<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
ONE GROUP(R) MUTUAL FUNDS
ONE GROUP U.S. TREASURY SECURITIES MONEY MARKET FUND
(THE "U.S. TREASURY SECURITIES MONEY MARKET FUND")
ONE GROUP PRIME MONEY MARKET FUND (THE "PRIME MONEY MARKET FUND")
ONE GROUP MUNICIPAL MONEY MARKET FUND (THE "MUNICIPAL MONEY MARKET FUND")
ONE GROUP OHIO MUNICIPAL MONEY MARKET FUND (THE "OHIO MUNICIPAL MONEY MARKET
FUND")
ONE GROUP BALANCED FUND (THE "BALANCED FUND")
ONE GROUP LARGE CAP GROWTH FUND (THE "LARGE CAP GROWTH FUND")
ONE GROUP LARGE CAP VALUE FUND (THE "LARGE CAP VALUE FUND")
ONE GROUP MID CAP GROWTH FUND (THE "MID CAP GROWTH FUND")
ONE GROUP INTERNATIONAL EQUITY INDEX FUND (THE "INTERNATIONAL EQUITY INDEX
FUND")
ONE GROUP MID CAP VALUE FUND (THE "MID CAP VALUE FUND")
ONE GROUP EQUITY INDEX FUND (THE "EQUITY INDEX FUND")
ONE GROUP EQUITY INCOME FUND (THE "EQUITY INCOME FUND")
ONE GROUP DIVERSIFIED EQUITY FUND (THE "DIVERSIFIED EQUITY FUND")
ONE GROUP SMALL CAP GROWTH FUND (THE "SMALL CAP GROWTH FUND")
ONE GROUP INTERMEDIATE BOND FUND (THE "INTERMEDIATE BOND FUND")
ONE GROUP INCOME BOND FUND (THE "INCOME BOND FUND")
ONE GROUP GOVERNMENT BOND FUND (THE "GOVERNMENT BOND FUND")
ONE GROUP ULTRA SHORT-TERM BOND FUND (THE "ULTRA SHORT-TERM BOND FUND")
ONE GROUP SHORT-TERM BOND FUND (THE "SHORT-TERM BOND FUND")
ONE GROUP TREASURY & AGENCY FUND (THE "TREASURY & AGENCY FUND")
ONE GROUP HIGH YIELD BOND FUND (THE "HIGH YIELD BOND FUND")
ONE GROUP INTERMEDIATE TAX-FREE BOND FUND (THE "INTERMEDIATE TAX-FREE BOND
FUND")
ONE GROUP MUNICIPAL INCOME FUND (THE "MUNICIPAL INCOME FUND")
ONE GROUP ARIZONA MUNICIPAL BOND FUND
(THE "ARIZONA MUNICIPAL BOND FUND")
ONE GROUP WEST
VIRGINIA MUNICIPAL BOND FUND (THE "WEST VIRGINIA MUNICIPAL BOND FUND")
ONE GROUP LOUISIANA MUNICIPAL BOND FUND
(THE "LOUISIANA MUNICIPAL BOND FUND")
ONE GROUP OHIO MUNICIPAL BOND FUND (THE "OHIO MUNICIPAL BOND FUND")
ONE GROUP KENTUCKY MUNICIPAL BOND FUND (THE "KENTUCKY MUNICIPAL BOND FUND")
ONE GROUP TEXAS MUNICIPAL BOND FUND (THE "TEXAS MUNICIPAL BOND FUND")
ONE GROUP TREASURY MONEY MARKET FUND (THE "TREASURY MONEY MARKET FUND")
ONE GROUP TREASURY ONLY MONEY MARKET FUND (THE "TREASURY ONLY
MONEY MARKET FUND")
ONE GROUP GOVERNMENT MONEY MARKET FUND
(THE "GOVERNMENT MONEY MARKET FUND")
ONE GROUP TAX-EXEMPT
MONEY MARKET FUND (THE "TAX-EXEMPT MONEY MARKET FUND")
ONE GROUP INSTITUTIONAL PRIME MONEY MARKET FUND (THE "INSTITUTIONAL PRIME MONEY
MARKET FUND")
ONE GROUP INVESTOR GROWTH FUND (THE "INVESTOR GROWTH FUND")
ONE GROUP INVESTOR GROWTH & INCOME FUND (THE "INVESTOR GROWTH & INCOME FUND")
ONE GROUP INVESTOR BALANCED FUND (THE "INVESTOR BALANCED FUND")
ONE GROUP INVESTOR CONSERVATIVE GROWTH FUND (THE "INVESTOR CONSERVATIVE
GROWTH FUND")
ONE GROUP INVESTOR AGGRESSIVE GROWTH FUND (THE "INVESTOR
AGGRESSIVE GROWTH")
ONE GROUP INVESTOR FIXED INCOME FUND (THE "INVESTOR FIXED INCOME FUND")
ONE GROUP SMALL CAP VALUE FUND (THE "SMALL CAP VALUE FUND")
ONE GROUP DIVERSIFIED MID CAP FUND (THE "DIVERSIFIED MID CAP FUND")
ONE GROUP DIVERSIFIED INTERNATIONAL FUND (THE "DIVERSIFIED INTERNATIONAL FUND")
ONE GROUP MARKET EXPANSION INDEX FUND (THE "MARKET EXPANSION INDEX FUND")
ONE GROUP BOND FUND (THE "BOND FUND")
ONE GROUP SHORT-TERM MUNICIPAL BOND FUND (THE "SHORT-TERM MUNICIPAL BOND FUND")
ONE GROUP TAX-FREE BOND FUND (THE "TAX-FREE BOND FUND")
ONE GROUP MICHIGAN MUNICIPAL BOND FUND (THE "MICHIGAN MUNICIPAL BOND FUND")
ONE GROUP MICHIGAN MUNICIPAL MONEY MARKET FUND (THE "MICHIGAN MUNICIPAL MONEY
MARKET FUND")
ONE GROUP CASH MANAGEMENT MONEY MARKET FUND (THE "CASH MANAGEMENT MONEY MARKET
FUND")
ONE GROUP TREASURY CASH MANAGEMENT MONEY MARKET FUND (THE "TREASURY CASH
MANAGEMENT MONEY MARKET FUND")
ONE GROUP TREASURY PRIME CASH MANAGEMENT MONEY MARKET FUND (THE "TREASURY PRIME
CASH MANAGEMENT MONEY MARKET FUND")
ONE GROUP U.S. GOVERNMENT SECURITIES CASH MANAGEMENT MONEY MARKET FUND
(THE "U.S. GOVERNMENT SECURITIES CASH MANAGEMENT MONEY MARKET
FUND") AND
ONE GROUP MUNICIPAL CASH MANAGEMENT MONEY MARKET FUND (THE "MUNICIPAL CASH
MANAGEMENT MONEY MARKET FUND")
(EACH A "FUND," AND COLLECTIVELY THE "FUNDS")
MARCH 18, 1999 as revised June 25, 1999
This Statement of Additional Information is not a Prospectus, but supplements
and should be read in conjunction with the Prospectuses dated March 18, 1999.
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.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C>
THE TRUST.............................................................. 5
INVESTMENT OBJECTIVES AND POLICIES..................................... 8
Additional Information on Fund Instruments ....................... 8
Asset-Backed Securities ...................................... 8
Bank Obligations ............................................. 8
Commercial Paper ............................................. 9
Common Stock ................................................. 10
Convertible Securities ....................................... 10
Demand Features .............................................. 10
Foreign Investments .......................................... 11
Risk Factors of Foreign Investments ..................... 11
Limitations on the Use of Foreign Investments ........... 13
Foreign Currency Transactions ................................ 13
Position Hedging ........................................ 15
Forward Foreign Currency Exchange Contracts ............. 16
Foreign Currency Futures Contracts ...................... 16
Foreign Currency Options ................................ 18
Foreign Currency Conversion ............................. 19
Other Foreign Currency Hedging Strategies ............... 20
Risk Factors in Hedging Transactions .................... 20
Futures and Options Trading .................................. 21
Futures Contracts ....................................... 21
Limitations on the Use of Futures Contracts ............. 22
Risk Factors in Futures Transactions .................... 24
Options Contracts ....................................... 25
Writing (Selling) Covered Calls ......................... 26
Purchasing Call Options ................................. 29
Purchasing Put Options .................................. 29
Secured Puts ............................................ 29
Straddles and Spreads ................................... 29
Risk Factors in Options Transactions .................... 30
Limitations on the Use of Options ....................... 31
Government Securities ........................................ 31
High Quality Investments With Regard to the Money Market and
Institutional Money Market Funds ........................ 31
High Yield/High Risk Securities/Junk Bonds ................... 33
Index Investing by the Equity Index, Market Expansion Index
and International Equity Index Funds .................... 35
Investment Company Securities ................................ 38
Loan Participations and Assignments .......................... 38
Mortgage-Related Securities .................................. 39
Mortgage-Backed Securities (CMOs and REMICs) ............ 39
Limitations on the Use of Mortgage Backed Securities .... 42
Mortgage Dollar Rolls ................................... 43
Stripped Mortgage Backed Securities ..................... 44
</TABLE>
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<TABLE>
<S> <C>
Adjustable Rate Mortgage Loans ............................................................. 44
Risk Factors of Mortgage-Related Securities ................................................ 46
Municipal Securities ............................................................................ 48
Risk Factors in Municipal Securities ....................................................... 50
Limitations on the Use of Municipal Securities ............................................. 51
Arizona Municipal Securities ............................................................... 52
Kentucky Municipal Securities .............................................................. 54
Louisiana Municipal Securities ............................................................. 54
Michigan Municipal Securities .............................................................. 55
Ohio Municipal Securities .................................................................. 57
Texas Municipal Securities ................................................................. 58
West Virginia Municipal Securities ......................................................... 59
New Financial Products .......................................................................... 59
PERCS ........................................................................................... 60
Preferred Stock ................................................................................. 60
Real Estate Investment Trusts ("REITs") ......................................................... 60
Repurchase Agreements ........................................................................... 61
Reverse Repurchase Agreements ................................................................... 61
Restricted Securities ........................................................................... 62
Securities Lending .............................................................................. 64
Short-term Funding Agreements ................................................................... 65
SPDRs ........................................................................................... 65
Structured Instruments .......................................................................... 65
Swaps, Caps and Floors .......................................................................... 67
Treasury Receipts ............................................................................... 69
U.S. Treasury Obligations ....................................................................... 69
Variable and Floating Rate Instruments .......................................................... 70
Warrants ........................................................................................ 72
When-Issued Securities and Forward Commitments .................................................. 72
Investment Restrictions ............................................................................. 73
Portfolio Turnover .................................................................................. 81
Additional Tax Information Concerning All Funds ..................................................... 83
Additional Tax Information Concerning the Tax-Advantaged Funds ...................................... 87
Additional Tax Information Concerning the International Funds ....................................... 89
Foreign Tax Credit .................................................................................. 90
Additional Tax Information Concerning the Funds of Funds ............................................ 91
VALUATION ............................................................................................ 91
Valuation of the Money Market and Institutional Money Market Funds .................................. 91
Valuation of the Equity Funds, the Bond Funds and the Municipal Bond Funds .......................... 91
ADDITIONAL INFORMATION REGARDING THE CALCULATION OF PER SHARE NET ASSET VALUE ............................ 92
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ........................................................... 93
Exchanges ........................................................................................... 94
Redemptions ......................................................................................... 95
MANAGEMENT OF THE TRUST .................................................................................. 96
Trustees & Officers ................................................................................. 96
Investment Advisor and Sub-Advisors .................................................................102
</TABLE>
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<TABLE>
<S> <C>
Glass-Steagall Act .................................................................................. 107
Portfolio Transactions .............................................................................. 108
Administrator ....................................................................................... 111
Distributor ......................................................................................... 118
Distribution Plan ................................................................................... 118
Predecessor Funds' Distribution and Shareholder Servicing Plans ..................................... 121
Custodian and Transfer Agent ........................................................................ 122
Experts ............................................................................................ 124
ADDITIONAL INFORMATION ................................................................................... 125
Description of Shares ............................................................................... 125
Shareholder and Trustee Liability ................................................................... 127
Performance ......................................................................................... 128
Calculation of Performance Data ..................................................................... 128
Miscellaneous ....................................................................................... 150
</TABLE>
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THE TRUST
One Group Mutual Funds (the "TRUST") is an open-end management
investment company. The Trust consists of fifty-four series of units of
beneficial interest ("SHARES") each representing interests in one of the
following 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) the Ohio Municipal Money Market Fund, and the
Michigan Municipal Money Market Fund (formerly, Pegasus Michigan
Municipal Money Market Fund) (these five Funds being collectively
referred to as the "MONEY MARKET FUNDS"),
Equity Funds. The Equity Income Fund (formerly, the Income Equity
Fund), the Mid Cap Value Fund (formerly, the Disciplined Value Fund),
the Mid Cap Growth Fund (formerly, the Growth Opportunities Fund and
the Small Company Growth Fund), the Equity Index Fund, the
International Equity Index Fund, the Large Cap Value Fund (formerly,
the Large Company Value Fund and the Quantitative Equity Portfolio),
the Large Cap Growth Fund (formerly, the Large Company Growth Fund),
the Balanced Fund (formerly, the Asset Allocation Fund and the Flexible
Balanced Portfolio), the Diversified Equity Fund (formerly, the Value
Growth Fund), the Small Cap Growth Fund (formerly, the Small
Capitalization Fund and the Gulf South Growth Fund), the Small Cap
Value Fund (formerly, Pegasus Small-Cap Opportunity Fund), the
Diversified Mid Cap Fund (formerly, Pegasus Mid-Cap Opportunity Fund),
Diversified International Fund (formerly, Pegasus International Equity
Fund), and the Market Expansion Index Fund (formerly, Pegasus Market
Expansion Index Fund) (these fourteen Funds being collectively referred
to as the "EQUITY FUNDS"),
Bond Funds. The Intermediate Bond Fund (formerly, Pegasus Intermediate
Bond Fund), the Income Bond Fund (formerly, Pegasus Multi-Sector Bond
Fund), the Government Bond Fund, the Ultra Short-Term Bond Fund
(formerly the Ultra Short-Term Income Fund and the Government ARM
Fund), the Short-Term Bond Fund (formerly, the Limited Volatility Bond
Fund, the Treasury & Agency Fund, the High Yield Bond Fund (formerly,
the Income Fund) and the Bond Fund (formerly, Pegasus Bond Fund) (these
eight 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 Tax-Free
Bond Fund (formerly, Pegasus Municipal Bond Fund), the Short-Term
Municipal Bond Fund
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(formerly, Pegasus Short Municipal 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, the Louisiana Municipal Bond Fund, and the Michigan Municipal
Bond Fund (formerly, Pegasus Michigan Municipal Bond Fund) (these
eleven 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, the Institutional Prime Money Market
Fund, the Cash Management Money Market Fund (formerly, Pegasus Cash
Management Fund), the Treasury Cash Management Money Market Fund
(formerly, Pegasus Treasury Cash Management Fund), the Treasury Prime
Cash Management Money Market Fund (formerly, Pegasus Treasury Prime
Cash Management Fund), the U.S. Government Securities Cash Management
Money Market Fund (formerly, Pegasus U.S. Government Securities Cash
Management Fund), and the Municipal Cash Management Money Market Fund
(formerly, Pegasus Municipal Cash Management Fund) (these ten 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 Michigan Municipal Money Market Fund, the Municipal Bond Funds,
the Tax-Exempt Money Market Fund, and the Municipal Cash Management Money Market
Fund are also referred to as the "TAX-ADVANTAGED FUNDS."
INTERNATIONAL FUNDS. The Diversified International Fund and the International
Equity Index Fund are also referred to as the "INTERNATIONAL FUNDS."
CASH MANAGEMENT FUNDS. The Cash Management Money Market Fund, the Treasury Cash
Management Money Market Fund, the Treasury Prime Cash Management Money Market
Fund, the U.S. Government Securities Cash Management Money Market Fund, and the
Municipal Cash Management Money Market Fund are also referred to as the "CASH
MANAGEMENT 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 Michigan Municipal Bond Fund, the Michigan Municipal Money Market
Fund, the Ohio Municipal Money Market Fund, and the Louisiana Municipal Bond
Fund, which are non-diversified.
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SHARE CLASSES. Shares in the Funds of the Trust (other than the Institutional
Money Market Funds and the Money Market Funds) are generally offered in four
separate classes: Class I Shares, Class A Shares, Class B Shares and Class C
Shares.(1) 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 (other than the
Cash Management Funds) offer only a single class of shares. The Michigan
Municipal Money Market Fund, the Ohio Municipal Money Market Fund and the
Municipal Money Market Fund offer Class A, Class C, Class I and Service Class
Shares. The Cash Management Funds offer Class A and Class I Shares only. 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.
Pegasus Merger. In March, 1999, the Funds of the Trust merged with the Pegasus
Funds pursuant to an Agreement and Plan of Reorganization. Except for the
following Funds listed below, One Group Mutual Funds are considered to be the
surviving funds for accounting purposes. The following list shows the name of
the former Pegasus funds that are considered to be the surviving funds for
accounting purposes and the current name of such Funds:
<TABLE>
<CAPTION>
NAME OF FORMER PEGASUS FUND ONE GROUP MUTUAL FUNDS' NAME
<S> <C>
1. Pegasus Multi-Sector Bond Fund 1. the Income Bond Fund
2. Pegasus Intermediate Bond Fund 2. the Intermediate Bond Fund
3. Pegasus Small-Cap Opportunity Fund 3. the Small Cap Value Fund
4. Pegasus Mid-Cap Opportunity Fund 4. the Diversified Mid Cap Fund
5. Pegasus International Equity Fund 5. the Diversified International Fund
6. Pegasus Market Expansion Index Fund 6. the Market Expansion Index Fund
7. Pegasus Bond Fund 7. the Bond Fund
8. Pegasus Short Municipal Bond Fund 8. the Short-Term Municipal Bond Fund
9. Pegasus Municipal Bond Fund 9. the Tax-Free Bond Fund
10. Pegasus Michigan Municipal Bond Fund 10. the Michigan Municipal Bond Fund
11. Pegasus Michigan Municipal Money Market Fund 11. the Michigan Municipal Money Market Fund
12. Pegasus Cash Management Fund 12. the Cash Management Money Market Fund
13. Pegasus Treasury Cash Management Fund 13. the Treasury Cash Management Money Market Fund
14. Pegasus Treasury Prime Cash Management Fund 14. the Treasury Prime Cash Management Money Market Fund
15. Pegasus U.S. Government Securities Cash Management Fund 15. the U.S. Government Securities Cash Management
Money Market Fund
16. Pegasus Municipal Cash Management Fund 16. the Municipal Cash Management Money Market Fund
</TABLE>
These 16 Funds are collectively referred to as the PREDECESSOR FUNDS. Individual
Predecessor Funds are identified in this Statement of Additional Information by
their One Group Mutual Funds' name.
[FN]
(1)Class C shares are currently not available for purchase in all of the Funds.
</FN>
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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
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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.
Bond Funds. The Short-Term Bond Fund, the Intermediate Bond Fund, the
Bond Fund and the Ultra Short-Term Bond 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.
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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.
Institutional Money Market Funds. The Cash Management Money Market Fund
and the Municipal Cash Management Money Market Fund may purchase
commercial paper 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.
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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 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,
and Europaper. Securities of foreign issuers may include sponsored and
unsponsored American Depository Receipts ("ADRs"). Sponsored ADRs are listed on
the New York Stock Exchange; unsponsored ADRs are not. Therefore, there may be
less information available about the issuers of unsponsored ADRs than the
issuers of sponsored ADRs. Unsponsored ADRs are restricted securities.
RISK FACTORS OF FOREIGN INVESTMENTS
Political and Exchange Risks. 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.
Higher Transaction Costs. Foreign investments may entail higher
custodial fees and sales commissions than domestic investments.
Accounting and Regulatory Differences. 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
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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.
Currency Risk. On January 1, 1999, the European Economic and Monetary
Union introduced the "euro." The euro will serve as a common currency
for participating European nations. All stocks issued by corporations
located in those nations will be denominated in euros. In addition,
outstanding shares will be redenominated in euros. All government bonds
issued by participating nations will be in euros, and outstanding
government bonds will be redenominated in euros. The introduction of
the euro presents some uncertainties, such as the adequacy of newly
created accounting, clearing, settlement, and payment systems for the
new currency. These uncertainties could adversely affect the value of
the foreign securities held by the Funds.
A substantial portion of the securities of the International Funds will
be denominated in foreign currencies. In addition, the International
Funds may hold funds in foreign currencies. Thus, the value of an
International 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 Funds 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 a Fund to achieve its investment objective may depend,
to a certain extent, on exchange rate movements.
By investing in foreign securities, the International Funds attempt
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 a 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 Funds, 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 Funds seek increased diversification by combining
securities from various countries and geographic areas that offer different
investment opportunities and are affected by different economic trends.
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- 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.
- The Diversified International Fund invests primarily in the
securities of companies located in Europe, Asia and Latin America.
The Fund may also invest in other regions and countries that present
attractive investment opportunities, including developing countries.
Because the Fund may invest over 25% of its total assets in a single
country, political and economic developments in that country will
have a greater impact on the performance of the Fund than would be
the case if the Fund were more widely diversified.
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 Funds) and the Income
Bond, the High Yield Bond, the Bond and the Short-Term Bond Funds.
FOREIGN CURRENCY TRANSACTIONS
The International Funds 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 Funds may
engage in such transactions in both U.S. and non-U.S. markets. To the extent a
Fund enters into such transactions in markets other than in the United States, a
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 Funds may enter into such
transactions only in connection with hedging strategies.
While a 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 a Fund's hedging
transactions will be effective. Furthermore, a 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.
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The International Funds are 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. Each International
Fund's dealings in forward foreign exchange will be limited to hedging involving
either specific transactions or portfolio positions.
Transaction Hedging. When the International Funds engage in transaction
hedging, they enter 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 International Funds will
engage in transaction hedging when they desire 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 Funds will attempt to protect themselves
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 Funds 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 Funds 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 Funds reserve 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 Funds 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 a
Fund the right to assume a short position in the futures contract until
expiration of the option. A put option
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on currency gives a 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 a Fund
the right to assume a long position in the futures contract until the expiration
of the option. A call option on currency gives a 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
Funds will enter into foreign currency exchange transactions to protect against
a decline in the values of the foreign currencies in which their portfolio
securities are denominated (or an increase in the value of currency for
securities which Banc One Investment Advisors or, in the case of the
International Equity Index Fund, 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, a Fund may purchase or sell foreign currency forward contracts or
foreign currency on a spot basis. The International Funds may purchase U.S.
exchange-listed put or call options on foreign currency and foreign currency
futures contracts and buy or sell foreign currency futures contracts traded in
the United States and subject to regulation by the CFTC, although the
International Funds have 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 Funds 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 a 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 International Funds have no current intention to do so,
the International Funds 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 Funds own or expect
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
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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 a 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 Funds,
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, a 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 Funds 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. A 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
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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 Funds intend 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 Funds 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.
A 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
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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 Funds will not
speculate in foreign currency options, futures or related options or currency
swap contracts. Accordingly, the International Funds will not hedge a currency
substantially in excess (as determined by Banc One Investment Advisors or the
International Sub-Advisor, in the case of the International Equity Index Fund)
of the market value of the securities denominated in such currency which they
own, the expected acquisition price of securities which they have committed or
anticipate to purchase which are denominated in such currency, and, in the cases
of securities which have been sold by a Fund but not yet delivered, the proceeds
thereof in its denominated currency. Further, the International Funds 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 Funds 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
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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 Funds may invest in any such
options, contracts and products as may be developed to the extent consistent
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 Funds is subject to the
ability of the Banc One Investment Advisors and/or the International
Sub-Adviser, in the case of the International Equity Index Fund 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, a Fund would be in a worse position than if a
hedging strategy had not been pursued. For example, if a 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, a Fund may have to sell securities at
a time when it is disadvantageous to do so.
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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 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.
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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.
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
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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
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 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.
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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.
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.
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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.
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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 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
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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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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.
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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
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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 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 Investment 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
MONEYMARKET 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.
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The Treasury Money Market Fund, the U.S. Treasury Securities Money
Market Fund,the Treasury Only Money Market Fund, the Treasury Cash Management
Money Market Fund, and the Treasury Prime Cash Management 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, the U.S. Treasury Securities Money Market Fund, and
the Treasury Cash Management Money Market Fund may be subject to repurchase
agreements.
The Government Money Market Fund and the U.S. Government Securities
Cash Management Money Market Fund invest 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 top three highest rating categories.
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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, the Michigan 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 (as defined by or permitted under Rule 2a-7). In
addition, each Fund (other than the Municipal Money Market Fund, the Ohio
Municipal Money Market Fund, the Michigan Municipal Money Market Fund and the
Tax-Exempt Money Market Fund) may not invest more than 5% of its total assets in
Second 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 and the Treasury Prime Cash Management 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
Some of the Funds 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
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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.
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.
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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, MARKET EXPANSION 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
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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. "S&P 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 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.
Market Expansion Index Fund. The Market Expansion Index Fund invests in
a representative sampling of stocks of medium-sized and small U.S. companies
that are included in the Standard & Poor's SmallCap 600 Index and the Standard &
Poor's MidCap 400 Index (the "INDICES") and which trade on the New York and
American Stock Exchanges as well as over-the-counter stocks that are part of the
National Market System. It is anticipated that the indexing approach that will
be employed by the Market Expansion Index Fund will be an effective method of
substantially tracking percentage changes in the Indices. Small capitalization
companies are also added to the Fund in equal weightings according to an
analysis of the industry diversification of the combined Indices. It is a
reasonable expectation that there will be a close correlation between the Fund's
performance and that of the combined Indices in both rising and falling markets.
The Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the combined Indices 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 combined Indices. The
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Fund's ability to correlate its performance with the combined Indices, however,
may be affected by, among other things, changes in securities markets, the
manner in which the Indices are calculated by 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 other indices 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 Indices largely on a statistical
basis. Inclusion of a stock in the Indices in no way implies an opinion by S&P
as to its attractiveness as an investment. The Indices are determined, composed
and calculated by S&P without regard to the Market Expansion Index Fund. S&P is
neither a sponsor of, nor in any way affiliated with the Market Expansion Index
Fund, and S&P makes no representation or warranty, expressed or implied on the
advisability of investing in the Market Expansion Index Fund or as to the
ability of the Indices 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 Indices or any data included therein. "S&P SmallCap
600" and "S&P MidCap 400" are registered service marks of S&P.
Banc One Investment Advisors generally selects stocks for the Market
Expansion Index Fund based on both capitalization weightings in the Indices and
industry representation.
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 Gross
Domestic Product ("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 Capital
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
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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.
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
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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). A Fund's
investment in Participations typically will result in the Fund having a
contractual relationship only with the Lender and not with the borrower.
When 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
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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.
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
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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 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
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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 Balanced Fund, the Small Cap Value Fund, the
Diversified Mid Cap Fund, and the Diversified International 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 Short-Term Bond Fund, the Ultra Short-Term Bond Fund, the
Intermediate Bond Fund, and the 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.
Municipal Bond Funds. The Municipal Bond Funds 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.
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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, the Ohio Municipal Money Market Fund, and
the Michigan 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.
Institutional Money Market Funds. The Institutional Money Market Funds
(other than the Municipal Cash Management Money Market Fund and the
Cash Management Money Market Fund) may only invest in mortgage-backed
securities issued or guaranteed by the U.S. government, or its agencies
or instrumentalities. The Municipal Cash Management Money Market Fund
may invest in mortgage-backed securities issued by private issuers
including Guaranteed CMOs and REMIC pass-through securities. With
respect to the Institutional Money Market Funds, mortgage-backed
securities must be 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
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investment limitations, mortgage dollar rolls are considered to be
mortgage-backed securities.
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 Treasury & Agency Fund), the Municipal
Bond Funds, and the Balanced 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 Balanced 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,
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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 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
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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.
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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 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.
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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
inter-city 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.
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
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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
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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 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
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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 Michigan Municipal Money Market Fund, the Municipal Income
Fund, the Intermediate Tax-Free Bond Fund, the Ohio Municipal Bond Fund, the
Michigan Municipal Bond Fund, the Texas Municipal Bond Fund, the Kentucky
Municipal Bond Fund, the Louisiana Municipal Bond Fund, the West Virginia
Municipal Bond Fund, the Arizona
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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-Advantaged 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%.
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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
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
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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.
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
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extremely active. The State projects employment to increase 4.8% in 1998 and
4.5% in 1999.
MICHIGAN MUNICIPAL SECURITIES
As used in the Prospectus and this Statement of Additional Information,
the term "Michigan Municipal Securities" refers to debt securities which are
issued by or on behalf of Michigan 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 Michigan income tax.
Risk Factors Regarding Michigan Municipal Securities. 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
1.9% in 1998. The rate of unemployment is estimated to have been 3.8% in 1998,
below the national average for the fifth consecutive year. Personal income grew
at an estimated 5.1% annual rate in 1998, up from the 4.6% growth reported for
1997.
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,
1998 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
government 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
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has recalculated the required percentage of spending paid to local government
units to be 48.97%.
The Michigan Constitution limits State general obligation debt to (i)
short term debt for State operating purposes, (ii) short and long term debt for
the purpose of making loans to school districts, and (iii) long term debt for
voter-approved purposes.
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, 1998, the State
had approximately $874 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 1999, 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. Notable among these legal
proceedings are lawsuits brought by a number of school districts challenging the
constitutionality of certain State-mandated special education services without
corresponding funding.
The State Constitution also 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
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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.
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.
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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.
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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 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.
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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 One Group.
PREFERRED STOCK
Preferred stock is a class of stock that generally pays dividends at a
specified rate and has preference over common stock in the payment of dividends
and liquidation. Preferred stock generally does not carry voting rights. As with
all equity securities, the price of preferred stock fluctuates based on changes
in a company's financial condition and on overall market and economic
conditions.
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
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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
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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.
Repurchase Agreement Counterparties. For Funds other than the International
Funds, 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, the High Yield
Sub-Advisor deems creditworthy under guidelines approved by the Board of
Trustees. In the case of the International Funds, 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 Banc One Investment
Advisors, or in the case of the International Equity Index Fund, 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
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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 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
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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
Treasury Cash Management Money Market Fund, the Treasury Prime Cash Management
Money Market Fund, and 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
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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 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,
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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.
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.
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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
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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 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
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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.
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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 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. Some of the Funds may
purchase EXTENDABLE COMMERCIAL NOTES. Extendable commercial notes are variable
rate notes which normally mature within a short period of time (e.g., 1 month)
but which may be extended by the issuer for a maximum maturity of thirteen
months.
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. Floating rate instruments 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
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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.
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
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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
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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 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
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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.
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.
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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 One Group funds, 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 and the Institutional Prime Money
Market Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities, and, if
consistent with the Fund's investment objective and policies, repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of 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 and the Michigan 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 and the
Michigan 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
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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 and the Institutional Prime Money Market
Fund, (i) 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) this limitation does
not apply to securities issued by companies in the financial services industry;
(iii) 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 (iv) 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, the Institutional Prime Money Market Fund, the Ohio Municipal Money Market
Fund, the Michigan Municipal Money Market Fund, and 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, the
Institutional Prime Money Market Fund and the Municipal Money Market Fund.
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 (except the
Institutional Prime Money Market Fund):
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 (except the Institutional
Prime Money Market Fund) 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
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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.
The Tax-Free Bond Fund, the Short-Term Municipal Bond Fund, the Arizona
Municipal Bond Fund, the West Virginia Municipal Bond, the Louisiana Municipal
Bond Fund, the Ohio Municipal Bond Fund, the Kentucky Municipal Bond Fund, and
the Michigan Municipal Bond Fund may not:
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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, Louisiana Municipal Securities, and Michigan 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 or sell securities short except, in
the case of the Municipal Bond Funds, for use of short-term credit necessary for
clearance of purchases of portfolio securities.
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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 Funds 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.
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 (except for the Cash Management
Funds) may not:
1. Buy common stocks or voting securities.
In addition, the U.S. Treasury Securities Money Market Fund and the
Government Money Market Fund may not:
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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 or an Institutional 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 or an Institutional 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,
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economic or business development affecting one security will also affect other
municipal securities.
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.
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<PAGE> 82
The portfolio turnover rates of the Funds for the fiscal years ended June 30,
1998 and 1997 were as follows:
ONE GROUP PORTFOLIO TURNOVER
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
--------
FUND 1998 1997
- ---- ---- ----
<S> <C> <C>
U.S. Treasury Securities Money Market NA** NA**
Prime Money Market NA** NA**
Municipal Money Market NA** NA**
Ohio Municipal Money Market NA** NA**
Equity Income 14.64% 28.18%
Mid Cap Value 106.41% 92.66%
Mid Cap Growth 158.43% 301.35%
Equity Index 4.32% 5.81%
Large Cap Value 47.35% 77.05%
Balanced 46.04% 80.96%
International Equity Index 9.90% 9.61%
Large Cap Growth 117.34% 57.17%
Short-Term 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 Bond 41.15% 70.36%
Treasury Only Money Market NA** NA**
Government Money Market NA** NA**
Kentucky Municipal Bond 5.81% 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 Municipal Bond NA* NA+
W. Virginia Municipal Bond 16.69% 6.21%***
Louisiana Municipal Bond 12.03% 17.39%
Diversified Equity 62.37% 113.17%
Small Cap Growth 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%***
* As of June 30, 1998, the Fund had not commenced operations.
** Turnover rate is not applicable to money market funds.
*** Portfolio turnover rate for the period January 20, 1997 through June 30, 1997.
</TABLE>
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<PAGE> 83
+ 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 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.
The fiscal year end for the Predecessor Funds was December 31st. The
portfolio turnover rates of these Funds for the fiscal years ended December 31,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
FUND 1998 1997
- ---- ---- ----
<S> <C> <C>
Small Cap Value Fund 42.39% 58.29%
Diversified Mid Cap 26.89% 37.54%
Diversified International 8.50% 3.56%
Market Expansion Index 20.18%* NA**
Bond 34.69% 17.60%
Income Bond 41.69% 38.70%
Intermediate Bond 50.32% 31.66%
Short-Term Municipal Bond 32.23%*** NA**
Tax-Free Bond 22.05% 32.08%
Michigan Municipal Bond 23.33% 37.84%
Michigan Municipal Money Market NA+ NA+
Cash Management Money Market NA+ NA+
Treasury Cash Management Money Market NA+ NA+
Treasury Prime Cash Management Money Market NA+ NA+
U.S. Government Securities Cash Management Money Market NA+ NA+
Municipal Cash Management Money Market NA+ NA+
</TABLE>
* Portfolio turnover rate for the period July 31, 1998 through December
31, 1998.
** As of December 31, 1997, the Fund had not commenced operations.
*** Portfolio turnover rate for the period May 4, 1998 through December 31,
1998. Not annualized.
+ Turnover rate is not applicable to money market funds.
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 Internal Revenue Code
of 1986, as amended (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.
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<PAGE> 84
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.
Generally, regulated investment companies that do not distribute in
each calendar 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.
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
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<PAGE> 85
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. 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 including the
Funds of Funds. 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.
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<PAGE> 86
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.
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 Funds 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, the International Funds and the Funds of 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.
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<PAGE> 87
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
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<PAGE> 88
purchase sufficient amounts of tax exempt securities to satisfy the Code's
requirements for the payment of "exempt-interest" dividends.
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.
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<PAGE> 89
Michigan Taxes. Distributions received from the Michigan Municipal Bond
Fund are exempt from Michigan personal income tax. Such distributions, if
received in connection with a shareholder's business activity, may, however, be
subject to Michigan single business tax. For Michigan personal income tax and
single business tax purposes, Fund distributions attributable to any source
other than interest on tax-exempt securities will be fully taxable. Fund
distributions may be subject to the uniform city income tax imposed by certain
Michigan cities.
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.
ADDITIONAL TAX INFORMATION CONCERNING THE INTERNATIONAL FUNDS
Transactions of the International Funds 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.
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<PAGE> 90
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 Funds 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 Funds. If the
International Funds elect to treat a passive foreign investment company as a
"qualified electing fund," different rules would apply, although the
International Funds do not expect to make such an election. Rather, the Funds
intend 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.
The qualified electing fund and mark-to-market elections may have the
effect of accelerating the recognition of income (without the receipt of cash)
and increase the amount required to be distributed for the Fund to avoid
taxation. Making either of these elections therefore may require a Fund to
liquidate other investments (including when it is not advantageous to do so) to
meet its distribution requirement, which also may accelerate the recognition of
gain and affect a Fund's total return.
FOREIGN TAX CREDIT
If more than 50% of an International 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 an International 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 Funds 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
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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.
ADDITIONAL TAX INFORMATION CONCERNING THE FUNDS OF FUNDS
A Fund of Funds will not be able to offset gains realized by one Fund
in which such Fund of Funds invests against losses realized by another Fund in
which such Fund of Funds invests. The use of a fund-of-funds structure could
therefore affect the amount, timing and character of distributions to
shareholders.
Depending on a Fund of Fund's percentage ownership in an underlying
Fund, both before and after a redemption, a redemption of shares of an
underlying Fund by a Fund of Funds may cause the Fund of Funds to be treated as
not receiving capital gain income on the amount by which the distribution
exceeds the tax basis of the Fund of Funds in the shares of the underlying
Fund, but instead to be treated as receiving a dividend taxable as ordinary
income on the full amount of the distribution. This could cause shareholders of
the Fund of Funds to recognize higher amounts of ordinary income than if the
shareholders had held the shares of the underlying Funds directly.
Although each Fund of Funds may itself be entitled to a deduction for
foreign taxes paid by a Fund in which such Fund of Funds invests (see
"Additional Tax Information Concerning the International Funds"), the Fund of
Funds will not be able to pass any such credit or deduction through to its own
shareholders.
The foregoing is only a general description of the federal tax
consequences of a fund-of-funds structure. Accordingly, prospective purchasers
of Shares of a Fund of Funds 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.
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 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
91
<PAGE> 92
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
Funds 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 Funds 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 Banc One Investment Advisors 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
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.
92
<PAGE> 93
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) 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 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).
93
<PAGE> 94
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. For Federal income tax purposes, an exchange is
treated as a sale of shares and generally results in a capital gain or loss.
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 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.
94
<PAGE> 95
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.
95
<PAGE> 96
MANAGEMENT OF THE TRUST
TRUSTEES & OFFICERS
Overall responsibility for management of the Trust rests with the Board
of Trustees of the Trust who were elected by the Shareholders of the Trust.
There are currently eight 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 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>
NAME AND ADDRESS AGE POSITION HELD PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
WITH THE TRUST
<S> <C> <C> <C>
Peter C. Marshall 56 Trustee From November, 1993 to present, President, DCI
DCI Marketing, Inc. Marketing, Inc.
2727 W. Good Hope Road
Milwaukee, WI 53209
Charles I. Post 70 Trustee From July, 1986 to present, self employed as a
7615 4th Avenue West consultant.
Bradenton, FL 34209
Frederick W. Ruebeck 59 Trustee From June, 1988 to present, Director of
Eli Lilly & Company Investments, Eli Lilly and Company.
Lilly Corporate Center
307 East McCarty
Indianapolis, IN 46258
Robert A. Oden, Jr. 52 Trustee From 1995 to present, President , Kenyon College;
Office of the President from 1989 to 1995, Headmaster, The Hotchkiss
Ransom Hall School.
Kenyon College
Gambier, OH 43022
*John F. Finn 51 Trustee Since 1975, President of Gardner, Inc. (wholesale
President distributor to the outdoor power equipment industry).
Gardner, Inc.
1150 Chesapeake Avenue
Columbus, Ohio 43212
Marilyn McCoy 51 Trustee Vice President of Administration and Planning,
Northwestern University Northwestern University (1985 to present).
Office of the Vice President Trustee of Pegasus Funds since 1996.
Administration Planning
633 Clark St. Crown 2-112
Evanston, IL 60208
Julius L. Pallone 68 Trustee President, J.L. Pallone Associates (1994 to present) Trustee of Pegasus
J.L. Pallone Associates Fund since 1987
3000 Town Center
Suite 732
Southfield, MI 48075
Donald L. Tuttle 64 Trustee Vice President (1995 to present) and Senior Vice President (1992 to
Association of Management 1995), Association for Investment Management and Research. Trustee of
and Research Pegasus Fund since 1993.
5 Boar's Head Lane
Charlottesville, VA 22901
</TABLE>
* John F. Finn is an "interested person" as that term is defined in the
Investment Company Act of 1940.
96
<PAGE> 97
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.
98
<PAGE> 98
<TABLE>
<CAPTION>
COMPENSATION TABLE(1)
NAME OF PERSON, POSITION AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION RETIREMENT BENEFITS BENEFITS UPON FROM THE FUND
FROM THE TRUST ACCRUED AS PART OF RETIREMENT COMPLEX(3)
TRUST EXPENSES(2)
<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
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
MARILYN MCCOY $ 0 N/A N/A $ 0
TRUSTEE
JULIUS L. PALLONE $ 0 N/A N/A $ 0
TRUSTEE
DONALD L. TUTTLE $ 0 N/A N/A $ 0
TRUSTEE
</TABLE>
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
Class I shares of one or more Funds of the Trust
99
<PAGE> 99
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 funds of The One Group and the funds of
The One Group(R) Investment Trust that were operational as of June 30,
1998.
100
<PAGE> 100
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 AGE WITH THE TRUST DURING PAST 5 YEARS
- ---------------- --- -------------- -------------------
<S> <C> <C> <C>
Mark S. Redman 44 President, Treasurer 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)
James T. Gillespie 32 Vice President From September, 1998 to present,
BISYS Fund Services, employee, The One Group Services
Inc. Company; From February, 1992 to
3435 Stelzer Road September, 1998, employee, BISYS
Columbus, Ohio 43219 Fund Services, Inc.
Bryan C. Haft 34 Vice President From January, 1999 to present,
The One Group Services Company employee, The One Group Services
3435 Stelzer Road Company; From November, 1992 to
Columbus, Ohio 43219 January, 1999, employee, BISYS
Fund Services, Inc.
Charles L. Booth 39 Secretary From February, 1998, to present,
BISYS Fund Services, Chief Compliance Officer and
Inc. Vice President Fund Compliance
3435 Stelzer Road BISYS Fund Services, Inc.; From
Columbus, Ohio 43219 April, 1988, to February, 1998,
employee, BISYS Fund Services, Inc.
Alaina J. Metz 32 Assistant Secretary From June 1995 to present,
BISYS Fund Services, Chief Administrator,
Inc. Administration and Regulatory
3435 Stelzer Road Services, BISYS Fund Services,
Columbus, Ohio 43219 Inc.; from May 1989 to June 1995,
Supervisor, Mutual Fund Legal
Department, Alliance Capital
Management.
</TABLE>
101
<PAGE> 101
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 One Group (formerly, The
One Group and the Helmsman Fund) since 1985.
Prior to January 2, 1996, investment advisory services were provided to
the predecessor Funds
102
<PAGE> 102
of the Louisiana Municipal Bond Fund, the Diversified Equity Fund, and the Small
Cap Growth (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:
103
<PAGE> 103
<TABLE>
<CAPTION>
ONE GROUP ADVISORY FEES--NET
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
Equity Income $ 6,571,128 -0- $4,104,562 $ 0 $1,809,128 $ 70,594
Mid Cap Value $ 4,758,742 -0- $4,129,523 $ 0 $3,934,183 $ 61,237
Mid Cap Growth $ 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 Cap Value $ 5,638,325 -0- $4,726,413 $ 0 $3,763,553 $ 0
Balanced $ 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 Cap Growth $12,023,999 -0- $7,948,260 $ 0 $5,235,736 $ 245,284
Short-Term 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 Bond $ 424,770 $ 699,133 $ 117,314 $ 342,966 $ 29,293 $ 227,497
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++
Diversified Equity $ 4,485,408 -0- $2,309,475 $ 69,333 $ 400,112++ $ 51,948++
Small Cap Growth $ 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*
</TABLE>
## 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.
104
<PAGE> 104
++ 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.
105
<PAGE> 105
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 Bond Fund, received $26,251 in sub-advisory fees from Banc One
Investment Advisors for the fiscal year ended June 30, 1996.
Prior to the merger with the Funds, First Chicago NBD Investment
Management Company ("FCNIMCO") provided investment management services to the
Predecessors Funds of the Small Cap Value Fund, the Diversified Mid Cap Fund,
the Diversified International Fund, the Market Expansion Index Fund, the Bond
Fund, the Income Bond Fund, the Intermediate Bond Fund, the Short-Term Municipal
Bond Fund, the Tax-Free Bond Fund, the Michigan Municipal Bond Fund, the
Michigan Municipal Money Market Fund, and the Cash Management Funds. During a
portion of the year ended December 31, 1996, investment advisory services were
provided to the Small Cap Value Fund, the Diversified Mid Cap Fund, the
Diversified International Fund, the Market Expansion Index Fund, the Bond Fund,
the Income Bond Fund, the Intermediate Bond Fund, the Short-Term Municipal Bond
Fund, the Tax-Free Bond Fund, the Michigan Municipal Bond Fund, and the Michigan
Municipal Money Market Fund by NBD.
Prior to the merger with the Funds, the fiscal year end for the
Predecessor Funds was December 31st. During the fiscal years ended December 31,
1998, 1997, and 1996, these Funds of the Trust paid the following investment
advisory fees to FCNIMCO and FCNIMCO voluntarily waived investment advisory fees
as follows.
<TABLE>
<CAPTION>
PREDECESSOR FUNDS' ADVISORY FEES--NET
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- ---------------------------
FUND NET WAIVED NET WAIVED NET WAIVED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Value $2,003,921 0 $1,283,658 0 $ 349,224*** $ 56,427***
- ------------------------------------------------------------------------------------------------------------------
Diversified Mid Cap $6,832,757 0 $5,355,678 0 $1,467,224# 0
- ------------------------------------------------------------------------------------------------------------------
Diversified International $4,577,670 0 $3,752,409 0 $1,179,691## $ 26,973##
- ------------------------------------------------------------------------------------------------------------------
Market Expansion Index 0 $ 45,584 NA* NA* NA** NA**
- ------------------------------------------------------------------------------------------------------------------
Bond $5,674,695 0 $4,089,788 0 $1,092,756# $ 49,503#
- ------------------------------------------------------------------------------------------------------------------
Income Bond $ 827,079 0 $ 562,165 0 $ 265,891# $ 16,303#
- ------------------------------------------------------------------------------------------------------------------
Intermediate Bond $2,349,025 0 $1,890,923 0 $ 626,682*** $ 49,186***
- ------------------------------------------------------------------------------------------------------------------
Short-Term Municipal Bond $ 144,978 $ 41,317 NA* NA* NA** NA**
- ------------------------------------------------------------------------------------------------------------------
Tax-Free Bond $2,358,313 0 $1,524,196 0 $ 531,933### $108,706###
- ------------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond $ 686,184 $ 13,410 $ 228,576 $ 43,158 $ 66,088# $ 11,150#
- ------------------------------------------------------------------------------------------------------------------
Michigan Municipal Money Market $ 327,693 $ 36,792 $ 335,355 $ 44,602 $ 696,445+ $ 37,403+
- ------------------------------------------------------------------------------------------------------------------
Cash Management Money Market $3,402,847 $907,915 $1,642,225 $279,533 $ 398,138++ $222,088++
- ------------------------------------------------------------------------------------------------------------------
Treasury Cash Management
Money Market $ 498,263 $136,100 $ 99,821 $ 33,327 NA** NA**
- ------------------------------------------------------------------------------------------------------------------
Treasury Prime Cash Management
Money Market $ 592,066 $207,054 $ 404,248 $105,789 $ 123,521++ $145,816++
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities
Cash Management Money Market $2,465,211 $295,457 $1,369,324 $ 88,360 $ 325,009++ $297,097++
- ------------------------------------------------------------------------------------------------------------------
Municipal Cash Management
Money Market $ 804,693 $179,890 $ 107,285 $ 40,982 NA** NA**
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of the end of the fiscal year ended December 31, 1997, the Funds had
not commenced operations.
** As of the end of the fiscal year ended December 31, 1996, the Funds had
not commenced operations.
*** Fees for the period beginning September 21, 1996 to December 31, 1996.
# Fees for the period beginning September 23, 1996 to December 31, 1996.
## Fees for the period beginning August 24, 1996 to December 31, 1996.
### Fees for the period beginning September 14, 1996 to December 31, 1996.
+ Fees for the period beginning September 16, 1996 to December 31, 1996.
++ Fees for the period beginning July 13, 1996 to December 31, 1996.
For the period beginning January 1, 1996 and ending on the date specified below,
the Predecessor Funds paid FCNIMCO or NBD and FCNIMCO or NBD waived the
investment advisory fees indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR 1996
--------------------------------------------------------------------------
NBD FCNIMCO
---------------------- ---------------------
FUND NET WAIVED NET WAIVED END DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Value NA NA $199,276 $147,469 September 21, 1996
- -------------------------------------------------------------------------------------------------------------
Diversified Mid Cap $3,397,900 0 NA NA September 23, 1996
- -------------------------------------------------------------------------------------------------------------
Diversified International $ 594,989 0 NA NA August 24, 1996
- -------------------------------------------------------------------------------------------------------------
Market Expansion Index NA* NA* NA* NA* NA*
- -------------------------------------------------------------------------------------------------------------
Bond $2,021,339 0 NA NA August 24, 1996
- -------------------------------------------------------------------------------------------------------------
Income Bond NA NA $355,241 $183,139 September 23, 1996
- -------------------------------------------------------------------------------------------------------------
Intermediate Bond $1,539,059 0 NA NA September 21, 1996
- -------------------------------------------------------------------------------------------------------------
Short-Term Municipal Bond NA* NA* NA* NA* NA*
- -------------------------------------------------------------------------------------------------------------
Tax-Free Bond NA NA $186,988 $273,829 September 14, 1996
- -------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond $ 196,723 $34,535 NA NA September 23, 1996
- -------------------------------------------------------------------------------------------------------------
Michigan Municipal Money Market $ 437,785 0 NA NA September 15, 1996
- -------------------------------------------------------------------------------------------------------------
Cash Management Money Market NA NA $311,040 $176,053 July 13, 1996
- -------------------------------------------------------------------------------------------------------------
Treasury Cash Management
Money Market NA* NA* NA* NA* NA*
- -------------------------------------------------------------------------------------------------------------
Treasury Prime Cash Management
Money Market NA NA $ 73,377 $102,644 July 13, 1996
- -------------------------------------------------------------------------------------------------------------
U.S. Government Securities Cash
Management Money Market NA NA $383,484 $139,491 July 13, 1996
- -------------------------------------------------------------------------------------------------------------
Municipal Cash Management
Money Market NA* NA* NA* NA* NA*
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* As of the end of the fiscal year ended December 31, 1996, the Funds had
not commenced operations.
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
106
<PAGE> 106
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. Banc One Investment Advisors, Pacholder Associates, Inc. or the
Sub-Advisor have limited 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 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
107
<PAGE> 107
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 Balanced 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
108
<PAGE> 108
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, 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 investment 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>
Equity Income $ 5,750
Mid Cap Value $ 1,810
Mid Cap Growth $11,714
Equity Index $42,243
Large Cap Value $10,650
Balanced $ 9,602
Small Cap Growth $ 2,265
Diversified Equity $ 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 (except for the Funds identified below as having fiscal years
previously ending December
109
<PAGE> 109
31st) that paid brokerage commissions and the amounts paid for each year were as
follows:
<TABLE>
<CAPTION>
THE ONE GROUP BROKERAGE COMMISSIONS
FISCAL YEAR ENDED JUNE 30,
- ---------------------------------------------------------------------------------------
FUND 1998 1997 1996
- ---- ---- ---- ----
- ---------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C>
Equity Income $ 331,556 $ 395,450 $ 96,204
- ---------------------- -------------------- --------------------- ---------------------
Mid Cap Value $1,541,217 $1,570,859 $ 613,774
- ---------------------- -------------------- --------------------- ---------------------
Mid Cap Growth $2,455,346 $3,199,337 $2,798,442
- ---------------------- -------------------- --------------------- ---------------------
Equity Index $ 72,702 $ 162,178 $ 56,155
- ---------------------- -------------------- --------------------- ---------------------
Large Cap Value $ 722,191 $1,378,450 $2,126,632
- ---------------------- -------------------- --------------------- ---------------------
Balanced $ 154,837 $ 194,187 $ 61,678
- ---------------------- -------------------- --------------------- ---------------------
International Equity $ 514,660 $ 349,010 $ 176,140
Index
- ---------------------- -------------------- --------------------- ---------------------
Large Cap Growth $2,935,851 $1,285,883 $ 596,397
- ---------------------- -------------------- --------------------- ---------------------
Small Cap Growth $ 180,460 $ 194,127 $ 43,039
- ---------------------- -------------------- --------------------- ---------------------
Diversified Equity $ 763,394 $1,005,409 $ 224,373
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THE ONE GROUP BROKERAGE COMMISSIONS
FISCAL YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------
FUND 1998 1997 1996
- ---- ---- ---- ----
- ---------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C>
Small Cap Value $379,752 $280,426 $114,320
- ---------------------- -------------------- --------------------- ---------------------
Diversified Mid Cap $803,740 $698,038 $621,056
- ---------------------- -------------------- --------------------- ---------------------
Diversified $288,664 $225,448 $358,776
International
- ---------------------- -------------------- --------------------- ---------------------
Market Expansion $ 5,850 NA* NA*
Index
- ---------------------------------------------------------------------------------------
</TABLE>
* As December 31, 1997 and 1998, the Fund had not commenced operations.
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
110
<PAGE> 110
investments allocated as to amount, in a manner which Banc One Investment
Advisors or the applicable 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.
111
<PAGE> 111
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 ("440"), for the fiscal years ended June 30, 1998,
1997, and 1996 as follows:
<TABLE>
<CAPTION>
ONE GROUP ADMINISTRATION FEES--NET
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
Equity Income $ 866,925 $ 0 $ 585,415 $ 0
Mid Cap Value $ 627,733 $ 0 $ 424,072 $ 0
Mid Cap Growth $ 856,657 $ 0 $ 578,193 $ 0
Equity Index $ 593,918 $631,314 $ 398,167 $ 0
Large Cap Value $ 743,765 $ 0 $ 502,444 $ 0
Balanced $ 93,135 $188,687 $ 62,825 $ 0
International Equity Index $ 495,338 $ 0 $ 334,504 $ 0
Large Cap Growth $1,589,738 $ 0 $1,070,862 $ 0
Short-Term Bond $ 582,384 $ 0 $ 393,556 $ 0
Intermediate Tax-Free Bond $ 476,747 $ 0 $ 322,115 $ 0
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 Bond $ 0 $334,196 $ 0 $ 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
Diversified Equity $ 591,870 $ 0 $ 399,405 $ 0
Small Cap Growth $ 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
</TABLE>
112
<PAGE> 112
<TABLE>
<S> <C> <C> <C> <C>
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.
113
<PAGE> 113
<TABLE>
<CAPTION>
ONE GROUP ADMINISTRATION FEES--NET
THE ONE GROUP FISCAL YEAR ENDED JUNE 30, 1997
SERVICES COMPANY BANC ONE INVESTMENT ADVISORS**
---------------- ------------------------------
FUND 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
Equity Income $ 916,621 $ 0 $ 332,802 $ 0
Mid Cap Value $ 922,753 $ 0 $ 334,826 $ 0
Mid Cap Growth $1,007,999 $ 0 $ 365,770 $ 0
Equity Index $ 329,854 $574,004 $ 328,342 $ 0
Large Cap Value $1,056,104 $ 0 $ 383,222 $ 0
Balanced $ 94,269 $116,194 $ 76,370 $ 0
International Equity Index $ 662,008 $ 0 $ 240,084 $ 0
Large Cap Growth $1,775,503 $ 0 $ 644,453 $ 0
Short-Term 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 Bond $ 60,695 $ 95,720 $ 50,007 $ 0
Treasury Only Money Market $ 240,680 $ 0 $ 240,061 $ 0
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
Diversified Equity $ 531,250 $ 0 $ 192,876 $ 0
Small Cap Growth $ 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
</TABLE>
114
<PAGE> 114
<TABLE>
<S> <C> <C> <C> <C>
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.
115
<PAGE> 115
<TABLE>
<CAPTION>
ONE GROUP ADMINISTRATION FEES--NET
THE ONE GROUP FISCAL YEAR ENDED JUNE 30, 1996
SERVICES BANC ONE INVESTMENT ADVISORS** 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
Equity Income $ 286,663 $ 0 $ 151,456 $ 0 $ 136,804 $ 0
Mid Cap Value $ 543,544 $ 0 $ 321,420 $ 0 $ 357,658 $ 0
Mid Cap Growth $ 511,634 $ 0 $ 301,050 $ 0 $ 332,353 $ 0
Equity Index $ 219,301 $ 96,276 $ 165,797 $ 0 $ 52,623 $119,116
Large Cap Value $ 532,314 $ 0 $ 300,440 $ 0 $ 283,851 $ 32,509
Balanced $ 19,184 $ 48,482 $ 33,779 $ 0 $ 22,718 $ 11,794
International Equity
Index $ 307,633 $ 0 $ 171,529 $ 0 $ 172,763 $ 0
Large Cap Growth $ 778,543 $ 0 $ 441,303 $ 0 $ 457,430 $ 0
Short-Term 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 Bond $ 0 $ 50,706 $ 28,274 $ 0 $ 35,162
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
Diversified Equity $ 101,245 $ 0 $ 36,656+ $ 0 $ 0 $ 0
Small Cap Growth $ 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 Financial Management 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.
116
<PAGE> 116
Prior to the merger with the Funds, administrative services were provided to the
Predecessor Funds by FCNIMCO and BISYS and, with respect to the Michigan
Municipal Money Market Fund for the period January 1, 1996 through September 16,
1996, NBD. These Funds paid fees for administrative services to FCNIMCO and
BISYS for the fiscal year ended December 31, 1998 as follows:
PREDECESSOR FUND -- ADMINISTRATION FEES*
FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FUND BISYS FCNIMCO
- ---- ----- -------
<S> <C> <C>
Small Cap Value $ 39,395 $ 390,017
Diversified Mid Cap $156,709 $1,551,480
Diversified International $ 78,747 $ 779,566
Market Expansion Index $ 1,366 $ 13,704
Bond $194,675 $1,933,336
Income Bond $ 28,474 $ 281,681
Intermediate Bond $ 81,371 $ 799,513
Short-Term Municipal Bond $ 6,375 $ 63,485
Tax-Free Bond $ 80,968 $ 803,400
Michigan Municipal Bond $ 23,985 $ 238,363
Michigan Municipal Money Market $ 16,724 $ 165,519
Cash Management Money Market $296,691 $2,936,381
Treasury Cash Management Money Market $ 43,660 $ 432,112
Treasury Prime Cash Management
Money Market $ 55,000 $ 544,340
U.S. Government Securities Cash
Management Money Market $189,760 $1,878,075
Municipal Cash Management Money Market $ 67,765 $ 670,673
</TABLE>
* Fees for administration were not waived during the fiscal year ended
December 31, 1998.
Under the terms of an Administration Agreement dated as of April 12,
1996, FCNIMCO and BISYS were entitled jointly to a monthly administration fee at
an annual rate of .15% of each Fund's average daily net assets. For the fiscal
year ended December 31, 1997, the Predecessor Funds paid FCNIMCO as agent for
the co-administrators, the following administration fees:
PREDECESSOR FUNDS -- ADMINISTRATION FEES*
FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FUND FCNIMCO
- ---- -------
<S> <C>
Small Cap Value $ 275,070
Diversified Mid Cap $1,338,920
Diversified International $ 703,577
Market Expansion Index NA**
Bond $1,533,671
Income Bond $ 210,812
Intermediate Bond $ 709,096
Short-Term Municipal Bond NA**
Tax-Free Bond $ 571,573
Michigan Municipal Bond $ 101,900
Michigan Municipal Money Market $ 189,978
Cash Management Money Market $1,441,319
Treasury Cash Management
Money Market $ 99,861
Treasury Prime Cash Management
Money Market $ 382,527
U.S. Government Securities $1,093,263
Cash Management Money Market
Municipal Cash Management $ 111,200
Money Market
</TABLE>
* Fees for administration were not waived during the fiscal year ended
December 31, 1997.
** As of December 31, 1997, the Funds had not commenced operation.
Under the terms of an Administration Agreement dated as of April 12,
1996, FCNIMCO and BISYS were entitled jointly to a monthly administration fee at
an annual rate of .15% of each Fund's average daily net assets. Beginning on the
dates indicated below and ending on December 31, 1996, the Predecessor Funds
paid FCNIMCO as agent for the co-administrators, the following administration
fees:
PREDECESSOR FUNDS -- ADMINISTRATION FEES*
FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FUND BEGINNING DATE FCNIMCO
- ---- -------------- -------
<S> <C> <C>
Small Cap Value September 21, 1996 $ 86,925
Diversified Mid Cap September 23, 1996 $366,806
Diversified International August 24, 1996 $226,250
Market Expansion Index NA** NA**
Bond August 24, 1996 $416,965
Income Bond September 23, 1996 $105,823
Intermediate Bond September 21, 1996 $ 34,354
Short-Term Municipal Bond NA** NA**
Tax-Free Bond September 14, 1996 $233,974
Michigan Municipal Bond September 23, 1996 $ 28,964
Michigan Municipal Money Market September 16, 1996 $ 66,924***
Cash Management Money Market July 13, 1996 $465,170
Treasury Cash Management
Money Market NA** NA**
Treasury Prime Cash Management
Money Market July 13, 1996 $202,003
U.S. Government Securities
Cash Management Money Market July 13, 1996 $466,617
Municipal Cash Management
Money Market NA** NA**
</TABLE>
* Fees for administration were not waived during the fiscal year ended
December 31, 1996.
** As of December 31, 1996, the Funds had not commenced operation.
*** Prior to September 16, 1996, NBD provided administrative services to the
Michigan Municipal Money Market Fund as a part of the previous investment
advisory agreement. No separate administration fees were incurred.
For the period from January 1, 1996 through July 13, 1996, the predecessors to
the Pegasus Cash Management Fund, the Pegasus Treasury Prime Cash Management
Fund, and the Pegasus U.S. Government Securities Cash Management Fund paid
FCNIMCO administration fees of $363,320, $132,016 and $392,231, respectively.
117
<PAGE> 117
Unless sooner terminated, the Administration Agreement between the
Trust and The One Group Services Company will continue in effect through
November 30, 1999. 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 may be terminated with respect to a particular Fund
only upon mutual agreement of the parties to the Administration Agreement and
for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than sixty days' notice by the Trust's Board of Trustees or
by The One Group Services Company.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or negligence in
the performance of its duties, or from the reckless disregard by it of its
obligations and duties thereunder.
DISTRIBUTOR
The One Group Services Company serves as Distributor to 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,
1999 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.
118
<PAGE> 118
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 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:
<TABLE>
<CAPTION>
SERVICE
FUND DISTRIBUTOR CLASS A CLASS B CLASS C CLASS
<S> <C> <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 - - -
Equity Income One Group Ser. $ 247,834 $1,218,721 $ 3,516 -
Mid Cap Value One Group Ser. $ 71,119 $ 253,701 - -
Mid Cap Growth One Group Ser. $ 168,985 $ 638,750 $ 1,384 -
Equity Index One Group Ser. $ 389,725 $2,521,768 $ 5,666 -
Large Cap Value One Group Ser. $ 41,564 $ 131,570 - -
Value One Group Ser. $ 100,049 $ 738,989 - -
International Equity Index One Group Ser. $ 41,768 $ 113,966 $ 154 -
Large Cap Growth One Group Ser. $ 395,550 $1,952,771 $ 1,498 -
Short-Term 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 Bond One Group Ser. $ 91,457 $ 25,723 - -
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.
</TABLE>
119
<PAGE> 119
<TABLE>
<S> <C> <C> <C> <C> <C>
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 - -
Diversified Equity One Group Ser. $ 154,965 $ 160,647 $ 1,566 -
Small Cap Growth 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.
120
<PAGE> 120
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.
PREDECESSOR FUNDS' DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
Prior to the merger with the Trust, the Predecessor Funds (other than
the predecessors to the Cash Management Funds) entered into servicing agreements
(the "SERVICE AGREEMENTS") with servicing agents (which could include the
Predecessor Fund's investment adviser and its affiliates) (collectively, the
"SERVICE AGENTS"). The Service Agreements provided that the Service Agents would
render shareholder administrative support services to their customers who were
the beneficial owners of the Predecessor Fund shares in consideration for such
Funds' payment of up to .25% (on an annualized basis) of the average daily net
asset value of the shares held by the Service Agents and, at the Predecessor
Fund's option, the Funds could reimburse the Service Agents' out-of-pocket
expenses (such fees and expenses being collectively referred to as the "SERVICE
PLAN"). The Predecessor Funds (other than the predecessors to the Cash
Management Funds) implemented the Service Plan with respect to Class A and Class
B Shares of the Predecessor Funds.
In addition, the Board of Trustees of the Predecessor Funds adopted a
plan under Rule 12b-1 under the 1940 Act (the "PEGASUS 12B-1 PLAN"). Pursuant to
the Pegasus 12b-1 Plan, the Funds other than the Cash Management Funds could pay
BISYS as distributor a fee of up to 0.75% of the average daily net asset value
attributable to Class B Shares and the Cash Management Funds could pay BISYS as
distributor a fee of up to 0.25% of the average daily net asset value
attributable to Service Shares. These fees were paid for advertising, marketing
and distributing such shares and for the provision of certain services to the
holders of such shares. Under the Pegasus 12b-1 Plan, BISYS was authorized to
make payments to certain financial institutions, securities dealers and other
financial industry professionals in respect of these services.
121
<PAGE> 121
During the fiscal year ending December 31, 1998, the distribution fees
paid by the Predecessor Funds were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER SERVICES FEES SHAREHOLDER SERVICES 12b-1 FEES SERVICE PLAN FEES
CLASS A FEES CLASS B CLASS B SERVICE SHARES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Bond Fund $ 31,428 $ 1,505 $ 4,515 NA
- ----------------------------------------------------------------------------------------------------------------
Intermediate Bond Fund $212,255 $ 1,738 $ 5,214 NA
- ----------------------------------------------------------------------------------------------------------------
Small Cap Value Fund $ 72,458 $ 7,983 $23,950 NA
- ----------------------------------------------------------------------------------------------------------------
Diversified Mid Cap Fund $680,933 $14,688 $44,063 NA
- ----------------------------------------------------------------------------------------------------------------
Diversified International Fund $ 98,786 $ 5,653 $16,958 NA
- -----------------------------------------------------------------------------------------------------------------
Market Expansion Index Fund $ 9 NA $ 1 NA
- ----------------------------------------------------------------------------------------------------------------
Bond Fund $515,680 $15,036 $45,107 NA
- ----------------------------------------------------------------------------------------------------------------
Short-Term Municipal Bond Fund $ 225 $ 108 $ 324 NA
- ----------------------------------------------------------------------------------------------------------------
Tax-Free Bond Fund $ 99,279 $ 4,252 $12,756 NA
- ----------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond $ 48,204 $ 3,291 $ 9,873 NA
- ----------------------------------------------------------------------------------------------------------------
Michigan Municipal Money Market Fund $110,571 NA NA NA
- ----------------------------------------------------------------------------------------------------------------
Cash Management Money Market Fund NA NA NA $2,930,146
- ----------------------------------------------------------------------------------------------------------------
Treasury Cash Management Money
Market Fund NA NA NA $ 749,800
- ----------------------------------------------------------------------------------------------------------------
Treasury Prime Cash Management
Money Market Fund NA NA NA $ 790,269
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Cash
Management Money Market Fund NA NA NA $1,139,266
- ----------------------------------------------------------------------------------------------------------------
Municipal Cash Management
Money Market Fund NA NA NA $ 154,695
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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
122
<PAGE> 122
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 Funds 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.
123
<PAGE> 123
EXPERTS
For all Funds other than the Predecessor Funds, the financial statements for
the fiscal year ended June 30, 1998 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.
The financial statements for the predecessor funds of the 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 Financial Statements for the Predecessor Funds have been audited by Arthur
Andersen LLP, independent public accountants to such Funds for the period ended
December 31, 1998, 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.
The Financial Statements for the periods or years ended December 31, 1995 and
prior with respect to the predecessors of the Small Cap Value Fund, the Income
Bond Fund, and the Tax-Free Bond Fund were audited by the predecessor auditors
for such Funds.
The Financial Statements for the predecessors of the Cash Management Money
Market Fund, Treasury Prime Cash Management Money Market Fund, and the U.S.
Government Securities Cash Management Money Market Fund for the periods or years
prior to December 31, 1995 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 has rendered legal services to BANK ONE CORPORATION and its
subsidiary banks.
124
<PAGE> 124
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 54 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 Equity Income Fund;
6. The Mid Cap Value Fund;
7. The Mid Cap Growth Fund;
8. The Diversified Equity Fund;
9. The Small Cap Growth Fund;
10. The Large Cap Value Fund;
11. The Large Cap Growth Fund;
12. The International Equity Index Fund;
13. The Equity Index Fund;
14. The Balanced Fund;
15. The Income Bond Fund;
16. The Short-Term Bond Fund;
17. The Intermediate Bond Fund;
18. The Government Bond Fund;
19. The Ultra Short-Term Bond 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;
125
<PAGE> 125
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;
40. The Treasury & Agency Fund;
41. The Small Cap Value Fund;
42. The Diversified Mid Cap Fund;
43. The Diversified International Fund;
44. The Market Expansion Index Fund;
45. The Bond Fund;
46. The Short-Term Municipal Bond Fund;
47. The Tax-Free Bond Fund;
48. The Michigan Municipal Bond Fund;
49. The Michigan Municipal Money Market Fund;
50. The Cash Management Money Market Fund;
51. The Treasury Cash Management Money Market Fund;
52. The Treasury Prime Cash Management Money Market Fund;
53. The U.S. Government Securities Cash Management Money Market Fund; and
54. The Municipal Cash Management Money Market 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.1 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, and Service Class Shares. The Institutional Money
Market Funds (other than the Cash Management Funds) offer only a single class of
shares. The Municipal Money Market Fund, the Ohio Municipal Money Market Fund,
and the Michigan Municipal Money Market Fund offer Class I, Class A, Class C,
and Service Class Shares. The Cash Management Funds offer Class A and Class I
Shares only. 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.
1. Class C Shares are currently not available for purchase in all Funds of the
Trust.
126
<PAGE> 126
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.
127
<PAGE> 127
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).
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.
Further information about the performance of the Predecessor Funds is contained
in the Pegasus Funds', Pegasus Money Market Funds and Pegasus Cash Management
Funds' Annual Report(s) to Shareholders. Copies of such reports 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
128
<PAGE> 128
the Tax-Exempt Money Market Fund, Treasury Money Market Fund, and Institutional
Prime Money Market Fund because those Funds had not commenced operations as of
June 30, 1998.
129
<PAGE> 129
<TABLE>
<CAPTION>
MONEY MARKET FUNDS
CLASS I SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
<S> <C> <C>
U.S. Treasury Securities Money Market 09/09/85 5.12%
Prime Money Market 08/01/85 5.22%
Municipal Money Market 06/04/87 3.15%
Ohio Municipal Money Market(1) 06/09/93 3.21%
<CAPTION>
CLASS I SHARES INCEPTION 7-DAY YIELD
DATE 12/31/98
<S> <C> <C>
Michigan Municipal Money Market 03/30/96 3.19%
<CAPTION>
CLASS A SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
<S> <C> <C>
U.S. Treasury Securities Money Market 02/18/92 4.87%
Prime Money Market 02/18/92 4.97%
Municipal Money Market 02/18/92 2.90%
Ohio Municipal Money Market(1) 01/26/93 2.96%
<CAPTION>
CLASS A SHARES INCEPTION 7-DAY YIELD
DATE 12/31/98
<S> <C> <C>
Michigan Municipal Money Market(1) 01/23/91 2.94%
<CAPTION>
INSTITUTIONAL SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
<S> <C> <C>
Treasury Only Money Market 04/16/93 5.04%
Government Money Market 06/14/93 5.56%
<CAPTION>
INSTITUTIONAL SHARES INCEPTION 7-DAY YIELD
DATE 12/31/98
<S> <C> <C>
Cash Management Money Market 07/30/92 4.89%
U.S Government Securities Cash Management Money Market 06/02/92 4.68%
Treasury Cash Management Money Market 09/12/97 4.53%
Treasury Prime Cash Management Money Market 03/22/95 4.19%
Municipal Cash Management Money Market(1) 08/18/97 3.27%
<CAPTION>
SERVICE SHARES INCEPTION 7-DAY YIELD
DATE 12/31/98
<S> <C> <C>
Cash Management Money Market 01/17/95 4.64%
U.S Government Securities Cash Management Money Market 01/17/95 4.43%
Treasury Cash Management Money Market 09/12/97 4.28%
Treasury Prime Cash Management Money Market 03/22/95 3.94%
Municipal Cash Management Money Market(1) 08/18/97 3.02%
<CAPTION>
CLASS B SHARES INCEPTION 7-DAY YIELD
DATE 6/30/98
<S> <C> <C>
U.S. Treasury Securities Money Market 11/01/96 4.12%
Prime Money Market 11/01/96 4.22%
</TABLE>
130
<PAGE> 130
1) A portion of the income may be subject to alternative minimum tax.
The tax equivalent yields for the classes of the Municipal Money Market, Ohio
Municipal Money Market, Michigan Municipal Money Market, Municipal Cash
Management 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, 1998. The tax equivalent effective yield for the
classes of the Municipal Money Market Fund, Ohio Municipal Money Market Fund,
the Michigan Money Market Fund, Municipal Cash Management Money Market 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.
131
<PAGE> 131
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELD
CLASS I SHARES 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%
Michigan Municipal Money Market* 3.19% 4.43% 5.28%
<CAPTION>
CLASS A SHARES 7 DAY
YIELD 28% TAX 39.6% TAX
----- ------- ---------
<S> <C> <C> <C>
Municipal Money Market 2.90% 4.03% 4.80%
Ohio Municipal Money Market 2.96% 4.11% 4.90%
Michigan Municipal Money Market* 2.94% 4.08% 4.87%
<CAPTION>
INSTITUTIONAL SHARES 7 DAY
YIELD 28% TAX 39.6% TAX
----- ------- ---------
<S> <C> <C> <C>
Municipal Cash Management Money Market* 3.27% 4.54% 5.41%
<CAPTION>
SERVICE SHARES 7 DAY
YIELD 28% TAX 39.6% TAX
----- ------- ---------
<S> <C> <C> <C>
Municipal Cash Management Money Market* 3.02% 4.19% 5.00%
</TABLE>
* Prior to the merger with the Fund, these Predecessor Funds had a fiscal year
end of 12/31/98.
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.
132
<PAGE> 132
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.
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) and for the Predecessor Funds through December 31, 1998 is as follows:
133
<PAGE> 133
CLASS I SHARES
<TABLE>
<CAPTION>
FIXED INCOME FUNDS
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>
Short-Term 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 Bond 02/02/93 6.00% 6.25% 5.20% - 5.18% 5.85%
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) 12/31/83 7.36% 6.43% 5.62% 6.69% 7.39% 4.13%
Arizona Municipal Bond(2) 11/30/79 6.58% 5.95% 5.28% 7.01% 7.34% 3.82%
Treasury & Agency(1) 04/30/88 7.91% 6.28% 6.30% 7.42% 7.39% 5.37%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- ------------------------------------------
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(4) 03/05/93 7.82% 6.58% 7.10% NA 6.74% 5.41%
Intermediate Bond(5) 12/31/83 7.62% 7.25% 6.67% 8.30% 8.80% 6.14%
Bond(5) 12/31/83 8.17% 7.72% 7.54% 9.32% 10.00% 6.21%
Short-Term Municipal Bond 05/04/98 -- -- -- -- 3.94% 3.18%
Tax-Free Bond(6) 03/01/88 6.01% 6.34% 6.73% 8.46% 8.44% 3.83%
Michigan Municipal Bond(2) 02/01/93 5.94% 6.24% 5.73% NA 6.61% 4.00%
<CAPTION>
EQUITY FUNDS
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>
Mid Cap Value 03/02/89 28.27% 22.92% 17.52% - 14.11% 0.77%
Equity Income 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 Cap Value 03/01/91 21.46% 20.28% 16.88% - 14.68% 1.08%
Mid Cap Growth 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
</TABLE>
134
<PAGE> 134
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced 04/05/93 22.12% 18.97% 14.11% - 13.71% 2.70%
Large Cap Growth 02/28/92 35.75% 28.48% 22.79% - 19.88% 0.09%
Small Cap Growth 07/01/91 23.58% 19.36% 14.55% - 17.10% 0.10%
Diversified Equity 12/29/89 32.26% 28.33% 19.63% - 17.91% 0.48%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- ------------------------------------------
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>
Small Cap Value(4)(5) 06/30/72 (4.11)% 16.30% 13.37% 16.04% 10.13% NA
Diversified Mid Cap(5) 12/31/83 4.61% 18.51% 14.15% 15.71% 14.59% NA
Diversified International(3)(5) 09/30/86 16.43% 9.28% 7.78% 6.60% 9.35% NA
Market Expansion Index 07/31/98 -- -- -- -- 9.91 NA
<CAPTION>
FUNDS OF FUNDS
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 12.73% - - - 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>
135
<PAGE> 135
CLASS A SHARES
<TABLE>
<CAPTION>
FIXED INCOME FUNDS
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>
Short-Term 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 Bond 03/10/93 5.75% 6.05% 4.98% - 4.97% 5.56%
With Sales Charge 2.52% 5.00% 4.34% - 4.37%
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%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- ------------------------------------------
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>
Bond(5) 12/31/83 7.92% 7.50% 7.41% 9.26% 9.95% 5.68%
With Sales Charge 3.06% 5.86% 6.43% 8.76% 9.62%
Income Bond(4) 03/05/93 7.44% 6.23% 6.83% -- 6.51% 5.00%
With Sales Charge 4.22% 5.16% 6.18% -- 5.95%
Intermediate Bond(5) 12/31/83 7.37% 7.01% 6.53% 8.22% 8.75% 5.70%
With Sales Charge 4.15% 5.93% 5.88% 7.90% 8.53%
Short-Term Municipal Bond 05/04/98 -- -- -- -- 3.68% 2.99%
With Sales Charge -- -- -- -- 0.57%
Tax-Free Bond(6) 03/01/88 5.74% 6.05% 6.45% 8.19% 8.13% 3.41%
With Sales Charge .98% 4.44% 5.47% 7.69% 7.68%
</TABLE>
136
<PAGE> 136
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Michigan Municipal Bond(2) 02/01/93 5.61% 6.00% 5.59% -- 6.49% 3.50%
With Sales Charge 0.86% 4.39% 4.62% -- 5.67%
</TABLE>
137
<PAGE> 137
<TABLE>
<CAPTION>
EQUITY FUNDS
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>
Mid Cap Value 02/18/92 27.90% 22.58% 17.27% - 15.79% .53%
With Sales Charge 22.13% 20.72% 16.19% - 14.96%
Equity Income 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 Cap Value 02/18/92 21.14% 20.00% 16.66% - 14.00% .82%
With Sales Charge 15.69% 18.16% 15.59% - 13.17%
Mid Cap Growth 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%
Balanced 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 Cap Growth 02/22/94 35.43% 28.01% - - 23.70% NA
With Sales Charge 29.33% 26.07% - - 22.39%
Small Cap Growth 07/01/91 23.28% 19.14% 14.42% - 17.01% NA
With Sales Charge 17.69% 17.32% 13.37% - 16.25%
Diversified Equity 12/29/89 31.96% 31.96% 19.48% - 17.82% 0.24%
With Sales Charge 26.04% 26.11% 18.38% - 17.19%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- ------------------------------------------
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>
Small Cap Value(4)(5) 06/30/72 (4.29)% 15.78% 12.88% 15.49% 9.57% NA
With Sales Charge (9.07)% 13.82% 11.72% 14.90% 9.36% NA
Diversified Mid Cap(5) 12/31/83 4.30% 18.45% 14.00% 15.63% 14.54% NA
With Sales Charge (0.91)% 16.44% 12.84% 15.04% 14.15% NA
Diversified International(3)(5) 04/30/86 16.12% 8.98% 7.60% 6.52% 9.29% NA
With Sales Charge 10.32% 7.14% 6.50% 5.97% 8.84% NA
Market Expansion Index 07/31/98 -- -- -- -- 9.84% NA
With Sales Charge -- -- -- -- 4.12% NA
<CAPTION>
FUNDS OF FUNDS
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
</TABLE>
138
<PAGE> 138
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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>
139
<PAGE> 139
<TABLE>
<CAPTION>
CLASS B SHARES
FIXED INCOME FUNDS
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>
Short-Term 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 Bond 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) 12/31/83 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) 11/30/79 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) 04/30/88 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%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- ------------------------------------------
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>
Bond(5) 12/31/83 7.16% 7.01% 7.12% 9.10% 9.84% 5.18%
With Sales Charge 3.16% 6.12% 6.97% 9.10% 9.84%
Income Bond(4) 03/05/93 6.74% 5.48% 6.30% -- 6.05% 4.38%
With Sales Charge 3.74% 4.88% 6.30% -- 6.05%
Intermediate Bond(5) 12/31/83 6.44% 6.45% 6.18% 8.05% 8.64% 5.19%
With Sales Charge 3.44% 5.86% 6.18% 8.05% 8.64%
</TABLE>
140
<PAGE> 140
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Short-Term Municipal Bond 05/04/98 -- -- -- -- 3.27% 2.17%
With Sales Charge -- -- -- -- 0.27%
Tax-Free Bond(6) 04/04/95 4.98% 5.25% -- -- 6.52% 2.83%
With Sales Charge 0.98% 4.34% -- -- 5.84%
Michigan Municipal Bond 02/01/93 4.92% 5.37% 5.21% -- 6.17% 3.00%
With Sales Charge .92% 4.46% 5.04% -- 6.04%
</TABLE>
141
<PAGE> 141
<TABLE>
<CAPTION>
EQUITY FUNDS
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>
Mid Cap Value 01/14/94 26.97% 21.67% - - 16.38% NA
With Sales Charge 22.97% 20.99% - - 16.12%
Equity Income 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 Cap Value 01/14/94 20.18% 19.19% - - 16.80% .10%
With Sales Charge 16.18% 18.48% - - 16.54%
Mid Cap Growth 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%
Balanced 01/14/94 20.95% 17.84% - - 13.63% 1.73%
With Sales Charge 16.95% 17.12% - - 13.34%
Large Cap Growth 01/14/94 34.39% 27.25% - - 22.49% NA
With Sales Charge 30.39% 26.63% - - 22.26%
Small Cap Growth 09/09/94 22.24% 18.23% - - 15.88% NA
With Sales Charge 18.24% 17.51% - - 15.35%
Diversified Equity 09/09/94 30.89% 27.05% - - 23.28% NA
With Sales Charge 26.89% 26.43% - - 22.84%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- ------------------------------------------
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>
Small Cap Value(4)(5) 06/30/72 (5.11)% 15.12% 12.30% 15.15% 9.46% NA
With Sales Charge (8.77)% 14.36% 12.17% 15.19% 9.46% NA
Diversified Mid Cap(5) 12/31/83 3.79% 18.11% 13.80% 15.53% 14.49% NA
With Sales Charge 0.17% 17.39% 13.68% 15.53% 14.49% NA
Diversified International 04/30/86 15.43% 8.14% 7.11% 6.27% 9.10% NA
With Sales Charge 11.43% 7.28% 6.96% 6.27% 9.10% NA
Market Expansion Index 07/31/98 -- -- -- -- 9.30% NA
With Sales Charge -- -- -- -- 4.30% NA
</TABLE>
142
<PAGE> 142
FUNDS OF 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>
143
<PAGE> 143
<TABLE>
<CAPTION>
CLASS C SHARES
FIXED INCOME FUNDS
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%
</TABLE>
144
<PAGE> 144
<TABLE>
<CAPTION>
EQUITY FUNDS
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>
Equity Income 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%
Mid Cap Growth 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 Cap Growth 11/04/97 - - - - 27.63% NA
With Sales Charge 26.63%
Small Cap Growth 11/04/97 - - - - 3.08% NA
With Sales Charge 2.16%
Diversified Equity 11/04/97 - - - - 20.87% NA
With Sales Charge 19.87%
<CAPTION>
FUNDS OF FUNDS
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
</TABLE>
145
<PAGE> 145
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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>
146
<PAGE> 146
(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 for the Arizona Municipal
Bond, Fund and 4/30/88 for the Treasury & Agency Fund. Prior to the Mutual
Funds' commencement of 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.
(4) Prior to September 21, 1996, the predecessor of the Small Cap Value Fund
and the Income Bond Fund had no operating history. Except as noted below,
performance for periods prior to such date is represented by the
performance of Prairie Special Opportunity and Prairie Intermediate Bond
Funds, respectively. On September 21, 1996, the assets and liabilities of
these Prairie Funds were transferred to the predecessors of the Small Cap
Value Fund and the Income Bond Fund.
(5) Performance of the predecessor to the Small Cap Value Fund for periods
prior to January 27, 1995 is represented by performance of a common trust
fund managed by First National Bank of Chicago before the effective date of
the registration statement of the Fund. Performance of the predecessor to
the Diversified Mid Cap Fund (6/1/91), the Diversified International Fund
(12/3/94), the Intermediate Bond Fund (6/1/91), and the Bond Fund (6/1/91)
for periods to the dates shown here (inception of the 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 (other than the common trust fund that is the predecessor to
the Diversified International Fund) has been restated to reflect the
maximum operating expenses charged (absent waivers and expense
reimbursements) by the predecessor Prairie Fund upon its inception on
January 27, 1995 in the case of the Small Cap Value Fund or by the other
Funds upon their inception, as the case may be. Performance of the common
trust fund that is the predecessor to the Diversified International Fund
has been restated to reflect actual operating expenses charged after
waivers and expense reimbursements.
(6) 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
predecessor of the Tax-Free Bond Fund.
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
Investment 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
materially identical 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
147
<PAGE> 147
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 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
148
<PAGE> 148
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 BALANCED FUND may quote actual
yield and/or total return performance in advertising and other types of
literature compared to indices or averages of alternative financial
products available to prospective investors. The performance comparisons
may include the average return of various bank instruments, some of which
may carry certain return guarantees offered by leading banks and thrifts as
monitored by Bank Rate Monitor, and those of corporate bond and government
security price indices of various durations. Comparative information on the
Consumer Price Index may also be included.
The Bond Funds, the Funds of Funds and the Balanced 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 Balanced 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.
149
<PAGE> 149
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.
150
<PAGE> 150
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.
As of December 1, 1998, BANK ONE CORPORATION, One First National Plaza, Chicago,
Illinois 60670(a Delaware 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:
151
<PAGE> 151
<TABLE>
<CAPTION>
FUND PERCENT OF
BENEFICIAL
FUND OWNERSHIP
<S> <C>
Large Cap Growth Fund 85.41%
Mid Cap Value Fund 83.68%
Mid Cap Growth Fund 73.87%
Income Bond Fund 86.00%
Intermediate Tax-Free Bond Fund 97.95%
Prime Money Market Fund 44.10%
U.S. Treasury Securities Money Market Fund 19.65%
Municipal Money Market Fund 74.39%
Equity Income Fund 87.28%
Equity Index Fund 72.86%
Large Cap Value Fund 84.42%
Ohio Municipal Bond Fund 93.95%
Short-Term Bond Fund 86.92%
International Equity Index Fund 86.97%
Balanced Fund 79.89%
Ohio Municipal Money Market Fund 66.75%
Municipal Income 97.34%
Kentucky Municipal Bond Fund 92.67%
Government Bond Fund 87.45%
Ultra Short-Term Bond Fund 72.44%
Louisiana Municipal Bond Fund 89.25%
Diversified Equity Fund 79.44%
Small Cap Growth Fund 77.90%
Intermediate Bond Fund 88.34%
Arizona Municipal Bond Fund 94.78%
West Virginia Municipal Bond Fund 98.54%
Investor Growth Fund 44.00%
Investor Growth & Income Fund 60.90%
Investor Balanced Fund 94.01%
Investor Conservative Growth Fund 65.32%
Treasury Only Money Market Fund 30.79%
Government Money Market Fund 13.43%
Treasury & Agency Fund 97.79%
High Yield Bond Fund 1.14%
</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 Government
Money Market Fund, the U.S. Treasury Securities Money Market Fund, and the High
Yield Bond Fund) under the Investment Company Act of 1940.
In addition, as of December 1, 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:
<TABLE>
<CAPTION>
25% SHAREHOLDERS
----------------
NAME PERCENTAGE OF TYPE OF
AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
<S> <C> <C> <C>
</TABLE>
152
<PAGE> 152
<TABLE>
<S> <C> <C> <C>
Northern Trust Bank of AZ Ttee Arizona Municipal Bond 26.21% Record
FOR THOMAS A BRAND & REV TRUST Fund
PO Box 92956 Class A
Chicago, IL 60675-2956
Dean Witter For The Benefit Of Arizona Municipal Bond 32.02% Record
Charles Stoddard & Fund
P.O. Box 250 -Church Street Station Class B
New York, NY 10008-0250
Strafe & Co Arizona Municipal Bond 99.79% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO BOX 710211
Columbus, OH 43271-0211
Strafe & Co Large Cap Growth Fund 89.31% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Strafe & Co Mid Cap Value
BOIA - One Group Operations Fund 86.93% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
Banc One Securities Corp FBO Mid Cap Growth Fund 83.94% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville, OH 43081-4903
Strafe & Co Cash Mid Cap Growth Fund 84.32% Record
BOIA - One Group Operations Class I
1111 POLARIS PARKWAY
PO Box 710211
Columbus, OH 43271-0211
Strafe & Co Income Bond Fund 88.46% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
</TABLE>
153
<PAGE> 153
<TABLE>
<S> <C> <C> <C>
Strafe & Co Intermediate Tax-Free Fund 99.46% Record
BOIA _ One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Dean Witter FBO Prime Money Market Fund 57.58% 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 30.84% Record
Fbo Bank One Corporate Sweep Class A
3435 STELZER ROAD STE 1000
Columbus OH 43219-6004
Strafe & Co Prime Money Market Fund 91.10% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Dean Witter For the Benefit Of US Treasury Securities 50.63% Record
Martin Homes Inc Prof Shar Pln Money Market Fund
PO Box 250 Church Street Station Class C
New York, NY 10008-0250
Strafe & Co (N) US Treasury Securities 86.00% Record
BOIA - One Group Operations Money Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Dean Witter FBO Municipal Money Market 44.38% Record
Banc One Securities Fund
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
Strafe & Co Municipal Money Market 95.68% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
Dean Witter For The Benefit Of Equity Income Fund 68.69% 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
</TABLE>
154
<PAGE> 154
<TABLE>
<S> <C> <C> <C>
Strafe & Co Equity Income Fund 92.60% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp Fbo Equity Index Fund 35.89% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Equity Index Fund 61.27% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Equity Index Fund 86.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Plan-Equity Fund Equity Index Fund 32.61% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co. Large Cap Value Fund 86.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Ohio Municipal Bond Fund 98.70% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp Fbo International Equity 60.15% Record
The One Investment Solution Index Fund
733 Greencrest Dr Class C
Westerville OH 43081-4903
Strafe & Co.
BOIA - One Group Operations International Equity 88.52% Record
1111 Polaris Parkway Index Fund
PO Box 710211 Class I
Columbus OH 43271-0211
</TABLE>
155
<PAGE> 155
<TABLE>
<S> <C> <C> <C>
Strafe & Co.
BOIA - One Group Operations Short-Term Bond Fund 90.40% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Strafe & Co.
BOIA - One Group Operations Louisiana Municipal Bond 96.91% Record
1111 Polaris Parkway Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Banc One Securities Corp Fbo Value Growth Fund 82.92% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co.
BOIA - One Group Operations Value Growth Fund 81.54% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Small Cap Growth Fund 78.04% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Balanced Fund 90.92% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
FCC Pension Balanced Fund 33.90% Beneficial
100 E Broad Street Class I
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.
BOIA - One Group Operations Ohio Municipal Money 95.04% Record
1111 Polaris Parkway Market Fund
</TABLE>
156
<PAGE> 156
<TABLE>
<S> <C> <C> <C>
PO Box 710211 Class I
Columbus OH 43271-0211
Banc One Securities Corp FBO Municipal Income Fund 40.70% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO
The One Investment Solution Municipal Income Fund 51.03% Record
733 Greencrest Dr Class C
Westerville OH 43081-4903
Strafe & Co. Municipal Income Fund 99.16% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co.
BOIA - One Group Operations Kentucky Municipal Bond 93.42% Record
1111 Polaris Parkway Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Dean Witter For The Benefit Of West Virginia Municipal 41.41% Record
Balzout Inc DBA S&E Printing Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. West Virginia Municipal 98.77% Record
BOIA - One Group Operations Bond Fund Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Government Bond Fund 89.08% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Ultra Short Term Income 87.99% Record
7BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
</TABLE>
157
<PAGE> 157
<TABLE>
<S> <C> <C> <C>
Banc One Securities Corp FBO Intermediate Bond Fund 53.06% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Intermediate Bond Fund 42.04% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Intermediate Bond Fund 91.03% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Investor Growth Fund 66.42% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Investor Growth & Income 81.44% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Investor Balanced Fund 82.93% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Investor Conservative 84.16% Record
BOIA - One Group Operations Growth Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
</TABLE>
158
<PAGE> 158
<TABLE>
<S> <C> <C> <C>
Strafe & Co. Treasury & Agency Fund 99.86% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Treasury Only Money 79.18% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. US Government Money 80.32% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
The One Group Services Company High Yield Bond Fund 87.47% Record
C/O Fund Administration Class A
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Services Company High Yield Bond Fund 86.96% Record
C/O Fund Administration Class B
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth & Income Fund High Yield Bond Fund 52.67% Beneficial
C/O Mark Redman Class I
The One Group Services Company
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth Fund High Yield Bond Fund 46.71% Beneficial
C/O Mark Redman Class I
The One Group Services Company
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
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 1940 ACT.
THE TABLE BELOW INDICATES RECORD AND BENEFICIAL OWNERS OF OVER 5% OF
ANY CLASS OF SHARES OF ANY FUND OF THE TRUST.
<TABLE>
<S> <C> <C> <C>
Northern Trust Bank of AZ Ttee Arizona Municipal Bond 26.21% Record
FOR THOMAS A BRAND & REV TRUST Fund
</TABLE>
159
<PAGE> 159
<TABLE>
<S> <C> <C> <C>
PO BOX 92956 Class A
Chicago, IL 60675-2956
Dean Witter Reynolds Arizona Municipal Bond 22.10% Record
FBO Theodore Cesarano Fund
4617 E. Bernell Road Class A
Phoenix, AZ 85028-5520
Dean Witter for the Benefit of Arizona Municipal Bond 11.29% Record
Elizabeth Ryan Miller Fund
4140 N 49th Way Class A
Church St Station - P.O. Box 250
New York, NY 10013-0250
GUST TRUST UNDER AGREEMENT 1/17 Arizona Municipal Bond 9.53% Record
Devens Gust & Mary Elizabeth Gust Fund
Co-Trustees KY 40207-2626 Class A
P.O. Box 25
Mule Creek, NM 88051-0025
Dean Witter For The Benefit Of Arizona Municipal Bond 7.89% Record
The David B & Frances L Hartline Fund
PO BOX 250 CHURCH STREET STATION Class A
New York, NY 10008-0250
Dean Witter For The Benefit Of Arizona Municipal Bond 6.13% Record
William J Lofy Trust Fund
PO BOX 250 CHURCH STREET STATION Class A
New York, NY 10008-0250
Dean Witter For The Benefit Of Arizona Municipal Bond 32.02% Record
Charles Stoddard & Fund
P.O. Box 250 -Church Street Station Class B
New York, NY 10008-0250
Carolyn S Ward Record
James D Ward JT TEN Arizona Municipal Bond 20.91%
825 W Annandale Fund
Tucson, AZ 85737-6923 Class B
</TABLE>
160
<PAGE> 160
<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Arizona Municipal Bond 16.91% Record
Eugene B Debuck Fund
4550 North Flowing Wells #90 Class B
Church St Station - P.O. Box 250
New York, NY 10008-0250
Dean Witter For The Benefit Of Arizona Municipal Bond 13.48% Record
Marshall L Silverstein Trust Fund
P.O. Box 250 Church Street Station Class B
New York, NY 10008-0250
Scottsdale, AZ 85258-1618
Dean Witter For The Benefit Of Arizona Municipal Bond 8.31% Record
Pete R Samorano & Fund
P.O. Box 250 Church Street Station Class B
New York, NY 10008-0250
Strafe & Co Arizona Municipal Bond 99.79% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
Dean Witter For The Benefit Of Large Cap Growth Fund 14.69% Record
Selma J Berry & Class C
Colin G Berry JTTEN
Church St Station - PO Box 250
New York, NY 10008-0250
Dean Witter Reynolds Cust For Large Cap Growth Fund 9.85% Record
Alvin B Wesneski Class C
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DWR Cust For Dr. Barbara S Isaacs Large Cap Growth Fund 5.54% Record
FBO BARBARA S ISAACS Class C
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Strafe & Co Large Cap Growth Fund 89.31% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Bank One Corporation Large Cap Growth Fund 11.45% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
</TABLE>
161
<PAGE> 161
<TABLE>
<S> <C> <C> <C>
Banc One Sec Svgs Plan Large Cap Growth Fund 10.42% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co
BOIA - One Group Operations Mid Cap Value Fund 86.93% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
Bank One Corporation Mid Cap Value Fund 12.86% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
The One Group Investor Growth Fund Mid Cap Value Fund 5.12% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus, OH 43219-6004
Banc One Securities Corp FBO Mid Cap Growth Fund 16.27% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville, OH 43081-4903
Invesco Trust Co TTEE Mid Cap Growth Fund 5.86% Record
T D Williamson, Inc Thrift Plan Class A
PO Box 77405
Atlanta, GA 30357-1405
Banc One Securities Corp FBO Mid Cap Growth Fund 83.94% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville, OH 43081-4903
Strafe & Co Cash Mid Cap Growth Fund 84.32% Record
BOIA - One Group Operations Class I
1111 POLARIS PARKWAY
PO Box 710211
Columbus, OH 43271-0211
BANK ONE CORPORATION Mid Cap Growth Fund 9.64% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Income Bond Fund 11.34% Record
Alpert Corp Money Purchase Plan Class A
Steven Kurtz TTEE
5 World Trade Center 6th Floor
New York, NY 10048-0205
Strafe & Co Income Bond Fund 88.46% Record
BOIA - One Group Operations Class I
</TABLE>
162
<PAGE> 162
<TABLE>
<S> <C> <C> <C>
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Dean Witter for the Benefit of Intermediate Tax-Free Fund 6.58% Record
Jerome Kearns & Class A
PO Box 250 Church Street Station
New York, NY 10008-0250
J Noland Singletary Intermediate Tax-Free Fund 6.12% Beneficial
7350 Bocage Blvd Class A
Baton Rouge LA 70809-1138
Dean Witter For The Benefit Of Intermediate Tax-Free Fund 5.34% Record
Leon Morgan Trust Class B
C/O Leon Morgan TTEE
Church St Station - PO Box 250
New York, NY 10013-0250
Strafe & Co Intermediate Tax-Free Fund 99.46% Record
BOIA _ One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Dean Witter FBO Prime Money Market Fund 57.58% 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 30.84% Record
Fbo Bank One Corporate Sweep Class A
3435 Stelzer Road Ste 1000
Columbus OH 43219-6004
Strafe & Co Prime Money Market Fund 91.10% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Company NA Prime Money Market Fund 7.48% Record
Omnibus-Corporate Cash Sweep AC Class I
Attn Cash Management DB3
235 W Schrock Rd
Westerville OH 43081-2874
BISYS Fund Services Inc US Treasury Securities 22.46% Record
Fbo Bank One Corporate Sweep Money Market Fund
3435 Stelzer Road Suite 1000 Class A
Columbus OH 43219-6004
</TABLE>
163
<PAGE> 163
<TABLE>
<S> <C> <C> <C>
National Financial Services Corp US Treasury Securities 21.83% Record
Fbo Our Customers Money Market Fund
200 Liberty St World Financial CT Class A
New York, NY 10281-1003
BISYS Fund Services Inc US Treasury Securities 19.54% Record
Fbo Bank One Securities Money Market Fund
3435 Stelzer Road Suite 1000 Class A
Columbus OH 43219-6004
Dean Witter FBO US Treasury Securities 18.07% 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 15.08% Record
Fbo Bank One Texas Sweep Money Market Fund
Attn Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
NFSC FEBO #093-954381 US Treasury Securities 8.12% Record
Chung Shing Chiang Money Market Fund
3337 Somerset Class B
New Orleans, LA 70131-5361
Dean Witter For the Benefit Of US Treasury Securities 8.01% Record
Mary Sue Gilpin Money Market Fund
413 Dunmoreland Circle Class B
5 World Trade Center, 6th Floor
New York, NY 10048-0205
NFSC FEBO #AFL-668885 US Treasury Securities 7.27% Record
FNBC Cust Collateral Acct FBO Money Market Fund
Sterling H Smith Class B
Carolyn S Smith
PO Box 493
Amite, LA 70422
State Street Bank & Trust Co US Treasury Securities 5.84% Record
Sep IRA Jeffrey S Lux Money Market Fund
2220 Justice Street Class B
Monroe, LA 71201-3620
Dean Witter For the Benefit Of US Treasury Securities 5.10% Record
Carmen T Teller and Money Market Fund
PO Box 250 Church Street Station Class B
New York, NY 10008-0250
</TABLE>
164
<PAGE> 164
<TABLE>
<S> <C> <C> <C>
Dean Witter For the Benefit Of US Treasury Securities 50.63% Record
Martin Homes Inc Prof Shar Pln Money Market Fund
PO Box 250 Church Street Station Class C
New York, NY 10008-0250
Evelyn C Balser US Treasury Securities 15.99% Beneficial
Raymond F Balser JT TEN Money Market Fund
191 Brigham Hill Rd Class C
North Grafton, MA 01536-1117
Dean Witter Reynolds Cust For US Treasury Securities 12.79% Record
Paul E Puckett Money Market Fund
PO Box 250 Church Street Station Class C
New York, NY 10008-0250
Dean Witter For The Benefit Of US Treasury Securities 7.66% Record
Osareni Christopher Ogiesoba & Margaret Iyobosa Money Market Fund
Ogiesoba JTTE Class C
Church Street Station - PO Box 250
New York, NY 10013-0250
Dean Witter For The Benefit Of US Treasury Securities 7.52% Record
Steven R Swift & Money Market Fund
PO Box 250 - Church Street Station Class C
New York, NY 10008-0250
Strafe & Co (N) US Treasury Securities 86.00% Record
BOIA - One Group Operations Money Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Company NA US Treasury Securities 13.70% 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 44.38% Record
Banc One Securities Fund
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
BISYS Fund Services Inc Municipal Money Market 24.62% Record
FBO Bank One Corporate Sweep Fund
3435 Stelzer Road Suite 1000 Class A
Columbus OH 43219-6004
</TABLE>
165
<PAGE> 165
<TABLE>
<S> <C> <C> <C>
National Financial Services Corp Municipal Money Market 24.08% Record
FBO Our Customers Fund
200 Liberty St World Financial Ct Class A
New York, NY 10281-1003
Strafe & Co Municipal Money Market 95.68% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
DC Livestock Co Ltd Part Yea Municipal Money Market 5.46% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Dean Witter For The Benefit Of Equity Income Fund 68.69% 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 Equity Income Fund 6.92% Record
Bruce W Young IRA Class C
718 Sycamore Ave SPC 200
VISTA CA 92083-7952
Dean Witter For The Benefit Of Equity Income Fund 5.68% Record
Williams Brother Construction Class C
Inc 401(K) PSP Thomas J Williams
Church St Station - PO Box 250
New York NY 10013-0250
Strafe & Co Equity Income Fund 92.60% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp Fbo Equity Index Fund 35.89% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Equity Index Fund 61.27% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
</TABLE>
166
<PAGE> 166
<TABLE>
<S> <C> <C> <C>
Strafe & Co. Equity Index Fund 86.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Plan -Equity Fund Equity Index Fund 32.61% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co. Large Cap Value Fund 86.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Corporation Large Cap Value Fund 23.00% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Ohio Municipal Bond Fund 5.74% 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 98.70% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
NES Group Inc Corp Investmt Act Ohio Municipal Bond Fund 6.90% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Firstar Trust Co TTEE International Equity 18.65% Record
FBO Milwaukee Foundation - Equit Index Fund
P.O. Box 1787 Class A
Milwaukee WI 53201-1787
Banc One Securities Corp Fbo International Equity 60.15% Record
The One Investment Solution Index Fund
733 Greencrest Dr Class C
Westerville OH 43081-4903
Dean Witter For The Benefit Of International Equity 14.98% Record
Robert M Lynch & Index Fund
PO Box 250 Church Street Station Class C
New York, NY 1008-0250
</TABLE>
167
<PAGE> 167
<TABLE>
<S> <C> <C> <C>
UMB Bank Cust FBO International Equity 9.95% Record
Doris Erickson 403B Index Fund
233 Hedstrom Dr Class C
Buffalo NY 14226-3434
Dean Witter For The Benefit Of International Equity 5.65% Record
John S Wagner & Index Fund
PO Box 250 Church Street Station Class C
NEW YORK, NY 1008-0250
Strafe & Co.
BOIA - One Group Operations International Equity 88.52% Record
1111 Polaris Parkway Index Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Bank One Corporation International Equity 14.86% Beneficial
100 E Broad Street Index Fund
Columbus, OH 43215-3607 Class I
Wallace & Co Short-Term Bond Fund 6.74% Record
PO Box 21119 Class A
Shreveport LA 71152-0001
Strafe & Co.
BOIA - One Group Operations Short-Term Bond Fund 90.40% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Strafe & Co.
BOIA - One Group Operations Louisiana Municipal Bond 96.91% Record
1111 Polaris Parkway Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Banc One Securities Corp Fbo Diversified Equity Fund 21.51% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Diversified Equity Fund 82.92% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co.
BOIA - One Group Operations Diversified Equity Fund 81.54% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
</TABLE>
168
<PAGE> 168
<TABLE>
<S> <C> <C> <C>
The One Group Investor Growth & Income Fund
C/O Mark Redman Diversified Equity Fund 5.39% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth Fund
C/O Mark Redman Diversified Equity Fund 5.35% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
Melvin Skol Small Cap Growth Fund 19.50% Beneficial
2811 Scley St Class C
Erie, PA 16508-1719
Dean Witter For The Benefit Of Small Cap Growth Fund 16.01% Record
Robert Kennedy and Class C
Annemarie Kennedy Reisinger JTT
Church St Station - PO Box 250
New York, NY 10013-0250
Judith M Torrico Small Cap Growth Fund 11.93% Beneficial
101 Nicholson St Class C
Buffalo, NY 14214-1128
State Street Bank & Trust Co Small Cap Growth Fund 7.60% 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 Cap Growth Fund 5.01% Record
Wells Pickney & McHugh Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Small Cap Growth Fund 78.04% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
The One Group Investor Growth Fund Small Cap Growth Fund 9.45% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
169
<PAGE> 169
<TABLE>
<S> <C> <C> <C>
Firstar Trust Company Small Cap Growth Fund 5.57% Record
FBO Milwaukee Foundation Class I
PO Box 1787
Milwaukee WI 53201-1787
The One Group Investor Growth & Income Fund Small Cap Growth Fund 5.33% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
Strafe & Co.
BOIA - One Group Operations Balanced Fund 90.92% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
FCC Pension Balanced Fund 33.90% Beneficial
100 E Broad Street Class I
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.
BOIA - One Group Operations Ohio Municipal Money 95.04% Record
1111 Polaris Parkway Market Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Douglas Peacock Ohio Municipal Money 11.65% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607 Class I
Henny Penny Corp Money Mkt Acct Ohio Municipal Money 10.32% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607 Class I
Elizabeth Bertschy Ohio Municipal Money 5.40% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607 Class I
Banc One Securities Corp FBO Municipal Income Fund 40.70% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
</TABLE>
170
<PAGE> 170
<TABLE>
<S> <C> <C> <C>
Banc One Securities Corp FBO Municipal Income Fund 51.03% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Dean Witter For The Benefit Of Municipal Income Fund 6.48% Record
Roberta A Silberstein 1984 Class C
Church St Station - PO Box 250
New York, NY 10013-0250
Dean Witter For The Benefit Of Municipal Income Fund 6.47% Record
Gary R Duckert & Class C
PO Box 250 Church Street Station
New York, NY 10008-0250
Strafe & Co. Municipal Income Fund 99.16% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Dean Witter For The Benefit Of Kentucky Municipal Bond 11.89% Record
Gary Osswald Fund
PO Box 250 Church Street Station Class A
New York, NY 10008-0250
Dean Witter For The Benefit Of Kentucky Municipal Bond 6.44% Record
Karrick Scott Collins Trust Fund
Karrick Scott Collins TTEE Class A
Church St Station - PO Box 250
New York, NY 10013-0250
Dean Witter For The Benefit Of Kentucky Municipal Bond 5.05% Record
Joan H Willetts & First Federal Fund
PO Box 250 Church Street Station Class B
New York, NY 10008-0250
Strafe & Co.
BOIA - One Group Operations Kentucky Municipal Bond 93.42% Record
1111 Polaris Parkway Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Dean Witter For The Benefit Of West Virginia Municipal 41.41% Record
Balzout Inc DBA S&E Printing Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
</TABLE>
171
<PAGE> 171
<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of West Virginia Municipal 11.26% 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 8.38% 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 8.21% Record
Sally L Wilson Trust Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 7.01% Record
Charleston Concrete Floor Co Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 5.42% 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 5.21% Record
C Carl Tully Bond Fund Class A
4530 Spring Hill
5 World Trade Center 6th Floor
New York NY 10048-0205
Dean Witter For The Benefit Of West Virginia Municipal 5.18% 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 12.09% 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 6.32% Record
Charleston Concrete Floor CO Bond Fund Class B
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. West Virginia Municipal 98.77% Record
</TABLE>
172
<PAGE> 172
<TABLE>
<S> <C> <C> <C>
BOIA - One Group Operations Bond Fund Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Government Bond Fund 89.08% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Dean Witter For The Benefit Of Ultra Short-Term Bond 22.40% Record
Samaritan Health Plan Fund
PO Box 250 Church Street Station Class A
New York NY 10008-0250
Investment Company Institute Ultra Short-Term Bond 9.29% Beneficial
1401 H St NW Fund
Washington DC 20005-2110 Class A
Dean Witter For The Benefit Of Ultra Short-Term Bond 6.11% Record
Genesis Health Care System Fund
800 Forest Avenue Class A
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of Ultra Short-Term Bond 5.93% Record
Obleness Memorial Hospital Fund
C/O Donald E Reuter Class A
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of Ultra Short-Term Bond 5.54% Record
Asher Land & Mineral LTD Fund
PO Box 463 Class A
Pineville, KY 40977-0463
Dean Witter For The Benefit Of Ultra Short-Term Bond 5.24% Record
Thomas Electric Inc Fund
7601 N 74th Avenue Class A
5 World Trade Center 6th Floor
New York NY 10048-0205
Dean Witter For The Benefit Of Ultra Short-Term Bond 8.09% Record
Jeanette P Reilly Revocable Trust Fund
PO Box 250 Church Street Station Class B
New York NY 10008-0250
Dean Witter For The Benefit Of Ultra Short-Term Bond 7.86% Record
Samuel D Goldberg Fund
</TABLE>
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PO Box 250 Church Street Station Class B
New York NY 10008-0250
Strafe & Co. Ultra Short-Term Bond 87.99% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp FBO Intermediate Bond Fund 53.06% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Intermediate Bond Fund 42.04% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Dean Witter For The Benefit Of Intermediate Bond Fund 7.60% Record
Dennis J Furlong & Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of Intermediate Bond Fund 6.19% Record
Williams Brother Construction Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Intermediate Bond Fund 91.03% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One TTEE Investor Growth Fund 5.72% 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
Dean Witter For The Benefit Of Investor Growth Fund 5.28% Record
William D Robertson DDS PSP Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Investor Growth Fund 66.42% Record
BOIA - One Group Operations Class I
</TABLE>
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<TABLE>
<S> <C> <C> <C>
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Pl - Inv Grwth Investor Growth Fund 19.20% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Bank One TTEE Investor Growth Fund 12.28% 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 9.01% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Investor Growth & Income 8.14% 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 7.44% Record
Milo L Meacham Jr Fund
PO Box 250 Church Street Station Class C
New York NY 10008-0250
Strafe & Co. Investor Growth & Income 81.44% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Revco D.S., Inc. Serp - Trust A Investor Growth & Income 14.30% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Banc One Sec Svgs Plan Investor Growth & Income 13.65% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Institutional Trust Co TTEE Investor Balanced Fund 8.62% Record
PBC Industrial Supplies Inc Plan Class A
PO Box 77405
Atlanta, GA 30357-1405
</TABLE>
175
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<TABLE>
<S> <C> <C> <C>
6.71% Record
Dean Witter For The Benefit Of Investor Balanced Fund
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 6.46% 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 Investor Balanced Fund 6.23% Record
James B White & Class C
Norma J White JTTEN
Church St Station - PO Box 250
New York NY 10013-0250
Strafe & Co. Investor Balanced Fund 82.93% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Kenosha Carpenters #161 Pens-Mgd Investor Balanced Fund 8.10% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Centennial Liquor Retirement Plan Investor Balanced Fund 7.81% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Affiliated MPP Investor Balanced Fund 6.51% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Investor Conservative 11.63% Record
Paavo Ensio & Growth Fund
PO Box 250 Church Street Station Class A
New York NY 10008-0250
DWR Cust For Central Blueprint Co Investor Conservative 6.04% 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
</TABLE>
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<TABLE>
<S> <C> <C> <C>
84.16% Record
Strafe & Co. Investor Conservative
BOIA - One Group Operations Growth Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Pl - Inv Con Grwth Investor Conservative 17.69% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Kenosha Carpenters #161 Pens-Mgd Investor Conservative 14.40% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Shelly & Sands MPP Investor Conservative 5.03% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Dean Witter For The Benefit Of Treasury & Agency Fund 8.82% 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 6.54% Record
Maricopa County Municipal Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Treasury & Agency Fund 99.86% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Treasury Only Money 79.18% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
MEC Qualified Treasury Only Money 13.07% Beneficial
100 E. Broad Street Market Fund
Columbus OH 43215-3607
BISYS Fund Services Inc Treasury Only Money 9.71% Record
FBO Bank One Corporate Sweep Market Fund
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
</TABLE>
177
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State Compensation Treasury Only Money 6.05% Beneficial
100 E. Broad Street Market Fund
Columbus OH 43215-3607
Strafe & Co. US Government Money 80.32% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Texas NA US Government Money 8.72% Beneficial
1717 Main St Market Fund
Dallas TX 75201-4605
BWC - Miller Anderson US Government Money 8.14% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607
BISYS Fund Services Inc US Government Money 5.56% Record
FBO Bank One Corporate Sweep Market Fund
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
BWC - Hyperion Capital US Government Money 5.26% Beneficial
100 E BROAD STREET Market Fund
Columbus, OH 43215-3607
The One Group Services Company High Yield Bond Fund 87.47% Record
C/O Fund Administration Class A
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Services Company High Yield Bond Fund 86.96% Record
C/O Fund Administration Class B
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth & Income Fund High Yield Bond Fund 52.67% Beneficial
C/O Mark Redman Class I
The One Group Services Company
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth Fund High Yield Bond Fund 46.71% Beneficial
C/O Mark Redman Class I
The One Group Services Company
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
178
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<TABLE>
<S> <C> <C> <C>
Northern Trust Bank of AZ Ttee Arizona Municipal Bond 26.21% Record
F0R THOMAS A BRAND & REV TRUST Fund
PO BOX 92956 Class A
Chicago, IL 60675-2956
Dean Witter Reynolds Arizona Municipal Bond 22.10% Record
FBO Theodore Cesarano Fund
4617 E. Bernell Road Class A
Phoenix, AZ 85028-5520
Dean Witter for the Benefit of Arizona Municipal Bond 11.29% Record
Elizabeth Ryan Miller Fund
4140 N 49th Way Class A
Church St Station - P.O. Box 250
New York, NY 10013-0250
GUST TRUST UNDER AGREEMENT 1/17 Arizona Municipal Bond 9.53% Record
Devens Gust & Mary Elizabeth Gust Fund
Co-Trustees KY 40207-2626 Class A
P.O. Box 25
Mule Creek, NM 88051-0025
Dean Witter For The Benefit Of Arizona Municipal Bond 7.89% Record
The David B & Frances L Hartline Fund
PO BOX 250 CHURCH STREET STATION Class A
New York, NY 10008-0250
Dean Witter For The Benefit Of Arizona Municipal Bond 6.13% Record
William J Lofy Trust Fund
PO BOX 250 CHURCH STREET STATION Class A
New York, NY 10008-0250
Dean Witter For The Benefit Of Arizona Municipal Bond 32.02% Record
Charles Stoddard & Fund
P.O. Box 250 -Church Street Station Class B
New York, NY 10008-0250
Carolyn S Ward Record
James D Ward JT TEN Arizona Municipal Bond 20.91%
825 W Annandale Fund
Tucson, AZ 85737-6923 Class B
</TABLE>
179
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Dean Witter For The Benefit Of Arizona Municipal Bond 16.91% Record
Eugene B Debuck Fund
4550 North Flowing Wells #90 Class B
Church St Station - P.O. Box 250
New York, NY 10008-0250
Dean Witter For The Benefit Of Arizona Municipal Bond 13.48% Record
Marshall L Silverstein Trust Fund
P.O. Box 250 Church Street Station Class B
New York, NY 10008-0250
Scottsdale, AZ 85258-1618
Dean Witter For The Benefit Of Arizona Municipal Bond 8.31% Record
Pete R Samorano & Fund
P.O. Box 250 Church Street Station Class B
New York, NY 10008-0250
Strafe & Co Arizona Municipal Bond 99.79% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
Dean Witter For The Benefit Of Large Cap Growth Fund 14.69% Record
Selma J Berry & Class C
Colin G Berry JTTEN
Church St Station - PO Box 250
New York, NY 10008-0250
Dean Witter Reynolds Cust For Large Cap Growth Fund 9.85% Record
Alvin B Wesneski Class C
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DWR Cust For Dr. Barbara S Isaacs Large Cap Growth Fund 5.54% Record
FBO BARBARA S ISAACS Class C
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Strafe & Co Large Cap Growth Fund 89.31% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
BANK ONE CORPORATION Large Cap Growth Fund 11.45% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
</TABLE>
180
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<TABLE>
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Banc One Sec Svgs Plan Large Cap Growth Fund 10.42% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co
BOIA - One Group Operations Mid Cap Value Fund 86.93% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
BANK ONE CORPORATION Mid Cap Value Fund 12.86% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
The One Group Investor Growth Fund Mid Cap Value Fund 5.12% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus, OH 43219-6004
Banc One Securities Corp FBO Mid Cap Growth Fund 16.27% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville, OH 43081-4903
Invesco Trust Co TTEE Mid Cap Growth Fund 5.86% Record
T D Williamson, Inc Thrift Plan Class A
PO Box 77405
Atlanta, GA 30357-1405
Banc One Securities Corp FBO Mid Cap Growth Fund 83.94% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville, OH 43081-4903
Strafe & Co Cash Mid Cap Growth Fund 84.32% Record
BOIA - One Group Operations Class I
1111 POLARIS PARKWAY
PO Box 710211
Columbus, OH 43271-0211
BANK ONE CORPORATION Mid Cap Growth Fund 9.64% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Income Bond Fund 11.34% Record
Alpert Corp Money Purchase Plan Class A
Steven Kurtz TTEE
5 World Trade Center 6th Floor
New York, NY 10048-0205
Strafe & Co Income Bond Fund 88.46% Record
BOIA - One Group Operations Class I
</TABLE>
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<TABLE>
<S> <C> <C> <C>
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Dean Witter for the Benefit of Intermediate Tax-Free Fund 6.58% Record
Jerome Kearns & Class A
PO Box 250 Church Street Station
New York, NY 10008-0250
J Noland Singletary Intermediate Tax-Free Fund 6.12% Beneficial
7350 Bocage Blvd Class A
Baton Rouge LA 70809-1138
Dean Witter For The Benefit Of Intermediate Tax-Free Fund 5.34% Record
Leon Morgan Trust Class B
C/O Leon Morgan TTEE
Church St Station - PO Box 250
New York, NY 10013-0250
Strafe & Co Intermediate Tax-Free Fund 99.46% Record
BOIA _ One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Dean Witter FBO Prime Money Market Fund 57.58% 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 30.84% Record
Fbo Bank One Corporate Sweep Class A
3435 Stelzer Road Ste 1000
Columbus OH 43219-6004
Strafe & Co Prime Money Market Fund 91.10% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Company NA Prime Money Market Fund 7.48% Record
Omnibus-Corporate Cash Sweep AC Class I
Attn Cash Management DB3
235 W Schrock Rd
Westerville OH 43081-2874
BISYS Fund Services Inc US Treasury Securities 22.46% Record
Fbo Bank One Corporate Sweep Money Market Fund
3435 Stelzer Road Suite 1000 Class A
Columbus OH 43219-6004
</TABLE>
182
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<TABLE>
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National Financial Services Corp US Treasury Securities 21.83% Record
Fbo Our Customers Money Market Fund
200 Liberty St World Financial CT Class A
New York, NY 10281-1003
BISYS Fund Services Inc US Treasury Securities 19.54% Record
Fbo Bank One Securities Money Market Fund
3435 Stelzer Road Suite 1000 Class A
Columbus OH 43219-6004
Dean Witter FBO US Treasury Securities 18.07% 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 15.08% Record
Fbo Bank One Texas Sweep Money Market Fund
Attn Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
NFSC FEBO #093-954381 US Treasury Securities 8.12% Record
Chung Shing Chiang Money Market Fund
3337 Somerset Class B
New Orleans, LA 70131-5361
Dean Witter For the Benefit Of US Treasury Securities 8.01% Record
Mary Sue Gilpin Money Market Fund
413 Dunmoreland Circle Class B
5 World Trade Center, 6th Floor
New York, NY 10048-0205
NFSC FEBO #AFL-668885 US Treasury Securities 7.27% Record
FNBC Cust Collateral Acct FBO Money Market Fund
Sterling H Smith Class B
Carolyn S Smith
PO Box 493
Amite, LA 70422
State Street Bank & Trust Co US Treasury Securities 5.84% Record
Sep IRA Jeffrey S Lux Money Market Fund
2220 Justice Street Class B
Monroe, LA 71201-3620
Dean Witter For the Benefit Of US Treasury Securities 5.10% Record
Carmen T Teller and Money Market Fund
PO Box 250 Church Street Station Class B
New York, NY 10008-0250
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Dean Witter For the Benefit Of US Treasury Securities 50.63% Record
Martin Homes Inc Prof Shar Pln Money Market Fund
PO Box 250 Church Street Station Class C
New York, NY 10008-0250
Evelyn C Balser US Treasury Securities 15.99% Beneficial
Raymond F Balser JT TEN Money Market Fund
191 Brigham Hill Rd Class C
North Grafton, MA 01536-1117
Dean Witter Reynolds Cust For US Treasury Securities 12.79% Record
Paul E Puckett Money Market Fund
PO Box 250 Church Street Station Class C
New York, NY 10008-0250
</TABLE>
184
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<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of US Treasury Securities 7.66% Record
Osareni Christopher Ogiesoba & Money Market Fund
Margaret Iyobosa Ogiesoba JTTE Class C
Church Street Station - PO Box 250
New York, NY 10013-0250
Dean Witter For The Benefit Of US Treasury Securities 7.52% Record
Steven R Swift & Money Market Fund
PO Box 250 - Church Street Station Class C
New York, NY 10008-0250
Strafe & Co (N) US Treasury Securities 86.00% Record
BOIA - One Group Operations Money Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Company NA US Treasury Securities 13.70% 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 44.38% Record
Banc One Securities Fund
PO Box 250 Class A
Church Street Station
New York NY 10013-0250
BISYS Fund Services Inc Municipal Money Market 24.62% Record
FBO Bank One Corporate Sweep Fund
3435 Stelzer Road Suite 1000 Class A
Columbus OH 43219-6004
National Financial Services Corp Municipal Money Market 24.08% Record
FBO Our Customers Fund
200 Liberty St World Financial Ct Class A
New York, NY 10281-1003
Strafe & Co Municipal Money Market 95.68% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
DC Livestock Co Ltd Part Yea Municipal Money Market 5.46% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
</TABLE>
185
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<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Equity Income Fund 68.69% 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 Equity Income Fund 6.92% Record
Bruce W Young IRA Class C
718 Sycamore Ave SPC 200
VISTA CA 92083-7952
Dean Witter For The Benefit Of Equity Income Fund 5.68% Record
Williams Brother Construction Class C
Inc 401(K) PSP Thomas J Williams
Church St Station - PO Box 250
New York NY 10013-0250
Strafe & Co Equity Income Fund 92.60% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp Fbo Equity Index Fund 35.89% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Equity Index Fund 61.27% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Equity Index Fund 86.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Plan -Equity Fund Equity Index Fund 32.61% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co. Large Cap Value Fund 86.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
186
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<TABLE>
<S> <C> <C> <C>
BANK ONE CORPORATION Large Cap Value Fund 23.00% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Ohio Municipal Bond Fund 5.74% 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 98.70% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
NES Group Inc Corp Investmt Act Ohio Municipal Bond Fund 6.90% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Firstar Trust Co TTEE International Equity 18.65% Record
FBO Milwaukee Foundation - Equit Index Fund
P.O. Box 1787 Class A
Milwaukee WI 53201-1787
Banc One Securities Corp Fbo International Equity 60.15% Record
The One Investment Solution Index Fund
733 Greencrest Dr Class C
Westerville OH 43081-4903
Dean Witter For The Benefit Of International Equity 14.98% Record
Robert M Lynch & Index Fund
PO Box 250 Church Street Station Class C
New York, NY 1008-0250
UMB Bank Cust FBO International Equity 9.95% Record
Doris Erickson 403B Index Fund
233 Hedstrom Dr Class C
Buffalo NY 14226-3434
Dean Witter For The Benefit Of International Equity 5.65% Record
John S Wagner & Index Fund
PO Box 250 Church Street Station Class C
NEW YORK, NY 1008-0250
Strafe & Co.
BOIA - One Group Operations International Equity 88.52% Record
1111 Polaris Parkway Index Fund
PO Box 710211 Class I
Columbus OH 43271-0211
</TABLE>
187
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<TABLE>
<S> <C> <C> <C>
BANK ONE CORPORATION International Equity 14.86% Beneficial
100 E Broad Street Index Fund
Columbus, OH 43215-3607 Class I
Wallace & Co Short-Term Bond Fund 6.74% Record
PO Box 21119 Class A
Shreveport LA 71152-0001
Strafe & Co.
BOIA - One Group Operations Short-Term Bond Fund 90.40% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Strafe & Co.
BOIA - One Group Operations Louisiana Municipal Bond 96.91% Record
1111 Polaris Parkway Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Banc One Securities Corp Fbo Value Growth Fund 21.51% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp Fbo Value Growth Fund 82.92% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co.
BOIA - One Group Operations Value Growth Fund 81.54% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
The One Group Investor Growth & Income Fund
C/O Mark Redman Value Growth Fund 5.39% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth Fund
C/O Mark Redman Value Growth Fund 5.35% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
188
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<TABLE>
<S> <C> <C> <C>
Melvin Skol Small Cap Growth Fund 19.50% Beneficial
2811 Scley St Class C
Erie, PA 16508-1719
Dean Witter For The Benefit Of Small Cap Growth Fund 16.01% Record
Robert Kennedy and Class C
Annemarie Kennedy Reisinger JTT
Church St Station - PO Box 250
New York, NY 10013-0250
Judith M Torrico Small Cap Growth Fund 11.93% Beneficial
101 Nicholson St Class C
Buffalo, NY 14214-1128
State Street Bank & Trust Co Small Cap Growth Fund 7.60% 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 Cap Growth Fund 5.01% Record
Wells Pickney & McHugh Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Small Cap Growth Fund 78.04% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
The One Group Investor Growth Fund Small Cap Growth Fund 9.45% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
Firstar Trust Company Small Cap Growth Fund 5.57% Record
FBO Milwaukee Foundation Class I
PO Box 1787
Milwaukee WI 53201-1787
The One Group Investor Growth & Income Fund Small Cap Growth Fund 5.33% Beneficial
The One Group Services Company Class I
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
189
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<TABLE>
<S> <C> <C> <C>
Strafe & Co.
BOIA - One Group Operations Balanced Fund 90.92% Record
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
FCC Pension Balanced Fund 33.90% Beneficial
100 E Broad Street Class I
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.
BOIA - One Group Operations Ohio Municipal Money 95.04% Record
1111 Polaris Parkway Market Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Douglas Peacock Ohio Municipal Money 11.65% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607 Class I
Henny Penny Corp Money Mkt Acct Ohio Municipal Money 10.32% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607 Class I
Elizabeth Bertschy Ohio Municipal Money 5.40% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607 Class I
Banc One Securities Corp FBO Municipal Income Fund 40.70% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Municipal Income Fund 51.03% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Dean Witter For The Benefit Of Municipal Income Fund 6.48% Record
Roberta A Silberstein 1984 Class C
Church St Station - PO Box 250
New York, NY 10013-0250
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Municipal Income Fund 6.47% Record
Gary R Duckert & Class C
PO Box 250 Church Street Station
New York, NY 10008-0250
Strafe & Co. Municipal Income Fund 99.16% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Dean Witter For The Benefit Of Kentucky Municipal Bond 11.89% Record
Gary Osswald Fund
PO Box 250 Church Street Station Class A
New York, NY 10008-0250
Dean Witter For The Benefit Of Kentucky Municipal Bond 6.44% Record
Karrick Scott Collins Trust Fund
Karrick Scott Collins TTEE Class A
Church St Station - PO Box 250
New York, NY 10013-0250
Dean Witter For The Benefit Of Kentucky Municipal Bond 5.05% Record
Joan H Willetts & First Federal Fund
PO Box 250 Church Street Station Class B
New York, NY 10008-0250
Strafe & Co.
BOIA - One Group Operations Kentucky Municipal Bond 93.42% Record
1111 Polaris Parkway Fund
PO Box 710211 Class I
Columbus OH 43271-0211
Dean Witter For The Benefit Of West Virginia Municipal 41.41% Record
Balzout Inc DBA S&E Printing Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 11.26% 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 8.38% Record
James F Duncan Bond Fund Class A
PO Box 250 Church Street Station
NEW YORK NY 10008-0250
</TABLE>
191
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<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of West Virginia Municipal 8.21% Record
Sally L Wilson Trust Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 7.01% Record
Charleston Concrete Floor Co Bond Fund Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of West Virginia Municipal 5.42% 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 5.21% Record
C Carl Tully Bond Fund Class A
4530 Spring Hill
5 World Trade Center 6th Floor
New York NY 10048-0205
Dean Witter For The Benefit Of West Virginia Municipal 5.18% 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 12.09% 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 6.32% Record
Charleston Concrete Floor CO Bond Fund Class B
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. West Virginia Municipal 98.77% Record
BOIA - One Group Operations Bond Fund Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Government Bond Fund 89.08% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
192
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<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Ultra Short-Term Bond Fund 22.40% Record
Samaritan Health Plan Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Investment Company Institute Ultra Short-Term Bond Fund 9.29% Beneficial
1401 H St NW Class A
Washington DC 20005-2110
Dean Witter For The Benefit Of Ultra Short-Term Bond Fund 6.11% Record
Genesis Health Care System Class A
800 Forest Avenue
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of Ultra Short-Term Bond Fund 5.93% Record
Obleness Memorial Hospital Class A
C/O Donald E Reuter
Church St Station - PO Box 250
New York NY 10013-0250
Dean Witter For The Benefit Of Ultra Short-Term Bond Fund 5.54% Record
Asher Land & Mineral LTD Class A
PO Box 463
Pineville, KY 40977-0463
Dean Witter For The Benefit Of Ultra Short-Term Bond Fund 5.24% Record
Thomas Electric Inc Class A
7601 N 74th Avenue
5 World Trade Center 6th Floor
New York NY 10048-0205
Dean Witter For The Benefit Of Ultra Short-Term Bond Fund 8.09% 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 Bond Fund 7.86% Record
Samuel D Goldberg Class B
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Ultra Short-Term Bond Fund 87.99% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
193
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<TABLE>
<S> <C> <C> <C>
Banc One Securities Corp FBO Intermediate Bond Fund 53.06% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Intermediate Bond Fund 42.04% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Dean Witter For The Benefit Of Intermediate Bond Fund 7.60% Record
Dennis J Furlong & Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter For The Benefit Of Intermediate Bond Fund 6.19% Record
Williams Brother Construction Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Intermediate Bond Fund 91.03% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One TTEE Investor Growth Fund 5.72% 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
Dean Witter For The Benefit Of Investor Growth Fund 5.28% Record
William D Robertson DDS PSP Class C
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Investor Growth Fund 66.42% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Pl - Inv Grwth Investor Growth Fund 19.20% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
</TABLE>
194
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<TABLE>
<S> <C> <C> <C>
Bank One TTEE Investor Growth Fund 12.28% 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 9.01% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Investor Growth & Income 8.14% 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 7.44% Record
Milo L Meacham Jr Fund
PO Box 250 Church Street Station Class C
New York NY 10008-0250
Strafe & Co. Investor Growth & Income 81.44% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Revco D.S., Inc. Serp - Trust A Investor Growth & Income 14.30% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Banc One Sec Svgs Plan Investor Growth & Income 13.65% Beneficial
100 E Broad Street Fund
Columbus, OH 43215-3607 Class I
Institutional Trust Co TTEE Investor Balanced Fund 8.62% Record
PBC Industrial Supplies Inc Plan Class A
PO Box 77405
Atlanta, GA 30357-1405
Dean Witter For The Benefit Of Investor Balanced Fund 6.71% 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 6.46% Record
Cust For The IRA Rollover Of Class C
George L Allison
768 E Indiana Ave
Spencer IN 47460-1538
</TABLE>
195
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<TABLE>
<S> <C> <C> <C>
Dean Witter For The Benefit Of Investor Balanced Fund 6.23% Record
James B White & Class C
Norma J White JTTEN
Church St Station - PO Box 250
New York NY 10013-0250
Strafe & Co. Investor Balanced Fund 82.93% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Kenosha Carpenters #161 Pens-Mgd Investor Balanced Fund 8.10% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Centennial Liquor Retirement Plan Investor Balanced Fund 7.81% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Affiliated MPP Investor Balanced Fund 6.51% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Dean Witter For The Benefit Of Investor Conservative 11.63% Record
Paavo Ensio & Growth Fund
PO Box 250 Church Street Station Class A
New York NY 10008-0250
DWR Cust For Central Blueprint Co Investor Conservative 6.04% 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 84.16% Record
BOIA - One Group Operations Growth Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Pl - Inv Con Grwth Investor Conservative 17.69% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
</TABLE>
196
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<TABLE>
<S> <C> <C> <C>
Kenosha Carpenters #161 Pens-Mgd Investor Conservative 14.40% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Shelly & Sands MPP Investor Conservative 5.03% Beneficial
100 E Broad Street Growth Fund
Columbus, OH 43215-3607 Class I
Dean Witter For The Benefit Of Treasury & Agency Fund 8.82% 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 6.54% Record
Maricopa County Municipal Class A
PO Box 250 Church Street Station
New York NY 10008-0250
Strafe & Co. Treasury & Agency Fund 99.86% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Treasury Only Money 79.18% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
MEC Qualified Treasury Only Money 13.07% Beneficial
100 E. Broad Street Market Fund
Columbus OH 43215-3607
BISYS Fund Services Inc Treasury Only Money 9.71% Record
FBO Bank One Corporate Sweep Market Fund
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
State Compensation Treasury Only Money 6.05% Beneficial
100 E. Broad Street Market Fund
Columbus OH 43215-3607
Strafe & Co. US Government Money 80.32% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Bank One Texas NA US Government Money 8.72% Beneficial
1717 Main St Market Fund
Dallas TX 75201-4605
BWC - Miller Anderson US Government Money 8.14% Beneficial
100 E Broad Street Market Fund
Columbus, OH 43215-3607
BISYS Fund Services Inc US Government Money 5.56% Record
FBO Bank One Corporate Sweep Market Fund
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
BWC - Hyperion Capital US Government Money 5.26% Beneficial
100 E BROAD STREET Market Fund
Columbus, OH 43215-3607
The One Group Services Company High Yield Bond Fund 87.47% Record
C/O Fund Administration Class A
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Services Company High Yield Bond Fund 86.96% Record
C/O Fund Administration Class B
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth & Income Fund High Yield Bond Fund 52.67% Beneficial
C/O Mark Redman Class I
The One Group Services Company
3435 Stelzer Road
Columbus OH 43219-6004
The One Group Investor Growth Fund High Yield Bond Fund 46.71% Beneficial
C/O Mark Redman Class I
The One Group Services Company
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
198
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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. For all Funds other than the Predecessor
Funds, the financial statements for the fiscal year ended June 30, 1998 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. The financial
Statements for the Predecessor Funds, have been audited by Arthur Andersen LLP,
independent public accountants to such Funds for the period ended December 31,
1998, 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.
199
