, 5/15/21.................... 326,437 424,514
Series 1098 Class M, HB, 10.08%, 6/15/06............ 2,160 48,347
Series 1144 Class KB, 8.50%, 9/15/21................ 2,250,000 2,396,072
Series 1172 Class L, HB, 1167.776%, 11/15/21........ 13,146 397,418
Series 1196 Class B, HB, IF, 1/15/22................ 37,391 508,605
Series 1295 Class JB, 4.50%, 3/15/07................ 1,500,000 1,405,800
Series 1298 Class L, HB, 981.87%, 6/15/07........... 6,000 209,151
Series 1329 Class S, IO, IF, 8/15/99................ 2,870,461 116,598
Series 1389 Class SA, IF, 10/15/07.................. 403,027 333,644
Series 1414 Class LB, IF, 11/15/07.................. 1,146,258 1,150,618
Series 1418 Class B, 6.50%, 11/15/19................ 1,250,000 1,252,212
Series 1465 Class SA, IO, IF, 02/15/08.............. 14,226,998 665,155
Series 1470 Class F, AR, 5.819%, 02/15/23........... 907,393 892,672
Series 1483 Class FB, AR, 12/15/22.................. 2,932,236 2,957,813
Series 1489 Class L, 5.50%, 4/15/08................. 558,129 550,549
Series 1506 Class F, AR, 5/15/08.................... 1,724,493 1,729,356
Series 1506 Class SD, IO, IF, 5/15/08............... 8,279,425 459,061
Series 1506 Class S, IF, 05/15/08................... 294,563 283,433
Series 1531 Class K, 6.00%, 4/15/08................. 1,030,063 1,006,063
Series 1583 Class NS, IF, 9/15/23................... 982,727 834,386
Series 1586 Class A, 6.00%, 9/15/08................. 1,189,412 1,180,745
Series 1589 Class Z, 6.25%, 9/15/23................. 6,516,736 5,978,160
Series 1595 Class S, IO, IF, 10/15/13............... 14,863,241 681,494
Series 1603 Class IF, AR, 1/15/23................... 3,000,000 3,059,511
Series 1628 Class S, IF, 12/15/23................... 2,500,000 1,772,640
Series 1635 Class O, AR, 12/15/08................... 2,231,333 2,233,937
Series 1640 Class A, 5.50%, 10/15/07................ 1,404,307 1,384,300
Series 1646 Class MB, AR, 10/15/22.................. 1,285,681 1,258,798
Series 1647 Class FB, AR, 12/15/08.................. 663,914 654,053
Series 1647 Class SB, IF, 12/15/08.................. 1,239,307 1,225,516
Series 1655 Class F, AR, 12/15/08................... 1,855,157 1,885,682
Series 1655 Class SA, IF, 12/15/08.................. 223,945 194,576
Series 1689 Class SD, IF, 10/15/23.................. 1,500,000 1,388,489
Series 1694 Class SE, IF, 5/15/23................... 960,950 920,045
Series 1700 Class GA, PO, 2/15/24................... 2,274,398 1,320,176
Series 1723 Class F, AR, 05/15/24................... 1,457,278 1,447,258
Series 1796-A, Class S, IF, 2/15/09................. 1,391,843 1,255,799
Series 1807 Class G, 9.00%, 1/1/06.................. 955,959 1,016,574
Series 1849 Class A, PO, 12/15/08................... 1,000,000 627,474
Series 1854 Class SE, IO, IF, 12/15/23.............. 2,500,000 690,017
Series 1859 Class SB, IO, AR, 10/15/23.............. 6,760,000 1,663,852
Series 1900 Class FA, AR, 03/15/09.................. 3,000,000 3,015,015
Series 1900 Class I, PO, 10/15/08................... 983,396 739,035
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
109
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
Series 1927 Class F, AR, 10/15/23................... $ 4,225,816 $ 4,252,713
Series 1956 Class A, 7.00%, 12/20/21................ 1,419,811 1,431,094
Series 1993 Class SJ, IF, IO, 03/15/12.............. 5,761,337 550,997
Federal Housing Administration Project #07335307,
7.43%, 1/1/22....................................... 972,265 1,002,988
Federal Housing Administration Greystone 1996-2, 7.43
%, 11/1/22.......................................... 1,921,611 1,981,411
Federal National Mortgage Assn. Mortgage Backed
Securities Stripped Trust 50, Class 2, IO, 10.50%,
3/25/19............................................. 179,815 56,152
Federal National Mortgage Assn. Pass Thru Securities:
Guaranteed REMIC Trust:
1988 Class 7-Z, 9.25%, 4/25/18...................... 518,291 552,705
1988 Class 17-B, 9.40%, 10/25/17.................... 41,402 42,091
1989 Class 26-D, 10.00%, 5/25/04.................... 560,784 590,198
1989 Class 27-D, 10.00%, 1/25/16.................... 219,993 221,097
1989 Class 70-G, 8.00%, 10/25/19.................... 2,000,000 2,103,760
1989 Class 73-C, PO, 10/25/19....................... 207,672 186,554
1989 Class 78-H, 9.40%, 11/25/19.................... 1,750,000 1,938,867
1990 Class 1-D, 8.80%, 1/25/20...................... 727,091 777,967
1990 Class 60-K, 5.50%, 6/25/20..................... 1,063,945 1,028,544
1990 Class 63-H, 9.50%, 6/25/20..................... 755,000 826,962
1990 Class 93-G, 5.50%, 8/25/20..................... 1,071,346 1,034,899
1990 Class 94-H, HB, 505.00%, 8/25/20............... 16,280 256,275
1990 Class 95-J, HB, 1118.04%, 8/25/20.............. 7,197 286,553
1990 Class 102-J, 6.50%, 8/25/20.................... 3,771,216 3,738,693
1990 Class 120-H, 9.00%, 10/25/20................... 900,000 986,249
1990 Class 134-SC, IF, 11/25/20..................... 453,050 513,652
1990 Class 140-K, HB, 652.145%, 12/25/20............ 14,295 433,830
1991 Class 4-N, HB, 758.75%, 1/25/06................ 2,182 36,910
1991 Class 7-K, HB, 908.50%, 2/25/21................ 1,227 34,182
1991 Class 20-M, HB, 908.75%, 3/25/06............... 1,200 23,496
1991 Class 33-J, HB, 1008.25%, 4/25/06.............. 2,765 61,676
1991 Class 161-H, 7.50%, 2/25/21.................... 295,668 298,347
1992 Class 13-S, HB, IF, 1/25/99.................... 5,805 29,283
1992-G Class 27-SQ, HB, IF, 5/25/22................. 250,297 435,517
1992 Class 66-JB, 5.00%, 11/25/21................... 2,800,000 2,476,580
1992 Class 85S, IF, 06/25/99........................ 760,523 812,527
1992 Class 137-BA, 3.50%, 1/25/17................... 955,753 931,758
1992 Class 199-S, IO, IF, 11/25/99.................. 5,883,692 225,192
1992 Class 204-B, 6.00%, 10/25/20................... 2,000,000 1,975,040
1992 Class 206-FA, AR, 06/25/18..................... 1,250,000 1,209,789
1992 Class 215-PM, 7.875%, 11/25/21................. 1,200,000 1,289,903
1993 Class 8-SB, IO, IF, 8/25/06.................... 7,286,062 328,164
1993 Class 12-S, IO, 6.25%, 2/25/23................. 3,201,793 192,569
1993 Class 12-SB, HB, IF, 2/25/23................... 35,314 291,242
1993 Class 19-G, 5.00%, 5/25/19..................... 3,530,000 3,408,762
1993 Class 38-S, IO, IF, 2.755%, 11/25/22........... 12,975,806 258,414
1993 Class 55-FA, AR, 5/25/08....................... 6,750,000 6,910,191
1993 Class 58-J, 5.50%, 4/25/23..................... 720,594 706,574
1993 Class 94-K, 6.75%, 5/25/23..................... 612,665 607,454
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
110
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PEGASUS INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
1993 Class 113-SG, IO, IF, 7/25/23................... $ 5,835,340 $ 348,276
1993 Class 139-SG, IF, 08/25/23...................... 2,597,473 2,036,105
1993 Class 152-D, PO, 8/25/23........................ 700,000 647,749
1993 Class 155-LA, 6.50%, 5/25/23.................... 1,006,619 1,003,723
1993 Class 155-SB, IO, IF, 9/25/23................... 5,742,881 334,448
1993 Class 156-SD, IF, 10/25/19...................... 1,000,000 829,192
1993 Class 156-FA, AR, 5/25/16....................... 2,538,831 2,547,151
1993 Class 174-SB, IF, 11/25/07...................... 1,394,135 1,397,999
1993 Class 187-FE, AR, 11/25/16...................... 1,180,000 1,163,025
1993 Class 207-SC, IF, 11/25/23...................... 2,300,107 1,903,164
1993 Class 209-KB, 5.659%, 8/25/08................... 3,576,000 3,439,326
1993 Class 214-L, 6.00%, 12/25/08.................... 1,212,218 1,185,501
1993 Class 220-SD, IF, 11/25/13...................... 1,242,669 1,039,703
1993 Class 223-FB, AR, 12/25/23...................... 721,333 706,327
1993 Class 223-SB, IF, 12/25/23...................... 651,339 642,576
1994 Class 12SB, IF, 01/25/09........................ 2,013,516 1,924,881
1994 Class 19-C, 5.00%, 1/25/24...................... 2,006,011 1,931,048
1994 Class 26-G, PO, 2/25/24......................... 2,199,391 1,637,662
1994 Class 30-LA, 6.50%, 2/25/09..................... 1,645,797 1,646,370
1994 Class 36-SG, IO, IF, 8/25/23.................... 3,480,275 286,726
1994 Class 39-F, AR, 3/25/24......................... 942,419 942,320
1994 Class 39-S, IF, 3/25/24......................... 362,469 350,433
1994 Class 82-SA, IO, IF, 5/25/23.................... 15,984,274 528,984
1995 Class 13-B, 6.50%, 3/25/09...................... 2,251,196 2,247,490
1996 Class 20-L, PO, 9/25/08......................... 1,655,000 1,129,764
1996 Class 24-K, PO, 2/25/08......................... 1,500,000 1,170,405
1996 Class 27-FA, AR, 3/25/17........................ 2,161,468 2,176,242
1996 Class 46-A, 5.00%, 2/25/09...................... 1,673,444 1,637,750
1996 Class 69-FA, AR, 10/18/23....................... 1,027,458 1,031,603
1997 Class 20, IO, IF, 03/25/27...................... 16,957,427 969,931
1997 Class 29PL, IO, 7.50%, 08/18/26................. 1,700,000 690,492
1997 Class 32C, PO, 10/25/21......................... 1,800,000 1,522,015
1997 Class 50FD, AR, 04/18/27........................ 1,942,228 1,943,846
1997 Class 59-FA, AR, 8/25/17........................ 4,982,155 4,997,888
1997 Class 81-PI, IO, 7.00%, 12/18/27................ 10,223,496 3,001,853
1997 Class MI, A, IF, 01/17/03....................... 2,052,784 2,073,743
1992-G Class 42-Z, 7.00%, 7/25/22.................... 729,729 731,641
1993-G Class 8-PG, 6.50%, 7/25/18.................... 1,000,000 1,000,310
1993-G Class 10-E, 5.00%, 4/25/20.................... 2,250,000 2,202,705
1993-G Class 19-K, 6.50%, 6/25/19.................... 2,802,790 2,807,751
1993-G Class 27-SE, IF, 8/25/23...................... 1,535,674 958,320
1993-G Class 13G, 6.00%, 06/25/20.................... 1,000,000 989,170
1994-G Class 13-ZB, 7.00%, 11/17/24.................. 2,728,259 2,716,958
1997-M4 Class A, AR, 3/17/04......................... 6,734,249 6,874,321
Series G-22 Class G, 6.00%, 12/25/16................. 1,447,410 1,425,947
Series X-188A, Class F, AR, 2/25/08.................. 2,487,762 2,511,744
Series X-G1C, Class C, 8.80%, 01/25/25............... 900,621 1,058,071
Series X, Class VO, IF, 12/25/22..................... 2,000,000 1,872,874
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Federal National Mortgage Assn. Pass Thru Pool:
#111366, Adjustable Rate, 8/1/19.................... $ 370,605 $ 390,235
#116612, Adjustable Rate, 3/1/19.................... 1,135,271 1,186,868
#160330, 6.345%, 3/1/99............................. 2,315,120 2,311,622
#303306, 12.50%, 1/1/16............................. 892,504 1,035,892
#303532, Adjustable Rate, 3/1/29.................... 1,982,167 1,981,888
#54844, Adjustable Rate, 09/01/27................... 1,797,368 1,797,061
Government National Mortgage Assn. Pass Thru Pool:
#297628, 8.00%, 9/15/22............................. 1,761,745 1,839,383
#313110, 7.50%, 11/15/22............................ 1,471,385 1,515,054
------------
(Cost $189,922,559) 198,986,471
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS........... 409,962,359
------------
(Cost $397,715,773)
ASSET BACKED -- 18.61%
Case Equipment Loan Trust Asset Backed Ctf. :
1994 Series C, Class A2, 8.10%, 6/15/01............. 1,093,823 1,107,135
1995 Series B, Class A3, 6.15%, 9/15/02............. 1,473,057 1,478,434
1996 Series A, Class A2, 5.50%, 2/15/03............. 4,320,719 4,307,368
Chase Manhattan Grantor Trust Automobile Loan Pass
Thru Ctfs.
Series 1995-B, Class A, 5.90%, 11/15/01............. 451,176 451,465
Chevy Chase Auto Receivable Trust Asset Backed Pass
Thru Ctf.
Series 1997-4, Class A, 6.25%, 6/20/04.............. 1,500,000 1,500,930
Collaterized Mortgage Obligation Trust CMO:
Series 12, Class D, 9.50%, 2/1/17................... 278,376 284,569
Series 16, Class Q, IF, 3/20/18..................... 176,388 191,323
Collaterized Mortgage Securities Corp. CMO:
Series 88-2 Class B, 8.80%, 4/20/19................. 354,250 370,264
CPS Auto Trust Asset Backed Pass Thru Ctf.
Series 1997-4, Class A1, 6.07%, 3/15/03............. 3,284,447 3,284,447
First USA Credit Card Master Trust Asset Backed Pass
Thru Ctf.
Series 1995-1, Class A, AR, 10/15/01................ 2,000,000 2,004,260
Ford Credit Auto Owner Trust Asset Backed Pass Thru
Ctf.
Series 1997-B, Class A2, 5.95%, 1/15/00............. 1,700,000 1,701,377
Green Tree Financial Corp. Loan Trust Asset Backed
Ctf.
Series 1993-4, Class A2, 5.85%, 1/15/19............. 3,488,458 3,490,690
Green Tree Financial Corp. Loan Trust Asset Backed
Ctf.
Series 1994-5, Class A2, 7.30%, 11/15/19............ 1,858,649 1,871,344
Merrill Lynch Home Equity Loan Asset Backed Pass Thru
Ctf.
Series 1992-1, Class A, AR, 7/15/22................. 1,126,077 1,128,768
Merrill Lynch MBS Inc. Project Pass Thru Ctf.
Series 144-S, 7.43%, 7/25/24........................ 537,032 560,393
Merrill Lynch Trust 43-E CMO, Series 43, Class E,
6.50%, 8/27/15..................................... 1,700,000 1,702,742
Morgan Stanley Mortgage Trust, CMO:
Series 35-2, HB, IF, 4/20/21........................ 2,416 396,186
Series 37-2, HB, IF, 7/20/21........................ 2,331 349,636
Series 39-3, PO, 12/20/21........................... 451,586 353,574
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
Navistar Financial Corp. Owner Trust Asset Backed Pass
Thru Ctf.
Series 1995, Class A2, 6.55%, 11/20/01................ $1,009,230 $1,012,379
Newcourt Receivables Trust Asset Backed Pass Thru Ctf.
Series 1997-1, Class A, 6.04%, 6/20/00................ 2,000,000 2,001,040
Olympic Automobile Receivables Trust Asset Backed Pass
Thru Ctf.
Series 1995-E, Class A4, 5.85%, 3/15/01............... 4,400,000 4,396,612
Olympic Automobile Receivables Trust Asset Backed Pass
Thru Ctf.
Series 1995-B, Class A2, 7.35%, 10/15/01.............. 778,193 787,189
Olympic Automobile Receivables Trust Asset Backed Pass
Thru Ctf.
Series 1995-C, Class A2, 6.20%, 1/15/02............... 4,304,136 4,316,059
Olympic Automobile Receivables Trust Asset Backed Pass
Thru Ctf.
Series 1996-C, Class A4, 6.80%, 03/15/02.............. 4,500,000 4,565,655
Olympic Automobile Receivables Trust Asset Backed Pass
Thru Ctf.
Series 1996-C, Class A5, 7.00%, 03/15/04.............. 2,650,000 2,715,959
Onyx Acceptance Grantor Trust CMO
5.40%, 5/15/01........................................ 2,797,951 2,781,332
Onyx Acceptance Grantor Trust Auto Loan Pass Thru Ctf.
Series 1997-1, Class A, 6.55%, 09/15/03............... 2,062,214 2,073,164
Rural Housing Trust 1987-1, Senior Mortgage Pass Thru
Ctf.
Sub Class 3-B, 7.33%, 4/1/26.......................... 379,049 386,878
Standard Credit Card Master Trust Asset Backed Ctf.
Series 1991-6, Class A, 7.875%, 1/7/00................ 1,000,000 1,015,880
Standard Credit Card Master Trust Asset Backed Ctf.
Series 1995-10, Class A, 5.90%, 2/7/01................ 2,520,000 2,516,044
Superior Wholesale Inventory Fin Trust Asset Backed
Ctf.
Series 1996-A, Class A, AR, 3/15/01................... 2,200,000 2,200,000
Toyota Auto Receivable Grantor Trust Asset Backed Ctf.
Series 1995-A, Class A, 5.85%, 3/15/01................ 293,069 292,703
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.
Series 1996-A, Class A3, 6.05%, 6/01/00............... 938,318 939,575
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.
Series 1997-C, Class A2, 5.95%, 6/20/00............... 4,000,000 3,996,929
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.
Series 1997-B, Class A2, 6.05%, 7/20/00............... 4,997,608 5,002,169
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.
Series 1997-D, Class A2, 6.20%, 12/01/10.............. 2,000,000 2,000,940
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.
Series 1996-A, Class A4, 6.15%, 6/01/01............... 3,685,000 3,687,412
Western Financial Owner Trust
Series 1997-B, Class A3, 6.30%, 7/20/01............... 4,000,000 4,026,374
Western Financial Owner Trust
Series 1996-D, Class A3, 6.05%, 7/20/01............... 3,000,000 3,005,448
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.
Series 1995-4, Class A1, 6.20%, 2/01/02............... 1,488,618 1,492,295
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.
Series 1996-C, Class A4, 6.80%, 12/20/03.............. 6,000,000 6,088,020
World Omni Automobile Asset Backed Ctf.
Series 1997-A, Class A4, 6.90%, 06/25/03.............. 3,000,000 3,043,110
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
World Omni Automobile LSE SEC Trust Asset Backed
Ctf.
Series 1995-A, Class A, 6.05%, 11/25/01............ $ 3,488,215 $ 3,487,098
Series 1997-B, Class A1, 6.07%, 11/25/03........... 2,500,000 2,500,000
------------
TOTAL ASSET BACKED.................................... 96,865,169
------------
(Cost $96,080,591)
CORPORATE BONDS AND NOTES -- 1.18%....................
Finance -- 1.18%
American Express Credit Corp., 8.50%, 6/15/99....... 300,000 309,888
Associates Corp. of North America:
9.125%, 4/1/00..................................... 1,675,000 1,777,475
8.15%, 8/1/09...................................... 3,625,000 4,051,445
------------
TOTAL CORPORATE BONDS AND NOTES....................... 6,138,808
------------
(Cost $6,001,863)
FOREIGN -- 1.29%
African Development Bank Note, 9.30%, 7/1/00......... 983,000 1,054,287
Metropolis of Tokyo, 8.70%, 10/5/99.................. 1,500,000 1,567,770
National Australia Bank Ltd., 9.70%, 10/15/98........ 400,000 411,096
Ontario Province of Canada Senior Unsubordinated
Debenture, 7.375%, 01/27/03......................... 3,500,000 3,679,057
------------
(Cost $6,723,067) 6,712,210
------------
TOTAL INVESTMENTS..................................... $520,624,190
============
(Cost $507,466,938)
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The Fund invests in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities issued by
U.S. government agencies or by financial institutions and other mortgage
lenders which are collateralized by a pool of mortgages held under an
indenture. Descriptions of certain collateralized mortgage obligations are as
follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these securities
are generally higher than prevailing market yields of other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. These
securities are subject to accelerated principal paydowns as a result of
prepayments or refinancing of the underlying pool of mortgage instruments. As a
result, interest income may be reduced considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a right to
receive a very small portion of principal. The high interest rate results from
taking interest payments from other classes in the REMIC Trust and allocating
them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayments on the underlying mortgages of these securities increase, the yield
on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market value
of $719,388. The book cost of certain IO and HB securities include a write down
in the amount of $2,239,420 taken during 1993 to properly state the net
realizable value of the securities. The write down results in a lower cost of
investments than the tax cost disclosed in Note 4 in Notes to Financial
Statements.
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ------------ --------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.45%
Pegasus Cash Management Fund Class I (in shares).. 17,737,340 $ 17,737,340
--------------
(Cost $17,737,340)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 82.32%
U.S. Treasury Securities -- 39.64%
Principal Strips from U.S. Treasury Securities
due:
8/15/98......................................... $ 1,500,000 1,449,495
5/15/17......................................... 10,420,000 3,257,396
8/15/17......................................... 33,315,000 10,258,022
5/15/18......................................... 15,620,000 4,589,312
11/15/18........................................ 49,840,000 14,209,384
Strips from U.S. Treasury Securities due:
5/15/98......................................... 1,800,000 1,764,594
11/15/98........................................ 1,700,000 1,620,678
2/15/99......................................... 10,805,000 10,152,162
8/15/99......................................... 9,000,000 8,221,500
8/15/00......................................... 5,000,000 4,317,150
2/15/01......................................... 2,450,000 2,055,991
2/15/11......................................... 8,025,000 3,690,216
5/15/11......................................... 9,338,000 4,231,421
2/15/12......................................... 4,555,000 1,970,083
2/15/13......................................... 10,700,000 4,342,060
5/15/13......................................... 10,594,000 4,232,727
8/15/13......................................... 3,500,000 1,377,495
2/15/14......................................... 20,400,000 7,792,800
2/15/15......................................... 2,000,000 717,920
U.S. Treasury Bonds:
10.75%, 5/15/03................................. 1,000,000 1,227,340
11.125%, 8/15/03................................ 3,500,000 4,390,295
11.625%, 11/15/04............................... 5,000,000 6,636,700
12.75%, 11/15/10................................ 111,285,000 158,841,532
10.375%, 11/15/12............................... 15,965,000 21,213,494
12.50%, 8/15/14................................. 1,300,000 2,009,514
9.875%, 11/15/15................................ 1,000,000 1,423,280
7.50%, 11/15/16................................. 5,395,000 6,296,990
8.75%, 5/15/17.................................. 9,945,000 13,038,790
7.875%, 2/15/21................................. 2,500,000 3,069,525
U.S. Treasury Notes:
3.375%, 1/15/07 Inflation Protection Series..... 3,059,670 2,979,354
8.125%, 2/15/98................................. 3,000,000 3,007,980
7.875%, 4/15/98................................. 17,605,000 17,723,305
5.00%, 1/31/99.................................. 6,450,000 6,407,688
7.00%, 4/15/99.................................. 9,600,000 9,758,976
9.125%, 5/15/99................................. 2,400,000 2,507,616
6.875%, 7/31/99................................. 7,410,000 7,541,972
7.75%, 11/30/99................................. 43,405,000 45,012,287
7.75%, 1/31/00.................................. 2,000,000 2,080,000
7.125%, 2/29/00................................. 30,300,000 31,175,973
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
6.75%, 4/30/00................................... $ 6,200,000 $ 6,341,422
6.125%, 7/31/00.................................. 4,000,000 4,041,240
8.75%, 8/15/00................................... 12,250,000 13,145,720
5.625%, 11/30/00................................. 2,200,000 2,195,864
7.50%, 11/15/01.................................. 6,800,000 7,209,088
5.75%, 8/15/03................................... 1,250,000 1,250,775
7.25%, 5/15/04................................... 9,000,000 9,712,980
6.50%, 8/15/05................................... 4,000,000 4,173,760
--------------
(Cost $459,252,432) 484,663,866
--------------
Agency Obligations -- 42.68%
Federal Home Loan Mortgage Corp. Participation
Ctfs.:
#170269, 12.00%, 8/1/15.......................... 1,198,373 1,354,017
#200070, 7.50%, 4/1/02........................... 164,545 165,412
#274081, 7.50%, 7/1/16........................... 70,023 71,648
#289711, 7.50%, 4/1/17........................... 102,945 105,314
#555238, 12.00%, 7/1/19.......................... 545,336 616,135
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 10 Class D, 10.00%, 7/15/18............... 148,326 148,598
Series 11 Class D, 9.50%, 7/15/19................ 3,000,000 3,317,154
Series 13 Class SA, IF, 4/25/23.................. 1,242,012 1,170,367
Series 22 Class C, 9.50%, 4/15/20................ 1,104,876 1,226,446
Series 23 Class E, 9.40%, 8/15/19................ 294,230 299,563
Series 23 Class F, 9.60%, 4/15/20................ 1,575,000 1,730,078
Series G-29 Class FE, AR, 4/25/24................ 4,785,469 4,802,003
Series G-29 Class SD, IO,IF, 4/25/24............. 16,437,494 542,980
Series 38 Class C, 9.50%, 1/15/19................ 79,868 80,154
Series 41 Class I, HB, 84.00%, 5/15/20........... 84,024 267,194
Series 47 Class F, 10.00%, 6/15/20............... 500,000 546,087
Series G-48 Class BE, IF, IO, 1/25/23............ 14,537,833 1,263,919
Series 99 Class Z, 9.50%, 1/15/21................ 1,342,016 1,436,055
Series 134 Class B, IO, 9.00%, 8/15/22 .......... 776,324 209,607
Series 204 Class E, HB, IF, 1/15/19.............. 21,409 504,049
Series 1045 Class G, HB, 1066.209%, 2/15/21...... 3,242 101,121
Series 1051 Class D, 7.00%, 11/15/19............. 591,460 595,843
Series 1065 Class J, 9.00%, 4/15/21.............. 2,000,000 2,153,724
Series 1072 Class A, HB, 1008.50%, 5/15/06....... 20,993 464,279
Series 1079 Class S, IF, 5/15/21................. 886,523 1,014,813
Series 1084 Class F, AR, 5/15/21................. 2,191,793 2,235,908
Series 1084 Class S, IF, 5/15/21................. 1,534,255 1,995,215
Series 1098 Class M, HB, 10.08%, 6/15/06......... 9,722 217,563
Series 1144 Class KB, 8.50%, 9/15/21............. 2,000,000 2,129,842
Series 1172 Class L, HB, 1167.776%, 11/15/21..... 15,221 460,170
Series 1196 Class B, HB, IF, 1/15/22............. 57,149 777,360
Series 1295 Class JB, 4.50%, 3/15/07............. 2,400,000 2,249,280
Series 1297 Class H, 7.50%, 1/15/20.............. 1,973,505 2,030,517
Series 1298 Class L, HB, 981.867%, 6/15/07....... 9,000 313,726
Series 1329 Class S, IO, IF, 8/15/99............. 3,349,312 136,049
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
117
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
Series 1370 Class F, 6.75%, 3/15/19.............. $ 600,000 $ 604,146
Series 1378 Class JZ, 7.50%, 11/15/21............ 3,458,066 3,609,588
Series 1389 Class SA, IF, 10/15/07............... 1,249,383 1,034,296
Series 1414 Class LA, AR, 11/15/07............... 1,872,088 1,820,677
Series 1414 Class LB, IF, 11/15/07............... 2,582,191 2,592,013
Series 1418 Class B, 6.50%, 11/15/19............. 2,250,000 2,253,983
Series 1465 Class SA, IO, IF, 2/15/08............ 15,434,950 721,630
Series 1470 Class F, AR, 5.819%, 2/15/23......... 1,814,786 1,785,343
Series 1483 Class E, 6.50%, 2/15/20.............. 3,407,500 3,411,487
Series 1483 Class FB, AR, 12/15/22............... 5,864,471 5,915,627
Series 1489 Class L, 5.50%, 4/15/08.............. 667,618 658,552
Series 1506 Class F, AR, 5/15/08................. 2,136,881 2,142,907
Series 1506 Class S, IF, 5/15/08................. 441,844 425,150
Series 1506 Class SD, IO, IF, 5/15/08............ 15,028,200 833,254
Series 1531 Class K, 6.00%, 4/15/08.............. 1,115,902 1,089,901
Series 1544 Class TA, AR, 7/15/08................ 2,246,921 2,213,044
Series 1561 Class SC, IF, 8/15/08................ 1,575,139 1,580,371
Series 1575 Class FB, AR, 8/15/08................ 2,983,452 3,092,971
Series 1575 Class SB, IF, 8/15/08................ 994,484 753,377
Series 1583 Class NS, IF, 9/15/23................ 1,386,016 1,176,800
Series 1586 Class A, 6.00%, 9/15/08.............. 1,276,443 1,267,141
Series 1587 Class FA, AR, 10/15/08............... 3,228,034 3,173,570
Series 1589 Class Z, 6.25%, 9/15/23.............. 13,549,596 12,429,790
Series 1595 Class S, IO, IF, 10/15/13............ 10,544,488 483,475
Series 1601 Class S, IF, 10/15/08................ 2,604,101 2,767,949
Series 1602 Class O, 6.00%, 10/15/23............. 2,763,000 2,688,568
Series 1603 Class IF, AR, 1/15/23................ 7,000,000 7,138,859
Series 1604 Class SE, IF, 11/15/08............... 935,165 856,347
Series 1606 Class LC, AR, 5/15/08................ 1,883,250 1,942,627
Series 1606 Class LD, IF, 5/15/08................ 424,411 358,473
Series 1612 Class SD, IF, 11/15/08............... 3,202,495 2,712,894
Series 1628 Class S, IF, 12/15/23................ 2,550,000 1,808,093
Series 1633 Class SE, IF, 12/15/23............... 1,278,652 1,410,155
Series 1635 Class O, IF, 12/15/08................ 4,462,666 4,467,873
Series 1640 Class A, 5.50%, 10/15/07............. 776,851 765,783
Series 1646 Class MB, AR, 10/15/22............... 2,571,363 2,517,596
Series 1647 Class FB, AR, 12/15/08............... 743,826 732,777
Series 1647 Class SB, IF, 12/15/08............... 2,089,118 2,065,870
Series 1655 Class F, AR, 12/15/08................ 1,494,755 1,519,350
Series 1655 Class SA, AR, 12/15/08............... 549,112 477,102
Series 1669 Class KE, AR, 5/15/23................ 3,216,841 3,237,194
Series 1681 Class K, 7.00%, 8/15/23.............. 1,353,048 1,353,979
Series 1686 Class SH, IF, 2/15/24................ 1,535,892 1,251,165
Series 1686 Class SL, IF, 2/15/24................ 1,201,836 1,114,900
Series 1689 Class SD, IF, 10/15/23............... 1,725,000 1,596,762
Series 1694 Class SE, IF, 5/15/23................ 1,254,249 1,200,858
Series 1700 Class GA, PO, 2/15/24................ 11,008,085 6,389,654
Series 1701 Class S, IF, 3/15/09................. 4,649,374 4,670,854
</TABLE>
See Notes to Financial Statements.
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118
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
Series 1706 Class LA, 7.00%, 3/15/24............. $ 3,303,746 $ 3,323,146
Series 1716 Class F, AR, 04/15/09................ 2,524,525 2,547,884
Series 1723 Class F, AR, 05/15/24................ 4,226,107 4,197,048
Series 1796-A, Class S, IF, 2/15/09.............. 1,000,000 902,256
Series 1807 Class G, 9.00%, 1/1/06............... 1,848,188 1,965,376
Series 1825 Class C, 5.80%, 12/15/23............. 2,000,000 1,924,684
Series 1849 Class A, PO, 12/15/08................ 3,015,568 1,892,191
Series 1854 Class C, PO, 4/15/08................. 2,725,000 2,033,330
Series 1854 Class SE, IO, IF, 12/15/23........... 9,886,816 2,728,830
Series 1859 Class SB, IO, IF, 10/15/23........... 16,125,000 3,968,879
Series 1900 Class FA, AR, 3/15/09................ 10,820,440 10,874,597
Series 1900 Class I, IF, PO, 10/15/08............ 4,339,458 3,261,159
Series 1930 Class SJ, IF, IO, 7/15/16............ 13,523,002 1,321,373
Series 1933 Class SJ, IO, IF, 3/15/12............ 25,617,784 2,450,008
Series 1946 Class l, PO, 10/15/08................ 3,006,111 2,074,039
Series 1956 Class A, 7.00%, 12/20/21............. 4,448,740 4,484,094
Series 1995 Class EJ, IO, 7.00%, 10/20/17........ 6,838,142 1,403,665
Federal Housing Administration Merrill Lynch
Project Pass Thru Ctfs., 7.43%, 8/1/20........... 1,316,693 1,344,923
Federal Housing Administration Project #07335307,
7.43%, 1/1/22.................................... 1,971,286 2,033,578
Federal Housing Administration Greystone, 7.43%,
11/1/22.......................................... 2,545,256 2,624,464
Federal National Mortgage Assn. Mortgage Backed
Securities, Stripped Trust:
23, Class 2, IO, 10.00%, 9/1/17.................. 843,385 270,783
50, Class 2, IO, 10.50%, 3/25/19................. 113,568 35,465
Federal National Mortgage Assn. Pass Thru
Securities:
Pool #44699, 7.00%, 4/1/17....................... 250,147 253,709
Pool #50966, 7.00%, 1/1/24....................... 1,723,848 1,746,222
Pool #54844, Adjustable Rate, 9/1/27............. 5,192,627 5,191,739
Pool #70226, Adjustable Rate, 1/1/19............. 470,727 465,432
Pool #116612, Adjustable Rate, 3/1/19............ 1,769,686 1,850,117
Pool #160330, 6.345%, 3/1/99..................... 2,315,120 2,311,622
Pool #303306, 12.50%, 1/1/16..................... 1,352,278 1,569,534
Pool #303532, Adjustable Rate, 3/1/29............ 5,322,486 5,321,736
Federal National Mortgage Assn. Pass Thru
Securities Guaranteed Remic Trust:
1988 Class 7-Z, 9.25%, 4/25/18................... 529,558 564,720
1988 Class 17-B, 9.40%, 10/25/17................. 238,229 242,194
1989 Class 27-D, 10.00%, 1/25/16................. 120,544 121,149
1989 Class 34-E, 9.85%, 8/25/14.................. 557,574 569,192
1989 Class 70-G, 8.00%, 10/25/19................. 2,000,000 2,103,760
1989 Class 73-C, PO, 10/25/19.................... 978,455 878,957
1989 Class 78-H, 9.40%, 11/25/19................. 1,500,000 1,661,886
1990 Class 1-D, 8.80%, 1/25/20................... 2,449,148 2,620,520
1990 Class 60-K, 5.50%, 6/25/20.................. 638,367 617,127
1990 Class 63-H, 9.50%, 6/25/20.................. 900,000 985,783
1990 Class 93-G, 5.50%, 8/25/20.................. 1,285,616 1,241,879
1990 Class 94-H, HB, 505.00%, 8/25/20............ 27,485 432,669
</TABLE>
See Notes to Financial Statements.
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
1990 Class 95-J, HB, 1118.04%, 8/25/20............ $ 14,395 $ 573,107
1990 Class 102-J, 6.50%, 8/25/20.................. 3,279,318 3,251,037
1990 Class 120-H, 9.00%, 10/25/20................. 3,100,000 3,397,079
1990 Class 134-SC, IF, 11/25/20................... 762,189 864,142
1990 Class 140-K, HB, 652.145%, 12/25/20.......... 15,316 464,823
1991 Class 4-N, HB, 758.75%, 1/25/06.............. 6,182 104,590
1991 Class 7-K, HB, 908.50%, 2/25/21.............. 4,907 136,724
1991 Class 24-Z, 5.00%, 3/25/21................... 1,400,457 1,286,838
1991 Class 33-J, HB, 1008.25%, 4/25/06............ 5,925 132,166
1991 Class 144-PZ, 8.50%, 6/25/21................. 2,528,899 2,669,382
1992 Class 13-S, HB, IF, 671.398%, 1/25/99........ 19,607 98,898
1992 Class 15-Z, 7.00%, 1/25/22................... 1,878,156 1,897,631
1992-G Class 27-SQ, HB, IF, 5/25/22............... 4,956 862,325
1992 Class 35-G, HB, 1184.775%, 7/25/22........... 26,631 1,031,454
1992 Class 42-Z, 7.00%, 7/25/22................... 2,554,051 2,560,743
1992 Class 59-F, IF, 10/25/22..................... 5,244,948 5,093,730
1992 Class 61-G, IF, 10/25/22..................... 3,762,903 3,692,107
1992 Class 61-Z, 7.00%, 10/25/22.................. 1,074,567 1,047,512
1992 Class 66-JB, 5.00%, 11/25/21................. 4,500,000 3,980,219
1992 Class 85-S, IF, 6/25/99...................... 3,042,093 3,250,108
1992 Class 59-C, 6.00%, 12/25/21.................. 3,588,641 3,554,442
1992 Class 135-LC, 7.50%, 9/25/07................. 1,000,000 1,038,064
1992 Class 137-BA, 3.50%, 1/25/17................. 1,115,045 1,087,051
1992 Class 143-FI, 4/25/22........................ 4,075,065 3,908,191
1992 Class 186-M, 6.00%, 9/25/07.................. 788,154 776,056
1992 Class 199-S, IO, IF, 11/25/99................ 8,443,938 323,183
1992 Class 201-SB, IF, 10/25/22................... 500,000 500,504
1992 Class 204-B, 6.00%, 10/25/20................. 4,300,000 4,246,336
1992 Class 206-FA, AR, 6/25/18.................... 3,484,000 3,371,923
1992 Class 215-PM, 7.875%, 11/25/21............... 1,600,000 1,719,870
1993 Class 8-SB, IO, IF, 8/25/06.................. 7,577,504 341,291
1993 Class 12-S, IO, 6.25%, 2/25/23............... 5,061,658 304,428
1993 Class 12-SB, HB, IF, 2/25/23................. 40,022 330,074
1993 Class 13-G, 6.00%, 6/25/20................... 2,000,000 1,978,340
1993 Class 19-G, 5.00%, 5/25/19................... 3,265,000 3,152,864
1993 Class 19-K, 6.50%, 6/25/19................... 3,397,321 3,403,334
1993 Class 27-SE, IF, 8/25/23..................... 1,343,715 838,530
1993 Class 27-F, IF, 5/25/08...................... 2,500,000 2,435,143
1993 Class 32-K, 6.00%, 3/25/23................... 1,526,327 1,488,180
1993 Class 38-S, IO, IF, 2.755%, 11/25/22......... 13,819,062 275,207
1993 Class 44-S, IO, IF, 4/25/23.................. 8,813,109 388,931
1993 Class 55-FA, AR, 5/25/08..................... 12,000,000 12,284,785
1993 Class 58-J, 5.50%, 4/25/23................... 960,792 942,099
1993 Class 94-K, 6.75%, 5/25/23................... 918,997 911,181
1993 Class 139-SG, IF, 8/25/23.................... 3,779,324 2,962,533
1993 Class 155-LA, 6.50%, 5/25/23................. 2,642,375 2,634,772
1993 Class 156-FA, AR, 5/25/16.................... 10,578,465 10,613,130
1993 Class 107-F, AR, 6/25/08..................... 956,087 928,423
</TABLE>
See Notes to Financial Statements.
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
1993 Class 113-S, IO, IF, 7/25/23................ $ 6,516,552 $ 388,934
1993 Class 152-D, PO, 8/25/23.................... 1,000,000 925,355
1993 Class 155-SB, IO, IF, 9/25/23............... 13,400,056 780,379
1993 Class 156-SD, IF, 10/25/19.................. 1,250,000 1,036,490
1993 Class 174-SB, IF, 11/25/07.................. 1,510,313 1,514,498
1993 Class 175-FE, AR, 9/25/08................... 1,000,000 973,130
1993 Class 175-S, IF, 5/25/07.................... 3,470,939 3,512,597
1993 Class 186-SA, IF, 9/25/08................... 963,534 1,050,776
1993 Class 187-SA, IF, 9/25/23................... 987,304 1,030,095
1993 Class X-188A, IO, 8/25/06................... 6,134,591 359,064
1993 Class 189-SH, IF, 3/25/22................... 2,000,000 1,873,106
1993 Class 199-FA, AR, 10/25/23.................. 8,000,000 8,067,256
1993 Class 206-SD, IF, 11/25/23.................. 1,250,000 1,277,761
1993 Class 207-SC, IF, 11/25/23.................. 3,617,105 2,992,879
1993 Class 209-KB, 5.659%, 8/25/08............... 6,023,471 5,793,254
1993 Class 214-L, 6.00%, 12/25/08................ 787,942 770,576
1993 Class 220-SD, IF, 11/25/13.................. 2,087,684 1,746,700
1993 Class 221-FH, AR, 12/25/08.................. 2,000,000 2,057,430
1993 Class 223-FB, AR, 12/25/23.................. 7,114,174 6,966,177
1993 Class 223-SB, IF, 12/25/23.................. 3,081,707 3,040,249
1993 Class X-225C-VO, AR, 12/25/22............... 1,600,000 1,498,299
1993 Class XG23A-A, PO, 7/25/20.................. 6,138,916 5,658,625
1993 Class 230-FA, AR, 12/25/23.................. 5,315,193 5,349,157
1994 Class 8-G, PO, 11/25/23..................... 1,860,424 1,353,060
1994 Class 12-FB, IF, 1/25/09.................... 324,761 320,210
1994 Class 12-SB, AR, 1/25/09.................... 2,186,670 2,090,413
1994 Class 13-ZB, 7.00%, 11/17/24................ 2,728,259 2,716,958
1994 Class 19-C, 5.00%, 1/25/24.................. 2,716,138 2,614,639
1994 Class 26-G, PO, 2/25/24..................... 2,278,569 1,696,618
1994 Class 30-LA, 6.50%, 2/25/09................. 1,514,134 1,514,661
1994 Class 32-S, IF, 3/25/09..................... 2,782,166 2,812,207
1994 Class 33-FA, AR, 3/25/09.................... 2,910,683 2,847,693
1994 Class 33-F, IF, 3/25/09..................... 1,545,648 1,512,071
1994 Class 36-SG, IO, IF, 8/25/23................ 7,651,123 630,345
1994 Class 39-F, AR, 3/25/24..................... 1,256,559 1,256,427
1994 Class 39-S, IF, 3/25/24..................... 483,292 467,244
1994 Class 63-T, IF, 4/25/24..................... 799,901 716,140
1994 Class 76-FA, AR, 4/25/24.................... 3,975,811 3,950,139
1994 Class 82-SA, IO, IF, 5/25/23................ 32,427,569 1,073,158
1995 Class 13-B, 6.50%, 3/25/09.................. 3,593,255 3,587,340
1995 Class XG1C C, 8.80%, 1/25/25................ 1,597,702 1,877,019
1996 Class 7-C 6.50%, 12/25/10................... 1,000,000 978,522
1996-20, Class L, PO, 9/25/08.................... 3,165,000 2,160,546
1996 Class 24-K, PO, 2/25/08..................... 3,775,000 2,945,519
1996 Class 24-B, PO, 10/25/08.................... 3,800,000 2,329,206
1996 Class 27-FC, AR, 3/25/17.................... 2,828,802 2,848,137
1996 Class 46-A, 5.00%, 2/25/09.................. 4,685,273 4,585,336
1997 Class 20, IO, IF, 3/25/27................... 57,952,008 3,314,739
</TABLE>
See Notes to Financial Statements.
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ---------- --------------
<S> <C> <C>
1997 Class 20-SA, IF, 11/25/23.................... $3,054,459 $ 2,288,242
1997 Class 29-PL, IO, 7.50%, 8/18/26.............. 7,875,000 3,198,605
1997 Class 32-AP, PO, 5/25/18..................... 1,899,898 1,803,075
1997 Class 32-CP, PO, 10/25/21.................... 4,400,000 3,720,482
1997 Class 48-FB, AR, 3/25/25..................... 4,307,326 4,315,217
1997 Class 50-FD, AR, 4/18/27..................... 4,871,266 4,875,324
1997 Class 59-FA, AR, 8/25/97..................... 11,957,171 11,994,932
1997 Class 81-PI, IO, 7.00%, 11/25/97............. 24,935,355 7,321,594
1997 Class M1-B, 7.15%, 10/17/09.................. 3,750,000 3,939,825
1992-G Class 31-W, 8.00%, 9/25/21................. 2,325,662 2,440,713
1992-G Class 17G, HB, IF, 6/25/21................. 79,168 1,121,565
K-2, 2.56%, IO, 11/01/08.......................... 34,256,103 2,416,667
1997 Class F, IF, 10/15/23........................ 10,291,868 10,357,377
Government National Mortgage Assn. Pass Thru
Securities Guaranteed Remic Trust:
1994 Class 4-SA, IO, IF, 10/16/22................. 5,924,414 359,274
1996 Class 15-OB, 9.00%, 11/20/21................. 4,528,250 4,831,081
1996 Class 26-S, IO, IF, 12/16/20................. 23,719,249 1,350,977
Government National Mortgage Assn. Pass Thru Pool:
#023594, 8.50%, 7/15/08........................... 313,371 335,908
#190923, 9.00%, 12/15/16.......................... 340,834 372,947
#297628, 8.00%, 9/15/22........................... 2,642,617 2,759,075
#313110, 7.50%, 11/15/22.......................... 2,030,511 2,090,775
#345288, 7.50%, 3/15/23........................... 644,360 663,078
--------------
(Cost $497,167,426) 521,810,031
--------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS......... 1,006,473,897
--------------
(Cost $956,419,858)
ASSET BACKED -- 13.11%
Case Equipment Loan Trust Asset Backed Ctf.:
5.50%, 2/15/03.................................... 4,712,729 4,698,167
7.30%, 3/15/02.................................... 1,559,424 1,573,474
Chase Manhattan Grantor Trust:
Series 95-B, 5.90%, 11/15/01...................... 526,372 526,709
Series 95-A, 6.00%, 9/17/01....................... 2,691,824 2,691,824
Chase Manhattan Corp., Subordinated Note, 9.75%,
11/1/01........................................... 2,000,000 2,239,184
Chevy Chase Automobile Receivable Trust Asset
Backed Pass Thru Ctf.:
Series 1995-2, Class A, 5.80%, 6/15/02............ 707,207 706,803
Collateralized Mortgage Obligation Trust CMO:
Trust 12-D, 9.50%, 2/1/17......................... 556,752 569,138
Trust 16-Q, IF, 3/20/18........................... 312,745 339,226
CPS Auto Trust
Series 1997-4, Class-A1, 6.07%, 03/15/03.......... 8,445,721 8,445,721
Dayton Hudson Credit Card Master Trust Asset Backed
Ctf.
Series A, 6.10%, 2/25/02.......................... 1,900,000 1,904,028
First USA Credit Card Master Trust, VR, 10/15/01... 4,100,000 4,108,733
Government National Mortgage Assn. Backed Trust I
CMO, Class A,
Zero Coupon, PO, 5/20/17.......................... 204,083 165,101
</TABLE>
See Notes to Financial Statements.
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
Green Tree Financial Corp. Loan Trust Asset Backed
Ctf.:
Series 1995-A, Class A6, 7.30%, 7/15/25.......... $ 3,000,000 $ 3,156,801
Series 1994-5, Class A2, 7.30%, 11/15/19......... 3,308,395 3,330,992
Series 1993-4, Class A2, 5.85%, 1/15/19.......... 4,485,160 4,488,030
Merrill Lynch Trust Series 43 Class E CMO, 6.50%,
8/27/15.......................................... 4,000,000 4,006,452
Merrill Lynch Home Equity Loan, 1992-1, Class A,
Variable Rate, 7/15/22........................... 1,407,596 1,410,960
Merrill Lynch MBS 144-S, 7.43%, 7/25/24........... 4,654,278 4,856,739
Morgan Stanley Mortgage Trust CMO:
Series 35-2, HB, IF, 4/20/21..................... 3,171 519,970
Series 37-2, HB, IF, 7/20/21..................... 3,438 515,690
Series 39-3, PO, 12/20/21........................ 580,611 454,595
Navistar, Class A-2, 6.55%, 11/20/01.............. 1,297,581 1,301,630
Newcourt Receivables Asset Trust
Series 1997-1, Class-A, 6.04%, 6/20/00........... 4,250,000 4,252,210
Olympic Automobile Receivables Trust Asset Backed
Pass Thru Ctf.:
Series 1996-C, Class A5, 7.00%, 3/15/04.......... 3,500,000 3,587,115
Series 1996-C, Class A4, 6.80%, 3/15/02.......... 7,000,000 7,102,130
Series 1997-A, Class-A2, 6.125%, 8/15/00......... 3,757,384 3,765,387
ONYX Acceptance CMO Trust, 5.40%, 5/15/01......... 3,497,439 3,476,664
ONYX Accpetance Grantor Trust Auto Loan Pass Thru
Ctf.
Series 1997-1, Class A5, 6.55%, 9/15/03.......... 4,234,903 4,257,391
PaineWebber CMO Trust:
Series H-4, 8.75%, 4/1/18........................ 612,962 643,313
Series P-4, 8.50%, 8/1/19........................ 2,936,893 3,130,470
Rural Housing Trust 1987-1 Sr. Mortgage Pass Thru
Ctf.,
Class 3-B, 7.33%, 4/1/26......................... 847,175 864,673
Salomon Inc. Note, 6.70%, 12/1/98................. 2,500,000 2,515,358
Sears Credit Account Master Trust Asset Backed
Ctf.,
Series 1995-3, Class A, 7.00%, 10/15/04.......... 1,600,000 1,637,712
Standard Credit Card Master Trust Asset Backed
Ctf.,
Series 1994-2, Class A, 7.25%, 4/7/08............ 1,800,000 1,904,004
Superior Wholesale, 1996-A, Adjustable Rate,
3/15/01.......................................... 2,700,000 2,700,000
Toyota Auto Receivables Grantor Trust, Series 95-A
Class A, 5.85%, 3/15/01.......................... 293,708 293,341
Union Acceptance Corp.
Series 1997-D, Class-A3, 6.26%, 2/8/02........... 1,700,000 1,698,402
Western Financial Asset Backed Pass Thru Ctf.:
Series 1994-4, Class-A1, 7.10%, 1/1/00........... 2,929,244 2,946,731
Series 1996-A, Class-A3, 6.05%, 6/1/00........... 3,127,725 3,131,916
Series 1997-C, Class-A2, 5.95%, 6/20/00.......... 4,000,000 3,996,929
Series 1997-B, Class-A2, 6.05%, 7/20/00.......... 10,594,928 10,604,597
Series 1996-D, Class-A3, 6.05%, 7/20/01.......... 7,000,000 7,012,713
Series 1997-B, Class A3, 6.30%, 7/20/01.......... 6,000,000 6,039,562
Series 1996-C, Class A4, 6.80%, 12/20/03......... 4,150,000 4,210,881
Series 1997-D, Class-A2, 6.20%, 12/1/10.......... 13,500,000 13,506,345
World Omni Automobile LSE SEC Trust, Series 95-5
Class A, 6.05%, 11/25/01......................... 4,260,415 4,259,052
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- --------------
<S> <C> <C>
World Omni Asset Backed Pass Thru Ctf.:
Series 1997-A, Class A4, 6.90%, 6/25/03.......... $ 4,600,000 $ 4,666,102
Series 1997-B, Class-A1, 6.07%, 11/25/03......... 6,000,000 6,000,000
--------------
TOTAL ASSET BACKED.................................. 160,212,965
--------------
(Cost $157,539,721)
CORPORATE BONDS AND NOTES -- 1.71%
Finance -- .79%
ABN Amro Bank NV, 7.25%, 5/31/05.................. 2,000,000 2,104,214
Associates Corp. of North America:
9.125%, 4/1/00................................... 2,350,000 2,493,771
8.15%, 8/1/09.................................... 3,085,000 3,447,919
American Re Corp., Series B, 7.45%, 12/15/26...... 1,500,000 1,617,360
--------------
(Cost $9,234,066) 9,663,264
--------------
Industrial -- 0.84%
Boeing Co., 7.95%, 8/15/24........................ 1,730,000 2,051,330
Dayton Hudson Co., 7.875%, 6/15/23................ 1,800,000 1,912,745
General Motors Corp., 8.80%, 3/1/21............... 2,695,000 3,290,999
Monsanto Co., 8.20%, 4/15/25...................... 1,500,000 1,642,746
Nippon T&T, 9.50%, 7/27/98........................ 1,355,000 1,382,005
--------------
(Cost $9,048,931) 10,279,825
--------------
Public Utility -- 0.08%
West Texas Utilities, 6.375%, 10/1/05............. 1,000,000 1,003,653
--------------
(Cost $993,652) 1,003,653
--------------
TOTAL CORPORATE BONDS AND NOTES..................... 20,946,742
--------------
(Cost $19,276,649)
FOREIGN -- 1.41%
African Development Bank Note, 9.30%, 7/1/00....... 1,572,000 1,686,001
Kingdom of Belgium Put Euro Dollar, 9.20%, 6/28/00. 2,000,000 2,485,000
Metropolis of Tokyo, 8.70%, 10/5/99................ 2,250,000 2,351,655
National Australia Bank Ltd, 9.70%, 10/15/98....... 800,000 822,192
Province of Ontario Eurobond, 7.375%, 1/27/03...... 4,400,000 4,625,100
Province of Quebec, 9.125%, 8/22/01................ 2,515,000 2,728,775
Quebec Province of Canada, 6.50%, 1/17/06.......... 2,500,000 2,508,650
--------------
TOTAL FOREIGN....................................... 17,207,373
--------------
(Cost $16,578,213)
TOTAL INVESTMENTS................................... $1,222,578,317
==============
(Cost $1,167,551,781)
</TABLE>
See Notes to Financial Statements.
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The Fund invests in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities issued
by U.S. government agencies or by financial institutions and other mortgage
lenders which are collateralized by a pool of mortgages held under an
indenture. Descriptions of certain collateralized mortgage obligations are as
follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool of
mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's the owner also has a right
to receive a very small portion of principal. The high interest rate results
from taking interest payments from other classes in the REMIC Trust and
allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market
value of $1,205,997. The book cost of certain IO and HB securities include a
write down in the amount of $5,725,668 taken during 1993 to properly state
the net realizable value of the securities. The write down results in a lower
cost investments than the tax cost disclosed in Note 4 in Notes to Financial
Statements.
See Notes to Financial Statements.
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PORTFOLIO OF INVESTMENTS)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 0.34%
Pegasus Cash Management Fund Class I (in shares)..... 799,225 $ 799,225
------------
(Cost $799,225)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 64.86%
U.S. Treasury Securities -- 49.74%
Strip from U.S. Treasury Note Principal due:
9.25%, 8/15/98...................................... $ 500,000 483,165
U.S. Treasury Notes:
5.50%, 11/15/98..................................... 4,400,000 4,395,204
5.625%, 11/30/98.................................... 10,335,000 10,335,000
8.875%, 2/15/99..................................... 1,000,000 1,034,530
7.00%, 4/15/99...................................... 1,000,000 1,016,560
6.375%, 4/30/99..................................... 22,645,000 22,850,163
6.375%, 5/15/99 (Series X-1999)..................... 6,000,000 6,055,320
6.25%, 5/31/99...................................... 3,000,000 3,023,910
6.75%, 5/31/99...................................... 2,200,000 2,232,318
6.875%, 7/31/99..................................... 1,000,000 1,017,810
5.875%, 8/31/99..................................... 6,300,000 6,319,656
6.875%, 8/31/99..................................... 2,000,000 2,037,500
7.125%, 9/30/99..................................... 1,000,000 1,023,750
7.50%, 10/31/99..................................... 4,035,000 4,159,843
7.875%, 11/15/99.................................... 1,000,000 1,038,440
7.75%, 11/30/99..................................... 4,750,000 4,925,893
7.75%, 12/31/99..................................... 1,000,000 1,038,910
7.75%, 1/31/00...................................... 9,100,000 9,464,000
8.50%, 2/15/00...................................... 960,000 1,013,395
7.125%, 2/29/00..................................... 7,000,000 7,202,370
6.875%, 3/31/00..................................... 500,000 512,345
6.75%, 4/30/00...................................... 1,700,000 1,738,777
6.25%, 4/30/01...................................... 17,200,000 17,468,664
6.625%, 6/30/01..................................... 2,000,000 2,055,320
7.875%, 8/15/01..................................... 900,000 962,154
6.25%, 10/31/01..................................... 1,500,000 1,525,545
7.50%, 11/15/01..................................... 3,000,000 3,180,480
------------
(Cost $117,644,279) 118,111,022
------------
Agency Obligations -- 15.12%
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series GI98, 4.83%, 09/21/98........................ 500,000 496,015
Series 2 Class Z, 9.30%, 3/15/19.................... 883,568 939,634
Series 10 Class D, 10.00%, 7/15/18.................. 33,710 33,772
Series 11 Class C, 9.50%, 4/15/19................... 277,499 285,198
Series 26 Class F, 9.50%, 2/15/20................... 1,147,453 1,224,999
Series 81 Class A, 8.125%, 11/15/20................. 299,896 312,738
Series 85 Class C, 8.60%, 1/15/21................... 686,812 717,942
Series 99 Class Z, 9.50%, 1/15/21................... 671,008 718,027
Series 192 Class H, 9.00%, 7/15/21.................. 139,841 141,239
Series 1045 Class G, HB, 1066.208%, 2/15/21......... 162,116 50,562
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
126
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Series 1096 Class D, 7.00%, 6/15/20................ $ 105,551 $ 105,545
Series 1424 Class F, IF, 11/15/22.................. 898,642 871,897
Series 1477 Class F, 6.65%, 5/15/18................ 300,000 304,050
Series 1490 Class PE, 5.75%, 7/15/06............... 250,000 249,500
Series 1497 Class CC, 5.50%, 7/15/14............... 1,000,000 998,360
Series 1541 Class E, 6.00%, 12/15/16............... 500,000 500,030
Series 1541 Class EA, 4.00%, 12/15/16.............. 1,000,000 971,020
Series 1552 Class F, 6.00%, 6/15/19................ 553,000 550,340
Series 1555 Class PK, 7.00%, 7/15/07............... 2,000,000 2,030,122
Series 1559 Class VF, 6.25%, 2/15/20............... 500,000 501,650
Series 1560 Class X, AR, 6.00%, 11/15/16........... 972,068 970,639
Series 1561 Class EA, IF, 6/15/07.................. 500,000 502,745
Series 1570 Class D, PO, 7/15/20................... 202,359 191,170
Series 1578 Class C, 5.50%, 11/15/12............... 42,963 42,920
Series 1606 Class G, 5.75%, 1/15/08................ 260,000 256,805
Series 1614 Class G, 5.80%, 2/15/19................ 1,100,000 1,095,325
Series 1669 Class C, 5.10%, 8/15/12................ 145,669 145,473
Series 1671 Class D, 5.75%, 11/15/16............... 250,000 249,790
Series 1698 Class PE, 6.00%, 11/15/05.............. 250,000 249,873
Series 1727 Class E, 6.50%, 4/15/18................ 1,000,000 1,009,050
Series 1807 Class G, 9.00%, 1/1/06................. 637,306 677,717
Federal National Mortgage Assn. Mortgage Backed
Securities
Stripped Trust 268, Class 2, IO, 9.00%, 12/25/21... 183,651 49,901
Federal National Mortgage Assn. Pass Thru
Securities:
Pool #070226, AR, 1/1/19........................... 282,436 279,259
Pool #111366, AR, 8/1/19........................... 299,334 315,190
Pool #116612, AR, 3/1/19........................... 634,416 663,249
Federal National Mortgage Assn. Pass Thru Securities
Gtd. Remic Trust:
1994-23 Class PJ, 6.00%, 1/25/02................... 250,000 249,215
1997 32C, Class GP, PO, 10/25/21................... 700,000 591,895
1997 Class A-MI, IF, 1/17/03....................... 349,410 352,977
1988 Class 7-Z, 9.25%, 4/25/18..................... 563,360 600,766
1988 Class 15-A, 9.00%, 6/25/18.................... 116,129 122,905
1988 Class 16-B, 9.50%, 6/25/18.................... 720,040 773,447
1988 Class 17-B, 9.40%, 10/25/17................... 20,701 21,046
1989 Class 27-D, 10.00%, 1/25/16................... 30,136 30,287
1989 Class 31-D, 9.15%, 8/25/18.................... 83,144 83,698
1989 Class 73-C, PO, 10/25/19...................... 159,747 143,503
1990 Class 77-C, 9.00%, 7/25/19.................... 178,009 183,068
1991 Class 41-O, 9.00%, 8/25/06.................... 375,000 383,676
1991 Class 56-K, 8.60%, 2/25/20.................... 435,462 439,071
1992 Class 13-S, HB, IF, 1/25/99................... 246,742 12,446
1992 Class 137-BA, 3.50%, 1/25/17.................. 159,292 155,293
1993 Class 93-E, 6.25%, 4/25/07.................... 175,000 175,609
1993 Class 85-PD, 5.50%, 7/25/03................... 143,202 142,795
1993 Class 86-E, 6.00%, 1/25/07.................... 1,425,000 1,423,760
1993 Class 26-PE, 5.90%, 7/25/15................... 500,000 498,645
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
127
<PAGE> 158
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
1993 Class 107-D, 6.50%, 12/25/06.................. $ 900,000 $ 910,815
1994 Class 17-E, 6.00%, 2/25/07.................... 425,000 423,954
1994 Class 15-E, 5.50%, 2/25/19.................... 650,000 642,168
1994 Class 32-PB, 5.50%, 3/25/03................... 811,322 809,253
1994 Class 12-PD, 5.50%, 7/25/04................... 1,000,000 996,810
1995 Class PK, 6.35%, 3/15/11...................... 1,364,397 1,371,124
1997 Class 13-PA, 6.00%, 1/16/20................... 4,653,674 4,656,793
Federal National Mortgage Assn. Debenture, 4.70%,
9/10/98............................................ 1,000,000 993,346
------------
(Cost $35,653,692) 35,890,111
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS.......... 154,001,133
------------
(Cost $153,297,971)
ASSET BACKED SECURITIES -- 17.58%
Case Equipment Loan Trust Asset Backed Pass Thru
Ctf.,
Series 1994-C, Class A2, 8.10%, 6/15/01............ 403,583 408,494
Case Equipment Loan Trust Asset Backed Pass Thru
Ctf.,
Series 1995-A, Class A, 7.30%, 3/15/02............. 271,042 273,484
Chase Credit Card Trust Asset Backed Pass Thru Ctf.,
Series 1997-2, Class A, 6.30%, 4/15/03............. 1,880,000 1,896,751
Chase Manhattan Auto Owner Trust Asset Backed Pass
Thru Ctf., Series 1997-A, Class A, 6.50%, 12/17/01. 375,000 379,586
Chevy Chase Auto Receivable Trust Asset Backed Pass
Thru Ctf.,
Series 1997-3, Class A, 6.20%, 3/20/04............. 933,169 935,755
Chrysler Financial Corp., 5.625%, 1/15/99........... 900,000 897,797
Citicorp Mortgage Securities, Inc. Remic Pass Thru
Ctf.,
Series 89-16, Class A-1, AR, 4/1/19................ 217,952 214,783
Collateralized Mortgage Obligations Trust CMO, Trust
12,
Series 12, Class D, 9.50%, 2/1/17.................. 139,188 142,285
Ford Credit Auto Owner Trust Asset Backed Pass Thru
Ctf.,
Series 1996-A, Class A4, 6.75%, 9/15/00............ 607,000 613,835
Ford Credit Grantor Trust Asset Backed Ctf., Series
1994-B, Class A,
7.30%, 10/15/99.................................... 1,771,652 1,779,784
Green Tree Collateralized Mortgage Obligation,
Series 1997-3, Class A2,
6.49%, 7/15/28..................................... 3,000,000 3,006,540
Key Auto Finance Trust Asset Backed Pass Thru Ctf.,
5.85%, 3/15/03..................................... 507,813 507,900
MBNA Master Credit Card Trust Asset Backed Ctf.,
Trust 93-3,
Series 1993-3, Class-A, 5.40%, 9/15/00............. 790,000 786,066
Merrill Lynch Home Equity Loan Asset Backed Pass
Thru Ctf.,
Series 1992-1, Class A, IF, 7/15/22................ 469,198 470,320
Morgan Stanley Mortgage Trust,
CMO, Series 38-4, PO, 11/20/21..................... 72,642 56,388
Navistar Financial Corp. Owner Trust Asset Backed
Pass Thru Ctf.,
Series 1995-1, Class A2, 6.55%, 11/20/01........... 833,335 835,936
Newcourt Receivables Trust Asset Backed Pass Thru
Ctf.,
Series 1997-1, Class A, 6.04%, 6/20/00............. 1,000,000 1,000,520
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1996-D Class A3, 5.95%, 6/15/01............. 1,200,000 1,200,216
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
128
<PAGE> 159
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1996-C Class A2, 6.30%, 01/15/00............ $ 179,973 $ 180,362
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1996-C Class A5, 7.00%, 03/15/04............ 1,150,000 1,178,624
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1996-B Class A4, 6.70%, 03/15/02............ 1,750,000 1,770,160
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1996-C Class A4, 6.80%, 03/15/02............ 970,702 984,864
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1996-B Class A3, 6.5%, 12/15/00............. 1,000,000 1,004,060
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1997-A Class A4, 6.625%, 12/15/02........... 670,000 678,227
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1995-C Class A2, 6.2%, 1/15/02.............. 720,056 722,050
Ryland Acceptance Corp. Four, CMO,
Series 78, Class 78-B, 9.55%, 3/1/16............... 196,263 199,840
Sears Credit Account Master Trust Class A,
6.25%, 1/15/03..................................... 2,200,000 2,206,798
Standard Credit Card Master Trust Asset Backed Ctf.,
Series 1991-6, Class A, 7.875%, 1/07/00............ 2,725,000 2,768,273
Standard Credit Card Master Trust Asset Backed Ctf.,
Series 1993-3, Class A, 5.50%, 2/07/00............. 1,900,000 1,891,260
Standard Credit Card Master Trust Asset Backed Ctf.,
Series 1995-10, Class A, 5.90%, 2/07/01............ 450,000 449,293
Standard Credit Card Trust, Series 1991-3,
Participation Ctf.,
Class A, 8.875%, 9/7/99............................ 3,090,000 3,139,904
Western Financial Grantor Trust Asset Backed Pass
Thru Ctf.,
Series 1995-2 Class A1, 7.1%, 7/01/00.............. 1,184,962 1,194,561
Western Financial Owner Trust Asset Backed Pass Thru
Ctf.,
Series 1996-B, Class A4, 6.95%, 11/20/03........... 2,040,000 2,074,007
Western Financial Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03........... 4,000,000 4,058,680
Western Financial Grantor Trust Auto Receivable Pass
Thru Ctf:
1993-3, Class A1, 4.60%, 4/1/99.................... 110,391 110,050
1994-3, Class A, 6.65%, 12/1/99.................... 154,155 155,011
WFS Financial Owner Trust Asset Backed Pass Thru
Ctf.,
Series 1997-D, Class A2, 6.20%, 12/1/10............ 500,000 500,235
World Omni Automobile LSE SEC Trust Asset Backed
Pass Thru Ctf.,
Series 1995-A, Class A, 6.05%, 11/25/01............ 1,065,104 1,064,763
------------
TOTAL ASSET BACKED SECURITIES......................... 41,737,462
------------
(Cost $41,502,290)
CORPORATE BONDS AND NOTES -- 17.22%
Finance -- 15.16%
Associates Corp. of North America
Put Note 9.125%, 4/1/00............................ 1,204,000 1,277,660
6.625%, 5/15/01.................................... 1,015,000 1,028,156
American Express Credit Corp
7.375%, 2/01/99.................................... 295,000 299,289
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
129
<PAGE> 160
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
Association Corp of North America Medium Term Note
8.50%, 01/10/00...................................... $ 650,000 $ 678,952
7.55%, 08/23/01...................................... 250,000 260,333
Association Corp of North America
5.25%, 09/01/98...................................... 675,000 672,003
5.25%, 3/30/00....................................... 2,654,000 2,607,446
8.25%, 12/01/99...................................... 3,240,000 3,365,712
Association Corp of North America Medium Term Note
Series G,
5.49%, 01/28/99...................................... 270,000 268,438
Association Corp of North America Medium Term Note
Tranche #00455,
7.48%, 07/27/02...................................... 300,000 313,945
Association Corp of North America Senior Term Note
6.25%, 9/15/00....................................... 1,090,000 1,093,357
Beneficial Finance Corp. Medium Term Note:
7.34%, 11/26/99 (Tranche #TR00659)................... 200,000 204,022
8.90%, 7/27/98....................................... 500,000 508,058
Du Pont E I De Nemours & Co.
9.15%, 4/15/00....................................... 825,000 879,897
Ford Holdings Inc.,
9.25%, 3/1/00........................................ 4,015,000 4,273,417
Ford Motor Credit Co.:
7.25%, 5/15/99....................................... 1,675,000 1,700,170
8.00%, 01/15/99...................................... 1,170,000 1,192,053
8.875%, 06/15/99..................................... 1,460,000 1,515,477
9.50%, 4/15/00....................................... 1,015,000 1,086,008
Ford Motor Credit Co. Medium Term Note,
Tranche #00281, 7.47%, 7/29/99....................... 1,000,000 1,022,188
Tranche #00442, 7.59%, 4/6/00........................ 300,000 309,668
General Motors Acceptance Corp.
8.625%, 06/15/99..................................... 1,804,000 1,868,931
General Motors Acceptance Corp. Medium Term Note
6.04%, 3/19/99....................................... 2,000,000 1,999,002
Golden Sachs Group, Private Placement Note 144A,
6.20%, 02/15/01...................................... 1,500,000 1,490,292
Lehman Brothers Holdings Inc.,
5.75%, 02/15/98...................................... 550,000 549,773
Lehman Brothers Incorporation Senior Note
10.0%, 5/15/99....................................... 1,790,000 1,877,703
8.875%, 11/01/98..................................... 461,000 470,843
Norwest Corporation Senior Note
6.0%, 3/15/00........................................ 430,000 430,353
Union Acceptance Corp. Asset Backed Pass Thru Ctf.,
Series 1997-D, Class A3, 6.26%, 2/08/02.............. 1,750,000 1,748,355
WFS Financial Owner Trust
Series 1996-D, Class A3, 6.05%, 7/20/01.............. 1,000,000 1,001,816
-----------
(Cost $36,407,130) 35,993,317
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
130
<PAGE> 161
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Industrial -- 1.06%
KFW International,
9.375%, 07/15/98.................................... $ 900,000 $ 918,577
Nippon Telephone & Telegraph Corp.
9.5%, 07/27/98...................................... 950,000 968,933
Texaco Capital, Corp., Guaranteed Note
9.00%, 12/15/99..................................... 600,000 633,209
------------
(Cost $1,944,134) 2,520,719
------------
Foreign -- 1.00%
National Australia Bank LTD
9.70%, 10/15/98..................................... 2,320,000 2,384,357
------------
(Cost $2,383,252)
TOTAL CORPORATE BONDS AND NOTES........................ 40,898,393
------------
(Cost $40,734,516)
TOTAL INVESTMENTS...................................... $237,436,213
============
(Cost $236,334,002)
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The Fund invests in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities issued by
U.S. government agencies or by financial institutions and other mortgage
lenders which are collateralized by a pool of mortgages held under an
indenture. Descriptions of certain collateralized mortgage obligations are as
follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these securities
are generally higher than prevailing market yields other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. These
securities are subject to accelerated principal paydowns as a result of
prepayments or refinancing of the underlying pool of mortgage instruments. As a
result, interest income may be reduced considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a right to
receive a very small portion of principal. The high interest rate results from
taking interest payments from other classes in the REMIC Trust and allocating
them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayments on the underlying mortgages of these securities increase, the yield
on these securities increases.
See Notes to Financial Statements.
Pegasus Funds
131
<PAGE> 162
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ------ ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.00%
Pegasus Cash Management Fund Class I (in shares)...... 1,017,905 $ 1,017,905
------------
(Cost $1,017,905)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 25.38%
U.S. Treasury Securities -- 24.40%
U.S. Treasury Bonds:
12.75%, 11/15/10.................................... $6,900,000 9,848,646
8.125%, 5/15/21..................................... 5,770,000 7,271,123
U.S. Treasury Notes:
7.75%, 1/31/00...................................... 1,550,000 1,612,000
8.50%, 2/15/00...................................... 3,310,000 3,494,102
Inflation Protection Security, 3.375%, 1/15/07...... 2,651,714 2,582,107
------------
(Cost $23,521,712) 24,807,978
------------
Agency Obligations -- 0.98%
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 1552 Class HB, 6.50%, 11/15/22............... 210,000 212,171
Series 1552 Class QH, 6.00%, 8/15/23................ 335,000 326,074
Federal National Mortgage Assn. Pass Thru Securities
Guaranteed Remic Trust:
Series 1993-70 Class D, 6.90%, 12/25/03............. 260,926 265,505
Series X-225C Class PD, 5.70%, 6/25/17.............. 200,000 198,931
------------
(Cost $982,321) 1,002,681
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS........... 25,810,659
------------
(Cost $24,504,033)
ASSET BACKED SECURITIES -- 24.07%
Advanta Mortgage Loan Trust Asset Backed Ctf.,
Series 1994-3, Class A2, 7.60%, 7/25/10............. 1,459,688 1,465,833
Chemical Master Credit Card Trust 1 Asset Backed
Ctf.,
Series 1995-3, Class A, 6.23%, 8/15/02.............. 2,500,000 2,512,425
Chevy Chase Auto Receivable Trust Asset Backed Pass
Thru Ctf.,
Series 1995-2, Class A, 5.80%, 6/15/02.............. 1,060,810 1,060,206
Dayton Hudson Credit Card Master Trust Asset Backed
Ctf.,
Series 1995-1, Class A, 6.10%, 2/25/02.............. 2,500,000 2,505,300
Green Tree Financial Corp. Asset Backed Pass Thru
Ctf.,
Series 1994-B1, Class A1, 7.15%, 7/15/14............ 380,878 386,596
MBNA Master Credit Card Trust 94-C Asset Backed Pass
Thru Ctf.,
Series 1994-C, Class A, Floating Rate, 3/15/04...... 1,655,000 1,666,337
Olympic Automobile Receivables Trust Asset Backed
Pass Thru Ctf.
Series 1995-D, Class A5, 6.15%, 7/15/01............. 2,300,000 2,306,302
Series 1996-C, Class A5, 7.00%, 3/15/04............. 3,000,000 3,074,670
PNC Student Loan Trust Asset Backed Pass Thru Ctf.
Series 1997-2, Class A6, 6.572%, 1/25/04............ 200,000 205,250
Security Pacific Acceptance Corp. Asset Backed Pass
Thru Ctf.,
Series 1995-1, Class A3, 7.25%, 4/10/20............. 2,000,000 2,079,752
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
132
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
DESCRIPTION AMOUNT MARKET VALUE
----------- ------ ------------
<S> <C> <C>
Standard Credit Card Trust Participation Ctfs.,
Series 1991-3, Class A, 8.875%, 9/7/99.............. $3,100,000 $ 3,150,064
Western Financial Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03............ 4,000,000 4,058,680
------------
TOTAL ASSET BACKED SECURITIES.......................... 24,471,415
------------
(Cost $24,186,545)
CORPORATE BONDS AND NOTES -- 49.55%
Finance -- 33.66%
ABN AMRO Bank N.V., 7.25%, 5/31/05................... 4,800,000 5,050,114
American RE Corporation Debenture, 7.45%, 12/15/26... 6,000,000 6,469,440
General Electric Capital Corp., 8.85%, 4/1/05........ 3,500,000 4,028,280
Goldman Sachs Group LP, Note 144A, 6.10%, 4/15/98.... 3,000,000 2,998,578
Grand Metro Investment Corp. Put Guaranteed Note,
7.45%, 4/15/35...................................... 4,500,000 4,935,028
Mellon Financial Corp. Note, 7.625%, 11/15/99........ 2,310,000 2,374,726
Norwest Corp., Senior Medium Term Note, 7.75%,
3/1/02.............................................. 1,500,000 1,582,333
Salomon Incorporated, 6.70%, 12/1/98................. 3,700,000 3,722,729
Societe General Estate, LLC, Bond,
Series 144A, Perpetual Maturity, 7.64%, 9/30/07..... 3,055,000 3,066,918
------------
(Cost $32,778,764) 34,228,146
------------
Industrial -- 3.03%
Beckman Instruments, Debenture 7.05%, 6/1/26......... 3,000,000 3,083,799
------------
(Cost $2,990,986)
Public Utility --12.86%
Bell Telephone Co. Pennsylvania, 8.35%, 12/15/30..... 4,000,000 5,085,486
National Rural Utilities Coop Financial Corp., 6.75%,
9/1/01.............................................. 4,290,000 4,389,103
US West Capital Funding Inc., Discrete Put, 6.95%,
1/15/37............................................. 2,500,000 2,593,017
West Texas Utilities First Mortgage, 6.375%, 10/1/05. 1,000,000 1,003,653
------------
(Cost $12,360,135) 13,071,259
------------
TOTAL CORPORATE BONDS AND NOTES........................ 50,383,204
------------
(Cost $48,129,885)
TOTAL INVESTMENTS...................................... $101,683,183
============
(Cost $97,838,368)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
133
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 5.00%
Pegasus Cash Management Fund Class I................ $ 4,294,285 $ 4,294,285
-----------
(Cost $4,294,285)
<CAPTION>
PAR (A)
-------------
<S> <C> <C>
FOREIGN BONDS -- 92.67%
ARGENTINA -- 1.28%
Republic of Argentina, 11.375%, 01/30/17.........USD 1,000,000 1,096,875
-----------
AUSTRALIA -- 2.22%
Australia (Commonwealth), 9%, 09/15/04.............. 2,500,000 1,906,939
-----------
AUSTRIA -- 1.09%
Republic of Austria, 6%, 04/01/98................... 600,000 335,031
Republic of Austria, 7%, 01/20/03................... 7,000,000 600,632
-----------
935,663
-----------
BELGIUM -- 1.89%
Belgium Government, Series 19, 6.50%, 03/31/05...... 56,000,000 1,626,045
-----------
BRAZIL -- 3.29%
Federal Republic of Brazil, 10.125%, 05/15/27....USD 3,000,000 2,823,750
-----------
CANADA -- 5.94%
Canada Government, 10.75%, 03/15/98................. 500,000 354,443
Canada Government, 6.50%, 06/01/04.................. 3,800,000 2,800,996
Ontario Hydro 8.625% 02/06/02....................... 2,500,000 1,945,117
-----------
5,100,556
-----------
DENMARK -- 1.66%
Kingdom of Denmark, 9%, 11/15/98.................... 2,000,000 303,394
Kingdom of Denmark, 7%, 11/15/07.................... 7,000,000 1,122,297
-----------
1,425,691
-----------
FINLAND -- 2.36%
Republic of Finland, 5.50%, 02/09/01.............DEM 2,000,000 1,138,460
Republic of Finland, 6%, 01/29/02................JPY 30,000,000 275,436
Republic of Finland, 7.25%, 04/18/06................ 3,000,000 616,930
-----------
2,030,826
-----------
FRANCE -- 9.64%
Government of France, 5.75%, 03/12/01............... 10,000,000 1,721,448
Government of France, 5.50%, 04/25/04............... 20,100,000 3,434,052
Government of France, 5.50%, 05/24/07............... 12,000,000 2,024,648
Government of France, 6.50%, 04/25/11............... 6,000,000 1,089,619
-----------
8,269,767
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
134
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION PAR (A) MARKET VALUE
----------- ------------- ------------
<S> <C> <C>
GERMANY -- 10.81%
Deutsche Bundespost, 5.75%, 04/02/01............... 5,500,000 $ 3,159,213
Deutsche Bundespost, 7.50%, 08/02/04............... 600,000 375,742
Federal Republic of Germany, 9%, 10/20/00.......... 600,000 372,638
Federal Republic of Germany, 6.5%, 07/15/03........ 4,600,000 2,748,933
Federal Republic of Germany, 6%, 01/05/06.......... 4,500,000 2,626,606
-----------
9,283,132
-----------
INTERNATIONAL -- 10.39%
Asian Development Bank, 3.125%, 06/29/05........JPY 300,000,000 2,517,861
Asian Development Bank, 5%, 02/05/03............JPY 40,000,000 361,864
Council of Europe, 6.875%, 03/05/01.............JPY 30,000,000 273,129
European Investment Bank, 8%, 06/10/03..........GBP 1,300,000 2,253,996
Inter-American Development Bank, 2.25%,
02/05/02.......................................JPY 400,000,000 3,201,404
Inter-American Development Bank, 7.25%,
05/15/00.......................................JPY 35,000,000 309,565
-----------
8,917,819
-----------
ITALY -- 8.76%
Italian Government, 8.50%, 01/01/99................ 5,500,000,000 3,211,969
Italian Government, 9.50%, 02/01/06................ 3,500,000,000 2,478,710
Italian Government, 6.75%, 02/01/07................ 3,000,000,000 1,839,201
-----------
7,529,880
-----------
JAPAN -- 11.87%
Export-Import Bank Japan, 4.375%, 10/01/03......... 30,000,000 267,360
Export-Import Bank Japan, 2.875%, 07/28/05......... 400,000,000 3,320,615
Government of Japan, 4.50%, 12/20/04............... 40,000,000 365,848
International Bank of Reconstruction & Development,
5.25%, 03/20/02................................... 100,000,000 899,854
International Bank of Reconstruction & Development,
4.75%, 12/20/04................................... 200,000,000 1,856,430
Japan Development Bank, 6.50%, 09/20/01............ 35,000,000 322,520
Nippon Telephone & Telegraph, 2.50%, 07/25/07...... 400,000,000 3,168,717
-----------
10,201,344
-----------
NETHERLANDS -- 3.56%
Netherland Government, 5.75%, 01/15/04............. 6,000,000 3,061,818
-----------
NEW ZEALAND -- 2.11%
New Zealand Government, 8%, 04/15/04............... 3,000,000 1,814,669
-----------
RUSSIA -- 3.23%
Russia Ministry of Finance, 10%, 06/26/07.......... 3,000,000 2,778,750
-----------
SPAIN -- 3.23%
Spanish Government, 8%, 05/30/04................... 370,000,000 2,775,933
-----------
SOUTH AFRICA -- 1.22%
Republic of South Africa, 9.625%, 12/15/99......USD 1,000,000 1,048,750
-----------
SWEDEN -- 1.51%
Swedish Government, 8%, 08/15/07................... 9,000,000 1,301,333
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
135
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION PAR (A) MARKET VALUE
----------- --------- ------------
<S> <C> <C>
UNITED KINGDOM -- 6.61%
Exchequer 12.25% 03/26/99............................... 250,000 $ 436,417
United Kingdom Treasury, 7%, Stock 2001................. 2,000,000 3,329,883
United Kingdom Treasury, 8%, Stock 2013................. 1,000,000 1,916,380
-----------
5,682,680
-----------
TOTAL FOREIGN BONDS...................................... 79,612,220
-----------
(COST $84,413,963)
U.S. GOVERNMENT OBLIGATION -- 2.33%
United States Treasury Note, 5.75%, 09/30/99............ 2,000,000 2,003,127
-----------
(COST $1,998,422)
TOTAL INVESTMENTS........................................ $85,909,632
===========
(COST $90,706,670)
</TABLE>
(a) In local currencies unless otherwise noted.
CURRENCY ABBREVIATIONS
DEM German Deutschemark
GBP United Kingdom Pound Sterling
JPY Japanese Yen
USD United States Dollar
See Notes to Financial Statements.
Pegasus Funds
136
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 3.41%
Pegasus Cash Management Fund Class I (in shares)....... 1,670,219 $ 1,670,219
-----------
(Cost $1,670,219)
CORPORATE BONDS AND NOTES -- 93.52%
Aerospace & Defense -- 0.41%
United Defense Industries, Inc., Series 144A, 8.750%,
11/15/07 (a)......................................... $ 200,000 202,250
-----------
(Cost $200,000)
Automotive -- 2.20%
Collins & Aikman Products, 11.500%, 4/15/06........... 475,000 536,156
Delco-Remy International, Inc., 8.625%, 12/15/07...... 100,000 101,750
Lear Corp., 9.500%, 7/15/06........................... 300,000 331,500
Oxford Automotive, Inc., 10.125%, 6/15/07............. 100,000 106,000
-----------
(Cost $1,067,467) 1,075,406
-----------
Banking -- 1.38%
First Nationwide Holdings
9.125%, 1/15/03...................................... 375,000 393,750
10.625%, 10/1/03..................................... 250,000 280,625
-----------
(Cost $669,825) 674,375
-----------
Beverage & Tobacco -- 0.55%
Dimon, Inc., 8.875%, 6/1/06........................... 250,000 267,188
-----------
(Cost $266,307)
Broadcast Radio & TV -- 6.99%
Acme Television
Series 144A, Step Up, 0% to 9/30/00, thereafter
10.875%, 9/30/04 (a) (b)............................. 300,000 222,375
Capstar Broadcasting, 9.250%, 7/1/07.................. 150,000 154,875
Chancellor Media Corp. Los Angeles
Series B, 8.750%, 6/15/07............................ 675,000 686,813
Series 144A, 8.125%, 12/15/07 (a).................... 125,000 122,500
Fox/Liberty Networks LLC
Series 144A, 8.875%, 8/15/07 (a)..................... 125,000 125,312
Series 144A, Step Up, 0% to 8/15/02, thereafter
9.750%, 8/15/07 (a) (b)............................. 575,000 370,875
Katz Media Corp., Series B, 10.500%, 1/15/07.......... 100,000 110,500
Lamar Advertising Co., 9.625%, 12/1/06................ 200,000 216,500
Outdoor Systems, 8.875%, 6/15/07...................... 600,000 630,000
Sinclair Broadcasting Group, 9.000%, 7/15/07.......... 600,000 609,000
Young Broadcasting, Inc., Series B, 9.000%, 1/15/06... 175,000 175,875
-----------
(Cost $3,394,862) 3,424,625
-----------
Building & Development -- 1.03%
American Architectural, Series 144A, 11.750%, 12/1/07
(a).................................................. 125,000 126,563
Building Materials Corp., Series 144A, 8.000%,
10/15/07 (a)......................................... 375,000 375,937
-----------
(Cost $497,570) 502,500
-----------
Building & Equipment -- 0.59%
American Builders Contractors Supply Co., Series B,
10.625%, 5/15/07..................................... 275,000 286,688
-----------
(Cost $287,466)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
137
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Business Equipment & Services -- 1.34%
Dialog Corp. PLC, Series 144A, 11.000%, 11/15/07
(a)................................................ $ 325,000 $ 338,812
Outsourcing Solutions, Series B, 11.000%, 11/1/06... 150,000 166,875
United Stationers Supply Co., 12.750%, 5/1/05....... 134,000 153,095
-----------
(Cost $646,113) 658,782
-----------
Cable Television -- 9.83%
Cablevision Systems Corp.
9.250%, 11/1/05.................................... 450,000 479,250
7.875%, 12/15/07................................... 250,000 256,563
Charter Communications Southeast Holdings
Series B, Step Up, 0% to 3/15/01, thereafter
14.000%, 3/15/07 (b)............................... 175,000 137,375
Comcast Corp., 9.375%, 5/15/05...................... 250,000 266,875
Diamond Cable Communications PLC
Step Up, 0% to 12/15/00, thereafter 11.750%,
12/15/05 (b)...................................... 75,000 58,312
Step Up, 0% to 2/15/02, thereafter 10.750%, 2/15/07
(b)............................................... 525,000 359,625
EchoStar Satellite Broadcasting Corp.
Step Up, 0% to 3/15/00, thereafter 13.125%, 3/15/04
(b)............................................... 275,000 232,375
Frontiervision Holdings Limited Partnership
Series 144A, Step Up, 0% to 9/15/01, thereafter
11.875%, 9/15/07 (a) (b)........................... 300,000 222,000
International Cabletel, Inc.
Series B, Step Up, 0% to 2/1/01, thereafter
11.500%, 2/1/06 (b)............................... 800,000 632,000
Lenfest Communications, 8.375%, 11/1/05............. 300,000 310,500
Pegasus Communications, Series 144A, 9.625%,
10/15/05 (a)....................................... 250,000 256,250
Rogers Cablesystems LTD, Series B, 10.000%, 3/15/05. 200,000 222,000
Rogers Communications, Inc., 8.875%, 7/15/07........ 475,000 477,375
TeleWest Communication PLC
Step Up, 0% to 10/1/00, thereafter 11.000%, 10/1/07
(b)............................................... 900,000 704,250
UIH Australia/Pacific
Series B, Step Up, 0% to 5/15/01, thereafter
14.000%, 5/15/06 (b)............................... 300,000 199,500
-----------
(Cost $4,695,637) 4,814,250
-----------
Chemicals & Plastics -- 3.19%
Buckeye Cellulose Corp., 8.500%, 12/15/05........... 425,000 433,500
ISP Holdings, Inc., Series B, 9.750%, 2/15/02....... 450,000 477,562
Polymer Group, Inc., Series B, 9.000%, 7/1/07....... 500,000 502,500
Sterling Chemicals Holdings, Inc.
Step Up, 0% to 8/15/01, thereafter 13.500%, 8/15/08
(b)............................................... 250,000 151,250
-----------
(Cost $1,603,155) 1,564,812
-----------
Clothing & Textiles -- 3.61%
Collins & Aikman Floorcoverings, Series B, 10.000%,
1/15/07............................................ 100,000 105,500
Dyersburg Corp., Series B, 9.750%, 9/1/07........... 250,000 260,625
GFSI, Inc., Series B, 9.625% 3/1/07................. 200,000 206,000
Glenoit Corp., Series 144A, 11.000%, 4/15/07 (a).... 100,000 108,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
138
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Pillowtex Corp.
10.000%, 11/15/06.................................. $ 400,000 $ 430,000
Series 144A, 9.000%, 12/15/07 (a).................. 100,000 103,000
Westpoint Stevens, Inc., 9.375%, 12/15/05........... 525,000 553,875
-----------
(Cost $1,753,747) 1,767,000
-----------
Conglomerates -- 0.21%
Climachem, Inc., Series 144A, 10.75 %, 12/1/07 (a).. 100,000 103,500
-----------
(Cost $100,000)
Consumer Products -- 3.43%
American Safety Razor Co., Series B, 9.875%, 8/1/05. 150,000 161,250
Amscan Holdings, Inc., Series 144A, 9.875%, 12/15/07
(a)................................................ 75,000 77,063
NBTY, Inc., Series 144A, 8.625%, 9/15/07 (a)........ 350,000 351,750
Playtex Products, Series B, 8.875%, 7/15/04......... 450,000 461,250
Renaissance Cosmetics, 11.750%, 2/15/04............. 125,000 115,625
Simmons Co., 10.750%, 4/15/06....................... 350,000 371,875
Syratech Corp., 11.000%, 4/15/07.................... 150,000 140,250
-----------
(Cost $1,695,179) 1,679,063
-----------
Ecological Services & Equipment -- 1.47%
Allied Waste Industries
Series 144A, Step Up, 0% to 6/1/02, thereafter
11.300%, 6/1/07 (a) (b)............................ 825,000 583,688
Allied Waste North America, 10.250%, 12/1/06........ 125,000 137,813
-----------
(Cost $706,157) 721,501
-----------
Electronics -- 0.76%
Advanced Micro Devices, 11.000%, 8/1/03............. 100,000 107,375
Fairchild Semiconductor Corp., 10.125%, 3/15/07..... 175,000 185,938
Viasystems, Inc., 9.750%, 6/1/07.................... 75,000 77,812
-----------
(Cost $377,372) 371,125
-----------
Food & Drug Retailers -- 3.18%
Community Distributors, Series 144A, 10.250%,
10/15/04 (a)....................................... 150,000 153,750
Di Giorgio Corp., Series B, 10.000%, 6/15/07........ 300,000 296,250
Jitney-Jungle Stores of America, Inc., 10.375%,
9/15/07............................................ 200,000 210,000
Ralph's Grocery Co., 10.450%, 6/15/04............... 425,000 479,719
Stater Brothers, 9.000%, 7/1/04..................... 400,000 419,500
-----------
(Cost $1,518,994) 1,559,219
-----------
Food Products -- 2.13%
Aurora Foods, Series B, 9.875%, 2/15/07............. 225,000 238,500
Curtice-Burns Foods, Inc., 12.250%, 2/1/05.......... 150,000 166,125
International Home Foods, 10.375%, 11/1/06.......... 375,000 414,375
Van de Kamps, Inc., 12.000%, 9/15/05................ 200,000 224,000
-----------
(Cost $1,017,239) 1,043,000
-----------
Food Services -- 1.13%
Ameriserv Food Distribution, Inc., 10.125%, 7/15/07. 525,000 553,875
-----------
(Cost $544,517)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
139
<PAGE> 170
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Forest Products -- 0.46%
Stone Container Corp., 9.875%, 2/1/01............... $ 225,000 $ 226,687
-----------
(Cost $230,296)
Healthcare -- 4.52%
Alliance Imaging, 9.625%, 12/15/05.................. 100,000 102,000
Dade International, Inc., Series B, 11.125%, 5/1/06. 450,000 499,500
Genesis Health Ventures
9.750%, 6/15/05.................................... 250,000 260,625
9.250%, 10/1/06.................................... 375,000 383,906
Tenet Healthcare Corp., 8.000%, 1/15/05............. 950,000 969,000
-----------
(Cost $2,230,434) 2,215,031
-----------
Home Products & Furnishings -- 1.26%
Falcon Building Products, Inc., Series B, Step Up,
0% to 6/15/02, thereafter 10.500%, 6/15/07 (b)..... 500,000 333,750
Werner Holdings Co., Inc., Series 144A, 10.000%,
11/15/07 (a)....................................... 150,000 154,875
Sealy Mattress Co., Series 144A, 9.875%, 12/15/07
(a)................................................ 125,000 128,750
-----------
(Cost $602,531) 617,375
-----------
Hotels, Motels, Inns & Casinos -- 0.76%
Capstar Hotel Company, 8.750%, 8/15/07.............. 200,000 207,500
Courtyard by Marriott, Series B, 10.750%, 2/1/08.... 150,000 164,250
-----------
(Cost $364,202) 371,750
-----------
Industrial Products & Equipment -- 3.46%
Amphenol Corp., 9.875%, 5/15/07..................... 225,000 240,750
Continental Global Group, Series B, 11.000%, 4/1/07. 375,000 401,250
Elgin National Industrial, Series 144A, 11.000%,
11/1/07 (a)........................................ 100,000 104,250
Euramax International, Inc., 11.250%, 10/1/06....... 150,000 163,125
Johnstown America Industries, Series C, 11.750%,
8/15/05............................................ 125,000 137,500
MMI Products, Inc., Series B, 11.250%, 4/15/07...... 250,000 273,750
Neenah Corp., Series B, 11.125%, 5/1/07............. 200,000 220,500
Roller Bearing Co. of America, Series 144A, 9.625%,
6/15/07 (a)........................................ 150,000 151,875
-----------
(Cost $1,672,417) 1,693,000
-----------
Leisure & Entertainment -- 4.72%
AMF Bowling Worldwide
Series B, Step Up, 0% to 3/15/01, thereafter
12.250%, 3/15/06 (b)............................... 337,000 266,651
Livent, Inc., Series 144A, 9.375%, 10/15/04 (a)..... 250,000 251,250
Premier Parks, Inc., 9.750%, 1/15/07................ 325,000 347,750
Six Flags Theme Parks
Series A, Step Up, 0% to 6/15/98, thereafter
12.250%, 6/15/05 (b)............................... 450,000 481,500
Viacom International, 8.000%, 7/7/06................ 950,000 964,250
-----------
(Cost $2,282,267) 2,311,401
-----------
Machinery & Equipment -- 1.29%
Alvey Systems, 11.375%, 1/31/03..................... 150,000 160,125
Clark Materials Handling, 10.750%, 11/15/06......... 300,000 322,500
National Equipment Services, Series 144A, 10.000%,
11/30/04 (a)....................................... 150,000 149,250
-----------
(Cost $624,026) 631,875
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
140
<PAGE> 171
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Metals & Mining -- 0.78%
AEI Holding Company, Inc., Series 144A, 10.000%,
11/15/07 (a)....................................... $ 175,000 $ 181,125
Anker Coal Group, Series 144A, 9.750%, 10/1/07 (a).. 200,000 203,500
-----------
(Cost $377,871)...................................... 384,625
-----------
Oil & Gas -- 6.90%
Abraxas Petroleum Corp., Series B, 11.500%, 11/1/04. 500,000 550,000
DI Industries, Inc., 8.875%, 7/1/07................. 300,000 313,500
Dailey Petroleum Service, Series 144A, 9.750%,
8/15/07 (a)........................................ 150,000 158,250
Forcenergy, Inc., 8.500%, 2/15/07................... 500,000 505,000
Newpark Resources, Inc., Series 144A, 8.625%,
12/15/07 (a)....................................... 50,000 51,000
Pacalta Resources LTD, Series B, 10.750%, 6/15/04... 250,000 247,813
Petsec Energy, 9.500%, 6/15/07...................... 225,000 232,031
Pogo Producing Company, Series B, 8.750%, 5/15/07... 250,000 257,500
Pride Petroleum Services, Inc., 9.375%, 5/1/07...... 375,000 405,000
United Meridian Corp., 10.375%, 10/15/05............ 500,000 555,000
United Refining Co., Series 144A, 10.750%, 6/15/07
(a)................................................ 100,000 105,750
-----------
(Cost $3,357,397) 3,380,844
-----------
Printing & Publishing -- 2.58%
Garden State Newspapers, Series 144A, 8.750%,
10/1/09 (a)........................................ 550,000 554,125
Hollinger International Publishing, 9.250%, 2/1/06.. 400,000 424,000
K-III Communications Corp., Series B, 8.500%,
2/1/06............................................. 275,000 286,773
-----------
(Cost $1,244,375) 1,264,898
-----------
Retailers -- 0.64%
Leslie's Poolmart, 10.375%, 7/15/04................. 300,000 312,000
-----------
(Cost $313,315)
Services -- 1.43%
Coinmach Corp., Series 144A, Series C, 11.750%,
11/15/05 (a)....................................... 350,000 390,250
Decisionone Corp., 9.750%, 8/1/07................... 300,000 310,500
-----------
(Cost $693,825) 700,750
-----------
Steel -- 1.05%
GS Technologies, 12.250%, 10/1/05................... 225,000 252,562
Ryerson Tull, Inc., 8.500%, 7/15/01................. 250,000 260,000
-----------
(Cost $508,814) 512,562
-----------
Surface Transportation -- 4.63%
Allied Holdings, 8.625%, 10/1/07.................... 350,000 357,000
AmeriTruck Distribution, Series B, 12.250%,
11/15/05........................................... 325,000 323,375
Chemical Leaman Corp., 10.375%, 6/15/05............. 200,000 213,000
Gearbulk Holdings, 11.250%, 12/1/04................. 400,000 441,000
Statia Terminals, Series B, 11.750%, 11/15/03....... 150,000 157,500
Stena AB
10.500%, 12/15/05.................................. 275,000 300,437
8.750%, 6/15/07.................................... 250,000 253,125
Trism, Inc., 10.750%, 12/15/00...................... 225,000 221,625
-----------
(Cost $2,282,386) 2,267,062
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
141
<PAGE> 172
PEGASUS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Telecommunications & Cellular -- 13.73%
American Communications Services Step Up:
0% to 4/1/01, thereafter 12.750%, 4/1/06 (b)....... $200,000 $ 155,000
Series 144A, 13.750%, 7/15/07 (a).................. 50,000 59,750
Brooks Fiber Properties
Step Up, 0% to 11/1/01, thereafter 11.875%, 11/1/06
(b)............................................... 650,000 523,250
Call-Net Enterprises, Inc.,
Step Up, 0% to 8/15/02, thereafter 9.270%, 8/15/07
(b)............................................... 725,000 493,000
Comcast Cellular Holdings, Inc., Series B, 9.500%,
5/1/07............................................. 375,000 393,750
Esprit Telecom, 11.500%, 12/15/07................... 200,000 207,000
Hermes Europe Railtel BV, Series 144A, 11.500%,
8/15/07 (a)........................................ 150,000 167,250
Highwaymaster Communications, Inc., Series 144A,
13.750%, 9/15/05 (a)............................... 100,000 102,250
Intermedia Communications
Step Up, 0% to 7/15/02, thereafter 11.250%, 7/15/07
(b)............................................... 600,000 433,500
Series 144A, 8.875%, 11/1/07 (a)................... 100,000 103,000
McLeodUSA, Inc.
Step Up, 0% to 3/1/02, thereafter 10.500%, 3/1/07
(b)............................................... 350,000 254,625
Series 144A, 9.250%, 7/15/07 (a)................... 150,000 157,125
Metronet Communications, Unit, 12.000%, 8/15/07..... 200,000 231,500
Millicom International Cellular
Step Up, 0% to 6/1/01, thereafter 13.500%, 6/1/06
(b)............................................... 450,000 330,750
NEXTEL Communications
Step Up, 0% to 2/15/99, thereafter 9.750%, 8/15/04
(b)............................................... 250,000 223,125
Series 144A, Step Up, 0% to 9/15/02, thereafter
10.650%, 9/15/07 (a) (b).......................... 425,000 268,281
Nextlink Communications, 9.625%, 10/1/07............ 400,000 413,000
Paging Network, 10.000%, 10/15/08................... 400,000 417,000
Qwest Communications International
Series 144A, Step Up, 0% to 10/15/02, thereafter
9.470%, 10/15/07 (a) (b)........................... 700,000 476,000
RCN Corp.
Series 144A, Step Up, 0% to 10/15/02, thereafter
11.125%, 10/15/07 (a) (b)......................... 350,000 221,375
Teleport Communications
Step Up, 0% to 7/1/01, thereafter 11.125%, 7/1/07
(b)............................................... 700,000 578,375
Teligent, Inc., 11.500%, 12/1/07.................... 225,000 226,687
Telesystem International Wireless
Series 144A, Step Up, 0% to 11/1/02, thereafter
10.500%, 11/1/07 (a) (b).......................... 350,000 196,000
Series 144A, Step Up, 0% to 6/30/02, thereafter
13.250%, 6/30/07 (a) (b).......................... 150,000 94,500
-----------
(Cost $6,519,774) 6,726,093
-----------
Utilities -- 1.88%
Cal Energy Co., Inc., 9.500%, 9-15-06............... 425,000 466,438
El Paso Electric Co., First Mortgage Series E,
9.400%, 5/1/11..................................... 400,000 452,320
-----------
(Cost $904,144) 918,758
-----------
TOTAL CORPORATE BONDS AND NOTES....................... 45,803,870
-----------
(Cost $45,249,681)
</TABLE>
See Notes to Financial Statements.
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- 0.02%
Cable Television -- 0.01%
Pegasus Communications, Warrant*......................... 175 $ 5,775
UIH Australia/Pacific, Warrant*.......................... 300 3,638
-----------
9,413
-----------
Telecommunications & Cellular -- 0.01%
Highwaymaster Communications, Warrant*................... 100 100
-----------
TOTAL COMMON STOCKS........................................ 9,513
-----------
(Cost $3,637)
PREFERRED STOCKS -- 3.05%
Broadcast Radio & TV -- 1.51%
American Radio Systems, PIK, Series B, 11.375%**......... 1,750 208,469
Capstar Broadcasting Partners, Inc., 12.000%............. 750 86,437
SFX Broadcasting, Inc., Cumulative, Series E, 12.625%.... 2,500 285,625
Sinclair Capital, 11.625%................................ 1,425 157,819
-----------
738,350
-----------
Cable Television -- 0.82%
Echostar Communications, Series 144A (a)................. 200 211,000
Pegasus Communications, Cumulative PIK, Series A,
12.750%**............................................... 175 189,875
-----------
400,875
-----------
Printing & Publishing -- 0.51%
Primedia, Inc., Series 144A, Series E, 9.200% (a)........ 2,500 250,625
Real Estate -- 0.21%
Crown American Realty Trust, Cumulative Senior, Series A,
11.000%................................................. 2,000 104,500
-----------
TOTAL PREFERRED STOCKS..................................... 1,494,350
-----------
(Cost $1,445,774)
TOTAL INVESTMENTS.......................................... $48,977,952
===========
(Cost $48,369,311)
</TABLE>
* Non-income producing security.
** PIK--Payment-In-Kind
(a) Security Exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(b) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
See Notes to Financial Statements.
Pegasus Funds
143
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS -- 100.00%
ALABAMA -- 1.41%
Courtland Industrial Development Board Solid Waste
Disposal Revenue,
Series A, 6.50%, 9/1/25............................. $ 5,000,000 $ 5,435,550
------------
ALASKA -- 0.91%
Alaska Student Loan Revenue State Assisted Series A
(AMBAC Insured), 6.125%, 7/1/05..................... 800,000 847,584
Fairbanks North Star Boro Refunding Series, (MBIA
Insured), 5.45%, 3/1/06............................. 2,500,000 2,677,775
------------
3,525,359
------------
ARIZONA -- 2.19%
Maricopa County General Obligation Unlimited Tax
School District No. 28
Series B (FGIC Insured), 6.00%, 7/1/14.............. 2,500,000 2,685,300
Salt River Project Agricultural Improvement Power
District Revenue Electric System Series D, 6.00%,
1/1/08.............................................. 625,000 706,013
Salt River Project Agricultural Refunding Series B,
5.25%, 1/1/19....................................... 5,000,000 5,034,900
------------
8,426,213
------------
CALIFORNIA -- 8.99%
Anaheim California Public Finance Authority Lease
Revenue Series C (FSA Insured), 6.00%, 9/1/16....... 2,000,000 2,266,940
California State General Obligation "A1", Unlimited
Tax, 5.00%, 10/1/23................................. 4,000,000 3,909,040
Los Angeles Uni School District General Obligation
Series A (FGIC Insured),
5.00%, 7/1/21....................................... 3,000,000 2,947,110
Northern California Public Power Agency Revenue
Refunding Geothermal
Project A (AMBAC Insured):
5.60%, 7/1/06...................................... 3,500,000 3,834,145
5.65%, 7/1/07...................................... 4,800,000 5,293,152
Orange Co. Recovery CTFS PRTN CA Series A (MBIA
Insured), 5.80%, 7/1/16............................. 5,315,000 5,711,233
Sacramento Cogeneration Authority Revenue:
7.00%, 7/1/05...................................... 1,500,000 1,723,620
6.20%, 7/1/06...................................... 2,500,000 2,758,450
Sacramento, California M.U.D. (MBIA Insured) 5.75%,
1/1/10.............................................. 3,000,000 3,247,830
Sacramento, California Municipal Utility Revenue
Refunding, Series L, 5.125%, 7/1/22................. 3,000,000 2,960,850
------------
34,652,370
------------
COLORADO -- 5.10%
Denver City & Co. Airport Revenue:
Series B, 7.25%, 11/15/05........................... 3,000,000 3,392,730
Series C, 6.50%, 11/15/06........................... 2,000,000 2,149,700
Series D, 7.75%, 11/15/13........................... 6,925,000 8,790,664
Series A, 8.50%, Prerefunded, 11/15/23.............. 220,000 250,023
Series A, 8.50%, Unrefunded, 11/15/23............... 2,280,000 2,561,785
Series A, 8.00%, Prerefunded, 11/15/25.............. 200,000 224,612
Series A, 8.00%, Unrefunded, 11/15/25............... 2,095,000 2,314,032
------------
19,683,546
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
144
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
CONNECTICUT -- 0.93%
Connecticut Housing Finance Authority Revenue
Mortgage Subseries D-1, 5.90%, 5/15/16.............. $ 3,400,000 $ 3,577,582
------------
FLORIDA -- 10.49%
Lakeland Electric & Water Revenue Refunding Series B
(FCIC Insured), 6.00%, 10/1/11...................... 4,000,000 4,550,280
Lee County Transportation Facilities Revenue (MBIA
Insured), 5.75%, 10/1/27............................ 9,640,000 10,168,850
Florida State Board of Education Capital Outlay
General Obligation Unlimited Tax Refunding.
Series C, 5.75%, 6/1/13............................ 5,000,000 5,265,100
Series F, 5.50%, 6/1/26............................ 8,250,000 8,493,953
Series F, 6.40%, 6/1/19............................ 11,000,000 11,973,830
------------
40,452,013
------------
GEORGIA -- 9.48%
Fulton County School District General Obligation
Unlimited Tax Refunding, 6.375%, 5/1/10............. 5,000,000 5,835,600
Gainesville Water & Sewer Revenue Series B (FGIC
Insured), 6.00%, 11/15/12........................... 3,950,000 4,467,569
Georgia General Obligation Unlimited Tax:
7.10%, 9/1/09....................................... 8,500,000 10,510,080
6.75%, 9/1/11....................................... 10,000,000 12,100,100
Georgia State Housing And Finance Authority Revenue
Series B, 6.10%, 12/1/12............................ 650,000 688,122
Rockdale Country Water and Sewer Authority Revenue
(FSA Insured), 5.00%, 7/1/22........................ 3,000,000 2,950,050
------------
36,551,521
------------
HAWAII -- 1.17%
Hawaii Airport Systems Revenue Refunding Third Series
(AMBAC Insured), 5.75%, 7/1/09...................... 4,200,000 4,510,338
------------
ILLINOIS -- 10.55%
Chicago Metropolitan Water Capital Improvement,
5.50%, 12/1/12...................................... 1,000,000 1,077,240
Chicago O'Hare International Airport Revenue Series A
(AMBAC Insured):
5.625%, 1/1/13...................................... 5,000,000 5,287,950
5.625%, 1/1/14...................................... 5,000,000 5,275,800
Chicago School Reform Board of Educ. General
Obligation, (AMBAC Insured), Unlimited Tax 5.25%,
12/1/22............................................. 3,000,000 2,995,710
Cook County Community College Participation Ctfs.
District #508 Series C (MBIA) Insured), 7.70%,
12/1/04............................................. 5,000,000 6,010,200
DuPage Co. Forest Preservation District Refunding,
6.00%, 11/1/03...................................... 1,750,000 1,909,478
Illinois Health Facilities Authority Revenue
Northwestern Memorial Hospital
Series A, 5.60%, 8/15/06............................ 1,000,000 1,079,560
Illinois Health Facilities Authority Revenue
Refunding (FGIC Insured), 6.00%, 8/15/05............ 1,000,000 1,099,750
Illinois Housing Development Series A, 5.95%, 7/1/21. 2,000,000 2,065,900
Illinois State Sales Tax Revenue Refunding Series Q,
5.75%, 6/15/06...................................... 5,000,000 5,487,400
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
145
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Northlake Illinois Public Imp. General Obligation
(MBIA Insured), 5.60%, 12/1/14...................... $ 4,000,000 $ 4,221,200
Winnebago & Boone Counties General Obligation
Unlimited Tax, 7.35%, 2/1/04........................ 3,600,000 4,187,088
------------
40,697,276
------------
INDIANA -- 1.11%
Ball State University Revenue Student Fee Series G
(FGIC Insured), 6.125%, 7/1/09...................... 400,000 431,484
Indiana State Vocational Technology Revenue Series D,
5.90%, 7/1/06....................................... 1,000,000 1,101,090
Indiana Transportation Finance Authority:
Series A, Prerefunded 6.25%, 11/1/16................ 1,370,000 1,510,713
Series A, Unrefunded 6.25%, 11/1/16................. 130,000 139,344
St. Joseph Co. Hospital Authority Facilities Revenue
Memorial Hospital South Bend Project (MBIA Insured),
6.25%, 8/15/12...................................... 1,000,000 1,088,880
------------
4,271,511
------------
MASSACHUSETTS -- 4.29%
Massachusetts State General Obligation Unlimited Tax,
Series C, 5.00%, 8/1/17............................. 10,000,000 9,864,400
Massachusetts State Housing Finance Agency Revenue
Single Family Series 47 (AMBAC Insured), 6.00%,
12/1/15............................................. 4,000,000 4,216,760
Massachusetts State Industrial Finance Agency Revenue
(MBIA Insured), 6.00%, 1/1/15....................... 2,265,000 2,477,978
------------
16,559,138
------------
MICHIGAN -- 7.08%
Caledonia Community Schools General Obligation
Unlimited Tax (MBIA Insured), 5.85%, 5/1/22......... 1,500,000 1,596,360
Grand Rapids Water Supply System Revenue (FGIC
Insured), 6.30%, 1/1/04............................. 250,000 269,215
Kalamazoo Hospital Finance Authority (MBIA Insured),
5.875%, 5/15/26..................................... 4,675,000 4,983,129
Michigan State Building Authority Revenue Series I,
6.40%, 10/1/04...................................... 600,000 654,810
Michigan State Building Authority Revenue Series II,
6.75%, 10/1/11...................................... 5,150,000 5,654,958
Michigan State Hospital Finance Authority Revenue
Detroit Medical Center, 6.50%, 8/15/18.............. 6,500,000 7,061,405
Michigan State Housing Development Authority Revenue:
Series C, 6.375%, 12/1/11........................... 1,450,000 1,548,919
Series D, 5.95%, 12/1/16............................ 5,000,000 5,249,600
Saranac Community School District, 6.00%, 5/1/13..... 250,000 271,282
------------
27,289,678
------------
MINNESOTA -- 1.71%
Minnesota State Housing Finance Agency Series D (MBIA
Insured), 5.90%, 8/1/15............................. 6,320,000 6,594,857
------------
MISSOURI -- 1.07%
Sikeston Electric Revenue Refunding (MBIA Insured),
6.00%, 6/1/05....................................... 3,710,000 4,117,172
------------
NEVADA -- 1.20%
Clark County Industrial Development Revenue Project C
Refunding (AMBAC Insured), 7.20%, 10/1/22........... 4,115,000 4,617,730
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
146
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
NEW JERSEY -- 0.11%
Gloucester Co. Improvement Authority Gtd. Revenue,
Solid Waste Landfill Project Series AA, 6.20%,
9/1/07.............................................. $ 400,000 $ 431,096
------------
NEW MEXICO -- 0.94%
New Mexico Mortgage Finance Authority Revenue, 5.90%,
7/1/16.............................................. 3,445,000 3,609,189
------------
NEW YORK -- 3.95%
New York State Dormitory Authority Revenue, 5.875%,
7/1/08.............................................. 5,000,000 5,436,550
New York State Location Assistance Corp. Refunding
Series E, 5.00%, 4/1/21............................. 9,500,000 9,499,240
Tri-Borough Bridge & Tunnel Authority Revenue General
Purpose Series X, 6.625%, 1/1/12.................... 250,000 298,105
------------
15,233,895
------------
NORTH CAROLINA -- 2.57%
North Carolina Housing Finance Agency Single Family
Revenue:
Series BB, 6.50%, 9/1/26............................ 4,315,000 4,606,004
Series FF, 6.24%, 3/1/28............................ 5,000,000 5,284,600
------------
9,890,604
------------
OHIO -- 3.14%
Franklin Co. Hospital Revenue, Children's Hospital
Series A, 6.50%, 5/1/07............................. 950,000 1,052,211
Montgomery County Hospital Revenue Refunding (MBIA
Insured), 5.625%, 4/1/16............................ 4,500,000 4,717,530
Ohio General Obligation State of Public & Sewer
Imports Unlimited Tax, 6.00%, 8/1/07................ 1,000,000 1,111,550
Ohio Housing Financial Agency Mortgage Revenue
Residential GNMA Series A-1, 6.20%, 9/1/14.......... 1,670,000 1,787,885
Ohio State Building Authority Revenue, State
Facilities Adult Correctional Building Fund Series
A, 6.125%, 10/1/09.................................. 250,000 275,747
Ohio State Community Turnpike Revenue Series A (MBIA
Insured), 5.70%, 2/15/17............................ 3,000,000 3,175,050
------------
12,119,973
------------
PENNSYLVANIA -- 0.54%
Pennsylvania State Higher Educational Facilities
Authority Revenue (MBIA Insured), 5.625%, 5/1/14.... 2,000,000 2,095,420
------------
RHODE ISLAND -- 1.35%
Rhode Island Depositors Economic Protection Series A
(MBIA Insured), 6.30%, 8/1/05....................... 4,640,000 5,221,485
------------
SOUTH CAROLINA -- 1.87%
Greenville Hospital System Facilities Revenue SC
Health Hospital Nursing Home Improvements Series A,
5.60%, 5/1/10....................................... 2,000,000 2,115,800
Spartansburg Water Revenue (FGIC Insured), 5.00%,
6/1/17.............................................. 5,125,000 5,080,771
------------
7,196,571
------------
SOUTH DAKOTA -- 1.99%
Heartland Consumers Power District Electric Revenue
Refunding Electric Light & Power Improvements,
6.00%, 1/1/17....................................... 2,500,000 2,797,800
South Dakota Housing Development Authority Series A,
5.70%, 5/1/08....................................... 2,300,000 2,415,828
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
147
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
South Dakota Housing Development Authority Revenue
Series C, 6.25%, 5/1/15............................. $ 1,000,000 $ 1,064,600
South Dakota State Building Authority Lease Revenue
(AMBAC Insured), 6.625%, 9/1/12..................... 1,200,000 1,378,128
------------
7,656,356
------------
TENNESSEE -- 1.52%
Knox County Health, Educational, & Housing Facilities
Revenue (MBIA Insured), 7.25%, 1/1/09............... 1,360,000 1,681,028
Memphis General Obligation Unlimited Tax, 5.25%,
7/1/13.............................................. 3,775,000 3,878,548
Metropolitan Government Nashville/Davis County
Revenue Refunding, 7.00%, 1/1/14.................... 295,000 295,496
------------
5,855,072
------------
TEXAS -- 10.02%
Matagorda County District #1 Power & Light Project
(MBIA Insured), 6.10%, 7/1/28....................... 6,750,000 7,144,875
Richardson Hospital Authority, 6.50%, 12/1/12........ 3,745,000 3,987,489
San Antonio Hotel Occupancy Tax Revenue (FGIC
Insured), 5.70%, 8/15/26............................ 10,000,000 10,537,100
Texas College Student Loan, 6.50%, 8/1/07............ 4,000,000 4,293,600
Texas General Obligation Unlimited Tax:
7.70%, 8/1/06....................................... 1,305,000 1,334,401
Series B, 5.625%, 10/1/12........................... 5,000,000 5,336,400
Texas General Obligation Refunding Series A Unlimited
Tax, 6.00%, 10/1/05................................. 1,000,000 1,114,100
Texas Turnpike Authority Dallas Northway Rev.
President George Bush Turnpike Highway Improvements
(FGIC Insured), 5.00%, 1/1/25....................... 5,000,000 4,891,250
------------
38,639,215
------------
UTAH -- 1.52%
Utah Housing Finance Agency Single Family Revenue:
Series A-2, 6.25%, 7/1/25........................... 5,545,000 5,866,055
------------
VIRGINIA -- 0.68%
Virginia State Housing Development Authority Revenue,
5.60%, 11/1/10...................................... 1,500,000 1,542,945
Virginia State Housing Development Commonwealth
Series H, 6.20%, 1/1/08............................. 1,000,000 1,060,820
------------
2,603,765
------------
WEST VIRGINIA -- 1.23%
Braxton Co. Solid Waste Disposal Revenue, 6.125%,
4/1/26.............................................. 4,475,000 4,754,330
------------
WISCONSIN -- 0.68%
Wisconsin Housing & Economic Development Authority
Revenue Series A, 6.15%, 9/1/17..................... 1,485,000 1,554,721
Wisconsin State Transportation Revenue Series B,
5.75%, 7/1/12....................................... 1,000,000 1,064,010
------------
2,618,731
WYOMING -- 0.21%
Wyoming Community Development Authority Series D,
7.60%, 6/1/17....................................... 800,000 820,504
------------
TOTAL MUNICIPAL BONDS................................. 385,574,115
------------
(Cost--$360,198,033)
TOTAL INVESTMENTS..................................... $385,574,115
============
(Cost--$360,198,033)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
148
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 0.16%
Pegasus Municipal Money Market Fund Class I (in
shares)............................................. 630,011 $ 630,011
------------
(Cost -- $630,011)
MUNICIPAL BONDS -- 99.84%
ALABAMA -- 0.97%
Courtland Industrial Development Board Solid Waste
Disposal Revenue,
Series A, 6.50%, 9/1/25............................. $ 3,500,000 3,804,885
------------
ALASKA -- 1.35%
Alaska Student Loan Revenue State Assisted Series A,
5.50%, 7/1/04....................................... 1,000,000 1,030,080
North Slope Boro General Obligation (MBIA Insured),
Capital Appreciation,
Series A Unlimited Tax, 6/30/08..................... 7,000,000 4,258,380
------------
5,288,460
------------
ARIZONA -- 0.57%
Maricopa Co. General Obligation School District No.
41 Series C (FGIC Insured), 6.10%, 7/1/14........... 2,000,000 2,208,220
------------
CALIFORNIA -- 4.89%
MSR Public Power Agency San Juan Project Revenue
Refunding Series F
(AMBAC Insured), 5.55%, 7/1/02...................... 1,615,000 1,715,792
Orange Co. Recovery CTFS PRTN CA Series A (MBIA
Insured),
5.70%, 7/1/10....................................... 4,000,000 4,369,640
Sacramento Cogeneration Authority Revenue:
5.60%, 7/1/99....................................... 3,300,000 3,376,131
5.80%, 7/1/01....................................... 1,300,000 1,364,025
5.90%, 7/1/02....................................... 1,000,000 1,063,150
University of California Revenues Refunding Multiple
Purpose (MBIA Insured), 6.20%, 9/1/01............... 6,675,000 7,189,643
------------
19,078,381
------------
COLORADO -- 10.19%
Adams Co. Single Family Mortgage Revenue Series A,
8.875%, 8/1/03...................................... 1,230,000 1,507,636
Arapahoe County Capital Improvement Revenue Refunding
Capital Appreciation, 8/31/05....................... 20,000,000 6,931,000
Colorado Water Power Development Authority Revenue
(AMBAC Insured) Revolving Fund, Series A, 6.00%,
9/1/10.............................................. 3,410,000 3,869,463
Denver City & Co. Airport Revenue:
Series D, 7.30%, 11/15/00........................... 2,900,000 3,133,972
Series C, 6.55%, 11/15/03........................... 1,145,000 1,262,397
Series B, 7.25%, 11/15/05........................... 2,000,000 2,261,820
Series A (AMT), Prerefunded, 8.00%, 11/15/25........ 360,000 409,291
Series A (AMT), Unrefunded, 8.00%, 11/15/25......... 1,000,000 1,112,890
Series A (MBIA Insured) Prerefunded, 8.50%,
11/15/07........................................... 170,000 193,052
Series A (MBIA Insured), Unrefunded, 8.50%,
11/15/07........................................... 1,830,000 2,066,235
Denver City & Co. General Obligation Refunding Water
Unlimited Tax,
7.00%, 10/1/99...................................... 8,665,000 9,120,432
</TABLE>
See Notes to Financial Statements.
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149
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Jefferson Co. School District No. R-001 General
Obligation (AMBAC Insured), 5.90%, 12/15/05......... $ 3,500,000 $ 3,797,990
Poudre Valley Hospital Revenue (AMBAC Insured),
6.625%, 12/1/11..................................... 3,750,000 4,120,500
------------
39,786,678
DISTRICT OF COLUMBIA -- 0.53%
Series B-3 (MBIA Insured), 5.20%, 6/1/04............ 2,000,000 2,089,440
------------
FLORIDA -- 1.51%
Lakeland Electric & Water Revenue Series B (FGIC
Insured),
6.00%, 10/1/10..................................... 5,170,000 5,896,850
------------
HAWAII -- 3.35%
Hawaii State Airports System Revenue, Series II,
7.00%, 7/1/18...................................... 10,000,000 10,901,000
Hawaii State Department of Budget & Finance Revenue,
5.60%, 7/1/02...................................... 2,065,000 2,157,884
------------
13,058,884
------------
ILLINOIS -- 5.06%
Chicago Metropolitan Water General Obligation
Unlimited Tax Refunding, 5.00%, 12/1/02............ 4,500,000 4,672,440
Chicago O'Hare International Airport Revenue Series
A (AMBAC Insured), 5.625%, 1/1/13.................. 5,000,000 5,287,950
Metropolitan Pier & Exposition Authority Dedicated
State Tax Revenue: 6.50%, 6/1/05................... 2,960,000 3,342,018
Metropolitan Pier & Exposition Authority Dedicated
State Tax Revenue: (MBIA Insured), Capital
Appreciation, Series A, 12/15/16................... 8,330,000 3,165,483
Regional Transit Authority (AMBAC Insured), Series
A, 8.00%, 6/1/03................................... 2,785,000 3,281,454
------------
19,749,345
------------
INDIANA -- 3.81%
Indianapolis Airport Authority Revenue, 7.10%,
1/15/17............................................ 6,900,000 7,739,799
Indiana Bond Bank Revenue, 6.00%, 2/1/04............ 3,670,000 4,012,594
Indiana State Office Building Commission Revenue
Limited Tax,
6.50%, 7/1/99...................................... 3,000,000 3,106,380
------------
14,858,773
------------
KANSAS -- 1.43%
Kansas City Utility System Revenue, (FGIC Insured)
6.375%, 9/1/23..................................... 5,000,000 5,593,400
------------
MARYLAND -- 4.03%
Maryland State Community Development Administration
Department Revenue Fifth Series, 5.95%, 4/1/16..... 3,000,000 3,174,300
Maryland State General Obligation Unlimited Tax
5.00%, 3/1/08...................................... 5,510,000 5,751,779
Maryland State Public Improvement General Obligation
Second Series, 5.25%, 6/15/02...................... 2,500,000 2,621,350
Montgomery County Public Improvement Series A,
5.20%, 10/1/01..................................... 4,000,000 4,172,440
------------
15,719,869
------------
MASSACHUSETTS -- 3.96%
Massachusetts General Obligation, (FGIC Insured),
Refunding Series A,
5.00%, 8/1/07....................................... 2,500,000 2,616,175
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
150
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
Massachusetts General Obligation Unlimited Tax:
Series B, 9.25%, 7/1/00............................. $ 2,000,000 $ 2,245,180
Series A, 6.25%, 7/1/02............................. 4,500,000 4,884,300
New England Educational Loan Refunding Senior A:
6.50%, 9/1/02....................................... 5,250,000 5,727,487
------------
15,473,142
------------
MICHIGAN -- 7.05%
Michigan State Building Authority Revenue Refunding
Series I, 6.75%, 10/1/11............................ 5,575,000 6,121,629
Michigan State Hospital Financing Authority Revenue
Refunding:
Detroit Medical Center Obligation Group A 6.25%,
8/15/13............................................ 6,750,000 7,233,367
Royal Oak Hospital Financing Authority Revenue
Refunding:
Wm. Beaumont Hospital,
6.25%, 1/1/11....................................... 5,445,000 6,276,288
6.25%, 1/1/12....................................... 6,850,000 7,899,626
------------
27,530,910
------------
MINNESOTA -- 5.04%
Minnesota Housing Finance Agency Revenue:
Series D, 5.90%, 8/1/15............................. 2,360,000 2,462,636
Series G, 6.25%, 7/1/26............................. 3,475,000 3,659,766
Series L, 6.25%, 7/1/27............................. 12,910,000 13,534,069
------------
19,656,471
------------
NEVADA -- 3.03%
Clark County General Obligation Limited Tax, 7.00%,
9/1/00.............................................. 6,705,000 7,212,032
Las Vegas General Obligation Refunding Limited Tax,
6.40%, 10/1/03...................................... 2,250,000 2,472,818
Nevada General Obligation Limited Tax:
Series C, 5.90%, 4/1/01............................. 1,000,000 1,057,300
Series A, 6.00%, 5/1/02............................. 1,000,000 1,067,210
------------
11,809,360
------------
NEW JERSEY -- 1.90%
New Jersey State Transit Fund Authority, 5.00%,
6/15/04............................................. 7,090,000 7,375,514
------------
NEW YORK -- 11.16%
New York City General Obligation Unlimited Tax
Refunding Series I,
5.75%, 3/15/07...................................... 6,500,000 6,944,665
New York City General Obligation Unlimited Tax Series
A, 6.00%, 8/1/06.................................... 5,000,000 5,428,800
New York City Municipal Water Authority Series C,
(FGIC Insured),
7.00%, 6/15/16...................................... 3,805,000 4,213,162
New York State Dormitory Authority Revenue Series A,
5.20%, 5/15/05...................................... 4,300,000 4,448,651
New York State Environment Pollution Control
Facilities,
6.50%, 6/15/14...................................... 260,000 283,020
6.50%, 6/15/14...................................... 6,740,000 7,375,515
New York State Location Assistance Corp. Series B,
7.50%, 4/1/20....................................... 4,255,000 4,775,642
Tri-Borough Bridge & Tunnel Authority Revenue General
Purpose Series Y, 5.90%, 1/1/08..................... 9,000,000 10,086,570
------------
43,556,025
------------
</TABLE>
See Notes to Financial Statements.
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151
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
NORTH CAROLINA -- 1.44%
North Carolina University and College Improvements
Unlimited Tax General Obligation, 5.00%, 6/1/01.... $ 2,535,000 $ 2,622,255
North Carolina Municipal Power Agency (MBIA
Insured), 7.25%, 1/1/07............................ 2,500,000 3,009,350
------------
5,631,605
------------
OHIO -- 1.07%
Ohio State Highway Capital Improvements General
Obligation Unlimited Tax, Series B, 5.00%, 5/1/05.. 4,000,000 4,183,760
------------
PENNSYLVANIA -- 6.11%
Geisinger Authority Health System Revenue Series A,
5.50%, 7/1/03...................................... 2,895,000 3,052,691
Pennsylvania Intergovernmental Coop Authority
Special Tax Revenue
(FGIC Insured): 6.00%, 6/15/00..................... 7,000,000 7,324,030
Philadelphia Gas Works Revenue Fourteenth Series
(CAPMAC Insured), 7.00%, 7/1/02.................... 12,090,000 13,491,231
------------
23,867,952
------------
SOUTH CAROLINA -- 2.05%
Beaufort County School District General Obligation
Unlimited Tax Series B
(MBIA Insured), 4.75%, 3/1/03...................... 2,800,000 2,873,332
South Carolina State Public Service Authority
Revenue Refunding Series A, 5.00%, 7/1/01.......... 5,000,000 5,148,650
------------
8,021,982
------------
TENNESSEE -- 2.25%
Hamilton County General Obligation Unlimited Tax
Series A,
5.00%, 5/1/09...................................... 3,370,000 3,495,971
Memphis-Shelby County Airport Authority Revenue
Refunding,
6.75%, 9/1/12...................................... 2,000,000 2,202,760
Tennesse State General Obligation Refunding Series
B, 5.00%, 5/1/00................................... 3,000,000 3,075,270
------------
8,774,001
------------
TEXAS -- 4.20%
Dallas Independent School District General
Obligation Unlimited Tax,
8.70%, 8/1/00...................................... 1,000,000 1,113,950
Harris County Revenue, (AMBAC Insured), Capital
Appreciation, 8/15/18.............................. 7,500,000 2,322,600
Humble Independent School District General
Obligation Unlimited Tax Refunding, 6.00%, 2/15/04. 2,035,000 2,199,021
Texas A&M University Permanent Fund Revenue, 5.60%,
7/1/05............................................. 5,000,000 5,414,600
Texas State General Obligation Unlimited Tax
Refunding Series B,
5.625%, 10/1/11.................................... 5,000,000 5,358,650
------------
16,408,821
------------
VIRGINIA -- 1.41%
Virginia Beach General Obligation Unlimited Tax
Series A, 6.85%, 5/1/99............................ 1,100,000 1,132,890
Loudoun County Sanitation Authority Water and Sewer
Refunding,
(FGIC Insured), 6.25%, 1/1/16...................... 4,000,000 4,368,720
------------
5,501,610
------------
</TABLE>
See Notes to Financial Statements.
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152
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT MARKET VALUE
----------- ----------- ------------
<S> <C> <C>
WASHINGTON -- 4.13%
Seattle General Obligation Limited Tax Series A,
5.75%, 1/15/17....................................... $10,000,000 $ 10,457,600
Snohomish County Mukilteo Refunding General
Obligation, (FGIC Insured), 5.70%, 12/1/12.......... 5,140,000 5,651,636
------------
16,109,236
------------
WISCONSIN -- 7.35%
Durand Hospital Facilities Revenue, Chippewa Valley
Hospital and Nursing Project, 7.10%, 9/1/12......... 5,735,000 6,835,718
Southeast Professional Revenue, (MBIA Insured),
Capital Appreciation
12/15/07............................................ 5,000,000 3,185,500
12/15/09............................................ 5,000,000 2,855,800
Wisconsin Clean Water Revenue Series 2, 6.00%,
6/1/07............................................... 2,500,000 2,801,475
Wisconsin General Obligation Unlimited Tax Series B:
7.00%, 5/1/02....................................... 4,155,000 4,631,620
7.00%, 5/1/03....................................... 4,625,000 5,245,490
Wisconsin State Health & Educational Facilities
Authority Revenue:
(MBIA Insured), 5.10%, 8/15/05...................... 3,000,000 3,119,820
------------
28,675,423
------------
TOTAL MUNICIPAL BONDS................................. 389,708,997
------------
(Cost -- $370,929,391)
TOTAL INVESTMENTS..................................... $390,339,008
============
(Cost -- $371,559,402)
</TABLE>
See Notes to Financial Statements.
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153
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 4.41%
Pegasus Michigan Tax-Exempt Money Market Fund Class I
(in shares)........................................... 3,541,071 $3,541,071
-----------
(Cost -- $3,541,071)
MUNICIPAL BONDS -- 95.59%
MICHIGAN -- 89.83%
Allegan Public School District General Obligation
(AMBAC Insured), Unlimited Tax, 5.75%, 5/1/12........ $ 200,000 211,622
Dearborn Economic Division Oakwood Obligation Group
Series, 5.60%, 11/15/08.............................. 1,690,000 1,828,360
Dearborn School District, General Obligation,
Unlimited Tax, 6.00%, 5/1/14......................... 1,000,000 1,068,910
Dearborn Sewage Disposal Series A (MBIA Insured),
5.125%, 4/1/14....................................... 1,830,000 1,844,915
Detroit Local Development Fin. Authority Series A,
5.375%, 05/1/18...................................... 3,850,000 3,887,153
Detroit Local Development Fin. Authority Series A,
5.375%, 05/1/21...................................... 1,410,000 1,423,607
Detroit Sewer Disposal Revenue (FGIC Insured), 6.00%,
7/1/00............................................... 1,225,000 1,282,587
Detroit Wayne Co. (FGIC Insured), Public Improvements,
5.50%, 2/1/17........................................ 1,800,000 1,864,926
Dexter Community Schools General Obligation Unlimited
Tax, 5.80%, 5/1/19................................... 2,000,000 2,109,620
Dickinson Co. Economic Development Corporation
Pollution Control Revenue, 5.85%, 10/1/18............ 3,000,000 3,120,600
Eastern Michigan University General Sinking Fund,
6.375%, 6/1/14....................................... 1,000,000 1,083,350
Ferndale School District General Obligation (FGIC
Insured), Unlimited Tax, 5.50%, 5/1/11............... 1,000,000 1,052,240
Huron Valley School District (FGIC Insured), Unlimited
Tax, 5.875%, 5/1/16.................................. 1,000,000 1,075,200
Jackson Co. Hospital Finance Authority, 5.25%,
06/1/23.............................................. 3,000,000 2,983,200
Kalamazoo Economic Development, Friendship Vlg-A:
6.125%, 5/15/12...................................... 1,250,000 1,321,050
6.125%, 5/15/17...................................... 600,000 635,514
Kalamazoo Hospital Finance Authority Revenue (FGIC
Insured), 5.25%, 6/1/17.............................. 1,000,000 998,750
Lake Orion Community School District (AMBAC Insured),
5.80%, 05/1/15....................................... 1,000,000 1,066,040
Lansing Building Authority (AMBAC Insured), 6.00%,
6/1/05............................................... 1,000,000 1,105,000
Livingston Co. General Obligation, Bldg. Authority,
Limited Tax, 5.80%, 7/1/08........................... 1,330,000 1,465,115
Marysville Public School District General Obligation,
Unlimited Tax, 5.60%, 5/1/09......................... 620,000 659,426
Michigan General Obligation, Environmental Protection
Program, 6.25%, 11/1/08.............................. 450,000 496,845
Michigan Higher Education Student Loan (AMBAC
Insured), 5.75%, 6/1/13.............................. 1,000,000 1,060,690
Michigan Municipal Bond Authority Revenue Series A,
5.70%, 8/1/07........................................ 1,145,000 1,222,539
Michigan Municipal Bond Authority Revenue Series A
(FGIG Insured), 6.00%, 12/1/13....................... 1,500,000 1,633,845
Michigan State Hospital Finance Authority Revenue
(AMBAC Insured), 6.00%, 9/1/11....................... 1,250,000 1,338,513
Michigan State Hospital Finance Authority Revenue:
Mercy Mt. Clemens, 6.25%, 5/15/11.................... 500,000 531,135
Daughters of Charity, 5.25%, 11/1/15................. 1,000,000 1,005,270
Mercy Health Services, 5.375%, 8/15/16............... 1,000,000 1,017,190
Mercy Health Services, 5.625%, 8/15/16............... 2,000,000 2,079,520
Detroit Medical Center, 6.50%, 8/15/18............... 2,000,000 2,172,740
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
154
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
DESCRIPTION AMOUNT VALUE
----------- ------ ------
<S> <C> <C>
Michigan State Housing Development Authority Revenue:
6.375%, 12/1/11...................................... $ 750,000 $ 801,165
6.00%, 12/1/15....................................... 4,750,000 4,978,380
Michigan State University Revenue, 6.25%, 8/15/15..... 2,000,000 2,153,820
Newaygo Public Schools General Obligation, Unlimited
Tax, 6.00%, 5/1/12................................... 300,000 322,833
Norway Vulcan Area Schools, 5.75%, 5/1/13............. 250,000 265,788
Novi Community Schools, 6.125%, 5/1/13................ 750,000 828,982
Oak Park School District (AMBAC Insured), 6.00%,
6/1/09............................................... 250,000 270,222
Ottawa Co. General Obligation, Water Supply System,
6.00%, 8/1/08........................................ 1,950,000 2,100,852
Perry Public Schools General Obligation, Unlimited
Tax, 6.00%, 5/1/12................................... 250,000 270,663
Rockford Public Schools, 5.875%, 5/1/12............... 500,000 532,965
Rockford Public Schools General Obligation (FGIC
Insured), Unlimited Tax, 5.25%, 5/1/22............... 2,930,000 2,936,211
Romulus MI Community General Obligation, 05/1/18...... 4,755,000 1,687,597
Royal Oak Hospital Finance Authority Revenue-William
Beaumont Hospital-G, 5.60%, 11/15/11................. 2,000,000 2,103,740
Saranac Community School District, 6.00%, 5/1/13...... 250,000 271,283
Traverse City Area Public School District, Series I,
5.70%, 5/1/12........................................ 2,400,000 2,564,784
University of Michigan Revenue, 6.20%, 12/1/03........ 1,000,000 1,087,050
University of Michigan Revenue, 5.75%, 12/1/12........ 850,000 894,455
University of Michigan University Revenues, 5.50%,
12/1/21.............................................. 450,000 455,913
Wayne State University (AMBAC Insured):
5.50%, 11/15/07...................................... 1,000,000 1,061,940
5.65%, 11/15/15...................................... 800,000 832,472
Wayne Westland Community Schools (FGIC Insured),
Unlimited Tax, 5.75%, 5/1/11......................... 350,000 370,338
Western University Revenue (FGIC Insured), 6.25%,
11/15/12............................................. 250,000 276,648
Wyoming Public School, 5.875%, 5/1/13................. 350,000 373,439
-----------
72,087,012
-----------
PUERTO RICO -- 5.76%
Puerto Rico Commonwealth General Obligation (MBIA
Insured) Unlimited Tax, Public Improvements, 6.25%,
7/1/12................................................ 1,000,000 1,158,200
Puerto Rico Commonwealth General Obligation, 5.75%,
7/1/17................................................ 3,280,000 3,463,778
-----------
4,621,978
-----------
TOTAL MUNICIPAL BONDS.................................. 76,708,990
-----------
(Cost -- $72,539,658)
TOTAL INVESTMENTS....................................... $80,250,061
===========
(Cost -- $76,080,729)
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
155
<PAGE> 186
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND COMMENCEMENT OF OPERATIONS
The Pegasus Funds (Pegasus or the Funds), was organized as a Massachusetts
business trust on April 21, 1987, and registered under the Investment Company
Act of 1940 (the "Act"), as amended, as an open-end investment company. As of
December 31, 1997, the Trust consisted of twenty-nine seperate portfolios of
which there were twenty asset allocation, equity, bond and municipal bond
funds, as described below.
<TABLE>
<CAPTION>
COMMENCEMENT
DATE
------------
<S> <C>
ASSET ALLOCATION
FUNDS
Managed Assets Con-
servative Fund 1/23/86
Managed Assets Bal-
anced Fund 1/1/94
Managed Assets
Growth Fund 12/17/96
EQUITY FUNDS
Equity Income Fund 1/27/95
Growth Fund 1/27/95
Mid-Cap Opportunity
Fund 6/1/91
Small-Cap Opportu-
nity Fund 1/27/95
Intrinsic Value
Fund 6/1/91
Growth and Value
Fund 6/1/91
Equity Index Fund 7/10/92
International Eq-
uity Fund 12/3/94
BOND FUNDS
Intermediate Bond
Fund 6/1/91
Bond Fund 6/1/91
Short Bond Fund 9/17/94
Multi Sector Bond
Fund * 3/5/93
International Bond
Fund 1/27/95
High Yield Bond
Fund 6/30/97
MUNICIPAL BOND
FUNDS
Municipal Bond Fund 3/1/88
Intermediate Munic-
ipal Bond Fund 3/1/88
Michigan Municipal
Bond Fund 2/1/93
</TABLE>
*On December 31, 1997 the Pegasus Income Fund's name changed to the Pegasus
Multi Sector Bond Fund.
During the period August 23, 1996 through September 23, 1996, various
portfolios of Pegasus and the Prairie Funds reorganized pursuant to an
Agreement and Plan of Reorganization (the "Plan"). Shareholders of each
reorganizing portfolio approved the Plan as required which called for the
transfer of the assets, subject to the liabilities, of each Prairie portfolio
to the corresponding Pegasus Fund. The Plan also called for the issuance of
shares by each Pegasus Fund to the shareholders of the corresponding Prairie
Fund, such shares being equal in value to the net assets so transferred.
In accordance with generally accepted accounting principles, the historical
cost of investment securities was carried forward to the surviving fund (the
Prairie Fund or Pegasus Fund which is the accounting survivor for performance
measurement purposes as noted in the table that follows) and the results of
operations for pre-combination periods for the surviving fund were not
restated. The financial statements do not reflect the expenses of the
reorganization. The combination of the funds was treated as a tax free business
combination and accordingly was accounted for by a method of accounting for tax
free mergers of investment companies (sometimes referred to as the pooling
without restatement method).
Pegasus Funds
156
<PAGE> 187
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
The following table sets forth the date on which such reorganizations
occurred and the name of the surviving fund (for the number of shares issued in
connection with the various mergers and net assets transferred, see Note 6):
<TABLE>
<CAPTION>
FORMER CURRENT
WOODWARD FORMER PRAIRIE PEGASUS DATE OF MERGER/
FUND FUND FUND NAME CHANGE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- * Managed Assets Income Managed Assets Conservative September 21, 1996
* Balanced Managed Assets Managed Assets Balanced August 26, 1996
-- * Equity Income Equity Income September 21, 1996
Capital Growth * Growth Growth August 26, 1996
* Opportunity -- Mid-Cap Opportunity September 23, 1996
-- * Special Opportunities Small-Cap Opportunity September 21, 1996
* Intrinsic Value -- Intrinsic Value September 23, 1996
* Growth and Value -- Growth and Value September 23, 1996
* Equity Index -- Equity Index September 23, 1996
* International Equity International Equity International Equity August 26, 1996
* Intermediate Bond -- Intermediate Bond September 23, 1996
*Bond Bond Bond August 26, 1996
* Short Bond -- Short Bond September 23, 1996
-- * Intermediate Bond Multi Sector Bond Fund September 21, 1996 / December 31, 1997
-- * International Bond International Bond September 21, 1996
Municipal Bond * Municipal Bond Municipal Bond September 14, 1996
-- * Intermediate Municipal Bond Intermediate Municipal Bond September 21, 1996
* Michigan Municipal
Bond -- Michigan Municipal Bond September 23, 1996
</TABLE>
* Surviving fund for accounting and performance measurement purposes.
On the date of reorganization, unrealized appreciation (depreciation)
transferred from the non-surviving funds amounted to $1,342,149, $43,749,490,
$3,808,550, $(796,831), and $1,597,784 for the Prairie Managed Assets, Woodward
Capital Growth, Prairie International Equity, Prairie Bond, and Woodward
Municipal Bond Funds, respectively. The Woodward Municipal Bond Fund also had a
capital loss of $1,078,301 which was transferred into the surviving fund on the
reorganization date.
The number of shares redeemed in connection with the reorganization totaled
877,085, 16,316,879, 13,340,453, 13,043,015 and 9,810,385 for the Prairie
Managed Assets, Woodward Capital Growth, Prairie International Equity, Prairie
Bond and Woodward Municipal Bond Funds, respectively.
On December 12, 1997, the First National Bank of Chicago International Equity
Common Trust Fund transferred cash and securities to the Pegasus International
Equity Fund in exchange for 2,159,636 Class I shares. On the date of the
reorganization unrealized appreciation transferred from the non-surviving fund
amounted to $5,338,342.
The combination of the funds was treated as a tax free business combination
and accordingly was accounted for by a method of accounting for tax free
mergers of investment companies (sometimes referred to as the pooling without
restatement method).
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
Pegasus in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liablilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
The Funds value investment securities at market value which is determined by
a pricing service based upon quoted market prices or dealer quotes at the close
of the respective domestic and foreign securities exchanges.
Pegasus Funds
157
<PAGE> 188
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Securities for which market prices or dealer quotes are not readily available
(including restricted securities) are valued by the investment advisor, First
Chicago NBD Investment Management Company (FCNIMCO), in accordance with
procedures approved by the Board of Trustees. Fixed income securities (other
than fixed income municipal securities) are valued at the closing bid price as
estimated by an independent pricing service. Fixed income municipal securities
for which quoted bid and ask prices are readily available are valued at the
mean between the quoted bid prices (as obtained by the pricing service from
dealers in such securities) and ask prices (as calculated by the pricing
service based upon its evaluation of the market for such securities). Fixed
income securities with maturities less than 60 days are carried at amortized
cost, which approximates market value. Shares of open-end management investment
companies (mutual funds) in which the Funds invest are valued at their
respective net asset values as determined under the Act. Such mutual funds
value securities in their portfolios for which market quotations are readily
available at their current market value (generally the last reported sale
price) and all other securities and assets at fair value pursuant to methods
established in good faith by the Board of Trustees of the underlying mutual
fund. Money market funds in which the funds also invest generally value
securities in their portfolios on an amortized cost basis, which approximates
market value.
Investment security purchases and sales are recorded as of the trade date.
Pegasus invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve Open Market
Desk will do business. FCNIMCO, acting under the supervision of the Board of
Trustees, has established the following additional policies and procedures
relating to Pegasus' investments in securities subject to repurchase agreements:
1) the value of the underlying collateral is required to equal or exceed 102% of
the funds advanced under the repurchase agreement including accrued interest; 2)
collateral is marked to market daily by FCNIMCO to assure its value remains at
least equal to 102% of the repurchase agreement amount; and 3) funds are not
disbursed by Pegasus or its agent unless collateral is presented or acknowledged
by the collateral custodian.
Restricted Securities
The High Yield Bond Fund is permitted to invest in securities that are
subject to legal or contractual restrictions on resale. These securities
generally may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the period, restricted
securities in the High Yield Bond Fund amounted to $8,735,031 or 18% of the
Fund's net assets.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted under the effective interest rate
method as required by the Internal Revenue Code (the Code) and generally
accepted accounting principles. For mortgage-backed securities, as prepayments
on the underlying mortgages increase or decrease the expected life, the yield
is adjusted to amortize/accrete the security to its new expected life.
Dividends are recorded on the ex-dividend date.
The High Yield Bond Fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and writing off
interest receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures, under the general
supervision of the Board of Trustees of the Fund. A debt obligation is removed
from non-accrual status when the issuer resumes interest payments or when
collectibility of interest is reasonably assured. None of the Fund's debt
obligations were in non-accrual status at December 31, 1997 or for the period
then ended.
For the International Equity Fund, dividends are recorded on the ex-dividend
date or upon receipt of ex-dividend notification in the case of certain foreign
securities. For the International Equity Fund and the International Bond Fund,
investment income is recorded net of foreign taxes withheld where recovery of
such taxes is uncertain.
Pegasus Funds
158
<PAGE> 189
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Forward Foreign Currency Contracts
The International Equity Fund and the International Bond Fund may enter into
forward foreign currency contracts which is an agreement between two parties to
buy and sell a currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is "marked-to-market" daily using the prevailing exchange rate and the
change in market value is recorded as an unrealized gain or loss. When the
contract is closed, a realized gain or loss is recorded equal to the difference
between the value of the contract at the time it was entered into and the value
at the time it was closed.
The International Equity Fund and the International Bond Fund may enter into
forward foreign currency contracts with the objective of minimizing its risk
from adverse changes in the relationship between currencies or to enhance
income. The International Equity Fund and the International Bond Fund may also
enter into a forward contract in a foreign currency in order to "lock in" the
U.S. dollar price of a security or the U.S. dollar equivalent of such dividend
or interest payments.
These contracts involve market risk in excess of the amounts reflected in the
International Equity Fund's and the International Bond Fund's Statement of
Assets and Liabilities. The face or contract amount in U.S. dollars, as
reflected in notes to the Portfolio of Investments, reflects the total exposure
the Fund has in that particular currency contract. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does not
perform under the contract.
Futures contracts
The Funds may enter into futures contracts for the purpose of hedging against
changes in the value of their portfolio securities or in securities they intend
to purchase. The Equity Funds may also enter into stock index futures contracts
as a substitute for comparable market positions in the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by the Fund each day, depending on
the daily fluctuation of the value of the contract. Futures contracts are
valued based upon their quoted daily closing prices. The aggregate principal
amounts of the contracts are not recorded in the financial statements. The
daily change in the value of the contract is recorded as an unrealized gain or
loss. Futures contracts open at December 31, 1997 and their related unrealized
market appreciation (depreciation) are set forth in the notes to the Portfolio
of Investments.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or indices, which may not
correlate with the change in value of the hedged investments.
Foreign Currency Translations
The accounting records of the International Equity Fund and the International
Bond Fund are maintained in U.S. dollars. Foreign currency-denominated assets
and liabilities are "marked-to-market" daily using the prevailing exchange rate
and the change in value is recorded as an unrealized gain or loss. Upon receipt
or payment, a realized gain or loss is recorded equal to the difference between
the original value and the settlement value of the asset or liability.
Purchases and sales of securities, income, and expenses are translated into
U.S. dollars at prevailing exchange rates on the respective dates of the
transactions.
In both the International Equity Fund and the International Bond Fund, net
realized gains and losses on foreign currency transactions represent gains and
losses from sales and maturities of forward foreign currency contracts,
disposition of foreign currencies, currency gains and losses realized between
trade and settlement dates on securities transactions and between the ex, pay
and settlement dates on dividend income. In the International Bond Fund, the
effects of changes in foreign currency exchange rates on investments in
securities are included within the net realized foreign exchange gain or loss
on securities sold and net unrealized foreign exchange gain or loss on
investment securities held. In the International Equity Fund, exchange rate
fluctuations on investments are not segregated in the statement of operations
from changes arising in market price
Pegasus Funds
159
<PAGE> 190
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
movements but are instead included within the net realized gain or loss on
securities sold and net unrealized gain or loss on investment securities held.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Code, as amended, applicable to regulated investment companies and to
distribute net investment income and realized gains to its shareholders.
Therefore, no federal income tax provision is required in the accompanying
financial statements.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily due to differing treatments for
foreign currency transactions, passive foreign investment companies,
redemptions in-kind, wash sales and post-October 31 capital losses. Also, due
to the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the net investment income or realized
gains were recorded by the Fund. Certain book-to-tax timing differences for the
Funds are reflected as excess distributions in the Statements of Changes in Net
Assets. These distributions do not constitute a tax return of capital.
During the year ended December 31, 1997, the Mid-Cap Opportunity, Intrinsic
Value and Equity Index Funds made redemptions in-kind to shareholders which
resulted in GAAP-basis realized gains of approximately $2 million, $2 million
and $115 million, respectively. For tax purposes these realized gains were
distributed only to the redeeming shareholders with the transfer of specific
fund assets. These transactions resulted in permanent book-tax differences that
were reclassified to paid-in capital in the respective funds.
As of December 31, 1997, the following Pegasus Funds had capital loss
carryforwards and related expiration dates as follows:
<TABLE>
<CAPTION>
FUND 2002 2003 2004 2005 TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bond $15,197,602 $1,041,792 $ -- $ -- $16,239,394
Intermediate
Bond 3,896,190 2,190,497 168,406 -- 6,255,093
Municipal
Bond -- -- 307,645 -- 307,645
Michigan Mu-
nicipal Bond 29,400 -- 94,571 144,655 268,626
International
Equity -- 97,147 1,083,369 6,436,160 7,616,676
</TABLE>
Shareholder Dividends
Dividends from net investment income are declared and paid quarterly by the
Equity Funds (with the exception of the Managed Assets Conservative and Equity
Income Funds which pay dividends monthly) and monthly by the Bond Funds. Net
realized capital gains are distributed annually. Distributions from net
investment income and net realized gains are made during each year to avoid the
4% excise tax imposed on regulated investment companies by the Code. However,
to the extent that net realized capital gains of a Fund can be reduced by
capital loss carryforwards, if any, such gains will not be distributed.
Deferred Organization Costs
Organization costs are amortized on a straight-line basis over the five year
period beginning with the commencement of operations of each portfolio.
Concentration of Risk
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and U.S. government securities. These risks include
revaluation of currencies, adverse fluctuations in foreign currency values and
possible adverse political, social and economic developments, including those
particular to a specific industry, country or region, which could cause the
securities and their markets to be less liquid and price more volatile than
those of comparable U.S. companies and U.S. government securities.
While the International Equity Fund has a diversified investment portfolio,
it currently has investments in excess of 10% in Banks (15.26%).
Pegasus Funds
160
<PAGE> 191
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Although the Intermediate Municipal Bond Fund has a diversified investment
portfolio, it currently has investments in excess of 10% of its total
investments in the States of Colorado and New York. Although the Municipal Bond
Fund has a diversified investment portfolio it currently has investments in
excess of 10% in each of the States of Florida, Illinois and Texas. The
Michigan Municipal Bond Fund does not have a diversified portfolio since 94% of
its investments are within the State of Michigan. Such concentrations within a
particular state may subject the funds more significantly to economic changes
occurring within those states.
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations; expenses which are applicable to all Funds are allocated among them
on the basis of relative average daily net assets. Fund expenses directly
attributable to a class of shares are charged to that class; expenses which are
applicable to all classes are allocated among them.
Pegasus monitors the rate at which expenses are charged to ensure that a
proper amount of expense is charged to income each year. This percentage is
subject to revision if there is a change in the estimate of the future net
assets of Pegasus or a change in expectations as to the level of actual
expenses.
When Issued/To Be Announced (TBA) Securities
The Bond Funds may purchase securities on a "when issued" basis. These
securities have been registered by a municipality or government agency, but
have not yet been issued to the public. These transactions involve a commitment
by the Funds to purchase particular securities, with payment and delivery
taking place at a future date, for which all specific information, such as the
face amount and maturity date of such investment security, is not known at the
time of the trade. These transactions are subject to market fluctuations and
the risk that the value at delivery may be more or less than the purchase price
at which the transactions were entered. The current value of these securities
is determined in the same manner as that of other portfolio securities.
Although the Bond Funds generally purchase these securities with the intention
of acquisition, such securities may be sold before the settlement date.
Multiple Classes of Capital Shares of Beneficial Interest
The Funds offer Class A, Class B and Class I shares. Each class of shares has
equal rights as to earnings, assets and voting privileges except that each
class bears different distribution and shareholder service expenses. Each class
of shares has exclusive voting rights with respect to matters that affect just
that class. Income, expenses (other than expenses attributable to a specific
class) and realized and unrealized gains or losses on investments are allocated
to each class of shares based on relative net assets. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses. Class B shares automatically convert to Class A shares
at the beginning of the eighth year (the third year in the case of the Short
Bond Fund and the seventh year in the case of the Equity Index, Multi Sector
Bond, Intermediate Bond and Intermediate Municipal Bond Funds) after the date
of purchase.
(3) INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
FCNIMCO is the investment advisor pursuant to the Advisory Agreement whereby
FCNIMCO has agreed to provide the day-to-day management of each of the Fund's
investments. For its advisory services to Pegasus, FCNIMCO is entitled to a
fee, computed daily and payable monthly.
The Trust has a Co-Administration Agreement with NBD Bank, FCNIMCO and BISYS
Fund Services (collectively, the "Co-Administrators") pursuant to which the Co-
Administrators have agreed to assist in all aspects of the Funds' operations
for an administration fee, at an annual rate of 0.15% of each Fund's average
daily net assets.
Federated Investment Counseling (Federated) is the sub-advisor of the High
Yield Bond Fund's investments. For its services, Federated is entitled to a
monthly fee at the following annual rates, which vary according to the level of
assets: 0.50% on the first $30 million of average daily net assets, 0.40% on
the next $20
Pegasus Funds
161
<PAGE> 192
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
million, 0.30% on the next $25 million, 0.25% on the next $25 million and 0.20%
of the Fund's average daily net assets in excess of $100 million. The Sub-
Adviser's fee is paid by FCNIMCO and not by the Fund.
BISYS serves as the Fund's principal underwriter and distributor of the
Funds' shares.
NBD Bank, an affiliate of FCNIMCO, is also compensated for its services as
Pegasus' custodian and for certain transfer agent services and is reimbursed
for certain out of pocket expenses incurred on behalf of Pegasus.
Pegasus maintains an unfunded, nonqualified deferred compensation plan. This
plan allows for an individual trustee to elect to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
The Funds may invest in mutual funds sponsored and managed by FCNIMCO,
subject to certain limitations. The terms of such transactions are identical to
those of non-related entities except that, to avoid duplicate fees, the FCNIMCO
remits to each Fund an amount equal to all fees assessed on the assets invested
in such funds, with the exception of the Managed Assets Conservative, Managed
Assets Balanced and Managed Assets Growth funds whereby FCNIMCO only reimburses
the investment management and administration fees.
(4) INVESTMENT SECURITIES TRANSACTIONS
The following summarizes the securities transactions entered into by the
Funds, excluding short-term investments, for the period ended December 31,
1997:
<TABLE>
<CAPTION>
FEDERAL TAX
PURCHASES SALES COST
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed Assets Conservative........... $ 40,341,598 $ 59,254,596 $ 112,247,490
Managed Assets Balanced............... 168,533,083 676,816 249,037,958
Managed Assets Growth................. 11,045,897 1,637,915 13,040,656
Equity Income......................... 121,797,611 183,282,803 258,050,039
Growth................................ 137,116,808 194,641,315 411,832,684
Mid-Cap Opportunity................... 374,106,956 328,208,028 710,899,972
Small-Cap Opportunity................. 162,850,376 103,262,342 194,340,334
Intrinsic Value....................... 321,863,258 177,337,465 505,182,618
Growth and Value...................... 317,644,482 281,270,106 746,269,806
Equity Index.......................... 112,828,659 357,629,195 515,031,297
International Equity.................. 102,472,916 15,328,261 462,593,667
Intermediate Bond..................... 197,878,347 120,072,503 509,673,358
Bond.................................. 395,565,675 134,533,596 1,173,876,259
Short Bond............................ 192,723,312 128,229,945 236,334,002
Multi Sector Bond..................... 52,960,229 147,896,739 97,838,368
International Bond.................... 39,575,181 3,043,125 90,706,670
High Yield Bond....................... 49,657,409 3,227,772 48,378,807
Municipal Bond........................ 132,441,301 119,758,013 360,198,033
Intermediate Municipal Bond........... 141,560,019 145,399,341 371,559,402
Michigan Municipal Bond............... 40,537,180 24,862,664 76,080,729
</TABLE>
Pegasus Funds
162
<PAGE> 193
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
At December 31, 1997, accumulated net unrealized appreciation (depreciation)
on investments based on Federal Tax cost was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed Assets Conservative........... $ 3,618,681 $(1,380,733) $ 2,237,948
Managed Assets Balanced............... 8,428,869 (3,649,136) 4,779,733
Managed Assets Growth................. 249,678 (271,595) (21,917)
Equity Income......................... 63,465,878 (2,483,521) 60,982,357
Growth................................ 257,532,339 (26,573,715) 230,958,624
Mid-Cap Opportunity................... 352,836,966 (13,984,328) 338,852,638
Small Cap Opportunity................. 54,405,730 (7,079,366) 47,326,364
Intrinsic Value....................... 125,136,591 (5,063,566) 120,073,025
Growth and Value...................... 331,688,541 (15,732,599) 315,955,942
Equity Index.......................... 331,678,222 (12,346,330) 319,331,892
International Equity*................. 114,013,139 (62,037,595) 51,975,544
Intermediate Bond..................... 15,912,994 (4,962,162) 10,950,832
Bond.................................. 58,303,134 (14,339,522) 14,418,474
Short Bond............................ 1,207,358 (105,147) 1,102,211
Multi Sector Bond..................... 3,857,601 (12,786) 3,844,815
International Bond*................... 814,024 (5,611,062) (4,797,038)
High Yield Bond....................... 829,479 (230,334) 599,145
Municipal Bond........................ 25,383,385 (7,303) 25,376,082
Intermediate Municipal Bond........... 18,779,606 -- 18,779,606
Michigan Municipal Bond............... 4,169,332 -- 4,169,332
</TABLE>
*For the International Equity and International Bond Funds, the gross
unrealized appreciation and depreciation is inclusive of foreign exchange gain
and loss on foreign equity and bond holdings.
(5) EXPENSES
For the year ended December 31, 1997 FCNIMCO voluntarily agreed to reimburse a
portion of the operating expenses of the Funds to the extent that the Funds'
expenses exceeded the following amounts (as a percentage of each Fund's average
net assets). Under the terms of the Investment Advisory Agreement, the
Investment Adviser is entitled to a monthly fee as a percentage of each Fund's
daily net assets. Each Fund's current contractual fee for advisory services is
also set forth below.
<TABLE>
<CAPTION>
CURRENT
CONTRACTUAL
ADVISORY
CLASS A CLASS B CLASS I FEE RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed Assets Conservative................. 1.25% 2.00% 1.00% 0.65%
Managed Assets Balanced..................... 1.25% 2.00% 1.00% 0.65%
Managed Assets Growth....................... 1.25% 2.00% 1.00% 0.65%
Equity Income............................... 1.22% 1.97% 0.97% 0.50%
Growth...................................... 1.23% 1.98% 0.98% 0.60%
Mid-Cap Opportunity......................... 1.29% 2.04% 1.04% 0.60%
Small Cap Opportunity....................... 1.47% 2.22% 1.22% 0.70%
Intrinsic Value............................. 1.23% 1.98% 0.98% 0.60%
Growth and Value............................ 1.10% 1.85% 0.85% 0.60%
Equity Index................................ 0.63% 1.38% 0.38% 0.10%
International Equity........................ 1.42% 2.17% 1.17% 0.80%
Intermediate Bond........................... 1.00% 1.75% 0.75% 0.40%
Bond........................................ 1.00% 1.75% 0.75% 0.40%
Short Bond.................................. 0.82% 1.57% 0.57% 0.35%
Multi Sector Bond........................... 0.97% 1.72% 0.72% 0.40%
International Bond.......................... 1.15% 1.90% 0.90% 0.70%
High Yield Bond............................. 1.22% 1.97% 0.97% 0.70%
Municipal Bond.............................. 1.00% 1.75% 0.75% 0.40%
Intermediate Municipal Bond................. 0.93% 1.68% 0.68% 0.40%
Michigan Municipal Bond..................... 0.91% 1.66% 0.66% 0.40%
</TABLE>
Pegasus Funds
163
<PAGE> 194
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
The Funds' Class A shares and Class B shares have a Shareholder Services Plan
(the Plan) pursuant to which the Funds pay BISYS (the Distributor) a fee, at an
annual rate not to exceed 0.25% of the value of the average daily net assets of
the outstanding Class A shares and Class B shares. Pursuant to the terms of the
Plan, the Distributor has agreed to provide certain shareholder services to the
holders of these shares. Additionally, under the terms of the Plan, the
Distributor may make payments to other shareholder service agents which may
include FCNIMCO, and its affiliates. For the period ended December 31, 1997,
the Funds paid the following amounts under the Plan to BISYS:
<TABLE>
<CAPTION>
AMOUNTS PAID
------------------------------------------
<S> <C>
Managed Assets Conservative $212,369
Managed Assets Balanced 227,499
Managed Assets Growth 11,202
Equity Income 39,117
Growth 102,466
Mid-Cap Opportunity 377,064
Small-Cap Opportunity 31,794
Intrinsic Value 124,239
Growth and Value 258,071
Equity Index 255,632
International Equity 50,089
Intermediate Bond 63,128
Bond 184,522
Short Bond 5,214
Multi Sector Bond 21,248
International Bond 11,192
High Yield Bond 10,707
Municipal Bond 79,751
Intermediate Municipal Bond 48,926
Michigan Municipal Bond 45,519
</TABLE>
Pegasus Funds
164
<PAGE> 195
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
The Funds' Class B shares have a Distribution Plan adopted pursuant to Rule
12b-1 under the Act (12b-1 Plan) pursuant to which the Funds have agreed to pay
the Distributor for advertising, marketing and distributing Class B shares of
the Funds at an annual rate of 0.75% of the average daily net assets of the
Funds' outstanding Class B shares. Under the terms of the 12b-1 Plan, the
Distributor may make payments to FCNIMCO, and its affiliates with respect to
these services. A contingent deferred sales charge (CDSC) payable to the
Distributor is imposed on redemptions of Class B shares depending on the number
of years such shares were held by the investor. For the period ended December
31, 1997, the Funds made the following payments under the 12b-1 Plan, all of
which was retained by the Distributor:
<TABLE>
<CAPTION>
12B-1 FEES PAID CDSC PAID
-------------------------------------------------------
<S> <C> <C>
Managed Assets Conservative $65,931 $17,704
Managed Assets Balanced 36,033 8,652
Managed Assets Growth 17,451 2,481
Equity Income 16,641 4,356
Growth 9,894 4,042
Mid-Cap Opportunity 11,805 2,417
Small-Cap Opportunity 5,247 437
Intrinsic Value 10,205 5,337
Growth and Value 15,857 5,370
Equity Index 5,793 591
International Equity 10,134 345
Intermediate Bond 1,750 426
Bond 9,794 5,482
Short Bond 856 596
Multi Sector Bond 3,141 1,830
International Bond 536 74
High Yield Bond 536 36
Municipal Bond 6,553 2,648
Intermediate Municipal Bond 4,878 740
Michigan Municipal Bond 2,218 1,119
</TABLE>
Pegasus Funds
165
<PAGE> 196
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
Transactions in amounts and shares of the Funds are summarized below:
<TABLE>
<CAPTION>
MANAGED ASSETS CONSERVATIVE FUND MANAGED ASSETS BALANCED FUND
-------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $31,316,561 2,016,301 $20,672,516 1,371,854 $123,331,478 10,106,283 $ 8,045,626 678,833
Shares issued in
connection with
merger -- -- -- -- -- -- 9,463,276 852,362
Dividends rein-
vested 11,601,787 765,341 2,427,504 161,494 13,209,034 1,100,235 1,198,810 104,708
Shares redeemed (19,010,963) (1,222,958) (8,804,666) (591,724) (19,705,519) (1,614,532) (2,536,126) (221,289)
- ---------------------------------------------------------------------------------------------------------------------
Net Increase $23,907,385 1,558,684 $14,295,354 941,624 $116,834,993 9,591,986 $16,171,586 1,414,614
- ---------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 7,513,031 482,687 $ 3,312,172 232,887 $ 8,381,742 606,921 $ 1,011,447 79,339
Shares issued in
connection with
merger -- -- -- -- -- -- 807,188 66,363
Dividends rein-
vested 1,365,334 90,169 147,221 9,748 757,299 56,894 30,419 2,357
Shares redeemed (806,131) (52,379) (280,570) (18,618) (781,286) (56,066) (6,339) (515)
- ---------------------------------------------------------------------------------------------------------------------
Net Increase $ 8,072,234 520,477 $ 3,178,823 224,017 $ 8,357,755 607,749 $ 1,842,715 147,544
- ---------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $17,213,041 1,103,175 $ 913,493 59,257 $ 54,963,342 4,828,990 $47,908,377 4,195,205
Shares issued in
connection with
merger -- -- -- -- -- -- 435,984 39,271
Dividends rein-
vested 1,051,898 69,270 11,882 782 11,078,389 924,980 8,382,967 741,471
Shares redeemed (9,054,523) (582,695) (784,575) (51,259) (72,178,198) (5,944,348) (41,766,635) (3,653,436)
- ---------------------------------------------------------------------------------------------------------------------
Net Increase
(decrease) $ 9,210,416 589,750 $ 140,800 8,780 $ (6,136,467) (190,378) $14,960,693 1,322,511
- ---------------------------------------------------------------------------------------------------------------------
Net Increase in
Fund $41,190,035 2,668,911 $17,614,977 1,174,421 $119,056,281 10,009,357 $32,974,994 2,884,669
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
MANAGED ASSETS GROWTH FUND
---------------------------------------------------
FOR THE YEAR ENDED DECEMBER 17, 1996
DECEMBER 31, 1997 TO DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 5,803,931 520,583 $ 75,494 7,476
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 110,631 9,677 -- --
Shares redeemed (447,060) (40,532) -- --
- ---------------------------------------------------------------------------------------------------------------------
Net Increase $ 5,467,502 489,728 $ 75,494 7,476
- ---------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 5,710,882 519,712 $ 16,600 1,659
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 106,258 9,416 -- --
Shares redeemed (89,261) (7,937) -- --
- ---------------------------------------------------------------------------------------------------------------------
Net Increase $ 5,727,879 521,191 $ 16,600 1,659
- ---------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 743,108 64,957 $ 586,711 58,671
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 4 0 -- --
Shares redeemed -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net Increase
(decrease) $ 743,112 64,957 $ 586,711 58,671
- ---------------------------------------------------------------------------------------------------------------------
Net Increase in
Fund $11,938,493 1,075,876 $ 678,805 67,806
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
166
<PAGE> 197
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INCOME FUND GROWTH FUND
------------------------------------------------ ---------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------- ------------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 6,572,559 468,697 $10,514,014 807,914 $ 40,045,445 2,775,581 $ 13,304,437 1,069,316
Shares issued in
connection with
merger -- -- -- -- -- -- 5,930,465 512,787
Dividends rein-
vested 1,844,995 139,990 739,802 56,518 2,790,818 182,621 981,447 83,551
Shares redeemed (8,712,198) (619,931) (1,604,818) (124,553) (9,366,705) (646,661) (2,311,238) (186,293)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $ (294,644) (11,244) $ 9,648,998 739,879 $ 33,469,558 2,311,541 $ 17,905,111 1,479,361
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 1,438,787 101,560 $ 1,203,263 94,541 $ 1,483,297 101,867 $ 775,074 62,310
Shares issued in
connection with
merger -- -- -- -- -- -- -- --
Dividends rein-
vested 427,616 32,598 133,696 10,252 93,456 6,193 101,531 8,762
Shares redeemed (457,543) (34,137) (152,379) (11,467) (640,490) (49,812) (79,233) (6,367)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $ 1,408,860 100,021 $ 1,184,580 93,326 $ 936,263 58,248 $ 797,372 64,705
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $28,432,275 2,026,742 $28,951,934 2,290,749 $ 78,761,960 5,522,672 $ 38,409,031 3,188,898
Shares issued in
connection with
merger -- -- -- -- -- -- 222,424,201 19,236,854
Dividends rein-
vested 34,772,811 2,674,370 16,347,833 1,253,457 23,951,009 1,567,312 30,380,321 2,552,247
Shares redeemed (69,797,438) (5,065,466) (39,544,438) (3,063,638) (155,347,564) (10,934,920) (90,415,801) (7,318,686)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $(6,592,352) (364,354) $ 5,755,329 480,568 $(52,634,595) (3,844,936) $200,797,752 17,659,313
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in
Fund $(5,478,136) (275,577) $16,588,907 1,313,773 $(18,228,774) (1,475,147) $219,500,235 19,203,379
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MID-CAP OPPORTUNITY FUND
-----------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $130,158,919 6,412,767 $ 17,574,218 1,006,225
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 13,953,980 672,278 6,227,247 355,667
Shares redeemed (21,535,955) (1,077,836) (15,056,564) (907,440)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $122,576,944 6,007,209 $ 8,744,901 454,452
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 3,558,244 329,955 $ 152,182 15,014
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 388,813 37,100 10,897 1,143
Shares redeemed (93,380) (8,506) -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $ 3,853,677 358,549 $ 163,079 16,157
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $207,175,566 10,476,135 $133,986,518 8,000,078
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 46,220,847 2,224,010 39,593,425 2,261,096
Shares redeemed (253,407,120) (12,783,438) (167,383,102) (10,003,854)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $ (10,707) (83,293) $ 6,196,841 257,320
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in
Fund $126,419,914 6,282,465 $ 15,104,821 727,929
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
167
<PAGE> 198
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
SMALL-CAP OPPORTUNITY FUND INTRINSIC VALUE FUND
------------------------------------------------- --------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ----------------------- ------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 16,824,149 1,022,192 $ 6,588,789 492,296 $ 60,372,454 3,925,383 $ 3,778,042 260,687
Shares issued in
connection with
merger -- -- -- -- -- -- -- --
Dividends rein-
vested 1,650,556 102,839 548,267 40,137 6,149,882 394,556 1,427,772 106,716
Shares redeemed (3,824,714) (251,988) (1,261,317) (98,737) (10,129,328) (667,288) (3,069,127) (237,189)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(Decrease) $ 14,649,991 873,043 $ 5,875,739 433,696 $ 56,393,008 3,652,651 $ 2,136,687 130,214
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 1,618,901 99,977 $ 88,109 6,603 $ 2,966,956 260,864 $ 175,620 $ 17,119
Shares issued in
connection with
merger -- -- -- -- -- -- -- --
Dividends rein-
vested 125,301 7,951 8,638 638 291,301 25,987 6,860 678
Shares redeemed (29,610) (1,796) (5,113) (378) (122,704) (10,630) -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase $ 1,714,592 106,132 $ 91,634 6,863 $ 3,135,553 276,221 $ 182,480 17,797
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 78,449,597 4,974,079 $26,677,330 1,999,204 $190,470,760 12,535,439 $124,592,078 9,559,515
Shares issued in
connection with
merger -- -- -- -- -- -- -- --
Dividends rein-
vested 12,026,693 741,015 7,414,201 538,441 35,700,516 2,291,818 20,133,650 1,500,223
Shares redeemed (21,124,571) (1,399,602) (13,774,348) (1,044,928) (97,234,985) (6,443,872) (65,319,700) (5,010,787)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $ 69,351,719 4,315,492 $20,317,183 1,492,717 $128,936,291 8,383,385 $ 79,406,028 6,048,951
- ------------------------------------------------------------------------------------------------------------------------
Net Increase in
Fund $ 85,716,302 5,294,667 $26,284,556 1,933,276 $188,464,852 12,312,257 $ 81,725,195 6,196,962
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH AND VALUE FUND
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- --------------------------
AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 94,486,592 5,899,852 $ 10,751,493 754,822
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 12,755,356 781,070 5,837,373 408,916
Shares redeemed (15,125,603) (944,388) (10,821,842) (772,283)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(Decrease) $ 92,116,345 5,736,534 $ 5,767,024 391,455
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 4,612,966 444,913 180,906 17,956
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 517,650 50,518 15,917 1,688
Shares redeemed (145,758) (13,846) -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase $ 4,984,858 481,585 $ 196,823 19,644
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 246,403,685 15,691,586 $131,866,602 9,320,587
Shares issued in
connection with
merger -- -- -- --
Dividends rein-
vested 58,038,310 3,548,746 61,731,381 4,321,440
Shares redeemed (262,615,759) (16,528,740) (195,990,296) (13,908,643)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) $ 41,826,236 2,711,592 $ (2,392,313) (266,616)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase in
Fund $ 138,927,439 8,929,711 $ 3,571,534 144,483
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
168
<PAGE> 199
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INDEX FUND INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 168,016,201 8,416,137 $ 31,278,886 1,926,716 $ 18,567,566 1,519,426 $ 5,469,113 471,883
Shares issued in
connection with
merger -- -- -- -- -- -- 5,000,559 437,253
Dividends
reinvested 5,805,194 273,337 729,306 43,478 151,571 12,294 25,480 2,217
Shares redeemed (32,929,404) (1,733,288) (2,209,647) (143,624) (3,047,589) (247,544) (925,372) (80,361)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase $ 140,891,991 6,956,186 $ 29,798,545 1,826,570 $ 15,671,548 1,284,176 $ 9,569,780 830,992
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 1,287,388 104,699 $ 110,553 10,532 $ 811,445 70,622 $ 207,457 19,628
Shares issued in
connection with
merger -- -- -- -- -- -- 902,000 83,241
Dividends
reinvested 71,089 5,457 1,742 164 $ 7,275 630 3,879 363
Shares redeemed (57,785) (4,457) -- -- (201,965) (18,241) (12,832) (1,174)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase $ 1,300,692 105,699 $ 112,295 10,696 $ 616,755 53,011 $ 1,100,504 102,058
- -----------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 146,097,054 7,485,701 $399,191,656 26,322,675 $144,396,799 12,175,388 $156,316,681 13,690,888
Shares issued in
connection with
merger -- -- -- -- 25,851,101 2,159,636 139,065,560 12,158,206
Dividends
reinvested 16,894,585 811,344 24,591,838 1,507,939 1,488,912 120,663 1,166,795 101,789
Shares redeemed (524,752,379) (28,171,388) (235,108,926) (15,057,677) (89,221,490) (7,329,317) (28,938,741) (2,506,907)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase
(decrease) $ (361,760,740) (19,874,343) $188,674,568 12,772,937 $ 82,515,322 7,126,370 $267,610,295 23,443,976
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
Fund $ (219,568,057) (12,812,458) $218,585,408 14,610,203 $ 98,803,625 8,463,557 $278,280,579 24,377,026
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERMEDIATE BOND FUND
--------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 27,304,014 2,624,666 $ 8,796,002 850,551
Shares issued in
connection with
merger -- -- -- --
Dividends
reinvested 1,358,064 131,435 608,725 59,665
Shares redeemed (5,101,985) (493,064) (2,595,255) (254,168)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase $ 23,560,093 2,263,037 $ 6,809,472 656,048
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 278,873 27,172 $ 120,890 11,847
Shares issued in
connection with
merger -- -- -- --
Dividends
reinvested 8,536 833 726 71
Shares redeemed (29,302) (2,866) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase $ 258,107 25,139 $ 121,616 $ 11,918
- -----------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $185,976,995 18,003,953 $109,594,960 10,695,590
Shares issued in
connection with
merger -- -- -- --
Dividends
reinvested 16,511,264 1,601,349 18,582,923 1,823,614
Shares redeemed (123,282,895) (11,921,465) (123,973,501) (12,103,697)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase
(decrease) $ 79,205,364 7,683,837 $ 4,204,382 415,507
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
Fund $103,023,564 9,972,013 $ 11,135,470 1,083,473
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
169
<PAGE> 200
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
BOND FUND SHORT BOND FUND
--------------------------------------------------- -------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------ ------------------------ -----------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 87,085,926 8,353,347 $ 18,025,833 1,759,192 $ 4,288,154 423,115 $ 483,891 47,570
Shares issued in
connection with
merger -- -- 3,578,204 354,183 -- -- -- --
Dividends rein-
vested 3,910,615 377,818 1,569,989 154,343 100,656 9,964 38,229 3,775
Shares redeemed (15,064,433) (1,455,779) (7,420,659) (728,002) (692,337) (68,358) (244,422) (24,031)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (De-
crease) $ 75,932,108 7,275,386 $ 15,753,367 1,539,716 $ 3,696,473 364,721 $ 277,698 27,314
- --------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 3,156,452 303,186 $ 158,728 15,396 $ 500,749 49,815 $ 55,860 5,540
Shares issued in
connection with
merger -- -- 119,311 11,877 -- -- -- --
Dividends rein-
vested 60,268 5,791 3,723 365 4,017 400 494 50
Shares redeemed (164,690) (15,856) (4,168) (416) (20,443) (2,048) -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (De-
crease) $ 3,052,030 293,121 $ 277,594 27,222 $ 484,323 48,167 $ 56,354 5,590
- --------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $435,649,178 42,208,448 $210,681,955 20,613,883 $131,425,104 12,981,562 $40,492,808 3,989,071
Shares issued in
connection with
merger -- -- 127,168,386 12,587,564 -- -- -- --
Dividends rein-
vested 32,769,206 3,176,489 28,011,422 2,757,955 4,521,387 447,631 3,936,671 388,760
Shares redeemed (157,152,393) (15,127,474) (88,910,686) (8,695,219) (73,190,834) (7,226,149) (33,628,814) (3,310,328)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase $311,265,991 30,257,463 $276,951,077 27,264,183 $ 62,755,657 6,203,044 $10,800,665 1,067,503
- --------------------------------------------------------------------------------------------------------------------------
Net Increase in
Fund $390,250,129 37,825,970 $292,982,038 28,831,121 $ 66,936,453 6,615,932 $11,134,717 1,100,407
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
170
<PAGE> 201
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
MULTI SECTOR BOND FUND INTERNATIONAL BOND FUND
---------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 2,346,273 298,883 $ 6,191,696 791,198 $ 5,057,792 501,600 $ 1,566,208 146,224
Shares issued in con-
nection with merger -- -- -- -- -- -- -- --
Dividends reinvested 481,710 61,412 416,055 53,191 173,729 17,298 47,338 4,420
Shares redeemed (3,919,756) (502,746) (3,419,713) (467,477) (554,465) (55,064) (107,494) (10,002)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) $ (1,091,773) (142,451) $ 3,188,038 376,912 $ 4,677,056 463,834 $ 1,506,052 140,642
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 235,272 29,850 $ 347,968 41,940 $ 104,851 10,315 $ 41,186 3,768
Shares issued in con-
nection with merger -- -- -- -- -- -- -- --
Dividends reinvested 18,480 2,347 17,672 2,263 2,380 235 541 50
Shares redeemed (230,668) (29,611) (93,950) (11,916) (29,856) (2,993) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) $ 23,084 2,586 $ 271,690 32,287 $ 77,375 7,557 $ 41,727 3,818
- -----------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $ 7,729,755 983,848 $55,297,081 7,020,090 $40,067,491 3,900,010 $40,613,308 3,806,690
Shares issued in con-
nection with merger -- -- -- -- -- -- -- --
Dividends reinvested 224,426 28,290 2,201,403 285,488 1,589,981 157,098 795,338 73,443
Shares redeemed (102,380,005) (13,037,412) (54,915,467) (6,929,097) (7,903,780) (780,766) (2,780,800) (259,630)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) $ (94,425,824) (12,025,274) $ 2,583,017 376,481 $33,753,692 3,276,342 $38,627,846 3,620,503
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease)
in Fund $ (95,494,513) (12,165,139) $ 6,042,745 785,680 $38,508,123 3,747,733 $40,175,625 3,764,963
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
171
<PAGE> 202
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND MUNICIPAL BOND FUND
--------------------------------------------------------------
FOR THE PERIOD ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997(1) DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 566,077 55,462 $ 11,724,049 939,135 $ 13,226,966 1,061,821
Shares issued in connec-
tion with merger -- -- -- -- 11,575,160 947,394
Dividends reinvested 3,384 332 843,113 67,267 513,008 41,669
Shares redeemed -- -- (8,454,633) (681,140) (3,271,199) (264,538)
- -----------------------------------------------------------------------------------------------------
Net Increase $ 569,461 55,794 $ 4,112,529 325,262 $ 22,043,935 1,786,346
- -----------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 77,187 7,534 $ 733,512 58,222 $ 431,882 34,093
Shares issued in connec-
tion with merger -- -- -- -- -- --
Dividends reinvested 959 94 28,072 2,246 18,317 1,488
Shares redeemed (893) (87) (160,009) (12,772) -- --
- -----------------------------------------------------------------------------------------------------
Net Increase $ 77,253 7,541 $ 601,575 47,696 $ 450,199 35,581
- -----------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $50,211,813 4,945,400 $ 90,800,345 7,311,590 $ 42,748,779 3,495,568
Shares issued in connec-
tion with merger -- -- -- -- 91,002,940 7,456,140
Dividends reinvested 369,553 36,030 632,571 50,986 2,337,397 191,078
Shares redeemed (2,057,468) (200,949) (87,732,156) (7,051,329) (34,399,736) (2,790,753)
- -----------------------------------------------------------------------------------------------------
Net Increase $48,523,898 4,780,481 $ 3,700,760 311,247 $101,689,380 8,352,033
- -----------------------------------------------------------------------------------------------------
Net Increase in Fund $49,170,612 4,843,816 $ 8,414,864 684,205 $124,183,514 10,173,960
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period June 30, 1997 (Commencement of operations) through December
31, 1997.
Pegasus Funds
172
<PAGE> 203
PEGASUS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL BOND FUND MICHIGAN MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Shares issued $ 4,330,436 356,402 $ 5,315,556 359,402 $ 1,862,834 175,504 $ 911,973 79,044
Shares issued in connec-
tion with merger -- -- -- -- -- -- -- --
Dividends reinvested 654,340 53,881 612,849 50,915 635,851 59,987 657,970 63,485
Shares redeemed (5,476,837) (450,630) (3,525,775) (287,987) (3,140,092) (297,510) (3,759,125) (354,815)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) $ (492,061) (40,347) $ 2,402,630 122,330 $ (641,407) (62,019) $(2,189,182) (212,286)
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares issued $ 97,661 8,007 $ 303,103 24,223 $ 597,476 57,746 110,019 10,827
Shares issued in connec-
tion with merger -- -- -- -- -- -- -- --
Dividends reinvested 19,911 1,640 13,696 1,129 4,727 457 63 6
Shares redeemed (31,769) (2,641) (31,817) (2,637) (22,479) (2,223) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase $ 85,803 7,006 $ 284,982 22,715 $ 579,724 55,980 110,082 10,833
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares issued $68,404,127 5,629,130 $59,555,517 5,006,430 $23,854,404 2,244,429 $16,351,477 1,572,801
Shares issued in connec-
tion with merger -- -- -- -- -- -- -- --
Dividends reinvested 1,762,447 143,942 1,919,974 160,281 347,003 32,675 196,702 18,959
Shares redeemed (73,664,655) (6,056,270) (57,603,084) (4,790,142) (6,574,233) (622,964) (6,798,951) (652,256)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (3,498,081) (283,198) $ 3,872,407 376,569 17,627,174 1,654,140 9,749,228 939,504
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease)
in Fund $(3,904,339) (316,539) $ 6,560,019 521,614 $17,565,491 1,648,101 $ 7,670,128 738,051
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
173
<PAGE> 204
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
See accompanying Notes to the Financial Statements.
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
IN EXCESS
OF NET
FROM NET REALIZED
TOTAL REALIZED GAIN ON
NET ASSET NET REALIZED INCOME IN EXCESS GAIN ON INVESTMENTS
VALUE NET AND UNREALIZED FROM FROM NET OF NET INVESTMENTS & AND FOREIGN
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT INVESTMENT FOREIGN CURRENCY CURRENCY RETURN OF
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL
--------- ---------- -------------- ---------- ---------- ---------- ---------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED ASSETS CONSERVATIVE
CLASS A SHARES
December 31, 1997 $15.34 0.58 1.35 $ 1.93 (0.58) -- (1.74) -- --
December 31, 1996 $14.54 0.56 0.89 $ 1.45 (0.56) -- (0.09) -- --
December 31, 1995 $12.13 0.64 2.48 $ 3.12 (0.68) -- (0.03) -- --
December 31, 1994 $13.11 0.73 (0.98) $(0.25) (0.72) -- (0.01) -- --
December 31, 1993 $12.68 0.72 0.61 $ 1.33 (0.72) -- (0.18) -- --
December 31, 1992 $12.56 0.79 0.26 $ 1.05 (0.77) -- (0.16) -- --
CLASS B SHARES
December 31, 1997 $15.36 0.47 1.35 $ 1.82 (0.47) -- (1.74) -- --
December 31, 1996 $14.56 0.44 0.89 $ 1.33 (0.44) -- (0.09) -- --
For the period ended
12/31/1995(/2/) $12.42 0.45 2.17 $ 2.62 (0.45) -- (0.03) -- --
For the period ended
12/2/1994(/1/) $13.05 0.51 (0.91) $(0.40) (0.54) -- (0.01) -- --
CLASS I SHARES
December 31, 1997 $15.38 0.59 1.37 $ 1.96 (0.60) -- (1.74) -- --
December 31, 1996 $14.57 0.60 0.89 $ 1.49 (0.59) -- (0.09) -- --
For the period ended
12/31/1995(/4/) $12.42 0.57 2.18 $ 2.75 (0.57) -- (0.03) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED
CLASS A SHARES
December 31, 1997 $11.63 0.32 1.43 $ 1.75 (0.31) -- (1.15) -- --
December 31, 1996 $11.24 0.35 1.06 $ 1.41 (0.34) -- (0.68) -- --
December 31, 1995 $ 9.53 0.35 1.83 $ 2.18 (0.35) -- (0.12) -- --
December 31, 1994 $10.00 0.28 (0.48) $(0.20) (0.27) -- -- -- --
CLASS B SHARES
December 31, 1997 $12.81 0.24 1.61 $ 1.85 (0.24) -- (1.15) -- --
For the period ended
12/31/1996(/5/) $12.16 0.08 0.81 $ 0.89 (0.07) -- (0.17) -- --
CLASS I SHARES
December 31, 1997 $11.59 0.34 1.47 $ 1.81 (0.34) -- (1.15) -- --
December 31, 1996 $11.24 0.39 1.02 $ 1.41 (0.38) -- (0.68) -- --
December 31, 1995 $ 9.53 0.35 1.83 $ 2.18 (0.35) -- (0.12) -- --
December 31, 1994 $10.00 0.28 (0.48) $(0.20) (0.27) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH
CLASS A SHARES
December 31, 1997 $10.08 0.17 1.60 $ 1.77 (0.16) -- (0.18) -- --
For the period ended
12/31/1996(/6/) $10.00 0.00 0.08 $ 0.08 0.00 -- -- -- --
CLASS B SHARES
December 31, 1997 $ 9.99 0.11 1.55 $ 1.66 (0.12) -- (0.18) -- --
For the period ended
12/31/1996(/6/) $10.00 0.00 (0.01) $(0.01) 0.00 -- -- -- --
CLASS I SHARES
December 31, 1997 $10.13 0.21 1.59 $ 1.80 (0.18) -- (0.18) -- --
For the period ended
12/31/1996(/6/) $10.00 0.00 0.13 $ 0.13 0.00 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
MANAGED ASSETS CONSERVATIVE
CLASS A SHARES
December 31, 1997 $(2.32)
December 31, 1996 $(0.65)
December 31, 1995 $(0.71)
December 31, 1994 $(0.73)
December 31, 1993 $(0.90)
December 31, 1992 $(0.93)
CLASS B SHARES
December 31, 1997 $(2.21)
December 31, 1996 $(0.53)
For the period ended
12/31/1995(/2/) $(0.48)
For the period ended
12/2/1994(/1/) $(0.55)
CLASS I SHARES
December 31, 1997 $(2.34)
December 31, 1996 $(0.68)
For the period ended
12/31/1995(/4/) $(0.60)
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS BALANCED
CLASS A SHARES
December 31, 1997 $(1.46)
December 31, 1996 $(1.02)
December 31, 1995 $(0.47)
December 31, 1994 $(0.27)
CLASS B SHARES
December 31, 1997 $(1.39)
For the period ended
12/31/1996(/5/) $(0.24)
CLASS I SHARES
December 31, 1997 $(1.49)
December 31, 1996 $(1.06)
December 31, 1995 $(0.47)
December 31, 1994 $(0.27)
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSETS GROWTH
CLASS A SHARES
December 31, 1997 $(0.34)
For the period ended
12/31/1996(/6/) $ 0.00
CLASS B SHARES
December 31, 1997 $(0.30)
For the period ended
12/31/1996(/6/) $ 0.00
CLASS I SHARES
December 31, 1997 $(0.36)
For the period ended
12/31/1996(/6/) $ 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
174
<PAGE> 205
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE AVERAGE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO COMMISSION
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%) RATE
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- (0.39) $14.95 13.10% $ 90,835 1.24% 3.74% 1.33% 102.37% $0.0524
-- 0.80 $15.34 10.11% $ 69,301 1.18% 3.64% 1.33% 63.41% $0.0526
-- 2.41 $14.54 26.40% $ 51,997 1.17% 4.88% 1.54% 8.23% --
-- (0.98) $12.13 (1.92%) $ 44,367 0.63% 5.77% 1.67% 28.69% --
-- 0.43 $13.11 10.70% $ 51,586 0.39% 5.54% 1.65% 16.40% --
-- 0.12 $12.68 8.68% $ 34,262 0.02% 6.24% 1.88% 22.14% --
-- (0.39) $14.97 12.29% $ 13,378 1.99% 2.99% 2.08% 102.37% $0.0524
-- 0.80 $15.36 9.26% $ 5,736 1.93% 2.89% 2.07% 63.41% $0.0526
-- 2.14 $14.56 21.42%++ $ 2,175 1.92%+ 3.89%+ 2.12%+ 8.23%++ --
(12.10) (0.95) -- (3.13%) -- 1.21%+ 4.10%+ 2.17%+ 28.69%++ --
-- (0.38) $15.00 13.34% $ 10,309 0.99% 3.99% 1.08% 102.37% $0.0524
-- 0.81 $15.38 10.43% $ 1,501 0.93% 3.89% 1.19% 63.41% $0.0526
-- 2.15 $14.57 22.55%++ $ 1,294 0.77%+ 5.12%+ 1.22%+ 8.23%++ --
- --------------------------------------------------------------------------------------------------------------------------------
-- 0.29 $11.92 15.28% $141,804 1.24% 2.71% 1.32% 116.87% $0.0527
-- 0.39 $11.63 12.99% $ 26,775 1.09% 3.13% 1.16% 50.50% $0.0711
-- 1.71 $11.24 23.18% $ 9,986 0.91% 3.40% 1.09% 31.76% --
-- (0.47) $ 9.53 (1.95%) $ 8,168 0.85% 3.41% 1.56% 37.49% --
-- 0.46 $13.27 14.59% $ 10,026 1.99% 1.96% 2.07% 116.87% $0.0527
-- 0.65 $12.81 7.30%++ $ 1,890 1.96%+ 1.35%+ 2.03%+ 50.50% $0.0711
-- 0.32 $11.91 15.79% $102,042 0.99% 2.96% 1.07% 116.87% $0.0527
-- 0.35 $11.59 13.04% $101,596 0.94% 3.28% 1.01% 50.50% $0.0711
-- 1.71 $11.24 23.18% $ 83,638 0.91% 3.40% 1.09% 31.76% --
-- (0.47) $ 9.53 (1.95%) $ 45,999 0.85% 3.41% 1.56% 37.49% --
- --------------------------------------------------------------------------------------------------------------------------------
-- 1.43 $11.51 17.75% $ 5,725 1.24% 1.69% 2.29% 39.35% --
-- 0.08 $10.08 0.80%++ $ 75 1.20%+ (0.45%)+ (3.50%)+ 0.00% --
-- 1.36 $11.35 16.69% $ 5,936 1.99% 0.94% 3.04% 39.35% --
-- (0.01) $ 9.99 (0.10%)++ $ 17 1.95%+ (1.20%)+ (4.25%)+ 0.00% --
-- 1.44 $11.57 17.87% $ 1,430 0.99% 1.94% 2.04% 39.35% --
-- 0.13 $10.13 1.30%++ $ 594 0.95%+ 0.20%+ (3.25%)+ 0.00% --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
175
<PAGE> 206
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
FROM NET
TOTAL REALIZED IN EXCESS
NET ASSET NET REALIZED INCOME IN EXCESS GAIN ON OF NET
VALUE NET AND UNREALIZED FROM FROM NET OF NET INVESTMENTS & REALIZED
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT INVESTMENT FOREIGN CURRENCY GAIN ON
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS INVESTMENTS
--------- ---------- -------------- ---------- ---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INCOME
CLASS A SHARES
December 31, 1997 $13.29 0.41 2.37 $ 2.78 (0.41) -- (2.60) --
December 31, 1996 $12.22 0.39 1.90 $ 2.29 (0.38) -- (0.84) --
For the period ended
12/31/1995(/7/) $10.00 0.36 2.57 $ 2.93 (0.36) (0.01) (0.34) --
CLASS B SHARES
December 31, 1997 $13.28 0.29 2.39 $ 2.68 (0.31) -- (2.60) --
December 31, 1996 $12.22 0.30 1.88 $ 2.18 (0.28) -- (0.84) --
For the period ended
12/31/1995(/7/) $10.00 0.29 2.56 $ 2.85 (0.29) -- (0.34) --
CLASS I SHARES
December 31, 1997 $13.25 0.44 2.38 $ 2.82 (0.45) -- (2.60) --
December 31, 1996 $12.21 0.45 1.87 $ 2.32 (0.44) -- (0.84) --
For the period ended
12/31/1995(/7/) $10.00 0.42 2.55 $ 2.97 (0.42) -- (0.34) --
- --------------------------------------------------------------------------------------------------------------------------
GROWTH
CLASS A SHARES
December 31, 1997 $12.64 (0.01) 3.40 $ 3.39 0.00 -- (0.96) --
December 31, 1996 $11.97 0.05 1.04 $ 1.09 (0.06) -- (0.36) --
For the period ended
12/31/1995(/7/) $10.00 0.11 2.86 $ 2.97 (0.11) -- (0.89) --
CLASS B SHARES
December 31, 1997 $12.56 (0.06) 3.32 $ 3.26 0.00 -- (0.96) --
December 31, 1996 $11.95 (0.02) 0.99 $ 0.97 0.00 -- (0.36) --
For the period ended
12/31/1995(/7/) $10.00 0.06 2.84 $ 2.90 (0.06) -- (0.89) --
CLASS I SHARES
December 31, 1997 $12.63 0.02 3.41 $ 3.43 (0.02) -- (0.96) --
December 31, 1996 $11.97 0.09 1.02 $ 1.11 (0.09) -- (0.36) --
For the period ended
12/31/1995(/7/) $10.00 0.15 2.86 $ 3.01 (0.15) -- (0.89) --
- --------------------------------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY
CLASS A SHARES
December 31, 1997 $17.61 (0.03) 4.87 $ 4.84 0.00 -- (1.56) --
December 31, 1996 $15.15 0.02 3.74 $ 3.76 (0.02) -- (1.28) --
December 31, 1995 $13.34 0.06 2.57 $ 2.63 (0.06) -- (0.76) --
December 31, 1994 $14.49 0.07 (0.54) $(0.47) (0.07) -- (0.49) (0.02)
December 31, 1993 $12.37 0.10 2.87 $ 2.97 (0.10) -- (0.75) --
December 31,
1992(/2//2/) $10.95 0.08 1.88 $ 1.96 (0.08) -- (0.46) --
CLASS B SHARES
December 31, 1997 $ 9.57 (0.03) 2.60 $ 2.57 0.00 -- (1.56) --
December 31, 1996(/8/) $10.00 0.00 0.79 $ 0.79 (0.01) -- (1.21) --
CLASS I SHARES
December 31, 1997 $17.61 0.01 4.88 $ 4.89 (0.01) -- (1.56) --
December 31, 1996 $15.15 0.04 3.74 $ 3.78 (0.04) -- (1.28) --
December 31, 1995 $13.34 0.06 2.57 $ 2.63 (0.06) -- (0.76) --
December 31, 1994 $14.49 0.07 (0.54) $(0.47) (0.07) -- (0.49) (0.02)
December 31, 1993 $12.37 0.10 2.87 $ 2.97 (0.10) -- (0.75) --
December 31, 1992 $10.40 0.11 2.43 $ 2.54 (0.11) -- (0.46) --
<CAPTION>
-----------------------
RETURN OF TOTAL
CAPITAL DISTRIBUTIONS
--------- -------------
<S> <C> <C>
EQUITY INCOME
CLASS A SHARES
December 31, 1997 -- $(3.01)
December 31, 1996 -- $(1.22)
For the period ended
12/31/1995(/7/) -- $(0.71)
CLASS B SHARES
December 31, 1997 -- $(2.91)
December 31, 1996 -- $(1.12)
For the period ended
12/31/1995(/7/) -- $(0.63)
CLASS I SHARES
December 31, 1997 -- $(3.05)
December 31, 1996 -- $(1.28)
For the period ended
12/31/1995(/7/) -- $(0.76)
- --------------------------------------------------------------------------------------------------------------------------
GROWTH
CLASS A SHARES
December 31, 1997 -- $(0.96)
December 31, 1996 -- $(0.42)
For the period ended
12/31/1995(/7/) -- $(1.00)
CLASS B SHARES
December 31, 1997 -- $(0.96)
December 31, 1996 -- $(0.36)
For the period ended
12/31/1995(/7/) -- $(0.95)
CLASS I SHARES
December 31, 1997 -- $(0.98)
December 31, 1996 -- $(0.45)
For the period ended
12/31/1995(/7/) -- $(1.04)
- --------------------------------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY
CLASS A SHARES
December 31, 1997 -- $(1.56)
December 31, 1996 -- $(1.30)
December 31, 1995 -- $(0.82)
December 31, 1994 (0.10) $(0.68)
December 31, 1993 -- $(0.85)
December 31,
1992(/2//2/) -- $(0.54)
CLASS B SHARES
December 31, 1997 -- $(1.56)
December 31, 1996(/8/) -- $(1.22)
CLASS I SHARES
December 31, 1997 -- $(1.57)
December 31, 1996 -- $(1.32)
December 31, 1995 -- $(0.82)
December 31, 1994 (0.10) $(0.68)
December 31, 1993 -- $(0.85)
December 31, 1992 -- $(0.57)
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
176
<PAGE> 207
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE AVERAGE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO COMMISSION
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%) RATE
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- (0.23) $13.06 21.57% $ 12,583 0.95% 2.90% -- 41.31% $0.0471
-- 1.07 $13.29 19.29% $ 12,956 0.91% 3.29% 0.95% 61.41% $0.0422
-- 2.22 $12.22 29.78%++ $ 2,873 1.11%+ 3.33%+ 1.44%+ 44.07%++ --
-- (0.23) $13.05 20.73% $ 3,157 1.70% 2.15% -- 41.31% $0.0471
-- 1.06 $13.28 18.28% $ 1,885 1.66% 2.54% 1.81% 61.41% $0.0422
-- 2.22 $12.22 28.97%++ $ 593 1.90%+ 2.65%+ 2.65%+ 44.07%++ --
-- (0.23) $13.02 21.95% $304,260 0.70% 3.15% -- 41.31% $0.0471
-- 1.04 $13.25 19.58% $314,649 0.66% 3.54% 0.74% 61.41% $0.0422
-- 2.21 $12.21 30.27%++ $283,927 0.65%+ 4.08%+ 0.77%+ 44.07%++ --
- -------------------------------------------------------------------------------------------------------------------------------
-- 2.43 $15.07 26.76% $ 62,562 1.04% (0.08%) -- 22.89% $0.0478
-- 0.67 $12.64 20.10% $ 23,273 1.04% 0.43% 1.07% 61.95% $0.0176
-- 1.97 $11.97 29.98%++ $ 4,329 1.21%+ 0.86%+ 1.39%+ 106.02%++ --
-- 2.30 $14.86 25.90% $ 2,161 1.79% (0.83%) -- 22.89% $0.0478
-- 0.61 $12.56 19.04% $ 1,094 1.79% (0.32%) 1.89% 61.95% $0.0176
-- 1.95 $11.95 29.15%++ $ 268 2.04%+ 0.02%+ 2.60%+ 106.02%++ --
-- 2.45 $15.08 27.10% $578,490 0.79% 0.17% -- 22.89% $0.0478
-- 0.66 $12.63 20.36% $533,406 0.79% 0.68% 0.85% 61.95% $0.0176
-- 1.97 $11.97 30.38%++ $293,944 0.80%+ 1.46%+ 0.92%+ 106.02%++ --
- -------------------------------------------------------------------------------------------------------------------------------
-- 3.28 $20.89 27.56% $234,020 1.09% (0.20%) -- 37.54%(25) $0.0464
-- 2.46 $17.61 24.91% $ 91,516 0.93% 0.12% -- 34.87% $0.0354
-- 1.81 $15.15 19.88% $ 71,858 0.89% 0.37% -- 53.55% --
-- (1.15) $13.34 (3.27%) $ 64,326 0.90% 0.53% -- 37.51% --
-- 2.12 $14.49 24.01% $ 53,977 0.86% 0.71% -- 33.99% --
-- 1.42 $12.37 27.93% $ 5,111 0.85%+ 1.05%+ -- 34.44%+ --
-- 1.01 $10.58 27.10% $ 3,965 1.84% (0.95%) -- 37.54%(25) $0.0464
-- (0.43) $ 9.57 7.94%++ $ 154 1.81%+ (0.59%)+ -- 34.87% $0.0354
-- 3.32 $20.93 27.91% $803,670 0.84% 0.05% -- 37.54%(25) $0.0464
-- 2.46 $17.61 25.03% $677,608 0.81% 0.24% -- 34.87% $0.0354
-- 1.81 $15.15 19.88% $579,094 0.89% 0.37% -- 53.55% --
-- (1.15) $13.34 (3.27%) $460,673 0.90% 0.53% -- 37.51% --
-- 2.12 $14.49 24.01% $311,688 0.86% 0.71% -- 33.99% --
-- 1.97 $12.37 24.56% $161,312 0.84% 1.09% -- 34.44% --
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
177
<PAGE> 208
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
FROM NET
TOTAL REALIZED IN EXCESS
NET ASSET NET REALIZED INCOME IN EXCESS GAIN ON OF NET
VALUE NET AND UNREALIZED FROM FROM NET OF NET INVESTMENTS & REALIZED
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT INVESTMENT FOREIGN CURRENCY GAIN ON
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS INVESTMENTS
--------- ---------- -------------- ---------- ---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SMALL-CAP OPPORTUNITY
CLASS A SHARES
December 31, 1997 $13.70 (0.06) 4.16 $ 4.10 -- -- (1.77) --
December 31, 1996 $12.20 (0.02) 3.02 $ 3.00 -- -- (1.50) --
For the period ended
12/31/1995(/7/) $10.00 0.02 2.45 $ 2.47 (0.02) -- (0.25) --
CLASS B SHARES
December 31, 1997 $13.58 (0.07) 4.00 $ 3.93 -- -- (1.77) --
December 31, 1996 $12.12 (0.04) 3.00 $ 2.96 -- -- (1.50) --
For the period ended
12/31/1995(/7/) $10.00 (0.03) 2.40 $ 2.37 -- -- (0.25) --
CLASS I SHARES
December 31, 1997 $13.80 (0.05) 4.24 $ 4.19 -- -- (1.77) --
December 31, 1996 $12.19 (0.01) 3.13 $ 3.12 -- (0.01) (1.50) --
For the period ended
12/31/1995(/7/) $10.00 0.06 2.44 $ 2.50 (0.06) -- (0.25) --
- --------------------------------------------------------------------------------------------------------------------------
INTRINSIC VALUE
CLASS A SHARES
December 31, 1997 $13.70 0.23 3.17 $ 3.40 (0.24) -- (1.20) --
December 31, 1996 $11.89 0.28 2.50 $ 2.78 (0.28) -- (0.69) --
December 31, 1995 $10.48 0.29 2.24 $ 2.53 (0.30) -- (0.82) --
December 31, 1994 $11.05 0.31 (0.38) $(0.07) (0.30) -- (0.20) --
December 31, 1993 $10.40 0.29 1.23 $ 1.52 (0.28) -- (0.59) --
December 31,
1992(/2//2/) $10.70 0.22 0.33 $ 0.55 (0.21) -- (0.64) --
CLASS B SHARES
December 31, 1997 $10.18 0.25 2.19 $ 2.44 (0.19) -- (1.20) --
December 31, 1996(/8/) $10.00 0.04 0.79 $ 0.83 (0.06) -- (0.59) --
CLASS I SHARES
December 31, 1997 $13.71 0.28 3.15 $ 3.43 (0.27) -- (1.20) --
December 31, 1996 $11.89 0.29 2.51 $ 2.80 (0.29) -- (0.69) --
December 31, 1995 $10.48 0.29 2.24 $ 2.53 (0.30) -- (0.82) --
December 31, 1994 $11.05 0.31 (0.38) $(0.07) (0.30) -- (0.20) --
December 31, 1993 $10.40 0.29 1.23 $ 1.52 (0.28) -- (0.59) --
December 31, 1992 $ 9.89 0.29 1.14 $ 1.43 (0.28) -- (0.64) --
- --------------------------------------------------------------------------------------------------------------------------
GROWTH AND VALUE
CLASS A SHARES
December 31, 1997 $14.12 0.10 3.78 $ 3.88 (0.11) -- (1.51) --
December 31, 1996 $13.16 0.16 2.37 $ 2.53 (0.16) -- (1.41) --
December 31, 1995 $10.67 0.21 2.76 $ 2.97 (0.22) -- (0.26) --
December 31, 1994 $11.16 0.23 (0.17) $ 0.06 (0.21) -- (0.30) (0.01)
December 31, 1993 $10.51 0.20 1.24 $ 1.44 (0.20) -- (0.59) --
December 31,
1992(/2//2/) $10.16 0.17 0.45 $ 0.62 (0.17) -- (0.10) --
CLASS B SHARES
December 31, 1997 $ 9.32 0.07 2.38 $ 2.45 (0.07) -- (1.51) --
December 31, 1996(/8/) $10.00 0.01 0.62 $ 0.63 (0.03) -- (1.28) --
CLASS I SHARES
December 31, 1997 $14.12 0.14 3.79 $ 3.93 (0.15) -- (1.51) --
December 31, 1996 $13.16 0.18 2.36 $ 2.54 (0.17) -- (1.41) --
December 31, 1995 $10.67 0.21 2.76 $ 2.97 (0.22) -- (0.26) --
December 31, 1994 $11.16 0.23 (0.17) $ 0.06 (0.21) -- (0.30) (0.01)
December 31, 1993 $10.51 0.20 1.24 $ 1.44 (0.20) -- (0.59) --
December 31, 1992 $ 9.86 0.22 0.75 $ 0.97 (0.22) -- (0.10) --
<CAPTION>
-----------------------
RETURN OF TOTAL
CAPITAL DISTRIBUTIONS
--------- -------------
<S> <C> <C>
SMALL-CAP OPPORTUNITY
CLASS A SHARES
December 31, 1997 -- $(1.77)
December 31, 1996 -- $(1.50)
For the period ended
12/31/1995(/7/) -- $(0.27)
CLASS B SHARES
December 31, 1997 -- $(1.77)
December 31, 1996 -- $(1.50)
For the period ended
12/31/1995(/7/) -- $(0.25)
CLASS I SHARES
December 31, 1997 -- $(1.77)
December 31, 1996 -- $(1.51)
For the period ended
12/31/1995(/7/) -- $(0.31)
- --------------------------------------------------------------------------------------------------------------------------
INTRINSIC VALUE
CLASS A SHARES
December 31, 1997 -- $(1.44)
December 31, 1996 -- $(0.97)
December 31, 1995 -- $(1.12)
December 31, 1994 -- $(0.50)
December 31, 1993 -- $(0.87)
December 31,
1992(/2//2/) -- $(0.85)
CLASS B SHARES
December 31, 1997 -- $(1.39)
December 31, 1996(/8/) -- $(0.65)
CLASS I SHARES
December 31, 1997 -- $(1.47)
December 31, 1996 -- $(0.98)
December 31, 1995 -- $(1.12)
December 31, 1994 -- $(0.50)
December 31, 1993 -- $(0.87)
December 31, 1992 -- $(0.92)
- --------------------------------------------------------------------------------------------------------------------------
GROWTH AND VALUE
CLASS A SHARES
December 31, 1997 -- $(1.62)
December 31, 1996 -- $(1.57)
December 31, 1995 -- $(0.48)
December 31, 1994 (0.03) $(0.55)
December 31, 1993 -- $(0.79)
December 31,
1992(/2//2/) -- $(0.27)
CLASS B SHARES
December 31, 1997 -- $(1.58)
December 31, 1996(/8/) -- $(1.31)
CLASS I SHARES
December 31, 1997 -- $(1.66)
December 31, 1996 -- $(1.58)
December 31, 1995 -- $(0.48)
December 31, 1994 (0.03) $(0.55)
December 31, 1993 -- $(0.79)
December 31, 1992 -- $(0.32)
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
178
<PAGE> 209
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE AVERAGE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO COMMISSION
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%) RATE
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- 2.33 $16.03 30.16% $ 21,836 1.18% (0.68%) -- 58.29% $0.0474
-- 1.50 $13.70 24.59% $ 6,697 1.13% (0.29%) 1.24% 93.82% $0.0501
-- 2.20 $12.20 24.80%++ $ 672 1.25%+ 0.19%+ 2.56%+ 38.89%++ --
-- 2.16 $15.74 29.17% $ 1,799 1.93% (1.43%) -- 58.29% $0.0474
-- 1.46 $13.58 24.42% $ 110 1.88% (1.04%) 3.04% 93.82% $0.0501
-- 2.12 $12.12 23.76%++ $ 15 2.00%+ (0.51%)+ 9.52%+ 38.89%++ --
-- 2.42 $16.22 30.60% $217,908 0.93% (0.43%) -- 58.29% $0.0474
-- 1.61 $13.80 25.63% $125,840 0.88% (0.04%) 1.02% 93.82% $0.0501
-- 2.19 $12.19 25.08%++ $ 92,926 0.85%+ 0.59%+ 1.09%+ 38.89%++ --
- ---------------------------------------------------------------------------------------------------------------------------------
-- 1.96 $15.66 25.03% $ 82,791 1.06% 1.64% -- 35.93%(25) $0.0465
-- 1.81 $13.70 23.79% $ 22,370 0.94% 2.16% -- 34.24% $0.0380
-- 1.41 $11.89 24.38% $ 17,858 0.91% 2.49% -- 45.55% --
-- (0.57) $10.48 (0.60%) $ 15,730 0.91% 2.92% -- 58.62% --
-- 0.65 $11.05 14.71% $ 14,098 0.86% 2.67% -- 63.90% --
-- (0.30) $10.40 6.82% $ 4,729 0.85%+ 3.12%+ -- 48.52%+ --
-- 1.05 $11.23 24.24% $ 3,302 1.81% 0.89% -- 35.93%(25) $0.0465
-- 0.18 $10.18 8.31%++ $ 182 1.81%+ 0.25%+ -- 34.24%+ $0.0380
-- 1.96 $15.67 25.25% $539,948 0.81% 1.89% -- 35.93%(25) $0.0465
-- 1.82 $13.71 23.99% $357,360 0.83% 2.27% -- 34.24% $0.0380
-- 1.41 $11.89 24.38% $238,027 0.91% 2.49% -- 45.55% --
-- (0.57) $10.48 (0.60%) $204,298 0.91% 2.92% -- 58.62% --
-- 0.65 $11.05 14.71% $178,457 0.86% 2.67% -- 63.90% --
-- 0.51 $10.40 14.56% $102,532 0.84% 2.78% -- 48.52% --
- ---------------------------------------------------------------------------------------------------------------------------------
-- 2.26 $16.38 27.80% $162,393 1.09% 0.67% 1.10% 30.98% $0.0473
-- 0.96 $14.12 19.24% $ 59,027 0.91% 1.17% -- 43.21% $0.0448
-- 2.49 $13.16 28.04% $ 49,872 0.84% 1.73% -- 26.80% --
-- (0.49) $10.67 0.55% $ 42,274 0.84% 2.07% -- 28.04% --
-- 0.65 $11.16 13.79% $ 29,467 0.83% 1.84% -- 42.31% --
-- 0.35 $10.51 8.19% $ 4,338 0.83%+ 2.49%+ -- 16.28%+ --
-- 0.87 $10.19 26.90% $ 5,107 1.84% (0.08%) 1.85% 30.98% $0.0473
-- (0.68) $ 9.32 6.10%++ $ 183 1.80%+ 0.25%+ -- 43.21%+ $0.0448
-- 2.27 $16.39 28.15% $895,567 0.84% 0.92% 0.85% 30.98% $0.0473
-- 0.96 $14.12 19.35% $733,632 0.80% 1.28% -- 43.21% $0.0448
-- 2.49 $13.16 28.04% $687,295 0.84% 1.73% -- 26.80% --
-- (0.49) $10.67 0.55% $529,097 0.84% 2.07% -- 28.04% --
-- 0.65 $11.16 13.79% $400,168 0.83% 1.84% -- 42.31% --
-- 0.65 $10.51 9.87% $283,007 0.83% 2.20% -- 16.28% --
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
179
<PAGE> 210
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
--------------------------------------------------------------------
TOTAL
NET ASSET NET REALIZED INCOME IN EXCESS
VALUE, NET AND UNREALIZED FROM FROM NET OF NET
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT INVESTMENT
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME
--------- ---------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
EQUITY INDEX
CLASS A SHARES
December 31, 1997 $16.75 0.26 5.19 $5.45 (0.26) --
December 31, 1996 $14.15 0.30 2.85 $3.15 (0.29) --
December 31, 1995 $10.65 0.30 3.65 $3.95 (0.31) --
December 31, 1994 $11.15 0.31 (0.20) $0.11 (0.30) --
December 31, 1993 $10.52 0.28 0.75 $1.03 (0.27) --
December 31,
1992(/2//3/) $10.00 0.12 0.52 $0.64 (0.12) --
CLASS B SHARES
December 31, 1997 $10.50 0.15 3.15 $3.30 (0.21) --
December 31, 1996(/8/) $10.00 0.05 0.76 $0.81 (0.06) --
CLASS I SHARES
December 31, 1997 $16.75 0.30 5.20 $5.50 (0.30) --
December 31, 1996 $14.15 0.31 2.85 $3.16 (0.30) --
December 31, 1995 $10.65 0.30 3.65 $3.95 (0.31) --
December 31, 1994 $11.15 0.31 (0.20) $0.11 (0.30) --
December 31, 1993 $10.52 0.28 0.75 $1.03 (0.27) --
December 31,
1992(/2//3/) $10.00 0.12 0.52 $0.64 (0.12) --
- ---------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY
CLASS A SHARES
December 31, 1997 $11.77 0.07 0.36 $0.43 (0.09) --
December 31, 1996 $11.05 0.10 0.72 $0.82 (0.10) --
December 31, 1995 $10.01 0.10 1.05 $1.15 (0.11) --
CLASS B SHARES
December 31, 1997 $11.08 0.01 0.34 $0.35 (0.06) --
December 31, 1996(/5/) $10.84 0.04 0.24 $0.28 (0.04) --
CLASS I SHARES
December 31, 1997 $11.79 0.10 0.37 $0.47 (0.12) --
December 31, 1996 $11.05 0.11 0.74 $0.85 (0.11) --
December 31, 1995 $10.01 0.10 1.05 $1.15 (0.11) --
December 31, 1994(/9/) $10.00 0.01 -- $0.01 -- --
- ---------------------------------------------------------------------------------------------
INTERMEDIATE BOND
CLASS A SHARES
December 31, 1997 $10.29 0.62 0.18 $0.80 (0.62) --
December 31, 1996 $10.37 0.64 (0.07) $0.57 (0.65) --
December 31, 1995 $ 9.21 0.59 1.16 $1.75 (0.59) --
December 31, 1994 $10.41 0.56 (1.20) ($0.64) (0.55) --
December 31, 1993 $10.28 0.59 0.26 $0.85 (0.59) --
December 31,
1992(/2//2/) $10.32 0.49 0.13 $0.62 (0.49) --
CLASS B SHARES
December 31, 1997 $10.20 0.55 0.17 $0.72 (0.54) --
December 31, 1996(/8/) $10.00 0.15 0.20 $0.35 (0.15) --
CLASS I SHARES
December 31, 1997 $10.29 0.65 0.18 $0.83 (0.64) --
December 31, 1996 $10.37 0.64 (0.07) $0.57 (0.65) --
December 31, 1995 $ 9.21 0.59 1.16 $1.75 (0.59) --
December 31, 1994 $10.41 0.56 (1.20) ($0.64) (0.55) --
December 31, 1993 $10.28 0.59 0.26 $0.85 (0.59) --
December 31, 1992 $10.55 0.71 (0.10) $0.61 (0.71) --
- ---------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------------------
FROM NET
REALIZED IN EXCESS
GAIN ON OF NET
INVESTMENTS & REALIZED
FOREIGN CURRENCY GAIN ON RETURN OF TOTAL
TRANSACTIONS INVESTMENTS CAPITAL DISTRIBUTIONS
---------------- ----------- --------- -------------
<S> <C> <C> <C> <C>
EQUITY INDEX
CLASS A SHARES
December 31, 1997 (0.58) -- -- $(0.84)
December 31, 1996 (0.26) -- -- $(0.55)
December 31, 1995 (0.14) -- -- $(0.45)
December 31, 1994 (0.23) (0.08) -- $(0.61)
December 31, 1993 (0.13) -- -- $(0.40)
December 31,
1992(/2//3/) -- -- -- $(0.12)
CLASS B SHARES
December 31, 1997 (0.58) -- -- $(0.79)
December 31, 1996(/8/) (0.25) -- -- $(0.31)
CLASS I SHARES
December 31, 1997 (0.58) -- -- $(0.88)
December 31, 1996 (0.26) -- -- $(0.56)
December 31, 1995 (0.14) -- -- $(0.45)
December 31, 1994 (0.23) (0.08) -- $(0.61)
December 31, 1993 (0.13) -- -- $(0.40)
December 31,
1992(/2//3/) -- -- -- $(0.12)
- ---------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY
CLASS A SHARES
December 31, 1997 $0.00 -- -- $(0.09)
December 31, 1996 (0.00) -- -- $(0.10)
December 31, 1995 (0.00) -- -- $(0.11)
CLASS B SHARES
December 31, 1997 -- -- -- $(0.06)
December 31, 1996(/5/) -- -- -- $(0.04)
CLASS I SHARES
December 31, 1997 -- -- -- $(0.12)
December 31, 1996 -- -- -- $(0.11)
December 31, 1995 -- -- -- $(0.11)
December 31, 1994(/9/) -- -- -- $(0.00)
- ---------------------------------------------------------------------------------------------
INTERMEDIATE BOND
CLASS A SHARES
December 31, 1997 -- -- -- $(0.62)
December 31, 1996 -- -- -- $(0.65)
December 31, 1995 -- -- -- $(0.59)
December 31, 1994 (0.01) -- -- $(0.56)
December 31, 1993 (0.13) -- -- $(0.72)
December 31,
1992(/2//2/) (0.17) -- -- $(0.66)
CLASS B SHARES
December 31, 1997 -- -- -- $(0.54)
December 31, 1996(/8/) -- -- -- $(0.15)
CLASS I SHARES
December 31, 1997 -- -- -- $(0.64)
December 31, 1996 -- -- -- $(0.65)
December 31, 1995 -- -- -- $(0.59)
December 31, 1994 (0.01) -- -- $(0.56)
December 31, 1993 (0.13) -- -- $(0.72)
December 31, 1992 (0.17) -- -- $(0.88)
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
180
<PAGE> 211
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE AVERAGE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO COMMISSION
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%) RATE
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- 4.61 $21.36 32.69% $193,663 0.57% 1.20% -- 12.80%(25) $0.0318
-- 2.60 $16.75 22.49% $ 35,336 0.37% 1.89% -- 12.25% $0.0254
-- 3.50 $14.15 37.35% $ 4,007 0.15% 2.39% -- 10.66% --
-- (0.50) $10.65 1.02% $ 1,197 0.17% 2.71% -- 24.15% --
-- 0.63 $11.15 9.77% $ 960 0.20% 2.59% -- 16.01% --
-- 0.52 $10.52 13.61%+ $ 151 0.22%+ 2.71%+ -- 0.50%++ --
-- 2.51 $13.01 31.71% $ 1,515 1.32% 0.45% -- 12.80%(25) $0.0318
-- 0.50 $10.50 8.09%+ $ 113 1.29%+ 0.57%+ -- 12.25%+ $0.0254
-- 4.62 $21.37 32.97% $639,868 0.32% 1.45% -- 12.80%(25) $0.0318
-- 2.60 $16.75 22.58% $834,368 0.21% 2.05% -- 12.25% $0.0254
-- 3.50 $14.15 37.35% $524,195 0.15% 2.39% -- 10.66% --
-- (0.50) $10.65 1.02% $339,611 0.17% 2.71% -- 24.15% --
-- 0.63 $11.15 9.77% $324,369 0.20% 2.59% -- 16.01% --
-- 0.52 $10.52 13.61%+ $241,907 0.22%+ 2.71%+ -- 0.50%++ --
- --------------------------------------------------------------------------------------------------------------------------------
-- 0.34 $12.11 3.69% $ 26,703 1.35% 0.80% -- 3.56%(26) $0.0323
-- 0.72 $11.77 7.50% $ 10,836 1.23% 0.88% -- 6.37% $0.0697
-- 1.04 $11.05 11.47% $ 988 1.16% 1.43% 1.24% 2.09% --
-- 0.29 $11.37 2.90% $ 1,763 2.10% 0.05% -- 3.56%(26) $0.0323
-- 0.24 $11.08 2.62%++ $ 1,131 2.05%+ 0.75%+ -- 6.37%+ $0.0697
-- 0.35 $12.14 3.98% $487,986 1.10% 1.05% -- 3.56%(26) $0.0323
-- 0.74 $11.79 7.79% $389,997 1.10% 1.01% -- 6.37% $0.0697
-- 1.04 $11.05 11.47% $106,300 1.16% 1.43% 1.24% 2.09% --
-- 0.01 $10.01 1.26%+ $ 36,545 1.15%+ 1.18%+ 1.92%+ 0.30%++ --
- --------------------------------------------------------------------------------------------------------------------------------
-- 0.18 $10.47 8.04% $ 42,343 0.86% 6.01% -- 31.66% --
-- (0.08) $10.29 5.65% $ 18,324 0.79% 6.17% -- 31.62% --
-- 1.16 $10.37 19.48% $ 11,654 0.73% 5.98% -- 36.47% --
-- (1.20) $ 9.21 (6.31%) $ 11,983 0.74% 5.73% -- 54.60% --
-- 0.13 $10.41 8.41% $ 16,491 0.74% 5.44% -- 92.80% --
-- (0.04) $10.28 11.17%+ $ 4,509 0.75%+ 7.04%+ -- 56.30%+ --
-- 0.18 $10.38 7.32% $ 385 1.61% 5.26% -- 31.66% --
-- 0.20 $10.20 3.50%++ $ 122 1.60%+ 1.52%+ -- 31.62%+ --
-- 0.19 $10.48 8.37% $482,679 0.61% 6.26% -- 31.66% --
-- (0.08) $10.29 5.78% $395,105 0.67% 6.29% -- 31.62% --
-- 1.16 $10.37 19.48% $393,656 0.73% 5.98% -- 36.47% --
-- (1.20) $ 9.21 (6.31%) $381,036 0.74% 5.73% -- 54.60% --
-- 0.13 $10.41 8.41% $413,299 0.74% 5.44% -- 92.80% --
-- (0.27) $10.28 6.00% $215,923 0.74% 6.91% -- 56.30% --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
181
<PAGE> 212
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
FROM NET
TOTAL REALIZED IN EXCESS
NET ASSET NET REALIZED INCOME IN EXCESS GAIN ON OF NET
VALUE NET AND UNREALIZED FROM FROM NET OF NET INVESTMENTS & REALIZED
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT INVESTMENT FOREIGN CURRENCY GAIN ON
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS INVESTMENTS
--------- ---------- -------------- ---------- ---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOND
CLASS A SHARES
December 31, 1997 $10.27 0.63 0.32 $ 0.95 (0.63) -- -- --
December 31, 1996 $10.45 0.67 (0.18) $ 0.49 (0.67) -- -- --
December 31, 1995 $ 9.01 0.63 1.45 $ 2.08 (0.64) -- -- --
December 31, 1994 $10.32 0.61 (1.31) ($0.70) (0.59) -- (0.02) --
December 31, 1993 $10.25 0.76 0.38 $ 1.14 (0.76) -- (0.31) --
December 31,
1992(/2//2/) $10.23 0.56 0.15 $ 0.71 (0.56) -- (0.13) --
CLASS B SHARES
December 31, 1997 $10.27 0.56 0.32 $ 0.88 (0.56) -- -- --
December 31, 1996(/5/) $10.00 0.21 0.27 $ 0.48 (0.21) -- -- --
CLASS I SHARES
December 31, 1997 $10.27 0.66 0.32 $0.98 (0.66) -- -- --
December 31, 1996 $10.45 0.68 (0.18) $0.50 (0.68) -- -- --
December 31, 1995 $ 9.01 0.63 1.45 $2.08 (0.64) -- -- --
December 31, 1994 $10.32 0.61 (1.31) ($0.70) (0.59) -- (0.02) --
December 31, 1993 $10.25 0.76 0.38 $1.14 (0.76) -- (0.31) --
December 31, 1992 $10.55 0.83 (0.17) $0.66 (0.83) -- (0.13) --
- --------------------------------------------------------------------------------------------------------------------------
SHORT BOND
CLASS A SHARES
December 31, 1997 $10.11 0.53 0.06 $ 0.59 (0.54) -- (0.01) --
December 31, 1996 $10.23 0.55 (0.10) $ 0.45 (0.55) -- (0.02) --
December 31, 1995 $ 9.84 0.58 0.39 $ 0.97 (0.58) -- -- --
December 31,
1994(/1//0/) $10.00 0.17 (0.16) $ 0.01 (0.17) -- -- --
CLASS B SHARES
December 31, 1997 $10.02 0.46 0.05 $ 0.51 (0.47) -- (0.01) --
December 31, 1996(/8/) $10.00 0.12 0.04 $ 0.16 (0.12) -- (0.02) --
CLASS I SHARES
December 31, 1997 $10.11 0.56 0.06 $ 0.62 (0.57) -- (0.01) --
December 31, 1996 $10.23 0.55 (0.10) $ 0.45 (0.55) -- (0.02) --
December 31, 1995 $ 9.84 0.58 0.39 $ 0.97 (0.58) -- -- --
December 31,
1994(/1//0/) $10.00 0.17 (0.16) $ 0.01 (0.17) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
MULTI SECTOR BOND
CLASS A SHARES
December 31, 1997 $ 7.84 0.48 0.17 $ 0.65 (0.47) -- (0.02) --
December 31, 1996 $ 8.18 0.41 (0.25) $ 0.16 (0.40) -- (0.10) --
For the period ended
12/31/1995(/1//1/) $ 7.68 0.44 0.72 $ 1.16 (0.44) -- (0.22) --
January 31, 1995 $ 8.25 0.52 (0.57) ($0.05) (0.52) -- -- --
For the period ended
1/31/1994(/1//2/) $ 8.36 0.47 (0.09) $ 0.38 (0.47) -- (0.02) --
CLASS B SHARES
December 31, 1997 $ 7.85 0.42 0.17 $ 0.59 (0.42) -- (0.02) --
December 31, 1996 $ 8.18 0.45 (0.23) $ 0.22 (0.45) -- (0.10) --
For the period ended
12/31/1995(/1//3/) $ 8.13 0.24 0.27 $ 0.51 (0.24) -- (0.22) --
For the period ended
12/2/1994(/1//4/) $ 8.16 0.40 (0.55) ($0.15) (0.40) -- -- --
CLASS I SHARES
December 31, 1997 $ 7.85 0.50 0.17 $ 0.67 (0.49) -- (0.02) --
December 31, 1996 $ 8.18 0.46 (0.24) $ 0.22 (0.45) -- (0.10) --
For the period ended
12/31/1995(/1//1/) $ 7.68 0.47 0.72 $ 1.19 (0.47) -- (0.22) --
January 31, 1995 $ 8.25 0.52 (0.57) ($0.05) (0.52) -- -- --
For the period ended
1/31/1994(/1//2/) $ 8.36 0.47 (0.09) $ 0.38 (0.47) -- (0.02) --
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------
RETURN OF TOTAL
CAPITAL DISTRIBUTIONS
--------- -------------
<S> <C> <C>
BOND
CLASS A SHARES
December 31, 1997 -- ($0.63)
December 31, 1996 -- ($0.67)
December 31, 1995 -- ($0.64)
December 31, 1994 -- ($0.61)
December 31, 1993 -- ($1.07)
December 31,
1992(/2//2/) -- ($0.69)
CLASS B SHARES
December 31, 1997 -- ($0.56)
December 31, 1996(/5/) -- ($0.21)
CLASS I SHARES
December 31, 1997 -- ($0.66)
December 31, 1996 -- ($0.68)
December 31, 1995 -- ($0.64)
December 31, 1994 -- ($0.61)
December 31, 1993 -- ($1.07)
December 31, 1992 -- ($0.96)
- --------------------------------------------------------------------------------------------------------------------------
SHORT BOND
CLASS A SHARES
December 31, 1997 -- ($0.55)
December 31, 1996 -- ($0.57)
December 31, 1995 -- ($0.58)
December 31,
1994(/1//0/) -- ($0.17)
CLASS B SHARES
December 31, 1997 -- ($0.48)
December 31, 1996(/8/) -- ($0.14)
CLASS I SHARES
December 31, 1997 -- ($0.58)
December 31, 1996 -- ($0.57)
December 31, 1995 -- ($0.58)
December 31,
1994(/1//0/) -- ($0.17)
- --------------------------------------------------------------------------------------------------------------------------
MULTI SECTOR BOND
CLASS A SHARES
December 31, 1997 -- ($0.49)
December 31, 1996 -- ($0.50)
For the period ended
12/31/1995(/1//1/) -- ($0.66)
January 31, 1995 -- ($0.52)
For the period ended
1/31/1994(/1//2/) -- ($0.49)
CLASS B SHARES
December 31, 1997 -- ($0.44)
December 31, 1996 -- ($0.55)
For the period ended
12/31/1995(/1//3/) -- ($0.46)
For the period ended
12/2/1994(/1//4/) -- ($0.40)
CLASS I SHARES
December 31, 1997 -- ($0.51)
December 31, 1996 -- ($0.55)
For the period ended
12/31/1995(/1//1/) -- ($0.69)
January 31, 1995 -- ($0.52)
For the period ended
1/31/1994(/1//2/) -- ($0.49)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
182
<PAGE> 213
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- 0.32 $10.59 9.65% $ 125,515 0.86% 6.16% -- 17.60%
-- (0.18) $10.27 4.98% $ 46,977 0.78% 6.59% -- 24.92%
-- 1.44 $10.45 23.75% $ 31,714 0.74% 6.39% -- 41.91%
-- (1.31) $ 9.01 (6.99%) $ 32,053 0.74% 6.36% -- 75.67%
-- 0.07 $10.32 11.39% $ 45,410 0.73% 7.20% -- 111.52%
-- 0.02 $10.25 9.59%+ $ 9,392 0.74%+ 8.12%+ -- 90.45%+
-- 0.32 $10.59 8.91% $ 3,394 1.61% 5.41% -- 17.60%
-- 0.27 $10.27 4.81%++ $ 280 1.59%+ 3.01%+ -- 24.92%+
-- 0.32 $10.59 9.97% $1,101,894 0.61% 6.41% -- 17.60%
-- (0.18) $10.27 5.08% $ 757,627 0.66% 6.71% -- 24.92%
-- 1.44 $10.45 23.75% $ 485,851 0.74% 6.39% -- 41.91%
-- (1.31) $ 9.01 (6.99%) $ 395,116 0.74% 6.36% -- 75.67%
-- 0.07 $10.32 11.39% $ 455,786 0.73% 7.20% -- 111.52%
-- (0.30) $10.25 6.56% $ 312,366 0.73% 8.08% -- 90.45%
- ------------------------------------------------------------------------------------------------------------------------
-- 0.04 $10.15 5.92% $ 4,738 0.82% 5.36% 0.83% 68.04%
-- (0.12) $10.11 4.45% $ 1,033 0.80% 5.35% 0.82% 109.58%
-- 0.39 $10.23 10.07% $ 766 0.75% 5.74% 0.81% 30.94%
-- (0.16) $ 9.84 0.21%+ $ 308 0.75%+ 5.92%+ 0.93%+ 10.20%++
-- 0.03 $10.05 5.19% $ 541 1.57% 4.61% 1.58% 68.04%
-- 0.02 $10.02 2.04%++ $ 56 1.57%+ 1.47%+ 1.59%+ 109.58%+
-- 0.04 $10.15 6.20% $ 234,972 0.57% 5.61% 0.58% 68.04%
-- (0.12) $10.11 4.56% $ 171,427 0.70% 5.45% 0.72% 109.58%
-- 0.39 $10.23 10.07% $ 162,571 0.75% 5.74% 0.81% 30.94%
-- (0.16) $ 9.84 0.21%+ $ 63,931 0.75%+ 5.92%+ 0.93%+ 10.20%++
- ------------------------------------------------------------------------------------------------------------------------
-- 0.16 $ 8.00 8.58% $ 7,832 0.87% 5.83% -- 38.70%
-- (0.34) $ 7.84 2.75% $ 8,798 0.84% 5.75% 0.90% 103.93%
-- 0.50 $ 8.18 15.55%++ $ 6,095 0.94%+ 5.72%+ 1.15%+ 173.26%++
-- (0.57) $ 7.68 (0.45%) $ 69 0.04% 6.70% 2.78% 71.65%
-- (0.11) $ 8.25 5.16%+ $ 65 -- 5.96%+ 3.67%+ 26.54%++
-- 0.15 $ 8.00 7.75% $ 533 1.62% 5.08% -- 38.70%
-- (0.33) $ 7.85 2.09% $ 502 1.58% 5.01% 1.67% 103.93%
-- 0.05 $ 8.18 6.41%++ $ 259 1.60%+ 5.00%+ 1.78%+ 173.26%++
(7.61)(/3/) (0.55) $ -- (1.82%)++ -- -- 6.48%+ 2.58%+ 71.65%++
-- 0.16 $ 8.01 8.86% $ 94,544 0.62% 6.08% -- 38.70%
-- (0.33) $ 7.85 3.14% $ 187,112 0.57% 6.02% 0.66% 103.93%
-- 0.50 $ 8.18 15.90%++ $ 191,930 0.55%+ 6.34%+ 0.67%+ 173.26%++
-- (0.57) $ 7.68 (0.48%) $ 7,101 0.04% 6.70% 2.78% 71.65%
-- (0.11) $ 8.25 5.16%++ $ 5,128 -- 6.21%+ 2.64%+ 26.54%++
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
AVERAGE
COMMISSION
RATE
- ----------
<S> <C>
--
--
--
--
--
--
--
--
--
--
--
--
--
--
- ---------------------------------------------------------------------------------------------------------
--
--
--
--
--
--
--
--
--
--
- ---------------------------------------------------------------------------------------------------------
--
--
--
--
--
--
--
--
--
--
--
--
--
--
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
183
<PAGE> 214
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
FROM NET
TOTAL REALIZED IN EXCESS
NET ASSET NET REALIZED INCOME IN EXCESS GAIN ON OF NET
VALUE NET AND UNREALIZED FROM FROM NET OF NET INVESTMENTS & REALIZED
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT INVESTMENT FOREIGN CURRENCY GAIN ON RETURN OF
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS INVESTMENTS CAPITAL
--------- ---------- -------------- ---------- ---------- ---------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL BOND
CLASS A SHARES
December 31, 1997 $10.79 0.45 (0.93) ($0.48) (0.43) -- (0.00) -- --
December 31, 1996 $10.75 0.54 0.04 $ 0.58 (0.54) -- -- -- --
For the period ended
12/31/1995(/7/) $10.00 0.98 1.10 $ 2.08 (0.98) (0.01) (0.34) -- --
CLASS B SHARES
December 31, 1997 $10.87 0.41 (0.96) ($0.55) (0.36) -- (0.00) -- --
December 31, 1996 $10.81 0.47 0.06 $ 0.53 (0.47) -- -- -- --
For the period ended
12/31/1995(/7/) $10.00 0.91 1.16 $ 2.07 (0.91) (0.01) (0.34) -- --
CLASS I SHARES
December 31, 1997 $10.85 0.46 (0.93) ($0.47) (0.45) -- (0.00) -- --
December 31, 1996 $10.81 0.59 0.04 $ 0.63 (0.59) -- -- -- --
For the period ended
12/31/1995(/7/) $10.00 1.02 1.16 $ 2.18 (1.02) (0.01) (0.34) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND
CLASS A SHARES
For the period ended
12/31/1997(/2//4/) $10.00 0.19 0.23 $ 0.42 (0.20) -- (0.01) 0.00 --
CLASS B SHARES
For the period ended
12/31/1997(/2//4/) $10.00 0.15 0.25 $ 0.40 (0.19) -- (0.01) 0.00 --
CLASS I SHARES
For the period ended
12/31/1997(/2//4/) $10.00 0.32 0.29 $ 0.61 (0.32) -- (0.01) 0.00 --
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND
CLASS A SHARES
December 31, 1997 $12.36 0.56 0.54 $ 1.10 (0.59) -- 0.00 -- --
December 31, 1996 $12.64 0.59 (0.18) $ 0.41 (0.58) -- (0.01) (0.10) --
For the period ended
12/31/1995(/1//5/) $12.06 0.48 0.82 $ 1.30 (0.48) -- (0.24) -- --
02/28/95 $12.13 0.60 (0.07) $ 0.53 (0.60) -- -- -- --
02/28/94 $13.25 0.63 (0.15) $ 0.48 (0.63) -- (0.96) (0.01) --
02/28/93 $12.49 0.70 1.01 $ 1.71 (0.70) -- (0.25) -- --
02/29/92 $12.10 0.76 0.47 $ 1.23 (0.76) -- (0.08) -- --
CLASS B SHARES
December 31, 1997 $12.36 0.46 0.54 $ 1.00 (0.50) -- 0.00 -- --
December 31, 1996 $12.65 0.52 (0.21) $ 0.31 (0.49) -- (0.01) (0.10) --
For the period ended
12/31/95(/1//6/) $12.17 0.34 0.72 $ 1.06 (0.34) -- (0.24) -- --
For the period ended
12/2/94(/1//7/) $12.14 0.41 (0.70) ($0.29) (0.41) -- -- -- --
For the period ended
2/28/94(/1//8/) $12.37 0.03 (0.23) ($0.20) (0.03) -- -- -- --
CLASS I SHARES
December 31, 1997 $12.36 0.61 0.51 $ 1.12 (0.62) -- 0.00 -- --
December 31, 1996 $12.63 0.65 (0.20) $ 0.45 (0.61) -- (0.01) (0.10) --
For the period ended
12/31/95(/1//5/) $12.06 0.52 0.81 $ 1.33 (0.52) -- (0.24) -- --
For the period ended
2/28/95(/1//9/) $12.06 0.05 -- $ 0.05 (0.05) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------
TOTAL
DISTRIBUTIONS
-------------
<S> <C>
INTERNATIONAL BOND
CLASS A SHARES
December 31, 1997 ($0.43)
December 31, 1996 ($0.54)
For the period ended
12/31/1995(/7/) ($1.33)
CLASS B SHARES
December 31, 1997 ($0.36)
December 31, 1996 ($0.47)
For the period ended
12/31/1995(/7/) ($1.26)
CLASS I SHARES
December 31, 1997 ($0.45)
December 31, 1996 ($0.59)
For the period ended
12/31/1995(/7/) ($1.37)
- ---------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND
CLASS A SHARES
For the period ended
12/31/1997(/2//4/) ($0.21)
CLASS B SHARES
For the period ended
12/31/1997(/2//4/) ($0.20)
CLASS I SHARES
For the period ended
12/31/1997(/2//4/) ($0.33)
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND
CLASS A SHARES
December 31, 1997 ($0.59)
December 31, 1996 ($0.69)
For the period ended
12/31/1995(/1//5/) ($0.72)
02/28/95 ($0.60)
02/28/94 ($1.60)
02/28/93 ($0.95)
02/29/92 ($0.84)
CLASS B SHARES
December 31, 1997 ($0.50)
December 31, 1996 ($0.60)
For the period ended
12/31/95(/1//6/) ($0.58)
For the period ended
12/2/94(/1//7/) ($0.41)
For the period ended
2/28/94(/1//8/) ($0.03)
CLASS I SHARES
December 31, 1997 ($0.62)
December 31, 1996 ($0.72)
For the period ended
12/31/95(/1//5/) ($0.76)
For the period ended
2/28/95(/1//9/) ($.05)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
184
<PAGE> 215
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE AVERAGE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO COMMISSION
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%) RATE
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- (0.91) $ 9.88 (4.46%) $ 6,419 1.12% 4.76% 1.33% 4.51% --
-- 0.04 $10.79 5.62% $ 2,006 1.15% 4.74% 1.94% 97.82% --
-- 0.75 $10.75 21.10%++ $ 487 1.33%+ 4.91%+ 3.65%+ 48.03%++ --
-- (0.91) $ 9.96 (5.04%) $ 117 1.87% 4.01% 2.08% 4.51% --
-- 0.06 $10.87 5.01% $ 46 1.90% 3.99% 4.08% 97.82% --
-- 0.81 $10.81 20.90%++ $ 4 2.03%+ 4.39%+ 8.69%+ 48.03%++
-- (0.92) $ 9.93 (4.25%) $ 81,843 0.87% 5.01% 1.08% 4.51% --
-- 0.04 $10.85 5.99% $ 53,845 0.90% 4.99% 1.40% 97.82% --
-- 0.81 $10.81 22.13%++ $ 14,504 0.95%+ 5.71%+ 1.93%+ 48.03%++ --
- ---------------------------------------------------------------------------------------------------------------------------------
-- 0.21 $10.21 8.31%+ $ 570 1.22%+ 7.42%+ 1.43%+ 11.17% --
-- 0.20 $10.20 7.82%+ $ 77 1.97%+ 6.67%+ 2.18%+ 11.17% --
-- 0.28 $10.28 12.64%+ $ 49,150 0.97%+ 7.67%+ 1.18%+ 11.17% --
- ---------------------------------------------------------------------------------------------------------------------------------
-- 0.51 $12.87 9.13% $ 34,729 0.85% 4.65% -- 32.08% --
-- (0.28) $12.36 3.36% $ 29,352 0.83% 4.54% 0.89% 64.51% --
-- 0.58 $12.64 10.95%++ $ 7,426 0.89%+ 4.57%+ 1.04%+ 69.31%++ --
-- (0.07) $12.06 4.45% $ 6,840 1.98% 5.09% 3.89% 60.78% --
-- (1.12) $12.13 3.70% $ 9,234 -- 4.85% 1.44% 175.06% --
-- 0.76 $13.25 14.37% $ 11,290 -- 5.49% 1.59% 88.53% --
-- 0.39 $12.49 10.50% $ 6,591 -- 5.99% 2.75% 66.28% --
-- 0.50 $12.86 8.26% $ 1,312 1.60% 3.90% -- 32.08% --
-- (0.29) $12.36 2.56% $ 672 1.58% 3.79% 1.70% 64.51% --
-- 0.48 $12.65 8.81%++ $ 238 1.66%+ 3.61%+ 2.04%+ 69.31%++ --
11.44(/3/) (12.14) -- (4.30%)++ -- 3.18%+ 4.51%+ 5.85%+ 60.78%++ --
-- (0.23) $12.14 (1.64%)++ $ 2 0.50%+ 4.10%+ 2.91%+ 175.06%++ --
-- 0.50 $12.86 9.32% $355,814 0.60% 4.90% -- 32.08% --
-- (0.27) $12.36 3.76% $338,104 0.58% 4.79% 0.68% 64.51% --
-- 0.57 $12.63 11.20%++ $240,160 0.54%+ 4.95%+ 0.67%+ 69.31%++ --
-- -- $12.06 0.39%++ $220,143 0.65%+ 5.45%+ 0.79%+ 60.78%++ --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
185
<PAGE> 216
PEGASUS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
FROM NET
TOTAL REALIZED IN EXCESS
NET ASSET NET REALIZED INCOME IN EXCESS GAIN ON OF NET
VALUE NET AND UNREALIZED FROM FROM NET OF NET INVESTMENTS & REALIZED
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT INVESTMENT FOREIGN CURRENCY GAIN ON
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS INVESTMENTS
--------- ---------- -------------- ---------- ---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTERMEDIATE MUNICIPAL
BOND
CLASS A SHARES
December 31, 1997 $12.10 0.54 0.28 $ 0.82 (0.54) -- (0.06) --
December 31, 1996 $12.25 0.53 (0.09) $ 0.44 (0.51) -- (0.08) --
For the period ended
12/31/95(/1//5/) $11.79 0.44 0.56 $ 1.00 (0.44) -- (0.10) --
February 28, 1995 $12.18 0.55 (0.36) $ 0.19 (0.55) -- (0.03) --
February 28, 1994 $12.79 0.61 0.01 $ 0.62 (0.61) -- (0.62) --
February 28, 1993 $12.25 0.64 0.68 $ 1.32 (0.64) -- (0.14) --
February 29, 1992 $11.95 0.76 0.37 $ 1.13 (0.76) -- (0.07) --
CLASS B SHARES
December 31, 1997 $12.10 0.43 0.30 $ 0.73 (0.45) -- (0.06) --
December 31, 1996 $12.25 0.44 (0.09) $ 0.35 (0.42) -- (0.08) --
For the period ended
12/31/95(/1//5/) $11.80 0.37 0.55 $ 0.92 (0.37) -- (0.10) --
For the period ended
2/28/95(/2//0/) $11.57 0.04 0.23 $ 0.27 (0.04) -- -- --
For the period ended
12/2/94(/1//7/) $12.18 0.37 (0.72) ($0.35) (0.37) -- (0.03) --
For the period ended
2/28/94(/1//8/) $12.32 0.03 (0.14) ($0.11) (0.03) -- -- --
CLASS I SHARES
December 31, 1997 $12.11 0.57 0.28 $ 0.85 (0.57) -- (0.06) --
December 31, 1996 $12.25 0.56 (0.08) $ 0.48 (0.54) -- (0.08) --
For the period ended
12/31/95(/1//5/) $11.80 0.47 0.55 $ 1.02 (0.47) -- (0.10) --
February 28,
1995(/1//9/) $11.57 0.04 0.23 $ 0.27 (0.04) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND
CLASS A SHARES
December 31, 1997 $10.48 0.49 0.44 $ 0.93 (0.48) -- -- --
December 31, 1996 $10.60 0.48 (0.14) $ 0.34 (0.46) -- -- --
December 31, 1995 $ 9.54 0.48 1.06 $ 1.54 (0.48) -- -- --
December 31, 1994 $10.60 0.50 (1.06) ($0.56) (0.50) -- -- --
December 31,
1993(/2//1/) $10.00 0.44 0.59 $ 1.03 (0.43) -- -- --
CLASS B SHARES
December 31, 1997 $10.18 0.38 0.44 $ 0.82 (0.41) -- -- --
For the period ended
12/31/96(/8/) $10.00 0.07 0.17 $ 0.24 (0.06) -- -- --
CLASS I SHARES
December 31, 1997 $10.48 0.51 0.45 $ 0.96 (0.51) -- -- --
December 31, 1996 $10.60 0.49 (0.14) $ 0.35 (0.47) -- -- --
December 31, 1995 $ 9.54 0.48 1.06 $ 1.54 (0.48) -- -- --
December 31, 1994 $10.60 0.50 (1.06) ($0.56) (0.50) -- -- --
December 31,
1993(/2//1/) $10.00 0.44 0.59 $ 1.03 (0.43) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------
RETURN OF TOTAL
CAPITAL DISTRIBUTIONS
--------- -------------
<S> <C> <C>
INTERMEDIATE MUNICIPAL
BOND
CLASS A SHARES
December 31, 1997 -- ($0.60)
December 31, 1996 -- ($0.59)
For the period ended
12/31/95(/1//5/) -- ($0.54)
February 28, 1995 -- ($0.58)
February 28, 1994 -- ($1.23)
February 28, 1993 -- ($0.78)
February 29, 1992 -- ($0.83)
CLASS B SHARES
December 31, 1997 -- ($0.51)
December 31, 1996 -- ($0.50)
For the period ended
12/31/95(/1//5/) -- ($0.47)
For the period ended
2/28/95(/2//0/) -- ($0.04)
For the period ended
12/2/94(/1//7/) -- ($0.40)
For the period ended
2/28/94(/1//8/) -- ($0.03)
CLASS I SHARES
December 31, 1997 -- ($0.63)
December 31, 1996 -- ($0.62)
For the period ended
12/31/95(/1//5/) -- ($0.57)
February 28,
1995(/1//9/) -- ($0.04)
- --------------------------------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND
CLASS A SHARES
December 31, 1997 -- ($0.48)
December 31, 1996 -- ($0.46)
December 31, 1995 -- ($0.48)
December 31, 1994 -- ($0.50)
December 31,
1993(/2//1/) -- ($0.43)
CLASS B SHARES
December 31, 1997 -- ($0.41)
For the period ended
12/31/96(/8/) -- ($0.06)
CLASS I SHARES
December 31, 1997 -- ($0.51)
December 31, 1996 -- ($0.47)
December 31, 1995 -- ($0.48)
December 31, 1994 -- ($0.50)
December 31,
1993(/2//1/) -- ($0.43)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Highlights.
Pegasus Funds
186
<PAGE> 217
PEGASUS FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
RATIO OF
EXPENSES TO
NET RATIO OF NET AVERAGE NET
CONVERSION ASSETS RATIO OF INVESTMENT ASSETS(%)
TO NET CHANGE NET ASSET END OF EXPENSES INCOME TO WITHOUT FEE
CLASS A IN NET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE NET WAIVERS/ PORTFOLIO
SHARES ASSET VALUE OF PERIOD RETURN(A) (000'S OMITTED) NET ASSETS(%) ASSETS(%) REIMBURSED EXP. TURNOVER(%)
- ---------- ----------- ---------- --------- --------------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- 0.22 $12.32 7.05% $ 18,903 0.84% 4.41% -- 36.82%
-- (0.15) $12.10 3.69% $ 19,049 0.83% 4.37% 0.88% 52.95%
-- 0.46 $12.25 8.58%++ $ 17,777 0.83%+ 4.30%+ 0.97%+ 44.75%++
-- (0.39) $11.79 1.64% $ 17,243 0.29% 4.73% 1.38% 128.02%
-- (0.61) $12.18 4.94% $ 28,826 0.06% 4.78% 1.27% 167.95%
-- 0.54 $12.79 11.26% $ 27,885 -- 5.16% 1.31% 63.67%
-- 0.30 $12.25 9.78% $ 18,310 -- 6.15% 1.72% 86.91%
-- 0.22 $12.32 6.19% $ 709 1.59% 3.66% -- 36.82%
-- (0.15) $12.10 2.90% $ 611 1.58% 3.62% 1.68% 52.95%
-- 0.45 $12.25 7.75%++ $ 341 1.71%+ 3.36%+ 2.01%+ 44.75%++
-- 0.23 $11.80 2.30%++ $ 6 1.36%+ 3.72%+ 1.64%+ 128.02%++
(11.43)(/8/) (0.75) -- (2.98%)++ -- 0.76%+ 4.03%+ 2.00%+ 128.02%++
-- (0.14) $12.18 (0.93%)++ $ 12 0.75%+ 1.68%+ 3.00%+ 167.95%++
-- 0.22 $12.33 7.29% $377,331 0.59% 4.66% -- 36.82%
-- (0.14) $12.11 4.05% $373,970 0.58% 4.62% 0.64% 52.95%
-- 0.45 $12.25 8.76%++ $373,753 0.55%+ 4.78%+ 0.68%+ 44.75%++
-- 0.23 $11.80 2.37%++ $365,801 0.50%+ 4.79%+ 0.60%+ 128.02%++
- ------------------------------------------------------------------------------------------------------------------------
-- 0.45 $10.93 9.15% $ 18,687 0.92% 4.59% 0.98% 37.84%
-- (0.12) $10.48 3.32% $ 18,575 0.88% 4.57% 0.96% 24.49%
-- 1.06 $10.60 16.49% $ 21,034 0.79% 4.71% 1.04% 26.97%
-- (1.06) $ 9.54 (5.42%) $ 21,106 0.53% 5.01% 1.05% 25.93%
-- 0.60 $10.60 11.50%+ $ 26,342 0.19%+ 5.12%+ 1.21%+ 41.70%++
-- 0.41 $10.59 8.26% $ 707 1.67% 3.84% 1.73% 37.84%
-- 0.18 $10.18 2.45%++ $ 110 1.69%+ 2.01%+ 1.77%+ 24.49%+
-- 0.45 $10.93 9.42% $ 61,768 0.67% 4.84% 0.73% 37.84%
-- (0.12) $10.48 3.44% $ 41,909 0.77% 4.68% 0.85% 24.49%
-- 1.06 $10.60 16.49% $ 32,419 0.79% 4.71% 1.04% 26.97%
-- (1.06) $ 9.54 (5.42%) $ 24,157 0.53% 5.01% 1.05% 25.93%
-- 0.60 $10.60 11.50%+ $ 15,772 0.19%+ 5.12%+ 1.21%+ 41.70%++
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
AVERAGE
COMMISSION
RATE
- ----------
<S> <C>
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
- ---------------------------------------------------------------------------------------------------------
--
--
--
--
--
--
--
--
--
--
--
--
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Financial Statements.
Pegasus Funds
187
<PAGE> 218
SEE NOTES TO FINANCIAL HIGHLIGHTS
(1) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares under the then-current sales load schedule and
such shares converted to Class A Shares.
(2) For the period March 3, 1995 (re-offering date of Class B Shares) through
December 31, 1995.
(3) On December 2, 1994, the Fund terminated its offering of Class B Shares
under the then-current sales load schedule and such shares converted to
Class A Shares.
(4) For the period March 3, 1995 (initial offering date of Class I Shares)
through December 31, 1995.
(5) For the period August 24, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(6) For the period December 17, 1996 (commencement of operations) through
December 31, 1996.
(7) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(8) For the period September 23, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(9) For the period December 3, 1994 (commencement of operations) through
December 31, 1994.
(10) For the period September 17, 1994 (commencement of operations) through
December 31, 1994.
(11) For the period February 1, 1995 (commencement of operations) through
December 31, 1995. Effective February 1, 1995, the Fund changed its fiscal
year end from January 31 to December 31.
(12) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
(13) For the period May 31, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective February 1, 1995, the Fund changed its fiscal
year end from January 31, to December 31.
(14) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares and such shares converted to Class A shares.
(15) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
(16) For the period April 4, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective March 1, 1995, the Fund changed its fiscal
year end from February 28 to December 31.
(17) For the period March 1, 1994 through December 2, 1994. On December 2,
1994, the Fund terminated its offering of Class B Shares and such shares
converted to Class A Shares.
Pegasus Funds
188
<PAGE> 219
(18) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
(19) For the period February 1, 1995 (initial offering date of Class I Shares)
to February 28, 1995.
(20) For the period January 30, 1995 (re-offering date of Class B Shares)
through February 28, 1995.
(21) For the period February 1, 1993 (commencement of operations) through
December 31, 1993.
(22) For the period May 1, 1992 (initial offering date of Class A shares)
through December 31, 1992.
(23) For the period July 10, 1992 (inception) through December 31, 1992.
(24) For the period June 30, 1997 (commencement of operations) through December
31, 1997.
(25) The Portfolio Turnover Percentage was adjusted for Redemptions In-Kind for
shareholders that took place during 1997 for the Equity Index, Mid-Cap
Opportunity and Intrinsic Value Funds. Each Fund's securities sales were
appropriately reduced by the fair market value of the Redemptions In-Kind.
The Redemptions In-Kind for the Equity Index, Mid-Cap Opportunity and
Intrinsic Value Funds were approximately $260 million, $4 million and $5
million, respectively.
(26) The Portfolio Turnover Percentage was adjusted for a conversion of assets
from First National Bank of Chicago's International Equity Common Trust
Fund, which took place during 1997. The Fund's securities purchases were
appropriately reduced by the fair market value of the asset transfer
approximating $20 million.
(a) Total returns as presented do not include any applicable sales load or
redemption charges.
+ Annualized.
++ Not Annualized.
Pegasus Funds
189
<PAGE> 220
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of the Pegasus Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the PEGASUS FUNDS (comprising, as
indicated in Note 1, the Managed Assets Conservative, Managed Assets Balanced,
Managed Assets Growth, Equity Income, Growth, Mid-Cap Opportunity, Small-Cap
Opportunity, Intrinsic Value, Growth and Value, Equity Index, International
Equity, Intermediate Bond, Bond, Short Bond, Multi Sector Bond, International
Bond, High Yield Bond, Municipal Bond, Intermediate Municipal Bond and the
Michigan Municipal Bond Funds), as of December 31, 1997, and the related
statements of operations for the period then ended, changes in net assets and
financial highlights for each of the two years in the periods then ended. We
have also audited the financial highlights for each of the periods from
inception (as indicated in Note 1) through December 31, 1995, of the Managed
Assets Balanced, Mid-Cap Opportunity, Intrinsic Value, Growth and Value, Equity
Index, International Equity, Intermediate Bond, Bond, Short Bond and Michigan
Municipal Bond Funds. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the periods from inception (as
indicated in Note 1) through December 31, 1995, of the Managed Assets
Conservative, Equity Income, Growth, Small Cap Opportunity, Multi Sector Bond,
International Bond, Municipal Bond and the Intermediate Municipal Bond Funds
were audited by other auditors whose report dated February 23, 1996, expressed
an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical counts and confirmation of
securities owned as of December 31, 1997, by inspection and correspondence with
custodians, banks and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Pegasus Funds as of December 31, 1997,
the results of their operations for the period then ended and the changes in
their net assets and the financial highlights for each of the two years in the
periods then ended in conformity with generally accepted accounting principles.
The financial highlights for each of the periods from inception (as indicated
in Note 1) through December 31, 1995, of the Managed Assets Balanced, Mid-Cap
Opportunity, Intrinsic Value, Growth and Value, Equity Index, International
Equity, Intermediate Bond, Bond, Short Bond and the Michigan Municipal Bond
Funds present fairly, in all material respect, the financial highlights in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Detroit, Michigan,
February 24, 1998.
Pegasus Funds
190
<PAGE> 221
PEGASUS CASH MANAGEMENT FUNDS
Cash Management Fund
Treasury Cash Management Fund
Treasury Prime
Cash Management Fund
U.S. Government Securities
Cash Management Fund
Municipal Cash Management Fund
ANNUAL REPORT
December 31, 1997
PLEASE READ CAREFULLY: THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. THERE CAN BE NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 222
PEGASUS CASH MANAGEMENT FUNDS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders............................. 1
Statements of Assets and Liabilities............... 3
Statements of Operations........................... 4
Statements of Changes in Net Assets................ 5
Portfolio of Investments........................... 7
Notes to Financial Statements...................... 20
Financial Highlights............................... 26
Report of Independent Public Accountants........... 29
</TABLE>
INVESTMENT ADVISER
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, Chicago, IL 60670
----------------
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
<PAGE> 223
December 31, 1997
Dear Pegasus Shareholder:
We are pleased to present the Annual Report for the Pegasus Cash Management
Funds dated December 31, 1997. This report contains the portfolios and
financial statements for the Funds, all of which purchase high quality money
market securities in accordance with their investment objectives and respective
management policies.
During 1997 we added two new institutional money market portfolios to the
Pegasus Cash Management Funds to meet a broader range of customer needs. The
Pegasus Treasury Cash Management Fund invests in U.S. Treasury securities and
repurchase agreements collateralized by such securities. The new Municipal Cash
Management Fund generates interest income that is generally exempt from Federal
income tax by investing in short-term municipal obligations, including general
obligation and revenue bonds and notes. Interest income produced from the
Municipal Cash Management Fund may be subject to the federal alternative
minimum tax.
A direct purchase plan was also developed in 1997. With a minimum initial
purchase of $1 million or more, institutional investors can now invest directly
with the Cash Management Funds through our 1-800-688-3350 Pegasus Shareholder
Servicing Group. This program complements our automated investment products
using the Pegasus Cash Management Funds.
As of December 31, 1997, the Pegasus Cash Management Fund, U.S. Government
Securities Cash Management Fund, Treasury Cash Management Fund, and Treasury
Prime Cash Management Fund were each assigned a AAA rating by Standard & Poor's
Rating Group and a Aaa rating by Moody's Investors Service, Inc. These ratings
reflect the Funds' capacity to maintain principal and limit exposure to loss.
The ratings are historical and are based upon the Funds' credit quality, market
price exposure and management.
The investment adviser to the Pegasus Funds, First Chicago NBD Investment
Management Company, brings you the expertise and heritage of an institution
that has been managing money for over 100 years. We thank you for the
confidence you have expressed by investing in the Pegasus Cash Management
Funds. We remain committed to pursuing an investment strategy which seeks to
provide competitive yields while protecting the value of your principal.
Sincerely,
LOGO
Deborah Edwards
Managing Director
First Chicago NBD Investment Management Company
<PAGE> 224
INVESTMENT YEAR IN REVIEW
It appears that the U.S. economy is experiencing an almost ideal combination of
continued growth, tame inflation, and strong employment. U.S. Federal Reserve
(Fed) policy makers left the benchmark Federal Funds (Fed Funds) rate unchanged
for most of 1997. The Fed last raised the Fed Funds rate from 5.25% to 5.50% on
March 25, 1997, as large gains in gross domestic product were reported for the
fourth quarter of 1996 (4.3%) and the first quarter of 1997 (4.9%). The Fed
worried that the strong economy would lead to increasing inflation. The economy
did remain strong for the rest of 1997, but excessive inflation did not appear.
For the year, inflation as measured by the consumer price index (CPI), was only
1.7%. The U.S. economy is enjoying some of the lowest inflation in more than a
decade. Except for 1986, when the collapse of oil prices led to a drop in the
CPI, inflation has not been so low since the 1960s.
Employment also remains strong. December's unemployment rate came in at 4.7%,
which followed November's 4.6%, the lowest in 24 years. The economy of 1997 has
caused many economists to re-think the traditional teaching that tight labor
markets almost certainly result in higher wages which in turn result in higher
prices as the wage increases are passed on to the consumer. However, wages are
rising. There are worker shortages in many industries and companies are
increasing compensation to retain and attract employees. And because of this,
the Fed will most certainly keep a watchful eye on wage pressures.
MUNICIPAL MONEY MARKET REVIEW
For much of the first part of 1997, the short-term tax-exempt market saw
excessive cash inflows with tax-free money funds at a record level of $150
billion in assets by the end of the first quarter. The Fed Funds increase in
March led many longer-term investors toward a more cautionary position by
shifting assets from the capital markets to the cash markets. By mid-April, the
positive cash flows which had been present for much of the early stages of the
year finally reversed as income-tax related redemptions caused tax-free assets
to fall by nearly $7 billion or almost 5%.
The second half of the year was supply driven with 83% ($37.4 billion) of total
1997 new issuances coming to market. This was a welcome source of relief for
fund managers as they deployed some of their excess liquidity into longer-term
notes. The combination of heavy supply and investor interest in the surging
equity market resulted in upward pressure on short-term tax-exempt interest
rates, resulting in a sharply inverted yield curve at year end. We expect the
curve to return to normal in the beginning of the year.
INTEREST RATE OUTLOOK
It appears that the Fed will hold a steady course until the problems in Asia
are resolved in the upcoming months. Some have talked of deflation, but this
seems unlikely as our domestic economy remains robust. U.S. Treasury yields
have been pushed down by a "flight to quality" causing the short-end of the
yield curve to invert. As the Asian problems are sorted out, the short-end of
the curve should become positively sloped again. It looks like 1998 will be
similar to 1997 with short-term interest rates generally holding relatively
steady in both the taxable and tax-exempt markets.
<PAGE> 225
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY TREASURY PRIME
CASH CASH CASH U.S. GOVERNMENT MUNICIPAL CASH
MANAGEMENT MANAGEMENT MANAGEMENT SECURITIES CASH MANAGEMENT
FUND FUND FUND MANAGEMENT FUND FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securi-
ties:
At cost $1,693,909,807 $206,369,547 $323,252,227 $889,512,904 $257,679,504
- ----------------------------------------------------------------------------------------------------
At amortized cost $1,694,660,306 $206,363,105 $323,839,887 $890,186,212 $257,593,870
Cash 506 807 546 389 6,507
Interest receivable 9,966,508 1,262,273 1,632,046 5,782,878 1,490,384
Deferred organization
costs, net 71,420 20,798 37,139 65,878 19,999
Prepaids and other 154,851 8,530 38,392 6,223 8,947
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,704,853,591 207,655,513 325,548,010 896,041,580 259,119,707
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
Accrued investment advi-
sory fees 247,826 38,255 45,164 143,614 46,703
Accrued administration
fees 185,870 28,692 34,262 107,710 35,027
Shareholder service fees
payable (Service
Shares) 208,389 47,670 45,867 70,778 13,470
Accrued custodian fees 1,208 564 2,997 3,864 1,113
Dividends payable 6,166,301 967,337 1,011,162 3,617,938 767,548
Other payable and ac-
crued expenses 11,159 990 5,596 70,156 17,091
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,820,753 1,083,508 1,145,048 4,014,060 880,952
- ----------------------------------------------------------------------------------------------------
NET ASSETS $1,698,032,838 $206,572,005 $324,402,962 $892,027,520 $258,238,755
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE AND RE-
DEMPTION PRICE PER
SHARE:
INSTITUTIONAL SHARES:
Net Assets $ 705,269,561 $ 850,150 $ 90,813,283 $534,364,374 $201,704,825
Capital shares 705,428,562 850,150 90,814,206 534,773,833 201,704,825
- ----------------------------------------------------------------------------------------------------
Net asset value and re-
demption price per
share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
SERVICE SHARES:
Net assets $ 992,763,277 $205,721,855 $233,589,679 $357,663,146 $ 56,533,930
Capital shares 992,806,174 205,721,855 233,587,015 357,765,038 56,533,930
- ----------------------------------------------------------------------------------------------------
Net asset value and re-
demption price per
share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital shares
(unlimited number of
shares authorized, par
value $.01 per share) $ 16,982,347 $ 2,065,720 $ 3,244,012 $ 8,925,389 $ 2,582,388
Additional paid-in cap-
ital 1,681,252,391 204,506,285 321,157,209 883,613,482 255,656,367
Accumulated
undistributed net
realized gains
(losses) (201,900) -- 1,741 (511,351) --
- ----------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $1,698,032,838 $206,572,005 $324,402,962 $892,027,520 $258,238,755
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds 3
<PAGE> 226
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Period Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY TREASURY PRIME U.S. GOVERNMENT MUNICIPAL
CASH MANAGEMENT CASH MANAGEMENT CASH MANAGEMENT SECURITIES CASH CASH MANAGEMENT
FUND FUND (A) FUND MANAGEMENT FUND FUND (B)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME $54,798,142 $3,734,012 $13,105,724 $40,961,077 $2,793,026
- ---------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee 1,921,758 133,148 510,037 1,457,684 148,267
Administration fees 1,441,319 99,861 382,527 1,093,263 111,200
Service plan fees
(Service Shares) 1,227,854 165,217 556,037 679,593 50,555
Custodial fees 9,935 2,919 10,913 5,335 5,453
Registration and filing
fees 11,788 12,274 13,668 6,860 13,376
Professional fees 29,360 7,912 29,285 12,403 9,065
Amortization of de-
ferred organization
costs 34,675 3,040 25,550 32,120 3,699
Other expenses 178,497 7,183 31,446 18,149 9,183
Less: expense reim-
bursements (279,533) (33,327) (105,789) (88,360) (40,982)
- ---------------------------------------------------------------------------------------------------------
NET EXPENSES 4,575,653 398,227 1,453,674 3,217,047 309,816
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $50,222,489 $3,335,785 $11,652,050 $37,744,030 $2,483,210
- ---------------------------------------------------------------------------------------------------------
NET REALIZED GAINS
(LOSSES) ON INVESTMENTS -- -- (507) 4,536 --
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS FROM OPERATIONS $50,222,489 $3,335,785 $11,651,543 $37,748,566 $2,483,210
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period from September 12, 1997 (commencement of operations) through
December 31, 1997.
(b) For the period from August 18, 1997 (commencement of operations) through
December 31, 1997.
See accompanying Notes to Financial Statements.
4 Pegasus Funds
<PAGE> 227
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY
CASH MANAGEMENT
CASH MANAGEMENT FUND FUND
--------------------------------------------------------
Year Ended Year Ended Period Ended
December 31, 1997 December 31, 1996 December 31, 1997(a)
--------------------------------------------------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 50,222,489 $ 28,131,525 $ 3,335,785
Net realized gains
(losses) on invest-
ments -- (32) --
- ---------------------------------------------------------------------------------
Net increase in net as-
sets from operations 50,222,489 28,131,493 3,335,785
- ---------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM NET IN-
VESTMENT INCOME:
Institutional Shares (25,209,373) (21,315,342) (25,600)
Service Shares (25,013,116) (6,816,183) (3,310,185)
- ---------------------------------------------------------------------------------
Total distributions to
shareholders (50,222,489) (28,131,525) (3,335,785)
- ---------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 9,535,537,549 3,601,197,069 569,961,617
Net asset value of
shares issued in rein-
vestment of distribu-
tions to shareholders 4,462,385 2,720,665 --
- ---------------------------------------------------------------------------------
9,539,999,934 3,603,917,734 569,961,617
Less: payments for
shares redeemed (8,960,162,558) (2,996,599,096) (363,389,612)
- ---------------------------------------------------------------------------------
Net increase in net as-
sets from capital
share transactions 579,837,376 607,318,638 206,572,005
- ---------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 579,837,376 607,318,606 206,572,005
NET ASSETS:
Beginning of period 1,118,195,462 510,876,856 --
- ---------------------------------------------------------------------------------
End of period $ 1,698,032,838 $ 1,118,195,462 $ 206,572,005
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period from September 12, 1997 (commencement of operations) through
December 31, 1997.
See accompanying Notes to Financial Statements.
Pegasus Funds 5
<PAGE> 228
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL
TREASURY PRIME U.S. GOVERNMENT SECURITIES CASH MANAGEMENT
CASH MANAGEMENT FUND CASH MANAGEMENT FUND FUND
---------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1997 1996 1997(b)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 11,652,050 $ 10,125,658 $ 37,744,030 $ 28,593,227 $ 2,483,210
Net realized gains
(losses) on
investments (507) 4,248 4,536 8,700 --
- ----------------------------------------------------------------------------------------------------------------
Net increase in net
assets from
operations 11,651,543 10,129,906 37,748,566 28,601,927 2,483,210
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM NET IN-
VESTMENT INCOME:
Institutional Shares (1,457,277) (1,717,216) (24,156,026) (21,389,317) (1,845,036)
Service Shares (10,194,773) (8,408,442) (13,588,004) (7,203,910) (638,174)
- ----------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (11,652,050) (10,125,658) (37,744,030) (28,593,227) (2,483,210)
- ----------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 2,338,002,420 2,257,327,819 5,164,514,378 4,081,677,457 523,029,206
Net asset value of
shares issued in
reinvestment of
distributions to
shareholders 395,431 490,552 1,116,975 1,174,078 13,719
- ----------------------------------------------------------------------------------------------------------------
2,338,397,851 2,257,818,371 5,165,631,353 4,082,851,535 523,042,925
Less: payments for
shares redeemed (2,299,154,786) (2,117,229,794) (4,849,816,940) (4,052,046,110) (264,804,170)
- ----------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets from capital
share transactions 39,243,065 140,588,577 315,814,413 30,805,425 258,238,755
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS 39,242,558 140,592,825 315,818,949 30,814,125 258,238,755
NET ASSETS:
Beginning of period 285,160,404 144,567,579 576,208,571 545,394,446 --
- ----------------------------------------------------------------------------------------------------------------
End of period $ 324,402,962 $ 285,160,404 $ 892,027,520 $ 576,208,571 $ 258,238,755
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(b)For the period from August 18, 1997 (commencement of operations) through
December 31, 1997.
See accompanying Notes to Financial Statements.
6 Pegasus Funds
<PAGE> 229
PEGASUS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 29.45%
Donaldson Lufkin Revolving Repurchase Agreement,
6.53%, 1/2/98 (secured by various U.S. Treasury
obligations with maturities ranging from 4/2/98
through 2/15/07 at various interest rates ranging
from 0.00% to 11.625%, all held at The Bank of New
York).............................................. $ 6,246,000 $ 6,246,000
Goldman Sachs, Revolving Repurchase Agreement,
6.50%, 1/2/98 (secured by U.S. Treasury Notes with
a maturity of 11/15/00, and an interest rate of
5.75%, all held at The Bank of New York)........... 14,830,000 14,830,000
H.S.B.C. Security Agency Revolving Repurchase
Agreement, 6.75%, 1/2/98 (secured by various Agency
obligations with maturities ranging from 1/2/98
through 12/23/98 at various interest rates ranging
from 0.00% to 8.20%, all held at Chase Bank)....... 271,000,000 271,000,000
Nomura Agency Revolving Repurchase Agreement, 6.75%,
1/2/98 (secured by various U.S. Treasury and Agency
obligations with maturities ranging from 1/29/98
through 10/10/07 at various interest rates ranging
from 0.00% to 7.40%, all held at The Bank of New
York).............................................. 144,000,000 144,000,000
Smith Barney Inc., Revolving Repurchase Agreement,
6.75%, 1/2/98 (secured by various U.S. Treasury &
Agency obligations with maturities ranging from
7/31/98 through 11/25/07 at various interest rates
ranging from 0.00% to 9.00%, all held at The Bank
of New York)....................................... 63,000,000 63,000,000
------------
499,076,000
------------
COMMERCIAL PAPER -- 16.76%
Banca Serafin S.A., 5.65%, 8/31/98.................. 20,000,000 19,240,389
Bank of Montreal, 6.25%, 1/9/98..................... 10,000,000 9,986,111
Calicia Funding Corp., 5.75%, 3/4/98................ 12,500,000 12,376,215
Centre SQ Funding Corp., 5.62%, 1/5/98.............. 20,000,000 19,987,511
Centric Capital Corp., 5.95%, 1/12/98............... 25,000,000 24,954,549
Corporate Receivables Corp., 5.75%, 3/10/98......... 10,000,000 9,891,389
Greenwich Funding Corp., 5.90%, 1/20/98............. 40,000,000 39,871,222
Glencore Asset Funding Corp., 6.25%, 1/12/98........ 20,000,000 19,961,806
National Cooperative Services Corp., 5.76%, 3/3/98.. 12,944,000 12,817,667
New Center Asset Trust, 6.80%, 1/2/98............... 75,000,000 74,985,833
Pooled Accounts Receivable Capital, 6.13%, 1/13/98.. 20,000,000 19,959,133
Windmill Funding Corp., 6.15%, 1/20/98.............. 20,077,000 20,011,833
------------
284,043,658
------------
</TABLE>
Pegasus Funds 7
<PAGE> 230
PEGASUS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
NOTES -- 13.88%
Associates Corp. of North America, 7.30%, 3/15/98. $ 1,000,000 $ 1,002,875
Associates Corp. of North America, Senior Note,
6.50%, 9/9/98.................................... 8,000,000 8,030,606
Bank of New York, 6.10%, 5/22/98.................. 10,000,000 9,996,131
CSA Funding, V/R, Note Series C, 3/31/98.......... 20,000,000 20,000,000
Federal National Mortgage Assn., Medium Term Note,
5.48%, 1/2/98.................................... 7,000,000 6,999,959
GE Engine Receivable Trust, V/R Note, 6.34%,
2/14/00.......................................... 10,714,874 10,714,874
General American Life Insurance Co., 5.85%,
1/30/98.......................................... 20,000,000 20,000,000
Key Auto Finance, 5.835%, 1/5/99.................. 10,000,000 10,000,000
KBL Capital Funding, Series A, V/R, 5/1/27........ 3,000,000 3,000,000
Morgan Guaranty Trust Co., 5.965%, 6/22/98........ 10,000,000 9,998,400
Saegertown Manufacturing Co. PA, V/R, 12/1/03..... 5,000,000 5,000,000
Sigma Finance Medium Term Note, 5.84%, 8/4/98..... 2,000,000 2,000,000
Sigma Finance Medium Term Note, 5.84%, 10/20/98... 15,000,000 15,000,000
Sigma Finance, Medium Term Note, 6.25%, 4/7/98.... 10,000,000 10,000,000
SunAmerica Life Insurance Company, 6.01%,
11/19/98*........................................ 25,000,000 25,000,000
Travelers Insurance Company, 5.91%, 11/6/98*...... 25,000,000 25,000,000
Travelers Insurance Company, 6.07%, 12/11/98...... 25,000,000 25,000,000
Wachovia Bank, Medium Term Note, 5.895%, 10/2/98.. 10,000,000 9,994,570
Wilmington Trust Co., Series B Amtrak 93-B, V/R,
1/1/13........................................... 18,403,050 18,403,050
--------------
235,140,465
--------------
CERTIFICATES OF DEPOSIT -- 8.97%
Canadian Imperial Bank of Commerce, 5.685%,
3/2/98........................................... 5,000,000 4,998,938
Canadian Imperial Bank of Commerce, 5.95%,
6/29/98.......................................... 2,000,000 2,000,296
Commerzbank AG , 5.89%, 7/9/98.................... 5,000,000 5,000,081
Credit Commercial De France, 5.90%, 9/17/98....... 20,000,000 19,993,215
Crestar Bank, 5.86%, 6/15/98...................... 25,000,000 25,000,000
Lasalle National Bank, 5.96%, 2/25/98............. 15,000,000 15,000,000
Morgan Guaranty Trust, 5.80%, 7/28/98............. 2,000,000 1,999,959
Norddeutsche Landesbank Girozentrale, 5.9175%,
10/21/98......................................... 10,000,000 9,995,971
Rabobank Nederland, 5.97%, 3/20/98................ 5,000,000 5,000,784
Royal Bank of Canada, 5.91%, 6/17/98.............. 10,000,000 10,002,844
Royal Bank of Canada, 5.88%, 9/17/98.............. 15,000,000 15,003,056
Societe Generale, 5.945%, 8/28/98................. 3,000,000 2,998,968
Societe Generale, 5.96%, 9/15/98.................. 20,000,000 20,011,870
</TABLE>
8 Pegasus Funds
<PAGE> 231
PEGASUS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
Swiss Bank Corp., 5.88%, 11/19/98.................. $10,000,000 $ 9,998,312
Westpac Banking Corp., 5.97%, 3/24/98.............. 5,000,000 4,998,889
--------------
152,003,183
--------------
TIME DEPOSITS -- 30.94%
Bank Brussel Lambert, 6.625%, 1/2/98............... 57,000,000 57,000,000
Bank of Montreal, 4.875%, 1/2/98................... 75,000,000 75,000,000
Citibank N.A., 4.50%, 1/2/98....................... 28,897,000 28,897,000
Istituto Bancario San Paolo, 6.875%, 1/2/98........ 50,000,000 50,000,000
Key Bank N.A., 6.75%, 1/2/98....................... 75,000,000 75,000,000
Southtrust Bank of AL, 5.00%, 1/2/98............... 48,500,000 48,500,000
Suntrust Bank, 6.75%, 1/2/98....................... 75,000,000 75,000,000
Union Bank of Switzerland, 8.50%, 1/2/98........... 50,000,000 50,000,000
Wachovia Bank of North Carolina N.A., 4.50%,
1/2/98............................................ 65,000,000 65,000,000
--------------
524,397,000
--------------
TOTAL INVESTMENTS................................... $1,694,660,306
==============
</TABLE>
V/R -- Variable Rate
* -- Restricted Security (see Note 5)
See accompanying Notes to Financial Statements.
Pegasus Funds 9
<PAGE> 232
PEGASUS TREASURY CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 87.90%
Aubrey Lanston Revolving Repurchase Agreement, 6.50%,
1/2/98 (secured by various U.S. Treasury obligations
with maturities ranging from 11/30/99 through
11/15/06 at various interest rates ranging from
0.00% to 7.875%, all held at Chase Bank)............ $ 9,000,000 $ 9,000,000
Barclays Inc., Revolving Repurchase Agreement, 6.60%,
1/2/98 (secured by various U.S. Treasury obligations
with maturities ranging from 8/31/99 through
11/15/00 at various interest rates ranging from
5.875% to 8.500%, all held at The Bank of New York). 9,000,000 9,000,000
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 6.50%, 1/2/98 (secured by various U.S.
Treasury obligations with maturities ranging from
8/15/98 through 11/15/07 at various interest rates
ranging from 0.00% to 8.00%, all held at the
Custodial Trust Company)............................ 49,000,000 49,000,000
Credit Suisse First Boston Revolving Repurchase
Agreement, 6.25%, 1/2/98 (secured by various U.S.
Treasury obligations with a maturity at 1/31/99 at
an interest rate of 5.00%, held at Chase Bank)...... 9,000,000 9,000,000
First Union Capital Markets, Revolving Repurchase
Agreement, 6.625%, 1/2/98 (secured by various U.S.
Treasury obligations with maturities ranging from
1/2/98 through 3/31/99 at various interest rates
ranging from 0.00% to 6.25%, all held at Bankers
Trust Company)...................................... 9,000,000 9,000,000
Goldman Sachs Agency, Revolving Repurchase Agreement,
6.50%, 1/2/98 (secured by U.S. Treasury Note
maturing 11/15/00 at an interest rate of 5.75%, held
at The Bank of New York)............................ 9,000,000 9,000,000
Greenwich Capital Markets, Inc., Revolving Repurchase
Agreement, 6.60%, 1/2/98 (secured by various U.S.
Treasury obligations with maturities ranging from
5/15/98 through 2/15/05 at an interest rate of 0.00%
held at Chase Bank)................................. 9,000,000 9,000,000
H.S.B.C. Treasury, Revolving Repurchase Agreement,
6.75%, 1/2/98 (secured by various U.S. Treasury
Notes with maturities ranging from 1/2/98 through
8/31/00, at various interest rates ranging from
0.00% to 6.25%, all held at Chase Bank)............. 9,000,000 9,000,000
Morgan Stanley & Co., Repurchase Agreement, 6.625%,
1/2/98 (secured by U.S. Treasury Note maturing
08/31/00, at an interest rate of 6.25%, held at
Chase Bank)......................................... 9,000,000 9,000,000
</TABLE>
10 Pegasus Funds
<PAGE> 233
PEGASUS TREASURY CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
Nationsbank Revolving Repurchase Agreement, 6.625%,
1/2/98 (secured by various U.S. Treasury Notes with
maturities ranging from 2/15/02 through 8/15/07, at
various interest rates ranging from 5.625% to
9.375%, all held at Chase Bank)..................... $49,000,000 $ 49,000,000
Nomura Treasury, Revolving Repurchase Agreement,
6.75%, 1/2/98 (secured by various U.S. Treasury
Notes with maturities ranging from 11/15/98 through
5/15/04, at various interest rates ranging from
5.50% to 7.25%, all held at The Bank of New York)... 9,000,000 9,000,000
Salomon Brothers, Inc., Revolving Repurchase
Agreement, 6.625%, 1/2/98 (secured by various U.S.
Treasury obligations with maturities ranging from
7/15/98 through 2/28/02 at various interest rates
ranging from 5.75% to 8.25%, all held at Chase
Bank)............................................... 2,384,000 2,384,000
------------
181,384,000
------------
U.S. GOVERNMENT OBLIGATIONS -- 12.10%
U.S. Treasury Securities -- 12.10%
U.S. Treasury Notes:
6.125%, 08/13/98................................... 5,000,000 5,012,107
6.00%, 09/30/98.................................... 10,000,000 10,016,216
5.125%, 11/30/98................................... 10,000,000 9,950,782
------------
24,979,105
------------
TOTAL INVESTMENTS..................................... $206,363,105
============
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds 11
<PAGE> 234
PEGASUS TREASURY PRIME CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
U.S. TREASURY SECURITIES -- 100.00%
U.S. Treasury Bills:
5.285%, 1/08/98..................................... $ 5,078,000 $ 5,072,993
4.93%, 1/15/98...................................... 8,074,000 8,058,144
5.19%, 1/22/98...................................... 58,130,000 57,954,189
5.355%, 2/5/98...................................... 53,415,000 53,147,064
5.37%, 2/12/98...................................... 59,525,000 59,174,340
5.05%, 2/19/98...................................... 18,547,000 18,417,999
5.18%, 2/26/98...................................... 17,610,000 17,468,339
5.50%, 3/5/98....................................... 10,000,000 9,905,938
5.18%, 3/19/98...................................... 10,000,000 9,889,206
5.14%, 4/2/98....................................... 14,255,000 14,067,806
5.49%, 4/30/98...................................... 297,000 291,625
------------
253,447,643
------------
U.S. Treasury Notes:
7.875%, 1/15/98..................................... 25,000,000 25,023,269
8.125%, 2/15/98..................................... 3,296,000 3,305,910
5.125%, 3/31/98..................................... 6,714,000 6,704,025
7.875%, 4/15/98..................................... 10,000,000 10,065,546
5.875%, 4/30/98..................................... 6,745,000 6,753,656
6.125%, 5/15/98..................................... 5,000,000 5,006,903
6.25%, 7/31/98...................................... 6,154,000 6,175,405
4.75%, 8/31/98...................................... 5,400,000 5,366,968
5.125%, 11/30/98.................................... 2,000,000 1,990,562
------------
70,392,244
------------
TOTAL INVESTMENTS..................................... $323,839,887
============
</TABLE>
See accompanying Notes to Financial Statements.
12 Pegasus Funds
<PAGE> 235
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 67.30%
Bear Stearns, Revolving Repurchase Agreement, 6.50%,
1/2/98, (secured by various U.S. Treasury
obligations with maturities ranging from 08/15/98
to 11/15/07 at various interest rates ranging from
0.00% to 8.00%, all held at The Custodial Trust
Company)........................................... $ 25,000,000 $ 25,000,000
Donaldson Lufkin, Revolving Repurchase Agreement,
6.53%, 1/2/98, (secured by various U.S. Treasury
obligations with maturities ranging from 4/2/98 to
2/15/07 at various interest rates ranging from
0.00% to 9.25%, all held at The Bank of New York).. 36,061,000 36,061,000
First Union Capital Markets Treasury, Revolving
Repurchase Agreement, 6.625%, 1/2/98 (secured by
various U.S. Treasury obligations with maturities
ranging from 1/2/98 through 3/31/99 at various
interest rates ranging from 0.00% to 6.25%, all
held at Bankers Trust Company)..................... 35,000,000 35,000,000
Greenwich, Revolving Repurchase Agreement, 6.60%,
1/2/98 (secured by various U.S. Treasury
obligations with maturities ranging from 05/15/98
through 02/15/05, all at an interest rate of 0.00%,
held at Chase Bank)................................ 35,000,000 35,000,000
H.S.B.C. Treasury Inc., Revolving Repurchase
Agreement, 6.75%, 1/2/98 (secured by various U.S.
Treasury Notes with maturities ranging from 1/02/98
through 8/31/00, at various interest rates ranging
from 0.00% to 6.25%, all held at Chase Bank)....... 197,000,000 197,000,000
Lehman Brothers Agency Revolving Repurchase
Agreement, 6.63%, 1/2/98 (secured by various U.S.
Treasury obligations with maturities ranging from
12/4/00 through 11/1/04, at various interest rates
ranging from 0.00% to 9.00%, all held at Chase
Bank).............................................. 25,000,000 25,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement 6.625%, 1/2/98 (secured by
various U.S. Treasury Notes with maturities ranging
from 2/15/02 through 8/15/07 at various interest
rates ranging from 5.625% to 9.375%, all held at
Chase Bank)........................................ 25,000,000 25,000,000
Nomura Agency, Revolving Repurchase Agreement 6.75%,
1/2/98 (secured by various U.S. Treasury Notes with
maturities ranging from 11/15/98 through 5/15/04 at
various interest rates ranging from 5.50% to 7.25%,
all held at The Bank of New York).................. 181,000,000 181,000,000
Smith Barney Inc., Revolving Repurchase Agreement,
6.625%, 1/2/98 (secured by various U.S. Treasury &
Agency obligations with maturities ranging from
7/31/98 through 11/25/07 at various interest rates
ranging from 0.00% to 9.00%, all held at The Bank
of New York)....................................... 40,000,000 40,000,000
------------
599,061,000
------------
</TABLE>
Pegasus Funds 13
<PAGE> 236
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
FACE COST
DESCRIPTION AMOUNT (NOTE 2)
----------- ------ ---------
<S> <C> <C>
AGENCY OBLIGATIONS -- 32.70%
Federal Farm Credit Bank, 5.45%, 03/3/98............ $ 5,000,000 $ 4,997,780
Federal Farm Credit Consolidated Bond, 5.51%,
1/2/98............................................. 4,500,000 4,499,977
Federal Farm Credit Bank Medium Term Note, 5.63%,
08/3/98............................................ 8,000,000 7,997,813
Federal Farm Credit Bank Note, 5.70%, 9/2/98........ 10,000,000 9,991,935
Federal Home Loan Bank:
5.72%, 7/21/98..................................... 10,000,000 9,998,091
5.73%, 9/08/98..................................... 4,500,000 4,496,262
5.80%, 9/18/98..................................... 6,000,000 6,001,421
5.04%, 10/01/98.................................... 3,000,000 2,981,149
5.90%, 10/20/98.................................... 26,000,000 25,993,947
5.30%, 11/18/98.................................... 4,400,000 4,376,840
5.86%, 11/25/98.................................... 12,000,000 11,994,931
5.681%, 1/13/98.................................... 8,000,000 7,999,961
5.73%, 1/27/98..................................... 7,000,000 6,999,875
6.54%, 5/11/98..................................... 2,000,000 2,003,301
Federal Home Loan Mortgage Corp.:
5.19%, 3/11/98..................................... 6,600,000 6,589,737
5.735%, 3/18/98.................................... 6,000,000 5,996,900
5.76%, 7/13/98..................................... 1,385,000 1,384,694
Federal National Mortgage Assn. Discount Notes:
1/23/98............................................ 20,000,000 19,932,778
2/11/98............................................ 10,000,000 9,935,653
2/26/98............................................ 30,000,000 29,740,067
3/05/98............................................ 10,000,000 9,902,350
3/06/98............................................ 10,000,000 9,900,800
3/30/98............................................ 10,000,000 9,862,622
Federal National Mortgage Assn. Medium Term Notes:
5.50%, 2/18/98..................................... 4,000,000 3,998,112
5.30%, 3/11/98..................................... 3,250,000 3,247,413
5.79%, 3/25/98..................................... 18,000,000 17,991,069
5.71%, 6/23/98..................................... 5,000,000 4,996,943
5.19%, 7/20/98..................................... 1,000,000 996,547
5.71%, 9/09/98..................................... 6,000,000 5,994,595
4.875%, 10/15/98................................... 13,450,000 13,350,334
5.23%, 11/25/98.................................... 6,005,000 5,972,095
</TABLE>
14 Pegasus Funds
<PAGE> 237
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST (NOTE
DESCRIPTION FACE AMOUNT 2)
----------- ----------- ----------
<S> <C> <C>
Student Loan Marketing Assn. Medium Term Notes:
5.86%, 6/10/98...................................... $ 11,000,000 $ 10,993,876
5.82%, 9/16/98...................................... 10,000,000 10,005,344
------------
291,125,212
------------
TOTAL INVESTMENTS..................................... $890,186,212
============
</TABLE>
See accompanying Notes to Financial Statements.
Pegasus Funds 15
<PAGE> 238
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ALABAMA -- 0.35%
Decatur Industrial Development, AMT,
1/1/27............................. VMIG 1 3.80% $ 900,000 $ 900,000
------------
ALASKA -- 3.11%
City of Valdez, 5/1/31.............. VMIG 1 3.80% 8,000,000 8,000,000
------------
DELAWARE -- 2.56%
Delaware State, AMT, 10/1/29........ VMIG 1 5.25% 4,800,000 4,800,000
Delaware State Education AMT,
8/1/29............................. A1+ 3.75% 1,800,000 1,800,000
------------
6,600,000
------------
DISTRICT OF COLUMBIA -- 0.35%
District of Columbia American Uni-
versity, 10/1/15................... VMIG 1 3.85% 900,000 900,000
------------
FLORIDA -- 8.15%
Florida State Municipal Power CP,
4/7/98............................. P1 3.75% 11,500,000 11,500,000
Sarasota County Public Hospital
Florida, 2/27/98................... VMIG 1 3.80% 9,000,000 9,000,000
St. Lucie Florida, AMT, 1/1/27...... VMIG 1 5.10% 500,000 500,000
------------
21,000,000
------------
GEORGIA -- 6.21%
Burke Co. Pollution Control,
5/28/98............................ Aaa 3.80% 8,000,000 8,000,000
Gwinett Co. Georgia Hospital,
9/1/27............................. A1+ 3.70% 8,000,000 8,000,000
------------
16,000,000
------------
IDAHO -- 1.36%
Idaho Health Facility, 5/1/22....... VMIG 1 5.10% 3,500,000 3,500,000
------------
ILLINOIS -- 6.41%
Illinois HFA Facility Univ. of Chi-
cago, CP, 5/27/98.................. VMIG 1 3.75% 10,400,000 10,400,000
Illinois Health Facilities Authori-
ties Revenue, 1/1/16............... VMIG 1 3.75% 6,100,000 6,100,000
------------
16,500,000
------------
INDIANA -- 4.66%
Jasper Co. PCR IND SER B, CP,
4/6/98............................. VMIG 1 3.80% 7,000,000 7,000,000
Indiana DFA Solid Waste, AMT,
2/20/98............................ P1 3.75% 5,000,000 5,000,000
------------
12,000,000
------------
</TABLE>
16 Pegasus Funds
<PAGE> 239
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- --------- ----------
<S> <C> <C> <C> <C>
KENTUCKY -- 6.96%
Carroll KY Support KY Util AMT, 11/2/24. VMIG 1 5.10% $ 900,000 $ 900,000
Clark Co. Pollution Control, 4/15/98.... VMIG 1 3.70% 9,000,000 9,000,000
Kentucky Asset/Liability Common Revenue,
6/25/98................................ MIG 1 4.50% 8,000,000 8,023,028
----------
17,923,028
----------
LOUISIANA -- 2.99%
Plaquiemines Parish AMT, 5/1/25......... P1 5.10% 4,500,000 4,500,000
Plaquiemines Parish Environment Revenue
AMT, 10/1/24........................... P1 5.10% 3,200,000 3,200,000
----------
7,700,000
----------
MICHIGAN -- 11.94%
Dearborn Economic Development Corp. Rev-
enue, 3/1/25........................... A1 3.70% 900,000 900,000
Delta Co. Mich EDC, CP, 3/11/98......... P1 3.55% 3,810,000 3,810,000
Holland Economic Development, 3/1/13.... A1 3.80% 2,800,000 2,800,000
Kent Hospital Financial Authority,
1/15/20................................ VMIG 1 3.65% 2,200,000 2,200,000
Michigan St. Hospital Financial Authori-
ty, 11/1/11............................ VMIG 1 3.65% 2,600,000 2,600,000
Michigan Underground, CP, 2/5/98........ P1 3.75% 8,440,000 8,440,000
Regents of the Univ. of Michigan,
1/14/98................................ A1+ 3.75% 7,600,000 7,600,000
Wayne Charter Co., AMT, 12/1/16......... VMIG 1 3.75% 2,400,000 2,400,000
----------
30,750,000
----------
MINNESOTA -- 2.45%
Hennepin Co. Minnesota, Series C,
12/1/02................................ VMIG 1 4.05% 2,000,000 2,000,000
Rochester GO, 11/1/99................... **N/R 4.10% 4,300,000 4,300,000
----------
6,300,000
----------
MISSISSIPPI -- 0.78%
Jackson Co. Mississippi, 6/1/23......... P1 4.95% 2,000,000 2,000,000
----------
NEVADA -- 0.39%
Clark Co. AMT, 10/1/30.................. A1+ 3.95% 1,000,000 1,000,000
----------
NEW MEXICO -- 3.12%
New Mexico St., 6/30/98................. MIG 1 4.50% 8,000,000 8,024,456
----------
NEW YORK -- 3.11%
New York City GO, 2/15/13............... VMIG 1 3.65% 8,000,000 8,000,000
----------
NORTH CAROLINA -- 0.99%
Raleigh Durham NC Airport, 11/1/15...... A1+ 5.00% 2,550,000 2,550,000
----------
</TABLE>
Pegasus Funds 17
<PAGE> 240
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C>
OREGON -- 2.25%
Port Morrow Environmental Impact
Revenue, AMT, 12/1/31.............. VMIG 1 5.15% $ 5,800,000 $ 5,800,000
------------
PENNSYLVANIA -- 3.11%
Allegheny Co., IDR, VRDB-United Jew-
ish Federation, 10/1/25............ VMIG 1 4.25% 8,000,000 8,000,000
------------
PUERTO RICO -- 3.90%
Puerto Rico Commonwealth, 7/30/98... MIG 1 4.50% 10,000,000 10,042,264
------------
SOUTH CAROLINA -- 0.35%
Florence Co. Solid Waste Disposal,
AMT, 4/1/27........................ A1+ 5.10% 900,000 900,000
------------
SOUTH DAKOTA -- 1.94%
South Dakota Housing Development Au-
thority Revenue, AMT, 3/26/98...... VMIG 1 3.90% 5,000,000 4,999,958
------------
TENNESSEE -- 2.11%
Metro Govt. Nashville Davison Series
A, 11/15/98........................ Aa2 5.07% 5,375,000 5,436,081
------------
TEXAS -- 8.62%
Brazos River Authority TX, AMT,
6/21/95, 6/1/30.................... VMIG 1 5.10% 3,400,000 3,400,000
Brazos River Authority TX, AMT,
9/25/96, 6/1/30.................... VMIG 1 5.10% 9,600,000 9,600,000
Brazos River Authority TX, AMT,
2/12/97, 2/1/32.................... VMIG 1 5.10% 700,000 700,000
Gulf Coast AMT, 4/1/28.............. VMIG 1 5.10% 5,700,000 5,700,000
Matagorda Co. AMT, 11/1/28.......... VMIG 1 4.95% 2,400,000 2,400,000
West Side Calhoun AMT, 4/1/31....... Aa2 5.10% 400,000 400,000
------------
22,200,000
------------
UTAH -- 6.43%
Emery Co., 11/17/94, 11/1/24........ VMIG 1 5.00% 6,200,000 6,200,000
Internmountain Power Agency, Sup
Rev, 3/16/98....................... VMIG 1 3.75% 5,000,000 5,000,000
Utah St. School District Financial,
8/15/98............................ Aaa 8.38% 5,225,000 5,368,083
------------
16,568,083
------------
VIRGINIA -- 0.39%
King George Co. IDA. Revenue AMT,
3/1/27............................. A1+ 5.10% 1,000,000 1,000,000
------------
WASHINGTON -- 0.19%
Port Seattle Revenue, AMT, 9/1/22... VMIG 1 3.85% 500,000 500,000
------------
WEST VIRGINIA -- 2.33%
West VA Public Energy Authority Rev-
enue, AMT, 4/8/98.................. Aa1 3.80% 6,000,000 6,000,000
------------
</TABLE>
18 Pegasus Funds
<PAGE> 241
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORITIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C>
WYOMING -- 2.52%
Sweetwater Co., AMT, 11/1/25......... VMIG 1 5.25% $ 6,500,000 $ 6,500,000
------------
TOTAL INVESTMENTS..................... $257,593,870
============
</TABLE>
INVESTMENT ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corp.
AMT -- Alternative Minimum Tax
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
DFA -- Development Finance Authority
EDC -- Economic Development Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCF -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Individual Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Rating (not covered by the report of independent public accountants) --
Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations rated
AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
***Interest rates on variable rate securities are adjusted periodically based on
appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1997. The interest rate for all securities with maturity greater
than thirteen months has an automatic reset feature resulting in an effective
maturity of thirteen months or less.
See accompanying Notes to Financial Statements.
Pegasus Funds 19
<PAGE> 242
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) GENERAL
The Pegasus Funds (Pegasus), was organized as a Massachusetts business trust
on April 21, 1987 and registered under the Investment Company Act of 1940 (the
Act), as amended, as an open-end investment company. As of December 31, 1997,
Pegasus consisted of twenty-nine separate portfolios of which there were five
cash management funds (the Cash Management Funds or the Funds), as described
below.
PEGASUS CASH MANAGEMENT FUND
PEGASUS TREASURY CASH MANAGEMENT FUND
PEGASUS TREASURY PRIME CASH MANAGEMENT FUND
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
The Cash Management Fund commenced operations on July 30, 1992, the Treasury
Cash Management Fund commenced operations on September 12, 1997, the Treasury
Prime Cash Management Fund commenced operations on March 22, 1995, the U.S.
Government Securities Cash Management Fund commenced operations on June 2, 1992
and the Municipal Cash Management Fund commenced operations on August 18, 1997.
First Chicago Corporation merged with NBD Bancorp. Inc. on December 1, 1995.
First Chicago Investment Management Company, an affiliate of First Chicago
Corporation, served as Investment Advisor to Prairie Institutional Funds, which
included the Prairie U.S. Government Securities Cash Management, Prairie
Treasury Prime Cash Management and Prairie Cash Management Funds. On July 13,
1996, pursuant to an Agreement and Plan of Reorganization which had received
approval from the shareholders of such Funds, the assets of the Prairie
Institutional Funds were transferred to the Pegasus U.S. Government Securities
Cash Management, Pegasus Treasury Prime Cash Management and Pegasus Cash
Management Funds, respectively, in exchange for shares of those funds. Prior to
July 13, 1996, the Pegasus Cash Management Funds held no assets and had not yet
commenced operations. The financial history contained herein therefore includes
such history of the Prairie Cash Management Funds, which ceased operations as
of July 12, 1996.
The Cash Management Funds each offer two classes of shares, Institutional
Shares and Service Shares. Institutional Shares and Service Shares are
substantially the same except that Service Shares are subject to fees payable
under a Distribution and Service Plan adopted pursuant to Rule 12b-1 under the
Act (the Service Plan) at an annual rate of 0.25% of the average daily net
asset value of the outstanding Services Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Cash Management Funds in preparation of the financial statements. The policies
are in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
20 Pegasus Funds
<PAGE> 243
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Investments
Pursuant to Rule 2a-7 of the Act, the Cash Management Funds utilize the
amortized cost method to determine the carrying value of investment securities.
Under this method, investment securities are valued for both financial
reporting and federal tax purposes at amortized cost and any discount or
premium is amortized from the date of acquisition to maturity. The use of this
method results in a carrying value which approximates market value. Market
value is determined based upon quoted market prices or dealer quotes.
Investment security purchases and sales are accounted for on the trade date.
Realized gains and losses from security transactions are recorded on the
identified cost basis.
Pegasus invests in securities subject to repurchase agreements. First Chicago
NBD Investment Management Company (FCNIMCO), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Pegasus' investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by FCNIMCO to assure
its value remains at least equal to 102% of the repurchase agreement amount;
and 3) funds are not disbursed by Pegasus or its agent unless collateral is
presented or acknowledged by the collateral custodian.
The Municipal Cash Management Fund invests in a majority of instruments whose
stated maturity is greater than one year, but whose rate of interest is
readjusted no less frequently than annually, or which possess demand features
and may therefore be deemed to have a maturity equal to the period remaining
until the next interest adjustment date or the demand date, whichever is
longer.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code, as amended (the
Code), and generally accepted accounting principles.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Code, applicable to regulated investment companies and to distribute net
investment income and realized gains to its shareholders. Therefore, no federal
income tax provision is required in the accompanying Financial Statements.
As of December 31, 1997, the Cash Management Funds had capital loss
carryforwards and related expiration dates as follows:
<TABLE>
<CAPTION>
FUND 2001 2002 2003 TOTAL
---- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
U.S. Government Securities
Cash Management Fund......... $ -- $453,000 $58,000 $511,000
Cash Management Fund.......... 19,000 151,000 32,000 202,000
</TABLE>
Pegasus Funds 21
<PAGE> 244
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Shareholder Dividends
On each business day except those holidays the New York Stock Exchange
(Exchange), FCNIMCO or its bank affiliates observe, net investment income is
declared as a dividend, at the close of the Exchange, to shareholders of record
at such close. Such dividends are paid monthly. Distributions from net realized
capital gains, if any, are normally declared and paid annually, but each Fund
may make distributions on a more frequent basis to comply with the distribution
requirements of the Code. To the extent that net realized capital gains can be
offet by capital loss carryfowards, it is the policy of each Fund not to
distribute such gains.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five-year period beginning with the commencement of operations of each
portfolio.
Expenses:
Expenses directly attributable to a Cash Management Fund are charged to that
Cash Management Fund's operations; expenses which are applicable to all Cash
Management Funds are allocated among them on the basis of relative net assets.
Fund expenses directly attributable to a class of shares are charged to that
class; expenses which are applicable to all classes are allocated among them.
Pegasus monitors the rate at which expenses are charged to ensure that a proper
amount of expense is charged to income each year. This percentage is subject to
revision if there is a change in the estimate of the future net assets of the
Funds or a change in expectations as to the level of actual expenses.
(3) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Cash Management Funds are summarized below (at
$1.00 per share):
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
------------------------------
Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996
-------------- --------------
<S> <C> <C>
Institutional Shares:
Shares issued............................ 6,087,058,701 2,462,204,127
Dividends reinvested..................... 4,462,385 2,719,445
Shares redeemed.......................... (6,272,197,824) (1,968,098,976)
-------------- --------------
Net increase (decrease).................. (180,676,738) 496,824,596
============== ==============
Service Shares:
Shares issued............................ 3,448,478,848 1,138,992,942
Dividends reinvested..................... -- 1,220
Shares redeemed.......................... (2,687,964,734) (1,028,500,120)
-------------- --------------
Net increase............................. 760,514,114 110,494,042
============== ==============
Net increase in Fund...................... 579,837,376 607,318,638
============== ==============
</TABLE>
22 Pegasus Funds
<PAGE> 245
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY CASH
MANAGEMENT FUND
----------------
Period Ended
Dec. 31, 1997(a)
----------------
<S> <C> <C>
Institutional Shares:
Shares issued........................... 6,838,921
Dividends reinvested.................... --
Shares redeemed......................... (5,988,771)
--------------
Net increase............................ 850,150
==============
Service Shares:
Shares issued........................... 563,122,696
Dividends reinvested.................... --
Shares redeemed......................... (357,400,841)
--------------
Net increase............................ 205,721,855
==============
Net increase in Fund.................... 206,572,005
==============
<CAPTION>
TREASURY PRIME
CASH MANAGEMENT FUND
-------------------------------
YEAR ENDED YEAR ENDED
DEC. 31, 1997 DEC. 31, 1996
---------------- --------------
<S> <C> <C>
Institutional Shares:
Shares issued........................... 686,151,852 834,279,533
Dividends reinvested.................... 345,903 490,259
Shares redeemed......................... (665,804,296) (778,657,574)
-------------- --------------
Net increase............................ 20,693,459 56,112,218
============== ==============
Service Shares:
Shares issued........................... 1,651,850,568 1,423,048,286
Dividends reinvested.................... 49,528 293
Shares redeemed......................... (1,633,350,490) (1,338,572,220)
-------------- --------------
Net increase............................ 18,549,606 84,476,359
============== ==============
Net increase in Fund..................... 39,243,065 140,588,577
============== ==============
</TABLE>
--------------
(a) For the period from September 12, 1997 (commencement of
operations) through December 31, 1997.
Pegasus Funds 23
<PAGE> 246
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES
CASH MANAGEMENT
-------------------------------
YEAR ENDED YEAR ENDED
DEC. 31, 1997 DEC. 31, 1996
--------------- --------------
<S> <C> <C>
Institutional Shares:
Shares issued.......................... 3,117,508,597 3,012,405,624
Dividends reinvested................... 1,026,989 1,114,598
Shares redeemed........................ (2,953,336,804) (3,133,810,559)
-------------- --------------
Net increase (decrease)................ 165,198,782 (120,290,337)
============== ==============
Service Shares:
Shares issued.......................... 2,047,005,781 1,069,271,833
Dividends reinvested................... 89,986 59,480
Shares redeemed........................ (1,896,480,136) (918,235,551)
-------------- --------------
Net increase........................... 150,615,631 151,095,762
============== ==============
Net increase in Fund.................... 315,814,413 30,805,425
============== ==============
<CAPTION>
MUNICIPAL
CASH MANAGEMENT
FUND
---------------
PERIOD ENDED
DEC.
31, 1997(B)
---------------
<S> <C> <C>
Institutional Shares:
Shares issued.......................... 322,413,470
Dividends reinvested................... 13,719
Shares redeemed........................ (120,722,364)
--------------
Net increase........................... 201,704,825
==============
Service Shares:
Shares issued.......................... 200,615,736
Dividends reinvested .................. --
Shares redeemed........................ (144,081,806)
--------------
Net increase........................... 56,533,930
==============
Net increase in Fund.................... 258,238,755
==============
</TABLE>
- --------------
(b) For the period from August 18, 1997 (commencement of operations) through
December 31, 1997.
(4) MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pegasus has an Investment Advisory Agreement with FCNIMCO pursuant to which
FCNIMCO has agreed to provide the day-to-day management of each Cash Management
Fund for an advisory fee at a annual rate of 0.20% of each Cash Management
Fund's average daily net assets.
Pegasus has entered into a Co-Administration Agreement with FCNIMCO and BISYS
Fund Services (BISYS) (collectively the Co-Administrators) pursuant to which
the Co-Administrators have agreed to assist in all aspects of each Cash
Management Fund's operations for an administration fee at an annual rate of
0.15% of each Cash Management Fund's average daily net assets.
24 Pegasus Funds
<PAGE> 247
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
For the year ended December 31, 1997, FCNIMCO agreed to limit each Cash
Management Fund's expenses to an annual amount not to exceed 0.35% of average
daily net assets for Institutional Shares and 0.60% of average daily net assets
for Service Shares. As a result, the Cash Management Fund, Treasury Cash
Management Fund, Treasury Prime Cash Management Fund, U.S. Government
Securities Cash Management Fund and the Municipal Cash Management Fund were
reimbursed for expenses of $279,533, $33,327, $105,789, $88,360, and $40,982,
respectively.
Pegasus has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the Act. Under the terms of such Plan, each Fund pays BISYS, the
distributor, an annual fee of 0.25% of the average daily net assets of the
outstanding Service Shares for advertising, marketing, and distributing each
Cash Management Fund's Service Shares and for the provision of certain services
to the holders of Service Shares. The Distributor may make payments to others,
including FCNIMCO, First Chicago NBD (FCNBD) and their affiliates, for the
provision of these services. For the period ended December 31, 1997, the Cash
Management Fund, the Treasury Cash Management Fund, the Treasury Prime Cash
Management Fund, the U.S. Government Securities Cash Management Fund and the
Municipal Cash Management Fund paid fees under the Service Plan in the amount
of $1,227,854, $165,217, $556,037, $679,593, and $50,555, respectively.
NBD Bank (an affiliate of FCNIMCO) is also compensated for its services as
Pegasus' custodian, and is reimbursed for certain out of pocket expenses
incurred on behalf of Pegasus.
Pegasus maintains an unfunded, nonqualified deferred compensation plan. The
plan allows an individual trustee to elect to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
(5) ILLIQUID SECURITIES
The Pegasus Cash Management Funds may invest not more than 10% of the value of
their respective net assets in securities that are illiquid. Illiquid
investments may include securities having legal or contractual restrictions on
resale or no readily available market. At December 31, 1997, the Pegasus Cash
Management Fund owned the following restricted securities (constituting 3.0% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
ACQUISITION PAR VALUE PER 12/31/97 PERCENTAGE OF
SECURITY DATE VALUE UNIT VALUE NET ASSETS COST
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SunAmerica Life Insur-
ance Company........... 11/19/97 $25,000,000 $1.00 $25,000,000 1.5% $25,000,000
Travelers Insurance Com-
pany................... 11/6/97 25,000,000 1.00 25,000,000 1.5 25,000,000
- -------------------------------------------------------------------------------------------------
$50,000,000 3.0% $50,000,000
- -------------------------------------------------------------------------------------------------
</TABLE>
(6) PORTFOLIO COMPOSITION
Although the Municipal Cash Management Fund has a diversified investment
portfolio, the fund has investments in excess of 10% of its total investments
in the State of Michigan.
Pegasus Funds 25
<PAGE> 248
PEGASUS CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
The Financial Highlights present a per share analysis of net investment income
and distributions from net investment income for the Cash Management Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Cash Management Funds and other information for the periods presented.
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS INCREASE DUE TO CAPITAL
NET ASSET VALUE NET GAINS TOTAL FROM FROM NET CONTRIBUTION FROM AN
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENTS INVESTMENT AFFILIATE OF THE TOTAL
PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENT ADVISER DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the year ended
12/31/97 0.9998 0.0528 (0.0001) 0.0527 (0.0528) -- (0.0528)
1996 0.9996 0.0508 0.0002 0.0510 (0.0508) -- (0.0508)
1995(/5/) 0.9994 0.0277 0.0002 0.0279 (0.0277) -- (0.0277)
1995(/6/)(/1//1/) 0.9993 0.0507 (0.0059) 0.0448 (0.0507) 0.0060 (0.0507)
1994(/1//1/) 0.9999 0.0333 (0.0006) 0.0327 (0.0333) -- (0.0333)
1993(/7/) 1.0000 0.0297 (0.0001) 0.0296 (0.0297) -- (0.0297)
SERVICE SHARES
For the year ended
12/31/97 0.9998 0.0503 0.0001 0.0504 (0.0503) -- (0.0503)
1996 0.9996 0.0484 0.0002 0.0486 (0.0484) -- (0.0484)
1995(/5/) 0.9994 0.0264 0.0002 0.0266 (0.0264) -- (0.0264)
1995(/8/) 1.0000 0.0245 (0.0006) 0.0239 (0.0245) -- (0.0245)
- ----------------------------------------------------------------------------------------------------------------------------------
TREASURY CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the period ended
12/31/97(/1//0/) 1.0000 0.0159 -- 0.0159 (0.0159) -- (0.0159)
SERVICE SHARES
For the period ended
12/31/97(/1//0/) 1.0000 0.0152 -- 0.0152 (0.0152) -- (0.0152)
- ----------------------------------------------------------------------------------------------------------------------------------
TREASURY PRIME CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the year ended
12/31/97 0.9999 0.0479 -- 0.0479 (0.0479) -- (0.0479)
1996 1.0000 0.0474 (0.0001) 0.0473 (0.0474) -- (0.0474)
1995(/4/) 1.0000 0.0399 -- 0.0399 (0.0399) -- (0.0399)
SERVICE SHARES
For the year ended
12/31/97 1.0000 0.0454 -- 0.0454 (0.0454) -- (0.0454)
1996 1.0000 0.0449 -- 0.0449 (0.0449) -- (0.0449)
1995(/4/) 1.0000 0.0380 -- 0.0380 (0.0380) -- (0.0380)
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the year ended
12/31/97 0.9988 0.0521 0.0004 0.0525 (0.0521) -- (0.0521)
1996 0.9990 0.0502 (0.0002) 0.0500 (0.0502) -- (0.0502)
1995(/1/) 0.9989 0.0320 0.0001 0.0321 (0.0320) -- (0.0320)
1995(/1//2/) 0.9999 0.0492 (0.0010) 0.0482 (0.0492) -- (0.0492)
1994(/1//2/) 1.0000 0.0302 (0.0001) 0.0301 (0.0302) -- (0.0302)
1993(/2/) 1.0000 0.0319 -- 0.0319 (0.0319) -- (0.0319)
SERVICE SHARES
For the year ended
12/31/97 0.9995 0.0496 0.0002 0.0498 (0.0496) -- (0.0496)
1996 0.9990 0.0478 0.0005 0.0483 (0.0478) -- (0.0478)
1995(/1/) 0.9989 0.0305 0.0001 0.0306 (0.0305) -- (0.0305)
1995(/3/) 1.0000 0.0199 (0.0011) 0.0188 (0.0199) -- (0.0199)
- ----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
For the period ended
12/31/97(/9/) 1.0000 0.0125 -- 0.0125 (0.0125) -- (0.0125)
SERVICE SHARES
For the period ended
12/31/97(/9/) 1.0000 0.0116 -- 0.0116 (0.0116) -- (0.0116)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
26 Pegasus Funds
<PAGE> 249
<TABLE>
<CAPTION>
NET ASSETS RATIO OF RATIO OF NET RATIO OF EXPENSES TO
NET ASSET END OF EXPENSES TO INVESTMENT INCOME AVERAGE NET ASSETS
VALUE END TOTAL PERIOD AVERAGE NET TO AVERAGE (EXCLUDING FEE WAIVERS
OF PERIOD RETURN (000) ASSETS NET ASSETS AND REIMBURSEMENTS)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.9997 5.41% $705,270 0.35% 5.36% 0.38%
0.9998 5.23% $885,946 0.35% 5.19% 0.42%
0.9996 2.80%++ $389,127 0.35%+ 5.51%+ 0.43%+
0.9994 5.19%(/6/) $319,214 0.35% 5.11% 0.44%
0.9993 3.38% $143,820 0.31% 3.33% 0.43%
0.9999 3.25%+ $175,713 0.05%+ 3.19%+ 0.56%+
0.9999 5.15% $992,763 0.60% 5.11% 0.63%
0.9998 4.98% $232,249 0.60% 4.94% 0.67%
0.9996 2.68%++ $121,750 0.60%+ 5.25%+ 0.69%+
0.9994 2.47%++ $ 11,372 0.60%+ 5.46%+ 0.71%+
- ---------------------------------------------------------------------------------------------
1.0000 5.29+ $ 850 0.35%+ 5.28%+ 0.41%+
1.0000 5.04+ $205,722 0.60%+ 5.03%+ 0.66%+
- ---------------------------------------------------------------------------------------------
0.9999 4.90% $ 90,813 0.35% 4.79% 0.40%
0.9999 4.86% $ 70,120 0.35% 4.84% 0.46%
1.0000 4.06%++ $ 14,008 0.35%+ 5.16%+ 1.23%+
1.0000 4.64% $233,590 0.60% 4.54% 0.65%
1.0000 4.60% $215,040 0.60% 4.59% 0.71%
1.0000 3.86%++ $130,559 0.60%+ 4.72%+ 0.74%+
- ---------------------------------------------------------------------------------------------
0.9992 5.34% $534,364 0.35% 5.27% 0.36%
0.9988 5.15% $369,163 0.35% 5.09% 0.43%
0.9990 3.24%++ $489,395 0.35%+ 5.46%+ 0.42%+
0.9989 5.03% $475,248 0.34% 4.94% 0.41%
0.9999 3.06% $413,634 0.30% 3.02% 0.41%
1.0000 3.25%+ $264,527 0.02%+ 3.10%+ 0.49%+
0.9997 5.08% $357,663 0.60% 5.02% 0.61%
0.9995 4.89% $207,046 0.60% 4.84% 0.68%
0.9990 3.09%++ $ 56,000 0.60%+ 5.17%+ 0.69%+
0.9989 2.01%++ $ 16,702 0.57%+ 5.48%+ 0.66%+
- ---------------------------------------------------------------------------------------------
1.0000 3.39+ $201,705 0.35%+ 3.37%+ 0.41%+
1.0000 3.14+ $ 56,534 0.60%+ 3.12%+ 0.66%+
- ---------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds 27
<PAGE> 250
NOTES TO FINANCIAL HIGHLIGHTS
(/1/) For the period June 1, 1995 through December 31, 1995. Effective
June 1, 1995, the Fund changed its fiscal year end from May 31 to
December 31.
(/2/) For the period January 17, 1993 (commencement of operations) through
May 31, 1993.
(/3/) For the period January 17, 1995 (initial offering date of Service
Shares) through May 31, 1995.
(/4/) For the period March 22, 1995 (commencement of operations) through
December 31, 1995.
(/5/) For the period July 1, 1995 through December 31, 1995. Effective July
1, 1995 the Fund changed its fiscal year end from June 30 to December
31.
(/6/) If the Fund had not had a capital contribution by an affiliate of the
Investment Adviser during the period, the total return would have been
4.51%.
(/7/) For the period July 30, 1992 (commencement of operations) through June
30, 1993.
(/8/) For the period January 17, 1995 (initial offering date of Service
Shares) through June 30, 1995.
(/9/) For the period August 18, 1997 (commencement of operations) through
December 31, 1997.
(/1//0/) For the period September 12, 1997 (commencement of operations) through
December 31, 1997.
(/1//1/) For the year ended June 30.
(/1//2/) For the year ended May 31.
+Annualized.
++Not Annualized.
28 Pegasus Funds
<PAGE> 251
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
the Pegasus Cash Management Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments of the Cash Management Funds of the
PEGASUS FUNDS (comprising, as indicated in Note 1, the Cash Management,
Treasury, Treasury Prime, U.S. Government Securities and Municipal) as of
December 31, 1997, and the related statements of operations for the periods
then ended, the statements of changes in net assets and the financial
highlights for each of the two years in the periods then ended. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the periods from inception to December 31, 1995 of the Cash
Management, Treasury Prime Cash Management and U.S. Government Securities Cash
Management Funds of the Pegasus Funds (formerly known as the Prairie
Institutional Funds) were audited by other auditors whose report dated February
22, 1996, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical counts and confirmation of
securities owned as of December 31, 1997 by inspection and correspondence with
custodians, banks, and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Cash Management Funds of the Pegasus
Funds as of December 31, 1997, the results of their operations for the periods
then ended, the changes in their net assets and the financial highlights for
each of the two years in the periods then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 17, 1998.
Pegasus Funds 29
<PAGE> 252
PEG-0050-0198
<PAGE> 1
Exhibit 17(h)
PEGASUS FUNDS
MONEY MARKET FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE> 2
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-2-
<PAGE> 3
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MONEY MARKET FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Money [ ] [ ] [ ]
Market Fund to the corresponding One Group Prime Money Market Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 4
PEGASUS FUNDS
MONEY MARKET FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-4-
<PAGE> 5
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-5-
<PAGE> 6
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MONEY MARKET FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Money [ ] [ ] [ ]
Market Fund to the corresponding One Group Prime Money Market Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE> 7
PEGASUS FUNDS
MONEY MARKET FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-7-
<PAGE> 8
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-8-
<PAGE> 9
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MONEY MARKET FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Money [ ] [ ] [ ]
Market Fund to the corresponding One Group Prime Money Market Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE> 10
PEGASUS FUNDS
TREASURY MONEY MARKET FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-10-
<PAGE> 11
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-11-
<PAGE> 12
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS TREASURY MONEY MARKET FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Treasury [ ] [ ] [ ]
Money Market Fund to the corresponding One Group U.S. Treasury
Securities Money Market Fund in exchange for Class A, Class B, Class
I / Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 13
PEGASUS FUNDS
TREASURY MONEY MARKET FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-13-
<PAGE> 14
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-14-
<PAGE> 15
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS TREASURY MONEY MARKET FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Treasury [ ] [ ] [ ]
Money Market Fund to the corresponding One Group U.S. Treasury
Securities Money Market Fund in exchange for Class A, Class B, Class
I / Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE> 16
PEGASUS FUNDS
MUNICIPAL MONEY MARKET FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-16-
<PAGE> 17
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-17-
<PAGE> 18
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MUNICIPAL MONEY MARKET FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Municipal Money Market Fund to the corresponding One Group Municipal
Money Market Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE> 19
PEGASUS FUNDS
MUNICIPAL MONEY MARKET FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-19-
<PAGE> 20
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-20-
<PAGE> 21
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MUNICIPAL MONEY MARKET FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Municipal Money Market Fund to the corresponding One Group Municipal
Money Market Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE> 22
PEGASUS FUNDS
MICHIGAN MUNICIPAL MONEY MARKET FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-22-
<PAGE> 23
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-23-
<PAGE> 24
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Michigan [ ] [ ] [ ]
Municipal Money Market Fund to the corresponding One Group Michigan
Municipal Money Market Fund in exchange for Class A, Class B, Class I
/ Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE> 25
PEGASUS FUNDS
MICHIGAN MUNICIPAL MONEY MARKET FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-25-
<PAGE> 26
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-26-
<PAGE> 27
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Michigan [ ] [ ] [ ]
Municipal Money Market Fund to the corresponding One Group Michigan
Municipal Money Market Fund in exchange for Class A, Class B, Class I
/ Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-27-
<PAGE> 28
PEGASUS FUNDS
CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-28-
<PAGE> 29
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-29-
<PAGE> 30
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Cash [ ] [ ] [ ]
Management Fund to the corresponding One Group Cash Management Money
Market Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE> 31
PEGASUS FUNDS
CASH MANAGEMENT FUND
SERVICE SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-31-
<PAGE> 32
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-32-
<PAGE> 33
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS CASH MANAGEMENT FUND
SERVICE SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Cash [ ] [ ] [ ]
Management Fund to the corresponding One Group Cash Management Money
Market Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-33-
<PAGE> 34
PEGASUS FUNDS
TREASURY CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-34-
<PAGE> 35
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-35-
<PAGE> 36
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS TREASURY CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Treasury [ ] [ ] [ ]
Cash Management Fund to the corresponding One Group Treasury Cash
Management Money Market Fund in exchange for Class A, Class B, Class
I / Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-36-
<PAGE> 37
PEGASUS FUNDS
TREASURY CASH MANAGEMENT FUND
SERVICE SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-37-
<PAGE> 38
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-38-
<PAGE> 39
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS TREASURY CASH MANAGEMENT FUND
SERVICE SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Treasury [ ] [ ] [ ]
Cash Management Fund to the corresponding One Group Treasury Cash
Management Money Market Fund in exchange for Class A, Class B, Class
I / Institutional or Service shares, as applicable, of The One Group
Fund, (b) the distribution of such One Group Fund shares to the
Shareholders of the Pegasus Portfolio according to their respective
interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE> 40
PEGASUS FUNDS
TREASURY PRIME CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-40-
<PAGE> 41
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-41-
<PAGE> 42
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS TREASURY PRIME CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Treasury [ ] [ ] [ ]
Prime Cash Management Fund to the corresponding One Group Treasury
Prime Cash Management Money Market Fund in exchange for Class A, Class
B, Class I / Institutional or Service shares, as applicable, of The
One Group Fund, (b) the distribution of such One Group Fund shares to
the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state
law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-42-
<PAGE> 43
PEGASUS FUNDS
TREASURY PRIME CASH MANAGEMENT FUND
SERVICE SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-43-
<PAGE> 44
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-44-
<PAGE> 45
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS TREASURY PRIME CASH MANAGEMENT FUND
SERVICE SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Treasury [ ] [ ] [ ]
Prime Cash Management Fund to the corresponding One Group Treasury
Prime Cash Management Money Market Fund in exchange for Class A, Class
B, Class I / Institutional or Service shares, as applicable, of The
One Group Fund, (b) the distribution of such One Group Fund shares to
the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state
law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-45-
<PAGE> 46
PEGASUS FUNDS
U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-46-
<PAGE> 47
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-47-
<PAGE> 48
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus U.S. [ ] [ ] [ ]
Government Securities Cash Management Fund to the corresponding One
Group U.S. Government Securities Cash Management Money Market Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-48-
<PAGE> 49
PEGASUS FUNDS
U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
SERVICE SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-49-
<PAGE> 50
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-50-
<PAGE> 51
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
SERVICE SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus U.S. [ ] [ ] [ ]
Government Securities Cash Management Fund to the corresponding One
Group U.S. Government Securities Cash Management Money Market Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-51-
<PAGE> 52
PEGASUS FUNDS
MUNICIPAL CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-52-
<PAGE> 53
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-53-
<PAGE> 54
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Municipal Cash Management Fund to the corresponding One Group
Municipal Cash Management Money Market Fund in exchange for Class A,
Class B, Class I / Institutional or Service shares, as applicable, of
The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to
their respective interests, and (c) the termination of Pegasus under
state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-54-
<PAGE> 55
PEGASUS FUNDS
MUNICIPAL CASH MANAGEMENT FUND
SERVICE SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-55-
<PAGE> 56
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-56-
<PAGE> 57
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MUNICIPAL CASH MANAGEMENT FUND
SERVICE SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Municipal Cash Management Fund to the corresponding One Group
Municipal Cash Management Money Market Fund in exchange for Class A,
Class B, Class I / Institutional or Service shares, as applicable, of
The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to
their respective interests, and (c) the termination of Pegasus under
state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-57-
<PAGE> 58
PEGASUS FUNDS
MANAGED ASSETS CONSERVATIVE FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-58-
<PAGE> 59
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-59-
<PAGE> 60
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS CONSERVATIVE FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Conservative Fund to the corresponding One Group Investor
Balanced Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund,
(b) the distribution of such One Group Fund shares to the Shareholders
of the Pegasus Portfolio according to their respective interests, and
(c) the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-60-
<PAGE> 61
PEGASUS FUNDS
MANAGED ASSETS CONSERVATIVE FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-61-
<PAGE> 62
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-62-
<PAGE> 63
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS CONSERVATIVE FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Conservative Fund to the corresponding One Group Investor
Balanced Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund,
(b) the distribution of such One Group Fund shares to the Shareholders
of the Pegasus Portfolio according to their respective interests, and
(c) the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-63-
<PAGE> 64
PEGASUS FUNDS
MANAGED ASSETS CONSERVATIVE FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-64-
<PAGE> 65
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-65-
<PAGE> 66
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS CONSERVATIVE FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Conservative Fund to the corresponding One Group Investor
Balanced Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus Portfolio
according to their respective interests, and (c) the termination of Pegasus
under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-66-
<PAGE> 67
PEGASUS FUNDS
MANAGED ASSETS BALANCED FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-67-
<PAGE> 68
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-68-
<PAGE> 69
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS BALANCED FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Balanced Fund to the corresponding One Group Investor Growth &
Income Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-69-
<PAGE> 70
PEGASUS FUNDS
MANAGED ASSETS BALANCED FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-70-
<PAGE> 71
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-71-
<PAGE> 72
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS BALANCED FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Balanced Fund to the corresponding One Group Investor Growth &
Income Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-72-
<PAGE> 73
PEGASUS FUNDS
MANAGED ASSETS BALANCED FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-73-
<PAGE> 74
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-74-
<PAGE> 75
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS BALANCED FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Balanced Fund to the corresponding One Group Investor Growth &
Income Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-75-
<PAGE> 76
PEGASUS FUNDS
MANAGED ASSETS GROWTH FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-76-
<PAGE> 77
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-77-
<PAGE> 78
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS GROWTH FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Growth Fund to the corresponding One Group Investor Growth
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-78-
<PAGE> 79
PEGASUS FUNDS
MANAGED ASSETS GROWTH FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-79-
<PAGE> 80
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-80-
<PAGE> 81
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS GROWTH FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Growth Fund to the corresponding One Group Investor Growth
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-81-
<PAGE> 82
PEGASUS FUNDS
MANAGED ASSETS GROWTH FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-82-
<PAGE> 83
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-83-
<PAGE> 84
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MANAGED ASSETS GROWTH FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Managed [ ] [ ] [ ]
Assets Growth Fund to the corresponding One Group Investor Growth
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-84-
<PAGE> 85
PEGASUS FUNDS
EQUITY INCOME FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-85-
<PAGE> 86
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-86-
<PAGE> 87
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS EQUITY INCOME FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Equity [ ] [ ] [ ]
Income Fund to the corresponding One Group Income Equity Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-87-
<PAGE> 88
PEGASUS FUNDS
EQUITY INCOME FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-88-
<PAGE> 89
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-89-
<PAGE> 90
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS EQUITY INCOME FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Equity [ ] [ ] [ ]
Income Fund to the corresponding One Group Income Equity Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-90-
<PAGE> 91
PEGASUS FUNDS
EQUITY INCOME FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-91-
<PAGE> 92
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-92-
<PAGE> 93
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS EQUITY INCOME FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Equity [ ] [ ] [ ]
Income Fund to the corresponding One Group Income Equity Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-93-
<PAGE> 94
PEGASUS FUNDS
GROWTH FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-94-
<PAGE> 95
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-95-
<PAGE> 96
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS GROWTH FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the [ ] [ ] [ ]
transfer of all of the assets and liabilities of the Pegasus Growth
Fund to the corresponding One Group Large Company Growth Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-96-
<PAGE> 97
PEGASUS FUNDS
GROWTH FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-97-
<PAGE> 98
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-98-
<PAGE> 99
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS GROWTH FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Growth [ ] [ ] [ ]
Fund to the corresponding One Group Large Company Growth Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-99-
<PAGE> 100
PEGASUS FUNDS
GROWTH FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-100-
<PAGE> 101
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-101-
<PAGE> 102
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS GROWTH FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the [ ] [ ] [ ]
transfer of all of the assets and liabilities of the Pegasus Growth
Fund to the corresponding One Group Large Company Growth Fund in
exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-102-
<PAGE> 103
PEGASUS FUNDS
MID-CAP OPPORTUNITY FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-103-
<PAGE> 104
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-104-
<PAGE> 105
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MID-CAP OPPORTUNITY FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Mid-Cap [ ] [ ] [ ]
Opportunity Fund to the corresponding One Group Diversified Mid-Cap
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-105-
<PAGE> 106
PEGASUS FUNDS
MID-CAP OPPORTUNITY FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-106-
<PAGE> 107
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
- ---------------------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-107-
<PAGE> 108
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MID-CAP OPPORTUNITY FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------
<C> <S> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Mid-Cap [ ] [ ] [ ]
Opportunity Fund to the corresponding One Group Diversified Mid-Cap
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------
2. To transact such other business as may properly come before the [ ] [ ] [ ]
Special Meeting or any adjournment(s) thereof.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-108-
<PAGE> 109
PEGASUS FUNDS
MID-CAP OPPORTUNITY FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-109-
<PAGE> 110
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-110-
<PAGE> 111
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MID-CAP OPPORTUNITY FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Mid-Cap [ ] [ ] [ ]
Opportunity Fund to the corresponding One Group Diversified Mid-Cap
Fund in exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of such One
Group Fund shares to the Shareholders of the Pegasus Portfolio according to
their respective interests, and (c) the termination of Pegasus under state law
and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-111-
<PAGE> 112
PEGASUS FUNDS
SMALL-CAP OPPORTUNITY FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-112-
<PAGE> 113
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-113-
<PAGE> 114
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SMALL-CAP OPPORTUNITY FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Small-Cap Opportunity Fund to the corresponding One Group Small Cap
Value Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-114-
<PAGE> 115
PEGASUS FUNDS
SMALL-CAP OPPORTUNITY FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-115-
<PAGE> 116
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-116-
<PAGE> 117
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SMALL-CAP OPPORTUNITY FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Small-Cap Opportunity Fund to the corresponding One Group Small Cap
Value Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-117-
<PAGE> 118
PEGASUS FUNDS
SMALL-CAP OPPORTUNITY FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-118-
<PAGE> 119
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-119-
<PAGE> 120
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SMALL-CAP OPPORTUNITY FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Small-Cap Opportunity Fund to the corresponding One Group Small Cap
Value Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-120-
<PAGE> 121
PEGASUS FUNDS
INTRINSIC VALUE FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-121-
<PAGE> 122
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-122-
<PAGE> 123
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTRINSIC VALUE FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Intrinsic Value Fund to the corresponding One Group Disciplined Value
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-123-
<PAGE> 124
PEGASUS FUNDS
INTRINSIC VALUE FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-124-
<PAGE> 125
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-125-
<PAGE> 126
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTRINSIC VALUE FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Intrinsic Value Fund to the corresponding One Group Disciplined Value
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-126-
<PAGE> 127
PEGASUS FUNDS
INTRINSIC VALUE FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-127-
<PAGE> 128
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-128-
<PAGE> 129
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTRINSIC VALUE FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus [ ] [ ] [ ]
Intrinsic Value Fund to the corresponding One Group Disciplined Value
Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-129-
<PAGE> 130
PEGASUS FUNDS
GROWTH AND VALUE FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-130-
<PAGE> 131
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-131-
<PAGE> 132
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS GROWTH AND VALUE FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Growth [ ] [ ] [ ]
and Value Fund to the corresponding One Group Value Growth Fund in
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-132-
<PAGE> 133
PEGASUS FUNDS
GROWTH AND VALUE FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-133-
<PAGE> 134
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-134-
<PAGE> 135
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS GROWTH AND VALUE FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Growth [ ] [ ] [ ]
and Value Fund to the corresponding One Group Value Growth Fund in
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-135-
<PAGE> 136
PEGASUS FUNDS
GROWTH AND VALUE FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-136-
<PAGE> 137
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-137-
<PAGE> 138
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS GROWTH AND VALUE FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Growth [ ] [ ] [ ]
and Value Fund to the corresponding One Group Value Growth Fund in
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-138-
<PAGE> 139
PEGASUS FUNDS
EQUITY INDEX FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-139-
<PAGE> 140
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-140-
<PAGE> 141
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS EQUITY INDEX FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Equity [ ] [ ] [ ]
Index Fund to the corresponding One Group Equity Index Fund in
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-141-
<PAGE> 142
PEGASUS FUNDS
EQUITY INDEX FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-142-
<PAGE> 143
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-143-
<PAGE> 144
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS EQUITY INDEX FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Equity
Index Fund to the corresponding One Group Equity Index Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-144-
<PAGE> 145
PEGASUS FUNDS
EQUITY INDEX FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-145-
<PAGE> 146
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-146-
<PAGE> 147
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS EQUITY INDEX FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Equity
Index Fund to the corresponding One Group Equity Index Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-147-
<PAGE> 148
PEGASUS FUNDS
MARKET EXPANSION INDEX FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-148-
<PAGE> 149
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-149-
<PAGE> 150
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MARKET EXPANSION INDEX FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Market [ ] [ ] [ ]
Expansion Index Fund to the corresponding One Group Market Expansion
Index Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-150-
<PAGE> 151
PEGASUS FUNDS
MARKET EXPANSION INDEX FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-151-
<PAGE> 152
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-152-
<PAGE> 153
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MARKET EXPANSION INDEX FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Market [ ] [ ] [ ]
Expansion Index Fund to the corresponding One Group Market Expansion
Index Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-153-
<PAGE> 154
PEGASUS FUNDS
MARKET EXPANSION INDEX FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-154-
<PAGE> 155
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-155-
<PAGE> 156
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MARKET EXPANSION INDEX FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Market
Expansion Index Fund to the corresponding One Group Market Expansion [ ] [ ] [ ]
Index Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ------------------------------------
</TABLE>
-156-
<PAGE> 157
PEGASUS FUNDS
INTERNATIONAL EQUITY FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-157-
<PAGE> 158
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-158-
<PAGE> 159
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERNATIONAL EQUITY FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
International Equity Fund to the corresponding One Group [ ] [ ] [ ]
International Opportunities Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the termination of
Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- -----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -----------------------------------------------
</TABLE>
-159-
<PAGE> 160
PEGASUS FUNDS
INTERNATIONAL EQUITY FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-160-
<PAGE> 161
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-161-
<PAGE> 162
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERNATIONAL EQUITY FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
International Equity Fund to the corresponding One Group [ ] [ ] [ ]
International Opportunities Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the termination of
Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------------
</TABLE>
-162-
<PAGE> 163
PEGASUS FUNDS
INTERNATIONAL EQUITY FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-163-
<PAGE> 164
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-164-
<PAGE> 165
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERNATIONAL EQUITY FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
International Equity Fund to the corresponding One Group [ ] [ ] [ ]
International Opportunities Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the termination of
Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- -------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -------------------------------------------------
</TABLE>
-165-
<PAGE> 166
PEGASUS FUNDS
INTERMEDIATE BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-166-
<PAGE> 167
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-167-
<PAGE> 168
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERMEDIATE BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Intermediate Bond Fund to the corresponding One Group Intermediate [ ] [ ] [ ]
Bond Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- -----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -----------------------------------------------
</TABLE>
-168-
<PAGE> 169
PEGASUS FUNDS
INTERMEDIATE BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-169-
<PAGE> 170
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-170-
<PAGE> 171
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERMEDIATE BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Intermediate Bond Fund to the corresponding One Group Intermediate [ ] [ ] [ ]
Bond Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ----------------------------------------------
</TABLE>
-171-
<PAGE> 172
PEGASUS FUNDS
INTERMEDIATE BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-172-
<PAGE> 173
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-173-
<PAGE> 174
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERMEDIATE BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Intermediate Bond Fund to the corresponding One Group Intermediate [ ] [ ] [ ]
Bond Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ----------------------------------------------
</TABLE>
-174-
<PAGE> 175
PEGASUS FUNDS
BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-175-
<PAGE> 176
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-176-
<PAGE> 177
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Bond
Fund to the corresponding One Group Bond Fund in exchange for Class [ ] [ ] [ ]
A, Class B, Class I / Institutional or Service shares, as applicable,
of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to
their respective interests, and (c) the termination of Pegasus under
state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-177-
<PAGE> 178
PEGASUS FUNDS
BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-178-
<PAGE> 179
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-179-
<PAGE> 180
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Bond
Fund to the corresponding One Group Bond Fund in exchange for Class [ ] [ ] [ ]
A, Class B, Class I / Institutional or Service shares, as applicable,
of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to
their respective interests, and (c) the termination of Pegasus under
state law and the 1940 Act.
- ----------------------------------------------------------------------- -----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -----------------------------------------------
</TABLE>
-180-
<PAGE> 181
PEGASUS FUNDS
BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-181-
<PAGE> 182
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-182-
<PAGE> 183
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Bond
Fund to the corresponding One Group Bond Fund in exchange for Class [ ] [ ] [ ]
A, Class B, Class I / Institutional or Service shares, as applicable,
of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to
their respective interests, and (c) the termination of Pegasus under
state law and the 1940 Act.
- ----------------------------------------------------------------------- ------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ------------------------------------------------
</TABLE>
-183-
<PAGE> 184
PEGASUS FUNDS
SHORT BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-184-
<PAGE> 185
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-185-
<PAGE> 186
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SHORT BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ----------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Short
Bond Fund to the corresponding One Group Limited Volatility Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ----------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ----------------------------------------------------
</TABLE>
-186-
<PAGE> 187
PEGASUS FUNDS
SHORT BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-187-
<PAGE> 188
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-188-
<PAGE> 189
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SHORT BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Short
Bond Fund to the corresponding One Group Limited Volatility Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ------------------------------------------------
</TABLE>
-189-
<PAGE> 190
PEGASUS FUNDS
SHORT BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-190-
<PAGE> 191
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-191-
<PAGE> 192
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SHORT BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Short
Bond Fund to the corresponding One Group Limited Volatility Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- ------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ------------------------------------------------
</TABLE>
-192-
<PAGE> 193
PEGASUS FUNDS
MULTI SECTOR BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-193-
<PAGE> 194
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-194-
<PAGE> 195
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MULTI SECTOR BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Multi
Sector Bond Fund to the corresponding One Group Income Bond Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- -------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -------------------------------------------------
</TABLE>
-195-
<PAGE> 196
PEGASUS FUNDS
MULTI SECTOR BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-196-
<PAGE> 197
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-197-
<PAGE> 198
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MULTI SECTOR BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Multi
Sector Bond Fund to the corresponding One Group Income Bond Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- -------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -------------------------------------------------
</TABLE>
-198-
<PAGE> 199
PEGASUS FUNDS
MULTI SECTOR BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-199-
<PAGE> 200
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-200-
<PAGE> 201
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MULTI SECTOR BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- --------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Multi
Sector Bond Fund to the corresponding One Group Income Bond Fund in [ ] [ ] [ ]
exchange for Class A, Class B, Class I / Institutional or Service shares, as
applicable, of The One Group Fund, (b) the distribution of such One Group Fund
shares to the Shareholders of the Pegasus Portfolio according to their
respective interests, and (c) the termination of Pegasus under state law and the
1940 Act.
- ----------------------------------------------------------------------- --------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- --------------------------------------------------
</TABLE>
-201-
<PAGE> 202
PEGASUS FUNDS
HIGH YIELD BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-202-
<PAGE> 203
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-203-
<PAGE> 204
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS HIGH YIELD BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus High
Yield Bond Fund to the corresponding One Group High Yield Bond Fund [ ] [ ] [ ]
in exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ----------------------------------------------
</TABLE>
-204-
<PAGE> 205
PEGASUS FUNDS
HIGH YIELD BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-205-
<PAGE> 206
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-206-
<PAGE> 207
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS HIGH YIELD BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus High
Yield Bond Fund to the corresponding One Group High Yield Bond Fund [ ] [ ] [ ]
in exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-207-
<PAGE> 208
PEGASUS FUNDS
HIGH YIELD BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-208-
<PAGE> 209
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-209-
<PAGE> 210
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS HIGH YIELD BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus High
Yield Bond Fund to the corresponding One Group High Yield Bond Fund [ ] [ ] [ ]
in exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-210-
<PAGE> 211
PEGASUS FUNDS
MUNICIPAL BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-211-
<PAGE> 212
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-212-
<PAGE> 213
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MUNICIPAL BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Municipal Bond Fund to the corresponding One Group Tax-Free Bond Fund [ ] [ ] [ ]
in exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ----------------------------------------------
</TABLE>
-213-
<PAGE> 214
PEGASUS FUNDS
MUNICIPAL BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-214-
<PAGE> 215
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-215-
<PAGE> 216
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MUNICIPAL BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Municipal Bond Fund to the corresponding One Group Tax-Free Bond Fund [ ] [ ] [ ]
in exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- -------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -------------------------------------------
</TABLE>
-216-
<PAGE> 217
PEGASUS FUNDS
MUNICIPAL BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-217-
<PAGE> 218
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-218-
<PAGE> 219
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MUNICIPAL BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- --------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Municipal Bond Fund to the corresponding One Group Tax-Free Bond Fund [ ] [ ] [ ]
in exchange for Class A, Class B, Class I / Institutional or Service
shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the
termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- --------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- --------------------------------------------
</TABLE>
-219-
<PAGE> 220
PEGASUS FUNDS
SHORT MUNICIPAL BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-220-
<PAGE> 221
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-221-
<PAGE> 222
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SHORT MUNICIPAL BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Short
Municipal Bond Fund to the corresponding One Group Short-Term [ ] [ ] [ ]
Municipal Bond Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus Portfolio
according to their respective interests, and (c) the termination of Pegasus
under state law and the 1940 Act.
- ----------------------------------------------------------------------- ------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ------------------------------------------------
</TABLE>
-222-
<PAGE> 223
PEGASUS FUNDS
SHORT MUNICIPAL BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-223-
<PAGE> 224
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-224-
<PAGE> 225
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SHORT MUNICIPAL BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- --------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ---------------------------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Short
Municipal Bond Fund to the corresponding One Group Short-Term [ ] [ ] [ ]
Municipal Bond Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus Portfolio
according to their respective interests, and (c) the termination of Pegasus
under state law and the 1940 Act.
- ----------------------------------------------------------------------- --------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- --------------------------------------------------
</TABLE>
-225-
<PAGE> 226
PEGASUS FUNDS
SHORT MUNICIPAL BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-226-
<PAGE> 227
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-227-
<PAGE> 228
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS SHORT MUNICIPAL BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -----------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Short
Municipal Bond Fund to the corresponding One Group Short-Term [ ] [ ] [ ]
Municipal Bond Fund in exchange for Class A, Class B, Class I / Institutional or
Service shares, as applicable, of The One Group Fund, (b) the distribution of
such One Group Fund shares to the Shareholders of the Pegasus Portfolio
according to their respective interests, and (c) the termination of Pegasus
under state law and the 1940 Act.
- ----------------------------------------------------------------------- -----------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -----------------------------------------------
</TABLE>
-228-
<PAGE> 229
PEGASUS FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-229-
<PAGE> 230
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-230-
<PAGE> 231
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERMEDIATE MUNICIPAL BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ------------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Intermediate Municipal Bond Fund to the corresponding One Group [ ] [ ] [ ]
Intermediate Tax-Free Bond Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the termination of
Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ------------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ------------------------------------------------
</TABLE>
-231-
<PAGE> 232
PEGASUS FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-232-
<PAGE> 233
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-233-
<PAGE> 234
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERMEDIATE MUNICIPAL BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Intermediate Municipal Bond Fund to the corresponding One Group [ ] [ ] [ ]
Intermediate Tax-Free Bond Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the termination of
Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-234-
<PAGE> 235
PEGASUS FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-235-
<PAGE> 236
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-236-
<PAGE> 237
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS INTERMEDIATE MUNICIPAL BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus
Intermediate Municipal Bond Fund to the corresponding One Group [ ] [ ] [ ]
Intermediate Tax-Free Bond Fund in exchange for Class A, Class B, Class I /
Institutional or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the Pegasus
Portfolio according to their respective interests, and (c) the termination of
Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-237-
<PAGE> 238
PEGASUS FUNDS
MICHIGAN MUNICIPAL BOND FUND
CLASS A SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-238-
<PAGE> 239
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-239-
<PAGE> 240
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MICHIGAN MUNICIPAL BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ---------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Michigan
Municipal Bond Fund to the corresponding One Group Michigan Municipal [ ] [ ] [ ]
Bond Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- ---------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- ---------------------------------------------
</TABLE>
-240-
<PAGE> 241
PEGASUS FUNDS
MICHIGAN MUNICIPAL BOND FUND
CLASS B SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-241-
<PAGE> 242
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-242-
<PAGE> 243
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MICHIGAN MUNICIPAL BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- --------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Michigan
Municipal Bond Fund to the corresponding One Group Michigan Municipal [ ] [ ] [ ]
Bond Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- --------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- --------------------------------------------
</TABLE>
-243-
<PAGE> 244
PEGASUS FUNDS
MICHIGAN MUNICIPAL BOND FUND
CLASS I SHARES
The tear-off proxy at the bottom of this form represents YOUR voting
power in the future of YOUR fund. We have grouped your proxy card(s) together
for your convenience and to reduce postage expenses. By voting now and returning
your proxy card(s), you will save your fund the expense of a costly second
mailing.
The meeting date for your Fund is March 17, 1999, at the offices of
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio. Please vote on the
reverse side, sign your proxy card(s), and return in the postage-paid envelope
included with this material.
Thank you for your prompt return of your proxy card(s).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD(S) PROMPTLY USING THE ENCLOSED
ENVELOPE.
-244-
<PAGE> 245
VOTE THIS PROXY CARD TODAY!
PEGASUS FUNDS
P.O. BOX 5142
WESTBOROUGH, MASSACHUSETTS 01518
1-800-688-3350
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Mark S. Redman and Alaina Metz and each of them,
attorneys and proxies of the undersigned each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the Meeting of
Shareholders of the above-referenced Fund of the Pegasus Funds (the "Trust") to
be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
on March 17, 1999 at 10:00 a.m. (Eastern Time) and at any adjournment or
adjournments thereof, casting votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the proposalS
set forth on the reverse side, in accordance with the specification indicated,
if any, and with all the powers which the undersigned would possess if
personally present, hereby revoking any prior proxy to vote at such meeting, and
hereby ratifying and confirming all that said attorneys and proxies, or each of
them, may lawfully do by virtue hereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS OF THE TRUST AND THE COMBINED PROSPECTUS/PROXY
STATEMENT DATED DECEMBER __, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES ON BEHALF OF THE
ABOVE-REFERENCED FUND OF THE TRUST. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------
Signature(s) (Title(s), if applicable)
- --------------------------------------
Signature(s) (Title(s), if applicable)
PLEASE SIGN ABOVE EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON. CORPORATE PROXIES
SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. EACH JOINT
OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS ATTORNEY OR EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
DATE: _______________, 199_.
-245-
<PAGE> 246
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW USING BLUE OR BLACK INK OR
DARK PENCIL. DO NOT USE RED INK.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST ON BEHALF OF THE
FUND. THE MEETING WILL BE HELD AT THE OFFICES OF BISYS FUND SERVICES, 3435
STELZER ROAD, COLUMBUS, OHIO ON MARCH 17, 1999 AT 10:00 A.M. (EASTERN TIME).
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
PEGASUS MICHIGAN MUNICIPAL BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- -------------------------------------------
PROPOSAL FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C>
1. To approve a Reorganization Agreement, which provides for (a) the
transfer of all of the assets and liabilities of the Pegasus Michigan
Municipal Bond Fund to the corresponding One Group Michigan Municipal [ ] [ ] [ ]
Bond Fund in exchange for Class A, Class B, Class I / Institutional
or Service shares, as applicable, of The One Group Fund, (b) the
distribution of such One Group Fund shares to the Shareholders of the
Pegasus Portfolio according to their respective interests, and (c)
the termination of Pegasus under state law and the 1940 Act.
- ----------------------------------------------------------------------- -------------------------------------------
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof. [ ] [ ] [ ]
- ----------------------------------------------------------------------- -------------------------------------------
</TABLE>
-246-
